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FUSION TELECOMMUNICATIONS INTERNATIONAL INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in our fiscal 2012 Annual Report on Form 10-K. OVERVIEW Our Business We are an international telecommunications carrier delivering value-added communications solutions to businesses and carriers in the United States and throughout the world. Through our Business Services business segment, we offer a full portfolio of Unified Communications and cloud services, including Voice over Internet Protocol ("VoIP") solutions, private network services, broadband Internet access, a variety of cloud services and other advanced services. Our Business Services business segment focuses on small, medium, and large enterprises headquartered in the United States, but with the ability to serve their global communications needs and to provide service virtually anywhere in the world. Through our Carrier Services business segment, we offer domestic and international voice termination services to telecommunications carriers throughout the world, with a particular focus on providing services to and from emerging markets in Asia, the Middle East, Africa, Latin America, and the Caribbean. These services utilize VoIP termination, as well as traditional TDM technology. We have focused on growing our existing carrier customer base, which was primarily U.S.-based, through the addition of new international customers. We have also focused on expanding the Company's vendor base through the addition of direct VoIP termination arrangements to new countries and emerging markets. Although we believe that the Carrier Services business segment continues to be of significant value to our long term strategy, our growth strategy is focused primarily on the higher margin Business Services business segment and marketing to small and mid-sized businesses, as well as larger enterprises, using both our direct and partner distribution channels. We anticipate that this will assist us in increasing the percentage of the Company's total revenues contributed by the Business Services business segment, which we believe will complement the Company's Carrier Services business segment by providing higher margins and a more stable customer base. On October 29, 2012, through our wholly owned subsidiary, Fusion NBS Acquisition Corp. ("FNAC"), we completed the acquisition of Network Billing Systems, LLC and certain assets and liabilities of its affiliate, Interconnect Services Group II LLC (collectively, "NBS"). NBS is a Unified Communications and cloud services provider offering a wide range of hosted voice and data products, as well as Internet, data networking and cloud services solutions to small, medium and large businesses in the United States. For the year ended December 31, 2011, the acquired business had revenues of approximately $26.5 million and net income of approximately $3.1 million. The aggregate purchase price for the outstanding membership interests of NBS and the assets of ISG, net of 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 our restricted common stock valued at $1.25 million. The cash portion of the Purchase Price was largely financed through the issuance of $16.5 million of senior notes by FNAC (see "Liquidity and Capital Resources"). Effective as of the date of the acquisition, NBS became our wholly-owned subsidiary, and we have largely completed the integration of our pre-acquisition Business Services business segment with NBS' current business. In connection with our acquisition of NBS, we entered into an Employment and Restrictive Covenant Agreement with Jonathan Kaufman, the founder and principal operating officer of NBS, and Mr. Kaufman became the President of our combined Business Services business segment. We manage our business segments based on gross profit and margin, which represents net revenue less the cost of revenue, and on net profitability. Although our infrastructure is largely built to support both business segments and all of our products, many of the infrastructure costs, selling, general and administrative expenses ("SG&A") and capital expenditures can be specifically associated with one of our two business segments. The majority of our operations, engineering, information systems and support personnel are assigned to either the Business Services or Carrier Services business segment for segment reporting purposes, while a relatively small number of personnel are allocated to both segments as appropriate. 15 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES Our Outlook Our ability to grow our business, fully implement our business plan and achieve profitability is dependent upon our ability to raise significant amounts of additional capital. We require additional capital to support our Carrier Services business, specifically for capital expenditures required to expand our voice termination capacity, to implement a new automated system for the administration of routing and rates and for the working capital necessary to optimize the terms under which we buy from our vendors and sell to our customers. We also require additional capital to support our Business Services segment, mainly for capital expenditures and other expenses associated with the development of new products and services. We believe that if we are able to obtain the necessary capital we will be able to compete effectively in both of our business segments. Results of Operations As a result of our acquisition of NBS on October 29, 2012, our results of operations for the first three months of 2013, particularly with respect to our Business Services business segment, are not comparable to the results of operations for the first three months of 2012. The following table summarizes our results of operations for the periods indicated: Three Months Ended March 31, 2013 2012 Revenues $ 16,168,421 100.0 % $ 11,534,705 100.0 % Cost of revenues, exclusive of depreciation and amortization 11,751,596 72.7 % 10,044,760 87.1 % Gross profit 4,416,825 1,489,945 Operating expenses: Depreciation and amortization 849,915 5.3 % 98,223 0.9 % Selling general and