The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020 AND 2019
(Unaudited)
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
FISION Corporation, a Delaware corporation (the “Company”) was incorporated under a former name on February 24, 2010, and was inactive until December 2015 when it merged with Fision Holdings, Inc., an operating business based in Minneapolis, Minnesota. As a result of this reverse merger, Fision Holdings, Inc. became a wholly-owned subsidiary of the Company. Fision Holdings, Inc. was incorporated in Minnesota in 2010, and has developed and commercialized a proprietary cloud-based software platform which automates and integrates digital marketing assets and marketing communications to “bridge the gap” between marketing and sales of any enterprise. The Company generates its revenues primarily from software licensing contracts typically having terms of from one to three years and requiring monthly subscription fees based on the customer’s number of users and the locations where used. The Company’s business model provides it with a high percentage of recurring revenues.
The terms “Fision,” “we,” “us,” and “our,” refer to FISION Corporation, a Delaware corporation and its wholly-owned operating subsidiary Fision Holdings, Inc., a Minnesota corporation (including our Volerro software services).
Basis of Presentation
The accompanying consolidated financial statements are unaudited. These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and note disclosures which are included in annual financial statements have been omitted pursuant to these rules and regulations. We believe the disclosures made in these interim unaudited consolidated financial statements are adequate to make the information not misleading.
Although these interim consolidated financial statements for the three-month and nine-month periods ended September 30, 2020 and 2019 are unaudited, in the opinion of our management, such statements include all adjustments, consisting of normal and recurring accruals, necessary to present fairly our financial position, results of operations and cash flows for the periods presented. The results for the 2020 interim periods are not necessarily indicative of the results to be expected for the year ended December 31, 2020 or for any future period.
These unaudited interim consolidated financial statements should be read and considered in conjunction with our audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in our annual report on Form 10-K/A filed with the SEC on June 4, 2020.
Principles of Consolidation
These consolidated interim financial statements include the accounts of FISION Corporation, a Delaware corporation, and its wholly-owned Minnesota subsidiary Fision Holdings, Inc. All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
GAAP accounting principles require our management to make estimates and assumptions in the preparation of these interim financial statements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates and assumptions.
The most significant areas requiring management judgment and which are susceptible to possible later change include our revenue recognition, cost of sales, allowance for doubtful accounts, valuations of property and equipment and intangible assets, stock-based compensation, fair value of financial instruments, derivative liabilities, development costs, impairment of long-lived assets, and the valuation allowance for deferred income taxes.
Cash and Cash Equivalents
We consider all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents. At September 30, 2020 and December 31, 2019, we had no cash equivalents.
Concentration of Credit Risk and Customers
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. During the year ended December 31, 2019 and the nine months ended September 30, 2020, we may have had cash deposits in our bank that exceeded FDIC insurance limits. We maintain our bank accounts at high quality institutions and in demand accounts to mitigate this risk. Regarding our customers, we perform ongoing credit evaluations of them, and generally we do not require collateral from them to do business with us.
For the nine months ended September 30, 2020, three customers exceeded 10% of our revenues, including one for 12.5% of revenues, one for 22% of revenues, and one for 47% of revenues. We face the material risk factor that a significant reduction for any reason in the use of our software solutions by one of these major customers would harm our business materially.
Revenue recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue From Contracts With Customers, originally effective for public business entities with annual reporting periods beginning after December 15, 2017. On August 12, 2015, the FASB issued an Accounting Standards Update (“ASU”), Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASC 606 for one year. ASC 606 provides accounting guidance related to revenue from contracts with customers. For public business entities, ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company adopted the application of ASC 606 and has evaluated the impact of ASC 606, and the application of ASC 606 did not have a material impact on its consolidated financial statements and disclosures, as the Company had already implemented the five-step process in determining revenue recognition from contracts with customers.
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
Company Recognizes Contract Liability for Its Performance Obligation
Upon receipt of a prepayment from a customer, the Company recognizes a contract liability in the amount of the prepayment for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Lease Accounting
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has adopted ASU 2016-02 on leases and has evaluated the impact of ASU 2016-02 on the Company’s financial statements and disclosures, and currently does not believe that its application will have a material impact on its consolidated financial statements. As of September 30, 2020, the Company had no leases, and pays for a virtual office on a month-to-month basis.
Income (Loss) Per Common Share
Earnings per Share - Basic earnings per share are calculated by dividing net income (loss) available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Under ASC 260-10-45-16, the calculation of diluted earnings per share, the numerator should be adjusted to add back any convertible dividends and the after-tax amount of interest recognized in the period associated with any convertible debt. The denominator should include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Please refer to the below table for additional details:
|
|
For the nine months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
870,323
|
|
|
$
|
(5,007,181
|
)
|
Adjustments for diluted earnings:
|
|
|
|
|
|
|
|
|
Income (Loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
264,107,373
|
|
|
|
103,438,883
|
|
Diluted
|
|
|
470,955,981
|
|
|
|
103,438,883
|
|
For the nine months ended September 30, 2020 and September 30, 2019, there were 206,848,608 and 57,726,412 potentially dilutive securities respectively, included in the calculation of weighted-average shares outstanding.
Property and Equipment
Property and equipment are capitalized and stated at cost, and any additions, renewals or betterments are also capitalized. Expenditures for maintenance and repairs are charged to earnings as incurred. If property or equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from our accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with estimated lives as follows:
Furniture and fixtures
|
|
5 years
|
|
|
|
Computer and office equipment
|
|
5 years
|
Stock-Based Compensation
We record stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, which requires us to measure the cost for any stock-based employee compensation at fair value and recognize the expense over the related service period. We recognize the fair value of stock options, warrants and any other equity-based compensation issued to employees and non-employees as of the grant date. We use the Black Scholes model to measure the fair value of options and warrants.
Recently Issued Accounting Pronouncements
See above “Revenue Recognition” and “Lease Accounting” sections in this Note 1.
Other recent accounting pronouncements issued by the FASB, the AICPA, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on our present or future financial statements.
NOTE 2 -- GOING CONCERN
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is contingent upon our future ability to achieve and maintain profitable operations, and to raise substantial additional capital as required until we attain profitable operations.
At September 30, 2020 we had a working capital deficiency of $4,924,320 and an accumulated deficit of $30,941,469, and the Company had an operating loss of $1,099,043 for the nine months ended September 30, 2020. These conditions raise substantial doubt about our ability to continue as a going concern for a period of 1 year from the issuance date of this report. These unaudited interim financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
We are in the process of raising funds to support activities to obtain increased revenues, and otherwise addressing our ability to continue as a going concern. Our management believes that if we can succeed in raising substantial additional capital to implement increased funding for substantial marketing and sales support, we will be able to generate material increased revenues and continue as a going concern. Unless we can raise significant additional working capital, however, we most likely will not be able to continue our current business as a going concern.
NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1 inputs include quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
Level 3 inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
The following table represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at September 30, 2020:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,333,387
|
|
The following assets and liabilities are measured on the consolidated balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following table provides a reconciliation of the beginning and ending balances of the liabilities:
|
|
Fair Value
Dec 31,
2019
|
|
|
Additions
|
|
|
Change in
fair
Value
|
|
|
Extinguishment
|
|
|
Fair Value
Sept 30,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
4,156,621
|
|
|
$
|
276,876
|
|
|
$
|
(2,826,397
|
)
|
|
$
|
(273,713
|
)
|
|
$
|
1,333,387
|
|
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other income and expensed in these financial statements.
The significant unobservable inputs used in the fair value measurement of the liabilities described above are as follows;
Exercise price
|
|
$.
|
0049-.00165
|
|
Expected Volatility
|
|
|
354
|
%
|
Expected Term
|
|
Due on demand to 36 mos.
|
|
Risk free interest rate
|
|
0.16%-0.18
|
%
|
Expected dividends
|
|
|
-
|
|
Derivative Instruments
The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
NOTE 4 – NOTES PAYABLE
At September 30, 2020, we were indebted under various Notes Payable with interest rates of 1% to 15% in the total amount of $3,714,573, including a COVID-related PPP SBA loan of $177,200, related-party Notes payable of $1,258,024, net of debt discount of $254,614 (of which $272,504 is in default), short-term convertible Notes mostly in default of $1,426,872 net of debt discount of $56,993, and long-term convertible notes of $229,656 net of debt discount of $311,214.
During the period ending September 30, 2020, related parties converted outstanding accrued expenses into some of the notes described above. Michael Brown, a director and our former CEO, converted accrued salaries and funds put into the Company into new convertible Notes of $491,356. Capital Market Solutions, LLC converted its $600,000 of accrued and unpaid consulting fees into a new short-term convertible note, 5% simple interest rate, maturing on July 31, 2021, for a total of $600,000. These related party notes have conversion terms of the greater of $.05 or a 10-day Volume Weighted Average Price (VWAP). (See Footnote 8). Other creditors converted outstanding accrued expenses into notes described above, including accrued salaries and outsourced development and technology consulting fees of $527,554 with conversion terms of the greater of $.05 or a 10-day Volume Weighted Average Price (VWAP).
