FISION Corporation (formerly DE Acquisition, Inc.), a Delaware corporation (the “Company”) was incorporated on February 24, 2010 and was inactive until 2015 when it merged with Fision Holdings, Inc., a Minnesota corporation, an operating software development business based in Minneapolis, Minnesota. As a result of this merger, Fision Holdings, Inc. became a wholly-owned subsidiary of the Company. Fision Holdings, Inc. was incorporated in Minnesota in 2010, and has developed and successfully commercialized a unique proprietary cloud-based software platform which automates and integrates digital marketing asses and marketing communications in order to “bridge the gap” between the marketing and sales functions of any enterprise. The Company generates its revenues primarily from software licensing contracts typically having terms of one to three years and requiring monthly subscription fees based on the customer’s number of users and locations where used. The Company’s business model provides it with a high percentage of recurring revenues.
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.
The preparation of 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.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. During the year ended December 31, 2018, we may have had cash deposits that exceeded Federal Deposit Insurance Corporation (“FDIC”) insurance limits. We maintain cash balances at high quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customers and generally do not require collateral from them to do business with us.
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At December 31, 2018, the Company had no cash equivalents.
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820 (the “Fair Value Topic”) which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements.
The Fair Value Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. It also establishes a fair value hierarchy, which prioritizes the valuation inputs into six broad levels.
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
A) Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;
B) Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and
C) Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques, and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with significant frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Example of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on the Company’s assessment of the assumptions that are market participants would use in pricing the asset or liability.
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable, accrued expenses, and notes payable approximate their fair value because of the short maturity of those instruments.
The following table represents our assets and liabilities by level measured at fair value on a recurring basis at December 31, 2018.
The following assets and liabilities are measured on the consolidated balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following table provides a reconciliation of the beginning and ending balances of the liabilities.
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest and expense in the accompanying financial statements.
The derivative liability relating to the beneficial conversion interest of our convertible notes payable was $1,480,978 at December 31, 2018 and was computed using the following variables:
We account 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.
Accounts receivable related to the products and services sold are recorded at the time revenue is recognized and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of the receivable may not be known for several months after services have been provided and billed. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, analyses of current and historical cash collections, and the aging of receivables. Delinquent accounts are written-off when the likelihood for collection is remote and/or when we believe collection efforts have been fully exhausted and we do not intend to devote any additional efforts in an attempt to collect the receivable. We adjust our allowance for doubtful accounts balance on a quarterly basis.
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life of five (5) years for equipment, furniture and fixtures. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
We follow paragraph 360-10-05-4 of the FASB Accounting Standards Codification for long-lived assets. Our long-lived assets are required to be reviewed for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. During 2018, we took an impairment charge of $66,000 to goodwill.
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 already implemented the five-step process in determining revenue recognition from contracts with customers, in accordance with ASC 606.
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
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.
We follow Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance to the extent our management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty in income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. We had no material adjustments to our assets and/or liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
In December 2004, the FASB issued FASB Accounting Standards Codification No. 718,
Compensation – Stock Compensation
. Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. We apply this statement prospectively.
Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505-50,
Equity Based Payments to Non-Employees
defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.
The closing price of our common stock on the date of grant is used as the fair value for the issuances of restricted stock. The fair value of stock options or warrants granted is estimated as of the grant date using the Black-Scholes option pricing model. The following range of assumptions in the Black- Scholes option pricing model was used to determine fair value at the years ended below:
Expected volatilities used for award valuation in 2018 and 2017 are based on the peer group volatility.
The risk-free interest rate for periods equal to the expected term of an award is based on a blended historical rate using Federal Reserve rates for U.S. Treasury securities.
We compute basic and diluted earnings per share amounts pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic earnings per share is computed by dividing net income (loss) available to common shareholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share is computed by dividing net income (loss) available to common shareholders by the diluted weighted average number of shares of common stock during the period. The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity.
For the years ended December 31, 2018 and 2017, there were 20,956,569 and 10,015,319 respectively, potentially dilutive securities not included in the calculation of weighted-average common shares outstanding since they would be anti-dilutive.
We expense all our research and development operations and activities as they occur. During the fiscal year ended December 31, 2018 we incurred total expenses of $691,201 for research and development. In comparison, during the fiscal year ended December 31, 2017 we incurred total expenses of $957,274 for research and development. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to manufacturing. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products
We expense marketing and advertising costs as incurred. Marketing and advertising expenses for the years ended December 31, 2018 and 2017 were $20,444 and $17,319, respectively. The costs are included in the consolidated selling and marketing expenses.
We regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change our accounting policies, particularly concerning revenue recognition, the capitalized incremental costs to obtain a customer contract and lease accounting, to alter our operational policies and to implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes may have an adverse effect on our business, financial position, and operating results, or cause an adverse deviation from our revenue and operating profit target, which may negatively impact our financial results.
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. Early adoption is permitted. 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 is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to achieve and maintain profitable operations, and our ability to raise additional capital as required.
At December 31, 2018 we had a working capital deficiency of approximately $2.4 Million and an accumulated deficit of approximately $22.5 million. These conditions raise substantial doubt about our ability to continue as a going concern within one year after issuance date of the financial statements. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Management intends to raise additional significant funds through private placements of its equity or debt (including convertible debt) securities. Management believes that the actions presently being taken to raise capital and further implement its business plan will enable us to continue as a going concern. While we believe in the viability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate substantial funds.
While the Continuity Logic Merger was pending, the Company made various bridge loans to Continuity Logic for working capital, of which a total balance of $811,234 is still outstanding as of December 31, 2018. These loans mature on August 31, 2019, bear interest at 6% per annum, and a portion of the Notes are secured by a first-priority perfected security interest on the accounts receivable of Continuity Logic. The termination of the Continuity Logic Merger does not change or effect the continuing obligation of Continuity Logic to satisfy the future payment of these loans to the Company.
