ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Current Status of the Company
In order to fund and conduct our business over the past few years, we have relied significantly on working capital obtained from private sales of our equity and convertible debt securities to various accredited investors. Due primarily to our continued operating losses for several years, it has been difficult to raise the substantial working capital as needed to support our business plan for future growth.
During most of 2019 and until March 2020, our executive management consisted primarily of two persons who are partners of our major affiliate and principal shareholder, Capital Markets Solutions, LLC (“CMS”), and who served us as principal management on an interim basis under the terms of a Consulting Agreement between us and CMS. This Consulting Agreement expired in March 2020, and the two CMS partners acting as our interim executive management then resigned as executive officers and directors of the Company. Since April 2020, our management has consisted of four directors, Michael Brown, John Bode (independent), William Gerhauser and Gregory Nagel (independent), with Michael Brown also acting as our principal executive and financial officer.
After the termination of the Continuity Logic LLC merger in 2019, for the past couple years our business operations and goals have focused on supporting our customer base who use our Fision software platform, on improving our financial position, and on seeking and acquiring businesses perceived to benefit the Company. We also added Alistair Hancock, CEO of Rubicon Software Ltd, as our acting Chief Technology Officer in September 2019. Rubicon Software Ltd is a U.K. based company providing experienced IT solutions and services. This IT outsourcing relationship has allowed us to enhance our professional services to our customers.
Acquisition to Engage in Ambulatory Surgery Center (ASC) Business
In November 2020, the Company acquired 100% of the equity membership interests of two Florida limited liability companies from Capital Market Solutions, LLC (“CMS”), which are Ft Myers ASC LLC (“Ft Myers ASC”) and ASC SoftDev LLC (“SoftDev”). These two LLCs were organized by CMS in the fall of 2020 to engage in the development and operation of a medical Ambulatory Surgery Center. Our agreement with CMS for this acquisition was set forth in full as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 19, 2020.
CMS is an affiliate of the Company and its largest shareholder, and is controlled by William Gerhauser, a director of the Company. This acquisition and its terms were specifically considered and approved by our two independent and disinterested directors, who also were advised by independent outside legal counsel. Neither Mr. Gerhauser nor any other representative of CMS participated in the vote of our Board of Directors to approve this acquisition.
Fort Myers ASC was formed for the purpose of owning and operating in Ft. Myers, Florida an Ambulatory Surgery Center, a medical facility specializing in elective same-day or outpatient surgical procedures, not including emergency surgery.
We anticipate opening the Ft Myers Ambulatory Surgery Center for commercial operations in 2022.
SoftDev was formed for the purpose of developing software applications to support the medical procedures and operations of Ambulatory Surgery Centers, including Ft Myers ASC and others. SoftDev has engaged experienced software development consultants and others to assist in the development of its proprietary software platform and other business operations, including Rubicon Software Ltd. We expect to have completed our proprietary Ambulatory Surgery Center software platform applications prior to opening our Ft Myers Ambulatory Surgery Center.
Acquisition of Score, Inc.
On April 1, 2021, through a Memorandum of Understanding (MOU) between the Company, Score, Inc., a Puerto Rico corporation (“Score”) and Joshua Carmona (Carmona”) (100% owner of Score), we agreed to acquire Score based on the material terms of this MOU. The MOU terms were made definitive and binding in May 2021 through a Purchase and Sale Agreement (“PSA”) entered into by all parties to the MOU.
After completing satisfactory due diligence regarding Score and its business operations and financial position/results, we closed and completed this acquisition on May 30, 2021, resulting in Score then becoming a wholly-owned subsidiary of the Company.
Score, Inc. is a Puerto Rico corporation in good standing, and is engaged in the enterprise software industry where it provides business-to-business software solutions in credit repair for approximately 100 US companies. Score owns 100% of its significant subsidiary VIP Solutions LLC. Score is an Act 73 company under Puerto Rico law, and our acquisition of Score was conducted to ensure that Score maintains this important Act 73 status after becoming our subsidiary. Through this Score acquisition, we obtained 11 employees based in Score headquarters in Puerto Rico.
A requirement of this Score acquisition requires us to provide future working capital to Score of at least $500,000 during the 18 months following the acquisition, to be used for software development and integration, marketing expenses, and hiring additional employees as needed. We anticipate that such funding will support integration of the Fision and Score software platforms to allow them to be marketed jointly.
