ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
We are an Internet platform technology company providing cloud-based software solutions to automate the marketing functions and activities of our customers. Our focus is to develop and offer software technology tools through our Fision platform to enable our customers to maximize their marketing assets and initiatives. Our development, management, marketing and other operations are conducted from Minneapolis through our wholly owned Minnesota subsidiary, Fision Holdings, Inc.
Fision was founded and incorporated in Minnesota in 2010 by our current principal officers to develop and create proprietary software solutions to support marketing and sales operations of private and public businesses of all types and sizes. 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 functions and personnel of an enterprise. We believe that our innovative Fision platform, proprietary technology, forward-looking strategy, and experienced management have now positioned us to become a leader in the rapidly growing marketing and sales enablement segment of the broad software-as-a-service (SaaS) industry.
We are a global cloud-based software development and licensing company offering our Fision platform marketing software solutions to promote and improve sales enablement of any entity. Our cloud-based software platform is readily scalable to adapt to fast business growth of any customer, regardless of size. Except for future customary software enhancements and periodic upgrades, the primary development of our automated software marketing platform has been completed.
Our proprietary Fision platform enables every member of the marketing and sales teams of our customers, by having easy and automated access to all their digital marketing and media assets, to leverage the full power of their distinctive brands and digital marketing assets in every interaction with their consumers or buyers.
Our Business
Our Fision software platform enables our customers to easily and quickly create and implement marketing campaigns to support their sales personnel while still emphasizing, protecting and enhancing their valuable brand assets. Use of our software solutions by our customers reduces substantially the time and cost incurred by them to produce and present marketing and sales campaigns and presentations for specific products or services. We believe that the software marketing solutions of our Fision platform provide three major benefits to our customers, which are (i) accelerating their revenues, (ii) improving their marketing and brand effectiveness, and (iii) significantly reducing their marketing and sales costs.
We derive our revenues primarily from recurring payments from customers who have entered into software licensing contracts with us having terms of one to three years, and secondarily from set-up and implementation fees paid by new customers during the initial stage of their license contract. Our typical customer implementation process includes integrating our cloud-based Fision platform into the marketing infrastructure of the customer, initiating and conducting customer training, and providing marketing development support while our Fision platform is being actively launched by the customer. We also continue to offer technical and maintenance support after implementation. As of September 30, 2017, we have license contracts with 15 enterprise customers actively using our Fision platform for their marketing and sales operations, with users in 21 countries.
Our current and targeted customer base ranges across diverse industries of various sizes, including banks and other financial enterprises, insurance companies, hotels and other hospitality businesses, healthcare and fitness companies, retailers, software and other technology companies, product manufacturers, telecommunications companies, and numerous other companies selling familiar branded products or services.
Our market and potential customer base are global and virtually unlimited, since our Fision platform software solutions provide significant benefits to the marketing and sales departments and personnel of any commercial enterprise, regardless of size. Our customers typically “stick” with us and our Fision platform, and accordingly we receive substantial recurring revenues from them. Certain key customers have maintained written contracts with us for years. We regard our high percentage of recurring revenues to be particularly significant to our marketing strategy which emphasizes long-term written contract relationships with our customers. We believe that our ability to realize a high percentage of recurring revenues is a keystone feature of our business model.
We market and license our proprietary software platform both through direct sales obtained by our management and in-house sales personnel, and through retaining experienced national technology sales agencies which we refer to as our “channel partners.” We have entered into three significant channel partnership arrangements, and have realized material revenues from the sales efforts of our channel partners.
Significant Marketing Developments
- Our primary marketing strategy, which is focused toward large enterprise companies, has succeeded in various industries. During 2016 we completed and implemented a contract with Capella Education Co; in late 2016 we closed and implemented a contract with SAP/Ariba; and in early 2017 we closed and implemented a contract with Lazydays RV; and we are currently in the process of implementing two more contracts with large enterprise companies. We believe these significant recent clients will result in a substantial increase in our future recurring revenues from our cloud-based Fision software platform. A brief description of the types of our customers follows:
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Capella Education Co.
