☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No.000-53929
FISION Corporation
(Exact name of registrant as specified in its charter)
Delaware
27-2205792
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
1650 West End Blvd, Suite 100
Minneapolis, Minnesota
55416
(Address of principal executive offices)
(Zip Code)
(612) 927-3700
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the period 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer or a smaller reporting company:
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act). ☐ Yes ☒ No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter: $942,000 on June 30, 2020.
Indicate the number of the registrant’s shares of common stock outstanding, as of the latest practicable date: 440,153,287 shares of common stock are outstanding as of April 14, 2021.
Our current principal executive and administrative offices are located at 1650 West End Boulevard, Suite 100, Minneapolis, Minnesota 55416; our telephone number is (612) 927-3700; and we maintain a website at www.fisiononlion.com.
Special Note Regarding Forward-Looking Statements
There are many statements in this Annual Report on Form 10-K that are not historical facts. These “forward-looking statements” can be identified by terminology such as “believe,” “may,” “intend,” “plan,” “will,” “expect,” estimate,” “strategy,” and similar expressions. These forward-looking statements are subject to material risks and uncertainties that are beyond our control, and many of these risks are discussed herein under the section entitled “Risk Factors.” Although our management believes that the assumptions underlying these forward-looking statements are reasonable, they do not assure or guarantee our future performance. Our actual results could differ materially from those contemplated by these forward-looking statements. The assumptions used for these forward-looking statements require considerable exercise of judgment, since they represent estimates of future events and are thus subject to material uncertainties involving possible changes in economic, governmental, industry, marketplace, and other circumstances. To the extent any assumed events do not occur, the outcome may vary materially from our anticipated or projected results. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by these forward-looking statements will in fact transpire. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.
In order to fund and conduct our business over the past few years, we relied significantly on working capital obtained from private sales of our equity and convertible debt securities to various accredited investors. Due primarily to our continued substantial operating losses for the past several years, we recently have been unable to continue raising such working capital as needed to support adequately our business plan for future growth. And unless we are able to raise needed substantial additional funding to achieve significant future revenue growth, our current business model most likely will not succeed.
During most of 2019 and until March 2020, our executive management consisted primarily of two persons who are partners of our major affiliate, Capital Markets Solutions, LLC (“CMS”), and who served us on an interim basis under the terms of a Consulting Agreement between us and CMS. Pursuant to this Consulting Agreement, which expired in March 2020, these two executive officers were not compensated directly by us for their executive management services rendered to the Company, but rather their services were included as part of the monthly payments made by us to CMS pursuant to the terms of the Consulting Agreement. When this CMS Consulting Agreement expired in March 2020, the two CMS partners managing the Company resigned all management positions with the Company. Since April 2020, our management has consisted of our four directors, Michael Brown, William Gerhauser, John Bode (independent), and Gregory Nagel (independent), with Michael Brown serving as our principal executive and financial officer.
Because of our inability to raise additional working capital as needed, in late 2019 and 2020 we terminated employment of all our fulltime employees, including any marketing/sales or development personnel. And we also no longer lease any office, administrative or operational facilities other than a “virtual” office location in Minneapolis on a monthly basis.
For approximately the past eighteen months, we have been unable to conduct any material marketing or sales activities due to lack of working capital. Our primary business operations have been focused on providing adequate software services from our Fision software platform to our existing customer base. We now conduct and outsource our operational and technical functions and activities through experienced outside contractors. We believe that our outsourced independent contractors provide adequate services for our current customers.
Acquisition to Engage in Medical Ambulatory Surgery Center (“ASC”) Business
In November 2020, the Company acquired 100% of the equity membership interests of two Florida limited liability companies from Capital Market Solutions, LLC (“CMS”), which are Ft Myers ASC LLC (“Ft Myers ASC”) and ASC SoftDev LLC (“SoftDev”). These two LLCs were organized by CMS in the fall of 2020 to engage in the development and operation of a medical Ambulatory Surgery Center. Our agreement with CMS for this acquisition was set forth in full as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 19, 2020.
CMS is an affiliate of the Company and its largest shareholder, and is controlled by William Gerhauser, a director of the Company. This acquisition and its terms were specifically considered and approved by our two independent and disinterested directors, who also were advised by independent outside legal counsel. Neither Mr. Gerhauser nor any other representative of CMS participated in the vote of our Board of Directors to approve this acquisition. (See Note 12)
Fort Myers ASC was formed for the purpose of owning and operating in Ft Myers, Florida an Ambulatory Surgery Center, a medical facility specializing in elective same-day or outpatient surgical procedures, not including emergency surgery.
We anticipate opening the Ft Myers Ambulatory Surgery Center for commercial operations during the fourth quarter of 2021.
SoftDev was formed for the purpose of developing software applications to support the medical procedures and operations of Ambulatory Surgery Centers, including Ft Myers ASC and others. SoftDev has engaged experienced software development consultants and others to assist in the development of its proprietary software platform and other business operations, including Rubicon Software Ltd. We expect to have completed our proprietary Ambulatory Surgery Center software platform applications prior to opening our Ft Myers Ambulatory Surgery Center.
Assuming the Ft Myers Ambulatory Surgery Center succeeds in its business operations as anticipated, we most likely will develop or acquire additional similar Ambulatory Surgery Center facilities, all of which would utilize and be supported by our proprietary SaaS software platform being developed by SoftDev.
Background.
FISION Corporation (the “Company”) was incorporated in Delaware in 2010 under a former name, and conducted no active business operations until December 2015 when the Company merged with Fision Holdings, Inc., (“Minnesota Fision”) an operating Minnesota corporation based in Minneapolis. As a result of this 2015 Merger, Fision Holdings, Inc. became our wholly-owned subsidiary, and control of the Company was acquired by the pre-merger shareholders of Fision Holdings, Inc.
In connection with this 2015 Merger, we issued an aggregate of 28,845,090 shares of our common stock to the former shareholders of Minnesota Fision, and also issued derivative securities to holders of Minnesota Fision outstanding options and warrants to purchase an aggregate of 3,868,575 additional shares of our common stock. As a result of this 2015 Merger, our pre-merger shareholders plus holders of our pre-merger derivative securities held less than five percent (5%) of our total combined post-merger outstanding common stock plus reserved common stock for all derivative securities. The 2015 Merger was accounted for as a “reverse merger” and recapitalization. Accordingly, for financial reporting purposes, our Minnesota Fision subsidiary was the acquirer, and the Delaware parent was the acquired company.
In May 2017, we acquired substantially all the assets of Volerro Corporation, a Delaware corporation based in Minneapolis and engaged in the development and marketing of proprietary cloud-based “content collaboration” software services.
When used in this report, the terms “the Company,” “Fision,” “we,” “us,” and “our,” refer to FISION Corporation, a Delaware corporation and our wholly-owned operating subsidiary Fision Holdings, Inc., a Minnesota corporation (including our Volerro software services).
Termination of Continuity Logic Merger- In late 2018 the Company entered into a Merger Agreement with Continuity Logic, L.L.C., a New Jersey limited liability company (the “Continuity Logic Merger”) to effect a merger which would have resulted in our shareholders as a group and the equity holders of Continuity Logic as a group each owning 50% of the post-merger combined companies. A key provision of this Continuity Logic Merger provided that the parties and their representatives were required to raise enough working capital to support the post-merger funding requirements of the combined companies, and also that the merger be completed by December 31, 2018. Although the Company and Continuity Logic conducted extensive due diligence regarding this merger during the last few months of 2018, they were unable to raise or receive future commitments from investors to provide sufficient capital to support the anticipated post-merger combined business operations of both companies. Accordingly, in February 2019 Continuity Logic terminated this merger since it was not consummated by December 31, 2018 as well as insufficient working capital being available for post-merger business operations. The Company no longer has any relationship or involvement with the business or future prospects of Continuity Logic.
While the Continuity Logic Merger was pending, the Company made various bridge loans to Continuity Logic for working capital, of which a total balance of $905,500 has been long overdue and is still outstanding. These loans matured on August 31, 2019, bear interest at 6% per annum, and a substantial portion of the Notes is secured by a first-priority perfected security interest on the accounts receivable of Continuity Logic. The termination of the Continuity Logic Merger does not change or affect the continuing obligation of Continuity Logic to satisfy the payment of these loans to the Company. Although we have commenced legal proceedings to attempt to collect the overdue principal and interest owed to us by Continuity Logic on these Notes, the Company took a reserve as of December 31, 2019 of the entire $905,500 plus accrued interest against the balance of these notes receivables.
Further, we are a Petitioning Creditor in a federal bankruptcy case in the District of New Jersey, whereby our goal is to have a court-appointed Trustee take over the assets of Continuity Logic LLC, as to collect proceeds from Continuity Logic customers. As we are the only secured lender, as a first priority and perfected lienholder, we are expecting the first $455,215 of proceeds to be released to us, after any court related costs associated with the bankruptcy case.
Contemplated Business Combination
We have been seeking a merger or other business combination, with our chosen target being a private software services company which could be complementary with our Fision business and structure. We believe a merger of our Company would be very beneficial to such a private entity due to our public company status, our large tax loss position, our commercially developed proprietary Fision software platform, our customer base, and other benefits. We intend to only target and pursue such a merger with a private entity having material profitable revenues.
Traditional Business of Company
We are an Internet platform technology company providing cloud-based software solutions to automate the marketing functions and activities of our customers. Our business is conducted through our Minnesota Fision subsidiary based in Minneapolis, which since 2011 has created and offered software solutions to support marketing and sales enablement activities of both private businesses and public companies.
We have developed and commercialized a proprietary cloud-based software platform which automates and integrates all digital marketing assets and marketing communications of our customers, and thus “bridges the gap” between the marketing and sales functions of a business enterprise. Our primary mission has been to develop and offer software technology tools through our Fision platform to enable our customers to maximize their marketing assets and initiatives.
We are a software services company licensing our proprietary Fision software platform to automate and facilitate marketing functions and activities in order to promote and improve sales enablement of our customers. Our innovative cloud-based software platform is readily scalable to adapt to fast business growth of any customer, regardless of size.
Our Fision software platform enables our customers to easily and quickly create and implement marketing campaigns to support their sales personnel while still emphasizing, protecting and enhancing their valuable brand assets. Use of our software solutions by our customers reduces substantially the time and cost incurred by them to produce and present marketing and sales campaigns and presentations for specific products or services. Every member of our customers’ marketing and sales teams, by having easy and automated access to all their digital marketing and media assets, is able to leverage the full power of their distinctive brands and marketing assets in every interaction with their consumers or buyers.
Our current and targeted customer base ranges across diverse industries of all sizes, including banks and other financial institutions, insurance companies, hotels and other hospitality enterprises, healthcare and fitness companies, large retailers, product manufacturers, software and other technology companies, telecommunications companies, and other companies selling familiar branded products or services.
Our Fision agile marketing solutions provide three major benefits to our customers, which are (i) accelerating their revenues, (ii) improving their marketing and brand effectiveness, and (iii) reducing significantly their marketing and sales costs.
We derive our revenues primarily from recurring payments from customers having software licensing contracts typically having terms of one to three years and requiring monthly subscription fees based on the customer’s number of users and locations where used. We currently have licensing contracts with eight (8) customers using our Fision platform for their marketing and sales activities. The majority of our revenues are recurring, due to the nature of our contracts. Our ability to realize recurring revenues is a significant feature of our business model.
We have marketed and licensed our proprietary software platform primarily through direct sales obtained by our management and in-house sales personnel, and also secondarily through the use of experienced independent sales agencies.
The Fision Platform - Our Fision marketing software centrally collects, stores, prioritizes, organizes, streamlines, integrates and distributes the numerous digital marketing assets of our customers including videos, images, logos and other brand materials, presentations, social media content and any other material marketing assets. Using Fision’s automated software technology, these digital assets then become readily and immediately available for user access as determined by each of our customers. Our Fision platform is designed to provide any corporate marketing department with the ability to instantly and seamlessly update its sales force or other users with the latest digital marketing content and materials, while providing them with a simple, intuitive software interface to quickly find what they need on any digital device, anytime and anywhere. In particular, large enterprise customers with extensive global sales branches and networks have the ability to quickly and efficiently create and deliver customized sales campaigns or presentations to selectively targeted consumer audiences while conveying a positive, personalized and consistent brand experience.
Advantages of our Fision platform include the following:
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Substantial gains in both marketing and salesforce efficiency.
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Reducing the time and cost to localize marketing content, resulting in shortening the sales cycle for faster speed to market.
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Responding quickly to changing consumer market conditions.
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Enhancing the effectiveness of digital distribution to targeted consumers or buyers whether through print, email, mobile, website or social media.
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Providing autonomy to scattered sales force personnel to enable them to independently and quickly create locally relevant content and launch their own selling campaigns.
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Distribution of specialized content to selected consumer or buyer groups.
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Maintaining corporate and brand integrity while simplifying brand distribution.
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Facilitating and ensuring regulatory compliance.
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Improving marketing and sales performance analytics and big data analysis.
Our Customers - Our potential customer base is global and virtually unlimited, since our Fision platform software solutions are totally cloud-based and readily scalable, and include a multitude of digital tools and solutions which can provide significant benefits to the marketing and sales personnel of any commercial enterprise. We have received substantial recurring revenues from our primary customers for many years, and we regard our high percentage of recurring revenues to be particularly significant to our marketing strategy which emphasizes long-term relationships with our customers under written contracts.
Cloud-Based Platform- Storage and operation of our software solutions platform along with the digital marketing and sales assets and related data of our customers are outsourced by us to reside and take place in the digital “cloud.” Providers of cloud services are typically referred to as “virtual servers” since they provide all digital data storage and software application services to their clients. Our cloud service provider is Microsoft’s Azure Cloud, which leading cloud-based platform offers readily scalable, high quality and secure cloud services capable of satisfying any increasing demand or changing circumstances in the needs of our customers or us.
