ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Recent Status of the Company
In order to fund and conduct our business over the past few years, we relied significantly on working capital obtained from private sales of our equity and convertible debt securities to various accredited investors. Due primarily to our continued substantial operating losses for the past several years, we recently have been unable to continue raising such working capital as needed to support adequately our business plan for future growth. And unless we are able to raise needed substantial additional funding to achieve significant future revenue growth, our current business model most likely will not succeed.
The board is exploring raising more working capital through the issuance of common and preferred stock. We have engaged an investment banking firm that specializes in health care to advise on the appropriate structure and to assist raising capital.
Effective September 18, 2022, the Board of Directors of registrant FISION Corporation, a Delaware corporation (“FISION”) removed William Gerhauser as the Chief Executive Officer of FISION, and concurrent and immediately effective thereto, the Board of Directors appointed John Bode as Interim Chief Executive Officer to serve until his successor is appointed or elected. Mr. Bode is currently a director of FISION and will continue to serve on its Board of Directors. Michael Brown, a director of FISION, was also appointed as Chairman of the Board of Directors of FISION effective immediately.
The Board of Directors had previously appointed William Gerhauser chief executive officer on November 19, 2021. Previous to this appointment, our management consisted of our four directors Michael Brown, William Gerhauser, John Bode (independent), and Gregory Nagel (independent). Michael Brown served as our principal executive. Joshua Carmona was appointed Director and Chief Operating Officer upon the completion of the acquisition of Scoreinc.com on May 30, 2021. Mr. Gerhauser is the 100% owner of Capital Markets Solutions, LLC (“CMS”) through which the Company was managed by two executives under the terms of a Consulting Agreement between us and CMS. When this CMS Consulting Agreement expired in March 2020, the two CMS executives managing the Company resigned all management positions with the Company.
Over the past two years, we have increased fixed cost cutting measures through outsourcing administrative, marketing and development functions to help manage working capital. At this time, we also no longer lease any office, administrative or operational facilities other than a “virtual” office location in Minneapolis on a monthly basis.
Acquisition to Engage in Medical Ambulatory Surgery Center (“ASC”) Business
In November 2020, the Company entered into an agreement to acquire 100% of the equity membership interests of two Florida limited liability companies from Capital Market Solutions, LLC (“CMS”), which are Ft Myers ASC LLC (“Ft Myers ASC”) and ASC SoftDev LLC (“SoftDev”), in exchange for the reimbursement of up to $200,000 of related out of pocket expenses. These two LLCs were organized by CMS in the fall of 2020 to engage in the development and operation of a medical Ambulatory Surgery Center. Our agreement with CMS for this acquisition was set forth in full as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 19, 2020.
CMS is an affiliate of the Company and its largest shareholder, and is controlled by William Gerhauser, a director of the Company. This acquisition and its terms were specifically considered and approved by our two independent and disinterested directors, who also were advised by independent outside legal counsel. Neither Mr. Gerhauser nor any other representative of CMS participated in the vote of our Board of Directors to approve this acquisition. (See Note 11).
Fort Myers ASC was formed for the purpose of owning and operating in Ft Myers, Florida an Ambulatory Surgery Center, a medical facility specializing in elective same-day or outpatient surgical procedures, not including emergency surgery.
SoftDev was formed for the purpose of developing software applications to support the medical procedures and operations of Ambulatory Surgery Centers, including Ft Myers ASC and others. SoftDev has engaged experienced software development consultants and others to assist in the development of its proprietary software platform and other business operations, including Rubicon Software Ltd. We expect to have completed our proprietary Ambulatory Surgery Center software platform applications prior to opening our Ft Myers Ambulatory Surgery Center.
Acquisition of Score
On April 1, 2021, the Company entered into a Memorandum of Understanding (“MOU”) with Scoreinc.com, Inc., a Puerto Rico Corporation (“Score”) and Joshua Carmona (“Carmona”), an individual who owned 100% of Score. This MOU contained the material terms of the acquisition by the Company of 100% of Score including its subsidiaries. On May 30, 2021, the Company entered into a definitive Purchase and Sale Agreement (“PSA”) with Score, Carmona, and VIP Solutions, LLC (“VIP”), a subsidiary of Score, and pursuant to the PSA, the Company acquired 100% of Score to become a wholly owned subsidiary of Fision Corporation. The Company also acquired certain assets of VIP listed in the PSA. Score is an Act 73 company under Puerto Rico law that is in the enterprise software space and currently provides business to business solutions for approximately 100 US companies in the credit repair sector. Mr. Carmona owned 100% of Score capital stock free and clear of all liens and encumbrances of any kind, and VIP owned its assets acquired by the Company free and clear of all liens and encumbrances of any kind.
