Company Quick10K Filing
Fision
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 119 $7
10-Q 2019-11-21 Quarter: 2019-09-30
10-Q 2019-09-06 Quarter: 2019-06-30
10-Q 2019-05-22 Quarter: 2019-03-31
10-K 2019-04-05 Annual: 2018-12-31
S-1 2018-12-31 Public Filing
10-Q 2018-11-16 Quarter: 2018-09-30
10-Q 2018-08-17 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-04-02 Annual: 2017-12-31
10-Q 2017-11-15 Quarter: 2017-09-30
10-Q 2017-08-21 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-03-31 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-12 Quarter: 2016-06-30
10-Q 2016-05-12 Quarter: 2016-03-31
10-K 2016-04-15 Annual: 2015-12-31
10-Q 2016-01-15 Quarter: 2015-11-30
10-Q 2015-12-07 Quarter: 2015-08-31
10-K 2015-12-07 Annual: 2015-08-31
10-Q 2015-12-07 Quarter: 2015-05-31
10-Q 2015-12-07 Quarter: 2014-11-30
10-Q 2015-12-07 Quarter: 2014-08-31
10-Q 2015-12-07 Quarter: 2014-05-31
10-K 2015-12-07 Annual: 2014-02-28
10-Q 2015-12-07 Quarter: 2013-11-30
10-Q 2015-12-07 Quarter: 2013-08-31
10-Q 2015-12-07 Quarter: 2013-05-31
10-K 2013-08-02 Annual: 2013-02-28
10-Q 2013-01-11 Quarter: 2012-11-30
10-Q 2012-09-25 Quarter: 2012-08-31
10-Q 2012-07-06 Quarter: 2012-05-31
10-K 2012-05-24 Annual: 2012-02-29
10-Q 2012-01-17 Quarter: 2011-11-30
8-K 2019-09-16 Officers
8-K 2019-09-16 Officers
8-K 2019-07-18 Accountant, Exhibits
8-K 2019-04-15 Officers
8-K 2019-04-01 Enter Agreement, Exhibits
8-K 2019-02-08 Officers
8-K 2019-02-04 Leave Agreement, Exhibits
8-K 2018-12-21 Enter Agreement, Regulation FD, Exhibits
8-K 2018-08-03 Enter Agreement, Regulation FD, Exhibits
8-K 2018-06-20 Officers
8-K 2018-03-01 Officers
FSSN 2019-09-30
Part I - Financial Information
Item 1 Financial Statements
Note 1 - Organization and Significant Accounting Policies
Note 2 -- Going Concern
Note 3 -- Fair Value of Financial Instruments
Note 4 - Non Derivative Notes Payable
Note 5 - Notes Receivable
Note 6 - Prepaid Expenses
Note 7- Convertible Notes
Note 8-Commitments and Contingencies
Note 9 -- Stockholders' Equity
Note 10-- Related Party Transactions
Note 11 -- Subsequent Events
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3 Quantitative and Qualitative Disclosures About Market Risk.
Item 4 Controls and Procedures
Part II -- Other Information
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
EX-31.1 fssn_311.htm
EX-31.2 fssn_312.htm
EX-32.1 fssn_321.htm

Fision Earnings 2019-09-30

FSSN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CTAM 7 365 389 583 0 -40 3 261 0% 93.6 -11%
SOFO 7 15 21 34 25 -13 -11 10 74% -0.9 -89%
GRST 7 24 34 1 0 -10 -9 7 0% -0.8 -42%
FSSN 7 2 5 1 0 -6 -6 8 83% -1.3 -281%
FUSZ 7 26 7 4 2 -11 -10 7 44% -0.7 -42%
ISCO 7 9 5 10 6 -2 -2 6 61% -3.0 -29%
FLXT 7 5 3 1 1 -1 -0 7 96% -14.5 -15%
SRGZ 7 1 0 0 0 -0 -0 7 -36.3 -21%
WLB 7 1,468 2,191 1,265 282 -219 -13 973 22% -73.7 -15%
VASO 7 47 45 71 38 -5 -2 6 54% -2.8 -10%

10-Q 1 fssn_10q.htm FORM 10-Q fssn_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2019

 

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 Boulevard, Suite 100

Minneapolis, Minnesota

55416

(Address of principal executive offices)

(Zip Code)

 

(763) 259-5825

Registrant’s telephone number, including area code

 

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 x Yes    ¨ No

 

Indicate by check mark whether the registrant has submitted electronically 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). x Yes    ¨ No

 

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

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act).  ¨ Yes     x No

 

Indicate the number of the registrant’s shares of common stock outstanding, as of the latest practicable date: 132,083,340 shares of common stock are outstanding as of November 21, 2019.

 

 
 
 
 

 

Table of Contents

 

 

Corporate Contact Information

 

Our executive, administrative and operational offices are now temporarily located at 1650 West End Boulevard, Suite 100, Minneapolis, MN 55416; our telephone number is (763) 259-5825; and we maintain a website at www.FisionOnline.com.

 

 
2
 
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 FINANCIAL STATEMENTS

 

FISION CORPORATION

CONSOLIDATED BALANCE SHEETS

 
   

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$30,680

 

 

$121,900

 

Accounts receivable, net

 

 

5,391

 

 

 

19,498

 

Notes receivable, net of allowance for doubtful accounts

 

 

425,776

 

 

 

811,234

 

Prepaid expenses

 

 

1,037,814

 

 

 

31,955

 

Total Current Assets

 

 

1,499,661

 

 

 

984,587

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$4,258

 

 

$6,599

 

 

 

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

13,800

 

 

 

13,800

 

Intellectual property/software code, net of accumulated amortization

 

 

45,259

 

 

 

52,598

 

Deposits

 

 

25,599

 

 

 

8,053

 

Total Assets

 

$1,588,577

 

 

$1,065,637

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

$1,188,338

 

 

$856,096

 

Customer advances

 

 

156,057

 

 

 

181,469

 

Derivative liability

 

 

2,099,784

 

 

 

1,480,978

 

Note payable and accrued interest - related party

 

 

150,460

 

 

 

284,377

 

Convertible notes payable, net of debt discount of $0 and $1,050,602 respectively

 

 

1,125,313

 

 

 

590,636

 

Total Current Liabilities

 

 

4,719,952

 

 

 

3,393,556

 

 

 

 

 

 

 

 

 

 

Long-Term Liabilities:

 

 

 

 

 

 

 

 

Long-Term convertible notes payable, net of debt discount of $1,230,361 and $541,275 respectively

 

 

391,745

 

 

 

607,725

 

Total Long-Term Liabilities

 

 

391,745

 

 

 

607,725

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

5,111,697

 

 

 

4,001,281

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Preferred Stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding

 

 

-

 

 

 

-

 

Common Stock, $0.0001 par value, 500,000,000 shares authorized 124,453,545 and 67,454,276 shares issued and outstanding, respectively

 

 

12,445

 

 

 

6,745

 

Additional paid in capital

 

 

23,986,328

 

 

 

19,572,322

 

Accumulated deficit

 

 

(27,521,893)

 

 

(22,514,711)

Total Stockholders' Deficit

 

 

(3,523,120)

 

 

(2,935,644)

Total Liabilities and Stockholders' Deficit

 

$1,588,577

 

 

$1,065,637

 

 

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 

 

 
3
 
Table of Contents

 

FISION CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

   

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

 September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

$108,021

 

 

$134,818

 

 

$376,264

 

 

$391,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF SALES

 

 

5,135

 

 

 

17,117

 

 

 

56,310

 

 

 

63,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS MARGIN

 

$102,886

 

 

$117,701

 

 

$319,954

 

 

$327,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

38,998

 

 

 

158,193

 

 

 

363,312

 

 

 

536,164

 

Development and support

 

 

58,013

 

 

 

124,548

 

 

 

351,452

 

 

 

531,359

 

General and administrative

 

 

805,886

 

 

 

427,925

 

 

 

1,953,838

 

 

 

1,188,493

 

Bad debt expense

 

 

0

 

 

 

0

 

 

 

416,026

 

 

 

0

 

TOTAL OPERATING EXPENSES

 

$902,897

 

 

$710,666

 

 

$3,084,629

 

 

$2,256,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

$(800,011)

 

$(592,964)

 

$(2,764,675)

 

$(1,928,083)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME / (EXPENSES)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

(478,314)

 

 

(192,219)

 

 

(1,215,400)

 

 

(582,699)

Amortization expense/amortization of debt discount

 

 

(293,018)

 

 

(263,601)

 

 

(1,434,818)

 

 

(826,534)

OID, excess derivative expense and other expenses

 

 

0

 

 

 

(54,500)

 

 

(749,533)

 

 

(119,500)

Gain (loss) in fair value of derivatives

 

 

(53,176)

 

 

330,419

 

 

 

32,826

 

 

 

660,145

 

Loss on extinguishment of debt / settlement of debt

 

 

172,143

 

 

 

(136,230)

 

 

(153,532)

 

 

175,729

 

Gain on Extinguishment of derivative liabilities

 

 

0

 

 

 

0

 

 

 

1,158,036

 

 

 

0

 

Other income

 

 

10,952

 

 

 

664

 

 

 

119,914

 

 

 

664

 

TOTAL OTHER INCOME / (EXPENSES)

 

$(641,413)

 

$(315,467)

 

$(2,242,506)

 

$(692,195)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$(1,441,424)

 

$(908,432)

 

$(5,007,182)

 

$(2,620,278)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$(0.01)

 

$(0.02)

 

$(0.05)

 

$(0.05)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

120,712,679

 

 

 

56,031,314

 

 

 

103,438,883

 

 

 

51,691,263

 

 

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

 

4

 
Table of Contents

    

FISION CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 Total

 

 

 

Common

 

 

Common

 

 

Paid in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2018

 

 

67,454,276

 

 

$6,745

 

 

$19,572,322

 

 

$(22,514,711

 

$(2,935,644)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

1,750,000

 

 

 

175

 

 

 

349,825

 

 

 

 

 

 

 

350,000

 

Stock issued for services

 

 

537,500

 

 

 

54

 

 

 

54,446

 

 

 

 

 

 

 

54,500

 

Warrants/Options granted for services

 

 

 

 

 

 

 

 

 

 

148,199

 

 

 

 

 

 

 

148,199

 

Conversion of notes payable and accrued interest/expenses

 

 

8,622,087

 

 

 

862

 

 

 

741,528

 

 

 

 

 

 

 

742,391

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(999,541

 

 

(999,541)

Balance, March 31, 2019

 

 

78,363,863

 

 

$7,836

 

 

$20,866,321

 

 

$(23,514,252

 

$(2,640,096)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

35,245,098

 

 

 

3,525

 

 

 

2,027,975

 

 

 

 

 

 

 

2,031,500

 

Warrants/Options granted for services

 

 

 

 

 

 

 

 

 

 

352,010

 

 

 

 

 

 

 

352,010

 

Conversion of notes payable and accrued interest/expenses

 

 

5,044,284

 

 

 

504

 

 

 

226,996

 

 

 

 

 

 

 

227,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,566,217

 

 

(2,566,217)

Balance, June 30, 2019

 

 

118,653,245

 

 

$11,865

 

 

$23,473,302

 

 

$(26,080,469

 

$(2,595,302)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

590,196

 

 

 

59

 

 

 

16,341

 

 

 

 

 

 

 

16,400

 

Warrants/Options granted for services

 

 

 

 

 

 

 

 

 

 

398,045

 

 

 

 

 

 

 

398,045

 

Conversion of notes payable and accrued interest/expenses

 

 

5,210,104

 

 

 

521

 

 

 

98,640

 

 

 

 

 

 

 

99,161

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,441,424

 

 

(1,441,424)

Balance, September 30, 2019

 

 

124,453,545

 

 

$12,445

 

 

$23,986,328

 

 

$(27,521,893

 

$(3,523,120)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common

 

 

Common

 

 

Paid in

 

 

Accumulated

 

 

Stockholders’ 

 

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, December 31, 2017

 

 

45,935,369

 

 

$4,593

 

 

$15,822,262

 

 

$(18,521,865

 

$(2,695,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

800,000

 

 

 

80

 

 

 

133,920

 

 

 

 

 

 

 

134,000

 

Warrants/Options granted for services

 

 

 

 

 

 

 

 

 

 

110,307

 

 

 

 

 

 

 

110,307

 

Conversion of notes payable and accrued interest/expenses

 

 

2,012,957

 

 

 

201

 

 

 

130,232

 

 

 

 

 

 

 

130,433

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(414,905

)

 

 

(414,905

 

Balance, March 31, 2018

 

 

48,748,326

 

 

$4,874

 

 

$16,196,721

 

 

$(18,936,770

 

$(2,735,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

1,279,960

 

 

 

128

 

 

 

188,748

 

 

 

 

 

 

 

188,876

 

Warrants/Options granted for services

 

 

 

 

 

 

 

 

 

 

94,542

 

 

 

 

 

 

 

94,542

 

Conversion of notes payable and accrued interest/expenses

 

 

3,861,843

 

 

 

386

 

 

 

256,594

 

 

 

 

 

 

 

256,980

 

Exercise of warrants

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,296,941

)

 

 

(1,296,941

Balance, June 30, 2018

 

 

53,890,129

 

 

$5,388

 

 

$16,736,605

 

 

$(20,233,711

)

 

$(3,491,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

912,500

 

 

 

91

 

 

 

146,709

 

 

 

 

 

 

 

146,800

 

Warrants/Options granted for services

 

 

93,333

 

 

 

9

 

 

 

45,470

 

 

 

 

 

 

 

45,480

 

Conversion of notes payable and accrued interest/expenses

 

 

2,765,491

 

 

 

277

 

 

 

227,915

 

 

 

 

 

 

 

228,192

 

Exercise of warrants

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(908,432

 

 

(908,432

Balance, September 30, 2018

 

 

57,661,453

 

 

 

5,766

 

 

 

17,156,699

 

 

 

(21,142,143

 

 

(3,979,679

  

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

 
5
 
Table of Contents

 

FISION CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$(5,007,182)

 

$(2,620,127)

Net cash used in operating activities:

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

2,102,400

 

 

 

438,770

 

Depreciation and amortization

 

 

9,680

 

 

 

16,711

 

Warrant and stock options issued for services

 

 

898,255

 

 

 

250,329

 

Change in fair value of derivative liabilities

 

 

(32,824)

 

 

(1,069,175)

Excessive derivative expense

 

 

749,533

 

 

 

-

 

Loss on extinguishment of debt

 

 

153,532

 

 

 

233,301

 

Extinguishment of derivative liability due to convertible note conversions

 

 

(1,158,036)

 

 

-

 

Bad debt expense

 

 

416,026

 

 

 

-

 

Amortization of debt discount

 

 

1,434,818

 

 

 

812,164

 

Interest income on notes receivable

 

 

(30,568)

 

 

-

 

Changes in Operating Assets and Liabilities (Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

14,107

 

 

 

10,782

 

Other assets

 

 

(17,546)

 

 

-

 

Customer contracts - unrecognized revenue

 

 

-

 

 

 

11,924

 

Work In Process

 

 

-

 

 

 

-

 

Prepaid expenses

 

 

(1,005,859)

 

 

120,939

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other current liabilities

 

 

358,456

 

 

 

(13,838)

Change in customer advances

 

 

(25,412)

 

 

-

 

Net Cash Used in Operating Activities

 

 

(1,140,620)

 

 

(1,808,220)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

-

 

 

 

(5,000)

Net Cash Used in Investing Activities

 

 

-

 

 

 

(5,000)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments on note payable

 

 

(343,000)

 

 

(385,513)

Proceeds from note payable

 

 

1,037,000

 

 

 

2,422,325

 

Proceeds from related party notes

 

 

7,500

 

 

 

26,125

 

Repayments for related party notes

 

 

(2,100)

 

 

(41,113)

Proceeds from issuance of common stock

 

 

350,000

 

 

 

-

 

Net Cash Provided by Financing Activities

 

 

1,049,400

 

 

 

2,021,824

 

 

 

 

 

 

 

 

 

 

Net (Decrease) Increase in Cash

 

 

(91,220)

 

 

208,604

 

 

 

 

 

 

 

 

 

 

Cash at Beginning of Period

 

 

121,900

 

 

 

10,773

 

Cash at End of Period

 

$30,680

 

 

$219,377

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

-

 

 

 

438,770

 

Stock warrants/stock options issued for services

 

 

-

 

 

 

250,329

 

Notes payable and accrued interest converted to common stock

 

$1,068,872

 

 

$614,710

 

Accrued interest increasing notes payable

 

$12,078

 

 

$-

 

Derivatives recorded as debt discount

 

$1,105,713

 

 

$-

 

 

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

 

 
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FISION CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019 AND 2018

(Unaudited)

 

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

FISION Corporation, (formerly DE 6 Acquisition, Inc.), a Delaware corporation (the “Company”) was incorporated on February 24, 2010, and was inactive until December 2015 when it merged with Fision Holdings, Inc., an operating business based in Minneapolis, Minnesota. As a result of this reverse merger, Fision Holdings, Inc. became a wholly-owned subsidiary of the Company. Fision Holdings, Inc. was incorporated under the laws of the State of Minnesota in 2010, and has developed and commercialized a proprietary cloud-based software platform which automates and integrates digital marketing assets and marketing communications to “bridge the gap” between marketing and sales of any enterprise. The Company generates its revenues primarily from software licensing contracts typically having terms of from one to three years and requiring monthly subscription fees based on the customer’s number of users and the locations where used. The Company’s business model provides it with a high percentage of recurring revenues.

 

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 (including our Volerro software services).

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and note disclosures which are included in annual financial statements have been omitted pursuant to these rules and regulations. We believe the disclosures made in these interim unaudited financial statements are adequate to make the information not misleading.

 

Although these interim financial statements for the three-month and nine-month periods ended September 30, 2019 and 2018 are unaudited, in the opinion of our management, such statements include all adjustments, consisting of normal and recurring accruals, necessary to present fairly our financial position, results of operations and cash flows for the periods presented. The results for the 2019 interim periods are not necessarily indicative of the results to be expected for the year ended December 31, 2019 or for any future period.

 

These unaudited interim financial statements should be read and considered in conjunction with our audited financial statements and the notes thereto for the year ended December 31, 2018, included in our annual report on Form 10-K filed with the SEC on April 5, 2019.

 

Principles of Consolidation

 

These consolidated interim financial statements include the accounts of FISION Corporation, a Delaware corporation, and its wholly-owned Minnesota subsidiary Fision Holdings, Inc. All material intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

GAAP accounting principles require our management to make estimates and assumptions in the preparation of these interim financial statements that affect the reported amounts of assets and liabilities and the 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. Actual results could differ materially from these estimates and assumptions.

 

The most significant areas requiring management judgment and which are susceptible to possible later change include our revenue recognition, cost of revenue, allowance for doubtful accounts, valuations of property and equipment and intangible assets, stock-based compensation, fair value of financial instruments, derivative liabilities, research and development, impairment of long-lived assets, and the valuation allowance for income taxes.

 

Cash and Cash Equivalents

 

We consider all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. At September 30, 2019 and December 31, 2018, we had no cash equivalents.

 

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Concentration of Credit Risk and Customers

 

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. During December 31, 2018 and the nine months ended September 30, 2019, we may have had cash deposits in our bank that exceeded FDIC insurance limits. We maintain our bank accounts at high quality institutions and in demand accounts to mitigate this risk. Regarding our customers, we perform ongoing credit evaluations of them, and generally we do not require collateral from them to do business with us.

 

For the nine months ended September 30, 2019, two customers exceeded 10% of our revenues, including one for 14% of revenues, and one for 26% of revenues. We do not believe that we face any material customer concentration risks currently, although 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.

 

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, 2017. 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, 2018. 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 already adopted the application of ASC 606 and has evaluated the impact of ASC 606 and the application of ASC 606 did not have a material impact on its consolidated financial statements and disclosures, as the Company had already implemented the five-step process in determining revenue recognition from contracts with customers.

 

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.

 

Lease Accounting

 

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has adopted ASU 2016-02 on leases and has evaluated the impact of ASU 2016-02 on the Company’s financial statements and disclosures, and currently does not believe that its application will have a material impact on its consolidated financial statements. The Company has only one office lease, which will expire on December 31, 2019, whereby there will be no impact on our consolidated financial statements.

 

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Loss Per Common Share

 

Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding and potential common shares under the treasury stock method. Diluted net loss per common share is not shown, since the assumed exercise of stock options and warrants using the treasury stock method are anti-dilutive.

 

As of September 30, 2019 and December 31, 2018, there were 57,726,412 and 20,956,569 respectively, potentially dilutive securities not included in the calculation of weighted-average common shares outstanding since they would be anti-dilutive.

 

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 or 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

 

Stock-Based Compensation

 

We record stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, which requires us to measure the cost for any stock-based employee compensation at fair value and recognize the expense over the related service period. We recognize the fair value of stock options, warrants and any other equity-based compensation issued to employees and non-employees as of the grant date. We use the Black Scholes model to measure the fair value of options and warrants.

 

Recently Issued Accounting Pronouncements

 

See above “Revenue Recognition” and “Lease Accounting” sections in this Note 1.

 

Other 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 our present or future financial statements.

 

NOTE 2 -- GOING CONCERN

 

Our consolidated 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 future ability to achieve and maintain profitable operations, and to raise substantial additional capital as required until we attain profitable operations.

 

At September 30, 2019 we had a working capital deficiency of approximately $3,220,291 and an accumulated deficit of approximately $27,521,893. In addition, the Company had a net loss of $5,007,182 and net cash used in operations of $1,140,620. These conditions raise substantial doubt about our ability to continue as a going concern for a period of 1 year from the issuance date of this report. These unaudited interim 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.

 

We are in the process of raising funds to support an increase in our marketing and sales personnel and activities to obtain increased revenues, and otherwise addressing our ability to continue as a going concern. Our management believes that if we succeed in raising substantial additional capital to implement planned increased funding for marketing and sales support, we will be able to generate material increased revenues and continue as a going concern. Unless we can raise significant additional working capital, however, we most likely will not be able to continue our current business as a going concern.

 

 
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NOTE 3 -- 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.

 

The following table represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at December 31, 2018 and September 30, 2019:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$-

 

 

$-

 

 

$2,099,784

 

  

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:

  

 

 

Fair Value

December 31,

2018

 

 

Additions

 

 

Change in

 fair

Value

 

 

Extinguishment

 

 

Fair Value

Sept. 30,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$1,480,978

 

 

$1,744,016

 

 

$32,826

 

 

$(1,158,036)

 

$2,099,784

 

   

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 income and expense in these financial statements.

 

The significant unobservable inputs used in the fair value measurement of the liabilities described above are as follows;

 

Exercise price

 

$

.0135 - $.05

 

Expected Volatility

 

 

208%

Expected Term

 

Due on demand to 36 mos.

 

Risk free interest rate

 

0.91 - 1.13

%

Expected dividends

 

 

-

 

 

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.

 

 
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NOTE 4 – NON DERIVATIVE NOTES PAYABLE

 

At September 30, 2019, we were indebted under various convertible Notes Payable of $812,831 and non-convertible Notes Payable of $836,552, net of Debt Discount of $1,230,361 for a total amount of $2,035,666 including accrued interest of $386,283, with interest rates bearing 6% to 15%, with most notes in default.

 

NOTE 5 – NOTES RECEIVABLE

 

Our notes receivable at September 30, 2019 and December 31, 2018 consisted of the following:

 

 

 

Sept. 30,

2019

 

 

Dec. 31,

2018

 

Notes receivable

 

$804,300

 

 

$804,300

 

Accrued interest

 

 

37,502

 

 

 

6,934

 

Total

 

 

841,802

 

 

 

811,234

 

Less allowance for doubtful accounts

 

 

(416,026)

 

 

-

 

Notes receivable, net

 

$425,776

 

 

$811,234

 

   

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 $841,802 is still outstanding as of September 30, 2019 and in default. These loans mature 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. The termination of the merger does not change or affect the continuing obligation of Continuity Logic to satisfy the future payment of these loans to the Company. Further, during June 2019, the Company commenced a Complaint to Continuity Logic LLC regarding the unpaid balance of the Notes Receivable. Accordingly, the Company created an allowance for doubtful accounts of $416,026 against the unsecured portion of the loans. Continuity Logic, LLC is not a related party to the Company.

 

NOTE 6 – PREPAID EXPENSES

 

Our prepaid expenses at September 30, 2019 and December 31, 2018 consisted of the following:

 

 

 

Sept. 30,

2019

 

 

Dec. 31,

2018

 

Prepaid expenses

 

$1,037,814

 

 

$31,955

 

 

Our prepaid expenses as of September 30, 2019 consist of advance sales commission of $196, severance payments of $7,500, and $1,030,118 value of common stock issued for consulting/advisory agreements including i) $898,500 remaining on the Capital Market Solutions LLC agreement disclosed in the following Note 8; and ii) $131,618 remaining on two advisory service agreements with two independent financial advisors.

 

 
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NOTE 7- CONVERTIBLE NOTES

 

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, utilizing volatility for the period, closing stock price, strike price, and the discount rate of a U.S. bond equivalent yield, 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 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 $222,049, under our Black-Scholes model, utilizing volatility for the period, closing stock price, strike price, and the discount rate of a U.S. bond equivalent yield, 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 (See Note 8), 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, utilizing volatility for the period, closing stock price, strike price, and the discount rate of a U.S. bond equivalent yield, 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 $399,974 for the May 2019 $250,000 note and the April 2019 $141,106 notes 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.

 

 
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During 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 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 September 30, 2019. The convertible note holders also received registration rights related to any future conversion(s) of these Notes to equity.

 

As of September 30, 2019, the Company had $391,745 outstanding in long term convertible notes, which is net of debt discount of $1,230,361. These notes have accrued interest of $169,631, which is included in accounts payable and accrued expenses on the balance sheet.

 

The Company recorded a gain of $1,158,036 related to the extinguishment of derivative liabilities on notes that were settled and converted during the nine months ended September 30, 2019.

 

NOTE 8—COMMITMENTS AND CONTINGENCIES

 

In April 2019, we entered into a consulting contract with Capital Market Solutions LLC, a Delaware limited liability company (“CMS”), an affiliate, providing that for a term of one year, CMS will provide 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 has been recorded as an asset as a pre-paid expense, to be 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 warrant we valued at $1,297,570 utilizing a Black Scholes pricing model, utilizing volatility for the period, closing stock price, strike price, and the discount rate of a U.S. bond equivalent yield, with the warrant expense to be amortized as consulting expense on a straight-line basis over the term of the consulting agreement of one year.

 

NOTE 9 -- STOCKHOLDERS’ EQUITY

 

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 September 30, 2019 there were 124,453,545 outstanding shares of common stock and no outstanding shares of preferred stock.

 

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 February 2019 we also issued 62,500 common shares to our independent director, John Bode for his service as a director in the fourth quarter of his first year of service, and we also granted him $12,500 worth of our common stock vesting at the end of each quarter of his second year as a director, in consideration for his agreement to serve as a director for the year commencing March 1, 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 March 2019, we also issued three-year warrants to purchase an aggregate of 1,750,000 common shares exercisable at $.20 per share (with a Black-Scholes model value of $59,121 and recorded as a debt discount), in connection with a convertible debt offering of $350,000 to five accredited investors and bearing interest at 6% per annum during the five-year term of these notes, and also being convertible 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 during the ten days prior to conversion.

 

In March 2019, we recognized an option and warrant expense of $148,199 for certain employee stock options previously granted to our employees.

 

 
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In April 2019 we entered into a one-year consulting contract in consideration for our payment to the consultant of $50,000 monthly, 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 8.

 

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 one year advisory agreements.

 

In May 2019 we issued 245,098 restricted common shares valued at $12,500 to our independent director for three months service on our Board of Directors.

 

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 2019 a Noteholder who is an accredited investor converted $80,162 of outstanding Notes into an aggregate of 2,676,771 common shares, with the conversion price based on specific terms contained in the Note.

 

In August 2019, we issued 490,196 restricted common shares valued at $12,500 to our independent director for three months service on our Board of Directors.

 

In September 2019 a Noteholder who is an accredited investor converted $19,000 of outstanding Notes into an aggregate of 2,533,333 common shares, with the conversion price based on specific terms contained in the Note.

 

NOTE 10-- RELATED PARTY TRANSACTIONS

 

Our Notes Payable as of September 30, 2019 include $150,461 owed to Michael Brown, a director and our former CEO, for unpaid past salary compensation, payable on demand with an interest rate of 6% per annum.

 

In February 2019, we entered into a one-year Independent Director Agreement with our director John Bode, providing quarterly compensation to him of $12,500 in value of our restricted common stock which vests quarterly, in consideration for his serving on our Board of Directors during the one-year term of the Agreement.

 

In April 2019, we entered into a consulting contract with affiliate CMS providing that for a term of one year. CMS will provide 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 warrant to purchase an additional 30 million common shares. (See Note 8).

 

In May 2019, our largest and also a principal shareholder, Capital Market Solutions, LLC (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 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 $399,974 (Note 7).

 

In September 2019, an Affiliate shareholder, Ignition Capital, LLC entered into a Long Term Convertible Note with us in the principal amount of $50,000, 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.

 

CMS also has additional short-term nonconvertible notes for a total of $214,954, which are in default as of September 30, 2019.

 

Three affiliates have Convertible Notes for a total of $234,035 (all of which are in default), including a Note for $111,730 held by Ignition Capital, a Note for $89,100 held by MGA, and a Note for $33,205 held by Collision Capital.

 

NOTE 11 -- SUBSEQUENT EVENTS

 

In October 2019, a Noteholder who is an accredited investor converted $48,998.71 of outstanding Notes into an aggregate of 2,382,402 common shares, with the conversion price based on specific terms contained in the Note.

 

In October 2019, two Noteholders who are accredited investors converted $28,000 of outstanding Notes into an aggregate of 1,370,156 common shares, with the conversion price based on specific terms contained in the Notes.

 

In October 2019, a Noteholder who is an accredited investor converted $79,742.91 of outstanding Notes into an aggregate of 3,877,237 common shares, with the conversion price based on specific terms contained in the Note.

 

 
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

There are certain statements in this Quarterly Report on Form 10-Q that are not historical facts. These “forward-looking statements” can be identified by terminology such as “believe,” “may,” “intend,” “plan,” “will,” “could,” “expect,” estimate,” “strategy,” and similar expressions. These forward-looking statements are subject to material risks and uncertainties that are beyond our control. 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 and worse 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. Before determining to make an investment in any of our securities, you should read and consider the specific Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

 
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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Current Status of the Company

 

In order to fund and conduct our business over the past few years, we have relied significantly on working capital obtained from private sales of our equity and debt securities to various accredited investors. Due primarily to our continued substantial operating losses for several years, we recently have been unable to continue raising such working capital, as needed to support our business plan for future growth. And unless we are able to raise critically needed substantial additional funding to achieve significant revenue growth, our current business model most likely will not succeed.

 

Our current executive management consists of two persons who are partners of our major affiliate, Capital Markets Solutions, LLC (“CMS”), and who are currently serving us on an interim basis under the terms of a Consulting Agreement between us and CMS dated April 1, 2019. This Consulting Agreement is described in Note 8 of the financial statements included in this quarterly report. Our current two executive officers are being compensated by CMS for their management consulting services to us pursuant to the terms of this Consulting Agreement.

 

Because of our recent inability to raise additional capital, we have terminated employment of all but two of our employees, our bookkeeper/office manager employee and our primary customer support employee. We currently have no marketing/sales or technical personnel, and accordingly we are now unable to conduct any material marketing or new development activities.

 

Besides the key employees we have retained, we now conduct considerable operational and technical functions and activities through experienced outside contractors. We believe that our remaining key employees along with our outsourced independent contractors provide complete and adequate services for our current customers.

 

Overview

 

We are an Internet platform technology company providing proprietary cloud-based software solutions to automate and improve the marketing and sales enablement functions and activities of our customers. Our focus is to develop and offer software technology tools through our Fision platform to enable our customers to maximize their marketing assets and initiatives. Our development, management, marketing and other operations are conducted through our wholly-owned Minnesota corporate subsidiary, Fision Holdings, Inc.

 

We have developed and commercialized a unique cloud-based software platform which automates and integrates all digital marketing assets and marketing communications of our customers, and thus “bridges the gap” between marketing and sales functions and personnel of an enterprise.

 

We are a software development and licensing company offering our Fision platform marketing software solutions to promote and improve sales enablement functions of any entity. Our innovative cloud-based software platform is readily scalable to adapt to fast business growth of any customer, regardless of size. Except for future customary software enhancements and periodic upgrades, the primary development of our Fision software marketing platform has been completed.

 

Our proprietary Fision platform enables every member of the marketing and sales teams of our customers, by having easy and automated access to all their digital marketing and media assets, to leverage the full power of their distinctive brands and digital marketing assets in every interaction with their consumers or buyers.

 

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.

 

 
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Our Business

 

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.

 

We believe that the agile marketing software solutions of our Fision platform provide three major benefits to our customers, which are (i) accelerating their revenues, (ii) improving their marketing and brand effectiveness, and (iii) significantly reducing their marketing and sales costs.

 

We derive our revenues primarily through recurring revenue payments from customers having software licensing contracts with terms of one to three years, and requiring monthly fees based on the customer’s number of users and locations where used. A substantial majority of our revenues are recurring, due to the nature of our licensing contracts. As of September 30, 2019, we have written license contracts with twelve (12) customers actively using our Fision platform for their marketing and sales operations.

 

Our typical customer implementation process includes integrating our cloud-based Fision platform with the marketing infrastructure of the customer, initiating and conducting customer training, and providing marketing development support while our Fision platform is being actively launched by the customer. We also continue to offer technical and maintenance support after implementation.

 

Our current and targeted customer base ranges across diverse industries of all sizes, including banks and other financial enterprises, insurance companies, hotels and other hospitality businesses, healthcare and fitness companies, retailers, software and other technology companies, product manufacturers, telecommunications companies, and numerous other companies selling familiar branded products or services.

 

Our market and potential customer base are global and virtually unlimited, since our Fision platform software solutions provide significant benefits to the marketing and sales departments and personnel of any commercial enterprise, regardless of size and widespread locations. Our customers typically “stick” with us and our Fision platform, and accordingly we receive substantial recurring revenues from them. Certain customers have maintained written contracts with us for years. 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. We believe that our ability to realize such recurring revenues is a keystone feature of our business model.

 

We have marketed and licensed our proprietary software platform both through direct sales obtained by our management and in-house sales personnel, and through utilizing experienced independent national technology sales agencies which we refer to as our “channel partners.” We have currently have two significant channel partnership arrangements, and we have realized material revenues from the sales efforts of our channel partners.

 

Our 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 digital marketing assets. Using Fision’s automated software technology, these digital assets become readily 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 and 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. Large enterprise customers with extensive global sales 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. We believe that the use of our software marketing solutions by our customers results in a substantial increase in their return on investment (ROI) and their profitability.

 

Cloud-Based Platform - Storage and operation of our Fision 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 related software application services to their clients. Our cloud service provider is Microsoft’s Azure Cloud, which leading provider 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 interface with our customers, and the storage of unlimited customer data with 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.

 

 
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Strategic Marketing Change

 

During the years prior to 2017 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 whose operational, management and commercial activities are conducted from one local or a couple regional facilities. Since our Fision platform and its cloud-based marketing software were designed and developed to be readily adaptable to and scalable for any size company, however, in 2017 we revised our marketing strategy and activities to target and sell our software products primarily to large global enterprise corporations having many and widespread national and international branches and operations.

 

We believe that our enhanced marketing focus toward large enterprises has been effective, since during the past couple years we have closed and implemented material contracts with, and are receiving recurring revenues from, several large enterprise companies. Our significant large enterprise clients include:

 

 

·

a worldwide provider of SaaS software services for procurement and contract management.

 

·

a Fortune 50 global provider of aerospace and building systems.

 

·

a nationwide leading provider of accredited online higher education courses and degrees.

 

·

the world’s largest RV dealership with retail operations in Florida, Colorado and Arizona.

 

·

a national insurance and financial company having more than 20,000 employees and advisors.

 

·

an operator of the world’s largest business network.

 

·

a leading healthcare innovator led by former key executives of Amazon, Google and 2D.md.

 

Unfortunately, the increased length of time of our sales cycle necessary to sell to large enterprises has been substantially more expensive and much longer than we earlier incurred while selling primarily to local and regional sized companies. This substantial increase in our sales cycle to negotiate and close contracts with new large enterprise customers resulted in a material decline in our revenues during the past couple years. Accordingly, we failed to raise enough working capital to support and continue the substantial marketing resources and time necessary to secure enough large enterprise customers to achieve material increased revenues. For example, due to inadequate funding, we recently terminated employment of our marketing personnel.

 

We currently are attempting to raise the substantial capital necessary to launch an effective marketing campaign including whatever personnel and other resources are needed to properly address and sell our software services to additional targeted large enterprise customers. There is no assurance that such funds will be available to us in the future.

 

Contemplated Business Combination

 

Along with our current efforts to raise significant working capital, we are seeking a merger or other business combination with a profitable private software services company which could be complementary with our Fision business structure. We believe our Company would be beneficial to join with such a targeted private entity due to our public status, our large tax loss position, our commercially developed unique software platform, and other benefits.

 

We attempted to effect such a software merger in 2018, but eventually could not accomplish it primarily due to lack of enough committed capital funding to both support our business and that of the other enterprise which also was unprofitable. Any further attempt by us to merge or combine with another entity will only be pursued with a targeted software company having substantial profitable revenues.

 

 
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2017 Asset Acquisition

 

In May 2017 we acquired substantially all the assets of Volerro Corporation (“Volerro”), a Minneapolis-based company, including its unique cloud-based proprietary software and development technology and its customer base. Volerro has developed and marketed “content collaboration” software services to enhance and improve the overall sales and marketing activities of its clients. We acquired these Volerro assets in consideration for 400,000 shares of our unregistered common stock issued to Volerro.

 

Volerro software enables the marketing, sales and brand personnel of its clients to collaborate in real time in the creation, refinement, and distribution of all types of their strategic content including print, packaging, high quality image and video content. For example, Volerro’s primary application allows all product, brand, marketing and creative teams of a business enterprise the ability to work on and create a document in real-time with integrated chat and voice conferencing. Marketing of Volerro cloud-based software solutions has been primarily focused on large financial and retail enterprises.

 

Volerro content collaboration software services and technology are particularly complementary with and readily adaptable to integrate into the SaaS marketing software services currently available on our Fision platform. We believe our acquisition of these Volerro software applications has been beneficial to attract new customers to our Fision platform.

 

Our Employees and Properties

 

We currently have only two (2) full-time employees, our Controller/Office Manager and our primary customer support employee. None of our employees are subject to a collective bargaining agreement, and we believe that our relations with our employees are good. Our management executive officers provide their services to us as needed on an interim consulting basis.

 

We no longer lease any facilities at Butler Square, our former offices in downtown Minneapolis, Minnesota. Rather we now conduct our current business and operations under a short-term lease from a temporary “virtual” office in Minneapolis which provides us with telephone, mail and basic conference facilities adequate for our current activities. We do not own any real estate.

 

We also own certain computers, hardware servers, software assets and other technology development equipment, as well as some office, marketing and administrative equipment/furniture and supplies, which are currently held in a storage facility in Minneapolis under a month-to-month lease.

 

Revenue and Marketing Models

 

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. Over the past several years, we consistently committed substantial expenses and sales personnel toward targeting, negotiating and procuring significant licensing agreements with new large enterprise customers. 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 overall consistent revenues or accurately forecasting our future revenue stream.

 

We generate our revenues primarily from payments from customers having a license from one to three years to access and use our proprietary agile marketing software platform, which payments include monthly fees based on actual usage of the Fision platform, and a prescribed substantial one-time set-up and integration fee payable to us at the outset of the license. We also receive certain secondary fees from time to time for customized software development projects ordered from us, and for processing emails for certain customers.

 

Marketing Model We have marketed, sold and licensed our proprietary software products through a direct sales force including management, and also through independent national sales agencies who sell (license) our branded software products as agents being paid commissions based on their actual sales. We regard and refer to these experienced sales agencies as our “channel partners.” We currently have two channel partner arrangements with experienced and recognized technology sales agencies, and we have realized material revenues from their sales efforts.

 

We market and sell our products and services in the agile marketing software 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.

 

 
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Intellectual Property (IP) Protection

 

We have committed 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) entitled “Computerized Sharing of Digital Asset Localization Between Organizations.” In 2018 we were granted another Patent No. US 9,984,094 B2 from the United States Patent and Trademark Office (USPTO) entitled “Computerized Sharing of Digital Asset Localization Between Organizations”. In 2019 we were granted another Patent No. US 10,235,380 B2 from the United States Patent and Trademark Office (USPTO) entitled “Computerized Sharing of Digital Asset Localization Between Organizations”.

 

Inflation and Seasonality

 

We do not consider our operations and business to be materially affected by either inflation or seasonality.

 

Litigation

 

From time to time, we have been subject to legal proceedings, claims and litigation arising in the ordinary course of business. We currently are not a party to any material legal proceedings, nor are we aware of any material pending or threatened litigation against or involving us.

 

Significant Accounting Policies

 

Stock-Based Compensation Valuations - Our estimated valuations for stock-based compensation grants are based primarily on the quoted prices for our common stock in the public trading market.

 

Accounts Receivable -- 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.

 

Research and Development -- We expense all our research and development operations and activities as they occur. Our development activities have been conducted both internally from our headquarters facility by our development personnel, and externally from outsourced contracts with experienced independent software development companies and individuals.

 

Derivative Instrument Liabilities – 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 revalued 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.

 

 
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Revenue Recognition -- Revenue is recognized in the period the services are provided over the license contract period, normally one (1) to three (3) years. We invoice onetime startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly.

 

The Company recognizes contract liability for its performance obligation upon receipt of a prepayment from a customer 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 Revenue -- Cost of revenue primarily represents third-party hosting, data storage and other services provided by Microsoft’s Azure Cloud service, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of revenue relating to our cloud services is recognized monthly.

 

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.

 

Long-lived Assets -- 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 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.

 

Recently Issued Accounting Pronouncements

 

See Note 1 to the interim financial statements included in this quarterly report on Form 10-Q.

 

Results of Operations for the Three Months Ended September 30, 2019 and 2018

 

Revenue -- Revenue was $108,021 for the quarter ended September 30, 2019 compared to revenue of $134,818 for the quarter ended September 30, 2018, which decrease in revenue in the 2019 third quarter was primarily because of our inability to obtain new customers due to lack of marketing/sales personnel in the 2019 third quarter.

 

Cost of Sales – Cost of sales for the quarter ended September 30, 2019 was $5,135 (4.8% of revenue) compared to cost of sales of $17,117 (12.7% of revenue) for the quarter ended September 30, 2018. The decrease in cost of sales is associated with decreased costs to deploy the Fision platform on the Microsoft Azure platform.

 

Gross Margin – Gross margin for the quarter ended September 30, 2019 was $102,886 compared to $117,701 for the quarter ended September 30, 2018. Gross margin as a percentage of revenue was 95.2% for the third quarter of 2019 compared to 87.3% of revenue for the third quarter of 2018.

 

Operating Expenses – Operating expenses for the third quarter of 2019 were $902,897 compared to those of $710,666 for the third quarter of 2018. Sales and marketing expenses for the quarter ended September 30, 2019 were $38,998 compared to $158,193 for the quarter ended September 30, 2018, which substantial decrease in the third quarter of 2019 was primarily due to having no marketing/sales personnel in the 2019 quarter. Development and support expenses for the quarter ended September 30, 2019 were $58,013 compared to $124,548 for the quarter ended September 30, 2018, which substantial decrease in the third quarter of 2019 was due to our enhanced development activities to serve large enterprise clients being substantially completed in 2018 and also to having less technical employees during the 2019 third quarter. General and administrative expenses for the quarter ended September 30, 2019 were $805,886 compared to $427,925 for the quarter ended September 30, 2018, which substantial increase in the 2019 third quarter was primarily due to increased consulting and advisory services related to raising capital.

 

 
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Operating Loss -- Operating loss for the quarter ended September 30, 2019 was $800,011 compared to $592,964 for the quarter ended September 30, 2018, which substantially increased net loss of for the third quarter of 2019 was primarily due to the substantially increased general and administrative expenses disclosed in the foregoing paragraph.

   

Other Income / Expenses – Other expenses for the third quarter ended September 30, 2019 were $641,413 (consisting of $478,314 of interest, $293,018 amortization of debt discount, $53,176 change in fair value of derivatives and offset by $172,143 on settlement of debt, and $10,952 of other income) compared to other expenses of $315,467 for the third quarter ended September 30, 2018 (consisting of interest of $192,219, amortization of debt discount of $263,601, loss on settlement of debt of $136,230, and a change in fair value of derivatives of $54,500, offset by a change in derivative fair value of $330,419 related to our outstanding convertible notes). The increased other expenses in the 2019 third quarter were due primarily to the much larger interest expense related to a substantial increase in outstanding debt.

 

Net Loss – Our net loss for the third quarter ended September 30, 2019 was $1,441,424 compared to $908,432 for the third quarter ended September 30, 2018, which substantially increased net loss for the 2019 third quarter was primarily due to a substantial increase in general and administrative expenses as above disclosed.

 

Results of Operations for the Nine Months Ended September 30, 2019 and 2018

 

Revenue -- Revenue was $376,264 for the nine months ended September 30, 2019 compared to $391,037 for the nine months ended September 30, 2018, which decrease in revenue for the nine-month period of 2019 was primarily due to having less marketing/sales personnel during much of the 2019 period.

 

Cost of Sales -- Cost of sales for the nine months ended September 30, 2019 was $56,310 (14.9% of revenue) compared to cost of sales of $63,104 (16.1% of revenue) for the nine months ended September 30, 2018, which decrease for the 2019 nine-month period was primarily due to less revenue in the 2019 period.

 

Gross Margin -- Gross margin for the nine months ended September 30, 2019 was $319,954 compared to $327,933 for the nine months ended September 30, 2018. Gross margin as a percentage of revenue was 85% for this 2019 nine-month period compared to 83.9% of revenue for the same 2018 nine-month period.

  

Operating Expenses -- Operating expenses were $3,084,629 for the nine months ended September 30, 2019 compared to those of $2,256,016 for the nine months ended September 30, 2018. Sales and marketing expenses for the 2019 nine-month period were $363,312 compared to $536,164 for the comparable 2018 nine-month period, which substantial decrease in the 2019 nine-month period was primarily due to having no marketing/sales personnel for much of the 2019 period. Development and support expenses for the nine months ended September 30, 2019 were $351,452 compared to $531,359 for the nine months ended September 30, 2018, which substantial decrease for the nine-month period of 2019 was due to our enhanced development activities to serve large enterprise clients being substantially completed in 2018 and also to having less technical employees for much of the 2019 period. General and administrative expenses for the nine months ended September 30, 2019 were $1,953,838 compared to $1,188,493 for the nine months ended September 30, 2018, which substantial increase for the 2019 nine-month period was primarily due to substantially increased consulting and advisory services related to capital raising and our failed merger with Continuity Logic. Bad debt expense for the nine months ended September 30, 2019 was $416,026 compared to $0 for the nine months ended September 30, 2018, which expense of $416,026 in the 2019 nine-month period was due to the reduced probability of collection of the notes receivable balance from Continuity Logic, LLC, relating to the failed merger which was terminated in February 2019. The remaining note receivable balance of $414,837 is secured by the accounts receivable of Continuity Logic, through a Security Agreement dated November 27, 2019, with a perfected lien.

 

Operating Loss -- Operating loss for the nine months ended September 30, 2019 was $2,764,675 compared to $1,928,083 for the nine months ended September 30, 2018, which substantially increased loss for the first nine months of 2019 was primarily due to increased general and administrative expenses and bad debt expense disclosed in the foregoing paragraph.

