Annual report pursuant to section 13 and 15(d)

14. Equity Transactions

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14. Equity Transactions
12 Months Ended
Dec. 31, 2012
Equity [Abstract]  
14. Equity Transactions

 

Preferred Stock

On October 18, 2012, Fusion amended its Articles of Incorporation by creating and designating 21,240 shares of Series B-1 Preferred Stock.

 

Between October 22, 2012 and October 24, 2012, the Company entered into subscription agreements with 91 accredited investors (the “Investors”), pursuant to which the Company sold 6,027.75 investment Units consisting of (a) 6,027.75 shares of its Series B-1 Preferred Stock, (b) Fixed Warrants (the “Fixed Warrants”) to purchase 22,013,915 shares of Fusion’s common stock (the “Fixed Warrant Shares”), and (c) Contingent Warrants (the “Contingent Warrants”) to purchase 11,006,958 shares of Fusion’s common stock for gross proceeds of $6,027,750 (the “Series B-1 Offering”). In addition, $750,000 of previously issued notes payable to related parties (see note 13) were converted into, and an additional $84,000 of obligations of the Company payable to Mathew Rosen and another member of the Company’s management were satisfied through the issuance of, investment Units on the same terms as those received by the Investors. At December 31, 2012 the Company had 6,861.75 shares of Series B-1 Preferred Stock outstanding.

 

Each share of Series B-1 Preferred Stock has a Stated Value of $1,000, and is convertible into a number of shares of the Company’s common stock that is equal to the Stated Value divided by the volume-weighted-average price of the Company’s common stock for the 10 trading days prior to the closing (the “Preferred Conversion Price”). Based upon that calculation, and subject to the other terms of the Series B-1 Preferred Stock, the Series B-1 Preferred Stock outstanding as of December 31, 2012 is convertible into an aggregate of 62,672,008 shares of the Company’s common stock (the “Conversion Shares”).

 

The Fixed Warrants may be exercised at any time following the Share Authorization Date (as defined below), for a number of Warrant Shares that is equal to fifty (50%) percent of the Stated Value of the Series B-1 Preferred Stock divided by 125% of the Preferred Conversion Price, as adjusted for stock splits, combinations and reclassifications (the “Fixed Warrant Exercise Price”). Each Fixed Warrant is exercisable at the Fixed Warrant Exercise Price for a five-year term commencing on the date of issuance.

 

The Contingent Warrants contained an “Expiration Event” that was triggered on the filing by the Company with the Federal Communications Commission of a request for the approval of the transfer of the licenses and operating authorities associated with the then pending acquisition of NBS, or a similar business combination. As of the date of the closing of the Series B-1 Offering, the Company had filed for and received approval from the Federal Communications Commission for the transfer of such licenses and operating authorities related to NBS. As a result, an Expiration Event occurred and the Contingent Warrants have expired.

 

The Series B-1 Preferred Stock could not be converted, and the Fixed Warrants could not be exercised, until the effective date of an amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of the Company’s Common Stock sufficient to permit all of the outstanding Series B-1 Preferred Stock and Fixed Warrants to be converted or exercised, as the case may be, into shares of Fusion’s common stock (the “Share Authorization Date”). The Company received stockholder authorization to increase the number of authorized shares of common stock to 550,000,000 shares on February 15, 2013 and the Share Authorization Date occurred on February 21, 2013 (see note 24).

 

The Company has the right, without the consent of or action by holders of Series B-1 Preferred Stock, to cause all of the outstanding Preferred Shares to be automatically converted into common stock at the Preferred Conversion Price upon the later to occur of (a) the Share Authorization Date, or (b) April 24, 2013. Holders of Series B-1 Preferred Stock have liquidation rights that are senior to that of holders of the Company’s outstanding Series A-1, A-2 and A-4 Preferred Stock (collectively, the “Series A Preferred Stock”), and holders of Series B-1 Preferred Stock are entitled to vote as one group with holders of common stock on all matters brought to a vote of holders of common stock, with each share of Series B-1 Preferred Stock being entitled to that number of votes into which the registered holder could convert the Series B-1 Preferred Stock on the record date for the meeting at which the vote will be cast.