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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.
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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.
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Lazydays RV
- Lazydays RV is the world’s largest RV dealership and has large RV sales and rental vehicles and fleets at its 126-acre headquarters Tampa FL dealership as well as at its other four large dealerships in Colorado and Arizona.
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Our Fision Platform
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Our Fision marketing software centrally collects, stores, prioritizes, organizes, streamlines, integrates and distributes the numerous digital marketing assets of our customers including videos, images, logos and other brand materials, presentations, social media content and any other material marketing assets. Using Fision’s automated software technology, these digital assets become readily available for user access as determined by our customers. Our Fision platform is designed to provide any corporate marketing department with the ability to instantly and seamlessly update its sales force and other users with the latest digital marketing content and materials, while providing them with a simple, intuitive software interface to quickly find what they need on any digital device, anytime and anywhere. Large enterprise customers with extensive global sales networks have the ability to quickly and efficiently create and deliver customized sales campaigns or presentations to selectively targeted consumer audiences while conveying a positive, personalized and consistent brand experience. We believe that the use of our software marketing solutions by our customers results in a substantial increase in their return on investment (ROI) and their profitability.
Cloud-Based Platform
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Storage and operation of our software solutions platform along with the digital marketing assets and related data of our customers are outsourced by us to take place in the digital “cloud.” Providers of cloud services are typically referred to as “virtual servers” since they provide all digital data storage and related software application services to their clients. Our cloud service provider is Microsoft’s Azure Cloud, which leading provider offers readily scalable, high quality and secure cloud services capable of satisfying any increasing demand or changing circumstances in the needs of our customers or us.
We regard the hosting of our software applications, the ready digital interface with our customers, the storage of unlimited customer data with our cloud provider, and the overall flexibility of the cloud model as being crucial to our operating strategy. Our major savings in expensive computer equipment, high salaried technology personnel, and costly security measures through our use of Microsoft’s cloud is vital to our cost of doing business. Moreover, we believe that our highly qualified and experienced leading cloud provider is more effective in delivering our automated software solutions to our customers than we could perform in any event.
Recent Strategic Acquisition
In April 2017 we entered into an Asset Purchase Agreement (the “Agreement”) with Volerro Corporation (“Volerro”) to acquire Volerro’s assets including its unique cloud-based proprietary software and development technology and its customer base. Volerro is a privately-held corporation based in Minneapolis which has developed and markets “content collaboration” software services to enhance and improve the overall sales and marketing activities of its clients.
Volerro software enables the marketing, sales and brand personnel of its clients to collaborate in real time in the creation, refinement, and distribution of all types of their strategic content including print, packaging, high quality image and video content. For example, Volerro’s primary application allows all product, brand, marketing and creative teams of a business enterprise the ability to work on and create a document in real-time with integrated chat and voice conferencing.
Volerro’s cloud-based software solutions are marketed in the broad SaaS industry, with its primary targeted customer base being large financial and retail enterprises. The two principal clients of Volerro are U.S. Bank, a leading national banking institution having numerous branches throughout the USA, and Shopko Stores, a $3.2 billion retailer selling many kinds of quality name-brand merchandise through its 363 operated retail stores in 24 states.
Volerro content collaboration software services and technology are particularly complementary with and readily adaptable to integrate into the SaaS marketing software services currently available on our Fision platform. Accordingly, we believe our acquisition of these Volerro software products will both increase our revenues materially and also attract new customers to our Fision platform.
The Agreement includes certain conditions, due diligence performance, and representations by Volerro and us. These matters and other material terms of the Agreement, as well as the specific assets of Volerro being acquired by us, are set forth in our Current Report on Form 8-K filed by us with the SEC on April 27, 2017.