NOTE 5 – NOTES RECEIVABLE
The Company had no notes receivable balance, due to an allowance for doubtful accounts, at September 30, 2020 and December 31, 2019.
|
|
Sept. 30,
2020
|
|
|
Dec. 31,
2019
|
|
Notes receivable
|
|
$
|
804,300
|
|
|
$
|
804,300
|
|
Accrued interest
|
|
|
89,135
|
|
|
|
52,942
|
|
Total
|
|
$
|
893,435
|
|
|
$
|
857,242
|
|
Less allowance for doubtful accounts
|
|
|
(893,435
|
)
|
|
|
(857,242
|
)
|
Notes receivable, net
|
|
$
|
-
|
|
|
$
|
-
|
|
While the failed Continuity Logic merger was pending, the Company made various bridge loans to Continuity Logic for working capital purposes, of which a total balance including accrued interest of $893,435 is still outstanding and in default as of September 30, 2020. These loans matured on August 31, 2019, bear interest at 6% per annum, and a portion of the Notes for these loans are secured by a first-priority perfected security interest on the accounts receivable of Continuity Logic, pursuant to a Security Agreement dated November 27, 2018. On February 4, 2019, the merger with Continuity Logic LLC was terminated. The termination of the merger does not change or affect the continuing obligation of Continuity Logic to satisfy the future payment of these loans to the Company, and in 2019 the Company commenced a Complaint against Continuity Logic LLC regarding the unpaid balance of these Notes Receivable.
Court action is ongoing, while we also pursue reasonable collection activities. Due to the uncertainty of obtaining payment for these Notes, however, the Company has created an allowance for doubtful accounts of the entire amount of this Continuity Logic receivable, resulting in no balance being recorded in our outstanding Notes Receivable. Continuity Logic, LLC is not a related party to the Company. Further court action is ongoing, while the Company pursues aggressive collection activities, including our law firm contacting Continuity Logic LLC customers requesting all payments to be sent directly to the law firm, on our behalf. Additionally, the Company commenced an involuntary bankruptcy petition for Continuity Logic LLC, as to expedite the collection efforts, whereby a Trustee in the United States Bankruptcy Court, District of New Jersey will be appointed to oversee all collection matters.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In 2019, we entered into a consulting contract with Capital Market Solutions LLC, a Delaware limited liability company (“CMS”), an affiliate, providing that for a term of one year, CMS will provide us with management, operational, and financial services in consideration for our payments to CMS of $50,000 monthly along with issuance to CMS of 30 million shares of our common stock which we valued at $1,797,000 based on the closing stock price on the date of the transaction, which was recorded as a pre-paid expense and amortized over one year. This consulting contract also provided for a five-year warrant providing CMS the right to purchase an additional 30 million shares of our common stock exercisable at $.20 per share, which warrant we valued at $1,297,570 with the warrant expense amortized as consulting expense on a straight-line basis over the term of the consulting agreement of one year. As of March 31, 2020, the one-year term and all other provisions of this CMS consulting agreement expired.
COVID-19 -- Management of the Company has concluded that the COVID-19 outbreak in 2020 may have a significant impact on business in general, but the potential impact on the Company is not currently measurable. Due to the level of risk this virus may have on the global economy, it is at least reasonably possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials. Management has not been able to measure the potential financial impact on the Company but will review commercial and federal financing options, if any are available. The Company continues to monitor the impact of this pandemic closely, although the extent to which the COVID-19 outbreak will impact our operations, financing ability or future financial results is uncertain.
The Company was involved in litigation with its former office landlord involving a dispute over the amount of past due rent, which has now been settled requiring the Company to pay $12,000 to the landlord during this fourth quarter of 2020. The Company has booked this liability in Accounts Payable on the balance sheet.
NOTE 7 -- STOCKHOLDERS’ DEFICIT
The Company is authorized to issue 500,000,000 shares of common stock and 20,000,000 shares of preferred stock, both having $.0001 par value per share. At September 30, 2019 there were 124,453,545 outstanding shares of common stock and no outstanding shares of preferred stock. At September 30, 2020 there were 346,350,759 outstanding shares of common stock and no outstanding shares of preferred stock.
During the nine months ended September 30, 2019, we completed the following equity transactions:
In February 2019 we issued 300,000 common shares valued at $26,730 for advisory services to be provided to us during February-April 2019.
In February 2019 we also issued 62,500 common shares to our independent director, John Bode for his service as a director in the fourth quarter of his first year of service, and we also granted him $12,500 worth of our common stock vesting at the end of each quarter of his second year as a director, in consideration for his agreement to serve as a director for the year commencing March 1, 2019.
During January-March 2019 we received proceeds of $350,000 from certain accredited investors who made payments of their second tranche under our recent private placement, for which we issued to them a total of 1,750,000 purchased common shares and 175,000 advisory common shares, pursuant to the terms of a Securities Purchase Agreement as an Advisory Fee based on ten percent of the shares purchased in this private placement.
During February-March 2019 we issued an aggregate of 8,622,087 common shares and two-year warrants to purchase an aggregate of 3,182,834 common shares (exercisable at $.20 per share and valued at $63,502 under Black-Scholes pricing) to noteholders who converted their outstanding notes in the amount of $742,391, with the conversion prices and warrant terms based on specific terms contained in the notes.
In March 2019, we also issued three-year warrants to purchase an aggregate of 1,750,000 common shares exercisable at $.20 per share (with a Black-Scholes model value of $59,121 and recorded as a debt discount), in connection with a convertible debt offering of $350,000 to five accredited investors and bearing interest at 6% per annum during the five-year term of these notes, and also being convertible into our common stock at a conversion price equal to the lower of $.20 per share or the Volume Weighted Average Price (VWAP) of our common shares during the ten days prior to conversion.
In March 2019, we recognized an option and warrant expense of $148,199 for certain employee stock options previously granted to our employees.
In April 2019 we entered into a one-year consulting contract in consideration for our payment to the consultant of $50,000 monthly, 30 million shares of our common stock, and a five-year warrant to acquire an additional 30 million shares for $.20 per share. See foregoing Note 8.
In April-May 2019, we issued an aggregate of 3,284,284 shares of our common stock to two noteholders who converted total outstanding Notes in the amount of $51,500, with the conversion price based on specific terms contained in the Notes. In addition, we issued an aggregate of 5,000,000 common shares valued at $222,000 for advisory services to be provided to us during one year advisory agreements.
In May 2019 we issued 245,098 restricted common shares valued at $12,500 to our independent director for three months service on our Board of Directors.
In June 2019, three noteholders converted $176,000 of outstanding Notes owed to them into an aggregate of 1,760,000 common shares, with the conversion prices based on specific terms contained in these Notes.
In July 2019, we issued 100,000 restricted common shares valued at $3,900 to an individual accredited investor in consideration for making a loan to us in the amount of $75,000, having an interest rate of 6% per annum, and maturing on January 18, 2020.
In August 2019 a Noteholder who is an accredited investor converted $80,162 of outstanding Notes into an aggregate of 2,676,771 common shares, with the conversion price based on specific terms contained in the Note.
In August 2019, we issued 490,196 restricted common shares valued at $12,500 to our independent director for three months service on our Board of Directors.
In September 2019 a Noteholder who is an accredited investor converted $19,000 of outstanding Notes into an aggregate of 2,533,333 common shares, with the conversion price based on specific terms contained in the Note.
During the nine months ended September 30, 2020, we completed the following equity transactions:
Pursuant to independent director agreements, in February 2020 we issued 2,083,333 restricted common shares valued at $12,500 to John Bode, an independent director, for three months service as a director, and in June 2020 we issued him 2,604,167 restricted common shares valued at $12,500 for three months service as a director.
In March 2020 we issued an aggregate of 9,625,000 restricted common shares to twelve accredited investors, which represented True-Up and Penalty shares owed to them pursuant to a 2018-2019 private placement of the Company in which they invested a total of $1,750,000.
In May 2020, we issued 5,000,000 restricted common shares valued at $14,500 to two accredited investors for advisory services to the Company.
In August-September 2020 we issued the following restricted common shares for services as a director pursuant to independent director agreements:
|
i)
|
675,676 shares valued at $12,500 to John Bode for three months services from June-September 2020, and
|
|
|
|
|
ii)
|
4,791,667 shares valued at $25,000 to Gregory Nagel for six months services from April-September 2020.
|
Note Conversions --- During the first nine months of 2020 ended September 30, 2020, Noteholders who are accredited investors converted outstanding Notes to restricted common stock as follows, with the conversion prices based on specific terms contained in the Notes:
In January 2020, a Noteholder converted $37,000 of outstanding Notes into 4,933,333 shares; another Noteholder converted a $52,000 portion of an outstanding Note into 6,933,333 shares; and a third Noteholder converted $33,452 of outstanding Notes into 4,401,591 shares.
In February 2020, two Noteholders converted a total of $26,472 of outstanding Notes into an aggregate of 9,662,622 shares.
In March 2020, a Noteholder converted a $42,500 portion of an outstanding Note into 6,062,863 shares; another Noteholder converted a $23,000 portion of an outstanding Note into 6,965,743 shares; and a third Noteholder converted $5,048 of outstanding Notes into 4,589,091 shares.
During January-March, 2020 the following debt conversions also took place:
|
i)
|
three Noteholders converted a total of $190,000 of outstanding Notes into an aggregate of 29,370,454 shares, which Note amounts were purchased by them in December 2019 from Capital Market Solutions LLC (CMS), an affiliate of the Company, in private transactions;
|
|
|
|
|
ii)
|
four Noteholders converted a total of $107,675.63 of outstanding Notes into an aggregate of 14,195,619 shares, which Notes were originally issued in February 2018.
|
|
|
|
|
iii)
|
three Noteholders converted a total of $129,000 of outstanding Notes into an aggregate of 14,929,577 shares, which Notes were originally issued in March 2019.
|
In April 2020, Noteholders who are accredited investors converted outstanding Notes to restricted common stock as follows:
|
i)
|
A Noteholder converted a $9,500 portion of an outstanding Note into 3,653,846 shares;
|
|
|
|
|
ii)
|
A Noteholder converted $10,042 of outstanding Notes into an aggregate of 7,172,857 shares;
|
|
|
|
|
iii)
|
A Noteholder converted $10,000 of outstanding Notes into an aggregate of 2,702,702 shares, and this Noteholder purchased a portion of a June 2019 Note from Ignition Capital LLC in April 2020 in a private transaction; and.
|
|
|
|
|
iv)
|
A Noteholder converted $20,000 of outstanding Notes into 7,692,307 shares, which represented a portion of an outstanding Note purchased by this Noteholder from affiliate CMS in December 2019 in a private transaction.
|
In June 2020, a Noteholder converted a $21,000 portion of an outstanding Note into 5,000,000 shares; and another Noteholder converted a $9,137 portion of an outstanding Note into 2,175,574 shares.
In July 2020, seven Noteholders converted a total of $166,832 of outstanding Notes into an aggregate of 33,218,160 shares, which Note amounts were purchased by them in private transactions from Capital Market Solutions, LLC (“CMS”), the original holder of the Notes and its controlling member is an affiliate of the Company.
In August 2020, two Noteholders converted a total of $94,856 of outstanding Notes into an aggregate of 17,225,263 shares.
Private Placement Transaction -- In August 2020, the Company received proceeds of $50,000 from an accredited private investor, for which we issued 5,000,000 restricted common shares along with a fully vested warrant to purchase an additional 5,000,000 common shares at $.10 per share anytime during its two-year term, which warrant was valued at $70,500 under the Black Scholes pricing model.
NOTE 8-- RELATED PARTY
During the nine months ended September 30, 2020 we issued a total of 10,154,843 shares of our restricted common stock to our two independent directors, John Bode and Gregory Nagel, for director services. (See Note 7).
Our Notes Payable as of September 30, 2020 include convertible Notes of $560,646 owed to Michael Brown, a director and our former CEO, related to unpaid past salary compensation and funds put into the Company, payable at maturity on June 30, 2021, 5% interest rate, and convertible into our common stock at the greater of $0.05 per share or a 10-day Volume Weighted Average Price (VWAP).
In 2019, we entered into a consulting contract with affiliate CMS for a term of one year, whereby CMS provided us with management, operational, accounting and financial services in consideration for our payments to CMS of $50,000 monthly along with issuance to CMS of 30 million restricted shares of our common stock and a warrant to purchase an additional 30 million common shares. (See Note 6). This contract has expired.
