Item 1. Financial Statements
NDIVISION, INC.
Interim Condensed Consolidated Financial
Statements
For the Quarterly Period Ended March
31, 2019
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Page
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Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (Unaudited)
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5
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 (Unaudited)
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6
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Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 2019 and the three months ended March 31, 2018 (Unaudited)
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7
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)
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8
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Notes to the Unaudited Condensed Consolidated Financial Statements
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9
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NDIVISION INC
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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March 31,
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December 31,
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2019
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2018
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ASSETS
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Current assets
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Cash
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$
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90,799
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$
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154,941
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Accounts receivable, net (allowance for doubtful accounts was $5,000 at March 31, 2019 and $0 at December 31, 2018)
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617,902
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478,174
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Prepaid expenses
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105,744
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72,974
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Total current assets
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814,445
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706,089
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Equipment and software licenses - at cost, less accumulated
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depreciation and amortization
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465,065
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497,833
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Intangible asset, less accumulated amortization
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809,784
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860,422
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Total assets
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$
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2,089,294
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$
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2,064,344
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LIABILITIES AND STOCKHOLDER'S EQUITY
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Current liabilities
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Accounts payable
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$
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96,772
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$
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131,850
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Accrued liabilities
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561,267
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538,783
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Deferred revenue
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239,284
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-
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Factoring credit facility
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118,314
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169,257
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Note payable
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6,716
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13,358
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Current portion of acquisition note payable
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51,679
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113,598
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Current portion of finance lease obligations
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250,458
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392,200
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Total current liabilities
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1,324,490
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1,359,046
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Acquisition note payable
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108,741
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77,579
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Finance lease obligations
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77,749
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36,654
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Total long-term liabilities
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186,490
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114,233
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Commitments
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Stockholder's equity
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Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding
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-
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-
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Common stock, $0.001 par value, 180,000,000 shares authorized, and 40,605,339 and 40,504,005 shares issued and outstanding, respectively
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40,605
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40,504
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Additional paid in capital
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5,336,713
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5,184,493
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Accumulated deficit
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(4,799,004
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)
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(4,633,932
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)
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578,314
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591,065
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$
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2,089,294
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$
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2,064,344
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The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Ended March 31,
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2019
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2018
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Revenue
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Product sales
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$
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-
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$
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67,624
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Service revenue
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1,455,927
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744,981
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Net revenues
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1,455,927
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812,605
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Product costs
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-
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41,460
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Service costs
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275,859
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272,629
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Cost of revenues
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275,859
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314,089
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Gross profit
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1,180,068
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498,516
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Operating expenses
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Selling, general and administrative expenses
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1,357,001
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1,224,810
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Gain on contingent consideration
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(30,757
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)
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-
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1,326,244
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1,224,810
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Loss from operations
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(146,176
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(726,294
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Other expense
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Interest expense
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(18,896
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(18,115
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Other expense
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(18,896
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(18,115
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)
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Net loss before income tax
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(165,072
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(744,409
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Income tax expense
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-
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-
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Net loss
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(165,072
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(744,409
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Basic and diluted loss per share
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$
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(0.00
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$
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(0.02
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)
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Weighted average shares outstanding
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40,578,141
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30,133,070
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The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(Unaudited)
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Total
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Common Stock
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Common Stock
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Additional Paid
