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EX-32.1 - CERTIFICATION - FISION Corpfssn_ex321.htm
EX-31.2 - CERTIFICATION - FISION Corpfssn_ex312.htm
EX-31.1 - CERTIFICATION - FISION Corpfssn_ex311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

Or

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to _________

 

Commission File No.000-53929

 

 FISION Corporation

(Exact name of registrant as specified in its charter)

  

Delaware

27-2205792

(State or other jurisdiction of incorporation)

(IRS Employer Identification No.)

 

430 First Avenue North, Suite 620

Minneapolis, Minnesota

 

55401

(Address of principal executive offices)

 

(Zip Code)

 

(612) 927-3700

Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value per share

  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ¨ Yes   x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act ¨ Yes   x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the period 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days x Yes   ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (#232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes   ¨ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer or a smaller reporting company:

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act). ¨ Yes   x No

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter: $12,570,008 on June 30, 2016.

 

Indicate the number of the registrant’s shares of common stock outstanding, as of the latest practicable date: 39,628,910 shares of common stock are outstanding as of March 24, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE: None

 

 

 

 

 

Table of Contents

 

 

 

Page No.

 

 

 

 

 

 

Part I

 

 

 

Item 1

Business

 

 4

 

Item 1A

Risk factors

 

 10

 

Item 1B

Unresolved Staff Comments

 

 19

 

Item 2

Properties

 

 19

 

Item 3

Legal Proceedings

 

 19

 

Item 4

Mine Safety Disclosures

 

 19

 

 

 

 

 

Part II

 

 

 

 

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

 20

 

Item 6

Selected Financial Data

 

 22

 

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 22

 

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

 

 32

 

Item 8

Financial Statements and Supplementary Data

 

 32

 

Item 9

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

 33

 

Item 9A

Controls and Procedures

 

 33

 

Item 9B

Other Information

 

 34

 

 

 

 

 

Part III

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

 

 35

 

Item 11

Executive Compensation

 

 37

 

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 42

 

Item 13

Certain Relationships and Related Transactions, and Director Independence

 

 43

 

Item 14

Principal Accounting Fees and Services

 

 44

 

 

 

 

 

Part IV

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

 

 45

 

Signatures

 

47

 

 

 
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Corporate Contact Information

 

Our executive, sales and marketing offices, as well as our software development spaces and equipment, are located at 430 First Avenue North, Minneapolis, MN 55401; our telephone number is (612) 927-3700; and we maintain a website at www.FisionOnline.com.

 

Special Note Regarding Forward-Looking Statements

 

There are many statements in this Annual Report on Form 10-K that are not historical facts. These “forward-looking statements” can be identified by terminology such as “believe,” “may,” “intend,” “plan,” “will,” “expect,” estimate,” “strategy,” and similar expressions. These forward-looking statements are subject to material risks and uncertainties that are beyond our control, and many of these risks are discussed herein under the section entitled “Risk Factors.” 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 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.

 

 
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PART I

 

ITEM 1 BUSINESS

 

Background-- The Company was incorporated in Delaware in 2010 under the name DE Acquisition 6, Inc. The Company had no active business operations until December 2015 when it merged with Fision Holdings, Inc., an operating Minnesota corporation which is now its wholly-owned subsidiary (the “Merger”). Shortly preceding the Merger, the Company changed its corporate name in Delaware to FISION Corporation. Prior to the Merger, there were no material relationships that existed between the officers, directors and affiliates of FISION Corporation, the parent Delaware corporation, and the officers, directors and affiliates of Fision Holdings, Inc., now our wholly-owned Minnesota subsidiary corporation. The Merger became effective on December 28, 2015.

 

When used in this report, 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 term “the Company” refers to the Delaware corporation prior to the Merger and to the combined Delaware and Minnesota corporations after the Merger.

 

At the effective time of the Merger, each common share of Fision Holdings, Inc., the Minnesota corporation, was converted automatically into one share of common stock of FISION Corporation, the Delaware corporation. In addition, all pre-merger outstanding derivative securities of the Minnesota corporation that were exercisable, convertible or exchangeable into its common stock were exchanged automatically for similar derivative securities of the Delaware corporation based upon equivalent share amounts, exercise or conversion prices, and other terms as existed under the pre-merger derivative securities of the Minnesota corporation.

 

In connection the Merger, our Delaware parent company issued an aggregate of 28,845,090 shares of common stock to the former shareholders of Minnesota Fision common stock, and also issued its derivative securities to all holders of Minnesota Fision options and warrants to purchase an aggregate of 3,868,575 shares of our Delaware parent company. Our issuances of common shares and derivative securities incident to the Merger were unregistered, and the Company relied on the exemption from federal registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

As a result of completion of the Merger, pre-merger shareholders plus pre-merger holders of derivative securities of the Delaware corporation owned less than five percent (5%) of our total combined post-merger outstanding common stock plus reserved stock for derivative securities.

 

 
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Effective with closing of the Merger, the former sole officer and sole director of the Delaware corporation resigned from all management positions, and the following persons were appointed to serve for the parent FISION Corporation immediately in the following capacities:

  

Name

 

 Position

 

 

 

Michael Brown

 

Chief Executive Officer (CEO), Board Chairman and Director

 

 

 

Garry Lowenthal

 

Executive Vice President, Chief Financial Officer (CFO) and Director

 

Messrs. Brown and Lowenthal formerly held and currently hold the same management positions with our operating subsidiary Minnesota corporation.

 

The Merger did not involve a public offering of our securities, and accordingly our common stock and derivative securities issued or to be issued incident to the Merger were not registered under the Securities Act of 1933 in reliance upon an exemption from such registration. Accordingly, these securities may not be offered or sold in the United States absent their registration under applicable securities laws or an available exemption from such registration requirements.

 

At the effective time of the Merger, (i) a change of control of the Delaware parent corporation occurred, and (ii) the parent Delaware corporation assumed and agreed to carry on and operate the business of the Minnesota corporation as its sole line of business. Following the Merger, the Company continued to be a “smaller reporting company” as defined in Regulation S-K of the SEC.

 

The Merger has been accounted for as a “reverse merger” and recapitalization. Accordingly, for financial reporting purposes, our Minnesota subsidiary was the acquirer and the Delaware parent was the acquired company. Consequently, the assets and liabilities and operations reflected in our historical financial statements prior to the Merger are those of our Minnesota subsidiary and are recorded at their historical cost basis; and our consolidated financial statements after the Merger include assets and liabilities of both the Delaware and Minnesota corporations as well as the post-merger combined historical operations of both corporations.

 

The tax treatment of the Merger constituted a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as relating to such tax free reorganization exemption.

 

Business of Company

 

Our business is conducted through our operating Minnesota subsidiary which is based in Minneapolis. Fision was founded and incorporated in Minnesota in 2010 by our current management to develop and create proprietary software solutions to support marketing and sales operations of both private businesses and public entities. Since then, we have developed and successfully commercialized a unique cloud-based software platform which automates and integrates digital marketing assets and marketing communications, and thus “bridges the gap” between marketing and sales of an enterprise. We believe that our innovative Fision platform, proprietary technology, forward-looking strategy, and experienced management have now positioned us to become a leader in the software marketing and sales enablement segment of the rapidly-growing software-as-a-service (SaaS) industry.

 

We are a global cloud-based software development and licensing company offering a proprietary software platform to automate many marketing functions in order to promote and improve sales enablement of any entity. Our innovative software system is readily scalable to adapt to fast business growth of any customer, regardless of size. Since our founding, we have been engaged primarily in the development of our software platform along with commercializing, servicing and supporting our initial customers. Except for future customary software enhancements and periodic upgrades, the development of our automated marketing platform has been completed.

 

 
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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.

 

Our proprietary marketing software enables every member of our customers’ marketing and sales teams, by having easy and automated access to all their digital marketing and media assets, to leverage the full power of their distinctive brands and marketing assets in every interaction with their consumers or buyers, while at the same time assuring that central marketing maintains control of the brands and related corporate integrity.

 

Our current and targeted customer base ranges across diverse industries of all sizes, including banks and other financial institutions, insurance companies, hotels and other hospitality enterprises, healthcare and fitness companies, product manufacturers, software and other technology companies, telecommunications companies, and the numerous other companies selling familiar branded products or services.

 

Fision software provides three major benefits to our customers, which are (i) accelerating their revenues, (ii) improving their marketing and brand effectiveness, and (iii) reducing significantly their marketing and sales costs.

 

We generate our 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. We have long-term contracts with twelve (12) customers, and we are engaged in various stages of negotiation with or procurement of a substantial number of additional material customers. The majority of our revenues are recurring, due to the nature of our contracts.

 

We have licensed our proprietary software platform both through direct sales obtained by our management and other direct sales personnel, and through utilizing experienced independent national sales agencies, known as our “channel partners.” To date we have entered into three significant channel partnership arrangements, and we have realized material revenues from the efforts of these channel partners.

 

The 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 material marketing assets. Using Fision’s automated software technology, these digital assets then become readily and immediately 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 or 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. Even customers with extensive global sales branches and network 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.

 

 
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Advantages of our Fision platform include the following:

 

 

· Reducing the time and cost to localize marketing content, resulting in shortening the sales cycle for faster speed to market.

 

 

 

 

· Responding quickly to changing consumer market conditions.

 

 

 

 

· Enhancing the effectiveness of digital distribution to targeted consumers or buyers whether through print, email, mobile, website or social media.

 

 

 

 

· Providing autonomy to scattered sales force personnel to enable them to independently and quickly create locally relevant content and launch their own selling campaigns.

 

 

 

 

· Distribution of specialized content to selected consumer or buyer groups.

 

 

 

 

· Maintaining corporate and brand integrity.

 

 

 

 

· Facilitating regulatory compliance.

 

 

 

 

· Improving marketing and sales performance analytics.

  

Our Customers - Our potential customer base is global and virtually unlimited, since our automated marketing software solutions are totally cloud-based and scalable, and provide a multitude of digital tools and solutions which can benefit any company selling products or services, regardless of their size.

 

We have written licensing agreements with twelve (12) customers using our marketing software solutions platform. Our customers typically “stick” with us and our Fision platform, and accordingly we have received substantial recurring revenues from them on a consistent basis. Certain key customers have maintained written contracts with us for several years, including PostNet and the Vitality Group. And during recent years, we have added important customers such as SAP/Ariba, Grand Casino, IronPlanet, VitalityHealth/PruHealth, Technical Instruments, Capella Education/University, IRIS Agency/Otis Elevator (United Technologies) and Lazydays RV.

 

We regard our high percentage of recurring revenues received on a consistent basis to be particularly significant to our marketing strategy which emphasizes long-term relationships with our customers under written contracts. We believe that our ability to realize high recurring revenues is a keystone feature of our business model.

 

 
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Significant Marketing Developments - Our recent marketing efforts and strategy focused toward large enterprise companies have succeeded in various industries. In late 2015 and early 2016, we entered into and implemented two significant contracts with Capella Education Co and Pekin Insurance Company; in the second half of 2016 we closed a significant contract with SAP/Ariba; and in early 2017 we closed a significant contract with Otis Elevator Company, a wholly-owned subsidiary of United Technologies Corporation. We believe these significant recent clients will result in a substantial increase in our recurring revenues from our cloud-based Fision software platform during 2017 and beyond. These significant customers are as follows:

 

 

· Capella Education Co. (Capella) – Capella is a leading nationwide company in the online for-profit education industry and is based in Minneapolis, Minnesota. Through its accredited, nationally-recognized and wholly-owned Capella University, Capella provides numerous online college and post-college education courses and degrees in many fields. Capella is a publicly-traded NASDAQ company with annual revenues in excess of $400 Million.

 

 

 

 

· Pekin Insurance Company (Pekin) – Pekin is a leading regional insurance company based in Pekin, Illinois (near Peoria) and primarily serving most Midwestern states, particularly Illinois, Ohio and Indiana. Pekin offers its customers many forms of auto, life, health, and property insurance.

 

 

 

 

· SAP/Ariba – SAP/Ariba is a leading worldwide provider of SaaS software technology based in Sunnyvale, California, and offers procurement and contract management software services through its business commerce network. When Ariba was acquired by SAP in 2012, it produced annual revenues of $335 Million.

 

 

 

 

· Otis Elevator Company – Otis Elevator Company is the world’s largest manufacturer and maintainer of elevators, escalators, moving walkways and other people-moving products. Otis is headquartered in Connecticut, has over 65,000 employees, is a wholly-owned subsidiary of United Technologies, and markets, sells and services its products in more than 200 countries while producing annual revenues exceeding $12 billion.

  

In addition, our current ongoing commercial negotiations with prospective customers include a considerable number of other potential significant clients, and we expect to close material contracts with 2-3 of them in the near future.

 

Cloud-Based Platform -Storage and operation of our software solutions platform along with the digital marketing assets and related data of our customers have been 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 software application services to their clients. Our service provider is Microsoft’s Azure Cloud, which leading cloud service provider offers readily scalable and secure cloud services capable of satisfying any increasing demand or changing circumstances in the needs of our customers or us.