administrative 4,267,597 26.4 % 2,051,142 17.8 % Total operating expenses 5,117,512 31.7 % 2,149,365 18.6 % Operating loss (700,687 ) -4.3 % (659,420 ) -5.7 % Interest expense, net (659,519 ) -4.1 % (57,086 ) -0.5 % Other (expenses) income (236,074 ) -1.5 % (69,445 ) -0.6 % Total other (expenses) income (895,593 ) -5.5 % (126,531 ) -1.1 % Net loss $ (1,596,280 ) -9.9 % $ (785,951 ) -6.8 % Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012 Revenues Consolidated revenues were $16.2 million during the three months ended March 31, 2013, compared to $11.5 million during the three months ended March 31, 2012, an increase of $4.6 million, or 40.2%. Carrier services revenue of $8.7 million represents a decrease of $2.3 million, or 20.7%, from a year ago, due to a 30% decrease in the number of minutes transmitted over our network, partially offset by a 12.3% increase in the blended rate per minute of traffic terminated. Revenues for the Business Services segment were $7.5 million in the first three months of 2013, as compared to $0.6 million the first three months of 2012 due to the October 2012 acquisition of NBS. Cost of Revenues and Gross Margin Consolidated cost of revenues was $11.8 million for the three months ended March 31, 2013, compared to $10.0 million for the three months ended March 31, 2012. The increase is due to the costs attributed to NBS revenues not present in 2012, partially offset by the lower traffic volume in the Carrier Services segment. Consolidated gross margin was 27.3% in the three months ended March 31, 2013, compared to 12.9% in 2012. The increase is due to the higher mix of Business Services revenue in 2013 as a result of the NBS acquisition. Gross margin for the Carrier Services segment was 8.2% for the three months ended March 31, 2013, compared to 11.6% in the three months ended March 31, 2012, due to higher rates for the cost of traffic terminated over our network. Gross margin for the Business Services segment was 49.6% in 2013, compared to 37.7%, in 2012, as NBS generates gross margins that are significantly higher than our pre-acquisition Business Services segment. 16 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES Depreciation and Amortization Depreciation and amortization expense was $0.8 million for the three months ended March 31, 2013, as compared to $0.1 million during the same period of a year ago, mainly due to $0.6 million of amortization expense related to intangible assets acquired in the NBS transaction and depreciation expense on NBS fixed assets in 2013 not present in 2012. SG&A SG&A during the first quarter of 2013 was $4.3 million, as compared to $2.1 million during the first quarter of 2012. The increase was mainly due to SG&A associated with NBS in 2013 not present in the prior year, consisting primarily of employee compensation costs and commissions paid to third party selling agents. Operating Loss Our operating loss of $0.7 million for the three months ended March 31, 2013 was largely unchanged from the same period of year ago. The increase in gross profit of $2.9 million, which was a result of the NBS acquisition, was more than offset by the increases in SG&A and depreciation and amortization expense. Interest Expense Interest expense increased by $0.6 million in the first quarter of 2013 compared to the first quarter of 2012, primarily due to $0.5 million of interest on the senior debt issued in October 2012 in connection with the NBS transaction and $0.1 million of non-cash interest expense associated with the amortization of debt discount and deferred financing fees. Other (Expense) Income Total other expenses, net of other income, increased by approximately $0.2 million in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase is due to a change in the fair value of a derivative liability and a loss on the extinguishment of debt related to the conversion of indebtedness in 2013, with no comparable amounts in 2012. Net Loss The net loss of $1.6 million for the three months ended March 31, 2013 represents an increase of $0.8 million over the first three months of 2012, primarily due to the increases in interest expense and other expenses. Liquidity and Capital Resources Since our inception, we have incurred significant operating and net losses. In addition, we have yet to generate positive cash flow from operations. As of March 31, 2013, we had a stockholders' deficit of $6.7 million, as compared to $6.1 million at December 31, 2012, and a working capital deficit of $8.3 million, as compared to $8.0 million at December 31, 2012. We currently do not have sufficient cash or other financial resources to fund our operations and meet our obligations for the next twelve months. We will be required to raise additional capital to support our business plan. There are no current commitments for such funds and there can be no assurances that such funds will be available to the Company as needed. In the event that we are unable to secure the necessary funding to meet our working capital requirements and payment obligations, either through the sale of our securities or through other financing arrangements, we may be required to downsize, reduce our workforce, sell assets or possibly curtail some of our operations. We have historically relied upon loans from related and non-related parties, primarily Marvin Rosen, our Chairman of the Board of Directors, and the sale of our equity securities to fund our operations. During fiscal 2012 and the first three months of 2013, we relied primarily on the sale of our accounts receivable, including unbilled receivables, under our agreement with Prestige Capital Corporation ("Prestige"), as well as the sale of our equity securities. As of March 31, 2013 approximately $1.1 million of our outstanding accounts receivable had been sold to Prestige. On March 28, 2013, we entered into subscription agreements with 13 accredited investors, under which the Company issued an aggregate of 11,024,351 shares of common stock and five-year warrants to purchase 5,512,176 shares of the Company's common stock for aggregate consideration of $0.9 million. The warrants are exercisable at 125% of the volume weighted-average price of the Company's common stock for the ten trading days prior to closing. 