We regard the hosting of our software applications, the ready digital cloud interface with our customers, and the storage of unlimited customer data provided by our premier cloud provider as being crucial to our operating strategy. Our major savings in expensive computer equipment, high salaried technology personnel, and costly security measures through our use of Microsoft’s cloud is vital to our cost of doing business. Moreover, we believe that our experienced and leading cloud provider is more effective in delivering our Fision software solutions to our customers than we could perform in any event.
Research and Development - The Company has committed substantial financial, personnel and other resources toward research and development efforts and activities related to the integration, commercialization and improvement of the Fision proprietary software platform. Our past development activities have been conducted both internally from our former Minneapolis headquarters facility by our former experienced software development technicians, and externally from outsourced contracts with experienced independent software development companies and individuals.
Our Industry - We have marketed and licensed our software products and services in the agile marketing segment of the broad software-as-a-service (SaaS) industry, with virtually all our revenues derived from our proprietary cloud-based Fision marketing software platform;.
Employees- Due to our recent lack of available working capital, we currently have no full-time employees.
Outsourcing – We currently outsource our software platform maintenance and operations and our accounting and administrative functions to various experienced independent contractors. We believe that the software and other services provided by our outsourced contractors are adequate to service our current customers as required and to maintain our corporate functions in a professional manner.
Marketing Model
During our early years while our Fision software platform was being designed and developed, our marketing and sales efforts were directed toward local or regional small-to-medium sized companies having their operations conducted from one local or a couple regional facilities. Since our Fision platform was designed to be particularly beneficial for and adaptable to large size enterprises, however, in late 2017 we revised our marketing strategy and activities to target and sell our Fision marketing software primarily to large national or global corporate enterprises having many and widespread branches and operations.
Although our marketing focus for the past few years toward large commercial enterprises has been effective in achieving a material base of such significant large customers, we have been unable to generate enough increased recurring revenues from them to support our related increased marketing, operational and administrative costs. Unfortunately, the increased length of time of the sales cycle necessary to close licensing contracts with large enterprises has been substantially longer and much more expensive than we anticipated or had incurred while marketing to smaller companies, resulting in a substantial decline in our revenues over the past few years. And since we failed to close and secure enough large enterprise customers to achieve the necessary increased revenues to support any further material marketing, we terminated all sales and marketing personnel during 2019. We have been attempting to raise material working capital to support a marketing campaign to attract additional large enterprise customers, but there is no assurance any such future funds will be available to us.
An investment in our common stock is speculative and involves a high degree of risk. You should carefully consider the following risks, along with all of the other information contained in this Annual Report, before considering making an investment decision to purchase any of our securities. If one or more of the following risks occur, our business, financial condition and results of operations could suffer materially. In that case, the price of our common shares in any trading market could decline materially, and you could lose a substantial part or all of your investment.
Risks Related to Our Business
We have a limited operating history and substantial accumulated losses, and we anticipate incurring continued losses.
Our business must be considered and evaluated in light of the risks, expenses, and problems frequently encountered by companies in their early stages of development and commercialization of products, and particularly companies like us participating in new and rapidly evolving markets. These risks include our failure to anticipate and adapt to new technology or changing market conditions, our inability to secure enough future material customers to achieve profitability, the rejection of or lack of satisfaction with our services and products by our existing or potential customers, our inability to obtain additional capital when needed from time to time, our inability to protect our intellectual property, and any development of equal or superior products or services by our competitors. Accordingly, there can be no assurance we will be successful in addressing these risks.
We incurred net losses of $(2,491,533) for the year ended December 31, 2020 and net losses of $(9,297,081) for the year ended December 31, 2019. Since our inception in 2010, we have an accumulated deficit of $(34,303,325) as of December 31, 2020. Moreover, we expect to continue operating at a loss during 2021 and likely even beyond 2021. There is no assurance based on our past business experience to support any belief that we can become profitable or sustain profitability in the future. There can be no assurance that we can generate significant revenue growth, or that any revenue growth that we achieve can be sustained. To any extent that increases in our operating expenses precede or are not soon followed by increased revenues, our business, results of operations and financial condition would be adversely affected materially.
If we are unable to obtain significant future financing from time to time, our development and operations will encounter serious delays or could even result in the complete failure of our business.
Our ability to become commercially successful and profitable will depend largely on our being able to continue raising significant additional financing from time to time in the future. If we are unable to raise additional financing through equity and/or debt sources as needed, we would not be able to succeed in our commercial operations, which eventually could result in our failure. There is no assurance any such additional funds will be available on terms satisfactory to us, if at all.
We have a significant amount of debt, much of which has matured, and this could limit or even eliminate recovery of your investment if we fail to reach substantial profitability or otherwise resolve or satisfy our outstanding debt.
We have a substantial amount of indebtedness in the form of various Notes Payable. As of December 31, 2020, we had approximately $2.3 Million of outstanding Notes Payable, much of which are now due, or even due on demand. There is no assurance that we will be able to convert our outstanding debt into common stock, or to satisfy this debt through new financing or refinancing, or to achieve profitability sufficient to make future payments to satisfy this debt. If we cannot satisfy or resolve our substantial outstanding indebtedness, such failure would have a significant adverse effect on our business and financial condition and could even cause a total failure of our business.
We may not be able to continue as a going concern.
Our operating expenses have been funded by various sources including sales of our equity and debt securities, limited revenues from customer contracts, deferral of management salaries, and stock-based payment to management and certain service providers and consultants. Due to this situation and our ongoing substantial losses, there is substantial doubt whether our business can continue as a going concern to support its commercial operations and satisfy its outstanding debt and other obligations. Our management is in the process of attempting to obtain additional significant financing to enable us to continue as a going concern, but there is no assurance that adequate funds will become available to allow us to continue as a going concern.
Our ability to generate future material revenues will depend upon a number of factors, some of which are beyond our control.
These factors include the rate of acceptance of our software products, competitive pressures in our industry, adapting to changes in technology in our industry, and general economic trends. We cannot forecast accurately what our revenues will be in future periods.
Our operating results have fluctuated and been difficult to predict, and our results could continue to fluctuate and be unpredictable in the future.
Our operating results have been difficult to predict, have historically fluctuated, and may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful. Factors that may affect our quarterly operating results may include: any material changes in demand for our software solutions; the introduction of new technologies by competitors; the nature of our variable and unpredictable sales cycle; changes in the number, availability and quality of competing products; the timing and amount of sales and marketing expenses incurred by us to attract new customers; changes in the economic or business prospects of our customers or the economy generally; changes in our pricing policies or the pricing policies of our competitors; changes in governmental regulation of the Internet, wireless networks and mobile platforms; unforeseen costs necessary to improve and maintain our technologies; and costs related to any acquisitions undertaken by us.
We face significant challenges in obtaining market acceptance of our products and establishing our Fision brand.
Our success depends primarily upon the acceptance of our software platform and our Fision brand by new customers, most of who are not familiar with and have not used our products, and also do not recognize our brand and corporate identity. Acceptance of our marketing software solutions by new customers will depend on many factors including price, reliability, performance, service accessibility and effectiveness, and our ability to overcome existing loyalties to established brands. There is no assurance we will be able to meet these challenges successfully.
We depend on a small number of customers for a substantial portion of our revenues, and any material reduction in the use of our software platform by our major customers could reduce our revenues significantly.
For the fiscal years ended December 31, 2020 and 2019, three customers and two customers, respectively, each accounted for more than 10% of our revenues. A significant reduction for any reason in the use of our software solutions by one or more of our major customers could harm our business materially.
We currently have no fulltime management or key employees, which harms our business substantially. Our future success will depend significantly upon our financial ability to attract and sustain fulltime employment of competent management and other key employees.
Our future business will be dependent on hiring additional qualified key personnel, and if they are not available when needed or we cannot obtain sufficient working capital to afford them if available, our future growth and prospects would suffer materially.
We operate in a highly competitive industry, and we may not be able to compete successfully.
Our market is highly competitive, with many companies providing solutions competitive to our software platform. Well-known and established competitors include Marketo (Adobe), Eloqua (Oracle), Unica (IBM), Hubspot, ExactTarget (Salesforce), Aprimo, Responsys and Silverpop. We expect additional material competitors to emerge in the future from time to time.
Most of our current and potential competitors have significantly more personnel, financial, technical, marketing and other resources than we possess, and accordingly they are able to devote substantially greater resources than us to development, marketing, sales, and support of their products and services. We lack many things which most of our competitors have, including an established brand and name recognition, existing relationships with a large customer base, the ability to undertake costly and extensive marketing campaigns, and large customer support teams.
Software solutions and demands in our industry often change significantly, and our future success will depend materially on our ability to anticipate and respond to such changes. If we cannot adjust, develop and compete effectively with changing software solutions and products as and when they are introduced in our industry, our ability to generate meaningful revenues or achieve profitable operations would be impaired substantially.
Our current and potential competitors may develop and offer new software technologies that render our products less competitive, unmarketable or even obsolete. In addition, if any competitors develop products with similar or better functionality than our solutions, we may need to decrease the prices for our products to remain competitive, which could result in a material reduction in our margins and a corresponding material negative effect on our operating results and financial condition.
We may not be able to address and solve satisfactorily the many competitive pressures and challenges facing us in our industry, and our failure to do so would harm substantially our business, operating results and financial condition.
Our market may develop more slowly than we expect, which could harm our business.
Development of marketing software solutions is an emerging market, and our current and future customers may ultimately find our software platform to be less effective than anticipated for promoting their products or services, which as a result could cause them to reduce their spending on our software solutions.
Failure to manage growth effectively could harm our business seriously.
Any failure by our management or other key personnel to manage any future growth properly could impair our ability to deliver our software solutions in a timely fashion, to fulfill existing customer commitments, or to attract and retain new customers.
Interruption or failure of information technology and communications systems used by us could hurt our ability to provide our services effectively, which could damage our reputation and harm our operating results.
The availability to our customers of our products and services depends on the continuing and efficient operation of information technology and communications systems and infrastructure used by us, and most particularly on the “cloud-based” service provider facility which hosts our Fision software platform. These electronic systems are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks, floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate attempts to harm the systems. The occurrence of a natural or intentional disaster, any decision to close a facility we are using without adequate notice, or particularly an unanticipated problem at our cloud-based virtual server facility, could result in harmful interruptions in our service, resulting in damage to our customers and brand.
We may not be able to adequately protect or enforce our intellectual property (IP) rights.
Our success and competitive position will depend materially on our ability to protect our intellectual property (IP), including trademarks, trade names, patent rights and trade secrets. Despite our efforts to protect these proprietary rights, unauthorized parties may attempt to copy aspects of our intellectual property or to wrongly obtain and use our information technology. In addition, competitors may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, or they become marginalized or valueless due to developments by a competitor, our business could suffer materially. Moreover, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of our resources, which could cause serious harm to our business, operating results and financial condition.
We have obtained certain patents from the United States Trademark and Patent Office (USTPO) covering certain technological aspects of our Fision software platform. We also have filed certain other patent claims with the USTPO and we expect to receive patent protection regarding these other pending patent claims. Although we regard the proprietary software technology covered by our granted and pending patents to be significant for our future business, there is no assurance that any granted or pending patents will provide us with any significant proprietary protection.
We could incur substantial costs and disruption to our business as a result of any infringement claim brought against us involving intellectual property of another party, which could harm our business and operating results.
We cannot predict whether any third-party claims will occur alleging that we have infringed their intellectual property rights, and if any such claims occur whether they will substantially harm our business and operating results. If we are forced to defend any infringement claims, whether with or without merit or even if determined in our favor, we may face costly litigation and diversion of our management and other personnel. Moreover, any outcome of a claim resulting in our having infringed another’s intellectual property rights may require us to pay significant damages and attorney fees; to cease licensing our Fision software platform; to expend substantial development resources to redesign our products; or to enter into potentially unfavorable royalty or license agreements to use third-party technologies, which may not be available on terms acceptable to us, if at all. The time and resources required from us to resolve any such disputes or litigation, even if resolved in our favor, could harm our business, operating results, financial condition, brand and reputation.
Risks Related to Our Common Stock
The current public trading market for our common stock has fluctuated widely.
There is no assurance that the trading market for our common stock will become more stable, or will continue to be sustained. Moreover, there remains a significant risk that our common stock price may fluctuate substantially in the future in response to various factors including the following:
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Variations in our operating results.
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Departures or additions of management or other key personnel.
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Announcements of significant acquisitions or strategic joint ventures.
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Announcements of significant capital commitments or transactions.
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Announcements of significant patent or other technological matters.
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Substantial sales of our common stock in the open market.
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Any significant litigation matters.
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Announcements of new product developments.
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Gain or loss of significant customers.
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Natural disasters, acts of war, terrorism, or pandemics including the ongoing Coronavirus (COVID-19).
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General market conditions or specific political and economic conditions.
Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for our stockholders to sell their common stock.
Under SEC rules, a “penny stock” includes any equity security having a market price of less than $5.00 per share, subject to certain limited exceptions. Regarding any transaction involving a penny stock, these rules require a broker or dealer to approve a person’s account for transactions in penny stocks, and also to receive from the person a written consent to the transaction and its terms. The broker or dealer also must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person is competent to evaluate the risks of penny stocks. Prior to the transaction, the broker or dealer also must deliver a disclosure schedule containing the rights and remedies available to the person, the basis on which the broker or dealer made the suitability determination, and the receipt of the related signed agreement from the person.
Due to these penny-stock rules, brokers and dealers may be less willing to execute transactions in penny stock securities, and this may make it more difficult for shareholders to dispose of our common stock, which could affect adversely the market value of our common stock.
Because we became a publicly-held company by means of a reverse merger with an inactive public company, it may be difficult for us to attract the attention of brokerage firms and financial analysts.
