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)     April 2, 2014 (March 28, 2014)


FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware
001-32421
58-2342021
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)

420 Lexington Avenue, Suite 1718 New York, NY
10170
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code:
(212) 201-2400

Not Applicable
(Former name or former address, if changed since last report)

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):

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o           Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o          Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o           Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


 
 
 
 
 
 
Item 2.02.       Results of Operations and Financial Condition

On April 1, 2014, Fusion Telecommunications International, Inc. (the “ Company ” ) issued a press release entitled “ Fusion Increases 2013 Revenue by 39% ,” pertaining to its financial results for the three months and year ended December 31, 2013.

The press release attached as Exhibit 99.1 to this report is furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 5.07                      Submission of Matters to a Vote of Security Holders.
 
The Company held its 2013 Annual Meeting of Stockholders (the "Meeting") on March 28, 2014, at 4:00 p.m., Eastern Daylight Time.  The Meeting was held at the Company's principal office at 420 Lexington Avenue, Suite 1718, New York, New York 10170.

Eight proposals were presented for consideration and adopted by the Company's stockholders at the Meeting:

1.           the election of nine (9) Director nominees to hold office until the Company’s next Annual Meeting of Stockholders;
 
2.           the ratification of the engagement of Rothstein Kass to act as the Company’s Independent Registered Public Accountant for the year ending December 31, 2013;
 
3.           a proposal to amend the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock of the Company to 900,000,000;
 
4.           a proposal to amend the Company’s Certificate of Incorporation, in the future discretion of the Board of Directors, to (a) effectuate, prior to October 1, 2014, a reverse split of the issued and outstanding Common Stock, at a rate not to exceed 1 to 50 (the “ Reverse Split Rate ”) and (b) reduce the number of authorized shares of Common Stock at the Reverse Split Rate;
 
5.           a proposal to amend the Company’s 2009 Stock Option Plan to increase the number of shares reserved under the plan to 63,000,000;
 
6.            a non-binding, advisory proposal to approve the items of executive compensation described in the Proxy Statement provided to Stockholders;
 
7.           a non-binding, advisory proposal on the frequency of holding non-binding, advisory proposals on executive compensation; and
 
8.           a proposal to amend the Company’s Certificates of Rights and Preferences governing its Series A-1, A-2 and A-4 Preferred Stock to clarify their adjustment provisions.

The number of shares cast for and withheld, as well as the number of broker non-votes, as to Proposal One is as follows:

Proposal to elect nine (9) Director nominees to hold office until the Company’s next Annual Meeting of Stockholders
 
Votes For
   
Votes Withheld
   
Broker Non-Votes
 
Marvin S. Rosen
    347,996,615       17,922,581       34,945,093  
Philip D. Turits
    347,996,901       17,922,295       34,945,093  
Matthew D. Rosen
    347,996,615       17,922,581       34,945,093  
E. Alan Brumberger
    347,996,615       17,922,581       34,945,093  
Jack Rosen
    347,996,615       17,922,581       34,945,093  
Paul C. O’Brien
    347,997,601       17,921,595       34,945,093  
Michael J. Del Giudice
    347,940,857       17,978,339       34,945,093  
Larry Blum
    347,997,315       17,921,881       34,945,093  
William Rubin
    347,997,315       17,921,881       34,945,093  
 
 
 
 
2
 

 
The number of shares cast for and against, as well as the number of abstentions and broker non-votes as to each of Proposals Two, Three, Four, Five, Six and Eight submitted to Stockholders is as follows:

   
Votes For
   
Votes Against
   
Abstentions
 
Proposal to ratify the engagement of Rothstein Kass as the Company’s Independent Registered Public Accountant for the year ending December 31, 2013
    400,095,723       341,022       427,544  


   
Votes For
   
Votes Against
   
Abstentions
 
Proposal to amend the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock of the Company to 900,000,000
    379,247,182       21,093,256       523,851  


   
Votes For
   
Votes Against
   
Abstentions
 
Proposal to amend the Company’s Certificate of Incorporation, in the future discretion of the Board of Directors, to (a) effectuate, prior to October 1, 2014, a reverse split of the issued and outstanding Common Stock, at a rate not to exceed 1 to 50 (the “ Reverse Split Rate ”) and (b) reduce the number of authorized shares of Common Stock at the Reverse Split Rate
    391,799,506       8,580,277       484,506  

   
Votes For
   
Votes Against
   
Abstentions
   
Broker Non-Votes
 
Proposal to amend the Company’s 2009 Stock Option Plan to increase the number of shares reserved under the plan to 63,000,000
    337,986,338       21,805,266       6,127,592       34,945,093  

   
Votes For
   
Votes Against
   
Abstentions
   
Broker Non-Votes
 
Non-binding, advisory proposal to approve the items of executive compensation described in the Proxy Statement provided to Stockholders
    341,873,974       23,700,386       344,836       34,945,093  

   
Votes For
   
Votes Against
   
Abstentions
   
Broker Non-Votes
 
Proposal to amend the Company’s Certificates of Rights and Preferences governing its Series A-1, A-2 and A-4 Preferred Stock to clarify their adjustment provisions
    347,798,250       17,989,253       131,693       34,945,093  

The number of shares cast for and against, as well as the number of abstentions, as to Proposal Seven is as follows:

   
Votes For One Year
   
Votes for Two Years
   
Votes for Three Years
   
Abstentions
 
Non-binding, advisory proposal on the frequency of holding non-binding, advisory proposals on executive compensation
    64,434,727       1,008,899       294,784,929       5,690,641  

The foregoing results of voting are considered final. The Board of Directors has determined to continue its present practice of submitting proposals to Stockholders to determine the frequency of non-binding, advisory proposals on executive compensation every three years. The next non-binding proposal to determine the frequency of holding non-binding, advisory proposals on executive compensation will be presented to Stockholders at the 2016 annual meeting of Stockholders.

Item 5.03                      Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On March 28, 2014, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase the number of shares of common stock the Company is authorized to issue to 900,000,000.  A copy of the Certificate of Amendment is filed as an Exhibit to this Report.
 
On March 28, 2014, the Company filed Certificates of Amendment to the Certificates of Rights and Preferences governing its Series A-1, Series A-2 and Series A-4 preferred stocks in order to clarify the adjustment provisions of these Certificates that would apply in the event of stock splits, stock dividends and reclassifications.  Copies of these Certificates are filed as Exhibits to this Report.
 
Item 7.01        Regulation FD Disclosure.

See disclosure under Item 2.02
 

 
3
 
 
Item 9.01                      Financial Statements and Exhibits.
 
Exhibit No.
Description of Exhibit
Certificate of Amendment filed March 28, 2014 increasing the number of authorized shares of common stock to 900,000,000
Certificate of Amendment to Certificate of Rights and Preferences governing Series A-1 Preferred Stock filed March 28, 2014 clarifying adjustment provisions
Certificate of Amendment to Certificate of Rights and Preferences governing Series A-2 Preferred Stock filed March 28, 2014 clarifying adjustment provisions
Certificate of Amendment to Certificate of Rights and Preferences governing Series A-4 Preferred Stock filed March 28, 2014 clarifying adjustment provisions
Press Release issued by Fusion Telecommunications International Inc., dated April 1, 2014, entitled “Fusion Increases 2013 Revenue 39%.”
 

 
4
 
 
 
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.
 
 
 
 
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
 
   
 
By: /s/ Gordon Hutchins, Jr.
 
