ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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 from Minneapolis through our wholly owned Minnesota subsidiary, Fision Holdings, Inc.
We have developed and successfully 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 believe that our innovative Fision platform, proprietary technology, forward-looking strategy, and experienced management have now positioned us to become a leader in the rapidly growing software agile marketing/sales enablement segment of the broad software-as-a-service (SaaS) industry.
We are a global 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.
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 June 30, 2018, we have written license contracts with fifteen (15) customers actively using our Fision platform for their marketing and sales operations. And currently we are engaged in negotiations with or procurement of several additional material customers.
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 market and license 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 entered into three significant channel partnership arrangements, and we have realized material revenues from the sales efforts of our channel partners.
Our Fision Platform
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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
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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, the storage of unlimited customer data with our premier cloud provider, and the overall flexibility of the cloud model 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.
Strategic Marketing Change
During the years prior to 2016 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, during 2016-2017 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 substantial recurring revenues from, several large enterprise companies. Moreover, we currently are in the process of procuring material key contracts with certain additional large enterprise companies.
The increased length of our sales cycle necessary to sell our products to large enterprises, however, has been considerably longer than we earlier incurred while marketing our Fision platform 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. We now believe this period of declining revenues due to our change in marketing strategy has ended, and that due to the large enterprise contracts we have recently closed and those we are now in the process of procuring, our revenues will appreciate substantially during the remainder of 2018 and following years.
Recent Marketing Achievements
Our primary marketing strategy, which is focused toward large enterprise companies, has succeeded in various industries. We believe that significant recent clients acquired by us will result in substantial increases in our future recurring revenues from our cloud-based Fision software platform. Our recent large enterprise customers include:
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a worldwide provider of SaaS software services for procurement and contract management.
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a Fortune 50 global provider of aerospace and building systems.
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a nationwide leading provider of accredited online higher education courses and degrees.
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the world’s largest RV dealership with retail operations in Florida, Colorado and Arizona.
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a national insurance and financial company having more than 20,000 employees and advisors.
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an operator of the world’s largest business network.
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a leading healthcare innovator led by former key executives of Amazon, Google and 2d.MD.
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Full Year 2018 Revenue Guidance
Based primarily on the recent integration and implementation of our Fision platform with the marketing/sales operations of several of our new large enterprise customers and their initial commercial use of Fision agile marketing software, we believe our revenues for the full year of 2018 will be at least 25% greater than our full year 2017 revenues.
2017 Strategic 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. The two principal clients of Volerro are U.S. Bank, a leading national banking institution having numerous branches throughout the USA, and Shopko Stores, a $3.2 billion retailer selling many kinds of quality name-brand merchandise through its 363 operated retail stores in 24 states.
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. Accordingly, we believe our acquisition of these Volerro software applications will both increase our revenues materially and also attract new customers to our Fision platform.
Our Employees and Properties
We currently have ten (10) full-time employees, including our Chief Executive Officer, Chief Financial Officer, Chief Revenue Officer, Controller/Office Manager, Customer Support Specialist, Client Services Manager, Marketing Manager, and three Programmer/Developers. None of our employees are subject to a collective bargaining agreement, and we believe that our relations with our employees are good.
Our corporate headquarters and development and operational facilities are located at Butler Square, a large office building complex in downtown Minneapolis, Minnesota, where we occupy 5,229 square feet of office and development spaces. We lease these facilities under a two-year lease expiring in December 2019 for $8,323 monthly including rent, utilities and maintenance. We do not own any real estate.
Our computers, hardware servers, software assets and other technology development equipment, as well as considerable office and administrative computer and other equipment, furniture, and office and marketing supplies, are also located in our Minneapolis facility. We believe that our current facilities and equipment are adequate to satisfy our current operations and to support substantial future growth.
Revenue and Marketing Models
Revenue Model
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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. We consistently commit 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, particularly since each new contract provides considerable one-time start-up revenues derived from initial set-up and integration fees.
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.
A substantial majority of our revenues have been and are “sticky” and thus of a recurring nature. Most of our customers have remained with and consistently used our software platform once they have integrated it into their digital marketing model and experienced the benefits provided from our cloud-based Fision marketing solutions.
Marketing Model
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We have marketed, sold and licensed our proprietary software products through our direct sales force including management and other direct sales personnel, 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.” To date we have entered into three 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.
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) 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”. We also have a couple additional patent claims involving our software technology which are filed and pending with the USPTO, and we expect to obtain patent grants for them.
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 become 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 are conducted both internally from our Minneapolis headquarters facility by our development personnel, and externally from outsourced contracts with experienced independent software development companies and individuals. We own considerable servers and other computer equipment located at our Minneapolis facility, which are used by our development personnel to develop and enhance our marketing software platform.
Derivative Securities –
We evaluate all of our agreements and financial instruments to determine if they contain features that qualify as embedded derivatives. For any derivative financial instruments accounted for as liabilities, they initially will be accounted for at fair value and if necessary 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.
Revenue Recognition.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2016. On August 12, 2015, the FASB issued an Accounting Standards Update (“ASU”), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has evaluated the impact of ASC 606 and does not currently believe that the application of ASC 606 will have a material impact on its consolidated financial statements and disclosures, as the Company has 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 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.
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 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
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We are currently evaluating the impact of ASU 2016-02 to our future consolidated financial statements.
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 the our present or future financial statements.
Results of Operations for the Three Months Ended June 30, 2018 and 2017
Revenue --
Revenue was $129,339 for the quarter ended June 30, 2018 compared to revenue of $157,090 for the quarter ended June 30, 2017, which decrease in revenue of $27,751 in the 2018 second quarter was primarily due to less contract implementation fees than in the comparable 2017 second quarter.
Cost of Sales –
Cost of sales for the quarter ended June 30, 2018 was $23,929 (18.5% of revenue) compared to cost of sales of $13,991 (9% of revenue) for the quarter ended June 30, 2017. This drop in margin was due primarily to increased outsourced cloud storage expenses in the 2018 second quarter.
Gross Margin –
Gross margin for the quarter ended June 30, 2018 was $105,410 compared to $143,099 for the quarter ended June 30, 2017. Gross margin as a percentage of revenue was 81% for the second quarter of 2018 compared to 91% of revenue for the second quarter of 2017.
Operating Expenses –
Operating expenses of $745,742 for the second quarter of 2018 were similar to those of $785,621 for the second quarter of 2017. Sales and marketing expenses for the quarter ended June 30, 2018 were $165,590 compared to $488,509 for the quarter ended June 30, 2017, which decrease of $322,919 in the second quarter of 2018 was due primarily to substantial one-time marketing support expenses incurred in the comparable 2017 quarter to implement our enhanced marketing program directed toward large enterprises. Development and support expenses for the quarter ended June 30, 2018 were $233,680 compared to $251,904 for the quarter ended June 30, 2017, which were relatively similar. General and administrative expenses for the quarter ended June 30, 2018 were $346,472 compared to $45,208 for the quarter ended June 30, 2017, which substantial increase in the 2018 second quarter was due to increased personnel, substantial issuances of stock-based compensation for consulting and professional services, and increased accounting and administrative costs to support our new marketing strategy.
Operating Loss
-- Operating loss for the quarter ended June 30, 2018 was $640,332 compared to $642,522 for the quarter ended June 30, 2017, which were relatively similar.
Other Expenses –
Other expenses for the second quarter ended June 30, 2018 were $656,609 (consisting of $173,035 of interest and other expenses related to accounting for our outstanding convertible notes along with a settlement of debt expense of $96,471 compared to other expenses of $(629,816) for the second quarter ended June 30, 2017 (consisting primarily of interest, debt discount and a change in derivative fair value to account for our outstanding convertible notes). The substantially higher other expenses in the 2017 second quarter were due primarily to the much greater interest and debt discount expenses incurred in the 2017 second quarter related to our convertible debt.
Net Loss
– Our net loss for the second quarter ended June 30, 2018 was $1,296,941 compared to $1,272,338 for the second quarter ended June 30, 2017, which were relatively similar.
Results of Operations for the Six Months Ended June 30, 2018 and 2017
Revenue
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Revenue was $256,219 for the six months ended June 30, 2018 compared to $285,427 for the six months ended June 30, 2017, which decrease of $29,208 in revenue for the 2018 second quarter was due primarily to less contract implementation fees than those in the comparable 2017 second quarter.
Cost of Sales
-- Cost of sales for the six months ended June 30, 2018 was $45,987 (18% of revenue) compared to cost of sales of $29,380 (10% of revenue) for the six months ended June 30, 2017, which decrease in margin in the 2018 six-month period was due primarily to decreased revenue from the comparable 2017 period.
Gross Margin
-- Gross margin for the six months ended June 30, 2018 was $210,232 compared to $256,047 for the six months ended June 30, 2017. Gross margin as a percentage of revenue was 82% for the 2018 six-month period compared to 90% of revenue for the 2017 six-month period.
Operating Expenses
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Operating expenses of $1,583,675 for the six months ended June 30, 2018 were relatively similar to those of $1,572,182 for the six months ended June 30, 2017. Sales and marketing expenses for the 2018 six-month period were $377,971 compared to $783,801 for the comparable 2017 six-month period, which decrease of $405,830 in the 2018 six-month period was due primarily to substantial one-time marketing support expenses incurred in the 2017 six-month period to launch and implement our enhanced marketing program directed toward large enterprise customers. Development and support expenses for the six months ended June 30, 2018 were $406,811 compared to $422,547 for the six months ended June 30, 2017, which were relatively similar. General and administrative expenses for the six months ended June 30, 2018 were $798,893 compared to $365,834 for the six months ended June 30, 2017, which substantial increase in the 2018 six-month period was due primarily to increased personnel, substantial increased issuances of stock-based compensation for consulting and professional. services, and increased accounting and administrative costs to support our revised marketing strategy.
Operating Loss
-- Operating loss for the six months ended June 30, 2018 was $1,373,444 compared to $1,316,135 for the six months ended June 30, 2017, which were relatively similar.
Other Expenses
-- Other expenses for the six months ended June 30, 2018 were $338,403 (consisting of $352,154 of interest and other expenses related to accounting for convertible notes along with $311,959 settlement of debt expense, offset by $329,726 for a change in fair value of derivatives) compared to other expenses of $740,739 for the six months ended June 30, 2017 (consisting of $591,766 interest and debt discount related to accounting for convertible notes, $65,604 settlement of debt expense, and $83,369 change in derivatives fair value). The substantial difference in Other Expenses for these comparable six-month periods of 2018 and 2017 were primarily due to the accounting for changes in fair value of derivatives.
Net Loss
– Our net loss for the six months ended June 30, 2018 was $1,711,847 compared to a net loss of $2,056,874 for the six months ended June 30, 2017, which smaller loss in the 2018 six-month period was due primarily to accounting for changes in fair value of derivatives related to outstanding convertible debt.
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 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 June 30, 2018, we had total current liabilities of $3,638,731 including Notes Payable of $698,296 and $1,843,062 of derivative liabilities. We also had long-term liabilities of $352,148 as of June 30, 2018, which consist of Convertible Notes Payable having varying maturity dates. A summary of our current outstanding Notes Payable indebtedness including accrued interest thereon as of June 30, 2018 is set forth in Note 4 of our foregoing interim financial statements included in this quarterly report.
Currently we have approximately $99,000 in cash, which we believe along with our projected receipt of accounts receivable and customer revenues will last only until September 2018. Accordingly, we need to continue raising substantial capital to support our current and future operations. Our management estimates that based on our current monthly expenses net of expected revenue, we will require approximately $1,500,000 in additional financing to fund our operational working capital and satisfy certain debt payments 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 June 30, 2018 we had cash and current receivables of approximately $125,000 and a working capital deficiency of $(3,347,720). 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 and from financial and other 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.
Net Cash Used in Operating Activities
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We used $1,088,062 of net cash in operating activities for the six months ended June 30, 2018 compared to $560,292 of net cash used in operating activities for the six months ended June 30, 2017. This decrease of $527,769 of net cash used in operating activities in the 2018 six-month period was due primarily to the increase in our derivatives, amortization of debt discount and loss on conversion of debt to the 2017 six-month period.
Net Cash Provided By (Used in) Investing Activities
-- During the six months ended June 30, 2018, we used net cash in investing activities of $5,000 for an equipment purchase compared to net cash provided by investing activities of $51,500 (acquired incident to our Volerro acquisition) during the six months ended June 30, 2017.
Net Cash Provided By Financing Activities
-- During the six months ended June 30, 2018 we were provided net cash by financing activities of $1,181,425 including proceeds from notes payable of $1,336,125 offset by repayments on notes payable of $149,100 and a $5,600 payment on our line of credit. In comparison, during the six months ended June 30, 2017 we were provided net cash by financing activities of $522,664 including sales of common stock of $300,000, issuance of notes payable of $299,300 offset by $76,636 used for repayments on notes payable of $285,000 and a $5,425 payment on our line of credit.
Convertible Note Financing
A substantial majority of our financing during the past eighteen months has consisted of Convertible Notes sold to various accredited investors. We raised a total of $1,020,000 from such convertible debt financing in 2017, and we raised a total of $1,111,125 from such convertible debt financing in 2018 as of the date of this quarterly report on Form 10-Q. Moreover, we anticipate raising additional substantial financing in 2018 from this source.
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 six months ended June 30, 2018 we continued to incur a substantial net loss of $1,711,847 and our accumulated deficit as of June 30, 2018 is $20,233,711. And as of June 30, 2018, we have Notes Payable and related accrued interest of $2,731,089, a substantial amount of which are due in 2018. 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 June 30, 2018, or as of the date of this report.