A condition of this Score acquisition requires that its financial condition and past operations be audited by a registered CPA firm which is currently ongoing, and we anticipate this audit to be completed in August 2021. Upon completion, the certified audit will include operational results of Score for at least the past two-year period, and will be publicly disclosed and filed with the SEC in a Form 8-K.
In consideration for acquiring Score, Inc. (i) we issued to Carmona a Senior Secured Convertible Promissory Note in the principal amount of $500,000, maturing in two years, and convertible into common stock of the Company at the higher conversion price of USD $.05 per share or the volume weighted average price (VWAP) over the last 10 trading days prior to conversion, and (ii) by March 31, 2023, we will issue and deliver to Carmona an unsecured promissory note in an amount equal to Score’s average gross annual revenue for calendar years 2021 and 2022, convertible into our common stock at $.20 per share but not for more than 10 million shares.
Carmona also has consented to become a member of our Board of Directors, and he has agreed to serve as our Chief Operating Officer (COO) being compensated at an annual rate of $50,000, with quarterly payments of $12,500 paid through issuance of our restricted common stock to Carmona based on the closing price of such stock on the last trading day of each quarter.
Incident to accounting for this Score acquisition, we have recorded the entire amount of the $500,000 Note issued to Carmona on our balance sheet as a Goodwill asset.
Significant Improvement of Our Financial Position
Since 2019, much of our management efforts have been focused toward improving our balance sheet and overall financial position, in order to increase our ability to raise additional capital and also to enhance our status as a prospective merger partner with an operating company. We believe we have successfully accomplished this goal based on the following and other matters:
i) Debt to Equity - Most important for this improvement of our financial position, we successfully converted a majority of our outstanding Notes Payable and their accrued interest into common stock of the Company. These Notes Payable conversions have totaled $4,939,876 including $1,198,106 converted in 2019, $2,088,809 converted in 2020, and $1,652,961 converted in the recent six months ended June 30, 2021. For example, even recently our outstanding short-term Notes Payable have decreased substantially from $1,863,389 as of December 31, 2020 to $903,321 as of June 30, 2021.
ii) These many debt conversions have substantially reduced our required interest payments. For example, our interest expenses for 2020 were $983,789 compared to interest expenses for 2019 of $2,155,065.
iii) These debt conversions of Notes Payable also resulted in substantial reductions of related Derivative Liabilities recorded as current liabilities on our balance sheet. For example, our Derivative Liabilities were recorded as $4,251,179 at December 31, 2020 as compared to $475,396 at June 30, 2021.
iv) Total Liabilities - We have also recently reduced our total liabilities substantially from $7,550,010 as of December 31, 2020 to $3,670,768 as of June 30, 2021.
Background of Company
FISION Corporation (the “Company”) was incorporated in Delaware in 2010 under a former name and conducted no active business operations until December 2015 when the Company merged with Fision Holdings, Inc., (“Minnesota Fision”) an operating Minnesota corporation based in Minneapolis. As a result of this 2015 Merger, Fision Holdings, Inc. became our wholly-owned subsidiary, and control of the Company was acquired by the pre-merger shareholders of Fision Holdings, Inc.
In connection with this 2015 Merger, we issued an aggregate of 28,845,090 shares of our common stock to the former shareholders of Minnesota Fision, and also issued derivative securities to holders of Minnesota Fision outstanding options and warrants. As a result of this 2015 Merger, our pre-merger shareholders including their pre-merger derivative securities held less than five percent (5%) of our total combined post-merger outstanding common stock. The 2015 Merger was accounted for as a “reverse merger” and recapitalization. Accordingly, for financial reporting purposes, our Minnesota Fision subsidiary was the acquirer, and the Delaware parent was the acquired company.
In May 2017, we acquired substantially all the assets of Volerro Corporation, a Delaware corporation based in Minneapolis and engaged in the development and marketing of proprietary cloud-based “content collaboration” software services.
When used in this report, the terms “the Company,” “Fision,” “we,” “us,” and “our,” refer to FISION Corporation, a Delaware corporation and our wholly-owned operating subsidiary Fision Holdings, Inc., a Minnesota corporation (including its Volerro software services).