The Company and Volerro completed their respective due diligence and satisfied all conditions of the Agreement in early May 2017, and accordingly this acquisition of Volerro assets by us was completed and closed on May 12, 2017.
We acquired these Volerro assets in consideration for 400,000 unregistered shares of our common stock issued to Volerro, plus a potential additional 200,000 performance common shares to be issued to Volerro in the future provided the two principal clients of Volerro are under contract to continue as customers of Fision until the end of 2018.
There are no material relationships between our officers, directors and principal shareholders and those of Volerro.
Our Employees and Properties
We currently have ten (10) full-time employees, including our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer, Chief Revenue Officer, Controller/Office Manager, Customer Support Specialist, Client Services Manager, Marketing Manager, and two Programmer/Developers. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.
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 $7,474 per month including rent, utilities, maintenance and cleaning services. We do not own any real estate. Our 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 to support substantial future growth.
Revenue and Marketing Models
Revenue Model
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Our revenue model is primarily based on prescribed software licensing fees received by us on a regular monthly basis from customers which are under written licensing agreements with us. We consistently commit substantial expenses and sales personnel toward targeting, negotiating and procuring significant licensing agreements with new customers. Because of the long-term nature and the substantial expense commitment required by each new customer to enter into a binding licensing agreement with us, the sales cycle involved in our revenue model is quite lengthy. Accordingly, the unpredictable and different timing involved from customer to customer to procure our licensing contracts has prevented us from receiving overall consistent revenues or accurately forecasting our future revenue stream, particularly since each new contract provides one-time start-up revenues derived from initial set-up and integration fees.
We generate our revenues primarily from payments from customers having a license 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 consistently used our software platform once they have integrated it into their digital marketing model and experienced the benefits provided from our cloud-based Fision marketing solutions.
Marketing Model
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For many years, we have marketed, sold and licensed our proprietary software products through our direct sales force including management and other direct sales personnel, and our revenues have been generated primarily from software licensing contracts obtained by our internal sales force. In late 2015, we implemented a significant secondary sales channel through the use of independent national sales agencies to sell (license) our branded software products as agents who are paid commissions based on their actual sales. We regard and refer to these experienced sales agencies as our “channel partners.” To date we have entered into three channel partner arrangements with experienced and recognized technology sales agencies, and we have realized material revenues from their sales efforts.
Our products and services are marketed and sold in the marketing software segment of the broad software-as-a-service (SaaS) industry, with virtually all our revenues derived from our proprietary cloud-based Fision marketing software platform.
Intellectual Property (IP) Protection
We commit substantial attention and resources toward obtaining patent and trademark rights and otherwise protecting our trade secrets, development know-how technology, trademarks, trade names, patent rights and other proprietary intellectual property (IP). Our IP protection includes written provisions relating to non-compete, non-recruit, confidentiality, and invention assignments as applicable with employees, vendors, sales agents, consultants and others. We have submitted three patent claims involving our software technology that we believe are significant, which are filed with the United States Patent and Trademark Office (USPTO), and we expect to obtain final patents on them. On May 2, 2017, the USPTO issued to us Patent No. US 9,639,551 B2 titled "Computerized Sharing of Digital Asset Localization Between Organizations.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Segment Reporting
The Company has determined that it operates in only one segment of its industry.
Litigation
From time to time, we become subject to legal proceedings, claims and litigation arising in the ordinary course of business. We currently are not a party to any material legal proceedings, nor are we aware of any material pending or threatened litigation.
Significant Accounting Policies
Stock-Based Compensation Valuations
- Our estimated valuations for stock-based compensation grants are based primarily on the quoted prices for our common stock in the public trading market.
Accounts Receivable
-- The Company maintains allowances for potential credit losses on accounts receivable. In connection with the preparation of our financial statements, management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, changes in customer payment patterns, and current economic trends in order to evaluate the adequacy of these allowances. Accounts determined to be uncollectible are charged to operations when that determination is made.