Gordon Hutchins, Jr.
April 2, 2014
President, Chief Operating Officer and Acting Chief Financial Officer
 
 
5
Exhibit 3.1(h)
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.


 
It is hereby certified that:
 
1.      The name of the corporation (hereinafter called the “ Corporation ”) is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
 
2.      The Certificate of Amendment to the Certificate of Incorporation of the Corporation, recorded by the State of Delaware, Secretary of Corporations on September 17, 1997, is hereby amended by striking out the first paragraph of Article " FOURTH " thereof and by substituting in lieu of said first paragraph, the following new first paragraph of " FOURTH " Article:
 
“ FOURTH : The total number of shares of Capital Stock which the Corporation shall have authority to issue is 910,000,000 shares, of which 900,000,000 shares shall be Common Stock, par value $0.01 per share, and 10,000,000 shares shall be Preferred Stock, par value $0.01 per share.
 
3.      This Amendment to the Certificate of Incorporation of the Corporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
 
4.      The effective time of this Amendment to the Certificate of Incorporation shall be the date of filing.
 
IN WITNESS WHEREOF , the undersigned has executed this Amendment to the Certificate of Incorporation of Fusion Telecommunications International, Inc., as of March 28, 2014.
 
 
 
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
 
 
 
By: /s/ Philip Turits                                                                                                                          
 
Printed Name:                                Philip Turits, as Secretary

Exhibit 3.1(i)

AMENDMENT
TO
CERTIFICATE OF RIGHTS AND PREFERENCES
OF
SERIES A-1 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Pursuant to Section 242 of the Delaware General Corporation Law and Section 5(B) of the Certificate of Rights and Preferences of Series A-1 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), filed by the Secretary of State of the State of Delaware on December 15, 2006, hereby certifies that the following resolution was duly adopted by (a) the board of directors of the Company on February 8, 2014, (b) holders of a majority of the outstanding shares of the Company’s Common Stock and Series B-2 Preferred Stock, voting as a single group, on March 28, 2014 and (c) holders of a majority of the outstanding shares of the Company’s Series A-1 Cumulative Convertible Preferred Stock, voting as a group, on March 3, 2014:

RESOLVED , that the Certificate of Rights and Preferences of Series A-1 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., as filed by the Secretary of State of the State of Delaware on December 15, 2006, be and the same is hereby amended by adding a new Section 6(H) thereto, to read as follows:

(H)            Adjustments .
 
(i) If the Corporation, at any time while the Series A-1 Preferred Stock is outstanding: (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Series A-1 Preferred Stock), (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of the Common Stock any shares of Capital Stock of the Corporation, then the Preferred Conversion Price shall be adjusted by multiplying the then Preferred Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the event and the denominator of which shall be the number of shares of Common Stock outstanding immediately following the event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(ii)  Calculations .  All calculations under this Section 6(H) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 6(H), the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) actually issued and outstanding.

IN WITNESS WHEREOF , this Amendment to Certificate of Rights and Preferences of Series A-1 Cumulative Convertible Preferred Stock has been signed on behalf of the Company this 28 th day of March 2014.
 
 
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
 
       
 
By:
/s/  Philip Turits  
   
Philip Turits, Secretary
 
       
       


Exhibit 3.1(j)

AMENDMENT
TO
CERTIFICATE OF RIGHTS AND PREFERENCES
OF
SERIES A-2 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Pursuant to Section 242 of the Delaware General Corporation Law and Section 5(B) of the Certificate of Rights and Preferences of Series A-2 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), filed by the Secretary of State of the State of Delaware on May 9, 2007, hereby certifies that the following resolution was duly adopted by (a) the board of directors of the Company on February 8, 2014, (b) holders of a majority of the outstanding shares of the Company’s Common Stock and Series B-2 Preferred Stock, voting as a single group, on March 28, 2014 and (c) holders of a majority of the outstanding shares of the Company’s Series A-2 Cumulative Convertible Preferred Stock, voting as a group, on March 3, 2014:

RESOLVED , that the Certificate of Rights and Preferences of Series A-2 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., as filed by the Secretary of State of the State of Delaware on May 9, 2007, be and the same is hereby amended by adding a new Section 6(H) thereto, to read as follows:

(H)            Adjustments .
 
(i) If the Corporation, at any time while the Series A-2 Preferred Stock is outstanding: (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Series A-2 Preferred Stock), (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of the Common Stock any shares of Capital Stock of the Corporation, then the Preferred Conversion Price shall be adjusted by multiplying the then Preferred Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the event and the denominator of which shall be the number of shares of Common Stock outstanding immediately following the event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(ii)  Calculations .  All calculations under this Section 6(H) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 6(H), the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) actually issued and outstanding.

IN WITNESS WHEREOF , this Amendment to Certificate of Rights and Preferences of Series A-2 Cumulative Convertible Preferred Stock has been signed on behalf of the Company this 28 th day of March 2014.

 
 
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
 
       
 
By:
/s/ Philip Turits  
   
Philip Turits, Secretary
 
       
       

 

Exhibit 3.1(k)

AMENDMENT
TO
CERTIFICATE OF RIGHTS AND PREFERENCES
OF
SERIES A-4 CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Pursuant to Section 242 of the Delaware General Corporation Law and Section 5(B) of the Certificate of Rights and Preferences of Series A-4 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), filed by the Secretary of State of the State of Delaware on September 11, 2007, hereby certifies that the following resolution was duly adopted by (a) the board of directors of the Company on February 8, 2014, (b) holders of a majority of the outstanding shares of the Company’s Common Stock and Series B-2 Preferred Stock, voting as a single group, on March 28, 2014 and (c) holders of a majority of the outstanding shares of the Company’s Series A-4 Cumulative Convertible Preferred Stock, voting as a group, on March 3, 2014:

RESOLVED , that the Certificate of Rights and Preferences of Series A-4 Cumulative Convertible Preferred Stock of Fusion Telecommunications International, Inc., as filed by the Secretary of State of the State of Delaware on September 11, 2007, be and the same is hereby amended by adding a new Section 6(H) thereto, to read as follows:

(H)            Adjustments .
 
(i) If the Corporation, at any time while the Series A-4 Preferred Stock is outstanding: (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to this Series A-4 Preferred Stock), (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of the Common Stock any shares of Capital Stock of the Corporation, then the Preferred Conversion Price shall be adjusted by multiplying the then Preferred Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the event and the denominator of which shall be the number of shares of Common Stock outstanding immediately following the event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(ii)  Calculations .  All calculations under this Section 6(H) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock.  For purposes of this Section 6(H), the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) actually issued and outstanding.

IN WITNESS WHEREOF , this Amendment to Certificate of Rights and Preferences of Series A-4 Cumulative Convertible Preferred Stock has been signed on behalf of the Company this 28 th day of March 2014.

 
 
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
 
       
 
By:
/s/ Philip Turits  
   
Philip Turits, Secretary
 
    Title   
       

 
Exhibit 99.1
 
 

Fusion Increases 2013 Revenue by 39%
Adjusted EBITDA Improves by 161%
 
 
NEW YORK, NY – April 1, 2014 - Fusion Telecommunications International, Inc. (OTCQB: FSNN), a provider of integrated cloud solutions, including cloud communications, cloud connectivity and cloud applications (“Fusion” or the “Company”),  today announced financial results for its fiscal fourth quarter and year ended December 31, 2013.

2013 Highlights

●   
Increased revenues for the year ended December 31, 2013 by approximately 39% compared to year end 2012.
●   
Improved adjusted EBITDA by $5.5 million; generated $2.1 million in positive adjusted EBITDA in the year ended December 31, 2013 compared to adjusted EBITDA loss of $3.4 million for the year ended December 31, 2012.
●   
Significantly improved consolidated gross margin, which increased to 30.5% for the year ended December 31, 2013 compared to 15.0% for the year ended December 31, 2012
●   
Gross margin for the Business Services segment increased to 51.0% compared to 46.8% in 2012.
·  
Churn rate at year end 2013 was 1.1%.
●   
ARPU was $545 at the end of 2013.
●   
Raised approximately $45.5 million, comprised of approximately $20.0 million in equity and $25.5 million in term debt.
●   
Ended 2013 with approximately 10,900 customers compared with approximately 3,500 customers at the end of 2012.
●   
Improved balance sheet, with shareholders’ equity increasing to $7.0 million at the end of 2013 from a deficit of $6.1 million at the end of 2012.
●   
Completed the acquisition of select cloud services assets from Broadvox, LLC on December 31, 2013, adding business customers, active distribution partners and experienced employees to expand sales, marketing and support.
●   
Ended 2013 with approximately $6.2 million in cash.

Commenting on the results, Matthew Rosen, Fusion’s Chief Executive Officer said, “The year 2013 was transformational for our company.  We successfully completed our second acquisition in a little over a year, furthering our strategy of complementing organic growth with targeted acquisitions that enable us to more rapidly scale while improving performance.  This milestone year also marked our achievement of positive adjusted EBITDA, generating an improvement of approximately $5.5 million over 2012.  Over 39% increase in consolidated revenue growth, combined with significant increases in gross margin, brings us closer to achieving our goal of becoming the most successful provider of cloud solutions in a rapidly growing market.  Leveraging the significant synergies of our newest acquisition, we look forward to fully integrating under one revitalized Fusion brand. In the coming months, we will be launching a new logo and new website, reflecting one vision, one mission and one purpose:  to drive our customers’ and partners’ success with advanced, yet proven cloud solutions, delivered with industry-leading service and support.”

 
1
 
 
Don Hutchins, Fusion’s President and Chief Operating Officer continued, “Our most recent acquisition has delivered the additional resources required to fuel our organic growth, while providing a strong platform for future acquisitions of cloud services companies.  These two essential elements of our growth strategy, organic growth and targeted M&A activity, are complemented by increasing market verticalization efforts, which we believe will further differentiate our service suite and allow us to deliver specialized solutions that meet the increasingly complex needs of key industries.  Fusion is focused on becoming our business customers’ single source for leveraging the increasing power of the cloud, and delivering an integrated package of what we believe are the essential services for their successful migration to and use of the cloud.  We are gratified by the continued loyalty of our partners and customers, who have come to rely on Fusion’s leading edge cloud solutions to enhance their ability to communicate, collaborate and compete.”

Fourth Quarter Results

Fusion reported consolidated revenues of $16.3 million for the quarter ended December 31, 2013, an increase of $3.7 million, or 29.5%, from the fourth quarter of 2012.  Revenues from Fusion’s Business Services segment of $7.6 million in the fourth quarter of 2013 represents a $2.5 million increase, or 50.0%, compared to the same period of a year ago , and reflects a full quarter of revenue attributable to Network Billing Systems, LLC (“NBS”), which the Company acquired on October 29, 2012.  The Company’s Carrier Services revenue for the fourth quarter increased by $1.2 million, or 15.6%, from the fourth quarter of 2012, mainly due to an increase in the volume of traffic terminated over its network.

The Company’s consolidated gross margin increased to 3 0.0 % for the fourth quarter of 2013, as compared to 24 . 5% for the fourth quarter of 2012.  The Business Services segment gross margin improved to 52.1%, compared with 50 .0 % in the same period of a year ago .   The gross margin for the Carrier Services segment increased to 10.5% in the fourth quarter of 2013 , from 7.3% in the fourth quarter of 2012.

Net loss for the fourth quarter was $3.0 million, or ($0.01) per share, as compared to a net loss of $1.6 million, or ($0.01) per share in the same period of a year ago, an increase of 92%. The net loss in the fourth quarter of 2013 includes $0.8 million in transaction costs related to the Company’s acquisition of the Broadvox cloud services business on December 31, 2013, a gain on the change in fair value of the Company’s derivative liability of $0.1 million, as compared to $0.8 million in 2012, as well as non-recurring compensation charges of $0.5 million.

Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation, amortization and specific non-recurring and non-cash adjustments) for the fourth quarter of 2013 was $0.6 million, as compared to an adjusted EBITDA loss of $0.6 million in the fourth quarter of 2012, which represents an improvement of approximately 200%.  The increase in adjusted EBITDA is primarily attributable to the inclusion of NBS’ results for the full quarter in 2013 and to the revenue and margin improvements within the Company’s Carrier Services business segment.

 
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Full Year 2013 Results

Fusion reported consolidated revenues of $61.5 million for the year ended December 31, 2013 , an increase of $17.2 million, or 38.9%, from the year ended December 31 , 2012.  Revenues from Fusion’s Business Services segment increased by approximately $23.6 million, or 344%, to $30.4 million for the year ended December 31, 2013, as compared to $6.8 million for the year ended December 31, 2012.  Substantially all of the increase is due to the acquisition of NBS on October 29, 2012.  The Company’s Carrier Services revenue for the year ended December 31, 2013 decreased by $6.3 million, or 16.9%, from the year ended December 31, 2012, mainly due to a decrease in the volume of traffic terminated, as well as a lower blended rate per minute of traffic terminated .

Fusion’s revenue mix has shifted significantly toward the higher margin Business Services segment.  As a result, the Company’s consolidated gross margin increased to 30 . 5% in the year ended December 31, 2013, as compared to 15.0% for the same period of 2012, due to an increased contribution from the higher margin Business Services segment, which generated a gross margin of 51 .0 % in the year ended December 31, 2013, compared with a 46.8% gross margin in the same period of a year ago.  The improvement in Business Services gross margin reflects a full year of operating results of NBS, which generates substantially higher margins than the Company’s pre-acquisition Business Services segment.  The gross margin for the Carrier Services segment increased to 10 . 5% for the year ended December 31 , 2013 from 9 . 1% in the prior year.  The increase is mainly due to an emphasis on more profitable bi-lateral customer/vendor relationships and to business interruption proceeds received in 2013 as a result of Hurricane Sandy , which occurred in October of 2012.

Net loss for the year ended December 31, 2013 was $5 . 1 million, or ($0.02) per share, as compared to a net loss of $5.2 million and ($0.03) per share in the same period of a year ago, a decrease of 2.4%. The net loss in 2013 reflects a $1.3 million decrease in operating loss, as well as a one-time $2.9 million non-cash gain that was effectively offset by increases in interest expense of $2.0 million, and certain non-cash charges of $2.2 million.

Adjusted EBITDA for the year ended December 31, 2013 improved by approximately 161% to $2.1 million, as compared to an adjusted EBITDA loss of $3.4 million for the year ended December 31, 2012, with the increase being attributable to the inclusion of NBS’ results for the full year in 2013.

At December 31, 2013, the Company had working capital and stockholders’ equity of $1.8 million and $7.0 million, respectively, as compared to a working capital deficit and stockholders’ deficit of $8.3 million and $6.1 million, respectively, at December 31, 2012.  During 2013, we raised approximately $20.0 million of cash, net of offering expenses, through the sale of common and preferred stock and warrants, as well as $25.5 million through the sale of senior notes.  In addition, approximately $3.0 million of related party indebtedness was converted into equity.  Our cash on hand at December 31, 2013 was $6.2 million, as compared to $0.5 million at December 31, 2012.

Use of Non-GAAP Financial Measurements:

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. The Company also believes that 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. Adjusted EBITDA provides an adjusted view of EBITDA that takes into account certain significant non-recurring 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 non-cash charges such as stock-based compensation.  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 period 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 (“U.S. GAAP”).  In accordance with SEC Regulation G, the non-GAAP measurements in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading "Reconciliation of Net Loss to EBITDA and Adjusted EBITDA", immediately following the Consolidated Balance Sheets included in this press release.

 
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Fusion Telecommunications International, Inc. and Subsidiaries
Consolidated Statements of Operations

   
Three Months Ended December 31,
   
Year Ended December 31,
 
   
2013
   
2012
   
2013
   
2012
 
Revenues
  $ 16,286,193     $ 12,573,404     $ 61,496,620     $ 44,287,509  
Cost of revenues, exclusive of depreciation and
                               
amortization, shown separately below
    11,406,312       9,489,575       42,717,176       37,662,371  
Gross profit
    4,879,881       3,083,829       18,779,444       6,625,138  
Depreciation and amortization
    937,862       712,187       3,571,974       998,789  
Selling general and administrative expenses
    5,692,372       3,913,689       18,756,325       10,438,967  
Total operating expenses
    6,630,234       4,625,876       22,328,299       11,437,756  
Operating loss
    (1,750,353 )     (1,542,047 )     (3,548,855 )     (4,812,618 )
Other (expenses) income:
                               
Interest expense
    (645,310 )     (459,833 )     (2,638,249 )     (623,460 )
Loss on extinguishment of debt
    (662,709 )     (335,315 )     (1,105,283 )     (335,315 )
(Loss) gain on change in fair value of derivative liability
    134,582       799,500       (598,292 )     799,500  
Other expenses, net
    (5,502 )     (55,426 )     (22,997 )     (276,695 )
Total other expenses
    (1,178,939 )     (51,074 )     (4,364,821 )     (435,970 )
Gain on extinguishment of accounts payable
    -       -       2,883,660       -  
Loss from continuing operations before taxes
    (2,929,292 )     (1,593,121 )     (5,030,016 )     (5,248,588 )
Provision for income taxes
    50,000       -       51,887       -  
Loss from continuing operations
    (2,979,292 )     (1,593,121 )     (5,081,903 )     (5,248,588 )
Discontinued operations:
                               
Income from discontinued operations
    -       41,345       -       41,345  
Net Loss
    (2,979,292 )     (1,551,776 )     (5,081,903 )     (5,207,243 )
Preferred stock dividends in arrears
    (101,451 )     (101,451 )     (402,497 )     (403,600 )
Net loss applicable to common stockholders:
  $ (3,080,743 )   $ (1,694,572 )   $ (5,484,400 )   $ (5,652,188 )
                                 
Basic and diluted loss per common share:
  $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )
Weighted average common shares outstanding:
                               
Basic and diluted
    303,422,763       174,525,236       225,027,351       166,726,031  
                                 


 
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Fusion Telecommunications International, Inc.
Consolidated Balance Sheets
 
   
December 31,
2013
   
December 31,
2012
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 6,176,575     $ 543,214  
Accounts receivable, net
    5,828,389       2,924,302  
Prepaid expenses and other current assets
    2,704,787       1,001,449  
Total current assets
    14,709,751       4,468,965  
Property and equipment, net
    11,193,355       2,748,062  
Other assets:
               
Security deposits
    585,083       439,741  
Restricted cash
    1,163,872       1,026,326  
Goodwill
    5,124,130       2,406,269  
Intangible assets, net
    35,048,818       15,396,117  
Other assets
    1,125,652       582,947  
Total other assets
    43,047,555       19,851,400  
TOTAL ASSETS
  $ 68,950,661     $ 27,068,427  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities:
               
Notes payable - non-related parties
  $ 625,000     $ 208,333  
Notes payable - related parties
    310,714       639,286  
Equipment financing obligations
    245,138       136,392  
Escrow payable
    295,000       -  
Accounts payable and accrued expenses
    11,161,550       10,579,496  
Related party payable
    226,148       1,159,573  
Current liabilities from discontinued operations
    55,000       55,000  
Total current liabilities
    12,918,550       12,778,080  
Long-term liabilities:
               
Notes payable - non-related parties, net of discount
    36,788,987       14,475,747  
Notes payable - related parties
    1,478,081       4,492,136  
Equipment financing obligations
    167,614       102,071  
Derivative liability
    10,515,472       1,066,000  
Other long-term liabilities
    131,627       266,132  
Total liabilities
    62,000,331       33,180,166  
Commitments and contingencies
               
Stockholders' equity (deficit):
               
Preferred stock, $0.01 par value, 10,000,000 shares authorized,
               
23,525 and 11,907 shares issued and outstanding
    235       119  
Common stock, $0.01 par value, 550,000,000 shares authorized,
               
303,833,242 and 178,250,533 shares issued and outstanding
    3,038,331       1,782,504  
Capital in excess of par value
    163,648,034       146,760,005  
Accumulated deficit
    (159,736,270 )     (154,654,367 )
Total stockholders' equity (deficit)
    6,950,330       (6,111,739 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 68,950,661     $ 27,068,427  
 
 
 
 
5
 
 
Fusion Telecommunications International, Inc. and Subsidiaries
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
(unaudited)

   
Three Months Ended December 31,
   
Year Ended December 31,
 
   
2013
   
2012
   
2013
   
2012
 
Net loss
  $ (2,979,292 )   $ (1,551,776 )   $ (5,081,903 )   $ (5,207,244 )
Income from discontinued operations
            (41,345 )     -       (41,345 )
Interest expense and other financing costs
    695,709       559,721       2,864,511       958,391  
Provision for income taxes
    50,000       -       51,887       -  
Depreciation and amortization
    937,862       712,187       3,571,974       998,789  
EBITDA
    (1,295,721 )     (321,213 )     1,406,469       (3,291,409 )
Acquisition transaction expenses
    782,056       53,109       821,671       223,090  
Loss on extinguishment of debt
    662,709       335,315       1,105,283       335,315  
Gain on extinguishment of accounts payable
    -       -       (2,883,660 )     -  
Change in fair value of derivative liability
    (134,582 )     (799,500 )     598,292       (799,500 )
One-time executive compensation
    542,500       -       717,500       -  
Other one-time items
    -       7,483       44,090       (90,658 )
Stock-based compensation expense
    90,523       99,069       296,079       199,755  
Adjusted EBITDA
  $ 647,485     $ (625,737 )   $ 2,105,724     $ (3,423,407 )
                                 

Forward Looking Statements:
 
Statements in this press release that are not purely historical facts, including statements regarding Fusion's beliefs, expectations, intentions or strategies for the future, may be "forward-looking statements" under the Private Securities Litigation Reform Act of 1996. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “intend”, “estimate” or “continue” or the negative thereof or other variations thereof or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements. This disclosure highlights some of the important risks regarding the Company’s business. The primary risk is the Company’s ability to raise new and continued capital to execute its comprehensive business strategy. Additional risks include uncertainties associated with the integration of businesses following an acquisition; the Company’s ability to comply with its senior debt agreements; concentration of revenue from one source; competitors with broader product lines and greater resources; emergence into new markets; natural disasters, acts of war, terrorism or other events beyond the Company’s control; the termination of any of the Company’s significant contracts or partnerships; the Company’s inability to maintain working capital requirements to fund future operations; the Company’s ability to attract and retain highly qualified management, technical and sales personnel; and the other factors identified by us from time to time in the Company’s filings with the Securities and Exchange Commission, which are available through http://www.sec.gov.  However, the reader is cautioned that our future performance could also be affected by risks and uncertainties not enumerated above.

 
6
 

About Fusion

Fusion is a leading provider of integrated cloud solutions to small, medium and large businesses. Fusion’s advanced, high availability service platform enables the integration of leading edge solutions in the cloud, including cloud voice, cloud connectivity, and cloud applications such as storage and security.  Fusion’s innovative yet proven cloud solutions lower our customers’ cost of ownership, and deliver new levels of security, flexibility, scalability and speed of deployment. For more information, please visit www.fusiontel.com.

Company
Laura Nadal
212-389-9720
lnadal@fusiontel.com