Depreciation expense for the years ended December 31, 2018 and 2017 were $3,121 and $3,608, respectively.
NOTE 8 - NOTES PAYABLE
At December 31, 2018 the Company was indebted under various Notes Payable in the total amount of $3,338,060 including accrued interest. Following is a summary of our outstanding Notes Payable indebtedness as of December 31, 2018:
|
Summary Description of Notes Payable
|
|
Amount Owed*
|
|
|
Decathlon LLC - Senior Secured Note, due 9/30/18, in default, interest at 15%
|
|
$
|
113,640
|
|
|
Finquest Capital Inc.- Secured Note, due 4/15/18, in default, interest at 15%
|
|
|
51,067
|
|
|
Brajoscal, LLC - Secured Note, due 12/31/18, in default, interest at 15%
|
|
|
41,875
|
|
|
Nottingham Securities Inc., monthly settlement payments
|
|
|
70,009
|
|
|
Note payable to individual investor, due 12/31/18, in default, interest at 12%
|
|
|
134,470
|
|
|
Note payable to individual investor, due 4/24/19-7/3/19 interest at 12%
|
|
|
79,620
|
|
|
Greentree Financial Group, Inc., due 4/24/19, interest at 8%
|
|
|
395,875
|
|
|
MGA Holdings LLC, due 11/26/18, in default, interest at 8%
|
|
|
84,150
|
|
|
Power Up Lending Group, due 10/12/2019-1/10/20, interest at 12%
|
|
|
232,760
|
|
|
Ignition Capital, LLC, due 11/30/2018, in default, interest at 6%
|
|
|
105,333
|
|
|
2 PLUS 2, LLC, Inc., due 4/24/19, interest at 8%
|
|
|
25,833
|
|
|
Collision Capital, due 12/31/18, in default, interest at 6%
|
|
|
20,600
|
|
|
Note payable to individual investor, monthly settlement payments
|
|
|
43,000
|
|
|
Note payable to individual investor, due 12/31/18, in default, interest at 6%
|
|
|
1,921
|
|
|
Crown Bridge Partners, due 9/28/19, interest at 10%
|
|
|
58,500
|
|
|
LG Capital LLC, due 9/12/19, interest at 10%
|
|
|
102,938
|
|
|
Adair Bays LLC, due 9/21/19, interest at 10%
|
|
|
102,747
|
|
|
Note payable to individual investor, due 5/25/19, no interest
|
|
|
176,000
|
|
|
Notes payable to four individual investors, due October-November 2019, interest at 12%
|
|
|
339,875
|
|
|
Notes payable to seven individual investors, due January-May 2020, interest at 12%
|
|
|
213,594
|
|
|
Notes payable to seven individual investors, due 9/20/20, interest at 6%
|
|
|
498,009
|
|
|
Notes payable to two principal officers, due on demand, interest at 6%
|
|
|
284,377
|
|
|
Total
|
|
$
|
3,338,060
|
|
___________
* Includes accrued interest.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – CONVERTIBLE AND OTHER NOTES
During the fiscal year ended December 31, 2017, we issued a total of $1,020,000 in notes, whereby $969,600 was in convertible notes as follows:
March 13, 2017 Convertible Note
-- On March 13, 2017, we issued a $25,000 convertible promissory note bearing interest at 12.0% per annum to an accredited investor, payable September 13, 2017 plus accrued interest. The holder has the right to convert the note into our common stock at a conversion price equal to 50% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date. In September 2017, this note was converted incident to its terms into 560,660 shares of our common stock.
April 18, 2017 Convertible Note –
On April 18, 2017, we issued a $50,000 convertible promissory note bearing interest at 12% per annum to an accredited investor, payable April 18, 2018 plus accrued interest. The holder has the right to convert the note into our common stock at a conversion price equal to 50% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date.
June 8, 2017 Convertible Note
– On June 8, 2017, we issued a $53,000 Convertible Note bearing interest at 12% per annum to an accredited investor, payable March 20, 2018 plus accrued interest. The holder has the right to convert the note into our common stock at a conversion price equal to 42% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date.
June 9, 2017 Convertible Notes
-- On June 9, 2017 we issued a $50,000 Convertible Note to an accredited investor and a $100,000 Convertible Note to another accredited investor, with both these notes bearing interest at 12% per annum and payable March 9, 2018 plus accrued interest. The holders of these two notes have the right to convert them into our common stock at a conversion price equal to 50% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date.
July 2017 Convertible Note
-- In July 2017 we issued a $85,800 Convertible Note to an accredited investor bearing interest at 12% per annum and payable April 26, 2018 plus accrued interest. The noteholder has the right to convert the note into our common stock at a conversion price equal to the lesser of $0.20 per share or 62.5% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date.
August 2017 Convertible Note
– In August 2017 we issued a $57,000 Convertible Note to an accredited investor bearing interest at 12% per annum and payable May 1, 2018 plus accrued interest. The noteholder has the right to convert the note into our common stock at a conversion price equal to the lesser of $0.24 per share or 55% of the average of the lowest trading prices during the 10-day period ending on the latest complete trading day prior to the conversion date.
November 2017 Convertible Notes –
In November 2017 we issued a $85,800 Convertible Note to a private lending fund bearing interest at 12% per annum and maturing in nine months with the noteholder having the right to convert the note into our common stock at a conversion price equal to a 45% discount to its trading price during the 10-day period prior to conversion. Also, in November 2017, we issued a $100,000 Convertible Note to another private lending fund bearing interest at 6% per annum and maturing November 30, 2018 with the noteholder having the right to convert the note into our common stock at a conversion price equal to the lower of $.30 per share or that price per share representing a 25% discount to the price of a future registered public offering.