For accounting and general purposes, the date of acquisition of Score was considered to be the May 30, 2021 date of the PSA, although the final closing occurred in August 2021 only after a required certified audit of Score’s business operations and financial position was completed and accepted by the Company.
In consideration for this acquisition of Score, we issued to Carmona a Senior Secured Promissory Note for $500,000 substantially in the form attached as Exhibit 1 of the PSA, convertible into not more than ten (10) million shares of common stock of the Company at the higher of USD $0.05 per share or at the volume weighted average price (VWAP) over the last 10 trading days prior to conversion. The Company will also issue to Carmona not later than March 31, 2023 a second, unsecured promissory note in a form satisfactory to the Company and Carmona in an amount equal to Score’s average gross revenue during calendar years ending 2021 and 2022, which will be convertible into not more than 10 million shares of common stock of the Company at USD $0.20 per share and will contain the usual and customary protections and adjustments for future corporate actions, including but not limited to pricing adjustments for reverse stock splits. We also appointed Carmona as a member of our Board of Directors and as our Chief Technology Officer. In 2022, Carmona expanded his duties to include the oversight of the Fision technology infrastructure. His compensation for these services was set at $60,000 per year paid monthly and $12,500 quarterly in shares of restricted common stock of Fision based on the greater of the stock price on the last trading day of each calendar quarter or $0.05 per share.
Background.
FISION Corporation (the “Company”) was incorporated in Delaware in 2010 under a former name, and conducted no active business operations until December 2015 when the Company merged with Fision Holdings, Inc., (“Minnesota Fision”) an operating Minnesota corporation based in Minneapolis. As a result of this 2015 Merger, Fision Holdings, Inc. became our wholly-owned subsidiary, and control of the Company was acquired by the pre-merger shareholders of Fision Holdings, Inc.
In connection with this 2015 Merger, we issued an aggregate of 28,845,090 shares of our common stock to the former shareholders of Minnesota Fision,and also issued derivative securities to holders of Minnesota Fision outstanding options and warrants to purchase an aggregate of 3,868,575 additional shares of our common stock. As a result of this 2015 Merger, our pre-merger shareholders plus holders of our pre-merger derivative securities held less than five percent (5%) of our total combined post-merger outstanding common stock plus reserved common stock for all derivative securities. The 2015 Merger was accounted for as a “reverse merger” and recapitalization. Accordingly, for financial reporting purposes, our Minnesota Fision subsidiary was the acquirer, and the Delaware parent was the acquired company.
When used in this report, the terms “the Company,” “Fision,” “we,” “us,” and “our,” refer to FISION Corporation, a Delaware corporation and our wholly-owned operating subsidiary Fision Holdings, Inc., a Minnesota corporation.
We are an Internet platform technology company providing cloud-based software solutions to automate the marketing functions and activities of our customers and to provide credit repair tools to credit repair businesses. Our business is conducted through:
| i. | our Minnesota Fision subsidiary based in Minneapolis, which since 2011 has created and offered software solutions to support marketing and sales enablement activities of both private businesses and public companies; |
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| ii. | our Scoreinc.com subsidiary based in Puerto Rico, which was acquired on May 30, 2021 and provides software solutions including credit repair tools, strategies and services to credit repair businesses. |
Under ASC SoftDev LLC, we are using certain attributes of the two existing software platforms of the Company to assist in building and creating a new software platform to assist the efficiencies of the ASC ambulatory surgery center operations.
Under Fort Myers ASC LLC, we are in the final stages of approval for the development and renovation for a four operating room orthopedic surgery center under the operating name Total Joint Orthopedic Surgery Center in Fort Myers, Florida.