Due to our becoming public through a reverse merger, we currently have very limited relationships or public stock trading history with any brokerage firm, underwriter or financial analyst. Accordingly, there may be little or no incentive for securities analysts of brokerage and other financial firms to provide investment coverage of us or to recommend the purchase of our common stock.
Being a public company results in additional expenses and diverts management’s attentions.
Our business must bear the expenses associated with being a public company including being subject to the reporting requirements of the Securities Exchange Act of 1934. These requirements generate significant accounting, legal and financial compliance costs, and may place significant strain on our personnel and resources. As a result, management’s attention may be diverted from other significant business concerns, which could have an adverse material effect on our business, financial condition and results of operations.
Applicable and extensive regulatory requirements, including those of the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or even attract qualified officers and directors, which could adversely affect our business and our future relationships in the investment community.
Because of the many and ever increasing rules and regulations governing publicly-held companies, it may be difficult for us to attract and retain those qualified officers and directors necessary for effective management. The Sarbanes-Oxley Act particularly added demanding new rules and regulations and the expansion and strengthening of existing rules and regulations, including required certifications by our principal executive officers. The SEC, FINRA and the stock exchanges also continue to add to or expand their rules frequently. This extensive and ongoing regulatory situation regarding the adoption of new rules and regulations by these various agencies has created a real, or at least perceived, increased personal risk to members of management of public companies, which may deter qualified candidates from accepting roles as directors or officers of our Company. If we are unable to attract and retain future qualified officers and directors as needed, the management of our business and our future ability to obtain a listing of our securities on a national stock exchange could be adversely affected materially.
If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or detect fraud. In that event, investors and the financial community could lose confidence in our financial reporting, which in turn may affect adversely the trading price of our stock, or otherwise harm our financial condition.
We must maintain effective internal controls to provide reliable financial reports and detect any fraud or material weaknesses in our internal controls. Any failure by us to implement the changes necessary to maintain an effective system of internal controls could harm our operating results materially and also cause investors and financial analysts to lose confidence in our reported financial information. Even if we resolve effectively any such material weaknesses in our internal controls, this still may not prevent all potential errors, since any control system, regardless of its design, can provide only reasonable and not absolute assurance that the objectives of the control system will be achieved.
Ownership and related voting power of our shareholders is concentrated in our affiliates and management.
At December 31, 2020, our affiliates and directors own approximately 28% of our common stock (or 30% if they exercised warrants held by them), which concentrated ownership by them could adversely affect the price of our common stock. Any material common stock sales by our insiders or affiliates, for example, could result in a decline in the price of our common stock.
This substantial concentration of stock ownership also most likely affords our affiliates and management the ability to control all matters requiring stockholder approval including the election of all directors, and the approval of mergers, acquisitions or other significant corporate transactions. Any person acquiring our common stock most likely will have no effective voice in the management of our company. This ownership concentration also could delay or prevent a change of control of the Company, which could deprive our stockholders from receiving a premium for their common shares.
We do not intend to pay dividends for the foreseeable future.
We have not paid any dividends on our common stock to date, and we do not anticipate paying any such dividends in the foreseeable future. We anticipate that any earnings experienced by us will be retained to finance the implementation of our operational business plan.
Our Articles of Incorporation allow for our Board of Directors to create and designate new series of our preferred stock without any approval of our shareholders, which could diminish the rights of holders of our common stock.
Our Board of Directors has the authority to fix and determine the relative rights and preferences of our authorized preferred stock without further common stockholder approval for issuance. Accordingly, our directors could authorize preferred shares, for example, that would grant a preference over common shareholders to our assets upon liquidation, or grant voting power and rights superior to those of common shares, or grant rights to preferred stock to accumulate and receive dividend payments before any dividend or other distribution to common shareholders, or grant special redemption terms and rights prior to any redemption of common shares, or grant rights convertible at favorable terms into common stock. Granting one or more of these or other preference rights to preferred stock could adversely affect the rights of our common stockholders including decreasing the relative voting power of our common stock and causing substantial dilution to our common stockholders.
We have no outstanding preferred stock and no present intention to designate or issue any series of our preferred stock.
The elimination of monetary liability against our directors and executive officers under Delaware law and the existence of indemnification rights held by them granted by our bylaws may result in substantial expenditures by us and may discourage lawsuits against our directors and officers.
Our articles of incorporation eliminate the personal liability of our directors and officers to the Company and its stockholders for damages for breach of fiduciary duty to the maximum extent permissible under Delaware law. These provisions and resultant costs may discourage us, or our stockholders through derivative litigation, from bringing a lawsuit against any of our current or former directors or officers for any breaches of their fiduciary duties, even if such legal actions, if successful, might benefit us or our stockholders.
In addition, our bylaws provide that we are obligated to indemnify our directors or officers to the fullest extent authorized by Delaware law for costs or damages incurred by them involving legal proceedings brought against them relating to their positions with the Company. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers.
Delaware law contains anti-takeover provisions which could deter or even prevent acquisition attempts of our company that may be beneficial to our stockholders.
Provisions of Delaware law could make it more difficult for a third party to acquire the Company, even if the acquisition would be beneficial to our stockholders. For example, Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of our incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding common stock from acquiring us, without the consent of our board of directors, for at least three years from the date they first owned at least 15% of our common stock.
Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics (including the ongoing Coronavirus (COVID-19) epidemic) and other events beyond our control. Although we maintain certain limited disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services.
Our principal telephone and other administrative office functions are currently being outsourced to an independent contractor in Minneapolis, Minnesota providing such “virtual office” services to various business entities, and located at 1650 West End Boulevard, Suite 100, Minneapolis, MN 55416. For these administrative office services, we pay a monthly fee of $322 which includes a storage fee for certain computer servers and other technology equipment and supplies owned by us. We do not own any real estate. We believe that such current outsourced office facilities and services are adequate to satisfy our current office and administrative operations.
The Company is the plaintiff in a civil lawsuit commenced by us in federal district court in New Jersey, whereby we have sued Continuity Logic LLC to collect approximately $905,500 owed to us for overdue Notes and related interest and costs incident to loans made by us to Continuity Logic in 2018. Further, we are a Petitioning Creditor in a federal bankruptcy case in the District of New Jersey, whereby our goal is to have a court-appointed Trustee take over the assets of Continuity Logic LLC, as to collect proceeds from Continuity Logic customers. Continuity Logic LLC filed a dismissal of the involuntary bankruptcy case originally filed by Petitioning Creditors, where we are one of the four Petitioning Creditors. As of March 25, 2021, the bankruptcy Judge in the District of New Jersey denied the dismissal of the case, so the bankruptcy of Continuity Logic LLC will be controlled by the court-appointed trustee. As we are the only secured lender, as a first priority and perfected lienholder, we are expecting the first $455,215 of proceeds to be released to us, after any court related costs associated with the bankruptcy case.
We currently are not a party to any material legal proceedings against us, nor are we aware of any pending or threatened litigation that could have a material adverse effect on our business, operating results or financial condition.
Our common stock is publicly traded in the over-the-counter market, and has been quoted and traded for years on either the OTCQB Tier or the Pink Current Tier of OTC Markets Group under the symbol “FSSN”. Our common stock is thinly traded, and there is no assurance that our common stock will trade more actively in the future.
Since January 1, 2019, the high and low sale prices per share for our common stock as reported by OTC Markets Group are shown below, which quotations do not reflect retail mark-up, markdown or commission:
High
Price
Low
Price
January---March, 2019
$
0.19
$
0.052
April---June, 2019
0.08
0.027
July—September, 2019
0.049
0.015
October—December, 2019
0.0415
0.0037
January—March, 2020
0.0166
0.0021
April—June, 2020
0.006
0.0021
July—September, 2020
0.0186
0.0036
October—December, 2020
0.033
0.005
January—April 14, 2021
0.088
0.0198
The last sale price of our common stock as reported by OTC Markets Group on April 14, 2021 was $0.029 per share.
Stockholders
As of April 14, 2021, there were 394 holders of record of our common stock.
Dividend Policy
We have never paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any future earnings for the development and growth of our business. Any future payment of dividends will be determined by the Board of Directors on the basis of various factors, including our results of operations, financial condition, capital requirements, and investment or acquisition opportunities.
Description of Securities
Common Stock -- Our Board of Directors is authorized to issue up to 500,000,000 shares of common stock, par value $.0001 per share, and as of April 14, 2021, there were 440,153,287 shares of our common stock outstanding. Holders of our common stock are entitled to one vote per share on all matters to be voted upon by stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors out of funds legally available for dividends. Upon the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all our assets legally available for distribution after payment of all our debts and liabilities and liquidation preference of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights, and they have no rights for cumulative voting regarding any election of directors.
Preferred Stock -- The Company is also authorized to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share. Our Board of Directors has the authority, without stockholder approval, to issue these preferred shares in one or more designated series, to establish the number of shares in each series, and to fix the preferences, powers, dividends, and voting or conversion rights of any preferred shares, which could dilute the voting power or other rights of holders of our common stock. We have no outstanding preferred stock, and we have no current plans to designate terms of or issue any preferred stock.
Transfer Agent
Our transfer agent is Globex Transfer, LLC, 780 Deltona Blvd., Suite 202, Deltona, FL 32725, phone number (813) 344-4490. Our transfer agent is registered under the Securities Exchange Act of 1934.
Rule 144
In general, under Rule 144 of the Securities Act of 1933, as amended, any person (or persons who are aggregated) including persons who are affiliates, whose restricted common stock has been fully paid for and held for at least six months from the later of the date acquired from us or from an affiliate of us, may sell such common stock in broker’s transactions or directly to market makers, provided the number of shares sold in any three-month period may not exceed one percent of our then outstanding shares of common stock. Sales under Rule 144 are also subject to certain notice requirements and the availability of current public information about us. After one year has elapsed since the date of purchase or other acquisition of such common shares from us or an affiliate of us, persons who are not affiliates of us may sell their shares under Rule 144 without any limitation.
Future sales of our common stock under Rule 144 or otherwise could negatively impact the price of our common stock in any public market where it is traded. We cannot estimate the number of shares that may be sold in the future by our existing shareholders or the effect, if any, that sales of shares by our stockholders will have on the market price of our common stock prevailing from time to time.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2020, our securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders.
Number of securities
to be issued upon exercise of
outstanding options,
warrants and rights
column (a)
Weighted-average exercise
price of outstanding
options, warrants and rights
column (b)
Number of securities remaining
available for future issuance
under equity
compensation plans (excluding
column (a))
column (c)
Equity compensation
plans approved by
-0-
4,600,000
security holders (1)
shares
$
--
shares
Equity compensation
plans not approved by
70,177,300
-0-
security holders (2)
shares
$
.153/share
shares
____________
(1)
All former options granted under our 2011 Plan have expired pursuant to their terms.
(2)
Represents warrants granted on a one-time basis to affiliates, consultants and advisors under individual contracts or award arrangements. These grants vary in term, number of shares, and exercise price as determined by the Board of Directors to be in the best interests of the Company at the effective date of the grant of each award.
The financial data referred to in the following discussion and analysis is derived from our audited financial statements for the fiscal years ended December 31, 2020 and 2019, which are included in this Annual Report. These financial statements have been prepared and presented in accordance with generally accepted accounting principles (GAAP) in the United States. The following discussion and analysis of our financial data is only a summary and you should read and consider it in conjunction with our financial statements and their related notes. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those contained in our forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Overview
We have developed and commercialized a proprietary cloud-based marketing and sales enablement software platform. Our innovative Fision platform integrates, streamlines and automates the use of many marketing and sales resources and communications of a company in order to bridge the significant gap typically existing between marketing and sales personnel, which gap inhibits the speed and effectiveness of targeting and reaching the customer base of a company. Our unique software solutions supported by their cloud-based delivery are readily scalable to adapt seamlessly to any rapid business growth of our existing or potential customers, regardless of their size.
Fision automated software enables the marketing department of our customers to easily and quickly create and implement professional marketing campaigns and other presentations for distribution to and support of sales force personnel regardless of their location. Use of our software reduces substantially the time and cost incurred by our customers for their marketing functions and activities, while still emphasizing, protecting and enhancing their valuable brand assets. Our current and targeted customer base is global and ranges across diverse industries and companies of all sizes, particularly those companies selling familiar branded products or services.
Our Fision software platform offers three major benefits to our customers, (i) accelerating their revenues, (ii) improving and protecting their marketing and brand effectiveness, and (iii) reducing significantly their marketing and sales costs.
Revenue Model
Our revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. Because of the long-term nature and the substantial expense commitment required by each new customer to enter into a binding licensing agreement with us, the sales cycle involved in our revenue model is quite lengthy. Accordingly, the unpredictable and different timing involved from customer to customer to procure our licensing contracts has prevented us from receiving consistent overall revenues or accurately forecasting our future revenue stream.
We generate our revenues primarily from recurring monthly payments from customers having a license from one to three years to access and use our proprietary marketing software platform, which payments include fees based on actual use of the Fision platform. We also receive from each new customer a prescribed one-time set-up and integration fee payable to us at the outset of the license. And we receive certain secondary fees from time to time for customized software development projects, and for processing emails for certain customers.
Marketing Model
We have marketed and licensed our proprietary software products primarily through direct sales by our management and other in-house personnel, and also secondarily through experienced and recognized independent sales agencies. We generate our revenues primarily from such software licensing contracts, and we currently have six (6) licensed customers using our Fision platform. We market and sell our products and services in the marketing software segment of the broader software-as-a-service (SaaS) industry.
Intellectual Property (IP) Protection
We commit substantial attention and resources toward obtaining patent and trademark rights and otherwise protecting our trade secrets, development know-how technology, trademarks, trade names, patent rights and other proprietary intellectual property (IP). Our IP protection includes written provisions relating to non-compete, non-recruit, confidentiality, and invention assignments as applicable with employees, vendors, sales agents, consultants and others.
In 2017, we were granted Patent No. US 9,639,551 B2 from the United States Patent and Trademark Office (USPTO), and in 2018 we were granted Patent No. US 9,984,094 B2 from the USPTO, and another granted Patent in 2019 Patent No. US 10,235,380 B2, from the USPTO which were titled “Computerized Sharing of Digital Asset Localization Between Organizations.” We also have an additional patent claim involving our software technology filed and pending with the USPTO.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Critical Accounting Policies and Estimates
Principles of Consolidation
Regarding our wholly-owned Minnesota Fision subsidiary, our financial statements are presented on a consolidated basis with all intercompany transactions and balances eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make certain material estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates materially. These accounting estimates and assumptions may be material to us and our financial statements due to the levels of subjectivity and judgment involved.
Certain estimates made in connection with our accompanying consolidated financial statements include our estimated reserve for doubtful accounts receivable, valuations used for stock-based compensation, fair value determinations in connection with our analysis of long-lived assets for impairment, accounting determinations related to convertible debt, and estimated useful lives for intangible assets and property and equipment.
We maintain allowances for potential credit losses on accounts receivable. In connection with the preparation of our financial statements, management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, changes in customer payment patterns, and current economic trends in order to evaluate the adequacy of these allowances. Accounts determined to be uncollectible are charged to operations when that determination is made.
Product Development and Support
We expense all our product development and support operations and activities as they occur. During the fiscal year ended December 31, 2020 we incurred total expenses of $340,232 for such development and support. In comparison, during the fiscal year ended December 31, 2019 we incurred total expenses of $290,035 for product development and support.
Property and Equipment
Property and equipment are capitalized and stated at cost, and any additions, renewals or betterments are also capitalized. Expenditures for maintenance and repairs are charged to earnings as incurred. If property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from our accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with estimated lives as follows:
Furniture and fixtures
5 years
Computer and office equipment
5 years
Derivative Securities
We evaluate all of our agreements and financial instruments to determine if they contain features that qualify as embedded derivatives. For any derivative financial instruments accounted for as liabilities, they initially will be accounted for at fair value and if necessary re-valued at each reporting date, with any changes in fair value reported in our statements of operations. For any stock-based derivative financial instruments or securities, we use an option pricing model to value them at inception and on any subsequent valuation dates. The classification of derivative instruments, including whether they should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1 inputs include quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
Level 3 inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an Accounting Standards Update (“ASU”), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has implemented the five-step process in determining revenue recognition from contracts with customers, in accordance with ASC 606.
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
Company Recognizes Contract Liability for Its Performance Obligation -- Upon receipt of a prepayment from a customer, the Company recognizes a contract liability in the amount of the prepayment for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Cost of Sales
Cost of sales primarily represents third-party hosting, data storage and other services provided by Microsoft’s Azure cloud service provider, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of sales relating to our cloud services is recognized monthly.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASU 2019-07, Compensation – Stock Compensation (Topic 718). This Topic is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). This ASU expands the scope of Topic 718 which formerly only included share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees is substantially aligned.
Under ASC Topic 718, “Compensation - Stock Compensation”, the fair value recognition provisions of this Topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Cox, Ross & Rubinstein Binomial Tree valuation model to estimate the fair value of any options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on option awards ultimately expected to vest and reflects estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
We account for income taxes in accordance with the asset and liability method of accounting for income taxes, whereby any deferred tax assets are recognized for deductible temporary differences and any deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of our management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We evaluate the recoverability of our identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. In determining if an impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, which provides that basic earnings per share is based on the weighted average number of common shares outstanding, and diluted earnings per share is based on the assumption that all dilutive convertible shares, options, and warrants were exercised. Dilution is computed by applying the treasury stock method, which provides that options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if the funds obtained thereby are used to purchase common stock at the average market price during the period.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, the AICPA, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
Results of Operations – Fiscal Years Ended December 31, 2020 and December 31, 2019
Revenue -- Revenue was $361,888 for the fiscal year ended December 31, 2020 compared to revenue of $562,763 for the fiscal year ended December 31, 2019, a decrease of $200,875, or 36%, which substantial decrease was due primarily to the Company having no marketing/sales personnel and limited sales support, in addition to some customers didn’t renew their contracts in 2020.
Cost of Sales – Cost of sales in fiscal year 2020 was $87,361 (24.1% of revenue) compared to cost of sales in fiscal year 2019 of $78,333 (13.9% of revenue), which increase was due primarily to increased expense for our cloud provider service.
Gross Margin – Gross margin for fiscal year 2020 was $274,527 compared to $484,430 for fiscal year 2019, a decrease of $209,903 attributable primarily to decreased revenue in 2020. Gross margin as a percentage of revenue was 76% for fiscal year 2020 compared to 86% for fiscal year 2019.
Operating Expenses – Operating expenses totaled $1,467,531 for fiscal year 2020 compared to $3,869,884 for fiscal year 2019, which comparable operating expenses included:
(i)
Sales and marketing expenses of $5,474 in 2020 compared to $564,228 in 2019, which large decrease of $558,754 in 2020 was due primarily to termination of sales/marketing personnel and related sales support activities and functions in 2019;
(ii)
Development and support expenses of $340,232 in 2020 compared to $290,035 in 2019, which were relatively similar for 2020 and 2019; and
(iii)
General and administrative expenses of $1,121,825 in 2020 compared to $3,015,621 in 2019, which substantial decrease of $1,893,796 was primarily due to termination of financing and consulting services in 2019 for a one-year contract, as well as having no executive compensation in 2020.
Operating loss -- Operating loss was $(l,193,004) in 2020 compared to $(3,385,454) in 2019, which much lower operating loss in 2020 was due primarily to having no sales/marketing personnel in 2020, as well as substantially less general and administrative expenses in 2020 due primarily to termination of a 2019 consulting services one-year contract and management compensation expenses.
Other Income (Expenses) – Other Income (Expenses) for fiscal year 2020 were $(1,298,529), including loan interest of $(738,443), debt amortization and discount expenses of $(318,694), debt settlement and bad debt expenses of $(88,740), change in fair value of derivatives of $(195,682) and miscellaneous debt expense of $(5,228), offset by Other Income of $48,258. In comparison, Other Income (Expenses) for fiscal year 2019 were $(5,911,627), including loan interest of $(1,565,491), debt amortization and discount expenses of $(1,844,329), OID and derivative expenses of $(757,474), a loss on debt settlement of $(209,989), a negative change in fair value of derivatives of $(2,024,961), and a bad debt expense for notes receivable of $(857,242), offset by a gain on extinguishment of derivative liabilities of $1,212,505, and Other Income of $135,354. The large difference between fiscal 2020 and fiscal 2019 in our Other Income (Expenses) was due primarily to non-cash accounting adjustments related to accounting for our convertible debt.
Net (Loss) – Our net (loss) for fiscal year ended December 31, 2020 was $(2,491,533) compared to $(9,297,081) for fiscal year ended December 31, 2019, which decreased loss of $6,805,548 in fiscal 2020 was due primarily to the various decreases in Operating Expenses and Other Income (Expenses) above described.
Liquidity and Capital Resources
Our financial condition and future prospects critically depend on our access to financing in order to continue funding our operations. Much of our cost structure is based on costs related to personnel and facilities and is not subject to significant variability. In order to fund our operations and working capital needs, we have historically utilized loans from accredited investors (including management), sales of our common stock and convertible debt securities to accredited investors, and issuances of common stock to satisfy outstanding debt and to pay for development, marketing, management, financial, professional and other services.
In order to attain material growth of our SaaS Fision platform, we will need to raise substantial additional capital through private or public offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past due indebtedness, which there is no assurance we can accomplish.
At December 31, 2020 the Company had notes payable indebtedness totaling $2,315,042 including related party accrued interest and debt discounts. Certain information on our notes payable is set forth in Note 8 of the audited consolidated financial statements included in this annual report.
We believe that our current available cash and any funds to be received from revenues or receivables only will be sufficient to support our working capital needs until May 2021. Thus, we will need to continue raising capital to support our current and future operations. Our management estimates that based on our current monthly expenses net of revenue, we will require approximately $500,000 in additional financing to fund our operational working capital for the next 12 months, which does not include any funds for payment of past due debt. Financing may be sought from a number of sources including sales of our common stock or debt securities (including convertible debt) in private transactions, and loans from financial institutions or others.
We may not be able to sell sufficient securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available, we may be forced to abandon certain business plans or even our entire business. Moreover, regarding any financing we may obtain, any equity or convertible debt financing would be dilutive to our shareholders, and any available debt financing may involve restrictive covenants.
Liquidity represents the ability of a company to generate sufficient cash to provide for its immediate needs for cash, which our continued losses have made it difficult for us to satisfy. As of December 31, 2020, we had only $8,271 of cash and accounts receivable, and a working capital deficiency of $(7,090,086). Over the past few years we have continued to incur substantial losses without any material increase in liquid assets, which has caused a serious and harmful effect to our liquidity and a substantial strain on our ongoing business operations.
Along with our limited revenues, we have financed our operations to date through (i) loans from management and from financial and other lenders, including convertible debt (ii) stock-based compensation issued to employees and for consulting, outsourced software, and professional services, (iii) common stock issued to satisfy outstanding loans and accounts payable/accrued expenses, and (iv) equity sales of our common stock.
Net Cash Used In Operating Activities– We used $229,571 of net cash in operating activities for the fiscal year ended December 31, 2020 compared to $1,091,761 of net cash used in operating activities for the fiscal year ended December 31, 2019, which decrease for fiscal year 2020 was due primarily to reducing headcount to no employees and maintaining only three contractors, while engaging an outsourced development and IT team and closing down the downtown office.
Net Cash Used In Investing Activities– During fiscal years ended December 31, 2019 and 2020, we used no cash in investing activities.
Net Cash Provided by Financing Activities– During fiscal year ended December 31, 2020, we were provided by financing activities with net cash of $222,565 including proceeds from sales of common stock of $50,000, proceeds from an SBA-PPP loan of $177,200, and proceeds from a Note Payable of $78,000, offset by repayments on Notes Payable and a line of credit totaling of $82,635. In comparison, during fiscal year ended December 31, 2019, we were provided by financing activities with net cash of $984,371 including proceeds from sales of common stock of $350,000, proceeds from related party notes of $61,500, and proceeds from Notes Payable of $964,000, offset by repayments on outstanding notes payable and a line of credit totaling $391,129.
Convertible Note Financing
For the past few years, a majority of our financing has consisted of convertible notes sold to accredited investors in private transactions. In 2018 we raised a total of $2,959,500 through issuance of convertible notes; in 2019 we raised a total of $964,000 through issuance of convertible notes; and in 2020 we raised a total of $78,000 through issuance of convertible notes.
Our 2018-2019 Private Placement of Securities
In October 2018 we commenced a private offering of $2,000,000 of our common stock at $.20 per share (10,000,000 shares), offered only to accredited investors. All private investors in this placement also received additional Advisory Shares, Warrants and potential True-Up and Penalty Shares as follows:
Advisory Shares – Each investor also received an amount of Advisory Shares equal to 10% of the common shares purchased by the investor at $.20 per share.
Warrants -- Each private investor also received three-year warrants to purchase additional common shares equal to their purchased shares at an exercise price of $.20 per share.
True-Up and Penalty Shares -- Each private investor also received the right to receive True-Up shares in the event the True-Up Price as defined in the Stock Purchase Agreement for this placement is lower than the $.20 price for the purchased shares. The True-Up Price represents the average of the fifteen lowest public market closing prices during a specified 90-day period and having a floor of $.10 per share. Based on trading of our common stock, the calculated True-Up Price per share relating to such a 15-day average became lower than this $.10 floor.
In addition, the warrants issued to investors in this private offering are subject to the same True-Up Price adjustment regarding their exercise price.
In 2019, we sold 8,750,000 common shares offered in this private placement and received total proceeds of $1,750,000 from investors, for which we issued an aggregate of 8,750,000 purchased shares and 875,000 Advisory Shares. In 2020, we issued an additional total of 9,625,000 common shares to investors in this private offering for required true-up and penalty shares.
Going Concern
As stated in the audited financial statements included in this Annual Report on Form 10-K, these financial statements have been prepared on a going concern basis, which contemplates and implies that the Company will continue to realize its assets and satisfy its liabilities and commitments in the normal course of business. For the year ended December 31, 2020 we incurred a net loss of $(2,491,533) and for the year ended December 31, 2019 we incurred a net loss of $(9,297,081), and we had an accumulated deficit of $(34,303,325) and a working capital deficiency of $(7,090,086) as of December 31, 2020. And we are continuing to incur material losses in 2021. These adverse financial conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary if we are unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet items as of December 31, 2020 or as of December 31, 2019.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating these disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired objectives. Our management will apply its best judgment in evaluating the cost-benefit relationship of any disclosure controls and procedures adopted by us.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. The design of our disclosure controls and procedures must reflect the fact that we will face personnel and financial restraints for some time, and accordingly the benefit of such controls must be considered relative to their costs.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is being designed to include policies and procedures that are intended to:
(i)
maintain records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management applied the integrated framework and criteria which has been developed and set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (revised 2013). This assessment included an evaluation of the design and procedures of our control over financial reporting. Based on this evaluation, our management concluded that as of December 31, 2020 our internal control over financial reporting was not effective due to certain material weaknesses. These identified material weaknesses included (i) an insufficient accounting staff; and (ii) limited checks and balances in processing cash and other transactions.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our last fiscal year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The following sets forth information about our directors and executive officers:
Name
Age
Position
Michael P. Brown
62
Director, Chairman of Board, and Principal Executive/Financial Officer
Greg Nagel
64
Director
John Bode
46
Director
William Gerhauser
52
Director
Michael P. Brown, a founder of the Company, has been a director and Chairman of the Board of the Company since our inception in 2010, and he was the Chief Executive Officer of the Company from our inception until September 2019. Mr. Brown has been an accomplished corporate executive for more than 20 years while serving in various senior operations, sales and executive positions. His extensive senior management experience includes having been Senior Vice President of Operations at Life Time Fitness from 1997 to 2007, where he successfully managed and oversaw annual revenue growth from $7 Million to $689 Million. In 2001, he attended the Executive MBA course at the University of St. Thomas, and he has also served in the United States Navy, Submarine Service.
Greg Nagel has been an independent director of the Company since March 2020. Mr. Nagel has over 20 years of experience leading large sales and marketing teams in the surgical distribution space. For the past six years, Mr. Nagel has been a distributor for Innovative Sterilization Technologies, Inc. Mr. Nagel is a graduate of Augustana University.
John Bode has been an independent director of the Company since March 2018. Mr. Bode’s past corporate experience includes many years serving as a key executive and/or financial officer for leading public companies. Since February 2015, he has been the owner and managing director of Aerie Investments, LLC, an investment company focused on assisting digital media start-ups with business development, strategic initiatives, and raising capital. Prior thereto, Mr. Bode was Chief Financial Officer (CFO) of the Tribune Publishing Company (now tronc, Inc, (NASDAQ: TRNC) from October 2013 to January 2015. Mr. Bode also served as the CFO of Source Interlink Companies, one of the largest enthusiast media companies in the USA and a leading distributor of periodicals. His extensive past accounting/auditing career also included being employed as a Certified Public Accountant (CPA) for BDO Seidman. Mr. Bode qualifies as an independent director under the rules of FINRA, the SEC, and all national stock exchanges.
William Gerhauser has been a director of the Company since April 2020. Mr. Gerhauser has over 25 years of experience in the financial industry in both the United States and Europe. For the past five years, Mr. Gerhauser is the Chief Executive Officer of affiliate Capital Market Solutions LLC ("CMS"). CMS is an international consultancy firm that provides accounting, legal, structural and strategic advice to several private and public companies. Mr. Gerhauser is also the President of MGA Holdings, LLC, and also the Managing Partner of Ignition Capital, LLC. Mr. Gerhauser is also a co-founder of Fighters Choice, Inc. Mr. Gerhauser’s specialty is niche markets that are heavily regulated or have unusual tax considerations. In the last 15 years he has successfully initiated transactions in the Oil and Gas, Entertainment, Biotech, Information Technology and Beverage Industries. He is a UK-US dual national. He is a graduate of The Royal College of St. Peter at Westminster, and is a U.S. Army Infantry Veteran.
Director Relationships
There are no family relationships among or between any of our officers and directors.
None of our directors is a director of any other company having a class of securities registered pursuant to Section 12 of the Securities Exchange Act or subject to the requirements of Section 15(d) of the Securities Exchange Act, or of any company registered as an investment company under the Investment Company Act of 1940.
To the best of our knowledge, our directors and executive officers have not been involved in any of the following legal proceedings during the past five years:
i)
any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
ii)
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
iii)
being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining or otherwise limiting the involvement of the person from any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
iv)
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
v)
being subject of, or a party to, a federal or state judicial or administrative order, judgment, or decree or finding, not subsequently suspended, reversed or vacated, relating to an alleged violation of any federal or state securities or commodities laws or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
vi)
being subject of or party to any sanction or order, not subsequently suspended, reversed or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Director Committees
Currently we do not have any designated director committees due to the small size of our Board of Directors. Our entire Board of Directors performs the functions of an audit committee, including approving the annual selection of our independent auditing firm.
Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Exchange Act requires our directors and officers and any persons who beneficially own more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. To the best of our knowledge, regarding any Section 16(a) forms with respect to our fiscal year ended December 31, 2020, all such required reports were filed with the SEC.
Code of Ethics
We have not adopted a Code of Ethics for our management. When we adopt a Code of Ethics, it will apply to all our executive officers and directors as well as any other employees who perform any accounting or financial functions or operations for us.
The following table presents information for our last two fiscal years ended December 31, 2020 and 2019 regarding all compensation from us paid to, awarded to, and earned by each individual who served as our chief executive officer or in any other executive officer position with the Company.
Messrs. Laurence Mascera and Daniel Dorsey received no compensation directly from us for their respective executive officer roles with the Company in 2019 and early 2020, when Mr. Mascera served as our Chief Operating Officer from April-September 2019 and as our interim Chief Executive Officer from September 2019 until his resignation on March 31, 2020, and Mr. Dorsey served as our Chief Financial Officer since March 2019 until his resignation on March 31, 2020. During much of 2019 and until March 2020, such executive management services were included as part of the overall monthly consulting services provided to us by our affiliate Capital Markets Solutions, LLC (CMS), for which services we paid $50,000 monthly.
Executive Vice President and Chief Financial Officer
2019
$
82,500
-
-
-
$
82,500
Jason Mitzo (3)
2020
-
-
-
-
-
Chief Revenue Officer
2019
$
103,051
-
-
-
$
103,051
___________
(1)
Mr. Brown resigned as Chief Executive Officer in September 2019. Since March 2020 he has acted as Principal Executive and Financial Officer of the Company.
(2)
Mr. Lowenthal resigned as Chief Financial Officer, Executive Vice President and a director on February 28, 2019.
(3)
Mr. Mitzo resigned his employment with the Company in September 2019
Executive Compensation Overview
Our executive compensation program historically has consisted of a combination of base salary and stock-based compensation in the form of common stock awards or options. Our executive officers and any other salaried employees are also eligible to receive any health and other fringe benefits offered by the Company.
Employment Agreements With Our Executive Officers
We currently have no outstanding employment agreements with any executive officers.
Equity Compensation Plans
Our 2011 Plan
In 2011 the Board of Directors and shareholders of our Minnesota Fision subsidiary adopted and approved our 2011 Stock Option and Compensation Plan (the “Plan”), which as amended is our only equity compensation plan approved by stockholders. The purpose of the Plan is to advance the interests of the Company and our stockholders by attracting, retaining and rewarding our employees and key consultants performing services for us, and to motivate them to contribute to our growth and profitability.
Issuance of Awards. Under the Plan, the issuance of awards and the persons, terms and conditions regarding any award are determined by our Board of Directors. Including amendments to the Plan, we have reserved up to 4,600,000 shares of our common stock to satisfy any awards under the Plan which can include one or a combination of stock options, stock appreciation rights (SARs), stock awards, restricted stock, performance shares, or cash.
To date, we have only granted stock option awards under the Plan, and as of December 31, 2018, we had outstanding options under the Plan for a total of 3,797,500 common shares. During 2019, all of the outstanding options under the Plan expired since none had been exercised according to their terms, and their underlying shares were returned to the Plan for future availability.
Term and Vesting of Options. Incident to granting an option award, the Board of Directors must fix the term, exercise price, number of option shares, and any applicable vesting conditions or schedule. The Board of Directors retains the right to accelerate vesting of an option anytime for any reason. The maximum term of an option under the Plan is ten years.
Exercise Price and Manner of Exercise. The exercise price for any option granted under the Plan is determined by the Board of Directors, provided that the option price for any Incentive Stock Options intended to qualify under Section 422A of the Internal Revenue Code of 1986 shall not be less than the Fair Market Value of our common stock as of the date of grant. The exercise price may be paid in cash or check, cashless exercise, or tender of our shares already owned by the option holder, with any cashless exercise or tender of shares being based on the fair market value of our common shares on the date of exercise.
Transferability of Awards. Grants of options under the Plan are not transferable other than by will or laws of descent and can only be exercised by the grantee during his or her lifetime.
Immediate Acceleration. The Plan provides that all options and awards not yet vested will be fully vested, and all performance conditions for restricted stock or performance share awards shall be deemed satisfied, in the event of (i) a change of control whereby a person or related group obtains 40% or more of our common stock, or (ii) a majority of our directors is replaced within 24 months without approval of the existing Board of Directors, or (iii) our stockholders approve a merger or the sale or other disposition of substantially all our assets.
Outstanding Equity Awards at Fiscal Year End
The Company has no outstanding equity awards as of December 31, 2020.
Director Compensation
For the fiscal year ended December 31, 2020, our only director compensation was paid to our two independent directors, John Bode and Gregory Nagel, who each receives $12,500 in value of our common shares quarterly for serving as an independent director. Mr. Bode received a total of 6,783,631 common shares for his services as a director in 2020 and Mr. Nagel received a total of 5,191,028 common shares for his services as a director in 2020.
The following table sets forth certain information regarding the beneficial ownership of common stock of the Company as of December 31, 2020, by each of our directors and executive officers, each person known by us to own beneficially 5% or more of our Common Stock, and all directors and executive officers as a group. The amounts and percentages of common stock beneficially owned in this table are reported on the basis of regulations of the Securities and Exchange Commission. To the best of our knowledge, each beneficial owner named in this table has sole voting and sole investment power with respect to all shares beneficially owned. The address of each beneficial owner is c/o Fision Holdings, Inc., 1650 West End Boulevard, Suite 100, Minneapolis, MN 55416.
Name
Shares of
Common Stock
Percent of
Common
Stock (1)
Michael P. Brown
19,976,348
5.23
%
John Bode
10,633,508
2.78
%
William Gerhauser (3)
70,336,425
18.42
%
Gregory Nagel
5,191,028
1.36
%
All directors and officers as a group (four persons)
106,137,309
27.79
%
Capital Market Solutions, LLC (“CMS”) (2)
70,000,000
18.33
%
______________
(1)
Based on 381,923,708 outstanding common shares of the Company as of December 31, 2020.
(2)
Includes 30,000,000 shares underlying warrants having a term of five years.
(3)
Includes 70,000,000 shares (40 million shares and 30 million warrants) owned by affiliate CMS which is controlled by Mr. Gerhauser; and 336,425 shares owned by affiliate Ignition Capital LLC, which is controlled by Mr. Gerhauser.
Since January 1, 2019 we have been involved in the following transactions with related parties:
In recent years, the Company has been unable to compensate its principal officers in cash under the terms of their respective employment agreements, and as a result their accrued compensation from time to time was converted into notes payable bearing interest at 6% per annum. These Notes in turn have been converted into restricted common stock of the Company as follows: In December 2015, Mr. Brown converted $925,000 of his outstanding Notes into 1,423,077 shares of our common stock at $.65 per share; in December 2016, Mr. Brown and Mr. Lowenthal each converted $25,000 of their outstanding Notes into shares of our common stock at $.30 per share; in September 2017, Messrs. Brown and Lowenthal converted a total of $330,168 of their Notes into a total of l,l00,562 common shares including 850,562 shares for Mr. Brown and 250,000 shares for Mr. Lowenthal; in December 2020, Messrs. Brown and Lowenthal converted a total of $350,000 of their Notes into a total of 7,000,000 common shares at $.05 per share including 5,000,000 shares for Mr. Brown and 2,000,000 shares for Mr. Lowenthal; and in January 2021, Messrs. Brown and Lowenthal converted all remaining balances of their Notes totaling $442,103.62 into a total of 8,842,072 shares at $.05 per share including 5,084,535 shares for Mr. Brown and 3,757,537 shares for Mr. Lowenthal.
Effective February 28, 2019, Garry Lowenthal resigned as our Chief Financial Officer (CFO) and Executive Vice President and a member of our Board of Directors. Effective March 1, 2019, our Board appointed Daniel Dorsey as our Chief Financial Officer, and also as a member of our Board of Directors.
Effective April 1, 2019 we entered into a one-year Consulting Agreement with our affiliate, Capital Market Solutions, LLC (“CMS”). CMS is controlled by William Gerhauser, who is a director of the Company. During the one-year term of this consulting agreement, CMS provided certain management, investor and public relations services, and other advisory services to us in consideration for $50,000 monthly, 30 million restricted shares of our common stock, and a five-year stock purchase warrant to purchase an additional 30 million common shares at $.20 per share. CMS provided management services to us through March 2020 including providing Laurence Mascera as our Chief Executive Officer, and Daniel Dorsey as our Chief Financial Officer.
In late 2020 and early 2021, affiliate CMS converted certain outstanding Note balances held by CMS in the total amount of $610,904.11 into a total of 12,218,082 shares of restricted common stock of the Company at a conversion price of $.05 per share including $500,000 converted into 10,000,000 shares in December 2020 and $110,904.11 converted into 2,218,082 shares in January 2021.
In May 2019, CMS converted short-term notes held by CMS into a long-term convertible note payable in the principal amount of $250,000, maturing in three years, and bearing interest at 6%, and convertible into our common stock at the lesser of $.20 per share or the Volume Weighted Average Price (VWAP) per share during the ten-day period prior to conversion. CMS also received three-year warrants to purchase common shares equal to the principal amount of the note divided by the conversion price which is the same as the exercise price.
In 2019, CMS also provided certain short-term loans to us for working capital, represented by nonconvertible notes. As of December 31, 2020, $214,175 of such notes including accrued interest are outstanding and overdue, and no payments were made by us in 2020 on this liability to CMS.
Effective September 11, 2019, Michael Brown resigned as our Chief Executive Officer (CEO) and concurrently our Board of Directors appointed Laurence Mascera to serve as our interim Chief Executive Officer. Effective March 31, 2020, Mr. Mascera resigned all management positions with the Company including as interim CEO and as a member of our Board of Directors. Also effective March 31, 2020, Mr. Dorsey resigned all management positions with the Company including as interim CFO and as a member of our Board of Directors. Effective March 31, 2020, Michael Brown assumed the interim executive positions of principal executive officer and principal financial officer of the Company.
In November 2020, the Company acquired two Florida LLCs from affiliate CMS which are engaged in the business of developing: i) a medical Ambulatory Surgery Center in Ft Myers FL and ii) related software applications for operation of this Ft Myers facility and other medical Ambulatory Surgery Centers. For a description of this acquisition, see “Recent Acquisition to Engage in Medical Ambulatory Surgery Center Business” included in Item 1 of this Annual Report.
Related Party Transaction Policy
Our Board of Directors has no formal written policy regarding related-party transactions, but rather follows the requirements of state law applicable to such transactions. In particular, after full disclosure of all material facts, review and discussion, our Board of Directors approves or disapproves such transactions. No director is allowed to vote for approval of a related-party transaction for which he or she is the related party, but shall provide all material information concerning the related-party transaction and the director’s interest in the transaction.
Director Independence
As of the date of this Annual report, John Bode and Greg Nagel are the only independent directors of the Company
The following table includes all fees billed for auditing and any other services provided to us by Assurance Dimensions, certified public accountants & associates, for the fiscal years ended December 31, 2020 and 2019.
2020
2019
Audit Fees
$
56,500
$
52,500
Audit-Related Fees
-
-
Tax Fees
-
-
All Other Fees
-
-
Total
$
56,500
$
52,500
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under this procedure, our Board of Directors approves the annual engagement letter with respect to audit and review services. Any other fees are subject to pre-approval by our Board of Directors. The audit fees paid to our auditor with respect to 2020 and 2019 were pre-approved by our entire Board of Directors.
To the Board of Directors and Stockholders of Fision Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Fision Corporation (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph- Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses for the year ended December 31, 2020. The Company had a net loss of $2,491,533, accumulated deficit of $34,303,325, net cash used in operating activities of $229,571 and had negative working capital of $7,090,086. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters to be communicated, are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. .
We did not identify any critical audit matters that need to be communicated.
/s/ Assurance Dimensions
We have served as the Company’s auditor since 2019.
FISION Corporation (formerly DE Acquisition, Inc.), a Delaware corporation (the “Company”) was incorporated on February 24, 2010 and was inactive until 2015 when it merged with Fision Holdings, Inc., a Minnesota corporation, an operating software development business based in Minneapolis, Minnesota. As a result of this merger, Fision Holdings, Inc. became a wholly-owned subsidiary of the Company. Fision Holdings, Inc. was incorporated in Minnesota in 2010, and has developed and commercialized a proprietary cloud-based software platform which automates and integrates digital marketing assets and marketing communications in order to “bridge the gap” between the marketing and sales functions of any enterprise. The Company generates its revenues primarily from software licensing contracts typically having terms of one to three years and requiring monthly subscription fees based on the customer’s number of users and locations where used. The Company’s business model provides it with a high percentage of recurring revenues.
In November 2020 the Company entered the business of owning and operating an ambulatory medical surgery center, also known as a “surgi-center,” through an acquisition of two Florida LLCs which are in the process of developing an Ambulatory Surgery Center in Ft Myers FL and supporting software to support this Ft Myers facility and other Ambulatory Surgery Centers. (See Note 11 – Related Party Transactions.)
The terms “Fision,” “we,” “us,” and “our,” refer to FISION Corporation, a Delaware corporation and its wholly-owned operating subsidiary Fision Holdings, Inc., a Minnesota corporation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ materially from those estimates and assumptions. Such estimates include management’s assessments of the carrying value of certain assets, useful lives of assets, derivative securities, fair value of financial instruments, and related depreciation and amortization methods applied.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. During 2020, we may have had cash deposits that exceeded Federal Deposit Insurance Corporation (“FDIC”) insurance limits of $250,000. As of December 31, 2020 there was no cash in excess of federally insured limits. We maintain cash balances at high quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customers and generally do not require collateral from them to do business with us.
Cash equivalents
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At December 31, 2020, the Company had no cash equivalents.
Fair value of financial instruments
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 (the “Fair Value Topic”) which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements.
The Fair Value Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. It also establishes a fair value hierarchy, which prioritizes the valuation inputs into six broad levels.
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
A) Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;
B) Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and
C) Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques, and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with significant frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Example of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable, accrued expenses, and notes payable approximate their fair value because of the short maturity of those instruments.
The following table represents our assets and liabilities by level measured at fair value on a recurring basis at December 31, 2020.
Level 1
Level 2
Level 3
Derivative Liability
$
-
$
-
$
4,251,179
The following assets and liabilities are measured on the consolidated balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following table provides a reconciliation of the beginning and ending balances of the liabilities.
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest and expense in the accompanying financial statements.
The derivative liability relating to the beneficial conversion feature of our convertible notes payable was $4,251,179 at December 31, 2020 and was computed using the following variables:
Exercise price
$.135--$.153
Expected volatility
327
%
Expected term
Due on demand to 36 months
Risk free interest rate
0.09–1.58
%
Expected dividends
-
Derivative Instruments
We account for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives andHedging (“ASC 815”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable related to the products and services sold are recorded at the time revenue is recognized and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of the receivable may not be known for several months after services have been provided and billed. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, analyses of current and historical cash collections, and the aging of receivables. Delinquent accounts are written-off when the likelihood for collection is remote and/or when we believe collection efforts have been fully exhausted and we do not intend to devote any additional efforts in an attempt to collect the receivable. We adjust our allowance for doubtful accounts balance on a quarterly basis.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life of five (5) years for equipment, furniture and fixtures. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
We follow paragraph 360-10-05-4 of the FASB Accounting Standards Codification for long-lived assets. Our long-lived assets are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
Revenue recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an Accounting Standards Update (“ASU”), Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has implemented the five-step process in determining revenue recognition from contracts with customers, in accordance with ASC 606.
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting, and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
Company Recognizes Contract Liability for Its Performance Obligation
Upon receipt of a prepayment from a customer, the Company recognizes a contract liability in the amount of the prepayment for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Income taxes
We follow Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance to the extent our management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regard to uncertainty in income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. We had no material adjustments to our assets and/or liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of any option grant.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") which supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-employees, and expands the scope of Topic 718 (which only applied to share-based payments to employees) to also include share-based payments issued to non-employees for goods and services, except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards, except for financing transactions, or awards issued to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers ("Topic 606"). The provisions of this guidance are to be applied using a modified retrospective approach, with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year, for all (1) liability-classified non-employee awards that have not been settled as of the adoption date and (2) equity-classified non-employee awards for which a measurement date has not been established. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606. The Company early adopted the provisions of this guidance effective July 2, 2018. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flow.
Fair Value
The closing price of our common stock on the date of grant is used as the fair value for the issuances of restricted stock. The fair value of stock options or warrants granted is estimated as of the grant date using the Cox, Ross & Rubinstein Binomial Tree valuation pricing model. The following range of assumptions in the Binomial option pricing model was used to determine fair value at the years ended below:
Year ended
December 31,
2020
2019
Weighted-average volatility
327
%
182
%
Expected term (in years)
1.4
2.4
Risk-free interest rate
.10
%
1.62
%
Expected volatilities used for award valuation in 2020 and 2019 are based on the Company’s historical prices.
The risk-free interest rate for periods equal to the expected term of an award is based on a blended historical rate using Federal Reserve rates for U.S. Treasury securities.
We compute basic and diluted earnings per share amounts pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic earnings per share is computed by dividing net income (loss) available to common shareholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share is computed by dividing net income (loss) available to common shareholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
For the years ended December 31, 2020 and 2019, there were 83,006,174 and 388,876,859 respectively, potentially dilutive securities not included in the calculation of weighted-average common shares outstanding since they would be anti-dilutive.
Research and Development
We expense all our research and development operations and activities as they occur. During the fiscal year ended December 31, 2020 we incurred total expenses of $339,632 for research and development. In comparison, during the fiscal year ended December 31, 2019 we incurred total expenses of $290,035 for research and development. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to manufacturing. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.
Advertising Costs
We expense marketing and advertising costs as incurred. Marketing and advertising expenses for the years ended December 31, 2020 and 2019 were $5,474 and $17,331 respectively. The costs are included in the sales and marketing expenses on the consolidated statement of operations.
Recently Issued Accounting Pronouncements
We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, the capitalized incremental costs to obtain a customer contract and lease accounting, to alter our operational policies and to implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes may have an adverse effect on our business, financial position, and operating results, or cause an adverse deviation from our revenue and operating profit target, which may negatively impact our financial results.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
NOTE 3 – GOING CONCERN
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to achieve and maintain profitable operations, and our ability to raise additional capital as required.
At December 31, 2020 we had a working capital deficiency of $7,090,086 and an accumulated deficit of $34,303,325 and a net loss for 2020 of $2,491,533. These conditions raise substantial doubt about our ability to continue as a going concern for one year after issuance date of the financial statements. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Our ability to continue as a going concern depends on our ability to raise additional significant funds. The Company is attempting to raise such funds through private placements of its equity or debt (including convertible debt) securities, but there can be no assurance any such future funds will become available to us. Unless we can raise additional significant working capital, our business plan most likely will not succeed.
NOTE 4 – ACCOUNTS RECEIVABLE
Our accounts receivable at December 31, 2020 and 2019 consisted of the following:
December 31,
2020
December 31,
2019
Accounts receivable
$
767
$
9,906
Less: Allowance for doubtful accounts
-0-
-0-
$
767
$
9,906
NOTE 5 – NOTES RECEIVABLE
Our notes receivable at December 31, 2020 and 2019 consisted of the following:
December 31,
2020
December 31,
2019
Notes receivable
$
804,300
$
804,300
Accrued interest
101,200
52,942
Total
905,500
857,242
Less allowance for doubtful accounts
(905,500
)
(857,242
)
Notes receivable, net
$
-
$
-
While the failed Continuity Logic merger was pending, the Company made various bridge loans to Continuity for working capital purposes, of which a total balance of $905,500 is still outstanding including interest as of December 31, 2020 and in default. The secured portion of these loans are 50.3% of the balance of the outstanding balance, for a secured loan balance of $455,215. These loans matured on August 31, 2019, bear interest at 6% per annum, and a portion of the Notes for these loans are secured by a first-priority perfected security interest on the accounts receivable of Continuity Logic, pursuant to a Security Agreement dated November 27, 2018. On February 4, 2019, the merger with Continuity Logic LLC was terminated, although the termination of the merger does not change or affect the continuing obligation of Continuity Logic to satisfy the payment of these loans to the Company. Continuity Logic is not a related party to the Company.
Further, during August 2019, the Company commenced a complaint against Continuity Logic LLC regarding the unpaid balance of the Notes Receivable. Accordingly, the Company created an allowance for doubtful accounts of the entire loan balance and accrued interest against the loans. Further court action is ongoing, while the Company and its legal counsel pursue other collection activities. Further, we are a Petitioning Creditor in a federal bankruptcy case in the District of New Jersey, whereby our goal is to have a court-appointed Trustee take over the assets of Continuity Logic LLC, as to collect proceeds from Continuity Logic customers. As we are the only secured lender, as a first priority and perfected lienholder, we are expecting the first $455,215 of proceeds to be released to us, after any court related costs associated with the bankruptcy case.
Property and equipment, stated at cost, less accumulated depreciation, consist of the following at December 31, 2020 and 2019:
December 31,
2020
December 31,
2019
Equipment
$
15,720
$
15,720
Furniture & Fixtures
471
471
Less: Accumulated Depreciation
(16,018
)
(13,275
)
Net Property and Equipment
$
173
$
2,916
For the year ending December 31, 2020, we accounted for $2,744 of depreciation expense.
NOTE 7 – PREPAID EXPENSES AND INTELLECTUAL PROPERTY: SOFTWARE AND GOODWILL
Prepaid expenses consisted of the following:
December 31,
2020
2019
Prepaid Expenses:
Sales Commissions and Severance Advances
$
-
$
7,696
Unvested Stock Grants (Note 9)
-
525,368
Total Prepaid Expenses
$
-
$
533,064
December 31,
2020
2019
Intellectual Property: Software Code:
Intellectual Property: Software Code
$
68,500
$
68,500
Less: Accumulated Amortization
(33,027
)
(25,687
)
Net Intellectual Property: Software Code
$
35,473
$
42,813
Intangible asset amortization expense on our software code in each of the five succeeding years will amount to approximately $35,473 as we will fully amortize the intellectual property in 2024. For fiscal 2021 through 2024, the amortization period for identifiable intangible assets on our software code is 7 years, with amortization expense of approximately $9,786, $9,786, $9,786 and $6,115 to be recognized, respectively.
A summary of changes in the Company’s goodwill consists of the following during the twelve months ending December 31, 2020 and 2019 respectively:
December 31,
Intellectual Property: Goodwill:
2020
2019
Goodwill
$
13,800
$
13,800
Less: Impairment Expense
(5,000
)
-
Goodwill
$
8,800
$
13,800
Impairment Testing of Goodwill
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired.
In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2019, the Company determined that the fair value of our goodwill was greater than our book value, and therefore no goodwill impairment charge was recorded in 2019. In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2020, the Company determined that the fair value of our goodwill on customer contracts was slightly less than our book value, and therefore we took a $5,000 goodwill impairment charge in the fourth quarter of 2020, as some of our customers did not renew our software licensing and hosing contracts at the end of fiscal year 2020.
NOTE 8 – NOTES PAYABLE
At December 31, 2019, we were indebted under various convertible and non-convertible Notes payable net of debt discount of $853,261 for a total amount of $1,958,382, including related parties notes of $228,692 and non-convertible Notes Payable of $932,586 and excluding $446,404 of accrued interest. At December 31, 2020, we were indebted under various convertible and non-convertible Notes payable net of short-term and long-term debt discount of $398,171 for a total amount of $2,137,842, consisting of short-term related party notes plus accrued interest of $632,832, long-term related party notes plus accrued interest of $163,704, short term non-related party notes of $1,141,957 and long term non-related party notes of $199,349, excluding the SBA/PPP loan. The short-term non-related party notes of $1,141,957 consist of convertible notes of $905,657 and $236,300 of non-convertible notes payable. As of December 31, 2019 and 2020, most short-term notes are in default.
We are also indebted on a COVID-19 SBA loan in the amount of $177,200 which we obtained in 2020 under the federal SBA/PPP program. See Note 13.
Derivative Instruments
The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
During March-June 2019, we issued a total of $650,000 in convertible notes sold to five accredited individual investors who purchased these notes from our 2019 private placement bearing interest at 6% per annum and maturing three years from their purchase with the noteholders having the right to convert these notes into our common stock at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) of our common shares for the ten days prior to conversion, also including three-year warrants to purchase a number of shares equal to the principal amount of the note divided by the conversion price. The exercise price is equal to the conversion price. The Company recorded a derivative liability on the conversion feature in the note and associated warrant liability to the warrants issuable under the agreement. We valued the warrants at $501,996, under our Black-Scholes model, to be recorded as a derivative liability for warrants, whereby the associated debt discount will be amortized on a straight-line basis over the term of the warrants, including a cashless exercise provision as defined under the terms of the Note, and also received registration rights related to any future conversion(s) of this Note to equity.
In April 2019, we issued a $50,000 convertible note to an accredited investor, in addition to an additional $141,106 convertible notes for the conversion of existing short term notes to long term convertible notes to two affiliate accredited investors, bearing interest at 6% per annum during the three-year term of the note, and being convertible into our common shares at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) of our common shares for the ten days prior to conversion, also including three-year warrants to purchase a number of shares equal to the principal amount of the note divided by the conversion price. The exercise Black-Scholes model, to be recorded as a derivative liability for warrants, whereby the associated debt discount will be amortized on a straight-line basis over the term of the warrants, including a cashless exercise provision as defined under the terms of the Note, and also received registration rights related to any future conversion(s) of this Note to equity.
During May 2019, we issued a $250,000 convertible note to an accredited investor, in addition to a $250,000 convertible note for the conversion of an existing short term note to a long term convertible note to an affiliate accredited investor, bearing interest at 6% per annum during the three-year term of the note, and being convertible into our common shares at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) of our common shares for the ten days prior to conversion, also including three-year warrants to purchase a number of shares equal to the principal amount of the note divided by the conversion price. The exercise price is equal to the conversion price. The Company recorded a derivative liability on the conversion feature in the note and associated warrant liability to the warrants issuable under the agreement. We valued the warrants at $463,174, under our Black-Scholes model, to be recorded as a derivative liability for warrants, whereby the associated debt discount will be amortized on a straight-line basis over the term of the warrants, including a cashless exercise provision as defined under the terms of the Note, and also received registration rights related to any future conversion(s) of this Note to equity. In accordance with ASC 470 – Debt, the Company accounted for this as a debt extinguishment since the terms of the debt changed significantly by adding a conversion feature. Accordingly, the Company recorded a loss on debt extinguishment of $189,847 for the May 2019 note and the April 2019 note to affiliate noteholders for these conversions.
ASC 470-50-40-10 (EITF Issue 96-19) establishes the criteria for debt extinguishment and modification. If the debt is substantially different, then the debt is extinguished, and a gain or loss is calculated and recorded. Substantially different is defined by the following three tests:
1.
Ten percent or more difference in cash flows – The present value of the cash flow under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument.
2.
Embedded conversion option difference is 10% or more – The change in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) is at least 10% of the carrying amount of the original debt instrument immediately prior to the modification or exchange; or
3.
There is the addition or elimination of a substantive conversion option – A modification or an exchange of debt instruments that adds a substantive conversion option or eliminates a conversion option that was substantive at the date of the modification or exchange.
During August and September 2019, we issued a total of $78,000 in convertible notes sold to three accredited individual investors who purchased these notes from our 2019 private placement, in addition to two noteholders holding $131,392 and $141,000 respectively, convertible notes for the conversion of existing short-term notes to long-term convertible notes to two accredited noteholders. All long-term notes bearing interest at 6% per annum and maturing three years from their purchase with the noteholders having the right to convert these notes into our common stock at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) of our common shares for the ten days prior to conversion. The Company recorded a derivative liability on the conversion feature in the notes, utilizing a Black Scholes pricing model, utilizing volatility for the period, closing stock price, conversion price, and the discount rate of a U.S. bond equivalent yield as of December 31, 2019. The convertible note holders also received registration rights related to any future conversion(s) of these Notes to equity.
The Company recorded a gain of $1,212,505 related to the extinguishment of derivative liabilities on notes that were settled and converted during 2019.
In February 2020, we obtained a $78,000 convertible loan with Power Up Lending Group, whereby conversion provisions were only allowed past 180 days of the loan. This loan was paid back at the end of April 2020, less than three months later. The note had a 12% interest rate, per annum, with prepayment penalty provisions within the first six months.
In April 2020, we obtained a Small Business Administration (“SBA”) long-term loan under the federal COVID-19 Payroll Protection Program (“PPP”) for $177,200, administered by Richfield/Bloomington Credit Union, having a term of 24 months and bearing interest of 1% per annum, with $1,244 accrued interest at December 31, 2020. The portion of the loan proceeds used for labor, utilities and office costs may be subject to loan forgiveness under the terms of the SBA/PPP program. The balance as of December 31, 2020 of $177,200 is included in the notes payable on the balance sheet.
During July-August 2020, related parties converted outstanding accrued expenses into some of the notes described above. Michael Brown, a director and our former CEO, converted accrued salaries and funds put into the Company into new convertible Notes of $493,597 maturing on June 30, 2021. Capital Market Solutions, LLC converted its $600,000 of accrued and unpaid consulting fees into a new short-term convertible note, 5% simple interest rate, maturing on July 31, 2021, for a total of $600,000. These related party notes have conversion terms of the greater of $.05 or a 10-day Volume Weighted Average Price (VWAP). (See Notes 9 and 11).
During July 2020, Garry Lowenthal, our former Chief Financial Officer and former Director, who resigned both positions on February 28, 2019, converted outstanding accrued expenses, including unpaid severance pay, pursuant to an Employment Agreement, into a note for $281,054. Another creditor, Rubicon Software Ltd, our outsourced development and technology consulting vendor converted $246,500 of outstanding invoices into a convertible note of $246,500. Both of these non-affiliate noteholders have conversion terms of the greater of $.05 or a 10-day Volume Weighted Average Price (VWAP), 5% simple interest rate, both maturing on June 30, 2021.
As of December 31, 2019, the Company had $700,845 outstanding in long term convertible notes, which is net of debt discount of $853,261. As of December 31, 2020, the Company had $348,127 outstanding in long term convertible notes net of debt discount of $343,652. The accrued interest on these long-term notes is included in accounts payable and accrued expenses on the balance sheet.
NOTE 9 – CONSULTING CONTRACT WITH AFFILIATE CMS
In April 2019, we entered into a consulting contract with affiliate Capital Market Solutions LLC, a Delaware limited liability company (“CMS”) for a term of one year and providing us with management, operational, and financial services in consideration for our payments to CMS of $50,000 monthly along with issuance to CMS of 30 million shares of our common stock which we valued at $1,797,000 based on the closing stock price on the date of the transaction, which was recorded as a pre-paid expense and amortized over one year. This consulting contract also provided for a five-year warrant providing CMS the right to purchase an additional 30 million shares of our common stock exercisable at $.20 per share, which we valued at $1,297,570 utilizing a Black Scholes pricing model, with the warrant expense also amortized as consulting expense on a straight-line basis over the term of the consulting agreement of one year. The prepaid expense was fully amortized, as of December 31, 2020.
NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT)
The Company is authorized to issue 500,000,000 shares of common stock and 20,000,000 shares of preferred stock, both having $.0001 par value per share. At December 31, 2020 there were 381,923,708 outstanding shares of common stock and no outstanding shares of preferred stock.,
Common Shares Issued in 2019
During January-March 2019 we received proceeds of $350,000 from certain accredited investors who made payments of their second tranche under our recent private placement, for which we issued to them a total of 1,750,000 purchased common shares and 175,000 advisory common shares, pursuant to the terms of a Securities Purchase Agreement as an Advisory Fee based on ten percent of the shares purchased in this private placement.
During February-March 2019 we issued an aggregate of 8,622,087 common shares and two-year warrants to purchase an aggregate of 3,182,834 common shares (exercisable at $.20 per share and valued at $63,502 under Black-Scholes pricing) to noteholders who converted their outstanding notes in the amount of $742,391, with the conversion prices and warrant terms based on specific terms contained in the notes.
In February 2019 we issued 300,000 common shares valued at $26,730 for advisory services to be provided to us during February-April 2019.
In March 2019, we recognized an option and warrant expense of $148,199 for certain employee stock options previously granted to our employees.
In April 2019 we entered into a one-year consulting contract in consideration for our payment of $50,000 monthly, and issuance of 30 million shares of our common stock and a five-year warrant to acquire an additional 30 million shares for $.20 per share. See foregoing Note 9.
In May 2019 we issued 245,098 restricted common shares valued at $12,500 to our independent director John Bode for three months service on our Board of Directors; in August 2019 we issued him 490,196 restricted common shares valued at $12,500 for three months director services; and in November 2019 we issued him 781,250 restricted common shares valued at $12,500 for three months director services.
In April-May 2019, we issued an aggregate of 3,284,284 shares of our common stock to two noteholders who converted total outstanding Notes in the amount of $51,500, with the conversion price based on specific terms contained in the Notes. In addition, we issued an aggregate of 5,000,000 common shares valued at $222,000 for advisory services to be provided to us during advisory agreements.
In June 2019, three noteholders converted $176,000 of outstanding Notes owed to them into an aggregate of 1,760,000 common shares, with the conversion prices based on specific terms contained in these Notes.
In July 2019, we issued 100,000 restricted common shares valued at $3,900 to an individual accredited investor in consideration for making a loan to us in the amount of $75,000, having an interest rate of 6% per annum, and maturing on January 18, 2020.
In August-September 2019, an accredited Noteholder converted $80,162 of outstanding Notes into an aggregate of 2,533,333 common shares, with the conversion price based on specific terms contained in the Notes; and another accredited Noteholder converted a $19,000 portion of an outstanding Note into 2,676,771 common shares.
In October 2019, an accredited Noteholder converted $11,912 portion of an outstanding Note into 2,382,402 common shares; and two Noteholders who are accredited investors converted a total of $28,000 of outstanding Notes into
an aggregate of 1,370,000 common shares, with the conversion prices based on specific terms in the Notes.
In November-December 2019, an accredited Noteholder converted a $60,869 portion of an outstanding Note into 4,753,476 common shares, with the conversion price based on specific terms in the Note; accredited Noteholders converted $40,000 notes into 3,067,915 common shares, with the conversion prices based on specific terms of the Notes, and an accredited Noteholder converted $19,386 portion of an outstanding Note into 3,877,237 common shares.
Warrants With Notes – In March 2019 and in connection with a private placement of convertible Notes, we issued three-year stock purchase warrants to five accredited investors to purchase an aggregate of 1,750,000 common shares exercisable at $.20 per share (which warrants were valued under the Black-Sholes model at $59,121 and recorded as a debt discount). The Notes are for a five-year term, bear interest at 6% per annum, and are convertible into common shares at the lower of $.20 per share or the Volume Weighted Average Price (VWAP) per share for the ten days prior to conversion.
Common Shares Issued in 2020
Shares issued for services
Pursuant to independent director agreements, in February 2020 we issued 2,083,333 restricted common shares valued at $12,500 to John Bode, an independent director, for three months service as a director, and in June 2020 we issued him 2,604,167 restricted common shares valued at $12,500 for three months service as a director. Shares were calculated based on the closing stock price for each quarterly period of service.
In August-December 2020 we issued the following restricted common shares for services as a director pursuant to independent director agreements. Shares were calculated based on the closing stock price for each quarterly period of service.
i) 675,676 shares valued at $12,500 to John Bode for three months services from June-August 2020,
ii) 4,791,667 shares valued at $25,000 to Gregory Nagel for six months services from April-September 2020,
iii) 1,420,455 shares valued at $12,500 to John Bode for three months services from September-November 2020,
and iv) 399,361 shares valued at $12,500 to Gregory Nagel for three months services from October-December 2020.
In May 2020, we issued 5,000,000 restricted common shares valued at $14,500 to two accredited investors for advisory services to the Company. The shares were valued based on the closing stock price on date of transaction.
True-up and penalty shares issued
In March 2020 we issued an aggregate of 9,625,000 restricted common shares to twelve accredited investors, which represented True-Up and Penalty shares owed to them pursuant to a 2018-2019 private placement of the Company in which they invested a total of $1,750,000. These shares were valued based on the closing stock price at the date of transactions, with $43,890 valued at $.0057 per share for 7,700,000 shares and $4,813 valued at $.0025 per share for 1,925,000 shares.
Stock sold for cash
In August 2020, incident to a private placement transaction, we received proceeds of $50,000 from an individual private accredited investor, for which we issued 5,000,000 restricted common shares along with a stock purchase warrant to purchase an additional 5,000,000 common shares exercisable at $.10 per share anytime during its two-year term.
During 2020, Noteholders who are accredited investors converted outstanding Notes to restricted common stock as follows, with the conversion prices based on specific terms contained in the Notes:
In January 2020, an accredited Noteholder converted a $37,000 portion of an outstanding Note into 4,933,333 shares and another $52,000 portion of an outstanding Note into 6,933,333 shares; and another Noteholder converted $33,452 of outstanding Notes into 4,401,591 shares.
In February 2020, an accredited Noteholder converted a $9,617 portion of an outstanding Note into 2,676,771 shares; another Noteholder converted $16,855 portion of an outstanding Note into 6,985,851 shares.
In March 2020, an accredited Noteholder converted a $42,500 portion of an outstanding Note into 6,062,863 shares; another accredited Noteholder converted a $23,000 portion of an outstanding Note into 6,965,743 shares; and a third Noteholder converted $5,048 of outstanding Notes into 4,589,091 shares.
During January-March, 2020 the following debt conversions also took place:
i) three Noteholders converted a total of $190,000 of outstanding Notes into an aggregate of 29,370,454 shares, which Note amounts were purchased by them in December 2019 from Capital Market Solutions LLC (CMS), an affiliate of the Company, in private transactions;
ii) four Noteholders converted a total of $107,675.63 of outstanding Notes into an aggregate of 14,195,619 shares, which Notes were originally issued in February 2018.
iii) three Noteholders converted a total of $129,000 of outstanding Notes into an aggregate of 14,929,577 shares, which Notes were originally issued in March 2019.
In April 2020, Noteholders who are accredited investors converted outstanding Notes to restricted common stock as follows:
i) A Noteholder converted a $9,500 portion of an outstanding Note into 3,653,846 shares;
ii) A Noteholder converted $10,042 of outstanding Notes into an aggregate of 7,172,857 shares;
iii) A Noteholder converted $10,000 of outstanding Notes into an aggregate of 2,702,702 shares, and this Noteholder purchased a portion of a June 2019 Note from Ignition Capital LLC in April 2020 in a private transaction; and
iv) A Noteholder converted $20,000 of outstanding Notes into 7,692,307 shares, which represented a portion of an outstanding Note purchased by this Noteholder from affiliate CMS in December 2019 in a private transaction.
In June 2020, a Noteholder converted a $21,000 portion of an outstanding Note into 5,000,000 shares; and another accredited Noteholder converted a $9,137 portion of an outstanding Note into 2,175,574 shares.
In July 2020, seven Noteholders converted a total of $166,832 of outstanding Notes into an aggregate of 33,218,160 shares, which Note amounts were purchased by them in private transactions from Capital Market Solutions, LLC (“CMS”), the original holder of the Notes and an affiliate of the Company.
In August 2020, two Noteholders converted a total of $94,856 of outstanding Notes into an aggregate of 17,225,263 shares.
In December 2020, two Affiliate Noteholders converted a total of $750,000 of outstanding Notes into an aggregate of 15,000,000 common shares based on a conversion price of $.05 per share. Another non-affiliate Noteholder converted a total of $100,000 of an outstanding Note into 2,000,000 common shares based on a conversion price of $.05 per share.
Also in December 2020, Greentree Financial Group converted $251,297 of an outstanding Note payable debt including interest and default fees into 16,753,133 common shares with the conversion price based on specific terms of the Note.
Our two independent directors, John Bode and Gregory Nagel, are each compensated for their services as a director on the basis of $12,500 quarterly, payable each quarter through issuance of restricted common stock of the Company valued at the trading price of such common shares at the end of each quarter. For our fiscal year ended December 31, 2020, Messrs. Bode and Nagel received 6,783,631 shares and 5,191,028 shares, respectively for their services as independent directors of the Company.
In April 2019, we entered into a consulting contract with our affiliate Capital Market Solutions, LLC (CMS) for a term of one year. CMS provided us with management, operational, accounting and financial services in consideration for our payments to CMS of $50,000 monthly along with issuance to CMS of 30 million shares of our common stock which we valued at $1,797,000 and a five-year warrant to purchase an additional 30 million common shares at $.20 per share.(See Note 9).
In May 2019, our largest and also a principal shareholder, CMS, entered into a Long-Term Convertible Note with us in the principal amount of $250,000 for the conversion of existing short-term notes, maturing in three years, bearing interest at 6% per annum payable each six months of its term, and being convertible into our common stock at the lesser of $.20 per share or the Volume Weighted Average Price (VWAP) per share during the 10-day period prior to conversion. The Convertible Note also includes three-year warrants to purchase a number of shares equal to the principal amount of the note divided by the conversion price. The exercise price is equal to the conversion price. The Company recorded a derivative liability on the conversion feature in the note and associated warrant liability to the warrants issuable under the agreement. We valued the warrants at $463,174, under our Black Scholes model, to be recorded as a derivative liability for warrants, whereby the associated debt discount is being amortized on a straight-line basis over the term of the warrants, including a cashless exercise provision as defined under the terms of the Note, and CMS also received registration rights related to any future conversion(s) of this Note to equity. In accordance with ASC 470 – Debt, the Company accounted for this as a debt extinguishment since the terms of the debt changed significantly by adding a conversion feature. Accordingly, the Company recorded a loss on debt extinguishment of $189,847.
CMS also has additional short term nonconvertible notes for a total of $76,111 as of December 31, 2020, which have been in default since 2019. Also, an additional short-term note for $82,500 with affiliate MGA Capital LLC and two additional short-term notes for an aggregate of $148,778 with affiliate Ignition Capital, LLC are also in default, as of December 31, 2020, whereby MGA Capital and Ignition Capital are partially owned by our director William Gerhauser.
In December 2020, affiliate CMS (controlled by director William Gerhauser) converted outstanding debt of $500,000 owed to CMS into 10,000,000 shares of our restricted common stock at $.05 per share; and director Michael Brown converted outstanding debt of $250,000 owed to him into 5,000,000 shares of our restricted common stock at $.05 per share.
In January 2021, two affiliate shareholders converted their entire balances (including accrued interest) of certain outstanding Notes totaling $365,130.88 into restricted common shares of the Company based on the conversion price of $.05 per share, including $254,226.77 converted into 5,084,535 shares by director Michael Brown, and $110,904.11 converted into 2,218,082 shares by affiliate CMS (controlled by director William Gerhauser).
NOTE 12 – ACQUISITION TO ENGAGE IN MEDICAL AMBULATORY SURGERY CENTER BUSINESS
In November 2020, the Company acquired 100% of the membership interests of two Florida limited liability companies from Capital Market Solutions, LLC (“CMS”), which are Ft Myers ASC LLC (“Ft Myers ASC”) and ASC SoftDev LLC (“SoftDev”). These two LLCs were organized by CMS in the fall of 2020 to engage in the development and operation of medical Ambulatory Surgery Centers.
CMS is an affiliate of the Company and its largest shareholder, and is controlled by William Gerhauser, a director of the Company. This acquisition and its terms were specifically considered and approved by our two independent and disinterested directors, who also were advised by independent outside legal counsel. Neither Mr. Gerhauser nor any other representative of CMS participated in the vote of our Board of Directors to approve this acquisition. As of December 31, 2020, the Florida LLC’s had no assets or liabilities, and accordingly, the Company has not recorded any assets or liabilities for this transaction.
NOTE 13 – COMMITMENTS & CONTINGENCIES
Management has concluded that the COVID-19 outbreak in 2020 may have a significant impact on business in general, but the potential impact on the Company is not currently measurable. Due to the level of risk this virus may have on the global economy, it is at least reasonably possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials. Management has not been able to measure the potential financial impact on the Company but will review commercial and federal financing options should the need arise. In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain.
The Company is the plaintiff in a civil lawsuit commenced by us in federal district court in New Jersey, whereby we have sued Continuity Logic LLC to collect approximately $905,500 owed to us for overdue Notes and related interest and costs incident to loans made by us to Continuity Logic in 2018. Further, we are a Petitioning Creditor in a federal bankruptcy case in the District of New Jersey, whereby our goal is to have a court-appointed Trustee take over the assets of Continuity Logic LLC, as to collect proceeds from Continuity Logic customers. As we are the only secured lender, as a first priority and perfected lienholder, we are expecting the first $455,215 of proceeds to be released to us, after any court related costs associated with the bankruptcy case.
We currently are not a party to any material legal proceedings against us, nor are we aware of any pending or threatened litigation that could have a material adverse effect on our business, operating results or financial condition.
NOTE 14 – LEASES
As the Company no longer leases any office, administrative or operational facilities other than a “virtual” office location in Minneapolis on a monthly basis, the Company currently does not have any leases, and accordingly, the Company has not recorded any liabilities on the balance sheet, as of December 31, 2020.
NOTE 15 – INCOME TAXES
At December 31, 2020 and 2019, we had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $22,869,765 and $19,591,225 for Federal and state purposes, respectively. The Federal carryforward for the Net Operating Loss (NOL) for 2010-2017 expires in 2038, while the Federal carryforward NOL for 2018, 2019 and 2020 has no expiration date, and the state carryforward expires in 2023. Given our history of net operating losses, our management has determined that it is more likely than not that we will not be able to realize the tax benefit of the carryforwards. Accordingly, we have not recognized a deferred tax asset for this benefit.
Effective January 1, 2007, we adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2020 and 2019, we did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.
Our policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2020 and 2019, we have not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2018 through 2020 remain open to examination by the major taxing jurisdictions to which we are subject.
Upon any attainment of taxable income by us, our management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize a deferred tax asset at that time.
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
As of December 31, 2020 and 2019, a deferred income tax asset, includes a reserve for the notes receivable of $905,500 and $857,242, respectively, and a cumulative estimated net tax operating loss of $22,869,765 and $19,591,225, respectively, that is available to offset future taxable income, if any, in future periods, subject to expiration and other limitations imposed by the Internal Revenue Service. Management has considered our operating losses incurred to date and believes that a full valuation allowance against the deferred tax assets is required as of December 31, 2020 and 2019.
Utilization of our net operating losses may be subject to substantial limitations if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions. The Federal carryforward for the Net Operating Loss (NOL) for 2010-2017 expires in 2038, while the Federal carryforward NOL for 2018, 2019 and 2020 has no expiration date, and the state carryforward expires in 2023.
NOTE 16 – WARRANTS
We have the following outstanding warrants to purchase our common stock at December 31, 2019 and 2020:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted Average
(Remaining Term)
Aggregate
Intrinsic
Value
Balance December 31, 2018
17,741,569
$
0.22
$
0.22
$
0.23
Granted
54,302,767
0.14
Forfeited or cancelled
(1,681,287
)
0.27
Balance December 31, 2019
70,363,049
$
0.13
$
0.13
$
0.14
Granted
5,000,000
0.10
Forfeited or cancelled
(5,185,749
)
0.24
Balance December 31, 2020
70,177,300
$
0.153
$
0.153
$
0.162
NOTE 17 – CONCENTRATIONS
For the year ended December 31, 2020 three customers each accounted for more than 10% of our revenues, and for the year ended December 31, 2019 two customers each accounted for more than 10% of our revenues. A significant reduction for any reason in the use of our software solutions by one or more of our major customers could harm our business materially.
NOTE 18 – SUBSEQUENT EVENTS
Stock issued for conversion of debt - In January – March, 2021, we issued an aggregate of 47,580,214 shares of our common stock to noteholders who converted total outstanding Notes in the amount of $1,501,777, which included Garry Lowenthal who converted the remainder of his Note balance of $187,877 for 3,757,537 shares at $0.05 per share, director Michael Brown who converted his Note balance of $254,226.77 at $.05 per share and affiliates Capital Market Solutions LLC (“CMS”), Ignition Capital, LLC and MGA Holdings LLC (all three entities controlled by director William Gerhauser) which converted as follows: i) CMS Note balance of $110,904.11 at $.05 per share, ii) Ignition Capital Note balance of $165,292 at $0.03 per share, and iii) MGA Holdings Note balance of $98,450 at $0.03 per share.
Stock issued for services - In February 2021 we issued 459,559 restricted common shares to independent director John Bode for quarterly services as a director.
In March 2021, we issued 515,145 restricted common shares to independent director Greg Nagel for quarterly services as a director. We also issued 515,145 restricted common shares to our Chairman and director Michael Brown for quarterly services as a director. We also issued 515,145 restricted common shares to our director William Gerhauser for quarterly services as a director.
Other subsequent events - On April 6, 2021 we filed an 8-K with the U.S. Securities and Exchange Commission (SEC File No. 000-53929) disclosing on April 1, 2021, the Company entered into a Memorandum of Understanding (“MOU”) with Score, Inc., a Puerto Rico Corporation and Joshua Carmona (“Carmona”), an individual. This agreement concerns the acquisition by Fision Corporation (“Issuer” or “Company” or “Fision”) of 100% of Score, Inc., including its subsidiaries (“Score”). Upon the closing of the transaction, Score will become a wholly owned subsidiary of Fision.
Score, Inc. is an Act 73 company under Puerto Rico law that is in the enterprise software space and currently provides business to business solutions for approximately 100 US companies in the credit repair space. Joshua Carmona owns 100% of the stock in Score, whereby Mr. Carmona owns the Score stock free and clear of all liens and encumbrances of any kind. There are no other classes of stock or ownership in Score.
Score is a duly incorporated Puerto Rico company organized under Act 73 of Puerto Rico law and is in good standing. Score will own 100% of the ownership in VIP Solutions LLC, a subsidiary of Score, and there will be no liens or encumbrances on that ownership at Closing. The sale of Stock to Fision by Carmona will not affect Score’s status as an Act 73 company and all necessary procedures will be followed under Act 73 so that completion of the instant transaction will not affect Score’s status as an Act 73 company. There is no legal impediment to the sale of stock contemplated under this MOU. All corporate actions necessary to approve this MOU and the sale of Score stock have been or will have been taken by the date of Closing. There will be no material change in the operations or financial condition of Score between the signing of this MOU and Closing.
Fision will have 70 days from the signing of this MOU to conduct its due diligence into the operations and finances of Score, in which Score and Carmona will fully cooperate and deliver to Fision or its representative all information about Score Fision or its representatives may request. The closing of the transaction will be contingent on: i) the satisfactory completion of due diligence as determined by Fision in its sole and absolute discretion; ii) the presentation by Score to Fision of its audited financials satisfactory to Fision’s auditors in their sole and absolute discretion; and iii) closing will occur within five (5) business days of the satisfaction of the conditions set forth.
Pursuant to the requirements of the Securities Exchange Act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FISION Corporation
Dated: April 15, 2021
By:
/s/ Michael P. Brown
Michael P. Brown
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: April 15, 2021
By:
/s/ Michael P. Brown
Michael P. Brown
Director, Chairman of the Board (principal executive officer)
Dated: April 15, 2021
By:
/s/ Michael P. Brown
Michael P. Brown
Director, Chairman of the Board
(principal financial and accounting officer)
35
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