17 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES On September 12, 2011, we entered into a purchase and sale agreement with Prestige, whereby we may sell certain of our accounts receivable to Prestige at a discount in order to improve our liquidity and cash flow. Under the terms of the purchase and sale agreement, Prestige pays a percentage of the face amount of the receivables at the time of sale, and the remainder, net of the discount, is paid to us within three business days after Prestige receives payment on the receivables, which generally have 15 to 30 day terms. Since the fourth quarter of fiscal 2011 through the date of this report, this arrangement has been our primary source of liquidity, and we expect that we will continue to utilize the agreement with Prestige to supplement our working capital needs until such time as we can consummate a traditional working capital line of credit. In addition to purchasing our accounts receivable, Prestige has also from time to time provided us with secured working capital advances. During the first three months of 2013 we received $162,500 of advances from Prestige, approximately $122,000 of which was repaid during the period, along with advance fees of approximately $9,000. The remainder was repaid in April of 2013. We may receive similar advances on similar terms from time to time during the remainder of 2013, although Prestige is under no obligation to make such advances. The Prestige agreement is currently due to expire on September 15, 2013 but automatically renews for additional nine month periods unless either party receives written notice of cancellation within 60 days prior to the scheduled expiration date. For as long as the agreement is in effect, Prestige will continue to have a first priority lien on the accounts receivable of our Carrier Services business segment and a subordinated security interest in the other assets of our Carrier Services business segment. On October 29, 2012 we completed the acquisition of NBS. Contemporaneously with the completion of the acquisition transaction, we entered into, and consummated the transactions contemplated by, a Securities Purchase Agreement and Security Agreement (the "SPA") with Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP and Plexus Fund II, LP (the "Lenders"). Under the SPA the we sold the Lenders (a) five-year senior notes in the aggregate principal amount of $6.5 million, bearing interest at the rate of 10.0% annually (the "Series A Notes"), and (b) five-year senior notes in the aggregate principal amount of $10.0 million bearing interest at the rate of 11.5% annually (the "Series B Notes" and, collectively, the "Senior Notes"). The proceeds from the sale of the Senior Notes were used to finance the majority of the cash portion of the purchase price of NBS. Each of the Senior Notes provides for the payment of interest on a monthly basis commencing October 31, 2012. The Series A Notes provide for monthly principal payments in the amount of $52,083 each, beginning September 30, 2013, with the outstanding principal balance being due and payable on October 27, 2017. The outstanding principal balance of the Series B Notes becomes due and payable on October 27, 2017. The obligations to the Lenders are secured by first priority security interests on all of the assets of NBS, as well as the capital stock of each of our direct and indirect subsidiaries, and by second priority security interests in the accounts receivable and other assets of our Carrier Services business segment. The SPA contains a number of affirmative and negative covenants, including but not limited to, restrictions on paying indebtedness subordinate to the Senior Notes, incurring additional indebtedness, making capital expenditures, dividend payments and cash distributions by subsidiaries. In addition, at all times while the Senior Notes are outstanding, we are required to maintain a minimum cash bank balance of no less than $1 million in excess of any amounts outstanding under a permitted working capital line of credit and in excess of any and all cash balances held by NBS. The SPA also requires on-going compliance with various financial covenants, including leverage ratio, fixed charge coverage ratio and minimum levels of earnings before interest, taxes, depreciation and amortization. Failure to comply with any of the restrictive or financial covenants could result in an event of default and accelerated demand for repayment of the Senior Notes. We do not have the financial resources to repay the Senior Notes in the event of a default and acceleration of indebtedness. As of March 31, 2013 we were in compliance with the financial covenants set forth in the SPA. In conjunction with the sale of the Senior Notes to the Lenders, Marvin Rosen entered into an Intercreditor and Subordination agreement with us and the Lenders (the "Subordination Agreement"), whereby Mr. Rosen agreed, among other things, that the amounts owed to him by the Company would be subordinate to the Notes and our other obligations to the Lenders. In connection with this agreement, on October 25, 2012 Mr. Rosen agreed to consolidate the principal amount all of his outstanding promissory notes aggregating to $3,922,364 into a new single note (the "New Rosen Note"). The New Rosen Note is unsecured, pays interest monthly at an annual rate of 7% per annum, and matures 60 days after the Senior Notes are paid in full. Although we did receive a short-term unsecured advance from Mr. Rosen of $100,000 during the first three months of 2013, in view of the subordination of our obligations to Mr. Rosen to those of the Lenders, we do not expect to receive new loans or additional short term advances from Mr. Rosen to fund our future liquidity needs. Additionally, in connection with the issuance of the Senior Notes, Prestige and the Lenders entered into an agreement establishing priorities among them and reach certain agreements as to enforcing their respective rights against the Company. 