 

The Offering was exempt from registration under the Securities Act of 1933, as amended, by reason of Section 4(2) and Rule 506 of Regulation D thereunder. The Company incurred approximately $295,000 of expenses, including commissions and legal fees, related to the offering. The net proceeds of approximately $5,732,000 were used to:

 

· Repay $250,000 borrowed from Marvin Rosen and another Fusion director on September 17, 2012.
· Repay a $300,000 unrelated party loan received on June 22, 2012.
· Repay approximately $173,000 in satisfaction of all amounts due to the issuer of the letter of credit that was drawn down in 2011 (see note 12).
· Fund a portion of the purchase price of the acquisition of NBS; and
· For general corporate purposes.

 

On May 16, 2011, in accordance with the terms and conditions of the Series A-1 Preferred Stock and Series A-2 Preferred Stock,an accredited investor converted (a) 1,500 shares of Series A-1 Preferred Stock with an aggregate liquidation preference of $1.5 million into 898,204 shares of the Fusion’s common stock and (b) 750 shares of Series A-2 Preferred Stock with an aggregate liquidation preference of $750,000 into 903,615 shares of common stock. On September 2, 2011, this investor surrendered the certificates evidencing the 1,801,819 shares of common stock received upon conversion of the Series A-1 and A-2 Preferred Stock to Fusion and notified Fusion that he was abandoning any and all rights associated with such shares, including but not limited to any future distributions or dividends that may be paid by the Company and voting rights on any matters on which the Company’s stockholders are entitled to vote. Fusionhas delivered these shares of common stock to its transfer agent for cancellation.

 

As of December 31, 2012 and 2011, Fusion had an aggregate of 5,045 shares of Series A-1, A-2 and A-4 Preferred Stock outstanding.Holders of the Series A Preferred Stock are entitled to receive cumulative dividends at the rate of 8% per annum payable in arrears, when, as and if declared by the Company’s Board of Directors, on January 1 of each year.

 

Common Stock

During the year ended December 31, 2012, the Company entered into subscription agreements with 29 accredited investors, under which the Company issued an aggregate of 10,762,718 shares of common stock and five-year warrants to purchase 3,339,940 shares of the Company’s common stock for aggregate consideration of $1.2 million. The warrants are exercisable at 112%-125% of the average closing price of the Company’s common stock for the five trading days prior to closing.

 

In February of 2012, two of the Company’s executive officers converted an aggregate of $35,000 owed to them by the Company into 444,445 shares of common stock and five-year warrants to purchase 133,335 shares of common stock. The warrants are exercisable at approximately 112% of the average closing price of the Company’s common stock for the five trading days prior to the conversion.

 

On October 29, 2012, the Company issued 11,363,636 shares of common stock valued at $1.25 million as part of the purchase price of NBS, and issued 454,545 shares of common stock valued at $50,000 in connection with its entering into an executive employment agreement with Jonathan Kaufman.

 

As of December 31, 2012, Fusion is authorized to issue 300,000,000 shares of common stock (see note 24) and there were 178,250,533 shares of common stock issued and outstanding.

 

On February 25, 2011, following authorization by the Board of Directors and stockholders, the Company filed a Certificate of Amendment to its Certificate of Incorporation increasing the total number of shares of common stock the Company is authorized to issue from 225,000,000 shares to 300,000,000 shares, par value $0.01 per share.

 

During the year ended 2011, the Company entered into subscription agreements with 27 accredited investors, under which the Company issued an aggregate of 13,291,167 shares of common stock and five-year warrants to purchase 3,482,785 shares of the Company’s common stock for aggregate consideration of $1.1 million. The warrants are exercisable at 112% to 125% of the average closing price of the Company’s common stock for the five trading days prior to closing. Two of these investors, accounting for 1,037,038 shares, 272,224 warrants and proceeds of $85,000, were directors of the Company.

 

As previously discussed in notes 12 and 13, two of the Company’s directors and two unrelated note holders converted an aggregate of $0.7 million of promissory notes and accrued interest that were payable on demand into an aggregate of 8,409,685 shares of the Company’s common stock and warrants to purchase 1,961,304 shares of the Company’s common stock.