December 2017 Convertible Notes --
In December 2017 we issued a total of $363,000 in Convertible Notes as follows:
(i) $63,000 Convertible Note to a private lending group bearing interest at 12% per annum and maturing March 19, 2019 with the noteholder having the right to convert the note into our common stock at a conversion price equal to a 42% discount to the average of its three lowest daily trading prices during the ten days prior to conversion.,
(ii) A total of $300,000 in Convertible Notes sold to four accredited individual investors who purchased these notes from our 2017 private placement of $50,000 Notes bearing interest at 12% per annum and maturing two years from their purchase with the noteholders having the right to convert the 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.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2018 Convertible Notes
During the fiscal year ended December 31, 2018, we issued a total of $2,959,500 convertible notes as follows:
Short-Term 2018 Convertible Notes
In January 2018 we issued a $50,000 Convertible Note to an accredited investor bearing interest at 12% per annum, maturing on December 31, 2018, and convertible into our common stock at a conversion price of $.15 per share.
In February 2018 we issued a total of $250,000 of Convertible Notes to accredited investors convertible into our common stock at conversion prices varying from 50-55% of the average of the lowest trading prices for the 10 trading days prior to conversion, including (i) $150,000 of Convertible Notes bearing interest at 11% per annum and maturing on August 28, 2018, and (ii) a $100,000 Convertible Note bearing interest at 11% per annum and maturing on November 16, 2018. We paid a $3,000 legal fee for this note.
In April 2018 we issued a $75,000 Convertible Note to an accredited investor bearing interest at 12% per annum, maturing on April 11, 2019, and convertible into our common stock at a conversion price equal to 42.5% of the lowest trading price for the 10 trading days prior to conversion. We paid a $2,000 legal fee for this note.
In May 2018 we issued a total of $135,000 of Convertible Notes to accredited investors convertible into our common stock at conversion prices at 55% of the lowest trading price for the 10 trading days prior to conversion, including (i) $75,000 of Convertible Notes bearing interest at 12% per annum and maturing on May 9, 2019, and (ii) a $60,000 Convertible Note bearing interest at 10% per annum and maturing on May 21, 2019. We paid a $3,000 legal fee for this note.
In June 2018 we issued a total of $200,000 of Convertible Notes to accredited investors convertible into our common stock at conversion prices at $0.16 per share and after six months, 55% of the lowest trading price for the 10 trading days prior to conversion, including: (i) $100,000 of Convertible Notes bearing interest at 10% per annum and maturing on June 25, 2019, and (ii) a $100,000 Convertible Note bearing interest at 10% per annum and maturing on June 27, 2019. We paid $10,000 legal fees for these two notes.
In June 2018 we issued a total of $176,000 of Convertible Notes to accredited investors convertible into our common stock at conversion prices at $0.10 per share, along with 480,000 warrants to purchase common stock at $0.20 per share for three years.
In July 2018 we issued a total of $275,000 of Convertible Notes to three accredited investors convertible into our common stock at conversion prices at 50% of the lowest trading prices for the 10 trading days prior to conversion, bearing interest at 8% per annum and maturing on April 19, 2019.
In August 2018 we issued a total of $160,000 of Convertible Notes to two accredited investors convertible into our common stock at conversion prices at 50% of the lowest trading prices for the 10 trading days prior to conversion, bearing interest at 8% per annum and maturing on May 14, 2019.
In September 2018 we issued a total of $25,000 of Convertible Notes to an accredited investor convertible into our common stock at conversion prices at 50% of the lowest trading prices for the 10 trading days prior to conversion, bearing interest at 8% per annum and maturing on June 23, 2019.
In September 2018 we issued a total of $60,000 of Convertible Notes to an accredited investor convertible into our common stock at conversion prices at 55% of the lowest trading price for the 10 trading days prior to conversion. We paid a $2,000 legal fee for this note.
In September 2018 we issued a total of $200,000 of Convertible Notes to accredited investors convertible into our common stock at conversion prices at $0.16 per share and after six months, 55% of the lowest trading price for the 10 trading days prior to conversion, including: (i) $100,000 of Convertible Notes bearing interest at 10% per annum and maturing on September 12, 2019, and (ii) a $100,000 Convertible Note bearing interest at 10% per annum and maturing on September 21, 2019. We paid $10,000 legal and due diligence fees for these two notes.
In October 2018, the company issued a $108,000 convertible promissory note bearing an interest rate of 8% per annum to two accredited investors, payable on July 5, 2019 plus accrued interest. The noteholders have the right to convert the note into common stock of the Company at a conversion price equal to 50% of the lowest trading price during the 10-day period ending on the latest complete trading day prior to the conversion date.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Term 2018 Convertible Notes
In January 2018 we issued a $63,000 Convertible Note to an accredited investor bearing interest at 12% per annum, maturing on December 31, 2018, and convertible into our common stock at a conversion price equal to 42% of the average of the lowest trading prices for the 10 trading days prior to conversion. We paid a $3,000 legal fee for this note.
During January-February 2018 we issued a total of $150,000 of Convertible Notes to accredited investors, bearing interest at 12% per annum, maturing two years after their respective purchase dates, and convertible into our common stock at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) for the 10 trading days prior to conversion. We paid $18,000 commissions on these long term notes.
In March 2018 we issued a $63,000 Convertible Note to an accredited investor, bearing interest at 12% per annum, maturing on June 26, 2019, and convertible into our common stock at a conversion price equal to 42% of the average of the lowest trading prices for the 10 trading days prior to conversion. We paid a $3,000 legal fee for this note.