Termination of Continuity Logic Merger
In late 2018 the Company entered into a Merger Agreement with Continuity Logic, L.L.C., a New Jersey limited liability company (the “Continuity Logic Merger”) to effect a merger which would have resulted in our shareholders as a group and the equity holders of Continuity Logic as a group each owning 50% of the post-merger combined companies. A key provision of this Continuity Logic Merger provided that the parties and their representatives were required to raise enough working capital to support the post-merger funding requirements of the combined companies, and also that the merger be completed by December 31, 2018. Although the Company and Continuity Logic conducted extensive due diligence regarding this merger during the last few months of 2018, they were unable to raise or receive future commitments from investors to provide sufficient capital to support the projected post-merger combined business operations of both companies. Accordingly, in February 2019 Continuity Logic terminated this merger since it was not consummated by December 31, 2018 as well as insufficient working capital being available to sustain projected post-merger business operations. The Company no longer has any relationship or involvement with the business operations or future prospects of Continuity Logic.
While the Continuity Logic Merger was pending, the Company made various bridge loans to Continuity Logic for working capital, which loans have been long overdue and are still outstanding in the total amount as of June 30, 2021 of $917,565 including accrued interest. These loans matured on August 31, 2019, bear interest at 6% per annum, and a substantial portion of the Notes is 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 affect the continuing obligation of Continuity Logic to satisfy the payment of these loans to the Company. Although we have commenced legal proceedings to attempt to collect the overdue principal and interest owed to us by Continuity Logic on these Notes, the Company as of December 31, 2019 took and established a reserve for the entire principal plus accrued interest against these notes receivables.
We also are a Petitioning Creditor in a New Jersey federal bankruptcy court to have a court-appointed Trustee take over the assets of Continuity Logic and collect proceeds from its customers for the benefit of its creditors. Since we are the only secured lender of Continuity Logic, and thus a first priority and perfected lienholder, we expect the first $460,447 of any such proceeds to be released to us less any court-related costs associated with the bankruptcy case.
In June 2021, we obtained a settlement in the Bankruptcy Court proceeding which should enable us to collect a material amount of this Continuity Logic debt through future installment payments, in an amount that exceeds our allowance for doubtful accounts balance of $905,500. Any future payments received by us will be recorded and accounted for as Other Income.
Contemplated Business Combination
We have been seeking a merger or other business combination, with our chosen target being an established private software services company which could be complementary with our Fision business and structure. We believe such a merger would be very beneficial to such a private entity due to our public company status, our large tax loss position, our commercially developed proprietary Fision software platform, our customer base, and other benefits. We intend to target and pursue such a merger only with one or more private entities having material and growing revenues.
Fision Platform Overview
We are an Internet platform technology company providing proprietary cloud-based software solutions to automate and improve the marketing and sales enablement functions and activities of our customers. Our focus is to provide software technology tools through our Fision platform to enable our customers to maximize their marketing assets and initiatives. Our development, management, marketing and other operations have been conducted through our wholly-owned Minnesota corporate subsidiary, Fision Holdings, Inc.
We have developed and commercialized a proprietary cloud-based software platform which automates and integrates all digital marketing assets and marketing communications of our customers, and thus “bridges the gap” between marketing and sales functions and personnel of an enterprise. Our Fision platform marketing solutions promote and improve sales enablement functions of any entity. This cloud-based software platform is readily scalable to adapt to fast business growth of any customer, regardless of size. Except for future customary periodic upgrades, the basic development of our Fision software marketing platform has been completed.
Our proprietary Fision platform enables every member of the marketing and sales teams of our customers, by having easy and automated access to all their digital marketing and media assets, to leverage the full power of their distinctive brands and digital marketing assets in every interaction with their consumers or buyers.
Our Fision software platform enables our customers to easily and quickly create and implement marketing campaigns to support their sales personnel while still emphasizing, protecting and enhancing their valuable brand assets. Use of our software solutions by our customers reduces substantially the time and cost incurred by them to produce and present marketing and sales campaigns and presentations for specific products or services.
We believe that the agile marketing software solutions of our Fision platform provide three major benefits to our customers, which are (i) accelerating their revenues, (ii) improving their marketing and brand effectiveness, and (iii) significantly reducing their marketing and sales costs.
We derive our revenues primarily through recurring revenue payments from customers having software licensing contracts with terms of one to three years, and requiring monthly fees based on the customer’s number of users and locations where used. A substantial majority of our revenues are recurring, due to the nature of our licensing contracts. We currently have written license contracts with six (6) customers actively using our Fision platform in their marketing and sales operations.