Research and Development
-- We expense all our research and development operations and activities as they occur. Our development activities are conducted both internally from our Minneapolis headquarters facility by our development personnel, and externally from outsourced contracts with experienced independent software development companies and individuals. We own considerable servers and other computer equipment located at our Minneapolis facility, which are used by our development personnel to develop and enhance our marketing software platform.
Fair Value of Financial Instruments
-- FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1
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inputs include quoted prices for identical assets or liabilities in active markets.
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Level 2
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inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
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Level 3
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inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
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Revenue Recognition
-- A substantial majority of our revenues are derived from our 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 at their request, we recognize revenue when the specific project or service is completed. The Company recognizes revenues based on these policies only when 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, as well as certain other expenses directly related to customer access and use of our marketing software platform. Cost of revenue relating to our cloud services is recognized monthly.
Income Taxes
-- We account for income taxes in accordance with the asset and liability method of accounting for income taxes, whereby any deferred tax assets are recognized for deductible temporary differences and any deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of our management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Long-lived Assets
-- We evaluate the recoverability of our identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. In determining if impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which amended the existing FASB Accounting Standards Codification. This standard replaces existing revenue recognition guidance with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. ASU 2014-09, as amended, will be effective for the beginning of fiscal 2019, including interim periods within that reporting period.
The Company currently anticipates adopting the standard using the full retrospective method to restate each prior reporting period presented. The Company's ability to adopt using the full retrospective method is dependent upon system readiness for both revenue and commissions and the completion of the analysis of information necessary to restate prior period financial statements.
The Company is continuing to assess the impact of adopting ASU 2014-09 on its financial position, results of operations, cash flows and related disclosures and has not yet determined whether the effect will be material. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company may adjust its implementation plan accordingly.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 to its future consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, the AICPA, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
Results of Operations for the Three Months Ended September 30, 2017 and 2016
Revenue --
Revenue was $124,553 for the quarter ended September 30, 2017 compared to revenue of $94,552 for the quarter ended September 30, 2016, which 32% increase in revenue for the 2017 third quarter compared to the 2016 third quarter is attributable primarily to increasing revenues from our recent large enterprise clients.
Cost of Sales –
Cost of sales for the quarter ended September 30, 2017 was $23,632 (19% of revenue) compared to cost of sales of $44,824 (47.4% of revenue) for the quarter ended September 30, 2016, which substantially lower percentage cost of sales for the 2017 third quarter was attributable to lower cloud service rates from our new Microsoft cloud service provider compared to our former 2016 provider and to economies of scale from our Fision platform related to increased revenues.
Gross Margin –
Gross margin for the quarter ended September 30, 2017 was $100,921 compared to $49,728 for the quarter ended September 30, 2016, which increase of $51,193 was attributable primarily to substantially lower cost of revenue and also to increased revenue in the 2017 third quarter. Gross margin as a percentage of revenue was 81 % for the third quarter of 2017 compared to 52.6% for the third quarter of 2016.
Operating Expenses –
Operating expenses totaled $1,505,893 for the quarter ended September 30, 2017 compared to $811,420 for the quarter ended September 30, 2016. This increase of $694,473 for the third quarter of 2017 was due primarily to (i) an increase of $158,723 in software development and implementation costs to support our new large enterprise customers, (ii) an increase of $218,719 in sales and marketing expenses necessary to target, market to, and acquire large enterprise customers, and (iii) an increase of $317,031 in general and administrative expenses primarily due to a substantial increase in stock-related compensation as well as increased costs related to being a public company.
Other Expenses –
Interest and debt settlement losses totaled $231,643 offset by $141,226 for a change in derivatives fair value for the quarter ended September 30, 2017, compared to $45,749 interest expenses for the quarter ended September 30, 2016, which substantial increase in the 2017 third quarter was primarily due to substantially increased interest expenses related to derivative accounting treatment of convertible notes entered into in 2017.