18 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES While NBS has historically generated positive cash flow from operations and we believe that with the acquisition of NBS we will be able to generate positive cash flow from operations on a consolidated basis, the terms of the SPA prohibit any cash distributions from NBS to us. A summary of the Company's cash flows for the periods indicated is as follows: Three Months Ended March 31, 2013 2012 Cash from continuing operations: Cash used in operating activities $ (657,853 ) $ (714,759 ) Cash used in investing activities (238,972 ) (53,048 ) Cash provided by financing activities 773,001 793,217 Increase (decrease) in cash and cash equivalents from continuing operations (123,824 ) 25,410 Cash from discontinued operations - (1,490 ) Net increase (decrease) in cash and cash equivalents (123,824 ) 23,920 Cash and cash equivalents, beginning of period 543,214 3,047 Cash and cash equivalents, end of period $ 419,390 $ 26,967 Cash used in operating activities was approximately $0.7 million during the three months ended March 31, 2013 and 2012. The following table illustrates the primary components of our cash flows from operations: 2013 2012 Net loss $ (1,596,280 ) $ (785,951 ) Non-cash expenses, gains and losses 1,256,269 224,672 Accounts receivable (1,019,922 ) 532,297 Inventory (166,831 ) - Accounts payable and accrued expenses 1,027,848 (666,056 ) Other (158,937 ) (19,721 ) Cash used in operating activities $ (657,853 ) $ (714,759 ) Cash used in investing activities was $0.2 million in the first three months of 2013 compared to $53,000 in the first three months of 2012, and consisted solely of capital expenditures. We expect our cash capital expenditures to be approximately $750,000 for the remainder of 2013, primarily for capital expenditures at NBS and additional infrastructure development for the Carrier Services business segment. Cash provided by financing activities was $0.8 million in the three months ended March 31, 2013 and 2012, and was comprised primarily of proceeds received from private placements of common stock and warrants. Sources of Liquidity As of March 31, 2013, our consolidated cash balance was approximately $0.4 million (exclusive of the $1.0 million of cash that is restricted under the terms of the Senior Notes and is reflected as restricted cash in our consolidated balance sheet), substantially all of which was held by NBS and is subject to the restricted payment provisions of the Senior Notes, and accounts receivable of approximately $4.2 million, $2.9 million of which was at NBS. Our long-term liquidity is dependent on our ability to generate positive cash flows from operations in both of our business segments. We cannot predict if and when we will be able to attain positive cash flows from operations in our Carrier Services business segment. Uses of Liquidity Our short-term and long-term liquidity needs arise primarily from working capital requirements to support the growth and day-to-day operations of our business, principal and interest payments related to our financing obligations, capital expenditures and any additional funds that may be required for business expansion opportunities. In some situations, we may be required to guarantee payment or performance under agreements, and in these circumstances we may be required to secure letters of credit or bonds to do so. These instruments may further limit unrestricted cash and cash equivalents, and may place a further strain on our liquidity. 19 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES Debt Service Requirements During the three months ended March 31, 2013, we made debt service payments of approximately $0.5 million and repaid approximately $0.3 million of indebtedness held by related and unrelated parties. For the remainder of 2013, we expect to make principal and interest payments on our Senior Notes totaling approximately $1.6 million, payments under the Seller Notes of approximately $0.4 million and payments under equipment financing obligations of $0.1 million. At March 31, 2013, we had obligations to Marvin Rosen, including the New Rosen Note, aggregating $4.4 million which are payable 60 days after the Senior Notes are repaid in full. Effective as of October 29, 2012, as permitted by the Subordination Agreement, Mr. Rosen is entitled to monthly interest payments on these obligations at a rate of 7% per annum. As of the date of this report we have not made any interest payments to Mr. Rosen. Mr. Rosen has agreed that any due but unpaid interest does not constitute an event of default under the New Rosen Note, and that all interest currently due under the New Rosen Note, as well as future interest that will accrue under the note, will be payable on ten days' prior written notice. Critical Accounting Policies and Estimates We have identified the policies and significant estimation processes discussed below as critical to our business operations and to the understanding of our results of operations. In many cases, the accounting treatment of a particular transaction is dictated by specific accounting principles generally accepted in the United States, with no need for management's judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to Consolidated Financial Statements for the Year Ended December 31, 2012, included in our Annual Report on Form 10-K. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant. Revenue Recognition Our revenue is primarily derived from usage fees charged to other telecommunications carriers and to other businesses that terminate voice traffic over our network, and from the monthly recurring fees charged to customers that purchase our business products and services. Variable revenue is earned based on the length (measured in minutes of duration) of a call. It is recognized upon completion of the call, and is adjusted to reflect customer billing adjustments. Revenue for each customer is calculated from information received through our network switches. Customized software has been designed to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates. This software provides us with the ability to complete a timely and accurate analysis of revenue earned in a period. We believe that the nature of this process is such that recorded revenues are unlikely to be revised in the future. Revenue earned from monthly services provided to our business services customers are fixed and recurring in nature, and are contracted for over a specified period of time. Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer. The recurring customer charges continue until the expiration of the contract, or until cancellation of the service by the customer. To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs. Cost of Revenues Cost of revenues is comprised primarily of costs incurred from other domestic and international communications carriers to originate, transport, and terminate voice calls for the Company's carrier and business customers. The majority of the Company's cost of revenues is thus variable, based upon the number of minutes actually used by the Company's customers and the destinations they are calling. Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company's network switch. During each period, the call activity is analyzed and an accrual is recorded for the revenues associated with minutes not yet invoiced. This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates. 20 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES Fixed expenses reflect the costs associated with connectivity between the Company's network infrastructure, including its New York switching facility, and certain large carrier customers and vendors. In addition, fixed expenses include the monthly recurring charges associated with certain platform services purchased from other service providers, the monthly recurring costs associated with private line services for business customers and the cost of broadband Internet access used to provide service to both carrier and business customers. Accounts Receivable Accounts receivable is recorded net of an allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and adjust the allowance for doubtful accounts based on our history of past write-offs and collections and current credit conditions. Specific customer accounts are written off as uncollectible if the probability of a future loss has been established, collection efforts have been exhausted and payment is not expected to be received. Impairment of Long-Lived Assets We periodically review long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying value of the asset exceeds the projected undiscounted cash flows, we are required to estimate the fair value of the asset and recognize an impairment charge to the extent that the carrying value of the asset exceeds its estimated fair value. We did not record any impairment charges during the three months ended March 31, 2013 and 2012. Income Taxes We account for income taxes in accordance with U.S. GAAP, which requires the recognition of deferred tax liabilities and assets for the expected future income tax consequences of events that have been recognized in our financial statements. Deferred income tax assets and liabilities are computed for temporary differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred income tax assets when we determine that it is more like than not that we will fail to generate sufficient taxable income to be able to utilize the deferred tax assets. Property and Equipment In accordance with Accounting Standards Codification 350-40, Intangibles - Goodwill and Other - Internal-Use Software, we capitalize a portion of our payroll and related costs for the development of software for internal use and amortize these costs over three years. During the three months ended March 31, 2013, we capitalized costs pertaining to the development of internally used software in the approximate amount of $0.2 million. Recently Issued Accounting Pronouncements During the three months ended March 31, 2013 and 2012, there were no new accounting pronouncements adopted by the Company that had a material impact on the Company's consolidated financial statements. Management does not believe there are any recently issued, but not yet effective, accounting pronouncements, if currently adopted, that would have a material effect on the Company's consolidated financial statements. Inflation We do not believe inflation has a significant effect on the Company's operations at this time. 21 -------------------------------------------------------------------------------- Table of Contents FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES Off Balance Sheet Arrangements Under SEC regulations, we are required to disclose the Company's off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have: Any obligation under certain guarantee contracts Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the Company's stock and classified in stockholder's equity in the Company's statement of financial position Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us As of March 31, 2013, we have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Forward Looking Statements Certain statements and the discussion contained herein regarding the Company's business and operations may include "forward-looking statements" within the meaning of 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 of the Company is its ability to attract new and continued capital to execute its comprehensive business strategy. There may be additional risks 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, the termination of any of the Company's significant contracts or partnerships, the Company's ability to maintain working capital requirements to fund future operations or 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 SEC. However, the risks included should not be assumed to be the only things that could affect future performance. We may, among other things, also be subject to service disruptions, delays in collections, or facilities closures caused by potential or actual acts of terrorism or government security concerns. All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of the date thereof, and we assume no obligation to update any forward-looking statements. |