Our typical customer implementation process includes integrating our cloud-based Fision platform with the marketing infrastructure of the customer, initiating and conducting customer training, and providing marketing development support while our Fision platform is being actively launched by the customer. We also continue to offer technical and maintenance support after implementation.
Our current and former customer base has ranged across diverse industries of all sizes, including banks and other financial enterprises, insurance companies, hotels and other hospitality businesses, healthcare and fitness companies, retailers, software and other computer technology companies, product manufacturers, and tele- communications companies.
Our market and potential customer base are global and virtually unlimited, since our Fision platform software solutions provide significant benefits to the marketing and sales departments and personnel of any commercial enterprise, regardless of size and widespread locations. We receive substantial recurring revenues, and we regard our high percentage of recurring revenues to be particularly significant to our business strategy which emphasizes long-term relationships with our customers under written contracts. We believe that our ability to realize such recurring revenues is a keystone feature of our business model.
We have marketed and licensed our proprietary software platform both through direct sales obtained by our management and in-house sales personnel, and through utilizing experienced independent national technology sales agencies.
Our Fision Platform - Our Fision marketing software centrally collects, stores, prioritizes, organizes, streamlines, integrates and distributes the numerous digital marketing assets of our customers including videos, images, logos and other brand materials, presentations, social media content and any other digital marketing assets. Using Fision’s automated software technology, these digital assets become readily available for user access as determined by each of our customers. Our Fision platform is designed to provide any corporate marketing department with the ability to instantly and seamlessly update its sales force and other users with the latest digital marketing content and materials, while providing them with a simple, intuitive software interface to quickly find what they need on any digital device, anytime and anywhere. Large enterprise customers with extensive global sales networks have the ability to quickly and efficiently create and deliver customized sales campaigns or presentations to selectively targeted consumer audiences while conveying a positive, personalized and consistent brand experience. We believe that the use of our software marketing solutions by our customers results in a substantial increase in their return on investment (ROI) and their profitability.
Cloud-Based Platform - Storage and operation of our Fision software solutions platform along with the digital marketing and sales assets and related data of our customers are outsourced by us to reside and take place in the digital “cloud.” Providers of cloud services are typically referred to as “virtual servers” since they provide all digital data storage and related software application services to their clients. Our cloud service provider is Microsoft’s Azure Cloud, which leading provider offers readily scalable, high quality and secure cloud services capable of satisfying any increasing demand or changing circumstances in the needs of our customers or of us.
We regard the hosting of our software applications, the ready digital interface with our customers, and the storage of unlimited customer data with our premier cloud provider as being significant to our operating strategy. Our major savings in expensive computer equipment, high salaried technology personnel, and costly security measures through our use of Microsoft’s cloud is vital to our cost of doing business. Moreover, we believe that our experienced and leading cloud provider is more effective in delivering our Fision software solutions to our customers than we could perform in any event.
Strategic Marketing Change
During the years prior to 2017 while our Fision software platform was being designed and developed, our marketing and sales efforts were directed toward local or regional small-to-medium sized companies whose operational, management and commercial activities are conducted from one local or a couple regional facilities. Since our Fision platform and its cloud-based marketing software were designed and developed to be readily adaptable to and scalable for any size company, however, in 2017 we revised our marketing strategy and activities to target and sell our software products primarily to large global enterprise corporations having many and widespread national and international branches and operations.
We believe that our past marketing focus toward large enterprises was somewhat effective, since during 2018-2019 we closed and implemented material contracts with, and are receiving recurring revenues from, certain large enterprise companies. Unfortunately, the increased length of time of our sales cycle necessary to sell to large enterprises has been substantially more expensive and much longer than we earlier incurred while selling primarily to local and regional sized companies. This substantial increase in our sales cycle to negotiate and close contracts with new large enterprise customers resulted in a material decline in our revenues during the past few years. Accordingly, we failed to raise enough working capital to support and continue the substantial marketing resources and time necessary to secure and retain enough large enterprise customers to achieve material increased revenues. We currently are attempting to raise the substantial capital necessary to launch an effective marketing campaign including obtaining whatever personnel and other resources are needed to properly address and sell our software services to additional large enterprise customers. There is no assurance that such funds will be available to us in the future.