In April and May 2018 we issued a total of $53,000 in Long Term Convertible Notes as follows: Company issued a total of $53,000 in Convertible Notes sold to four accredited individual investors who purchased these notes from our 2018 private placement of $25,000 Notes bearing interest at 12% per annum and maturing two years from their purchase with the noteholders having the right to convert the 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. Incident thereto, we also issued 53,000 warrants to purchase our common stock at $0.01 per share for three years to the purchaser of this Note and 53,000 warrants to purchase our common stock at $0.01 per share for three years to the broker-dealer placement agent of this Note.
In June 2018 we issued a $75,000 Convertible Note to an accredited investor, bearing interest at 0% per annum, maturing on June 5, 2021, and convertible into our common stock at a conversion price equal to 55% of the lowest trading prices for the 10 trading days prior to conversion.
In July 2018, we issued a $103,000 convertible promissory note bearing an interest rate of 12% per annum to an accredited investor, payable on October 12, 2019 plus accrued interest, and convertible into our common stock at a conversion price equal to 42% of the lowest trading price during the 10-day trading period prior to conversion. We paid a $3,000 legal and due diligence fee for this note.
In September 2018 we issued a total of $365,000 Convertible Notes to seven accredited investors, bearing interest at 6% per annum, maturing on September 20, 2020, and convertible into our common stock at a conversion price equal to $0.20 per share.
In September 2018 we issued a $68,000 Convertible Note to an accredited investor bearing interest at 12% per annum, maturing on December 20, 2019, and convertible into our common stock at a conversion price equal to 42% of the lowest trading price for the 10 trading days prior to conversion.
In October 2018, the company issued a $53,000 convertible promissory note bearing an interest rate of 12% per annum to an accredited investor, payable on January 10, 2020 plus accrued interest. The noteholder has the right to convert the note into common stock of the Company at a conversion price equal to 58% of the average of the lowest trading price during the 10-day period ending on the latest complete trading day prior to the conversion date.
In October 2018, the Company issued a $50,000 Convertible Note to an accredited investor, bearing interest at 6% per annum, maturing on September 20, 2020, and convertible into our common stock at a conversion price equal to $.20 per share. We also issued warrants for 50,000 shares to this Noteholder incident to this purchase of the $50,000 Convertible Note, fully vested, and exercisable at $.25 per share anytime during a two-year term.
In October 2018 we issued another $75,000 Convertible Notes to two accredited investors bearing interest at 6% per annum, maturing on September 20, 2020, and convertible into our common stock at a conversion price of $.15 per share during a two-year term.
We evaluated the terms of the convertible notes in accordance with ASC 815-40,
Contracts in Entity's
Own Equity
, and concluded that the Convertible Note resulted in a derivative with a beneficial conversion feature since the convertible notes were convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the notes and associated warrants was based on the Black-Scholes Model, and is being amortized over the term of the debt and associated warrants. For the year ended December 31, 2018, we recognized interest expense of $1,220,133 related to the amortization of the discount.
Short-Term Non-Convertible Notes
In January 2018, we issued a $20,000 note to our CEO, a related party, bearing interest at 6%.
In October 2018, we issued a $82,500 Promissory Note to an accredited investor, bearing an interest rate of 8% per annum and maturing on November 26, 2018.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS & CONTINGENCIES
Lease
We currently occupy 5,229 square feet of office space in downtown Minneapolis Minnesota. We lease this facility under a two-year lease expiring in December 2019 and requiring monthly rental payments of $8,323 which includes rent, utilities and maintenance. The lease commitments over the two-year period is $13.00 per rentable square foot for months 1-12 and $13.50 per square foot for months 13-24. The total lease commitments, per the lease is $106,000 base rent, plus Common Area Maintenance costs. Our rent expense for 2018 and 2017 was $98,245 and $80,478 respectively. Our future rent expense the next five years, on an annual basis, is expected to be consistent with our 2018 rent expense.
NOTE 11 - INCOME TAXES
At December 31, 2018 and 2017, we had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $15,912,080 and $12,605,339 for Federal and state purposes, respectively. The Federal carryforward expires in 2037 and the state carryforward expires in 2022. Given our history of net operating losses, our management has determined that it is more likely than not that we will not be able to realize the tax benefit of the carryforwards. Accordingly, we have not recognized a deferred tax asset for this benefit.
Effective January 1, 2007, we adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2018 and 2017, we did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.
Our policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2018 and 2017, we have not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2016 through 2018 remain open to examination by the major taxing jurisdictions to which we are subject.
Upon the attainment of taxable income by us, our management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize a deferred tax asset at that time.
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes are as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Income tax at federal Statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
Effects of permanent differences
|
|
|
(6.8
|
)%
|
|
|
(8.4
|
)%
|
|
Effect of temporary differences
|
|
|
1.1
|
%
|
|
|
1.3
|
%
|
|
Adjustment of prior year NOL’s
|
|
|
(5.3
|
)%
|
|
|
(3.8
|
)%
|
|
Effects of state taxes (net of federal taxes)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Change in valuation allowance
|
|
|
(23.0
|
)%
|
|
|
(23.1
|
)%
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017, our only significant deferred income tax asset was a cumulative estimated net tax operating loss of $15,912,080 and $12,605,339, respectively, that is available to offset future taxable income, if any, in future periods, subject to expiration and other limitations imposed by the Internal Revenue Service. Management has considered our operating losses incurred to date and believes that a full valuation allowance against the deferred tax assets is required as of December 31, 2018 and 2017. For the year ended December 31 2018, the change in valuation allowance was $1,124,292.