 

We regard the hosting of our software applications, the ready digital interface with our customers, and the storage of unlimited customer data, with our premier cloud provider as being crucial to our operating strategy. Our major savings in expensive computer equipment, high salaried technology personnel, and costly security measures through our use of Microsoft’s cloud is vital to our cost of doing business. In addition, we believe that our experienced and leading cloud provider is more effective in delivering our automated software solutions to our customers than we could perform in any event.

 

 
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Research and Development - Since inception, the Company has committed substantial financial, personnel and other resources toward research and development efforts and activities related to the integration, commercialization and improvement of the Fision proprietary software platform.

 

Our development activities are conducted both internally from our Minneapolis headquarters facility by our experienced and well-qualified development programmers and software architects, and externally from outsourced contracts with experienced independent software development companies and individuals. We own considerable servers and other computer equipment located at our Minneapolis facility, which are used by our development personnel to develop and enhance our marketing software platform.

 

Our Industry

 

We are positioned in the marketing/sales segment of the broad software-as-a-service (SaaS) industry, which segment we believe from available industry data now represents annual revenues of at least $20 Billion, while the entire SaaS industry has annual revenues in excess of $75 Billion.

 

Corporate spending on computer software applications and other intellectual technology (IT) has been growing at a rapid pace for many years in order to capitalize on the benefits of digital information technology. Moreover, a large amount of that spending now is being directed to support and enhance corporate marketing and sales efforts and activities. For many corporations, marketing software technologies have evolved to become a fundamental driver of IT purchasing. Indeed, a leading industry analyst recently predicted that by 2017, Chief Marketing Officers soon will spend more on IT than their counterpart Chief Information Officers.

 

Marketing

 

We market and sell licensing rights to our proprietary software platform under written contracts with our customers which typically have one to three-year terms. A majority of our historical customers and revenues were procured primarily through direct sales obtained by our management and direct sales force.

 

Our marketing and related sales efforts and activities include generating sales leads and contract proposals with customers through our direct sales force, our management and their personal business contacts, and other persons affiliated or associated with us. Our direct marketing and sales efforts are supported by various secondary activities including participation in selected industry trade shows and conventions, certain print and digital media advertising and promotion, and solution overviews and presentations posted on our website.

 

In late 2014, we implemented a secondary sales channel which involves targeting independent national sales agencies to sell (license) our branded software products as agents paid commissions based on their actual sales. We regard and refer to these sales agencies as our “channel partners.” To date we have entered into three channel partner arrangements with experienced agencies, and we have already realized material revenues from their sales efforts.

 

 
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Employees

 

We currently have nine (9) full-time employees, including our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, Senior Vice President of Sales, Controller/Office Manager, Customer Support Specialist, a Programmer/Developer, Client Services Manager, and Sales Manager. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.

 

ITEM 1A RISK FACTORS

 

An investment in our common stock is speculative and involves a high degree of risk. You should carefully consider the following risks, along with all of the other information contained in this Annual Report, before considering making an investment decision to purchase any of our securities. If one or more of the following risks occur, our business, financial condition and results of operations could suffer materially. In that case, the price of our common shares in any future trading market could decline materially, and you could lose a substantial part or all of your investment.

 

Risks Related to Our Business

 

We have a limited operating history and substantial accumulated losses, and we anticipate incurring continued losses.

 

Our business must be considered and evaluated in light of the risks, expenses, and problems frequently encountered by companies in their early stages of development and commercialization of products, and particularly companies like us participating in new and rapidly evolving markets. These risks include our failure to anticipate and adapt to new technology or changing market conditions, the rejection of or lack of satisfaction with our services and products by our existing or potential customers, our inability to obtain additional capital when needed from time to time, our inability to protect our intellectual property, and any development of equal or superior products or services by our competitors. Accordingly, there can be no assurance we will be successful in addressing these risks.

 

We incurred net losses of $2,784,044 for the year ended December 31, 2014, losses of $2,259,232 for the year ended December 31, 2015, and losses of $2,817,548 for the year ended December 31, 2016. Since Fision’s inception in 2010, we have an accumulated deficit of $(13,438,313) as of December 31, 2016. Moreover, we expect to continue operating at a loss until at least sometime in 2018. There is no assurance based on our past business experience to support any belief that we can become profitable or sustain profitability in the future. There can be no assurance that we can generate significant revenue growth, or that any revenue growth that we achieve can be sustained. To any extent that increases in our operating expenses precede or are not soon followed by increased revenues, our business, results of operations and financial condition would be adversely affected materially.

 

 
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If we are unable to obtain significant future financing from time to time, our development and operations will encounter serious delays or could even result in the complete failure of our business.

 

Our ability to become commercially successful and profitable will depend largely on our being able to continue raising significant additional financing from time to time in the future. If we are unable to raise additional financing through equity and/or debt sources as needed, we would not be able to succeed in our commercial operations, which eventually could result in our failure. There is no assurance any such additional funds will be available on terms satisfactory to us, if at all.

 

We have a significant amount of secured and unsecured debt which mostly has matured, and this could limit or even eliminate recovery of your investment if we fail to reach substantial profitability or otherwise resolve or satisfy our outstanding debt.

 

We have a substantial amount of indebtedness in the form of various Notes Payable. As of December 31, 2016, we had approximately $1,023,463 of Notes Payable including accrued interest, 10% of which have matured and is past due.

 

During 2015 and 2016, we converted a large amount of Notes Payable into our common stock concurrent with the closing of the Merger and thereafter. There is no assurance, however, that we will be able to convert our remaining overdue debt into common stock, or to satisfy this debt through new financing or refinancing, or to achieve profitability sufficient to make future payments to satisfy this debt. If we cannot satisfy or resolve our substantial overdue indebtedness, such failure would have a significant adverse effect on our business and financial condition, and could even cause a total failure of our business.

 

Moreover, our current and any future issuances of common shares for debt conversion will have substantial dilutive effect upon our existing shareholders, and the overhang from the resale or even potential resale of these debt conversion shares on any future public market for our common stock could have a material adverse effect on the price of our common stock.

 

We may not be able to continue as a going concern.

 

Our operating expenses are being funded sporadically by various sources including sales of our equity securities, limited revenues from customer contracts, deferral of management salaries, and stock-based payment to management and certain service providers. Due to this situation and our ongoing losses, there is substantial doubt whether our business can continue as a going concern to support its commercial operations and satisfy its outstanding debt and other obligations. Our management is attempting to obtain additional significant financing to enable us to continue as a going concern, but there is no assurance that adequate funds will become available to allow us to continue as a going concern.

 

 
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Our ability to generate future material revenues will depend upon a number of factors, some of which are beyond our control.

 

These factors include the rate of acceptance of our software products, competitive pressures in our industry, effectiveness of our sales force, adapting to changes in technology in our industry, and general economic trends. We cannot forecast accurately what our revenues will be in future periods.

 

Our operating results have fluctuated and been difficult to predict, and our results could continue to fluctuate and be unpredictable in the future.

 

Our operating results have been difficult to predict, have historically fluctuated, and may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful. Factors that may affect our quarterly operating results may include: any material changes in demand for our software solutions; the introduction of new technologies by competitors; the nature of our variable and unpredictable sales cycle; changes in the number, availability and quality of competing products; the timing and amount of sales and marketing expenses incurred by us to attract new customers; changes in the economic or business prospects of our customers or the economy generally; changes in our pricing policies or the pricing policies of our competitors; changes in governmental regulation of the Internet, wireless networks and mobile platforms; unforeseen costs necessary to improve and maintain our technologies; and costs related to any acquisitions undertaken by us.

 

We face significant challenges in obtaining market acceptance of our products and establishing our Fision brand.

 

Our success depends primarily upon the acceptance of our software platform and our brand by new customers, most of who are not familiar with and have not used our products, and also do not recognize our brand and corporate identity. Acceptance of our marketing software solutions by new customers will depend on many factors including price, reliability, performance, service accessibility and effectiveness, and our ability to overcome existing loyalties to established brands. There is no assurance we will be able to meet these challenges successfully.

 

We depend on a small number of customers for a substantial portion of our revenues, and any material reduction in the use of our software platform by our major customers could reduce our revenues significantly.

 

For the fiscal years ended December 31, 2014, 2015 and 2016, four customers in 2014 each accounted for more than 10% of our revenues, four customers in 2015 each accounted for more than 10% of our revenues, and two customers in 2016 each accounted for more than 10% of our revenues; and combined these customers represented slightly over 30% of our revenue during each of these three years. None of these customers was significantly dominant in either 2014, 2015 or 2016, however, since the highest revenue customer in each year was less than 16% of our revenues. 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.

 

 
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Our success is dependent upon our current key personnel as well as our ability to attract, recruit and retain additional key employees.

 

We believe that our success will depend significantly on continued employment of our management and key technology and sales personnel, and the loss of the services of one or more of them could harm our business substantially. Our future business also will be dependent on hiring additional qualified key personnel, and if they are not available when needed, our future growth and prospects could suffer materially.

 

We operate in a highly competitive industry, and we may not be able to compete successfully.

 

Our market is highly competitive, with many companies providing solutions competitive to our software platform. Well-known and established competitors include Marketo, Eloqua (Oracle), Unica (IBM), Hubspot, ExactTarget (Salesforce), Aprimo, Responsys and Silverpop. We expect additional strong competitors to emerge in the future from time to time.

 

Most of our current and potential competitors have significantly more personnel, financial, technical, marketing and other resources than we possess, and accordingly they are able to devote substantially greater resources than us to development, marketing, sales, and support of their products and services. We lack many things which most of our competitors have, including an established brand and name recognition, existing relationships with a large customer base, the ability to undertake costly and extensive marketing campaigns, and large customer support teams.

 

Software solutions and demands in our industry often change significantly, and our future success will depend materially on our ability to anticipate and respond to such changes. If we cannot adjust and compete effectively with changing software solutions and products as and when they are introduced in our industry, our ability to generate meaningful revenues or achieve profitable operations would be impaired substantially.

 

Our current and potential competitors may develop and offer new software technologies that render our products less competitive, unmarketable or even obsolete. In addition, if any competitors develop products with similar or better functionality than our solutions, we may need to decrease the prices for our products to remain competitive, which could result in a material reduction in our margins and a corresponding material negative effect on our operating results and financial condition.

 

We may not be able to address and solve satisfactorily the many competitive pressures and challenges facing us in our industry, and our failure to do so would harm substantially our business, operating results and financial condition.

 

Our market may develop more slowly than we expect, which could harm our business.

 

Development of marketing software solutions is an emerging market, and our current and future customers may ultimately find our software platform to be less effective than anticipated for promoting their products or services, which as a result could cause them to reduce their spending on our software solutions. If the market for our products develops more slowly than we expect, we may not be able to increase our revenues effectively and our business would suffer.

 

 
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Failure to manage growth effectively could harm our business seriously.

 

We have experienced considerable growth in our business since we began commercial operations. Based on procurement transactions now underway with potential new customers, we expect the pace of our growth to increase materially. If we do not effectively manage our growth, the perceived quality of our business may suffer materially, which could negatively affect our reputation and the demand for our products. Our growth is expected to place an increasing strain on our resources and infrastructure, and our future success will in large part depend on the ability of our senior management to manage our growth effectively. Any failure by our senior management or other key personnel to manage our future growth properly could impair our ability to deliver our software solutions in a timely fashion, to fulfill existing customer commitments, or to attract and retain new customers.

 

Interruption or failure of our information technology and communications systems could hurt our ability to provide our services effectively, which could damage our reputation and harm our operating results.

 

The availability to our customers of our products and services depends on the continuing and efficient operation of our information technology and communications systems and infrastructure, and most particularly on the “cloud-based” service provider facility which hosts our Fision software platform. These electronic systems are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks, floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate attempts to harm the systems. The occurrence of a natural or intentional disaster, any decision to close a facility we are using without adequate notice, or particularly an unanticipated problem at our cloud-based virtual server facility, could result in harmful interruptions in our service, resulting in damage to our customers and brand and likely a reduction to our revenues.

 

We may not be able to adequately protect or enforce our intellectual property (IP) rights.

 

Our success and competitive position will depend materially on our ability to protect our intellectual property (IP), including trademarks, trade names, patent rights and trade secrets. Despite our efforts to protect these proprietary rights, unauthorized parties may attempt to copy aspects of our intellectual property or to wrongly obtain and use our information technology. In addition, competitors may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, or they become marginalized or valueless due to developments by a competitor, our business could suffer materially. Moreover, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Any such litigation could result in substantial costs and diversion of our resources, which could cause serious harm to our business, operating results and financial condition.

 

We have filed two patent claims which are pending with the United States Trademark and Patent Office (USTPO) covering certain technological aspects of our Fision software platform, and we expect to receive patent protection regarding these patent claims. We regard the proprietary software technology covered by these pending patents to be significant for our future business and our standing and reputation in our industry. There is no assurance, however, that the patent claims we have filed will provide us with any significant proprietary protection even if they are approved.

 

 
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We could incur substantial costs and disruption to our business as a result of any infringement claim brought against us involving intellectual property of another party, which could harm our business and operating results.

 

We cannot predict whether any third party claims will occur alleging that we have infringed their intellectual property rights, and if any such claims occur whether they will substantially harm our business and operating results. If we are forced to defend any infringement claims, whether with or without merit or even if determined in our favor, we may face costly litigation and diversion of our management and other personnel. Moreover, any outcome of a claim resulting in our having infringed another’s intellectual property rights may require us to pay significant damages and attorney fees; to cease licensing our Fision software platform; to expend substantial development resources to redesign our products; or to enter into potentially unfavorable royalty or license agreements to use third-party technologies, which may not be available on terms acceptable to us, if at all. The time and resources required from us to resolve any such disputes or litigation, even if resolved in our favor, could harm our business, operating results, financial condition, brand and reputation.

 

Risks Related to Our Common Stock

 

The current public trading market for our common stock is new and relatively inactive.

 

There is no assurance that the trading market for our common stock will become active or liquid, or be sustained when and if developed. Moreover, there remains a significant risk that our common stock price may fluctuate substantially in the future in response to various factors including the following:

 

 

· Variations in our operating results.

 

 

 

 

· Departures or additions of management or other key personnel.

 

 

 

 

· Announcements of significant acquisitions or strategic joint ventures.

 

 

 

 

· Announcements of significant capital commitments or transactions.

 

 

 

 

· Announcements of significant patent or other technological matters.

 

 

 

 

· Substantial sales of our common stock in the open market.

 

 

 

 

· Any significant litigation matters.

 

 

 

 

· Announcements of new product developments.

 

 

 

 

· Gain or loss of significant customers.

 

 

 

 

· General market conditions or specific political and economic conditions.

 

 
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Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for our stockholders to sell their common stock.

 

Under SEC rules, a “penny stock” includes any equity security having a market price of less than $5.00 per share, subject to certain limited exceptions. Regarding any transaction involving a penny stock, these rules require a broker or dealer to approve a person’s account for transactions in penny stocks, and also to receive from the person a written consent to the transaction and its terms. The broker or dealer also much obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person is competent to evaluate the risks of penny stocks. Prior to the transaction, the broker or dealer also must deliver a disclosure schedule containing the rights and remedies available to the person, the basis on which the broker or dealer made the suitability determination, and the receipt of the related signed agreement from the person.

 

Due to these penny-stock rules, brokers and dealers may be less willing to execute transactions in penny stock securities, and this may make it more difficult for shareholders to dispose of our common stock, which could cause a decline in the market value of our common stock.

 

Because we became a publicly-held company by means of a reverse merger with an inactive public company, it may be difficult for us to attract the attention of brokerage firms and financial analysts.

 

Due to our becoming public through a reverse merger,we currently have no material relationship or public stock trading history with any brokerage firm, underwriter or financial analyst. Accordingly, there may be little or no incentive for securities analysts of brokerage and other financial firms to provide investment coverage of us or to recommend the purchase of our common stock.

 

Being a public company results in additional expenses and diverts management’s attentions.

 

Due to the Merger, our business must now bear the expenses associated with being a public company including being subject to the reporting requirements of the Securities Exchange Act of 1934. These requirements generate significant accounting, legal and financial compliance costs, and may place significant strain on our personnel and resources. As a result, management’s attention may be diverted from other significant business concerns, which could have an adverse material effect on our business, financial condition and results of operations.

 

Applicable and extensive regulatory requirements, including those of the Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or even attract qualified officers and directors, which could adversely affect our business and our future relationships in the investment community.

 

Because of the many and ever increasing rules and regulations governing publicly-held companies,it may be difficult for us to attract and retain those qualified officers and directors necessary for effective management. The Sarbanes-Oxley Act particularly added demanding new rules and regulations and the expansion and strengthening of existing rules and regulations, including required certifications by our principal executive officers. The SEC, FINRA and the stock exchanges also continue to add to or expand their rules frequently. This extensive and ongoing regulatory situation regarding the adoption of new rules and regulations by these various agencies has created a real, or at least perceived, increased personal risk to members of management of public companies, which may deter qualified candidates from accepting roles as directors or officers of our Company. If we are unable to attract and retain future qualified officers and directors as needed, the management of our business and our future ability to obtain a listing of our securities on a national stock exchange could be adversely affected materially.

 

 
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If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or detect fraud. In that event, investors and the financial community could lose confidence in our financial reporting, which in turn may result in a decline in the trading price of our stock, or otherwise harm our financial condition.

 

We must maintain effective internal controls to provide reliable financial reports and detect any fraud or material weaknesses in our internal controls. We are in the process of assessing our internal controls to identify changes needed to be implemented by us. Any failure by us to implement the changes necessary to maintain an effective system of internal controls could harm our operating results materially and also cause investors and financial analysts to lose confidence in our reported financial information. Any such loss of confidence in the investment community would have a negative effect on the trading and price of our common stock.

 

Even if we resolve effectively any such material weaknesses in our internal controls, this still may not prevent all potential errors, since any control system, regardless of its design, can provide only reasonable and not absolute assurance that the objectives of the control system will be achieved.

 

Ownership and related voting power of our shareholders is concentrated in our management.

 

Our officers and directors beneficially own approximately 46% of our common stock, which concentrated ownership and control by our management could adversely affect the price of our common stock. Any material common stock sales by our insiders or affiliates, for example, could result in a decline in the price of our common stock.

 

This substantial concentration of stock ownership affords our current management the ability to control all matters requiring stockholder approval including the election of all directors, and the approval of mergers, acquisitions or other significant corporate transactions. Any person acquiring our common stock most likely will have no effective voice in the management of our company. This ownership concentration also could delay or prevent a change of control of the Company, which could deprive our stockholders from receiving a premium for their common shares.

 

We do not intend to pay dividends for the foreseeable future.

 

We have not paid any dividends on our common stock to date, and we do not anticipate paying any such dividends in the foreseeable future. We anticipate that any earnings experienced by us will be retained to finance the implementation of our operational business plan and expected future expansion.

 

 
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Our Articles of Incorporation allow for our Board of Directors to create and designate new series of our preferred stock without any approval of our shareholders, which could diminish the rights of holders of our common stock.

 

Our Board of Directors has the authority to fix and determine the relative rights and preferences of our authorized preferred stock without further common stockholder approval for issuance. Accordingly, our directors could authorize preferred shares, for example, that would grant a preference over common shareholders to our assets upon liquidation, or grant voting power and rights superior to those of common shares, or grant rights to preferred stock to accumulate and receive dividend payments before any dividend or other distribution to common shareholders, or grant special redemption terms and rights prior to any redemption of common shares, or grant rights convertible at favorable terms into common stock. Granting one or more of these or other preference rights to preferred stock could adversely affect the rights of our common stockholders including decreasing the relative voting power of our common stock and causing substantial dilution to our common stockholders.

 

We have no outstanding preferred stock and no present intention to designate or issue any series of our preferred stock.

 

The elimination of monetary liability against our directors and executive officers under Delaware law and the existence of indemnification rights held by them granted by our bylaws may result in substantial expenditures by us and may discourage lawsuits against our directors and officers.

 

Our articles of incorporation eliminate the personal liability of our directors and officers to the Company and its stockholders for damages for breach of fiduciary duty to the maximum extent permissible under Delaware law. These provisions and resultant costs may discourage us, or our stockholders through derivative litigation, from bringing a lawsuit against any of our current or former directors or officers for any breaches of their fiduciary duties, even if such legal actions, if successful, might benefit us or our stockholders.

 

In addition, our bylaws provide that we are obligated to indemnify our directors or officers to the fullest extent authorized by Delaware law for costs or damages incurred by them involving legal proceedings brought against them relating to their positions with the Company. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers.

 

Delaware law contains anti-takeover provisions which could deter or even prevent acquisition attempts of our company that may be beneficial to our stockholders.

 

Provisions of Delaware law could make it more difficult for a third party to acquire the Company, even if the acquisition would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of our incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding common stock from acquiring us, without the consent of our board of directors, for at least three years from the date they first owned at least 15% of our common stock.

 

 
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ITEM 1B UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2 PROPERTIES

 

Our corporate headquarters and development and operational facilities are located in a large office building in downtown Minneapolis, Minnesota, and since 2010 we have occupied 4,427 square feet of this building. We lease these spaces on a month-to-month basis for $7,142 per month including rent, utilities, maintenance and cleaning services. We do not own any real estate.

 

Our computers and computer hardware servers and other technology development equipment, as well as considerable office and administrative equipment, furniture and supplies, are also located in our Minneapolis facility. We believe that our current facilities and equipment are adequate to satisfy our current operations and support substantial future growth.

 

ITEM 3 LEGAL PROCEEDINGS

 

From time to time, we become subject to legal proceedings, claims and litigation arising in the ordinary course of business. We currently are not a party to any material legal proceedings, nor are we aware of any other pending or threatened litigation that would have a material adverse effect on our business, operating results or financial condition should such litigation be resolved unfavorably against us.

 

ITEM 4 MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock has been publicly traded in the over-the-counter market only since January 11, 2017, and now is quoted and traded on the OTCQB Tier of OTC Markets Group under the symbol “FSSN”. Our common stock is thinly traded, and there is no assurance that our common stock will trade actively in the future.

 

The reported high and low sale prices per share for our common stock for the period traded are shown below, which quotations do not reflect retail mark-up, markdown or commission, and may not represent actual transactions.

 

 

 High

Price

 

 

Low

Price

 

Period from January 11 to March 29, 2017

 

$ 0.86

 

 

$ 0.65

 

  

The last sale price of our common stock as reported on the OTCQB on March 29, 2017 was $.85 per share.

 

Stockholders

 

As of March 31, 2017, there were 332 holders of record of our common stock.

 

Dividend Policy

 

We have never paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any future earnings for the development and growth of our business. Any future payment of dividends will be determined by the Board of Directors on the basis of various factors, including our results of operations, financial condition, capital requirements, and investment or acquisition opportunities.

 

Description of Securities

 

Common Stock -- Our Board of Directors is authorized to issue up to 500,000,000 shares of common stock, par value $.0001 per share, and as of December 31, 2016, there were 38,302,720 shares of common stock issued and outstanding. Holders of our common stock are entitled to one vote per share on all matters to be voted upon by stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors out of funds legally available for dividends. Upon the liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all our assets legally available for distribution after payment of all our debts and liabilities and liquidation preference of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights, and they have no rights for cumulative voting regarding any election of directors.

 

 
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Preferred Stock -- The Company is also authorized to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share. Our Board of Directors has the authority, without stockholder approval, to issue these preferred shares in one or more designated series, to establish the number of shares in each series, and to fix the preferences, powers, dividends, and voting or conversion rights of any preferred shares, which could dilute the voting power or other rights of holders of our common stock. We have no current plans to designate terms of or issue any preferred stock.

 

Transfer Agent

 

Our transfer agent is Globex Transfer, LLC, 780 Deltona Blvd., Suite 202, Deltona, FL 32725, phone number (813) 344-4490. Our transfer agent is registered under the Securities Exchange Act of 1934.

 

Rule 144

 

In general, under Rule 144 of the Securities Act of 1933, as amended, any person (or persons who are aggregated) including persons who are affiliates, whose restricted common stock has been fully paid for and held for at least six months from the later of the date acquired from us or from an affiliate of us, may sell such common stock in broker’s transactions or directly to market makers, provided the number of shares sold in any three-month period may not exceed one percent of our then outstanding shares of common stock. Sales under Rule 144 are also subject to certain notice requirements and the availability of current public information about us. After one year has elapsed since the date of purchase of such common shares from us or an affiliate of us, persons who are not affiliates of us may sell their shares under Rule 144 without any limitation.

 

Future sales of our common stock under Rule 144 or otherwise could negatively impact the price of our common stock in any public market where it is traded. We cannot estimate the number of shares that may be sold in the future by our existing shareholders or the effect, if any, that sales of shares by our stockholders will have on the market price of our common stock prevailing from time to time.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table sets forth, as of December 31, 2016, our securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders. 

 

 

 

Number of securities

to be issued
upon exercise of

outstanding options,

warrants and rights

column (a)

 

Weighted-average exercise

price of outstanding

options, warrants
and rights

column (b)

 

Number of securities remaining

available for future issuance

under equity
compensation plans (excluding
column (a))

column (c)

 

 

 

 

 

 

 

 

 

Equity compensation

 

 

 

 

 

 

 

plans approved by

 

 

 

 

 

 

 

security holders

 

2,772,500 shares

 

$.42 share

 

 

327,500

 

 

 

 

 

 

 

 

 

 

Equity compensation

 

 

 

 

 

 

 

 

plans not approved by

 

 

 

 

 

 

 

 

security holders (1)

 

4,149,225 shares

 

$.49 share

 

 

1,170,000

 

____________ 

(1) Represents options and warrants granted on a one-time basis to a former director, officers, and consultants and advisors under individual contract or bonus arrangements. These individual grants vary in term, number of shares, and exercise price as determined by the Board of Directors to be in the best interests of the Company at the effective date of the grant of each award.