Net (loss)
-- Our net (loss) for the quarter ended September 30, 2017 was $(1,636,615) compared to $(807,441) for the quarter ended September 30, 2016, which substantially higher loss in the 2017 third quarter was due primarily to increased operations in 2017 for marketing, software implementation, and administrative expenses to support our business model directed toward large enterprise customers, and also to increased interest and debt expenses relating to convertible notes issued in 2017.
Results of Operations for the Nine Months Ended September 30, 2017 and 2016
Revenue
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Revenue was $409,980 for the nine months ended September 30, 2017 compared to revenue of $320,690 for the nine months ended September 30, 2016, which increase in revenue of $89,290 for the 2017 nine-month period was primarily due to increasing revenue from our recently acquired large enterprise customers.
Cost of Sales
– Cost of sales for the nine months ended September 30, 2017 was $53,012 (12.9% of revenue) compared to cost of sales of $109,421 (34.1% of revenue) for the nine months ended September 30, 2016, which lower percentage cost of sales for the 2017 nine-month period was attributable to lower cloud service rates obtained from our Microsoft cloud service provider compared to our former 2016 provider, and to economies of scale from our Fision platform related to increased revenues.
Gross Margin
– Gross margin for the nine months ended September 30, 2017 was $356,968 compared to $211,269 for the nine months ended September 30, 2016, which increase of $145,699 was primarily due to increased revenue and substantially lower cost of sales in the 2017 nine-month period. Gross margin as a percentage of revenue was 87.1% for the first nine months of 2017 compared to 65.9% for the first nine months of 2016.
Operating Expenses
-- Operating expenses totaled $3,087,715 for the nine months ended September 30, 2017 compared to $2,869,439 for the nine months ended September 30, 2016, which total operating expenses were basically the same for the nine-month periods of 2017 and 2016.
Other Expenses
-- Other expenses for the nine months ended September 30, 2017 were $962,742 for interest, debt settlement and discount expenses and an increase in the fair value of derivatives, compared to other expenses for the nine months ended September 30, 2016 of $113,091 for interest expenses. The substantially higher other expenses in the 2017 nine-month period compared to the 2016 nine-month period were due primarily to interest and other debt expenses related to derivative accounting for convertible notes issued in 2017.
Net (loss)
-- Our net (loss) for the nine months ended September 30, 2017 was $(3,693,489) compared to a net (loss) of $(2,770,811) for the nine months ended September 30, 2016, which increased net loss of $922,678 for the nine-month period of 2017 was due primarily to the substantial increases in interest and other debt-related expenses incurred in 2017.
Change in Marketing Strategy
During the years prior to 2016 while our Fision software platform was being designed and developed, our marketing and sales efforts were directed toward local medium sized companies whose operational, management and commercial activities are conducted from one local or a couple regional facilities. Since our Fision platform marketing software has been designed to be readily adaptable to and scalable for any size enterprise, however, during 2016 we revised our marketing strategy and activities to target and sell our software products primarily to large enterprise corporations having many and widespread national and international branches and operations.
We believe our revised marketing focus toward large enterprises has been effective. During 2016 and 2017, we implemented material contracts with and are receiving revenues from several large enterprise companies, and we currently are in the process of closing material contracts with certain other large enterprise companies.
The increased length of our sales cycle necessary to sell our products to large enterprises has been considerably longer than we earlier incurred while marketing our Fision platform to local medium-sized companies. This substantial increase in our sales cycle to negotiate and close contracts with new large enterprise customers, however, resulted in a material decline in our revenues during 2016. We now believe this period of declining revenues due to our change in marketing strategy has ended, as evidenced by our increase in revenues during the first nine months of 2017 compared to the first nine months of 2016. And we further believe that due to the large enterprise contracts we have closed and those we are in the process of closing, our revenues will appreciate substantially during the rest of 2017 and future years.
