NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Nexus Enterprise Solutions, Inc. (fka MutuaLoan, Corp.) (the "Company", "MutuaLoan", "Nexus"), a corporation organized under the laws of the State of Wyoming, entered into a business combination with Nexus Enterprise Solutions, Inc. ("Nexus Florida"), a corporation organized under the laws of the State of Florida. The business combination was effective on June 16, 2011 and was filed with the State of Wyoming on September 16, 2011. The Company is the surviving entity for legal purposes and Nexus Florida is the surviving entity for accounting purposes. Nexus Florida was formed on June 6, 2011 to be a provider of customer leads to the insurance industry. There was no predecessor entity to Nexus Florida. The management of Nexus Florida became the management of the Company and the original owners of Nexus Florida retained control of the combined entity upon the business combination. Prior to the business combination the Company had no revenues and limited operations.
The business combination stipulated that the companies would undergo a business combination through a share exchange and the surviving entity for legal purposes would be MutuaLoan. Nexus Enterprise Solutions, Inc. was then dissolved into MutuaLoan, Corp. MutuaLoan, Corp. then changed its name to Nexus Enterprise Solutions, Inc. The transaction has been accounted for as a reverse merger recapitalization, whereby the accounting target/legal acquirer was MutuaLoan. The accounting acquirer/legal target was Nexus Florida. The shareholders of Nexus Florida received 9,000,000 common shares of the combined entity, and 100% of the equity voting interest of MutuaLoan; the shareholders of MutuaLoan Corp. retained their holdings on a 1:1 basis and the authorized number of shares in the surviving entity remained at 500,000,000 and the issued and outstanding shares were accordingly adjusted to 9,151,679, upon total issuance.
Basis of Presentation
The financial statements as of December 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States. The Company has elected a December 31, fiscal year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the financial statements, the Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
Income Taxes
The Company applies ASC 740, which requires the asset and liability method of accounting for income taxes. The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered. This interpretation also requires recognition and measurement of uncertain tax positions using a "more-likely-than-not" approach, requiring the recognition and measurement of uncertain tax positions. The Company has no uncertain tax positions as of December 31, 2016 and 2015.
Earnings (Loss) Per Share
The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. The Company computes net income (loss) per share in accordance with ASC 260. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
NEXUS ENTERPRISE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The Company had no common stock equivalents outstanding during 2015. During 2016, the convertible debt was excluded from the calculation of diluted EPS and the inclusions would have been anti dilutive.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value. The carrying value of cash and cash equivalents and accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these financial instruments.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines the allowance for doubtful accounts based upon historical write-off experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company's allowance for doubtful accounts was $106,467 as of December 31, 2016, and December 31, 2015, respectively. As of December 31, 2016, four customers represented approximately 76.13% (28.76%, 18.6%, 14.51% and 14.26%) of accounts receivable. As of December 31, 2015, three customers represented approximately 59.04% (19.02%, 22.17% and 17.85%) of accounts receivable.
Property and Equipment
Property and equipment consists of furniture and fixtures and computer equipment. It is recorded at cost and depreciated over estimated useful lives ranging from three to five years on a straight-line basis. As of December 31, 2016, and 2015, the Company had property and equipment of $0 and $547, respectively, net of accumulated depreciation of $1,745 and $1,198, respectively. Expenditures for normal repairs and maintenance are charged to expense as incurred. Depreciation expense for the years ended December 31, 2016, and 2015, totaled $547 and $237, respectively.
Impairment of Long Lived Assets
In the event facts and circumstances indicate the carrying value of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required. There was no impairment of long-lived assets recorded during the years ended December 31, 2016 and 2015.
Intangible Assets with Indefinite Lives
Indefinite-lived intangible assets are not amortized. The useful lives of the intangible assets are reassessed each reporting period and the indefinite lives may be adjusted to determinable lives if the assessment determines circumstances have changed. The intangible assets are evaluated for impairment annually or when indicators of a potential impairment are present. There was an impairment of our indefinite-life intangible assets amounting to $275,000 for the year ended December 31, 2016.
The intangible asset as of December 31, 2015 consisted of a license to use certain intellectual property in the Company's lead generation business into perpetuity. It was acquired through the issuance of 500,000 common shares in 2012 valued at $125,000 and through the issuance of a note payable for $150,000 in 2013. However, in 2016, a full impairment loss was deemed necessary.
NEXUS ENTERPRISE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Revenue Recognition
The Company applies the provisions of ASC 605 which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies.
In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. The Company earns a fee for providing referrals to insurance providers. The fee is recognized as revenues upon acceptance of the referral by the Company's customer.
Revenue is presented net of estimated returns. Returns comprised approximately 33% and 22% of total revenue during the years ended December 31, 2016, and 2015, respectively.
The Company had four major customers which generated 63.57% (21.95%, 17.18%, 12.97% and 11.46%) of its revenue in the fiscal year ended December 31, 2016. For the fiscal year ended December 31, 2015, the Company had three major customers which generated approximately 62.71% (26.70%, 22.41% and 13.60%) of its revenue.
Cost of Sales
The Company records as cost of sales the amounts paid to the providers of the insurance leads which it resells.