 

 
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Other Income / Expenses -- Other expenses for the nine months ended September 30, 2019 were $2,242,506 (consisting of interest of $1,215,400, amortization of debt discount expense of $1,434,818, debt-related derivative expense of $749,533, loss on settlement of debt of $153,532, offset by change in fair value of derivatives of $32,826, gain on extinguishment of derivative liabilities of $1,158,036 and other income of $119,914), compared to other expenses of $692,195 for the nine months ended September 30, 2018 (consisting of interest of $582,699, debt amortization expense of $826,534, and debt-related derivative expense of $119,500, offset by change in value of derivatives of $660,145, gain on settlement of debt of $175,729 and other income of $664. The substantial difference in Other Income / Expenses for these comparable nine-month periods of 2019 and 2018 were primarily due to the much larger interest payments and amortization and other accounting expenses for derivatives based on our amount of outstanding convertible debt.

 

Net Loss – Our net loss for the nine months ended September 30, 2019 was $5,007,182 compared to a net loss of $2,620,278 for the nine months ended September 30, 2018, which increased loss of $2,386,903 for the 2019 nine-month period was primarily due to i) substantially increased consulting and advisory fees related to raising working capital and also to our failed merger with Continuity Logic, ii) incurring our bad debt related to outstanding loans owed by Continuity Logic, and iii) increased interest and amortization and derivative accounting expenses related to having greater outstanding convertible debt in the 2019 period compared to the 2018 period.

 

Liquidity and Capital Resources

 

Our revenues have not increased over the past few years, and accordingly our financial condition and future prospects critically depend on our access to financing in order to continue our operations. Much of our cost structure is based on costs related to personnel and facilities and our cloud-based service provider, and not subject to material variability. 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 certain 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 or soon due indebtedness, which there is no assurance we can accomplish.

 

As of September 30, 2019, we had total current liabilities of $4,719,952 including accounts payable and accrued expenses of $1,188,338, Notes Payable of $1,275,773, customer advances of $156,057 and $2,099,784 of derivative liabilities. We also had long-term liabilities of $391,745 (net of $1,230,361 long term debt discount), as of September 30, 2019, consisting of Convertible Notes Payable having varying maturity dates.

  

Currently, as of the date of this filing, we have approximately only $5,000 in cash, which we believe along with our projected receipt of accounts receivable and customer revenues will last only until December 2019. Accordingly, we need to continue raising substantial capital to support our operations. Our management estimates that based on our current monthly expenses net of expected revenue, we will require at least $500,000 in additional financing to fund our operational working capital needs for the next 12 months. Financing may be sought from a number of sources such as sales of equity or debt (including convertible debt) securities, and loans from affiliates, banks or other financial institutions. We may not be able to sell any such securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available as needed, our business would suffer substantially or could even fail.

 

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 accomplish. As of September 30, 2019 we had cash and current receivables of approximately only $36,000 and a working capital deficiency of $3,220,291, although a substantial portion of the current liabilities are derivative liabilities for notes and warrants. Over the past couple years, we have continued to incur substantial losses without any material increase in revenues or 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 revenues, we have financed our operations to date through various means including loans from management, affiliates, and other private lenders; stock-based compensation issued to employees, outsourced software developers, consultants and professionals; common stock issued to satisfy outstanding loans and accounts payable/accrued expenses; and sales of our common stock and convertible Notes.

 

 
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Net Cash Used in Operating ActivitiesWe used $1,140,620 of net cash in operating activities for the nine months ended September 30, 2019 compared to $1,093,662 of net cash used in operating activities for the nine months ended September 30, 2018. This increase of $46,958 of net cash used in operating activities in the 2019 nine-month period was primarily due to reduced operating costs and accounting adjustments for derivative expenses related to convertible debt.

 

Net Cash Used in Investing Activities -- During the nine months ended September 30, 2019, we used no net cash in investing activities compared to net cash used in investing activities during the nine months ended September 30, 2018 of $5,000 for an equipment purchase.

 

Net Cash Provided By Financing Activities -- During the nine months ended September 30, 2019 we were provided net cash by financing activities of $1,049,400 including proceeds from sales of common stock of $350,000 and proceeds from notes payable of $1,037,000 offset by repayments on notes payable of $345,100. In comparison, during the nine months ended September 30, 2018 we were provided net cash by financing activities of $1,187,025 including issuance of notes payable of $1,336,125 offset by $149,100 used for repayments on notes payable.

 

Convertible Note Financing

  

A substantial majority of our financing during the past couple years has consisted of Convertible Notes sold to various accredited investors. We raised a total of $2,959,500 from such convertible debt financing in 2018; and so far we have raised a total of $1,037,000 from convertible debt financing in 2019.

 

Going Concern

 

Our financial statements contained in this quarterly report have been prepared on a going concern basis, which contemplates and implies that we will continue to realize our assets and satisfy our liabilities and commitments in the normal course of business. For the nine months ended September 30, 2019 we continued to incur a substantial net loss of $5,007,182 and our accumulated deficit as of September 30, 2019 is $27,521,893. 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 September 30, 2019, or as of the date of this report.

 

 
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable

 

ITEM 4 CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures -- 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Moreover, the design of any disclosure controls and procedures is based in large part upon certain assumptions regarding the likelihood of future events, and there can be no assurance than any such design will succeed in achieving its stated goals under all potential future conditions.

 

Our management will apply its best judgment in evaluating the cost-benefit relationship of any disclosure controls and procedures adopted by us. 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.

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2019 (the end of the period covered by this Quarterly Report on Form 10-Q). Based on their evaluation as of the end of the quarterly period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company and required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure, because of continuing material weaknesses in our internal control over financial reporting as reported in our Annual Report on Form 10-K for the period ended December 31, 2018.

 

Changes in Internal Control over Financial Reporting -- There have been no changes in our internal control over financial reporting during our last fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II -- OTHER INFORMATION

 

ITEM 1 LEGAL PROCEEDINGS

 

None

 

ITEM 1A RISK FACTORS

 

Not applicable.

 

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES

 

Unregistered sales of our equity securities in the third quarter ended September 30, 2019 are as follows:

 

In July 2019 we issued 100,000 restricted common shares valued at $3,900 to an accredited individual investor in consideration for making a loan to us in the amount of $75,000.

 

In August-September 2019 we issued an aggregate of 5,210,104 restricted common shares to two accredited investor Noteholders who converted a total of $99,162 of their outstanding Notes, with the conversion price based on specific terms contained in the Notes.

 

In September 2019 we issued 490,196 restricted common shares valued at $12,500 to our independent director for three months service on our Board of Directors.

 

The issuances of all of our securities in the foregoing unregistered transactions were exempt from registration under the Securities Act of 1933, as amended, in reliance on the exemption under Section 4(a)(2) of the Securities Act.

 

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4 MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 OTHER INFORMATION

 

None.

 

 
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ITEM 6 EXHIBITS

 

 

 
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SIGNATURES

 

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

By:

/s/ Laurence Mascera

November 21, 2019

Laurence Mascera

Chief Executive Officer

 

And:

/s/ Daniel Dorsey

November 21, 2019

Daniel Dorsey

Chief Financial Officer

 

 

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