Utilization of our net operating losses may be subject to substantial limitations if the Company experiences a 50% change in ownership, as provided by the Internal Revenue Code and similar state provisions.
NOTE 12 - RELATED PARTY TRANSACTIONS
Employment Agreements.
We currently have three employment agreements in effect with our chief executive officer, our former chief financial officer and our chief revenue officer. The terms of the agreements include base salaries of $50,000 per month.
Included in our notes payable are amounts due to officers for notes payable which were accepted by them for past due compensation or for working capital loans made to us. At December 31, 2018 and 2017, the amounts of such notes due including accrued interest to our officers was $284,377 and $270,639, respectively, payable on demand and having an interest rate of 6% per annum, and conversion rights to convert the notes on the basis of $.30 per share.
In April 2017 we issued a total of 1,100,562 shares of our common stock to our two principal officers in consideration for their conversion of a total of $330,168 of Notes they held for past due compensation into equity at $.30 per share.
In September 2017, we issued 250,000 shares of our common stock as a bonus to our Chief Financial Officer and 600,000 shares as a bonus to our Chief Technology Officer. Also, in September 2017, we provided contingent future grants for the future issuance of a total of 750,000 shares of our common stock which will vest annually over a four-year term commencing in September 2018 providing they remain employed by us, including 500,000 shares for our Chief Revenue Officer and 250,000 shares for our Chief Technology Officer.
In September 2017, we granted four-year stock options to purchase a total of 1,150,000 shares of our common stock, of which (i) options for 1,000,000 shares were granted to our Chief Revenue Officer having an exercise price of $.35 per share with 375,000 shares vested immediately and the balance of 625,000 shares vesting quarterly over its four-year term, and (ii) options for 150,000 shares were granted to a newly-hired software development employee having an exercise price of $.20 per share vesting quarterly over its four-year term.
In December 2017, we obtained a working capital loan for $76,000 from our Chief Executive Officer, due on demand and bearing an interest rate of 6% per annum. The outstanding balance of this loan as of March 31, 2019 is $76,000
In March 2018, we granted a stock award of 250,000 common shares to a new director for agreeing to serve on our Board of Directors for one year, which has now all vested; and in March 2019 we granted him a similar stock grant award of 250,000 common shares, vesting quarterly, for agreeing to serve on our Board for a second year.
In 2018 we granted a four-year stock option to our Chief Revenue Officer, vesting annually, to purchase 500,000 common shares exercisable at $.20 per share; and in 2018 we also granted a stock award for 500,000 common shares to our former Chief Technical Officer related to his development work for the Company.
NOTE 13 - STOCKHOLDERS’ EQUITY
We are authorized to issue 500,000,000 shares of common stock and 20,000,000 shares of preferred stock, both having $.0001 par value per share. At December 31, 2018, there were 67,454,276 outstanding shares of common stock and no outstanding shares of preferred stock.
Common Shares Issued in 2017
In January 2017, we issued 142,857 unregistered common shares in a private placement to an accredited investor in consideration for $50,000 or $0.35 per share, which proceeds were used for working capital purposes. Also, in January 2017, we issued 133,333 unregistered common shares to a Noteholder to satisfy and convert into equity $40,000 of a Note Payable.
In February 2017, we issued a total of 650,000 unregistered common shares valued at $0.68 per share or $442,000 for consulting services, including 400,000 common shares for investment relations and financial communications services, and 250,000 common shares for technical and software advisory services. Also, In February 2017, we sold and issued 300,000 unregistered shares for total consideration of $200 incident to a consulting contract to provide us with public relations services.
In March 2017, we issued a total of 296,999 shares of our common stock, including (i) 200,000 shares sold for $100,000 ($.50 per share) to two investors in a public offering under our S-1 Registration Statement for, which proceeds were used for working capital purposes, and (ii) 96,999 shares valued at $29,100 for marketing support services.
In April 2017 (effective March 31, 2017), we issued 1,100,562 unregistered common shares to convert debt owed to its two principal officers into equity incident to the transaction described in the foregoing Note 11.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April-May 2017, we issued a total of 1,300,000 unregistered common shares as follows:
|
i)
|
500,000 common shares in a private placement with an accredited investor for proceeds of $150,000 ($.30 per share), which proceeds were used for working capital purposes;
|
|
ii)
|
200,000 common shares valued at $.30 per share to a financial advisor under a consulting agreement; and
|
|
iii)
|
400,000 shares to Volerro Corporation valued at $168,000 upon closing our purchase of the assets of Volerro Corporation, a privately-held corporation based in Minneapolis which developed and marketed “content collaboration” software services.
|
In June 2017, we issued a total of 548,215 unregistered common shares as follows:
|
i)
|
300,000 shares valued at $.25 per share to a financial adviser under a consulting agreement;
|
|
ii)
|
96,999 shares valued at $29,100 to a marketing support adviser under an outstanding agreement; and
|
|
iii)
|
151,216 shares issued to a note holder to convert debt in the amount of $30,243.
|
In July 2017, we issued 200,000 unregistered common shares valued at $40,000 to a financial adviser incident to an outstanding consulting agreement.
