FISION CORPORATION The financial data referred to in the following discussion and analysis is
derived from our audited financial statements for the fiscal years ended
Overview
We are an Internet platform technology company providing cloud-based software solutions to automate the marketing functions and activities of our customers and to provide credit repair tools to credit repair businesses. Our business is conducted through:
iii. our Minnesota Fision subsidiary based in Minneapolis , which since 2011
has created and offered software solutions to support marketing and sales
enablement activities of both private businesses and public companies;
iv. our Scoreinc.com subsidiary based in Puerto Rico , which was acquired on
May 30, 2021 and provides software solutions including credit repair
tools, strategies and services to credit repair businesses.
Under
Under
Revenue Model
Our revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. Because of the long-term nature and the substantial expense commitment required by each new customer to enter into a binding licensing agreement with us, the sales cycle involved in our revenue model is quite lengthy. Accordingly, the unpredictable and different timing involved from customer to customer to procure our licensing contracts has prevented us from receiving consistent overall revenues or accurately forecasting our future revenue stream.
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We generate our revenues primarily from recurring monthly payments from customers having a license from one to three years to access and use our proprietary marketing software platform, which payments include fees based on actual use of the Fision platform. We also receive from each new customer a prescribed one-time set-up and integration fee payable to us at the outset of the license. And we receive certain secondary fees from time to time for customized software development projects, and for processing emails for certain customers.
Marketing Model
We have marketed and licensed our proprietary software products primarily through direct sales by our management and other in-house personnel, and also secondarily through experienced and recognized independent sales agencies. We generate our revenues primarily from such software licensing contracts, and we currently have six (6) licensed customers using our Fision platform. We market and sell our products and services in the marketing software segment of the broader software-as-a-service (SaaS) industry.
Intellectual Property (IP)
In 2017, we were granted Patent No. US 9,639,551 B2 from the United States Patent and Trademark Office (USPTO), and in 2018 we were granted Patent No. US 9,984,094 B2 from the USPTO, and another granted Patent in 2019 Patent No. US 10,235,380 B2, from the USPTO which were titled "Computerized Sharing of Digital Asset Localization Between Organizations." We also have an additional patent claim involving our software technology filed and pending with the USPTO.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Critical Accounting Policies and Estimates
Principles of Consolidation
Regarding our wholly-owned subsidiaries, our financial statements are presented on a consolidated basis with all intercompany transactions and balances eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ materially from those estimates and assumptions. Such estimates include management's assessments of the carrying value of certain assets, useful lives of assets, derivative securities, fair value of financial instruments, and related depreciation and amortization methods applied.
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Accounts Receivable
Accounts receivable related to the products and services sold are recorded at the time revenue is recognized and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of the receivable may not be known for several months after services have been provided and billed. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, analyses of current and historical cash collections, and the aging of receivables. Delinquent accounts are written-off when the likelihood for collection is remote and/or when we believe collection efforts have been fully exhausted and we do not intend to devote any additional efforts in an attempt to collect the receivable. We adjust our allowance for doubtful accounts balance on a quarterly basis.
Product Development and Support
We expense all our product development and support operations and activities as
they occur. During the fiscal year ended
Property and Equipment
Property and equipment are capitalized and stated at cost, and any additions, renewals or betterments are also capitalized. Expenditures for maintenance and repairs are charged to earnings as incurred. If property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from our accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with estimated lives as follows:
Furniture and fixtures 5 years Computer and office equipment 5 yearsDerivative Securities
We evaluate all of our agreements and financial instruments to determine if they contain features that qualify as embedded derivatives. For any derivative financial instruments accounted for as liabilities, they initially will be accounted for at fair value and if necessary re-valued at each reporting date, with any changes in fair value reported in our statements of operations. For any stock-based derivative financial instruments or securities, we use an option pricing model to value them at inception and on any subsequent valuation dates. The classification of derivative instruments, including whether they should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1 inputs include quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
Level 3 inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
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Revenue Recognition
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 acontract 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.
Stock-Based Compensation
We record stock-based compensation in accordance with
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.