Business of Company
We are an Internet platform technology company providing cloud-based software solutions to automate the marketing functions and activities of our customers and to provide credit repair tools to credit repair businesses. Our business is conducted through:
| iii. | our Minnesota Fision subsidiary based in Minneapolis, which since 2011 has created and offered software solutions to support marketing and sales enablement activities of both private businesses and public companies; |
| | |
| iv. | our Scoreinc.com subsidiary based in Puerto Rico, which was acquired on May 30, 2021 and provides software solutions including credit repair tools, strategies and services to credit repair businesses. |
Under ASC SoftDev LLC, we are using certain attributes of the two existing software platforms of the Company to assist in building and creating a new software platform to assist the efficiencies of the ASC ambulatory surgery center operations.
Under Fort Myers ASC LLC, we are in the final stages of approval for the development and renovation for a four operating room orthopedic surgery center under the operating name Total Joint Orthopedic Surgery Center in Fort Myers, Florida.
Our Customers – Our potential customer base is global and virtually unlimited, since our software solutions are totally cloud-based and readily scalable, and include a multitude of digital tools and solutions which can provide significant benefits to our customers on both platforms. We have received substantial recurring revenues from our primary customers for many years, and we regard our high percentage of recurring revenues to be particularly significant to our marketing strategy which emphasizes long-term relationships with our customers.
Cloud-Based Platform – Storage and operation of our software solutions platform along with the digital marketing and sales assets and related data of our customers are outsourced by us to reside and take place in the digital “cloud.” Providers of cloud services are typically referred to as “virtual servers” since they provide all digital data storage and software application services to their clients. Our cloud service provider is Microsoft’s Azure Cloud, which leading cloud-based platform 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 cloud interface with our customers, and the storage of unlimited customer data provided by 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. Moreover, we believe that our experienced and leading cloud provider is more effective in delivering our software solutions to our customers than we could perform in any event.
Research and Development – 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 Company’s proprietary software platforms. We currently leverage both an in-house development team and outsourced consultants to assist in achieving our research and development objectives.
Our Industry – We have marketed and licensed our software products and services in the agile marketing segment of the broad software-as-a-service (SaaS) industry, with virtually all our revenues derived from our proprietary cloud-based marketing software platforms;.
Employees – We currently employ 5 employees through our Scoreinc.com subsidiary. We currently intend to hire additional human resources in Florida to assist in the administration and execution of our strategy related to the ASC development.
Outsourcing – We currently outsource our software platform maintenance and operations and our accounting and administrative functions to various experienced independent contractors. We believe that the software and other services provided by our outsourced contractors are adequate to service our current customers as required and to maintain our corporate functions in a professional manner.
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. 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.
We generate our revenues primarily from recurring monthly payments from customers having a license from one to three years to access and use our proprietary marketing software platform, which payments include fees based on actual use of the Fision platform. We also receive from each new customer a prescribed one-time set-up and integration fee payable to us at the outset of the license. And we receive certain secondary fees from time to time for customized software development projects, and for processing emails for certain customers.
Marketing Model
We have marketed and licensed our proprietary software products primarily through direct sales by our management and other in-house personnel, and also secondarily through experienced and recognized independent sales agencies. We generate our revenues primarily from such software licensing contracts, and we currently have nine (6) licensed customers using our Fision platform. We market and sell our products and services in the marketing software segment of the broader software-as-a-service (SaaS) industry.
Intellectual Property (IP)
In 2017, we were granted Patent No. US 9,639,551 B2 from the United States Patent and Trademark Office (USPTO), and in 2018 we were granted Patent No. US 9,984,094 B2 from the USPTO, and another granted Patent in 2019 Patent No. US 10,235,380 B2, from the USPTO which were titled “Computerized Sharing of Digital Asset Localization Between Organizations.” We also have an additional patent claim involving our software technology filed and pending with the USPTO.
Inflation and Seasonality
We do not consider our operations and business to be materially affected by either inflation or seasonality.