2017 Asset Acquisition
In May 2017 we acquired substantially all the assets of Volerro Corporation (“Volerro”), a Minneapolis-based company, including its proprietary cloud-based software and development technology. Volerro has developed and marketed “content collaboration” software services to enhance and improve the overall sales and marketing activities of its clients. Volerro software enables the marketing, sales and brand personnel of its clients to collaborate in real time in the creation, refinement, and distribution of all types of their strategic content including print, packaging, high quality image and video content. For example, Volerro’s primary application allows all product, brand, marketing and creative teams of a business enterprise the ability to work on and create a document in real-time with integrated chat and voice conferencing.
Employees and Properties
We currently utilize several independent contractors to perform most of the necessary activities of the Company.
For the past couple years, we have been conducting our current business and operations under a month-to-month basis from a temporary “virtual” office in Minneapolis which provides us with telephone, mail and basic conference facilities adequate for our current activities, as well as storage of certain computers, hardware servers, software assets and other technology development and office equipment, furniture and supplies owned by us. We do not own any real estate. However, in the near future the Company intends to establish an office in Florida, to assist in the development of the Ambulatory Service Center business.
Regarding our acquisition of Score, Inc. which is now being absorbed into our Company, we have obtained 11 employees who operate that software business, as well as the Score facilities in Puerto Rico. We will disclose details regarding these matters in our next quarterly report on Form 10-Q or a Form 8-K.
Revenue and Marketing Models
Revenue Model - Our Fision platform revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. Over the past several years, we consistently committed substantial expenses and sales personnel toward targeting, negotiating and procuring significant licensing agreements with large enterprise customers. Because of the long-term nature and the substantial expense commitment required by each new customer to enter into a binding licensing agreement with us, the sales cycle involved in our revenue model is quite lengthy. Accordingly, the unpredictable and different timing involved from customer to customer to procure our licensing contracts has prevented us from receiving overall consistent revenues or accurately forecasting our future revenue stream.
We generate our revenues primarily from payments from customers having a license from one to three years to access and use our proprietary agile marketing software platform, which payments include monthly fees based on actual usage of the Fision platform, and a prescribed substantial one-time set-up and integration fee payable to us at the outset of the license. We also receive certain secondary fees from time to time for customized software development projects ordered from us, and for processing emails for certain customers.
Marketing Model - Our products and services have been marketed and sold in the agile marketing software segment of the broad software-as-a-service (SaaS) industry, with virtually all our past revenues derived from our proprietary cloud-based Fision marketing software platform.
Prior to 2020, we marketed, sold, and licensed our proprietary software products through a direct sales force including management, and also through independent national sales agencies who sold (licensed) our branded software products as agents being paid commissions based on their actual sales. Since then, we have lacked sufficient available working capital to hire and support marketing/sales personnel or agents and provide them with adequate resources, and accordingly we have not conducted any material marketing and sales activities since 2019.
Intellectual Property (IP) Protection
We have committed substantial attention and resources toward obtaining patent and trademark rights and otherwise protecting our trade secrets, development know-how technology, trademarks, trade names, patent rights and other proprietary intellectual property (IP). Our IP protection includes written provisions relating to non-compete, non-recruit, confidentiality, and invention assignments as applicable with employees, vendors, sales agents, consultants, and others.
In 2017 we were granted Patent No. US 9,639,551 B2 from the United States Patent and Trademark Office (USPTO) entitled “Computerized Sharing of Digital Asset Localization Between Organizations.” In 2018 we were granted another Patent No. US 9,984,094 B2 from the United States Patent and Trademark Office (USPTO) entitled “Computerized Sharing of Digital Asset Localization Between Organizations”. And in 2019 we were granted another Patent No. US 10,235,380 B2 from the United States Patent and Trademark Office (USPTO) entitled “Computerized Sharing of Digital Asset Localization Between Organizations”.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Litigation
See Note 5 of our interim financial statements included in this quarterly report for disclosure regarding our recent legal proceedings to collect a substantial amount of Notes Receivable owed to us by Continuity Logic LLC.
Also, our subsidiary Fision Holdings, Inc., we are a party to a complaint in the fourth judicial district, District Court in Minnesota regarding a long-term note that has become due with Decathlon Alpha L.P. regarding unpaid principal balance of $60,000 plus accrued interest and fees with an aggregate balance of $166,196. We are in the process of settlement negotiations with this noteholder.