In September 2017, we issued or granted a total of 1,911,684 shares of our common stock as follows:
|
i)
|
We issued a debtholder who is an accredited investor 336,425 unregistered common shares to convert notes payable of $42,053 into equity.
|
|
ii)
|
We issued another debtholder who is an accredited investor 560,660 unregistered common shares to convert notes payable of $28,033 into equity.
|
|
iii)
|
Pursuant to an advisory agreement to provide marketing support related to obtaining new customers, we issued 96,999 unregistered common shares to a consultant valued at $13,580.
|
|
iv)
|
We granted a total of 1,667,600 shares of our common stock to employees as performance bonuses (of which 750,000 are unissued shares vesting over a four-year period), including 850,000 shares valued at $132,500 to our Chief Technology Officer, 500,000 shares valued at $85,000 to our Chief Revenue Officer, 250,000 shares valued at $35,000 to our Chief Financial Officer under the Company’s S-8 registered 2016 Equity Incentive Plan, and 67,600 shares valued at $10,140 to our Controller.
|
In October 2017, we issued 200,000 unregistered common shares valued at $46,000 to a financial adviser pursuant to a consulting agreement.
In December 2017, we issued a total of 1,048,999 unregistered common shares as follows:
|
i)
|
100,000 common shares valued at $19,000 to a debt holder who extended past due loans to December 31, 2018 and also reduced the interest rate on the loans from 24% to 12%.
|
|
ii)
|
96,999 common shares valued at $18,430 to a consultant for marketing support services.
|
|
iii)
|
a total of 300,000 common shares valued at $44,500 to various accredited investors who purchased convertible debt in our 2017 private placement.
|
|
iv)
|
300,000 common shares valued at $44,500 to a licensed broker-dealer who represented us in placing our 2017 private offering of convertible debt.
|
|
v)
|
252,000 common shares to convert debt in the amount of $31,500 from an outstanding convertible note, which conversion price was based on specific provisions of this convertible note.
|
Common Shares Issued in 2018
In January--February 2018 we issued a total of 800,000 unregistered common shares valued at $134,000 to two consultants for investor relations and shareholder communications services.
During January- March 2018 we issued a total of 2,012,957 unregistered common shares to three holders of Convertible Notes who converted their Notes to $130,433 of common stock, which conversion prices were based on specific provisions contained in their Convertible Notes.
In March 2018 we granted 250,000 unvested shares of our common stock, valued at $50,000, to John Bode in consideration for his agreement to serve for a year as an independent director on our Board of Directors, of which 62,500 shares vest quarterly on May 31, 2018, August 31, 2018, November 30, 2018 and February 28, 2019 provided he continues to serve as a director. All these shares are now vested.
In April 2018 we issued 660,000 unregistered common shares, valued at $92,844, to a holder of a Convertible Note who converted $47,248 of the Note into common stock with the conversion price based on specific provisions in the Note.
During April-May 2018 we issued a total of 779,960 unregistered common shares valued at $109,770 to three consultants for investor relations and shareholder communications services.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During April-June 2018 we issued a total of 3,861,843 unregistered common shares to three holders of Convertible Notes who converted their Notes to $256,086 of common stock, which conversion prices were based on specific provisions contained in these Notes.
During June 2018, we issued 500,000 shares of restricted common stock, valued at $80,000 to our former Chief Technology Officer.
During July-August, 2018, we issued 650,000 shares of restricted common stock valued at $102,500 to two consultants and a Noteholder for investor relations and shareholder communications services.
During July-September 2018, we issued a total of 3,014,491 unregistered shares of our common stock valued at $209,388 for debt conversions from four noteholders, which conversion prices were based on specific provisions contained in their convertible Notes
During September 2018, we issued 93,333 shares of unregistered common stock valued at $14,000 to an accredited investor for exercise of a warrant with a cashless exercise provision.
During September 2018 we issued 200,000 shares of unregistered common stock valued at $31,800 to Volerro Corporation as bonus shares pursuant to terms of the 2017 acquisition agreement.
In October 2018 we issued a total of 400,000 unregistered common shares valued at $62,000 to two consultants for investor relations and shareholder communications services.
In October 2018 we issued 439,092 common shares to a noteholder to convert debt in the amount of $26,894 based on specific provisions contained in the note.
In October 2018 we issued 141,231 common shares incident to exercise of a warrant held by a broker-dealer that raised funds for the Company in 2017 and 2018.
From October-December 2018 and incident to our recent private placement offering of $2,000,000, we issued a total of 7,700,000 common shares to accredited private investors for proceeds of $1,400,000, which included purchased shares at $.20 per share and additional advisory shares based on 10% of the purchased shares.
Stock Option Grants
In September 2017, we granted four-year stock options to purchase a total of 1,150,000 shares of our common stock, of which (i) options for 1,000,000 shares were granted to the Chief Revenue Officer (CRO) of the Company with an exercise price of $.35 per share, with 375,000 shares vested immediately and the remainder of 625,000 shares vesting quarterly over the four-year term, and (ii) options for 150,000 shares were granted to a newly-hired software developer with an exercise price of $.20 per share and vesting quarterly over the four-year term.
In December 2017, we granted a four-year stock option to purchase 100,000 shares of our common stock to a newly-hired software developer with an exercise price of $.25 per share and vesting quarterly over the four-year term.
In 2018 we granted a four-year stock option to our Chief Revenue Officer to purchase 500,000 common shares, vesting quarterly, at an exercise price of $.20 per share.
In 2018 we also issued employee stock options for an aggregate purchase of 740,000 common shares, ratably vesting annually over their four-year terms, and with options for 650,000 shares exercisable at $.20 per share and options for 90,000 shares exercisable at $.25 per share.