General and Administrative Expenses
General and administrative expenses are comprised of the costs of operating the Company. These costs include professional fees, office expenses, telephone and travel.
Advertising
Advertising costs are expensed as incurred. Advertising expenses totaled $0 for both the years ended December 31, 2016, and 2015.
Research and Development
Research and development costs are expensed as incurred. Research and development costs totaled $0 and $9,018 for the years ended December 31, 2016, and
2015, respectively.
Concentrations of Credit Risk
Occasionally, the Company has funds deposited in a financial institution in excess of amounts insured by the FDIC. At December 31, 2016, and 2015, the Company had $0 on deposit in excess of currently insured amounts.
Stock-based Compensation
The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the closing price of the Company's common stock for common share issuances.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's financial statements.
NEXUS ENTERPRISE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. The Company has generated recurring net losses since inception and has a working capital deficit of $708,586 and an accumulated deficit of $2,304,197 as of December 31, 2016. The Company currently has limited liquidity and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors raise substantial doubt about the Company's ability to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital, primarily from its shareholders, to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the private placement of its common stock. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
NOTE 3 – RELATED PARTY TRANSACTIONS
As of December 31, 2016, and 2015, the outstanding balance of accrued payroll to officers was $118,000 as of December 31, 2016, and 2015.
The Company pays monthly consulting fees to two stockholders. During the years ended December 31, 2016, and 2015, these fees aggregated $162,950 and $145,100, respectively.
During the years ended December 31, 2016 and 2015, $92,000 and $0 was paid to Scott Schluer, Chief Technology Officer,for consulting services.
NOTE 4 – NOTES PAYABLE TO RELATED PARTIES
As of December 31, 2016, and 2015, the Company had outstanding notes payable to related parties of $133,985. These notes are unsecured bear interest between 0% and 15% and are due on demand.
NOTE 5 – NOTES PAYABLE
In April 2013, the Company and a third party reached an agreement for Nexus to use certain intellectual property in its lead generation business into perpetuity in exchange for a $150,000 note and 500,000 common shares which were previously issued during February 2012 (the fair value of these shares of $125,000 was reclassified from deposits to intangible assets during the year ended December 31, 2013). The note will be repaid in 18 monthly installments, with the monthly payments varying based on the Company's gross profit for that month. The monthly payments range from $5,000 to $25,000. The note does not bear interest unless a monthly payment is not made, at which time the note will bear interest at 12.5% until the non-payment is cured. During 2016, and 2015, the Company made payments of $0 and $30,500, respectively. The outstanding balance under this note payable was $0 as of December 31, 2016, and 2015, respectively. The outstanding balance of interest payable related to this agreement was $5,502 as of December 31, 2016, and 2015.
The note is currently in default over the amount of accrued interest of $5,502. The Company is in talks with the third party to settle the default amount owed. The third party has delivered a default notice to the issuer and voiced intentions on suing Nexus over the amount of $5,502. In the event the third party sues, the Company does not see it having any material effect. The Company is currently in negotiation with the third party regarding this matter.
NEXUS ENTERPRISE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
On June 4, 2014, the Company borrowed $387,000 from an unrelated third party entity in the form of a convertible note. The note bears a zero percent interest rate until December 31, 2014, at which point the note will accrue interest at a rate of 8 percent per annum commencing on January 1, 2015. The principal balance of the note with accrued interest is due on February 15, 2017. Monthly payments commence in January 2015, with the first payment of $17,500 due on January 15, 2015 and every payment due on or near the 15
th
of each month thereafter. On January 15, 2016, the monthly payments decrease to $15,000 per month until maturity. The Holder is prohibited from converting all or any portion of the outstanding principal and accrued interest provided timely monthly payments are received by the Holder pursuant to the terms set forth in the payment schedule. If the note becomes convertible due to timely monthly payments not being made, the note will be convertible into common stock at 55% of the lowest closing bid price of the Company's common stock during the 25 trading days preceding the date of conversion. The Company evaluated the convertible note under FASB ASC 815 and determined it qualified as a derivative liability as of May 31, 2016 (see Note 6 As of December 31, 2016, the note was in default due to payments not being made according to the payment schedule. The outstanding balance under this note was $112,300 as of December 31, 2016. Interest is being accrued at the default interest rate of 12%. On October 1, 2016, an amendment to the note, which added a floor for conversions for the convertible provision, was signed into effect by both parties.
As of December 31, 2016, and 2015, the Company had aggregate outstanding third party notes payable of $112,300 and $185,500, respectively.
NOTE 6 – DERIVATIVE LIABILITIES
During the year ended December 31, 2016, one convertible note issued by the Company became convertible and qualified as a derivative liability under FASB ASC 815.
As of December 31, 2016, and December 31, 2105, the aggregate fair value of the outstanding derivative liability was $54,187 and 0. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model using the following key assumptions during the year end December 31, 2016:
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Year End December 31,
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2016
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Volatility
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43.10 % - 159.80%
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Risk-free interest rate
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0.45% - 0.59%
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Expected dividends
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-%
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Expected term
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0.13 – 0.71 years
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NEXUS ENTERPRISE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:
Level 1
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Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
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Level 2
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Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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The Company uses Level 3 inputs to estimate the fair value of its derivative liabilities.
The following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of December 31, 2016, and December 31, 2015: