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 have developed and commercialized a proprietary cloud-based marketing and sales enablement software platform. Our innovative Fision platform integrates, streamlines and automates the use of many marketing and sales resources and communications of a company in order to bridge the significant gap typically existing between marketing and sales personnel, which gap inhibits the speed and effectiveness of targeting and reaching the customer base of a company. Our unique software solutions supported by their cloud-based delivery are readily scalable to adapt seamlessly to any rapid business growth of our existing or potential customers, regardless of their size.
Fision automated software enables the marketing department of our customers to easily and quickly create and implement professional marketing campaigns and other presentations for distribution to and support of sales force personnel regardless of their location. Use of our software reduces substantially the time and cost incurred by our customers for their marketing functions and activities, while still emphasizing, protecting and enhancing their valuable brand assets. Our current and targeted customer base is global and ranges across diverse industries and companies of all sizes, particularly those companies selling familiar branded products or services.
Our Fision software platform offers three major benefits to our customers, (i) accelerating their revenues, (ii) improving and protecting their marketing and brand effectiveness, and (iii) reducing significantly their marketing and sales costs.
Revenue Model
Our revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. Because of the long-term nature and the substantial expense commitment required by each new customer to enter into a binding licensing agreement with us, the sales cycle involved in our revenue model is quite lengthy. Accordingly, the unpredictable and different timing involved from customer to customer to procure our licensing contracts has prevented us from receiving consistent overall revenues or accurately forecasting our future revenue stream.
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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) Protection
We commit substantial attention and resources toward obtaining patent and trademark rights and otherwise protecting our trade secrets, development know-how technology, trademarks, trade names, patent rights and other proprietary intellectual property (IP). Our IP protection includes written provisions relating to non-compete, non-recruit, confidentiality, and invention assignments as applicable with employees, vendors, sales agents, consultants and others.
In 2017, we were granted Patent No. US 9,639,551 B2 from the United States Patent and Trademark Office (USPTO), and in 2018 we were granted Patent No. US 9,984,094 B2 from the USPTO, and another granted Patent in 2019 Patent No. US 10,235,380 B2, from the USPTO which were titled "Computerized Sharing of Digital Asset Localization Between Organizations." We also have an additional patent claim involving our software technology filed and pending with the USPTO.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Critical Accounting Policies and Estimates
Principles of Consolidation
Regarding our wholly-owned Minnesota Fision subsidiary, our financial statements are presented on a consolidated basis with all intercompany transactions and balances eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make certain material estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates materially. These accounting estimates and assumptions may be material to us and our financial statements due to the levels of subjectivity and judgment involved.
Certain estimates made in connection with our accompanying consolidated financial statements include our estimated reserve for doubtful accounts receivable, valuations used for stock-based compensation, fair value determinations in connection with our analysis of long-lived assets for impairment, accounting determinations related to convertible debt, and estimated useful lives for intangible assets and property and equipment.
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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.
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
In
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
Company Recognizes Contract Liability for Its Performance Obligation -- Upon receipt of a prepayment from a customer, the Company recognizes a contract liability in the amount of the prepayment for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Cost of Sales
Cost of sales primarily represents third-party hosting, data storage and other services provided by Microsoft's Azure cloud service provider, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of sales relating to our cloud services is recognized monthly.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASU 2019-07, Compensation - Stock Compensation (Topic 718). This Topic is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). This ASU expands the scope of Topic 718 which formerly only included share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees is substantially aligned.
Under ASC Topic 718, "Compensation - Stock Compensation", the fair value recognition provisions of this Topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Cox, Ross & Rubinstein Binomial Tree valuation model to estimate the fair value of any options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on option awards ultimately expected to vest and reflects estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
We account for income taxes in accordance with the asset and liability method of accounting for income taxes, whereby any deferred tax assets are recognized for deductible temporary differences and any deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of our management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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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 2020 was
Gross Margin - Gross margin for fiscal year 2020 was
Operating Expenses - Operating expenses totaled
(i) Sales and marketing expenses of $5,474 in 2020 compared to $564,228 in
2019, which large decrease of $558,754 in 2020 was due primarily to
termination of sales/marketing personnel and related sales support
activities and functions in 2019;
(ii) Development and support expenses of $340,232 in 2020 compared to
$290,035 in 2019, which were relatively similar for 2020 and 2019; and
(iii) General and administrative expenses of $1,121,825 in 2020 compared to
$3,015,621 in 2019, which substantial decrease of $1,893,796 was
primarily due to termination of financing and consulting services in
2019 for a one-year contract, as well as having no executive
compensation in 2020.
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Operating loss -- Operating loss was $(l,193,004) in 2020 compared to
Other Income (Expenses) - Other Income (Expenses) for fiscal year 2020 were
Net (Loss) - Our net (loss) 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 platform, we will need to raise substantial additional capital through private or public offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past due indebtedness, which there is no assurance we can accomplish.
At
We believe that our current available cash and any funds to be received from
revenues or receivables only will be sufficient to support our working capital
needs until
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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 2018 we raised a
total of
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 year ended
Off-Balance Sheet Arrangements
We have no off-balance sheet items as of
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