Warrant Grants
During the year ended December 31, 2017, we granted warrants to purchase a total of 2,652,097 unregistered common shares as follows:
|
(i)
|
warrants for 41,667 shares granted for financial services, fully vested, and exercisable at $.30 per share anytime during a four-year term;
|
|
(ii)
|
warrants for 200,000 shares granted for investor relations services, exercisable when vested at $.40 per share anytime during a three-year term and vesting at 20,000 shares per month over a ten-month period,
|
|
(iii)
|
warrants for 250,000 shares granted to an accredited investor who purchased common shares in a private placement, which warrants are fully vested and exercisable at $.30 per share during a four-year term;
|
|
(iv)
|
warrants for 142,857 shares to an accredited investor purchasing a Convertible Note, which warrants are fully vested and exercisable any time at $.35 per share over a four-year term;
|
|
(v)
|
warrants for a total of 1,250,000 to two accredited investors purchasing Convertible Notes, which warrants are fully vested and exercisable any time at $.20 per share during a three-year term.
|
|
(vi)
|
warrants for 167,573 shares granted to a secured creditor for a loan extension, fully vested and exercisable at $.30 per share any time during a three-year term.
|
|
(vii)
|
warrants for 100,000 shares granted for legal services provided to us, fully vested and exercisable at $.25 per share any time during a four-year term.
|
|
(viii)
|
warrants for 200,000 shares granted to two independent software developers (100,000 shares apiece), and exercisable at $.25 per share and vesting over four-year terms.
|
|
(ix)
|
warrants for 100,000 shares granted in to an adviser for financial services, fully vested and exercisable at $.30 per share any time over a five-year term.
|
|
(x)
|
warrants for 50,000 shares granted to a shareholder in consideration for marketing services, fully vested and exercisable at $.17 per share any time over a four-year term.
|
|
(xi)
|
warrants for 150,000 shares granted to a secured lender in consideration primarily for a loan extension to September 30, 2018, fully vested and exercisable at $.15 per share over a four-year term. Concurrently the exercise price of this lender’s 2015 warrant to purchase 1,347,185 shares was reduced from $0.65 to $.30 per share until its expiration in December 27, 2019.
|
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the three-month period ended March 31, 2018, we granted warrants to purchase a total of 450,000 shares of our common stock, valued at $84,875 using Black-Scholes, as follows:
(i) warrants for 100,000 shares granted to a Noteholder incident to the purchase of a $100,000 Convertible Note, fully vested, and exercisable at $.30 per share anytime during a five-year term;
(ii) warrants for 150,000 shares granted to a Noteholder incident to purchase of a $150,000 Convertible Note, fully vested, and exercisable at $.01 per share anytime during a three-year term; and
(iii) warrants for 200,000 shares granted incident to the purchase of $100,000 of convertible debt in our private placement, fully vested, and exercisable at $.01 per share anytime during a three-year term, and which included warrants for 100,000 shares issued to the Noteholders and warrants for 100,000 shares issued to the placement agent.
During the three-month period ended June 30, 2018, we granted warrants to purchase a total of 686,000 shares of our common stock, valued at $82,407 using Black-Scholes, as follows:
(i) warrants for 100,000 shares granted to a Noteholder incident to the purchase of a $75,000 Convertible Note, fully vested, and exercisable at $.135 per share anytime during a two-year term;
(ii) warrants for 480,000 shares granted to a Noteholder incident to purchase of a $176,000 Convertible Note, fully vested, and exercisable at $.20 per share anytime during a three-year term; and
(iii) warrants for 106,000 shares granted incident to the purchase of $53,000 of convertible debt in our private placement, fully vested, and exercisable at $.01 per share anytime during a three-year term, including warrants for 53,000 shares issued to the Noteholders and warrants for 53,000 shares issued to the placement agent
During the three-month period ended September 30, 2018, we granted warrants to purchase a total of 540,000 shares of our common stock, valued at $33,656 using Black-Scholes , as follows:
(i) warrants for 100,000 shares granted to two Noteholders incident to their purchase of $100,000 Convertible Notes, fully vested, and exercisable at $.01 per share anytime during a two-year term;
(ii) warrants for 50,000 shares granted to two consultants, vesting ratably over a two-year term, and exercisable at $.25 per share anytime during their two-year term; and
(iii) warrants for 390,000 shares granted to Noteholders incident to their purchase of $390,000 Convertible Notes, fully vested, and exercisable at $.01 per share anytime during a two-year term.
During the three-month period ended December 31, 2018, related to our recent private placement, we granted three-year warrants to the private placement investors to purchase an aggregate of 10,000,000 shares of our common stock, exercisable at $.20 per share, adjusted to a discounted true-up price, with a floor of $0.10 per share, related to the trading price of our Common Stock during a 90-day period after effectiveness of a registration statement. Accounting Standards Codification (ASC) specifies prior to the Accounting Standards Update (ASU) 2017-11, it specifies the true-up price terms makes this warrant a derivative. However, post ASU 2017-11, this clause is scoped out of the analysis and is not a derivative. ASU 2017-11 is officially effective for calendar year end companies on 1/1/19, however issuers can early adopt. The Company has taken the position to early adopt, which would eliminate Section 7(b) from making these warrants a derivative.
NOTE 14 – WARRANT INFORMATION
We have the following outstanding warrants to purchase our common stock at December 31, 2017 and 2018:
|
|
|
Number of
Shares
|
|
|
Exercise
Price
|
|
|
Weighted Average
Exercise price
|
|
|
Average
Grant
Date
Fair value
|
|
|
Balance December 31, 2016
|
|
|
4,206,444
|
|
|
$0.15-$0.40
|
|
|
|
0.40
|
|
|
|
0.39
|
|
|
Granted
|
|
|
2,652,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(640,722
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017
|
|
|
6,217,819
|
|
|
$0.15-$1.00
|
|
|
|
0.28
|
|
|
|
0.29
|
|
|
Granted
|
|
|
11,626,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(102,250
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
17,741,569
|
|
|
$0.01-$1.00
|
|
|
|
0.22
|
|
|
|
0.23
|
|
During 2018 and 2017, the warrant expense issued for services and investors was $1,155,670 and $127,322 respectively.