In May 2019, our largest and also a principal shareholder, Capital Market Solutions, LLC (CMS) entered into a Long Term Convertible Note with us in the principal amount of $250,000 for the conversion of existing short term notes, maturing in three years, bearing interest at 6% per annum payable each six months of its term, and being convertible into our common stock at the lesser of $.20 per share or the Volume Weighted Average Price (VWAP) per share during the 10-day period prior to conversion. The Convertible Note also includes three year warrants to purchase a number of shares equal to the principal amount of the note divided by the conversion price. The exercise price is equal to the conversion price. The Company recorded a derivative liability on the conversion feature in the note and associated warrant liability to the warrants issuable under the agreement. We valued the warrants at $463,174, under our Black Scholes model, to be recorded as a derivative liability for warrants, whereby the associated debt discount is being amortized on a straight-line basis over the term of the warrants, including a cashless exercise provision as defined under the terms of the Note, and CMS also received registration rights related to any future conversion(s) of this Note to equity.
CMS also has additional short-term nonconvertible notes for a total of $76,111, which are in default as of September 30, 2019. CMS also converted its $600,000 of accrued and unpaid consulting fees into a new short-term convertible note, 5% simple interest rate, maturing on July 31, 2021, for a total of $600,000, with conversion terms of the greater of $.05 or a 10-day Volume Weighted Average Price (VWAP).
MGA Holdings, owned and/or controlled by affiliate William Gerhauser, has a nonconvertible Note for $82,500 which is in default as of September 30, 2020.
Ignition Capital LLC, owned and controlled by William Gerhauser, also has convertible long-term Notes in the total amount of $148,778, which mature in 2022.
NOTE 9 – COVID-19 LOAN
In April 2020, we obtained a SBA long-term loan under the federal COVID-19 Payroll Protection Program (PPP) for $177,200, administered by Richfield/Bloomington Credit Union, having a term of 24 months and bearing interest of 1% per annum. The portion of the loan proceeds used for labor, office costs and utilities may be subject to loan forgiveness under the terms of the SBA/PPP program.
NOTE 10 – SUBSEQUENT EVENTS
As of the date of this interim report on Form 10-Q, the Company had the following material event subsequent to September 30, 2020.
Effective November 19, 2020, the Company acquired 100% of the membership interests of both Ft. Myers ASC LLC (“ASC”) and ASC SoftDev LLC (“SoftDev”), both Florida limited liability corporations, from Capital Market Solutions, LLC (“CMS”), a Delaware limited liability corporation, pursuant to the terms of a Transfer Agreement of the same date between the Company and CMS. CMS is the Company’s largest shareholder, and the sole owner of CMS is William Gerhauser, who is a director of the Company. Independent and disinterested directors of the Company approved the terms of the Transfer Agreement. A form 8K was filed with the U.S. Securities and Exchange Commission on November 19, 2020, whereby a copy of the Transfer Agreement was attached as Exhibit No. 10.1 to the 8K filing.
ASC was formed for the purpose of owning and operating an ambulatory surgery center, which is a medical facility that specialize in elective same-day or outpatient surgical procedures, but does not offer emergency and are also known as surgi-centers. ASC has engaged eight different specialist consultants, including, lawyers, tax advisors, software designers, ASC design and operation specialists, and has signed a commercial lease with a Landlord for the building where the ASC will operate, which lease is for approximately 20,000 square feet of space and for a term of 17 years with an option for an additional 15 years. The consideration for part of the lease payments and consulting contracts was the issuance of notes convertible into common shares of the Company stock in the aggregate amount of $700,000.
SoftDev was formed for the purpose engaging in software development relating to ambulatory surgery centers, including without limitation ASC. SoftDev has engaged software development consultants and other experts to assist in the development of the business, including without limitation of Rubicon Software Ltd.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
There are certain statements in this Quarterly Report on Form 10-Q that are not historical facts. These “forward-looking statements” can be identified by terminology such as “believe,” “may,” “intend,” “plan,” “will,” “could,” “expect,” estimate,” “strategy,” and similar expressions. These forward-looking statements are subject to material risks and uncertainties that are beyond our control. Although our management believes that the assumptions underlying these forward-looking statements are reasonable, they do not assure or guarantee our future performance. Our actual results could differ materially from those contemplated by these forward-looking statements. The assumptions used for these forward-looking statements require considerable exercise of judgment, since they represent estimates of future events and are thus subject to material uncertainties involving possible changes in economic, governmental, industry, marketplace, and other circumstances. To the extent any assumed events do not occur, the outcome may vary materially and worse from our anticipated or projected results. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by these forward-looking statements will in fact transpire. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements. Before determining to make an investment in any of our securities, you should read and consider specific Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.