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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 an impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, which provides that basic earnings per share is based on the weighted average number of common shares outstanding, and diluted earnings per share is based on the assumption that all dilutive convertible shares, options, and warrants were exercised. Dilution is computed by applying the treasury stock method, which provides that options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if the funds obtained thereby are used to purchase common stock at the average market price during the period.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, the AICPA, and the
Results of Operations - Fiscal Years Ended
Revenue -Revenue was
Cost of Sales -Cost of sales in fiscal year 2021 was
Gross Margin -Gross margin for fiscal year 2021 was
Operating Expenses - Operating expenses totaled
(i) Sales and marketing expenses of $23,938 in 2021 compared to $5,474 in
2020, which large increase of $18,463 in 2021 was due primarily to costs
related to the Score acquisition;
(ii) Research and development expenses of $452,493 in 2021 compared to
$340,232 in 2020, which increased due to development costs of our
surgery center business; and
(iii) General and administrative expenses of $1,216,103 in 2021 compared to
$1,121,825 in 2020, which increased due to an increase in amortization
of intangible assets.
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Operating loss - Operating loss was
Other Income (Expenses) - Other Income (Expenses) for fiscal year 2021 were
Net Income (Loss) - Our net income for fiscal year ended
Liquidity and Capital Resources
Our financial condition and future prospects critically depend on our access to financing in order to continue funding our operations. Much of our cost structure is based on costs related to personnel and facilities and is not subject to significant variability. In order to fund our operations and working capital needs, we have historically utilized loans from accredited investors (including management), sales of our common stock and convertible debt securities to accredited investors, and issuances of common stock to satisfy outstanding debt and to pay for development, marketing, management, financial, professional and other services.
In order to attain material growth of our SaaS Fision and ScoreCEO platforms and progress with our surgery center project, we will need to raise substantial additional capital through private or public offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past due indebtedness, which there is no assurance we can accomplish.
At
In order to fund and conduct our business over the past few years, we relied significantly on working capital obtained from private sales of our equity and convertible debt securities to various accredited investors. Due primarily to our continued substantial operating losses for the past several years, we recently have been unable to continue raising such working capital as needed to support adequately our business plan for future growth. And unless we are able to raise needed substantial additional funding to achieve significant future revenue growth, our current business model most likely will not succeed.
The board is exploring raising more working capital through the issuance of common and preferred stock. We have engaged an investment banking firm that specializes in health care to advise on the appropriate structure and to assist raising capital.
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We may not be able to sell sufficient securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available, we may be forced to abandon certain business plans or even our entire business. Moreover, regarding any financing we may obtain, any equity or convertible debt financing would be dilutive to our shareholders, and any available debt financing may involve restrictive covenants.
Liquidity represents the ability of a company to generate sufficient cash to
provide for its immediate needs for cash, which our continued losses have made
it difficult for us to satisfy. As of
Along with our limited revenues, we have financed our operations to date through (i) loans from management and from financial and other lenders, including convertible debt (ii) stock-based compensation issued to employees and for consulting, outsourced software, and professional services, (iii) common stock issued to satisfy outstanding loans and accounts payable/accrued expenses, and (iv) equity sales of our common stock.
Net Cash Provided by Financing Activities - During fiscal year ended
Convertible Note Financing
For the past few years, a majority of our financing has consisted of convertible
notes sold to accredited investors in private transactions. In 2021 and 2020, we
raised
Our 2018-2019 Private Placement of Securities
In
Advisory Shares - Each investor also received an amount of Advisory Shares equal
to 10% of the common shares purchased by the investor at
Warrants - Each private investor also received three-year warrants to purchase
additional common shares equal to their purchased shares at an exercise price of
True-Up and Penalty Shares - Each private investor also received the right to
receive True-Up shares in the event the True-Up Price as defined in the Stock
Purchase Agreement for this placement is lower than the
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In addition, the warrants issued to investors in this private offering are subject to the same True-Up Price adjustment regarding their exercise price.
In 2019, we sold 8,750,000 common shares offered in this private placement and
received total proceeds of
Going Concern
As stated in the audited financial statements included in this Annual Report on
Form 10-K, these financial statements have been prepared on a going concern
basis, which contemplates and implies that the Company will continue to realize
its assets and satisfy its liabilities and commitments in the normal course of
business. For the years ended
Off-Balance Sheet Arrangements
We have no off-balance sheet items as of
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