FISION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – 2017 BUSINESS ACQUISITION
The Company accounts for business combinations using the purchase method to record a new cost basis for the assets acquired, and in some cases, liabilities assumed. The Company recorded, based on purchase price allocations, intangible assets representing customer relationships, tradenames, software code, domain names, and excess of purchase price over the estimated fair values of the net assets acquired as “Goodwill” in the accompanying Consolidated Financial Statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through increased market presence and the acquisition of a large customer (a nation-wide bank) and is all attributed to our one operating reportable segment. The results of operations are reflected in the Consolidated Financial Statements of the Company from the date of acquisition.
(a) 2017 Acquisition
In fiscal 2017, the Company acquired the assets of Volerro Corporation with an aggregate purchase price of $252,000 payable in the form of 400,000 shares of Common Stock of the Company in 2017, and upon future performance, up to an additional 200,000 shares of Common Stock, which additional 200,000 shares were issued in 2018. The allocation of consideration for this acquisition is summarized as follows:
|
Checking and cash equivalents
|
|
$
|
51,500
|
|
|
Intellectual Property and Software Code
|
|
|
68,500
|
|
|
Intangible Asset-Goodwill
|
|
|
132,000
|
|
|
|
|
|
|
|
|
Purchase Price
|
|
$
|
252,000
|
|
Goodwill of $132,000 and intellectual property of $68,500 are expected to be deductible for U.S. federal income tax purposes. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of the assets acquired. During 2018, the Company took a goodwill impairment expense of $66,000 as one of the customers obtained in the Volerro acquisition may not renew the annual contract commencing in 2019.
Pursuant to this acquisition, the Company acquired a new top 5 bank in the United States, with a customer contract remaining of $10,800 as of December 31, 2018.
NOTE 16 - CONCENTRATIONS
For the year ended December 31, 2018 three customers each accounted for more than 10% of our revenues, and also and alike for the year ended December 31, 2017 four customers each accounted for more than 10% of our revenues. Combined, these customers represented less than 50% of our revenues during each of 2018 and 2017. A significant reduction for any reason in the use of our software solutions by one or more of our major customers could harm our business materially.
NOTE 17 - SUBSEQUENT EVENTS
During January-April, 2019, the following events occurred regarding our securities:
i) In February through March 2019, we issued an aggregate of 5,439,253 common shares to noteholders who converted total outstanding debt of $238,707, with the conversion price based on specific terms contained in these notes.
ii) In February 2019, we issued 300,000 common shares valued at $26,730 to a consultant for advisory services to be provided to us during February-April 2019.
iii) In March 2019 we issued an aggregate of 3,182,834 common shares and 3,182,834 three-year warrants to noteholders who converted total outstanding debt of $504,134, with the warrants exercisable at $.20 per share and having a value under Black-Scholes pricing of $25,908.27, with the conversion price and warrant terms based on specific terms contained in these notes.
iv) We also received proceeds of $350,000 during January-March 2019 from private investors making payments of the second tranche funding under our recent private placement, for which we issued 1,750,000 purchased common shares and 175,000 advisory common shares.
v) In April 2019, we signed a one-year consulting agreement with Capital Market Solutions, LLC whereby we issued 30 million common shares valued at $1,797,000 and 30 million five-year warrants exercisable at $.20 per share and having a value under Black-Scholes pricing of $1,297,570 along with a $50,000 monthly consulting fee.
vi) We also issued 62,500 restricted shares for Independent Director, John B. Bode on February 28, 2019 for his fourth quarter of board service, pursuant to an Independent Director agreement dated March 1, 2018.
EXHIBITS
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Exhibit No.
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Description
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2.1
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Agreement and Plan of Merger, by and among the registrant, DE6 Newco Inc., a Minnesota corporation, and Fision Holdings, Inc., a Minnesota corporation (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed on December 10, 2015)
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2.2
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First Amended and Restated Agreement and Plan of Merger dated December 21, 2018, by and among Fision Corporation and Continuity Logic, L.L.C. (incorporated by reference to the registrant’s Current Report on Form 8-K filed on December 26, 2018)
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2.3
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Consulting Agreement, by and among the registrant, FISION Corporation, a Delaware corporation, and Capital Market Solutions, LLC., a Delaware limited liability corporation (filed herewith)
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3.1
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Articles of Incorporation (incorporated by reference to Exhibit 3.1 of registrant’s Form 10 filed on 4/6/2010)
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3.2
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Bylaws (incorporated by reference to Exhibit 3.2 of registrant’s Form 10 filed on 4/6/2010)
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10.1
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Employment Agreement with Michael Brown, dated July 7/1/2014 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on January 4, 2016)
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10.2
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Employment Agreement with Garry Lowenthal, dated 7/1/2014 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on January 4, 2016)
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10.3
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2011 Stock Option and Compensation Plan, as amended 12/30/2014 (incorporated by reference to the registrant’s Current Report on Form 8-K filed on January 4, 2016)
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10.4
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2016 Equity Incentive Plan (incorporated by reference to the registrant’s Registration Statement on Form S-8 filed on March 30, 2016)
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10.5
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Employment Agreement with Wade Anderson (incorporated by reference to Registrant’s Registration Statement on Form S-1 filed on October 31, 2016)
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10.6
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Employment Agreement with Jason Mitzo, Chief Revenue Officer (filed with 2017 10-K Report)
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31.1
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Certification of CEO pursuant to Securities Exchange Act (filed herewith)
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31.2
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Certification of CFO pursuant to Securities Exchange Act (filed herewith)
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32.1
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Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350 (filed herewith)
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101
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Interactive data files pursuant to Rule 405 of Regulation S-T
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