From time to time, we have been subject to legal proceedings, claims and litigation arising in the ordinary course of business. We currently are not a party to any material legal proceedings against us, nor are we aware of any material pending or threatened litigation against or involving us.
Significant Accounting Policies
Stock-Based Compensation Valuations - Our estimated valuations for stock-based compensation grants are based primarily on the quoted prices for our common stock in the public trading market.
Accounts Receivable -- We maintain allowances for potential credit losses on accounts receivable. In connection with the preparation of our financial statements, management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, changes in customer payment patterns, and current economic trends in order to evaluate the adequacy of these allowances. Accounts determined to be uncollectible are charged to operations when that determination is made.
Research and Development -- We expense all our research and development operations and activities as they occur. Our development activities have been conducted both internally from our headquarters facility by our former development personnel, and externally from outsourced contracts with experienced independent software development companies and individuals.
Derivative Instrument Liabilities - We evaluate all of our agreements and financial instruments to determine if they contain features that qualify as embedded derivatives. For any derivative financial instruments accounted for as liabilities, they initially will be accounted for at fair value and if necessary revalued at each reporting date, with any changes in fair value reported in our statements of operations. For any stock-based derivative financial instruments or securities, we use an option pricing model to value them at inception and on any subsequent valuation dates. The classification of derivative instruments, including whether they should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments -- FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1 inputs include quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
Level 3 inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
Revenue Recognition -- Revenue is recognized in the period the services are provided over the license contract period, normally one (1) to three (3) years. We invoice onetime startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly.
The Company recognizes contract liability for its performance obligation upon receipt of a prepayment from a customer for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Cost of Goods Sold -- Cost of goods sold primarily represents third-party hosting, data storage and other services provided by Microsoft’s Azure Cloud service, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of goods sold relating to our cloud services is recognized monthly.
Income Taxes -- We account for income taxes in accordance with the asset and liability method of accounting for income taxes, whereby any deferred tax assets are recognized for deductible temporary differences and any deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of our management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Long-lived Assets -- We evaluate the recoverability of our identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.
Recently Issued Accounting Pronouncements
See Note 1 to the interim financial statements included in this quarterly report on Form 10-Q.
Results of Operations for the Three Months Ended June 30, 2021 and 2020
Revenue -- Revenue was $304,497 for the quarter ended June 30, 2021 compared to revenue of $76,445 for the quarter ended June 30, 2020, which increase in revenue in the 2021 second quarter compared to the 2020 second quarter was primarily because of increased use by a major customer of our Fision software platform and the revenue from the acquisition of Score, Inc.
Cost of Sales - Cost of sales for the quarter ended June 30, 2021 was $23,950 (31.3% of revenue) compared to cost of sales of $22,988 (30.1% of revenue) for the quarter ended June 30, 2020, basically the same amount for these two quarterly periods.
Gross Margin - Gross margin for the quarter ended June 30, 2021 was $280,547 compared to $53,457 for the quarter ended June 30, 2020. Gross margin as a percentage of revenue was 92% for the second quarter of 2021 compared to 69.9% of revenue for the second quarter of 2020. The gross margin increase is due to the increase in revenue by a major customer of our Fision software platform and the revenue from the acquisition of Score, Inc.
Operating Expenses - Operating expenses for the quarter ended June 30, 2021 were $520,215 compared to operating expenses of $208,584 for the quarter ended June 30, 2020. Sales and marketing expenses for the quarter ended June 30, 2021 were $2,917 compared to $2,450 for the quarter ended June 30, 2020, which small marketing/sales expense amounts during both quarterly periods was due to having no marketing/sales personnel or material marketing activities. Development and support expenses for the quarter ended June 30, 2021 were $50,936 compared to $87,899 for the quarter ended June, 30, 2020, which decrease for the second quarter of 2021 was due primarily to completion of certain software development projects during 2020. General and administrative expenses for the quarter ended June 30, 2021 were $466,362 compared to $118,235 for the quarter ended June 30, 2020, which increase in the 2021 second quarter was primarily due to increased consulting, professional and administrative expenses related to our recent acquisitions of the Florida surgery center project and Score Inc. in Puerto Rico and the compensation of our directors.