 

 
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

None.

 

ITEM 6 SELECTED FINANCIAL DATA

 

Not applicable

 

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The financial data referred to in the following discussion and analysis is derived from our audited financial statements for the fiscal years ended December 31, 2016 and 2015, which are included in this Annual Report. These financial statements have been prepared and presented in accordance with generally accepted accounting principles (GAAP) in the United States. The following discussion and analysis of our financial data is only a summary and you should read and consider it in conjunction with our financial statements and their related notes. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those contained in our forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

 

Overview

 

We have developed and successfully commercialized a proprietary cloud-based marketing software platform. Our innovative platform integrates, streamlines and automates the use of many marketing and sales resources and communications of a company in order to bridge the significant gap typically existing between marketing and sales, which gap inhibits the speed and effectiveness of targeting and reaching the customer base of a company. Our unique software solutions supported by their cloud-based delivery are readily scalable to adapt seamlessly to any rapid business growth of our existing or potential customers, regardless of their size.

 

Fision automated software enables the marketing department of our customers to easily and quickly create and implement professional marketing campaigns and other presentations for distribution to and support of sales force personnel regardless of their location. Use of our software reduces substantially the time and cost incurred by our customers for their marketing functions and activities, while still emphasizing, protecting and enhancing their valuable brand assets. Our current and targeted customer base is global and ranges across diverse industries and companies of all sizes, particularly those companies selling familiar branded products or services.

 

Our Fision software platform offers three major benefits to our customers, (i) accelerating their revenues, (ii) improving and protecting their marketing and brand effectiveness, and (iii) reducing significantly their marketing and sales costs.

 

 
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Revenue Model

 

Our revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. We consistently commit substantial expenses and sales personnel toward targeting, negotiating and procuring licensing agreements with new 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 consistent overall revenues or accurately forecasting our future revenue stream, particularly since each new contract provides one-time start-up revenues from prescribed initial set-up and integration fees. Assuming our business and number of customers under license continue to grow as projected by us, however, we believe that within a couple years the timing and sales cycle involved in closing new customers will not affect materially our prevailing or forecasted revenue stream.

 

We generate our revenues primarily from payments from customers having a license to access and use our proprietary marketing software platform, which payments include relatively consistent monthly fees and a prescribed substantial one-time set-up and integration fee payable to us at the outset of the license. We also receive certain secondary fees from time to time for customized software development projects ordered from us, and for processing emails for certain customers.

 

A substantial majority of our revenues have been and are “sticky” and thus of a recurring nature. Most of our customers have remained with and continually used our software platform once they have integrated it into their digital marketing model and experienced the special benefits provided from our cloud-based Fision marketing solutions.

 

Marketing Model

 

We have marketed, sold and licensed our proprietary software products through our direct sales force including management and other direct sales personnel, and through our channel partners who are experienced and recognized independent sales agencies. We generate our revenues primarily from software licensing contracts obtained by our sales force and channel partners. These written and binding contracts typically have terms of one to three years and require prescribed monthly fees based on the customer’s number of end users and locations where used. We have outstanding licensing contracts with twelve (12) customers including significant contracts we closed in the past year or so, and we currently are engaged in various stages of contract negotiation with or procurement of a substantial number of prospective large new large enterprise customers.

 

We operate and sell our products and services in the marketing software segment of the broader software-as-a-service (SaaS) industry, with virtually all our revenues derived from our proprietary cloud-based Fision marketing software platform.

 

 
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Change in Marketing Strategy

 

During the years prior to 2015 while our Fision software platform was being designed and developed, our marketing sales efforts were directed primarily toward local small and medium sized companies whose operational, management and other commercial activities are conducted from one local or a couple regional facilities. Since our Fision platform and its cloud-based applications have been developed to be readily scalable for any size company, in 2015 we revised our marketing strategy and activities to primarily target and sell our software products to large global enterprise companies having many and widespread national and international branches and operations.

 

We believe that our enhanced marketing focus toward large enterprise companies has been effective. During the past year or so, we closed and implemented material contracts with and are receiving recurring revenues from two large enterprise companies, Capella Education Co. and SAP/Ariba, in early 2017 we closed a significant contract with Otis Elevator Company (a subsidiary of United Technologies Corporation), and we currently are in the process of closing material contracts with 2-3 other large enterprise companies.

 

Recent Declining Revenues

 

The length and variability of our sales cycle necessary to conduct business with large enterprise companies, however, is much greater than we earlier experienced while marketing our Fision platform to small and medium-sized companies. This substantial change and increase in our sales cycle to close a contract with a new customer has resulted in a material decline in our revenues since we began primarily targeting large enterprise companies. For example, our revenues for 2016 were $425,198 compared to $604,799 for 2015, a decrease of approximately 30%

 

We believe strongly, however, that due to our recent success in closing large enterprise contracts and those that we are now in the process of closing, our revenues will appreciate substantially during 2017 and beyond.

 

Intellectual Property (IP) Protection

 

We commit substantial attention and resources toward obtaining patent and trademark rights and otherwise protecting our trade secrets, development know-how technology, trademarks, trade names, patent rights and other proprietary intellectual property (IP). Our IP protection includes written provisions relating to non-compete, non-recruit, confidentiality, and invention assignments as applicable with employees, vendors, sales agents, consultants and others. We now have three patent claims involving our software technology filed and pending with the United States Patent and Trademark Office (USPTO), and we expect to obtain final patents on both of them.

 

Inflation and Seasonality

 

We do not consider our operations and business to be materially affected by either inflation or seasonality.

 

 
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Critical Accounting Policies and Estimates

 

Principles of Consolidation

 

Regarding our wholly-owned Minnesota Fision subsidiary, as well as any future acquisitions that become our wholly-owned or majority-owned subsidiaries, our financial statements will be presented on a consolidated basis with all intercompany transactions and balances eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make certain material estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates materially. These accounting estimates and assumptions may be material to us and our financial statements due to the levels of subjectivity and judgment involved.

 

Certain estimates made in connection with our accompanying financial statements include our estimated reserve for doubtful accounts receivable, valuations used for stock-based compensation, fair value determinations in connection with our analysis of long-lived assets for impairment, and estimated useful lives for intangible assets and property and equipment.

 

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. During the fiscal year ended December 31, 2016 we incurred total expenses of $595,115 for research and development. In comparison, during the fiscal year ended December 31, 2015 we incurred total expenses of $232,426 for research and development.

 

 
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Property and Equipment

 

Property and equipment are capitalized and stated at cost, and any additions, renewals or betterments are also capitalized. Expenditures for maintenance and repairs are charged to earnings as incurred. If property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from our accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method with estimated lives as follows:

  

Furniture and fixtures

 

5 years

Computer and office equipment

 

5 years

 

Goodwill

 

In the event of any future acquisitions of businesses by us, we most likely will need to account for goodwill. Goodwill represents the excess of the purchase price over the underlying net assets of the acquired business. Under established accounting requirements, we will not amortize any goodwill but rather will subject it to at least annual impairment tests to determine whether any impairment adjustments are necessary.

 

Derivative Securities

 

We evaluate all of our agreements and financial instruments to determine if they contain features that qualify as embedded derivatives. For any derivative financial instruments accounted for as liabilities, they initially will be accounted for at fair value and if necessary re-valued at each reporting date, with any changes in fair value reported in our statements of operations. For any stock-based derivative financial instruments or securities, we use an option pricing model to value them at inception and on any subsequent valuation dates. The classification of derivative instruments, including whether they should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the 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:

 

 
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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

 

A substantial majority of our revenues are derived from customers having written licensing agreements with us, which revenues are recognized by us on a one-time or monthly basis as specified in these written contracts. Regarding secondary revenues from one-time custom software projects or any other services provided to our customers, we recognize revenue when the specific project or service is completed. The Company recognizes revenues based on these policies because the services have been provided by us, our fees are fixed or determinable, persuasive evidence of the arrangement for our services exists, and collectability of revenues is reasonably assured.

 

Cost of Revenue

 

Cost of revenue primarily represents third-party hosting, data storage and other services provided by Microsoft’s Azure cloud service provider, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of revenue relating to our cloud services is recognized monthly.

 

Stock-Based Compensation

 

We record stock-based compensation in accordance with FASB ASC Topic 718, which requires us to measure the cost for any stock-based employee compensation at fair value at the grant date and recognize the expense over the related service period. In our statement of operations, we recognize the fair value of stock options and other equity-based compensation issued to employees and non-employees as of the grant date.

 

 
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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.

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, which provides that basic earnings per share is based on the weighted average number of common shares outstanding, and diluted earnings per share is based on the assumption that all dilutive convertible shares, options, and warrants were exercised. Dilution is computed by applying the treasury stock method, which provides that options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if the funds obtained thereby are used to purchase common stock at the average market price during the period.

 

Segment Reporting

 

The Company has determined that it operates in only one segment of its industry.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. This standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard will not be effective for us until 2018. We are evaluating the effects that the adoption of ASU 2014-9 will have on our financial statements, and do not expect a material impact on our financial position, results of opreations or cash flows.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This guidance sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. This guidance indicates that, when preparing interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of events and conditions that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, that it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and all interim and annual periods thereafter, and accordingly we are now subject to this guidance.

 

Other recent accounting pronouncements issued by the FASB, the AICPA, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

 
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Results of Operations – Fiscal Years Ended December 31, 2016 and December 31, 2015

 

Revenue -- Revenue totaled $425,198 for the fiscal year ended December 31, 2016 compared to revenue of $604,799 for the comparable fiscal year 2015, a decrease of $179,801, or 29.7%, which decrease we believe was primarily due to the longer and more variable sales cycle necessary to close contracts with large enterprise clients, and the loss of certain recurring revenues from three small business customers who did not renew their Fision licensing agreements.

 

Of fiscal year 2016 revenue, $316,400 (74%) represented recurring revenues from customer licensing fees, and the balance of $108,798 (26%) primarily represented one-time setup and integration fees pursuant to new customer licensing agreements. As for fiscal year 2015 revenue, $503,140 (83%) represented recurring license fee revenues, and the balance of $101,659 (17%) primarily represented one-time setup and integration fees related to new customer contracts.

 

Cost of Revenue – Cost of revenue in fiscal year 2016 was $96,315 (23% of revenue) compared to cost of revenue in fiscal year 2015 of $136,856 (23% of revenue), which percentages were identical.

 

Gross Margin – Gross margin for fiscal year 2016 was $328,884 compared to $467,943 for fiscal year 2015, a decrease of $139,059 attributable primarily to lower revenue in 2016. Gross margin as a percentage of revenue was 77% for both fiscal years 2016 and 2015. In future years, we expect our gross margin will continue to remain in the high range reported in fiscal years 2016 and 2015.

 

Operating Expenses – Operating expenses totaled $2,973,495 for fiscal year 2016 compared to $2,421,785 for fiscal year 2015. These comparable operating expenses included:

 

 

(i) selling and marketing expenses of $1,046,806 in 2016 compared to $620,288 in 2015, which increase of $426,518 in 2016 was due primarily to substantial increased sales personnel, stock-based grants, travel and other expenses necessary to focus our marketing and sales strategy toward large enterprise clients;

 

 

 

 

(ii) development and support expenses of $595,115 in 2016 compared to $232,476 in 2015, which increase of $362,639 in 2016 was due primarily to software enhancement development of the Fision platform to support and improve its use and functions by large enterprise customers, and hiring a Chief Technology Officer experienced in providing software services to large enterprise customers; and

 

 

 

 

(iii) general and administrative expenses of $1,331,574 in 2016 compared to $1,569,020 in 2015, which decrease of $237,446 was due to decreased general overhead costs.

  

Interest Expense – Interest expense totaled $173,367 for fiscal year 2016 compared to $305,390 for fiscal year 2015, which decrease of $132,023 in 2016 was due to substantially less outstanding Notes payable debt in 2016.

 

Net (loss) – Our net (loss) for fiscal year 2016 was $(2,817,998) compared to $(2,259,232) for fiscal year 2015, which increased loss in 2016 was due primarily to increased marketing, selling and development expenses necessary to support our expanded business strategy to target and focus on large enterprise customers.

 

 
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Liquidity and Capital Resources

 

Our financial condition and future prospects critically depend on our access to financing in order to continue funding our operations. Much of our cost structure is based on costs related to personnel and facilities, and is not subject to significant variability. In order to fund our operations and working capital needs, we have historically utilized loans from accredited investors (including management), equity sales of our common stock, and common stock issued to satisfy outstanding debt and to pay for development, marketing, management, financial professional and other services.

 

We will soon need to raise substantial additional capital through private or public offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past due indebtedness, which there is no assurance we will accomplish.

 

At December 31, 2016 the Company had the following notes payable agreements totaling $1,023,463 including accrued interest, with interest rates up to 24%.

 

Category of Notes Payable

 

Amount

Owed*

 

 

 

 

 

Decathlon LLC - Senior Secured Note, due 6/30/17, interest at 14%

 

$ 166,587

 

Finquest Capital, Inc. - Secured/Unsecured Notes, due 3/31/17, interest at 15%

 

 

85,385

 

Brajoscal, LLC – Secured Note, past due, interest at 18%

 

 

25,938

 

Nottingham Securities Inc., due 3/31/17, interest at 10%

 

 

143,785

 

Note payable to individual investor, due 6/30/17, interest at 24%

 

 

119,318

 

Note payable to individual investor, past due, interest at 12%

 

 

28,743

 

Note payable to individual investor, due in monthly settlement payments

 

 

47,000

 

Note payable to individual investor, past due, interest at 6%

 

 

1,531

 

Notes payable to two principal officers, due on demand, interest at 6%

 

 

405,176

 

Total

 

$ 1,023,463

 

___________

* Includes accrued interest

 

 
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We believe our current available cash will be sufficient only until May 1, 2017. We will need to continue raising capital to support our current and future operations. Our management estimates that based on our current monthly expenses net of revenue, we will require approximately $1,000,000 in additional financing to fund our operational working capital for the next 12 months, which does not include any funds for payment of past due debt. Financing may be sought from a number of sources including our current registered public offering of common stock, sales of equity or debt (including convertible debt) securities in private transactions, and loans from affiliates, banks or other financial institutions.

 

We may not be able to sell sufficient securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available, we may be forced to abandon our business plans or even our entire business. Moreover, regarding any financing we may obtain, any equity or convertible debt financing would be dilutive to our shareholders, and any available debt financing may involve restrictive covenants.

 

Liquidity represents the ability of a company to generate sufficient cash to provide for its immediate needs for cash, which our continued losses have made it difficult for us to satisfy. As of December 31, 2016 we had only $8,172 of cash and $9,045 of net accounts receivable and a working capital deficit of $(715,562). Over the past couple years we have continued to incur substantial losses without any material increase in 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 (i) loans from management and from financial and other lenders, (ii) stock-based compensation issued to employees and for consulting, outsourced software, and professional services, (iii) common stock issued to satisfy outstanding loans and accounts payable/accrued expenses, and (iv) equity sales of our common stock.

 

In 2015 we raised working capital consisting of equity proceeds from sales of common stock of $730,000. Also in 2015, we issued common stock to satisfy and convert to equity outstanding loans and accounts payable of $2,640,243, and we issued common stock for consulting, financial and professional services valued at $635,605.

 

In 2016 we raised working capital from equity proceeds of common stock totaling $1,225,000. Also in 2016, we issued common stock to satisfy and convert to equity outstanding loans and related accrued interest of $769,624, and we issued common stock and warrants for consulting, financial, development, operational and professional services valued at $1,605,457.

  

 
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Net Cash Used in Operating ActivitiesWe used $1,215,932 of cash in operating activities for the fiscal year ended December 31, 2016 compared to $911,134 of cash used in operating activities for the fiscal year ended December 31, 2015, which increase in 2016 was primarily due to our expanded commercial activities focused on large enterprise companies.

 

Net Cash Used in Investing Activities– We used $6,531 for investing activities in fiscal year 2016 for an equipment purchase compared to use of $4,716 in fiscal year 2015 also for an equipment purchase.

 

Net Cash Provided by Financing Activities – During fiscal year 2016, we raised $1,206,903 in financing activities including net proceeds from sales of common stock of $1,225,000 offset by net payments of $18,097 on short-term loans. In comparison, during fiscal year 2015 we raised $916,181 in net proceeds from financing activities including sales of common stock of $730,000 and net proceeds from short-term loans of $183,112.

  

Going Concern

 

As stated in the audited financial statements included in this Annual Report on Form 10-K, these financial statements have been prepared on a going concern basis, which contemplates and implies that the Company will continue to realize its assets and satisfy its liabilities and commitments in the normal course of business. For the year ended December 31, 2016, we incurred a net loss of $(2,817,548) and had an accumulated deficit of $(13,438,313) as of December 31, 2016. And we are continuing to incur a substantial net loss in 2017. As of December 31, 2016, we had outstanding loans including accrued interest of $1,023,463, of which less than 10% overdue. We also had accounts payable and accrued expenses of $536,688 as of December 31, 2016. 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 December 31, 2016 or as of December 31, 2015.

 

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

See our financial statements beginning on page F-1 of this Annual Report.

  

 
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ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating these disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired objectives. Our management will apply its best judgment in evaluating the cost-benefit relationship of any disclosure controls and procedures adopted by us.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. The design of our disclosure controls and procedures must reflect the fact that we will face personnel and financial restraints for some time, and accordingly the benefit of such controls must be considered relative to their costs.

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016 (the end of the period covered by this Annual Report on Form 10-K). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2016.

 

 
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Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting is being designed to include policies and procedures that are intended to:

 

 

(i) maintain records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

 

 

 

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

 

 

 

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, our management applied the integrated framework and criteria which has been developed and set forth by the Committee of Sponsoring Organizations of the Treadway Commission (Coso II). This assessment included an evaluation of the design and procedures of our control over financial reporting. Based on this evaluation, our management concluded that as of December 31, 2016 our internal control over financial reporting was not effective due to certain material weaknesses. These identified material weaknesses included (i) an insufficient accounting staff; (ii) limited checks and balances in processing cash and other transactions; and (iv) lack of independent directors and an independent audit committee.

 

We are committed to improving our financial and oversight organization and procedures. During the remainder of 2017 and into 2018, we intend to adopt new accounting and disclosure controls and procedures and improve existing procedures to remedy material weaknesses in our internal control over financial reporting. We also plan to add experienced personnel to our accounting staff, and to add independent directors to our Board of Directors, and to establish an Audit Committee comprised of independent directors.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during our last fiscal year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B OTHER INFORMATION

 

None.

 

 
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PART III

 

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following sets forth certain information about our directors and executive officers:

 

Name

 

Age

 

Position

 

 

 

 

 

Michael P. Brown

 

59

 

Chief Executive Officer, Board Chairman, Director

 

 

 

 

 

Garry N. Lowenthal

 

57

 

Executive Vice President, Chief Financial Officer, Director

 

 

 

 

 

Wade Anderson

 

44

 

Chief Technology Officer and Chief Product Officer

 

 

 

 

 

Jason Mitzo

 

40

 

Senior Vice President of Sales and Marketing

 

Michael P. Brown, co-founder of the Company, has been a director and Chief Executive Officer of the Company since our inception in 2010. Mr. Brown has been an accomplished corporate executive for more than 20 years while serving in various senior operations, sales and executive positions. His extensive senior management experience includes having been Senior Vice President of Operations, Sales and Marketing at Life Time Fitness from 1997 to 2007, where he successfully managed and oversaw annual revenue growth from $7 Million to $689 Million. In 2001, he attended the Executive MBA course at the University of St. Thomas, and he has also served as a nuclear submarine diver in the United States Navy.

 

Garry N. Lowenthal, co-founder of the Company, has been a director, Executive Vice President and Chief Financial Officer of the Company since our inception in 2010. Mr. Lowenthal has over 20 years extensive experience in senior operations and key finance management positions, both with private and public companies. He has developed a substantial background with equity capital raising transactions while managing both private placements and public offerings for various corporations. Mr. Lowenthal has served on the national board of Financial Executives International (FEI), the premier professional association for CFOs and other senior financial executives. He also served as past chairman of FEI’s national technology committee. Mr. Lowenthal is on the Alumni Advisory Board of the Carlson School of Management/University of Minnesota where he graduated with a Master’s Degree in Taxation and Finance and a Bachelor’s Degree in Accounting. He also serves as a District Chairman for the Boy Scouts of America.

 

Wade Anderson has been our Chief Technology Officer and Chief Product Officer since April 2016. From December 2013 to April 2016, Mr. Anderson was Senior Vice President of Operations and Chief Technology Officer of Consumer Agent Portal, LLC, a Minneapolis-based company providing online SaaS platform software services to the insurance industry. From September 2009 to December 2013, Mr. Anderson was Director of IT Production of Lifetouch National School Studies, a leading national provider of school photography products based in suburban Minneapolis. His nineteen years of experience in software development and technology management positions also include seven years employment with Accenture, a leading global professional services company. Mr. Anderson holds an MBA Degree from Bethel University.

 

Jason Mitzo has been Senior Vice President of Sales and Marketing of the Company since February 2012. From 2008 to February 2012, Mr. Mitzo was a Sales Director of Oracle, a Fortune 50 public technology company, where he was the developer and leader of various successful Oracle sales and marketing teams. He has more than 15 years of sales and marketing leadership experience with various software and other technology companies, and he has worked with a wide array of clients on B2C and B2B programs across a broad spectrum of industries. His worldwide business client experience has included InterContinental Hotels Group, Mitsubishi Motors, ECCO, Trek Bicycle Corporation, Alticor/Amway and others. He also is the Founder of The Social 360, an online marketing agency based in Minneapolis/St. Paul.

 

 
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Director Relationships

 

There are no family relationships among or between any of our officers and directors.

 

None of our directors is a director of any other company having a class of securities registered pursuant to Section 12 of the Securities Exchange Act or subject to the requirements of Section 15(d) of the Securities Exchange Act, or of any company registered as an investment company under the Investment Company Act of 1940.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, our directors and executive officers have not been involved in any of the following legal proceedings during the past ten years:

 

 

i) any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

 

 

 

ii) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

 

 

 

iii) being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining or otherwise limiting the involvement of the person from any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;

 

 

 

 

iv) being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

 

 

 

v) being subject of, or a party to, a federal or state judicial or administrative order, judgment, or decree or finding, not subsequently suspended, reversed or vacated, relating to an alleged violation of any federal or state securities or commodities laws or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

 

 

 

vi) being subject of or party to any sanction or order, not subsequently suspended, reversed or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Director Committees

 

Currently we do not have any designated director committees due to the small size of our Board of Directors. Our entire Board of Directors performs the functions of an audit committee, including approving the annual selection of our independent auditing firm.

 

Section 16(a) Beneficial Ownership Reporting

 

Section 16(a) of the Exchange Act requires our directors and officers and any persons who beneficially own more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. To the best of our knowledge, regarding any such Section 16(a) forms with respect to our fiscal year ended December 31, 20116, all such required reports were filed with the SEC.

 

 
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Code of Ethics

 

We have not adopted a Code of Ethics for our management. We currently are in the process of developing a Code of Ethics which when adopted will apply to all our executive officers and directors as well as any other employees who perform any accounting or financial functions or operations for us.

 

ITEM 11 EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table presents information for our last two fiscal years ended December 31, 2016 and 2015 regarding all compensation paid to, awarded to, and earned by each individual who served as our chief executive officer or in any other executive officer position with the Company. These four individuals may be referred to as our “named executive officers.”

  

Name and Position

 

Year

 

Salary

 

 

Bonus

 

 

Option

Awards

 

 

Stock

Awards

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael P. Brown

 

2016

 

$ 240,000

 

 

 

-

 

 

 

-

 

 

$

 -

 

 

$ 240,000

 

Chief Executive Officer

 

2015

 

$ 240,000

 

 

 

-

 

 

 

-

 

 

$ 372,750 (1)

 

$ 612,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Garry N. Lowenthal

 

2016

 

$ 150,000

 

 

 

-

 

 

 

-

 

 

$ 296,250 (2)

 

$ 446,250

 

Executive Vice President and Chief Financial Officer

 

2015

 

$ 150,000

 

 

 

-

 

 

 

-

 

 

$ 67,500 (2)

 

$ 217,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wade Anderson (3)

 

2016

 

$ 133,333

 

 

 

-

 

 

$ 208,000 (4)

 

$ 26,250 (5)

 

$ 367,583

 

Chief Technology Officer and Chief Product Officer

 

2015

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jason Mitzo (6)

 

2016

 

$ 145,000

 

 

$ 20,820

 

 

$ 40,000 (7)

 

$ 26,250 (8)

 

$ 232,070

 

Senior Vice President of Sales and Marketing

 

2015

 

$ 110,960

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$ 110,960

 

___________ 

(1) Represents the value of stock award grants in 2016 of 805,000 common shares.

 

 

(2) Represents the value of stock award grants in 2015 of 150,000 common shares, and in 2016 of 725,000 shares

 

 

(3) Mr. Anderson commenced his employment with the Company in April, 2016.

 

 

(4) Represents the value of stock options to purchase 1,600,000 common shares.

 

 

(5) Represents the value of stock award grants in 2016 of 50,000 common shares.

 

 

(6) Mr. Mitzo does not have a written employment agreement with the Company. His annual salary was increased to $130,000 as of September 1, 2015, and to $150,000 as of April 1, 2016.

 

 

(7) Represents the value of stock options and warrants to purchase 500,000 common shares.

 

 

(8) Represents the value of stock award grants in 2016 of 50,000 common shares.

 

 
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Executive Compensation Overview

 

Our executive compensation program historically has consisted of a combination of base salary and stock-based compensation in the form of common stock awards and options. Our executive officers and other salaried employees are also eligible to receive health and certain other fringe benefits.

 

Now that we have made the transition from a private company to a publicly-traded company, we will evaluate our compensation values, philosophy, plans and arrangements as circumstances require. At a minimum, we expect to review executive compensation annually with input from our Board of Directors and any future compensation committee established by our Board of Directors. Incident to considering the compensation levels needed to ensure our executive compensation program remains competitive, we also will review whether we are satisfying our retention objectives and the potential costs of replacing key employees.

 

Employment Agreements With Our Named Executive Officers

 

On July 1, 2014 the Company entered into three-year term Employment Agreements with Michael P. Brown to serve as our Chief Executive Officer, and with Garry N. Lowenthal to serve as our Executive Vice President and Chief Financial Officer. Mr. Brown’s base salary was $15,000 monthly during 2014 and increased to $20,000 monthly on January 1, 2015, and Mr. Lowenthal’s base salary was $10,000 monthly during 2014 and increased to $12,500 monthly on January 1, 2015.

 

If either Mr. Brown or Mr. Lowenthal voluntarily terminate their employment with us or are terminated by the Company “without cause” as defined in the Employment Agreements, they would be entitled to receive severance payments of 12 months of their prevailing base salary, which severance payments would increase to 15 months of their prevailing base salary in the event of any termination other than for cause within one year from a change in control of the Company.

 

These written employment agreements with Messrs. Brown and Lowenthal provide for the employee to participate in any bonus, health or other benefit plans established by the Board of Directors, and to receive annually a grant of 20 days paid personal time off (PTO) for vacation and sick leave or other absences. These agreements also contain customary clauses governing confidentiality, non-solicitation, invention/IP assignment, arbitration and other matters.

 

Recent Employment of Key Executive Officer

 

In April 2016, we hired Wade Anderson as our Chief Technology Officer (CTO) and Chief Product Officer (CPO) and entered into an Employment Agreement with him containing the following material provisions:

 

i) Duties – Mr. Anderson shall serve as our Chief Technology Officer (CTO) (and also as Chief Product Officer) and shall report directly to our Chief Executive Officer, and have direct responsibility for all Fision platform/software existing and future development and its ongoing maintenance and successful daily operation. Mr. Anderson shall devote his best efforts and fulltime work on behalf of the Company, provided that he is entitled to perform non-competitive consulting and freelance work during weekends and evenings provided it doesn’t interfere with his duties and performance for the Company.

 

ii) Term of Employment – An initial term of twenty-four (24) months, and thereafter to renew automatically for additional one-year terms unless terminated prior thereto by the Company.

 

 
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iii) Compensation – Mr. Anderson’s employment agreement provides the following compensation:

 

 

a) Monthly base salary of $16,666.67.

 

b) Performance pay bonuses up to $60,000 annually.

 

c) Twenty (20) days personal paid-time-off (PTO) annually.

 

d) Eligibility to participate in all Fision benefit plans available to other employees.

 

e) Future increase to base salary to be reviewed at least annually.

 

f) 5% sales commission for three years on new customer recurring revenue from sales obtained by him.

 

g) Five-year stock option grant, vesting quarterly over 4 years after the first 6 months, to purchase up to 1,600,000 shares of our common stock at $0.35 per share as long as he is an employee of the Company, and providing for cashless exercise.

 

h) A stock award of 50,000 common shares as a signing bonus.

  

iv) Confidential Information and Trade Secrets – Mr. Anderson agrees not to directly or indirectly use or divulge any of Fision’s confidential information, trade secrets or any other proprietary information for his or any third party’s benefit, including without limitation our software development applications and know-how, our customer and vendor lists and relationships, our finances and product pricing, our strategic and marketing plans, and our proprietary processes and methods of doing business

 

v) Inventions and Intellectual Property – Mr. Anderson agrees that all product developments, designs, computer software, trademarks, and any other intellectual property (IP) developed or conceived by him in the course of his employment, whether solely or jointly with others, shall inure to and be the property of the Company.

 

vi) Non-Solicitation – During the term of his employment and for one year thereafter, Mr. Anderson will not directly or indirectly solicit employees, customers, vendors, referral sources or other strategic allies of Fision for any purpose other than to benefit Fision, including he will take no action whatsoever to induce any person to terminate their employment or business arrangement with Fision.

 

vii) Termination – If Mr. Anderson is terminated for cause as defined in the Employment Agreement, he will not be entitled to any severance payments. If he is terminated without cause, he shall receive severance pay after the first year of employment in the amount of six months of pay based on his base salary, and after two years and more of employment, he shall be entitled to severance pay of an additional two months per year up to a maximum of twelve months of severance pay. In the event of a change of control of the Company resulting in his termination, he shall be entitled to from twelve to fifteen months of severance pay. Upon termination for any reason, he would have up to 90 days from the date of termination to exercise any vested stock options.

 

viii) Legal Matters – The Employment Agreement is governed by and interpreted under the laws of the State of Minnesota. Any unresolved disputes between the parties shall be resolved through binding arbitration through the American Arbitration Association with venue in Minneapolis.

 

Equity Compensation Plans

 

Our 2011 Plan

 

In 2011 the Board of Directors and shareholders of our Minnesota Fision subsidiary adopted and approved our 2011 Stock Option and Compensation Plan, as amended on July 18, 2013 and on December 30, 2014 (the “Plan”), which is our only equity compensation plan approved by stockholders. The purpose of the Plan is to advance the interests of the Company and our stockholders by attracting, retaining and rewarding our employees and key consultants performing services for us, and to motivate them to contribute to our growth and profitability.

 

 
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Issuance of Awards. Under the Plan, the issuance of awards and the persons, terms and conditions regarding any award are determined by our Board of Directors. We have reserved up to 3,100,000 shares of our common stock to satisfy any awards under the Plan which can include one or a combination of stock options, stock appreciation rights (SARs), stock awards, restricted stock, performance shares, or cash.

  

To date, we have only granted stock option awards under the Plan, and as of December 31, 2016, we had outstanding options under the Plan for a total of 2,772,500 common shares.

 

Term and Vesting of Options. Incident to granting an option award, the Board of Directors must fix the term, exercise price, number of option shares, and any applicable vesting conditions or schedule. The Board of Directors retains the right to accelerate vesting of an option anytime for any reason. The maximum term of an option under the Plan is ten years.

 

Exercise Price and Manner of Exercise. The exercise price for any option granted under the Plan is determined by the Board of Directors, provided that the option price for any Incentive Stock Options intended to qualify under Section 422A of the Internal Revenue Code of 1986 shall not be less than the Fair Market Value of our common stock as of the date of grant. The exercise price may be paid in cash or check, cashless exercise, or tender of our shares already owned by the option holder, with any cashless exercise or tender of shares being based on the fair market value of our common shares on the date of exercise.

 

Transferability of Awards. Grants of options under the Plan are not transferable other than by will or laws of descent, and can only be exercised by the grantee during his or her lifetime.

 

Immediate Acceleration. The Plan provides that all options and awards not yet vested will be fully vested, and all performance conditions for restricted stock or performance share awards shall be deemed satisfied, in the event of (i) a change of control whereby a person or related group obtains 40% or more of our common stock, or (ii) a majority of our directors is replaced within 24 months without approval of the existing Board of Directors, or (iii) our stockholders approve a merger or the sale or other disposition of substantially all our assets.

 

The 2011 Stock Option and Compensation Plan of our Minnesota Fision subsidiary was assumed by the Company under the same terms as existed prior to the Merger.

 

Our 2016 Plan

 

On March 28, 2016, our Board of Directors adopted our 2016 Equity Incentive Plan (“2016 Plan”) which was registered with the SEC pursuant to a Form S-8 effective on March 30, 2016. This 2016 Plan reserved 2,500,000 shares of our common stock for future grants from time to time under awards administered by our Board of Directors. The purpose of the 2016 Plan is to provide incentives to participants in order to generate positive returns for our shareholders, and also to provide us with flexibility to motivate, attract and retain the services of employees, directors and certain consultants who are eligible to participate in this plan. There are three types of awards which can be granted under the 2016 Plan, which are stock payment awards, stock option awards, or restricted stock awards.

 

Stock payment awards may be granted by our Board of Directors to any eligible participant for employee or other bonus compensation, director services, or payment for services to eligible consultants. When granted, these awards must be valued for services or compensation based on no less than 100% of the fair market value of our common stock

 

 
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Awards of stock option grants also are administered by our Board of Directors who will set the number of option shares, any vesting terms, the length of term of any option, and the exercise price. The exercise price must be no less than 100% of the fair market value of our common stock at the date of any option grant. Such stock options must be exercised only by the participant receiving the option, and are only otherwise transferable or exercisable by will or laws of descent.

 

Restricted stock awards are also determined by the Board of Directors, who determine the purchase price and number of restricted shares subject to the award, the length of any restriction period, and the terms of performance or restrictions applicable during the restriction period. If the employee is terminated prior to satisfying the restriction period or requirements, any shares still subject to restriction are forfeited by the participant.

 

Regarding vesting of stock options and restrictive stock covenants, all stock options not yet vested will become vested and all restrictions on restricted stock will lapse upon any of the following events occurring:

 

 

(i) if any person or group of persons becomes the beneficial owner of at least 40% of our common stock;

 

 

 

 

(ii) if a majority of the members of our Board of Directors are replaced within any 24-month period by directors not approved by our existing directors; and

 

 

 

 

(iii)

if a merger or sale of our assets is approved by our shareholders.

  

Our Board of Directors has the right to amend or terminate our 2016 Plan at any time, but any such amendment or termination does not diminish or otherwise affect the terms of any outstanding awards granted prior thereto. No awards can be granted under the 2016 Plan after its tenth anniversary.

 

The only type of award granted to date under our 2016 Plan are stock payment awards, and during March-April 2016, our Board of Directors granted stock payment awards to various eligible participants for an aggregate of 1,330,000 shares of our common stock; and in December 2016, additional stock payment awards for an aggregate of 700,000 shares were granted to our two principal officers.

 

Outstanding Equity Awards at Fiscal Yearend

 

The following table sets forth as of the end of fiscal year 2016 all outstanding equity awards held by our named executive officers:

  

 

 

Number of securities

 

 

Number of securities

 

 

 

 

 

 

 

underlying

 

 

underlying

 

 

 

 

 

 

 

unexercised

options

 

 

unexercised

options

 

 

Option

exercise

 

 

Option

expiration

 

 

 

(#) exercisable

 

 

(#) unexercisable

 

 

price($) 

 

 

date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael P. Brown

 

None

 

 

None

 

 

 

-

 

 

-

 

Garry N. Lowenthal

 

None

 

 

None

 

 

 

-

 

 

-

 

Wade Anderson

 

 

300,000

 

 

 

1,300,000 (1)

 

$ .35

 

 

  4/30/20

 

Jason Mitzo

 

 

38,750

 

 

 

288,750 (2)

 

$ .50

 

 

 6/30/18 to 4/30/20

 

___________ 

(1) After six months, vesting quarterly over four years. 

(2)

19,375 shares vest on June 30 of each of 2015, 2016, 2017 and 2018; and 62,500 shares vest on July 31 of each of 2017, 2018, 2019, and 2020.

  

 
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Director Compensation

 

For our fiscal year ended December 31, 2016, no compensation was paid to any of our directors, since all our directors in 2016 were also executive officers who do not receive any compensation for serving in their capacity as a director of the Company.

  

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information regarding the beneficial ownership of common stock of the Company as of March 28, 2017, by each of our directors, each person known by us to own beneficially 5% or more of our Common Stock, each named executive officer, and all directors and executive officers as a group. The amounts and percentages of common stock beneficially owned in this table are reported on the basis of regulations of the Securities and Exchange Commission. To the best of our knowledge, each beneficial owner named in this table has sole voting and sole investment power with respect to all shares beneficially owned. The address of each beneficial owner is c/o Fision Holdings, Inc., 430 First Avenue North, Suite 620, Minneapolis, MN 55401.

  

Name

 

Shares of 

Common Stock

 

 

 Percent of

Common

Stock (1)

 

Michael P. Brown

 

 

14,350,786

 

 

 

36.21 %

Garry N. Lowenthal

 

 

1,965,091

 

 

 

4.96 %

Wade Anderson

 

 

1,650,000 (2)

 

 

4.00 %

Jason Mitzo

 

 

377,500 (3)

 

 

0.94 %

All directors and officers as a group (4 persons)

 

 

18,343,377

 

 

 

46.11 %

Corey Koskie

 

 

2,804,957 (4)

 

 

7.04 %

_____________

(1) Based on 39,628,910 outstanding common shares of the Company as of March 28, 2017.

 

 

(2) Includes 50,000 shares owned by him and 1,600,000 shares pursuant to stock options.

 

 

(3) Includes 50,000 shares owned by him and 327,500 shares pursuant to stock options.

 

 

(4) Includes 207,500 shares pursuant to stock purchase warrants and 943,611 shares owned by his private limited liability company.