Litigation
Maria Frueh v. Fision Corporation v. MGA Holdings LLC v. Richard Frueh
In November 2020, Maria Frueh, one of two members of MGA Holdings LLC, filed this derivative action arising out of a loan to the Company for $82,500 made in 2018 with a maturity date in 2019. She alleged the loan was in default and sought on behalf of MGA to collect the loan. William Gerhauser, a substantial shareholder of the Company and the other member of MGA was at all relevant times President of MGA. Plaintiff did not assert any claims against Mr. Gerhauser. MGA filed a third-party claim against Richard Frueh, the plaintiff’s husband, for his interference with MGA, including interference with the loan repayment by the Company. In March 2021 at the request of MGA, the Company agreed to convert the amount due under the Note (including interest bringing the total to $98,451) into 3,281,667 shares of the Company stock issued to MGA. Plaintiff moved for and on July 12, 2022 obtained summary judgment even though the loan had been paid in full in Company stock. The Company has appealed that decision to the District Court of Appeal for the Second Circuit, where it remains pending under the caption Fison Corporation v. Frueh, Case No: 2D22-2517. A date for the decision on appeal cannot be predicted. Given the summary judgment and the uncertainty surrounding the outcome of the appeals process, the Company has recorded a liability in the amount of $106,512.30 related to this matter as of the date of July 12, 2022.
Ft. Myers ASC LLC Lease.
On October 16, 2020 Ft. Myers ASC LLC (now wholly owned by the Company) (the “Tenant”) entered into a lease with 3033 Winkler Avenue LLC (the “Landlord”) for premises at which to construct an Ambulatory Surgical Center (“ASC”) in Naples, FL. Tenant has put Landlord on notice of default under the lease by failing to deliver possession of the premises and its failure to deliver the correct plans for the premises that the Tenant needed to secure the appropriate construction permits for the tenant improvements, which also delayed matters and increased my client’s costs. The Landlord also failed to disclose the existence of any encumbrances on the property despite repeated requests. The Company and the Tenant were not able to amicably resolve the disputes with the Landlord and the Tenant filed a lawsuit to declare the rights of the parties under the lease was filed In the Circuit Court in and for Lee County, Florida at Case No. 23-CA-005871 on April 20, 2023.
Critical Accounting Policies and Estimates
Principles of Consolidation
Regarding our wholly-owned subsidiaries, our financial statements are presented on a consolidated basis with all intercompany transactions and balances eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ materially from those estimates and assumptions. Such estimates include management’s assessments of the carrying value of certain assets, useful lives of assets, derivative securities, fair value of financial instruments, and related depreciation and amortization methods applied.
Accounts Receivable
Accounts receivable related to the products and services sold are recorded at the time revenue is recognized and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of the receivable may not be known for several months after services have been provided and billed. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, analyses of current and historical cash collections, and the aging of receivables. Delinquent accounts are written-off when the likelihood for collection is remote and/or when we believe collection efforts have been fully exhausted and we do not intend to devote any additional efforts in an attempt to collect the receivable. We adjust our allowance for doubtful accounts balance on a quarterly basis.
Product Development and Support
We expense all our product development and support operations and activities as they occur. During the nine month period ended September 30, 2022 and 2021, we incurred total expenses of $74,125 and $375,154 for such development and support, respectively.
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. Construction-in-progress is not depreciated until placed into service. 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 |
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 our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
FASB ASC Topic 820 requires disclosure of and defines fair value of financial instruments, and also establishes a three-level valuation hierarchy for these disclosures. The carrying amounts reported in a balance sheet for receivables and current liabilities qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between their origination and their expected realization and their current market rate of interest. The three levels of valuation hierarchy for fair value determinations are defined as follows:
Level 1 inputs include quoted prices for identical assets or liabilities in active markets.
Level 2 inputs include observable quoted prices for similar assets and liabilities in active markets, and quoted prices for identical assets or liabilities in inactive markets.
Level 3 inputs include one or more unobservable inputs which we have assessed and assumed that market participants would use in pricing the asset or liability.
Revenue Recognition
Revenue is recognized in the period the services are provided over the contract period, normally one (1) to three (3) years. We invoice one-time startup and implementation costs, such as consolidating and uploading digital assets of the customer, upon completion of those services as one performance obligation and recorded as revenue when completed. Monthly services, such as internet access to software as a service (SaaS), hosting and weekly backups are invoiced monthly as another performance obligation and recorded as revenue over time.
Company Recognizes Contract Liability for Its Performance Obligation -- Upon receipt of a prepayment from a customer, the Company recognizes a contract liability in the amount of the prepayment for its performance obligation to transfer goods and services in the future. When the Company transfers those goods and services and, therefore, satisfies its performance obligation to the customer, the Company will then recognize the revenue.
Stock-Based Compensation
We record stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, which requires us to measure the cost for any stock-based employee compensation at fair value and recognize the expense over the related service period. We recognize the fair value of stock options, warrants, and any other equity-based compensation issued to employees and non-employees as of the grant date. We use the Black Scholes model to measure the fair value of options and warrants.
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 an 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.
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.
Recently Issued Accounting Pronouncements
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, 2022 and 2021
Revenue - Revenue was $155,049 for the quarter ended September 30, 2022 compared to revenue of $200,159 for the quarter ended September 30, 2021 a decrease of $45,110.
Cost of Goods Sold – Cost of goods sold for the quarter ended September 30, 2022 was $29,836 compared to cost of goods sold of $22,458 for the quarter ended September 30, 2021.
Gross Margin – Gross margin for the quarter ended September 30, 2022 was $125,213 compared to $177,701 for the quarter ended September 30, 2021.
Gross margin as a percentage of revenue was 81% for the second quarter of 2022 compared to 89% of revenue for the second quarter of 2021.
Operating Expenses – Operating expenses for the quarter ended September 30, 2022 were $318,316 compared to $696,674 for the quarter ended September 30, 2021. Sales and marketing expenses for the quarter ended September 30, 2022 were $2,761 compared to $65,187 for the quarter ended September 30, 2021. Development and support expenses for the quarter ended September 30, 2022 were $45,985 compared to $271,798 for the quarter ended September 30, 2021. General and administrative expenses for the quarter ended September 30, 2022 were $215,354 compared to $357,242 for the quarter ended September 30, 2021. Amortization of intangible assets for the quarter ended September 30, 2022 were $54,216 compared to $2,447 for the quarter ended September 30, 2021.
Operating Loss -- Operating loss for the quarter ended September 30, 2022 was $193,103 compared to $518,973 for the quarter ended September 30, 2021.
Other Income / (Expenses) – Other Income / (expenses) for the quarter ended September 30, 2022 was $(368,956) of other expense consisting of other expense of $(106,457), interest expense of $(51,868), amortization of debt discount of $(24,161), and a loss on the fair value of derivatives of $(186,470) compared to other income of $619,464 consisting of $95,781 gain on change in fair value of derivative liabilities and other income of $580,057, which primarily relates to the settlement and collection of the litigation with Continuity Logic, offset by interest expense of $(37,446) and debt amortization expense of $(18,928) in the prior year.
Net Income (Loss) – Our net loss for the quarter ended September 30, 2022 was $(562,059) compared to net income of $100,491 for the quarter ended September 30, 2021.
Results of Operations for the Nine Month Period Ended September 30, 2022 and 2021
Revenue - Revenue was $495,923 for the nine-month period ended September 30, 2022 compared to revenue of $565,621 for the same period in 2021 a decrease of $69,698.
Cost of Goods Sold – Cost of goods sold for the nine-month period ended September 30, 2022 was $98,686 compared to cost of goods sold of $71,691 for the same period in 2021 an increase of $26,995.
Gross Margin – Gross margin for the nine-month period ended September 30, 2022 was $397,237 compared to $493,930 for same period in 2021.
Gross margin as a percentage of revenue was 80% for the first nine months of 2022 compared to 87% of revenue for the same period in 2021.
Operating Expenses – Operating expenses for the nine month period ended September 30, 2022 were $911,505 compared to $1,431,546 for the nine-month period ended September 30, 2021. Sales and marketing expenses for the nine-month period ended September 30, 2022 were $12,277 compared to $71,624 for the same period in 2021. Development and support expenses for the nine-month period ended September 30, 2022 were $74,125 compared to $375,154 for the same period in 2021. General and administrative expenses for the nine-month ended September 30, 2022 were $653,654 compared to $974,982 for the same period in 2021. Amortization of intangible assets for the nine-month period ended September 30, 2022 were $171,449 compared to $9,786 for the same period in 2021.
Operating Loss -- Operating loss for the nine-month period ended September 30, 2022 was $514,268 compared to $937,616 for the same period in 2021.