 

During 2011, the Company transferred $80,000 from escrow payable to equity for proceeds received prior to 2011, representing 587,912 shares of common stock. The shares were issued in March of 2012.

 

As of December 31, 2011 the Company was authorized to issue 300,000,000 shares of common stock and there were 153,711,350 shares of common stock issued and outstanding.

 

Stock Options and Warrants

In accordance with the Company's 2009 Stock Option Plan, the Company has reserved 7,000,000 shares of common stock for issuance to employees at exercise prices determined by the Board of Directors. Options under the plan typically vest in annual increments over a three or four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant. The Company has also reserved 2,710,761 shares for issuance in the event of exercise of outstanding options granted under the now expired 1998 Stock Option Plan

 

The following summary presents information regarding outstanding options as of December 31, 2012 and 2011 and changes during the years then ended with regard to all options:

  Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term
Outstanding at December 31, 2010                              5,722,375  $                          0.96 6.59 years
Granted in 2010                              1,532,000                              0.09  
Forfeitures and expirations in 2010                               (620,114)                              1.12  
Outstanding at December 31, 2011                              6,634,261                              0.75 6.86 years
Granted in 2012                              2,511,500                              0.11  
Forfeitures in 2012                               (147,291)                              0.11  
Expirations in 2012                               (134,209)                              0.21  
Outstanding at December 31, 2011                              8,864,261  $                          0.58 6.93 years
       
Exercisable at December 31, 2012                              4,935,890  $                          0.96 5.11

 

The following table summarizes information about stock options outstanding as of December 31, 2012:

 

Range of Exercise Prices   Options Outstanding   Weighted Average Life (Years)   Weighted Average Price   Options Exercisable   Weighted Average Price
$0.06 - $0.10   1,537,250   8.55 $ 0.09   495,127 $ 0.09
$0.11 - $0.17   4,614,250   8.28   0.11   1,731,002   0.12
$0.18 - $0.31   933,500   4.82   0.31   930,500   0.31
$0.35 - $0.60   16,000   4.94   0.37   16,000   0.37
$0.69 - $2.28   827,750   4.05   1.03   827,750   1.03
$2.46 - $4.38   873,011   2.29   3.41   873,011   3.41
$4.70 - $6.45   62,500   1.98   6.24   62,500   6.24
    8,864,261   6.93 $ 0.58   4,935,890 $ 0.96

 

The weighted-average estimated fair value of stock options granted was $.08 and $.09 during the years ended December 31, 2012 and 2011, respectively. No stock options were exercised during the years ended December 31, 2012 and 2011. As of December 31, 2012, there was approximately $270,000 of total unrecognized compensation cost related to stock options granted under the Company’s stock incentive plan which is expected to be recognized over a weighted-average period of 2.29 years.

 

The Company, as part of various debt and equity financing transactions and other agreements, has issued warrants to purchase shares of Fusion’s common stock. The following summarizes the information relating to warrants issued and the activity during the years ended December 31, 2012 and 2011:

  Number of Warrants Per Share Exercise Price Weighted Average Exercise Price
Shares under warrants at December 31, 2010                      42,171,097 0.11-1.67                                $0.27
Granted in 2011                        5,444,089 0.08-0.14 0.10
Exercised in 2011                                     -                           -     
Expired in 2011                                     -                           -     
Outstanding at December 31, 2011                      47,615,186 0.08-1.67 0.25
Granted in 2012                      43,827,454 0.01-0.16 0.10
Expired in 2012                      (1,468,181) 0.48-0.64 0.61
Exercised in 2012                                     -                           -     
Outstanding at December 31, 2012                      89,974,459   $0.18

All warrants are fully exercisable upon issuance, except for the 25,068,862 Fixed Warrants issued as part of the Series B-1 Preferred Offering, which did not become exercisable until February 21, 2013 (see note 24). As a result of the warrants issued in connection with conversions of indebtedness and satisfaction of other liabilities of the Company, the Company recognized a loss on the extinguishment of debt in the amount of $335,315.