 

 
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ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions With Related Persons

 

Since January 1, 2015 we have been involved in the following transactions with related persons, and we believe these transactions occurred on terms as favorable to us as could have been obtained from unrelated third parties.

 

Information regarding the employment relationship and cash and stock-based compensation of our executive officers during 2016 and 2015 is incorporated herein by reference to the section of this Annual Report entitled “Executive Compensation.”

 

To secure his employment, in April, 2016 we granted Wade Anderson, our Chief Technology Officer, a five-year incentive stock option to purchase a total of 1,600,000 shares at $.35 per share, vesting ratably over 4 years after the first six months of his employment. In April 2016, we also issued Mr. Anderson a bonus stock award of 25,000 common shares and in August 2016 we issued him an additional bonus stock award of 25,000 shares.

 

In July 2015, we issued 150,000 common shares as bonus compensation to Mr. Lowenthal; in March 2016, as bonus compensation we issued 375,000 common shares to Mr. Brown and 225,000 common shares to Mr. Lowenthal; and in December 2016 we issued a total of 230,000 shares to Mr. Brown and Mr. Lowenthal as bonus compensation.

 

In December 2016, we also awarded and issued 700,000 shares of our common stock to Mr. Brown and Mr. Lowenthal, 350,000 shares apiece, under our 2016 Equity Plan and pursuant to agreements requiring them to continue serving in their respective roles with the Company.

 

In August 2016 we issued 25,000 common shares as a bonus award to our Senior Vice President of Sales and Marketing, Jason Mitzo, and also granted him a four-year stock option to purchase 250,000 common shares at $.50 per share. Additionally in August 2016, we granted Mr. Mitzo a four-year warrant to purchase 250,000 shares of our common stock exercisable at $.30 per share, and concurrently he assigned this warrant to a significant shareholder of the Company to satisfy an outstanding obligation owed to this shareholder.

 

Since the Company has been unable to compensate its two principal officers in cash under the terms of their respective employment agreements, their accrued compensation from time to time has been converted to notes payable bearing interest at 6% per annum. Effective December 31, 2015, Mr. Brown converted $925,000 of his outstanding note payable into 1,423,077 shares of our common stock at $.65 per share; and effective in December, 2016 Mr. Brown and Mr. Lowenthal each converted $25,000 of their outstanding Notes into shares of our common stock at $.30 per share. As of December 31, 2016, Mr. Brown was owed $248,226 on his Note and Mr. Lowenthal was owed $156,950 on his Note.

 

 
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Related Party Transaction Policy

 

Our Board of Directors has no formal written policy regarding related-party transactions, but rather follows the requirements of state law applicable to such transactions. In particular, after full disclosure of all material facts, review and discussion, our Board of Directors approves or disapproves such transactions. No director is allowed to vote for approval of a related-party transaction for which he or she is the related party, but shall provide all material information concerning the related-party transaction and the director’s interest in the transaction.

 

Director Independence

 

None of our current directors is an independent director.

 

ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table includes all fees billed for auditing and any other services provided to us by Patrick D. Heyn, CPA, P.A. for the fiscal year ended December 31, 2015 and by Soles, Heyn and Company LLP, for the fiscal year ended December 31, 2016, whereby Patrick D. Heyn, CPA, P.A. merged his CPA practice with Angela Soles, CPA on January 1, 2017.

  

 

 

 2016

 

 

 2015

 

 

 

 

 

 

 

 

 

 

Audit Fees

 

$ 34,500

 

 

$ 20,000

 

Audit-Related Fees

 

 

-

 

 

 

-

 

Tax Fees

 

 

-

 

 

 

-

 

All Other Fees

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total

 

$ 34,500

 

 

$ 20,000

 

 

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under this procedure, our Board of Directors approves the annual engagement letter with respect to audit and review services. Any other fees are subject to pre-approval by our Board of Directors. The audit fees paid to our auditor with respect to 2016 and 2015 were pre-approved by our entire Board of Directors.

 

 
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PART IV

 

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

FINANCIAL STATEMENTS

  

Item

 

Page

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

F-1

 

 

 

 

 

Consolidated Balance Sheets – December 31, 2016 and December 31, 2015

 

F-2

 

 

 

 

 

Consolidated Statement of Operations – Years Ended December 31, 2016 and December 31, 2015

 

F-3

 

 

 

 

 

Consolidated Statement of Shareholders’ Deficit – Years Ended December 31, 2016 and December 31, 2015

 

F-4

 

 

 

 

 

Consolidated Statements of Cash Flows – Years Ended December 31, 2016 and December 31, 2015

 

F-5

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-6

 

 

 
45
 
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and

Board of Directors Fision Corporation

 

I have audited the accompanying consolidated balance sheet of Fision Corporation, as of December 31, 2016 and 2015, and the related consolidated statements of operations, consolidated stockholders' equity and consolidated cash flows for each of the two years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provide a reasonable basis for my opinion.

 

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fision Corporation, as of December 31, 2016 and 2015 and results of its operations and its cash flows for each of the two years in the period, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 of the accompanying consolidated financial statements, the Company has minimal revenues, has incurred losses since inception, and has a negative working capital balance at December 31, 2016, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

 

/s/ Soles, Heyn & Company, LLP

 

Soles, Heyn & Company, LLP

West Palm Beach, Florida

March 31, 2017

  

 

 

 

 
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FISION CORPORATION

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 8,172

 

 

$ 8,495

 

Accounts receivable, net

 

 

9,045

 

 

 

32,134

 

Prepaid Expenses

 

 

734,637

 

 

 

15,318

 

Total current assets

 

 

751,853

 

 

 

55,947

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

8,327

 

 

 

7,754

 

 

 

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

 

 

 

Deposits

 

 

6,456

 

 

 

6,456

 

Total assets

 

$ 766,636

 

 

$ 70,157

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 536,688

 

 

$ 185,172

 

Note payable and accrued interest - related party

 

 

405,176

 

 

 

174,125

 

Notes payable

 

 

525,550

 

 

 

1,257,181

 

Total current liabilities

 

 

1,467,415

 

 

 

1,616,478

 

 

 

 

 

 

 

 

 

 

Contingencies and commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 Par value, 25,000,000 shares authorized, No shares issued and outstanding

 

 

-

 

 

 

-

 

Common Stock, $0.0001 Par value, 500,000,000 shares authorized 38,302,720 and 27,797,950 shares issued and outstanding, respectively

 

 

3,830

 

 

 

2,780

 

Additional paid in capital

 

 

12,733,704

 

 

 

9,071,663

 

Accumulated deficit

 

 

(13,438,313 )

 

 

(10,620,764 )

Total stockholders' deficit

 

 

(700,779 )

 

 

(1,546,321 )

Total liabilities and stockholders' deficit

 

$ 766,636

 

 

$ 70,157

 

 

The accompanying notes are an integral part of these audited financial statements.

 

 
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FISION CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Years Ended

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

Revenues

 

 

425,198

 

 

 

604,799

 

Cost of revenues

 

 

96,315

 

 

 

136,856

 

Gross margin

 

 

328,884

 

 

 

467,943

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

Selling and marketing

 

 

1,046,806

 

 

 

620,288

 

Development and support

 

 

595,115

 

 

 

232,476

 

General and administrative

 

 

1,331,574

 

 

 

1,569,020

 

Total operating expenses

 

 

2,973,495

 

 

 

2,421,785

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,644,612 )

 

 

(1,953,842 )

 

 

 

 

 

 

 

 

 

Other expense:

Interest expense

 

 

(173,387 )

 

 

(305,390 )

Total other expense

 

 

(173,387 )

 

 

(305,390 )

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 

(2,817,998

 

 

(2,259,232

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

Net loss

 

$ (2,817,998 )

 

$ (2,259,232 )

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$ (0.09 )

 

$ (0.10 )

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding - basic and diluted

 

 

31,654,279

 

 

 

22,655,221

 

 

The accompanying notes are an integral part of these audited financial statements.

 

 
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FISION CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Additional 

 

 

Retained 

 

 

 

 

 

Preferred

 

 

Preferred 

 

 

Common 

 

 

Common 

 

 

Paid in

 

 

Earnings

 

 

 

 

 

Shares

 

 

Stock

 

 

Shares

 

 

Stock

 

 

Capital

 

 

(Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

 

-

 

 

 

-

 

 

 

19,662,809

 

 

 

1,967

 

 

 

4,753,742

 

 

 

(8,361,532 )

 

 

(3,605,823 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

-

 

 

 

-

 

 

 

1,930,188

 

 

 

193

 

 

 

729,807

 

 

 

-

 

 

 

730,000

 

Stock issued for services

 

 

-

 

 

 

-

 

 

 

1,714,431

 

 

 

171

 

 

 

616,717

 

 

 

-

 

 

 

616,888

 

Warrants granted for services

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

331,603

 

 

 

 

 

 

 

331,603

 

Conversion of notes payable and accrued interest

 

 

 -

 

 

 

 -

 

 

 

4,190,522

 

 

 

419

 

 

 

2,639,824

 

 

 

 

 

 

 

2,640,243

 

Acquisition of the net assets and liabilities 

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE Acquistion

 

 

 -

 

 

 

 -

 

 

 

300,000

 

 

 

30

 

 

 

(30 )

 

 

 

 

 

 

-

 

Net loss 

 

 

-

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(2,259,232 )

 

 

(2,259,232 )
Balance, December 31, 2015

 

 

-

 

 

 

-

 

 

 

27,797,950

 

 

 

2,780

 

 

 

9,071,663

 

 

 

(10,620,764 )

 

 

(1,546,321 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

-

 

 

 

-

 

 

 

3,367,950

 

 

 

337

 

 

 

1,224,663

 

 

 

 

 

 

 

1,225,000

 

Stock issued for services

 

 

 -

 

 

 

 -

 

 

 

3,487,288

 

 

 

349

 

 

 

1,605,109

 

 

 

 

 

 

 

1,605,457

 

Warrants/Options granted for services

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

62,468

 

 

 

 

 

 

 

62,468

 

Conversion of notes payable and accrued interest/expenses

 

 

 -

 

 

 

 -

 

 

 

2,431,551

 

 

 

243

 

 

 

769,624

 

 

 

 

 

 

 

769,867

 

Acquisiotion of the net assets and liabilities 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DE Acquistion

 

 

 -

 

 

 

 -

 

 

 

1,217,981

 

 

 

122

 

 

 

178

 

 

 

 

 

 

 

300

 

Net loss 

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,817,548 )

 

 

(2,817,548 )
Balance, December 31, 2016

 

 

-

 

 

 

-

 

 

 

38,302,720

 

 

 

3,830

 

 

 

12,733,705

 

 

 

(13,438,313 )

 

 

(700,777 )

 

The accompanying notes are an integral part of these audited financial statements.

 

 
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FISION CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

For the Years Ended

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (2,817,548 )

 

$ (2,259,232 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

1,605,457

 

 

 

616,888

 

Depreciation

 

 

5,959

 

 

 

18,592

 

Stock warrants/options issued for services

 

 

62,468

 

 

 

331,603

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

23,089

 

 

 

33,795

 

Prepaid expenses

 

 

(431,615 )

 

 

(15,318 )

Increase (decrease) in:

 

 

 

 

 

 

 

 

Accounts payable & accrued expenses

 

 

351,516

 

 

 

352,533

Net cash used in operating activities

 

 

(1,200,674 )

 

 

(911,134 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Disposal (Purchase) of property and equipment

 

 

(6,531

 

 

(4,716 )

Net cash used In investing activities

 

 

(6,531

 

 

(4,716 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments on note payable

 

 

(227,699 )

 

 

(112,000 )

Proceeds from note payable

 

 

165,000

 

 

 

-

 

Proceeds from related party notes

 

 

37,300

 

 

 

295,112

 

Proceeds on line of credit

 

 

7,302

 

 

 

3,069

 

Proceeds from issuance of common stock

 

 

1,225,000

 

 

 

730,000

 

Net cash provided by financing activities

 

 

1,206,903

 

 

 

916,181

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(320 )

 

 

5,568

 

 

 

 

 

 

 

 

 

 

Cash at beginning of year

 

 

8,492

 

 

 

2,924

 

Cash at end of year

 

$ 8,172

 

 

$ 8,492

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during period:

 

 

 

 

 

 

 

 

Interest

 

$ (39,552 )

 

$ (42,881 )

Franchise and income taxes

 

$ -

 

 

$ -

 

Noncash operating and financing activities:

 

 

 

 

 

 

 

 

Conversion of debt and accrued interest to common stock

 

$ 769,867

 

 

$ 2,640,243

 

 

The accompanying notes are an integral part of these audited financial statements.