Liquidity and Capital Resources
Our financial condition and future prospects depend significantly on our access to financing in order to continue funding our operations. Much of our cost structure is based on costs related to personnel and facilities and our cloud-based service provider, and not subject to material variability. In order to fund our operations and working capital needs, we have historically utilized loans from accredited investors (including management), equity sales of common stock to accredited investors having pre-existing relationships with our company, and the issuance of stock-based compensation to satisfy outstanding debt and to pay for development, marketing, management, financial, professional and other services.
We will need to raise substantial additional capital through private or public offerings of equity or debt securities, or a combination thereof, and we may have to use a material portion of the capital raised to repay certain past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past or soon due indebtedness.
As of September 30, 2017, we had total current liabilities of $2,236,751 including Notes Payable with related accrued interest of $1,201,387. A summary of our current outstanding Notes Payable indebtedness as of September 30, 2017 is set forth in Note 4 of our foregoing interim financial statements included in this quarterly report.
As of September 30, 2017, we had only $6,494 in cash, which we believe along with our projected receipt of accounts receivable, customer revenues and proceeds from a convertible debt private placement will last only until sometime into late December 2017. Accordingly, we need to continue raising substantial capital to support our future operations. Our management estimates that based on our current monthly expenses net of expected monthly revenue, we will require approximately $1,500,000 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 such as sales of equity or debt (including convertible debt) securities, and loans from affiliates, banks or other financial institutions. We may not be able to sell any securities or otherwise obtain such financing when needed on terms acceptable to us, if at all. If further financing is not available as needed, our business would suffer substantially.
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 on a consistent basis. As of September 30, 2017, we had cash and current receivables of only approximately $30,000 and a working capital deficiency of $1,828,875. Over the past couple years, we have continued to incur substantial losses without any material increase in revenues or liquid assets, which has caused a serious and harmful effect to our liquidity and a substantial strain on our ongoing business operations.
Along with our revenues, we have financed our operations to date through various means including loans from management and from financial and other lenders; stock-based compensation issued to employees, outsourced software developers, consultants and professionals; common stock issued to satisfy outstanding loans and accounts payable/accrued expenses; and equity sales of our common stock.
Net Cash Used in Operating Activities
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We used $605,586 of net cash in operating activities for the nine months ended September 30, 2017 compared to $843,155 of net cash used in operating activities for the nine months ended September 30, 2016. This decrease in cash used in operating activities during the 2017 nine-month period was attributable primarily to our greater issuance of equity securities for services in the 2017 nine-month period when compared to the 2016 nine-month period.
Net Cash Provided By Investing Activities
-- During the nine months ended September 30, 2017, we were provided with net cash of $51,500 from an acquisition closed in 2017 compared to being provided by net cash of $8,709 for an equipment purchase credit during the nine months ended September 30, 2016.
Net Cash Provided by Financing Activities
-- During the nine months ended September 30, 2017, we were provided by financing activities with net cash of $552,408 including sales of common stock of $300,000 and proceeds from notes payable of $410,000 offset by $164,367 used for repayment of notes payable and payment of $7,525 on a bank line-of-credit. In comparison, during the nine months ended September 30, 2016, we were provided by financing activities with net cash of $828,617 including sales of common stock of $745,000, proceeds of notes payable of $157,300 and proceeds from a bank line-of-credit of $5,266 offset by $78,949 used for repayment of notes payable.
Going Concern
Our financial statements contained in this quarterly report 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 $2,817,998, and had an accumulated deficit of $(13,438,313) as of December 31, 2016. And for the nine months ended September 30, 2017, we continued to incur a substantial net loss of $3,693,489 and our accumulated deficit increased to $(17,131,802). As of September 30, 2017, we had outstanding current liabilities of $2,236,751 including current Notes Payable and related accrued interest of $1,201,387, a substantial amount of which are soon due or due on demand. 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 September 30, 2017, or as of the date of this report.