Operating Loss -- Operating loss for the quarter ended June 30, 2021 was $239,668 compared to $155,127 for the quarter ended June 30, 2020, which increased operating loss for the second quarter of 2021 was primarily due to increased general and administrative expenses to support our recent acquisitions and compensation to our directors.
Other Income/(Expenses) - Other income/(expenses) for the quarter ended June 30, 2021 was income of $360,415 (consisting of a $338,829 gain on change in fair value of derivatives, a gain of $179,183 for forgiveness of the SBA Covid-19 loan, a gain of $7,128 on settlement of debt, and other income of $12,064, offset by $(176,789) of debt interest/debt amortization expenses), compared to other income/(expenses) of $(180,308) for the quarter ended June 30, 2020 (consisting of $(121,423) of debt interest/debt amortization expenses, a change in fair value of derivatives of $(46,998), a loss on settlement of debt of $(11,887), and a bad debt expense of $(12,065), offset by other income of $12,065. The substantial increase in other income in the 2021 second quarter was due primarily to a substantially increased recorded accounting gain in fair value of derivatives and to forgiveness of the SBA Covid-19 loan.
Net Income/(Loss) - Our net income for the quarter ended June 30, 2021 was $120,747 compared to a net (loss) of $(335,435) for the quarter ended June 30, 2020, which increase for the 2021 second quarter was primarily due to the large recorded accounting gain on change in fair value of derivatives as well as the gain related to forgiveness of the SBA Covid-19 loan.
Results of Operations for the Six Months Ended June 30, 2021 and 2020
Revenue - Revenue was $365,462 for the six months ended June 30, 2021 compared to $180,489 for the six months ended June 30, 2020, which decrease in revenue for the six-month period of 2021 was due primarily to having less customers than in the comparable six-month period of 2020 and the revenue from the acquisition of Score, Inc.
Cost of Sales - Cost of sales was $49,233 (32.7% of revenue) for the six months ended June 30, 2021 compared to $51,721 (28.7% of revenue) for the six months ended June 30, 2020, basically the same amount for these two six-month periods.
Gross Margin - Gross Margin was $316,229 for the six months ended June 30, 2021 compared to $128,768 for the six months ended June 30, 2020. Gross margin as a percentage of revenue was 86.5% for the first six months of 2021 compared to 71.3% of revenue for the first six months of 2020.
Operating Expenses - Operating expenses for the six months ended June 30, 2021 were $727,534 compared to operating expenses of $1,141,605 for the six months ended June 30, 2020. Sales and marketing expenses for the six months ended June 30, 2021 were $6,438 compared to sales and marketing expenses of $4,399 for the six months ended June 30, 2020, which small amount for both of these six-month periods was due to having no marketing/sales personnel or material marketing activities. Development and support expenses for the six months ended June 30, 2021 were $103,356 compared to development and support expenses of $196,293 for the six months ended June 30, 2020, which decrease in the six-month period of 2021 was primarily due to certain software projects being completed in 2020. General and administrative expenses for the six months ended June 30, 2021 were $617,740 compared to general and administrative expenses of $940,913 for the six months ended June 30, 2020, which decrease for the 2021 six-month period was due primarily to no longer incurring expenses for certain management, administrative or advisory contract expenses.
Operating Loss - Operating loss for the six months ended June 30, 2021 was $411,305 compared to an operating loss of $1,012,837 for the six months ended June 30, 2020, which substantial decrease for the six-month period of 2021 was due primarily to decreased general and administrative expenses as described in the foregoing paragraph.
Other Income/(Expenses) - Other income/(expenses) for the six months ended June 30, 2021 was income of $3,399,967 (consisting of a gain of $2,528,907 in the fair value of derivatives, a gain of $1,446,206 on extinguishment of debt, a gain of $179,182 from forgiveness of the SBA COVID-19 loan, and other income of $24,127, offset by debt interest/debt amortization of $(766,392) and a bad debt expense of $(12,065), compared to other income/(expenses) for the six months ended June 30, 2020 was income of $755,956 (consisting of a gain in fair value of derivatives of $1,349,700 and other income of $24,129, offset by debt interest/debt amortization expenses of $(553,262), settlement of debt expense of $(40,482), and a bad debt expense of $(24,129).
Net Income/(Loss) - Our net income for the six months ended June 30, 2021 was $2,988,662 compared to a net (loss) of $(256,881) for the six months ended June 30, 2020. The substantial gain in net income for the 2021 six-month period was due primarily to non-operating gains from accounting procedures used to record fair value of derivatives and debt extinguishment and the loan forgiveness income of our SBA-PPP loan.
Liquidity and Capital Resources
Our revenues have decreased substantially over the past few years, and accordingly our financial condition and future prospects critically depend on our access to financing in order to continue our operations. Much of our cost structure for our Fision marketing software platform is based on costs related to personnel and facilities and our cloud-based service provider, and not subject to material variability. We will need to raise substantial additional capital through offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay certain past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance, or convert to equity our past due indebtedness, which there is no assurance we can accomplish.
As of June 30, 2021, we had total current liabilities of $2,586,038 including accounts payable and accrued expenses of $1,143,321, short-term Notes Payable of $967,321, and derivative liabilities of $475,396. In addition, we had long-term liabilities as of June 30, 2021 consisting of Convertible Notes of $598,936 net of debt discount of $27,065 and a long-term contingency on the Score Inc. acquisition of $491,096.
As of the date of this filing, we have approximately $50,000 cash, which we believe along with our projected receipt of accounts receivable and customer revenues will last only until sometime in October, 2021. Accordingly, we need to continue raising substantial capital to support our operations. Our management estimates that based on our current monthly expenses net of expected revenue, we will require at least $500,000 in additional financing to fund our operational working capital needs for the next 12 months. Financing may be sought from a number of sources such as sales of equity or debt securities (including convertible debt), cash from exercise of warrants, and loans from affiliates, banks, or other financial institutions. We may not be able to sell any such securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available as needed, our business would suffer substantially or may even fail.
Liquidity represents the ability of a company to generate sufficient cash to provide for its immediate needs for cash, which our continued losses have made it difficult for us to accomplish. Over the past few years, we have continued to incur substantial losses without any increase in revenues or liquid assets, which has caused a serious and harmful effect to our liquidity and a substantial strain on our ongoing business operations.
Along with our revenues, we have financed our operations to date through various means including loans from management, affiliates, and other private lenders; stock-based compensation issued to employees, outsourced software developers, consultants, and professionals; common stock issued to satisfy outstanding loans and accounts payable/accrued expenses; and equity sales of our common stock, convertible Notes, and stock purchase warrants.
Net Cash Used in Operating Activities - During the six months ended June 30, 2021, we used net cash in operating activities of $224,231 compared to $187,075 of net cash used in operating activities in the six months ended June 30, 2020.
Net Cash Used in Investing Activities - There were no investing activities in either of the six-month periods ended June 30, 2021 and June 30, 2020.
Net Cash Provided By (Used in) Financing Activities -- During the six months ended June 30, 2021, we were provided with net cash by financing activities of $262,645 including proceeds of $216,109 from exercise of stock purchase warrants, proceeds of $55,000 from issuance of a note payable, and $745 from our line of credit, offset by $9,209 including payments on a line of credit and repayments on related party notes. In comparison, during the six months ended June 30, 2020, we were provided with net cash by financing activities of $172,565 including proceeds of $75,000 from issuance of notes payable and proceeds of $177,200 from the SBA COVID-19 loan, offset by $75,000 repayments of notes payable and payments of $4,635 on a line of credit and related party notes.
Convertible Note Financing
A majority of our financing during the past three years has consisted of Convertible Notes sold to various accredited investors. We raised a total of $2,959,500 from such convertible debt financing in 2018; we raised a total of $964,000 from convertible debt financing in 2019; and we raised a total of $75,000 from convertible debt financing in 2020. In addition, we raised a total of $55,000 from non-convertible debt financing in the period ending June 30, 2021. We also issued a $500,000 convertible note, at $.05 per share, for the acquisition of Score, Inc. (see Note 13) in the period ending June 30, 2021.
Going Concern
Our financial statements contained in this quarterly report have been prepared on a going concern basis, which contemplates and implies that we will continue to realize our assets and satisfy our liabilities and commitments in the normal course of business. For the six months ended June 30, 2021, we incurred an operating loss of $(411,305). And our accumulated deficit as of June 30, 2021 is $(31,314,663). These adverse financial conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities, that might be necessary if we are unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet items as of June 30, 2021, or as of the date of this report.