 

 
F-5
 
Table of Contents

 

FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Fision Holdings, Inc., a wholly-owned subsidiary of FISION Corporation (the “Company”) was incorporated under the laws of the state of Minnesota, with its parent company, Fision Corporation, incorporated under the laws of the state of Delaware, and is in the business of unique automated marketing software which is “cloud” based. The Company has developed and successfully commercialized a unique cloud-based software platform which automates and integrates digital marketing assets and marketing communications, and accordingly “bridges the gap” between marketing and sales of an 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 a predictable and recurring revenue stream for its licensed software allowing for a high percentage of recurring revenues, allowing for recurring revenue between 74% to 83%.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

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 from those estimates. Such estimates include management’s assessments of the carrying value of certain assets, useful lives of assets, and related depreciation and amortization methods applied.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. During the year ended December 31, 2016, the Company may have had cash deposits that exceeded Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company maintains its cash balances at high quality financial institutions to mitigate this risk. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

 

Cash equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At December 31, 2016, the Company had no cash equivalents.

 

Fair value of financial instruments

 

The Company adopted the provisions of FASB ASC 820 (the “Fair Value Topic”) which defines fair value, establishes a framework for measuring fair value under 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.

 

 
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Table of Contents

  

FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 Company had no assets and/or liabilities measured at fair value on a recurring basis at December 31, 2016 and 2015.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

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.

 

The Company has 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 the Company believes collection efforts have been fully exhausted and the Company does not intend to devote any additional efforts in an attempt to collect the receivable. The Company adjusts their allowance for doubtful accounts balance on a quarterly basis.

 

 
F-7
 
Table of Contents

 

FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Property and Equipment

  

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 three (3) years for equipment, (5) years for automobile, and (7) years for 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.

  

Impairment of long-lived assets

 

The Company follows paragraph 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s 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.

 

The Company assesses the recoverability of its 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. The Company determined that there were no impairments of long-lived assets as of December 31, 2016.

 

Revenue recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. The Company invoices one-time startup costs, such as consolidating and uploading digital assets upon completion of those services. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly.

 

Income taxes

 

The Company follows 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 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.

 

 
F-8
 
Table of Contents

 

FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company 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, the Company 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. The Company had no material adjustments to its assets and/or liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.

 

Stock-Based Compensation

 

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. The Company applies 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, 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.

 

Fair Value

 

The closing price of the Company's stock on the date of grant is used as the fair value for the issuances of restricted stock. The fair value of stock options 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:

 

 

 

Twelve months ended

December 31,

 

 

 

2016

 

 

2015

 

Weighted-average volatility

 

 

29.1 %

 

 

29.4 %

Expected term (in years)

 

 

3.7

 

 

 

2.5

 

Risk-free interest rate

 

         1.03% - 1.28

%

 

       0.89% - 1.31

%

 

Expected volatilities used for award valuation in 2016 and 2015 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.

 

Net income (loss) per share

 

The Company computes 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, 2016 and 2015, there were 5,142,729 and 1,922,853 respectively, potentially dilutive securities not included in the calculation of weighted-average common shares outstanding since they would be anti-dilutive.

 

 
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FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Research and Development

 

The company expenses all our research and development operations and activities as they occur. During the fiscal year ended December 31, 2016 we incurred total expenses of $595,115 for research and development. In comparison, during the fiscal year ended December 31, 2015 we incurred total expenses of $211,495 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.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

 

Advertising Costs

 

The Company expenses marketing and advertising costs as incurred. Marketing and advertising expense for the years ended December 31, 2016 and 2015 was $45,316 and $21,405, respectively. The costs are included in the consolidated selling and marketing expenses.

  

Recently issued accounting pronouncements

 

Company management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

NOTE 3 - GOING CONCERN

 

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. The Company's ability to continue as a going concern is contingent upon its ability to achieve and maintain profitable operations, and the Company’s ability to raise additional capital as required.

 

At December 31, 2016 the Company had a working capital deficiency of approximately $716 thousand and an accumulated deficit of approximately $13.4 million. These conditions raise substantial doubt about the Company's ability to continue as a going concern. 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 funds through private placements and/or or through public offerings of its securities. Management believes that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern. While the Company believes in the viability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate substantial funds.

 

NOTE 4 - ACCOUNTS RECEIVABLE

 

Accounts receivable at December 31, 2016 and December 31, 2015 consisted of the following:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Accounts receivable

 

$ 15,103

 

 

$ 32,134

 

Less: Allowance for doubtful accounts

 

 

6,058

 

 

 

0

 

 

 

$ 9,045

 

 

$ 32,134

 

 

 
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FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - PROPERTY AND EQUIPMENT

 

Fixed assets, stated at cost, less accumulated depreciation, consists of the following at December 31, 2016 and December 31, 2015:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Equipment

 

$ 84,716

 

 

$ 92,701

 

Furniture & Fixtures

 

 

29,647

 

 

 

28,946

 

Less: Accumulated Depreciation

 

 

(106,036 )

 

 

(115,318 )

Net Fixed Assets

 

$ 8,327

 

 

$ 7,754

 

 

Depreciation expense

 

Depreciation expense for the years ended December 31, 2016 and 2015 were $5,959 and $18,592, respectively.

 

NOTE 6 - OTHER BALANCE SHEET ACCOUNTS PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following:

 

 

 

December 31,

 

 

 

2016

 

 

2015

 

Prepaid Expenses:

 

 

 

 

 

 

Technology Vendor Deposit

 

$ 9,404

 

 

$ 9,404

 

Health Insurance

 

 

0

 

 

 

5,914

 

Sales Commissions Advances

 

 

4,920

 

 

 

0

 

Contra-APIC Unvested Stock Grants

 

 

720,313

 

 

 

0

 

Total Prepaid Expenses

 

$ 734,637

 

 

$ 15,318

 

  

NOTE 7 - NOTES PAYABLE

 

At December 31, 2016 the Company had the following notes payable agreements totaling $1,023,463 including accrued interest, with interest rates up to 24%:

 

Description of Note

 

Amount

Owed*

 

Decathlon LLC-Senior Secured Note, due 6/30/17, interest at 14%

 

$ 166,587

 

Finquest Capital Inc.-Secured/Unsecured Notes, due 3/31/17, interest at 15%

 

 

85,385

 

Nottingham Securities Inc., due 3/31/17, interest at 10%

 

 

143,785

 

Brajoscal LLC-Secured Note, past due, interest at 18%

 

 

25,938

 

Note payable to individual investor, due 6/30/17, interest at 24%

 

 

119,318

 

Note payable to individual investor, past due, interest at 12%

 

 

28,743

 

Note payable to individual investor, past due, interest at 6%

 

 

1,531

 

Note payable to individual investor, monthly settlement payments of $1,000

 

 

47,000

 

Notes payable to two principal officers, due on demand, interest at 6%

 

 

405,176

 

 

 

$ 1,023,463

 

________

*Includes accrued interest

 

 
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FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

NOTE 8 - COMMITMENTS & CONTINGENCIES

 

Lease

 

The Company currently occupies 4,427 square feet of office space in downtown Minneapolis Minnesota. Terms are on a month to month basis for $7,142 per month including utilities maintenance and cleaning. Total rent expense under this agreement was $88,215 and $78,565 for the years ended December 31, 2016 and 2015, respectively.

 

NOTE 9 - INCOME TAXES

 

At December 31, 2016 and 2015, the Company had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $7,105,000 and $5,823,000 for Federal and state purposes, respectively. The Federal carryforward expires in 2035 and the state carryforward expires in 2020. Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit.

 

Effective January 1, 2007, the Company 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 derecognition, 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, 2016 and 2015, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

 

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2016 and 2015, the Company has not accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2013 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject.

 

Upon the attainment of taxable income by the Company, 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:

 

 

 

2016

 

 

2015

 

Income tax at federal Statutory rate

 

 

34.0 %

 

 

34.0 %

Effects of permanate differences

 

 

(18.9

)%

 

 

(0.1

)%

Effects of state taxes (net of federal taxes)

 

 

0 %

 

 

0 %

Change in valuation allowance

 

 

(15.1

)%

 

 

(33.9

)%

 

 

 

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.

 

 
F-12
 
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FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2016 and 2015, the Company’s only significant deferred income tax asset was a cumulative estimated net tax operating loss of $7,105,000 and $5,823,000, 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 the Company's operating losses incurred to date and believes that a full valuation allowance against the deferred tax assets is required as of December 31, 2015 and 2016.

 

Utilization of the Company's 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 10 - RELATED PARTY TRANSACTIONS

 

Employment AgreementsThe Company has three employment agreements in effect with its chief executive officer, executive vice president, and chief technology officer. The terms of the agreements include base salaries of $35,000 per month in 2015 increasing to $51,667 per month in 2016.

 

Loans

 

Included in notes payable are amounts due to officers for Notes payable which had been accepted by them for past compensation. At December 31, 2016 and 2015, the amounts of such notes due related parties was $405,176 and $174,125, respectively.

 

NOTE 11 - STOCKHOLDERS’ EQUITY

 

The Company is authorized the issuance of 500,000,000 shares of common stock and 20,000,000 shares of preferred stock, both $0.0001 par values per share. At December 31, 2015 and 2016, there were 27,797,950 and 38,302,720 outstanding shares of common stock and no outstanding shares of Preferred stock, respectively.

 

Common shares issued

 

During the year ended December 31, 2015, the Company issued 8,135,141 common shares. Of this amount 1,930,188 shares were issued for cash of $730,000, 4,190,522 shares were issued for a debt reduction of $2,640,243 and 1,714,431 shares were issued for services which were valued at approximately $616,888. The market price of the stock for services was determined to be the last amount the company raised money for which averaged $0.36 per share.

 

During the year ended December 31, 2016, the Company issued 10,504,770 shares of common stock. Of this amount, 3,367,950 shares were issued for cash of $1,225,000, 3,487,288 shares were issued for services valued at $1,605,457, 2,431,551 shares were issued for debt reduction of $769,867, and 1,217,981 shares were issued to satisfy the exercise of an option for $300 related to the December 2015 Merger.

 

 
F-13
 
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FISION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Warrants

 

The Company has the following outstanding warrants to purchase the Company’s common stock at December 31,

 

 

 

Number of

Shares

 

 

Exercise

Price

 

 

Weighted Average

Exercise price

 

 

Average

Grant

Date

Fair value

 

Balance December 31, 2014

 

 

1,632,471

 

 

0.25-1.00

 

 

 

 

 

 

 

Granted

 

 

2,133,973

 

 

0.20-1.00

 

 

 

0.51

 

 

 

0.17

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Balance December 31, 2015

 

 

3,766,444

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

470,000

 

 

0.30-0.50

 

 

 

0.40

 

 

 

0.39

 

Forfeited or cancelled

 

 

(30,000 )

 

 

-

 

 

 

 

 

 

 

 

 

Balance December 31, 2016

 

 

4,206,444

 

 

 

 

 

 

 

 

 

 

 

 

 

  

NOTE 12 - CONCENTRATIONS

 

For the year ended December 31, 2015 four customers and for the year ended December 31, 2016 three customers each accounted for more than 10% of our revenues. Combined these customers represented slightly over 50% of the Company’s revenue during each of 2015 and 2016. 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 13 - SUBSEQUENT EVENTS

  

Subsequent to December 31, 2016, the Company sold or issued shares of its common stock as follows:

 

(i) sales of 242,857 shares of common stock for proceeds of $100,000 used for general working capital purposes;

 

 

(ii) issuance of 950,000 shares of common stock for services valued in the aggregate amount of $285,000; and

 

 

(iii) issuance of 133,333 shares of common stock for conversion and satisfaction of debt in the amount of $40,000.

 

 
F-14
 
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EXHIBITS

 

Exhibit No.

 

Description

 

 

 

2.1

 

 

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)

 

 

 

3.1

 

Articles of Incorporation (incorporated by reference to Exhibit 3.1 of registrant’s Form 10 filed on 4/6/2010)

 

 

 

3.2

 

Bylaws (incorporated by reference to Exhibit 3.2 of registrant’s Form 10 filed on 4/6/2010)

 

 

 

10.1

 

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)

 

 

 

10.2

 

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)

 

 

 

10.3

 

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)

 

 

10.4

 

2016 Equity Incentive Plan (incorporated by reference to the registrant’s Registration Statement on Form S-8 filed on March 30, 2016)

 

 

10.5

 

Employment Agreement with Wade Anderson (incorporated by reference to Registrant’s Registration Statement on Form S-1 filed on October 31, 2016)

 

 

31.1

 

Certification of CEO pursuant to Securities Exchange Act (filed herewith)

 

 

31.2

 

Certification of CFO pursuant to Securities Exchange Act (filed herewith)

 

 

32.1

 

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350 (filed herewith)

 

 

 

101

 

Interactive data files pursuant to Rule 405 of Regulation S-T

 

 

46

 
Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  FISION Corporation
       
Dated: March 31, 2017 By: /s/ Michael Brown

 

 

Michael Brown  
    Chief Executive Officer  

  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

       
Dated: March 31, 2017 By: /s/ Michael Brown

 

 

Michael Brown  
    Director, Chief Executive Officer (principal executive officer)  
       

Dated: March 31, 2017

By:

/s/ Garry Lowenthal

 

 

 

Garry Lowenthal

 

 

 

Director  Chief Financial Officer

 

 

 

(principal financial and accounting officer)

 

  

 

47