Other Income / (Expenses) – Other Income / (expenses) for the nine-month period enned September 30, 2022 was $100,105 of other income consisting of a gain on the loan forgiveness of $27,435 and other income of $400,371, which primarily relates to receipt of the final payment under the Continuity Logic settlement offset by interest expense of $(137,355), amortization of debt discount of $(78,640), and a loss on the fair value of derivatives liabilities of $111,706,compared to other income of $4,026,769 consisting of $2,624,686 gain on change in fair value of derivative liabilities, $1,446,207 gain on extinguishment of debt and other income of $604,187, offset by interest expense of $(226,064), debt amortization expense of $(589,364) and bad debt expense related to interest on notes receivable of $(12,065) in the prior year.
Net Income (Loss) – Our net loss for the nine-month period ended September 30, 2022 was $(520,675) compared to net income of $3,089,153 for the nine-month period ended September 30, 2021.
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 directors and management), sales of our common stock and convertible debt securities to accredited investors (including directors and management), and issuances of common stock to satisfy outstanding debt and to pay for development, marketing, management, financial, professional and other services.
In order to attain material growth of our SaaS Fision and ScoreCEO platforms and progress with our ambulatory surgery center project, 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 existing past due debt obligations. To the extent any capital raised is insufficient to satisfy operational working capital needs and meet any required debt payments, we will need to either extend, refinance or convert to equity our past due indebtedness, which there is no assurance we can accomplish.
At September 30, 2022 the Company had notes payable indebtedness, including related party indebtedness, totaling $2,051,755 and accounts payable and accrued expenses including accrued interest of $1,334,161. Certain information on our notes payable is set forth in Note 8 of the unaudited consolidated financial statements included in this quarterly report.
In order to fund and conduct our business over the past few years, we relied significantly on working capital obtained from private sales of our equity and convertible debt securities to various accredited investors. Due primarily to our continued substantial operating losses for the past several years, we recently have been unable to continue raising such working capital as needed to support adequately our business plan for future growth. And unless we are able to raise needed substantial additional funding to achieve significant future revenue growth, our current business model most likely will not succeed.
The board is exploring raising more working capital through the issuance of common and preferred stock. We have engaged an investment banking firm that specializes in health care to advise on the appropriate structure and to assist raising capital.
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 certain 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 September 30, 2022, we had $51,811 of cash and accounts receivable, and a working capital deficiency of $(3,726,357). Over the past few 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 limited revenues, we have financed our operations to date through (i) loans from management and from financial and other lenders, including convertible debt (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
Net Cash Provided by (Used In) Operating Activities – We had $266,193 of net cash provided by operating activities for the nine-month period ended September 30, 2022 compared to $(791,986) of net cash used in operating activities for the nine-month period ended September 30, 2021. The improvement in cash provided by (used in) operating activities was due primarily to the receipt of the final payment of the Continuity Logic settlement in 2022.
Net Cash Used In Investing Activities – During the nine-month period ended September 30, 2022, we spent $564,033 in construction costs for our surgery center project. During the nine-month period ended September 30, 2021, we collected $567,993 related to a note receivable.
Net Cash Provided by Financing Activities – During the nine-month period ended September 30, 2002, we repaid notes payable totaling $108,500 and had proceeds from the issuance of notes payable to related parties of $60,000. During the nine-month period end September 30, 2021, we had $261,900 of cash provided by financing activities including $55,000 from the issuance of notes payable, proceeds from related party notes and proceeds from the exercise of warrants for cash of $216,109 offset by $(9,209) of cash used by financing activities related to repayments fir related party notes and line of credit.
Convertible Note Financing
For the past few years, a majority of our financing has consisted of convertible notes sold to accredited investors in private transactions. During the nine-month period ended September 30, 2022 and 2021, we raised $60,000 and $55,000, respectively, through issuance of convertible notes.
Going Concern
Our financial statements contained in this quarterly report have been prepared on a going concern basis, which contemplates and implies that we will continue to realize our assets and satisfy our liabilities and commitments in the normal course of business. For the nine- months ended September 30, 2022, we incurred an operating loss of $(514,268) and our accumulated deficit as of September 30, 2022 is $31,994,691. 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, which 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, 2022, or as of the date of this report.