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Accumulated
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Shareholders'
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Shares
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Par
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In Capital
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Deficit
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(Deficit) Equity
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2019
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Balance, December 31, 2018
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40,504,005
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$
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40,504
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$
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5,184,493
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$
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(4,633,932)
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$
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591,065
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Amortization of stock option
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-
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-
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114,321
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-
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114,321
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Common stock issued for cash, net
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101,334
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101
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37,899
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-
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38,000
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Net loss
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-
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-
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-
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(165,072
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)
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(165,072
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)
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Balance, March 31, 2019
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40,605,339
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$
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40,605
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$
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5,336,713
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$
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(4,799,004
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)
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$
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578,314
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2018
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Balance, December 31, 2017
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27,500,000
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$
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27,500
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$
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1,566,161
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$
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(2,240,311
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)
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$
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(646,650
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)
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Effect of reverse acquisition on February 13, 2018:
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Adjustment for reverse acquisition
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4,400,000
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4,400
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(18,285
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)
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-
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(13,885
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)
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Amortization of stock option and warrant expense
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-
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-
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121,923
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-
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121,923
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Common stock issued for services
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13,158
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13
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4,987
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-
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5,000
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Warrant issued for acquisition of contracts
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-
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-
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21,158
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-
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21,158
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Common stock issued for cash, net
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7,676,846
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7,677
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2,866,211
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-
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|
2,873,888
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Net loss
|
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-
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|
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|
-
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-
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(744,409
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)
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(744,409
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)
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Balance, March 31, 2018
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39,590,004
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$
|
39,590
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$
|
4,562,155
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$
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(2,984,720
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)
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$
|
1,617,025
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The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
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Three Months Ended March 31,
|
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2019
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|
2018
|
Cash flows from operating activities
|
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|
|
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Net loss
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|
$
|
(165,072
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)
|
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$
|
(744,409
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)
|
Adjustments to reconcile net income to net cash provided
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by (used in) operating activities
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Depreciation and amortization
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135,411
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|
108,818
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Bad debt expense
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5,000
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|
|
-
|
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Stock based compensation
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|
114,321
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|
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|
121,923
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|
Stock issued for services
|
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|
-
|
|
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|
5,000
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|
Change in contingent consideration
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(30,757
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)
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|
-
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|
Changes in assets and liabilities
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|
Accounts receivable
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|
(144,728
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)
|
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|
304,576
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|
Prepaid expenses
|
|
|
(32,770
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)
|
|
|
(93,599
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)
|
Deferred revenue
|
|
|
239,284
|
|
|
|
-
|
|
Accounts payable and accrued liabilities
|
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|
(12,595
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)
|
|
|
(429,696
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)
|
Net cash provided (used) in operating activities
|
|
|
108,094
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|
|
|
(727,387
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)
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|
|
|
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|
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Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of contracts
|
|
|
-
|
|
|
|
(800,000
|
)
|
Acquisition of equipment and software licenses
|
|
|
(2,381
|
)
|
|
|
(10,811
|
)
|
Net cash used in investing activities
|
|
|
(2,381
|
)
|
|
|
(810,811
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)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Lines of credit, net
|
|
|
-
|
|
|
|
(92,075
|
)
|
Proceeds from issuance of common stock, net
|
|
|
38,000
|
|
|
|
2,873,888
|
|
Repayment of factor credit facility
|
|
|
(50,943
|
)
|
|
|
-
|
|
Repayments of loans from officers
|
|
|
-
|
|
|
|
(135,667
|
)
|
Repayments of note payable
|
|
|
(6,641
|
)
|
|
|
(39,141
|
)
|
Repayment of finance lease obligations
|
|
|
(150,271
|
)
|
|
|
(96,809
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(169,855
|
)
|
|
|
2,510,196
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(64,142
|
)
|
|
|
971,998
|
|
Cash, beginning of period
|
|
|
154,941
|
|
|
|
127,933
|
|
Cash, end of period
|
|
$
|
90,799
|
|
|
$
|
1,099,931
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
11,724
|
|
|
$
|
18,115
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Consideration for the purchase of contracts
|
|
$
|
-
|
|
|
$
|
212,335
|
|
Purchase of equipment under capital lease
|
|
$
|
49,624
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS
nDivision Inc ("nDivision" or the
"Company") was incorporated under the laws of the state of Texas. nDivision's registered office is located at 4925 Greenville
Avenue, Dallas, Texas 75206. The Company provides managed IT services and project-based professional services in the information
technology industry, selling its services directly to customers and through global service providers (GSP). The Company operates
in most states of the United States of America.
On February 13, 2018, Go2Green Landscaping,
Inc., a Nevada corporation (the "Registrant") executed an Agreement and Plan of Merger (the "Merger Agreement")
with nDivision Inc, and NDI Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Registrant ("Acquisition")
whereby Acquisition was merged with and into nDivision (the "Merger") in consideration for Twenty Seven Million
Five Hundred Thousand (27,500,000) newly-issued shares of Common Stock of the Company (the "Merger Shares").
As a result of the Merger, nDivision became
a wholly-owned subsidiary of the Registrant and following the consummation of the Merger and giving effect to the issuance of the
Merger Shares and the retirement of 10,000,000 shares of the then 14,400,000 shares issued and outstanding of the Registrant by
its principal stockholders, the stockholders of nDivision beneficially owned approximately seventy percent (70%) of the issued
and outstanding Common Stock of the Registrant.
For accounting purposes,
nDivision was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization
of the Company. Accordingly, nDivision's assets, liabilities and results of operations are the historical consolidated financial
statements of the Company and the Company's assets, liabilities and results of operations are consolidated with nDivision effective
as of the date of the Merger. No step-up in basis or intangible assets or goodwill was recorded in this transaction.
On February 26, 2018,
the Company executed an Asset Purchase Agreement (the "Agreement") with Gamwell Technologies Inc., a Texas corporation
("Gamwell"). Gamwell is engaged in the business of providing managed services, VIOP telephone, security consulting
and professional services to its customers.
As a result of the Agreement, nDivision acquired
various managed services contracts (the "Purchased Contracts") from Gamwell. As consideration for the Purchased Contracts,
nDivision paid $800,000 (the "Cash Consideration") to Gamwell. In addition, Gamwell received a promissory note
(the "Promissory Note") in an amount that equals fourteen (14) multiplied by the closing monthly recurring revenue from
managed services. The Promissory Note is currently estimated at approximately $191,177 based on the closing monthly recurring
revenue. Gamwell also received warrants (the "Warrants") to purchase common stock of the Company equal to one fourth
percent (0.25%) of the outstanding stock of the Company as of the agreement date. The Warrants were valued at approximately
$21,158. The consideration for the contracts purchased was approximately $1,012,335. The Cash Consideration, Promissory Note
and Warrants shall be defined as the "Purchase Price" and can be adjusted after one year, based on the newly calculated
monthly recurring revenue. The Company calculated an approximate 3% decline in the purchased contracts monthly recurring revenue
and recognized a gain in contingent consideration of $30,757 and reduced the loan $30,757.
Since February 13, 2018, the Company has sold
9,225,514 shares of the Registrant's common shares at a price of approximately $0.375 per share for $3,453,738. There were
no material fees paid in association with these shares being sold.
On April 9, 2018, the parent company Go2Green
Landscaping, Inc. changed its name to nDivision Inc. and changed the ticker symbol to NDVN.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
2. LIQUIDITY AND GOING CONCERN
The Company has experienced significant losses
and negative cash flows from operations in the past. Management has secured new managed services contracts, implemented a strategy
which includes cost reduction efforts, as well as identifying strategic acquisitions to improve the overall profitability and cash
flows of the Company.
During the three months ended March 31, 2019,
the Company sold 101,334 shares of common stock at a price of approximately $0.375 per share for $38,000. Subsequent to March 31,
2019, the Company sold 533,334 shares of common stock at a price of approximately $0.375 for $200,000.
The Company has entered into a factoring agreement
to provide short term working capital. The Company receives 90% of the factored receivables for a fee of 1.9% of the factored
invoice. As of May 15, 2019, the Company had no factored invoices.
The ability to continue as a going concern
is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance
operating costs over the next twelve months from the date of the issuance of these condensed consolidated financial statements
with existing cash on hand and/or the private placement of common stock. There is, however, no assurance that the Company
will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash
on hand will be insufficient to finance operations over the next twelve months.
3. SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting principles generally accepted in the United States of
America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for
a fair presentation have been included. Operating results for the three month period ended March 31, 2019 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2019. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Form 10-K
filed on March 29, 2019.
Principles of Consolidation
The unaudited condensed consolidated
financial statements include the accounts and transactions of the Company and its wholly-owned subsidiary, Vi3 Technologies, Inc.
All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
Management uses estimates and assumptions in
preparing these condensed consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could
differ from those estimates.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
3. SUMMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Revenue Recognition
In May 2014, the FASB issued ASU
2014-09, Revenue from Contracts with Customers: Topic 606 which supersedes nearly all existing revenue recognition guidance under
GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in
an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step
process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the
revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining
customer contracts.
Topic 606 was effective as of January
1, 2018 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the
option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the
cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional
disclosures as defined per Topic 606. We adopted Topic 606 pursuant to the method (2) and we determined that any cumulative effect
for the initial application did not require an adjustment to retained earnings at January 1, 2018.
Project based, services
revenue is recognized when the professional consulting, maintenance or other ancillary services are provided over time to the
customer.
The Company provides recurring services.
There are two components to the recurring services; set-up revenues are recognized upon completion of the set-up procedures and
the monthly recurring revenue is recognized as services are rendered.
The Company provides customers with
payment
terms of thirty
days.
In
determining the transaction price, the Company does not adjust the promised amount of consideration for the effects of a significant
financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised
good or service to a customer and when the customer pays for that good or service will be one year or less.
Deferred Revenue
Deferred revenues primarily consist of monthly
service fees and implementation fees for future services which will be earned as services are performed over the contractual or
stated period, which generally ranges from three to twelve months. As of March 31, 2019 and December 31, 2018, there was deferred
revenue of $239,284 and $0, respectively.
Cash and Cash Equivalents
For purposes of the condensed consolidated
statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
The Company’s cash balances are primarily
maintained at two separate banks. Balances are insured by the Federal Deposit Insurance Corporation subject to certain limitations.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
3. SUMMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Accounts Receivable
Accounts receivable are stated at the amounts
management expects to collect. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection
is considered to be doubtful due to credit issues. These allowances together reflect the Company’s estimate of potential
losses inherent in accounts receivable balances, based on historical loss and known factors impacting its customers. The Company
recorded an allowance for doubtful accounts of $5,000 and $0 as of March 31, 2019 and December 31, 2018, respectively. The Company
does not accrue interest on past due receivables.
Intangible Assets
Customer contracts acquired were recorded at
their estimated fair value at the date of acquisition and are being amortized over their estimated useful life of five years using
the straight-line method.
Impairment of Long-lived Assets
The Company records an impairment of long-lived
assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the
estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount
of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using
the discounted cash flow method. The Company did not record any impairment during the three months ended March 31, 2019 and March
31, 2018.
Concentration of Risk
Financial instruments, which potentially subject
the Company to concentrations of credit risk, are cash and accounts receivable. See Note 15 for significant customer concentration
disclosure.
Cash is maintained with two separate major
financial institutions in the United States and may exceed the amount of insurance provided on such deposits. Generally, these
deposits may be redeemed upon demand, and, therefore, bear minimal risk.
Equipment and Software Licenses
Equipment and software licenses are stated
at cost. Depreciation is calculated using the straight-line method over an estimated useful life of one to ten years.
Earnings and Loss per Share
Basic loss per share is computed by dividing
net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per
share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental
shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods
in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded
from the calculation. There were approximately 9,101,677 and 8,425,743 of common stock equivalents excluded for the three months
ended March 31, 2019 and 2018, respectively because their effect is anti-dilutive.
Marketing Costs
Marketing costs, which are expensed as incurred,
totaled approximately $23,773 and $6,575 for the three months ended March 31, 2019 and 2018, respectively and is in disclosed in
selling, general and administrative expenses.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
Stock-Based Compensation
Compensation expense related to
share-based transactions, including employee stock options, is measured in the financial statements based on a determination of
the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model.
For all stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the
vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions,
including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly
impact stock-based compensation expense.
See Note 11 for the assumptions
used to calculate the fair value of stock-based employee and non-employee compensation.
Leases
Leases of assets
where
the
Company
has
assumed
substantially
all the
risks
and rewards
of
ownership
are classified as finance leases.
Finance
leases are
recognized
at the lower
of
the
fair
value
of
the leased
assets
and the
present
value
of
the
minimum
lease
payments.
The interest element of the finance leases are accounted for as finance costs and expensed over the lease term
using the effective interest rate method.
Income Taxes
The Company accounts for income
taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements. Under this method, the Company has determined
the deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets
and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment
date.
The Company recognizes deferred
tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination,
the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would
be able to realize our deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to
the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax
positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than
not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions
that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50
percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest
and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of
operations. As of March 31, 2019, no accrued interest or penalties are included on the related tax liability line in the balance
sheet.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
4. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements
Recently Adopted
In August 2016, the FASB issued
authoritative guidance designed to address diversity in how certain cash receipts and cash payments are presented and classified
in the statement of cash flows, including: (i) contingent consideration payments made after a business combination; ii) proceeds
from the settlement of insurance claims; and iii) proceeds from the settlement of corporate-owned life insurance policies. The
new guidance is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted in any interim or annual period. There was no material impact on the Company’s
consolidated financial statements as a result of adopting this guidance.
In February 2016, FASB issued ASU No. 2016-02,
Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees
to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted
for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the
date of initial application, with an option to elect to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-10,
“Codification Improvements to Topic 842, Leases.” The amendments in ASU 2018-10 clarify, correct or remove inconsistencies
in the guidance provided under ASU 2016-02 related to sixteen specific issues identified. Also in July 2018, the FASB issued ASU
No. 2018-11 “Leases (Topic 842): Targeted Improvement” which now allows entities the option of recognizing the cumulative
effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while
continuing to present all prior periods under previous lease accounting guidance. The effective date and transition requirements
for these two ASUs are the same as the effective date and transition requirements as ASU 2016-02. The Company recognized no right-of-use
assets or corresponding liabilities as a result of early adopting this guidance, since the Company was not party to any leases
with term of more than 12 months at March 31, 2019.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The
standard became effective for the Company in the first quarter of 2019. The adoption of this standard does not have a material
impact on the condensed consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718
applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's
own operations by issuing share-based payment awards. The standard became effective in the first quarter of fiscal year 2019. The
adoption of this standard does not have a material impact on the condensed consolidated financial statements.
New Accounting Pronouncements
Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04,
"Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The update simplifies how
an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures
a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount. The new
rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating
the impact of adopting this ASU on its consolidated financial statements.
No other recent accounting pronouncements were
issued by FASB and the SEC that are believed by management to have a material impact on the Company's present or future condensed
consolidated financial statements.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
5. EQUIPMENT AND SOFTWARE LICENSES
Equipment and software licenses
consist of the following:
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Equipment and software
|
|
$
|
1,176,250
|
|
|
$
|
1,124,245
|
|
Software licenses
|
|
|
966,754
|
|
|
|
966,754
|
|
|
|
|
2,143,004
|
|
|
|
2,090,999
|
|
Less - Accumulated depreciation and amortization
|
|
|
(1,677,939
|
)
|
|
|
(1,593,166
|
)
|
|
|
$
|
465,065
|
|
|
$
|
497,833
|
|
Depreciation and Amortization expense for the three months ended
March 31, 2019 and 2018 was approximately $84,773 and $108,818, respectively.
6. INTANGIBLE ASSETS
Intangible Assets
As of March 31, 2019
(In Thousands)
|
|
Useful Life
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships / Service Contracts
|
|
|
5
|
|
|
$
|
1,012,335
|
|
|
$
|
202,551
|
|
|
$
|
809,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no amortization expense attributable
to the amortization of identifiable intangible assets for the three-month period ended March 31, 2018 as the assets were not transferred
until after March 31, 2018. There was approximately $50,678 amortized for the three-month period ended March 31, 2019. Customer
relationships are amortized based on the future undiscounted cash flows or straight – line basis over estimated remaining
useful lives of five years.
Over the next four years and thereafter,
annual amortization expense for these finite life intangible assets will total approximately $809,784 as follows: fiscal 2019 -
$151,913, fiscal 2020 - $202,551, fiscal 2021 - $202,551, fiscal 2022 - $202,551, fiscal 2023- $50,218.
Long-lived assets, including purchased intangibles
subject to amortization, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company regularly evaluates whether events and circumstances have occurred that indicate
possible impairment and relies on a number of factors, including operating results, business plans, economic projections, and anticipated
future cash flows. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over
the remaining life in measuring whether the assets are recoverable, as of March 31, 2019, the Company has not recorded any impairments.
7. ACCRUED LIABILITIES
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Accrued compensation
|
|
$
|
189,171
|
|
|
$
|
156,139
|
|
Accrued sales tax
|
|
|
164,495
|
|
|
|
149,821
|
|
Accrued franchise tax
|
|
|
35,000
|
|
|
|
35,000
|
|
Accrued professional fees and other payables
|
|
|
172,601
|
|
|
|
197,823
|
|
Total accrued liabilities
|
|
$
|
561,267
|
|
|
$
|
538,783
|
|
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
8. FACTORING CREDIT FACILITY
The Company
has
agreements
with an unrelated third party for factoring
of specific accounts receivable
.
Under this arrangement,
the Company has transferred the relevant receivables to the
factor
in
exchange for cash and is prevented from selling or pledging the receivables. The agreement provides for an advanced rate of 90%
with a fee of 1.9% to be charged on the gross face amount of the invoices purchased for 30 days, and an additional. 0.06% charge
for each additional day until the invoice(s) are paid. The Company has retained late payment and credit risk related to the factored
receivables and therefore continues to recognize the factored receivables in their entirety on its balance sheet
.
The re
ceivables
under
factoring arrangements are recorded within accounts receivable and
factoring credit facility
.
The balance of the accounts receivable amount factored, and the related factor payable are $118,314 and $169,257 as of March 31,
2019 and December 31, 2018, respectively.
The Company
has
recognized
$4,464 and $
0 in interest expense related to
these arrangements for the three months ended March 31, 2019 and 2018, respectively.
9. NOTES PAYABLE
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2018
|
The Company obtained an $85,670 promissory note with a maturity date of June 30, 2019, an interest rate of 6%, which is repayable in monthly installments of principal and interest of $2,270. The note is unsecured.
|
|
$
|
6,716
|
|
|
$
|
13,358
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
|
6,716
|
|
|
|
13,358
|
|
|
|
|
|
|
|
|
|
|
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
10. FINANCE LEASE OBLIGATIONS
The Company finances
certain
property
and equipment using
finance leases. These leases
range
from
one to
five
years.
The finance
lease
obligations
represent
the
present
value
of
the
minimum
lease payments, net
of
imputed interest.
The finance
lease obligations
are secured
by the
underlying
leased
assets. Leases are
payable
in monthly installments
ranging from $90 to $15,350 including interest, ranging from 3.6% to 17.8% per annum.
Future minimum lease
payments,
including principal and interest, under the finance leases for subsequent
years
are
as
follows:
Year ended
|
|
|
|
Remainder of 2019
|
|
|
$
|
269,024
|
|
|
2020
|
|
|
|
65,214
|
|
|
2021
|
|
|
|
20,716
|
|
|
2022
|
|
|
|
4,685
|
|
|
Total
Less: interest and sales tax
Present value of net minimum lease payments
|
|
|
|
359,639
(31,432)
328,207
|
|
|
Short term
|
|
|
|
250,458
|
|
|
Long term total
|
|
|
$
|
77,749
|
|
Lease payments for the three months ended March
31, 2019 and 2018 aggregated approximately $167,577 and $155,425, respectively.
The finance
lease
obligations
are secured
by
underlying
leased
assets
with
a
net
book
value
of
approximately $425,724 and $450,834
as of March 31, 2019 and December 31, 2018, respectively.
The Company adopted ASU 2016-02 using a retrospective
adoption method at January 1, 2019 as noted in Note 4. “New Accounting Standards”. As required, the following disclosure
is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have an initial or remaining
lease terms in excess of one year are as follows:
($ in millions)
|
|
Finance Leases
|
|
2019
|
|
|
$
|
380,249
|
|
|
2020
|
|
|
|
46,589
|
|
|
2021
|
|
|
|
2,021
|
|
|
Total
|
|
|
$
|
428,859
|
|
11. STOCK BASED COMPENSATION
The Board of Directors approved
the Company’s 2018 Equity Incentive Plan (the “2018 Plan”). The purpose of the 2018 Plan is to provide additional
incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success
of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions,
by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant
of options or restricted stock. The 2018 Plan is administered by the Compensation Committee or such other committee as is appointed
by the Board of Directors pursuant to the 2018 Plan (the “Committee”). The Committee has full authority to administer
and interpret the provisions of the 2018 Plan including, but not limited to, the authority to make all determinations with regard
to the terms and conditions of an award made under the 2018 Plan. The maximum number of shares that may be granted under the 2018
Plan is 8,000,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
The
following table reflects the
stock options for the three months ended March 31, 2019
:
A summary of stock option activity is as follows:
Number of options outstanding:
|
|
|
Beginning of year
|
|
|
5,901,677
|
|
Granted
|
|
|
1,000,000
|
|
Exercised, converted
|
|
|
-
|
|
Forfeited / exchanged / modification
|
|
|
-
|
|
|
|
|
|
|
March 31, 2019
|
|
|
6,901,677
|
|
|
|
|
|
|
Number of options exercisable at end of period
|
|
|
2,248,147
|
|
Number of options available for grant at end of period
|
|
|
1,098,323
|
|
|
|
|
|
|
Weighted average option prices per share:
|
|
|
|
|
Granted during the period
|
|
$
|
0.64
|
|
Exercised during the period
|
|
|
-
|
|
Terminated during the period
|
|
$
|
0.38
|
|
Outstanding at end of the period
|
|
$
|
0.42
|
|
Exercisable at end of period
|
|
$
|
0.38
|
|
Stock-based compensation expense
attributable to stock options was $114,321 for the period ended March 31, 2019. As of March 31, 2019, there was approximately $1,348,792
of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for
those options was 3 years.
The Company granted options to purchase
1,000,000 shares of common stock with an average vesting period of 3 years, an average expected life of 6.5 years and an average
exercise price of $0.64 per common share. Total value was $597,453.
The Company issued approximately 2,200,000
warrants related to three consulting agreements during the period ended March 31, 2018 and did not issue any warrants during the
period ended March 31, 2019. The fair value of the warrants granted was approximately 61,780 for the period ended March 31, 2018.
The compensation was recognized as stock compensation expense in the three months ended March 31, 2018 as the warrants are immediately
exercisable, regardless of the service period of the consulting agreements. This estimate was made using the Black-Scholes option
pricing model using the weighted average assumptions detailed below.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected option life (years)
|
|
|
6.5
|
|
|
|
6.5
|
|
Expected stock price volatility
|
|
|
142-145
|
%
|
|
|
51 - 135
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Risk-free interest rate
|
|
|
2.72-2.90
|
%
|
|
|
2.00
|
%
|
During the year ended December 31, 2018,
the Company issued approximately 2,200,000 warrants related to three consulting agreements. The fair value of the warrants
granted was approximately $61,780 and was recognized as stock compensation expense for the year ended December 31, 2018, as the
warrants were immediately exercisable, regardless of the service period of the consulting agreements. This estimate was made
using the Black-Scholes option pricing model using the following assumptions: 1 – 1.5 years expected option life; 51% expected
volatility, 0% expected dividend yield and 2.00% risk-free interest rate.
12. COMMON STOCK
During the three months
ended March 31, 2018 and March 31, 2019, the Company issued the following stock:
2018
Issued approximately 4,400,000 common
shares and the assumed liabilities of approximately $13,885 in connection with the reverse acquisition.
Issued approximately 13,158 common shares
for services provided to the Company during the period ended March 31, 2018. The services provided was valued at approximately
$5,000.
Issued 7,676,846 shares of common stock
and received approximately $2,874,000 with no material fees.
2019
Issued 101,334 shares
of common stock and received approximately $38,000 with no material fees.
13. RELATED PARTY TRANSACTIONS
The Company
contracted with Norco Professional Services, LLC. (“Norco”) to provide consulting services. The Company spent approximately
$22,500 for the three-month period ended March 31, 2019. Norco is owned by Andrew J. Norstrud, who joined the Company in January
of 2019, as the Company’s Chief Financial Officer. The Company continues to contract Andrew Norstrud’s services through
Norco.
The above related
party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions
been entered into with independent parties.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
14. COMMITMENTS
Contract Purchase
Price Adjustment
On the one-year anniversary of the Closing
Date for the Gamwell contract purchase, nDivision will calculate (using the same methods and procedures used to calculate the aggregate
monthly recurring revenue from the Purchased Contracts calculated on the Closing Date (the "Closing MRR") the monthly
recurring revenue for the Purchased Contracts that are still active or that have renewed their contract term (the "Anniversary
MRR"), plus any monthly recurring revenue from new managed service contracts that are being invoiced at the one year anniversary
of the Closing Date (the "New MRR") (Anniversary MRR plus New MRR is referred to herein as the "Total MRR").
The Cash Consideration, the amount due under the Promissory Note and the number of shares issuable pursuant to the Warrants shall
be adjusted as follows: (x) the Cash Consideration shall be decreased on the Closing Date, by the amount of Customer Prepayments,
as defined in the agreement, if any; (y) the principal balance of the Promissory Note shall be decreased by an amount equal to
the product of the MRR Percentage Decrease, as defined in the Agreement, multiplied by the Multiple Price, as defined in the Agreement,
and (z) the Warrant Percentage shall be decreased by the MRR Percentage Decrease, if any. For clarity, the Purchase Price shall
not be adjusted upward for any increase in monthly recurring revenue after Closing.
The Cash Consideration, Promissory Note and
Warrants shall be defined as the "Purchase Price" and can be adjusted after one year, based on the newly calculated monthly
recurring revenue. The Company calculated an approximate 3% decline in the purchased contracts monthly recurring revenue and recognized
a gain in contingent consideration of $30,757 and reduced the loan $30,757.
15. SIGNIFICANT CUSTOMERS
The Company had significant
customers in each of the quarters presented. A significant customer is defined as one that makes up ten-percent or more of total
revenues in a particular quarter or ten-percent of outstanding accounts receivable balance as of the year end.
Net revenues for the three months
ended March 31, 2019 and 2018 include revenues from significant customers as follows:
|
|
March 31,
|
|
|
2019
|
|
2018
|
Customer A
|
|
|
46
|
%
|
|
|
47
|
%
|
Customer B
|
|
|
4
|
%
|
|
|
13
|
%
|
Accounts receivable balances as of March 31,
2019 and December 31, 2018 from significant customers are as follows:
|
|
March 31, December 31,
|
|
|
2019
|
|
2018
|
Customer A
|
|
|
61
|
%
|
|
|
74
|
%
|
Customer B
|
|
|
0
|
%
|
|
|
8
|
%
|
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation
General Overview
As used in this current report and unless
otherwise indicated, the terms “we”, “us” and “our” mean nDivision, Inc., unless otherwise
indicated.
nDivision Inc ("nDivision"
or the "Company") was incorporated under the laws of the state of Texas. nDivision's registered office is located at
4925 Greenville Avenue, Suite 200, Dallas, Texas 75206. The Company provides managed IT services and project-based professional
services in the information technology industry, selling its services directly to customers and through global service providers
(GSP). The Company operates in most states of the United States of America.
On February 13, 2018, Go2Green Landscaping,
Inc., a Nevada corporation (the "Registrant") executed an Agreement and Plan of Merger (the "Merger Agreement")
with nDivision Inc, and NDI Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Registrant ("Acquisition")
whereby Acquisition was merged with and into nDivision (the "Merger") in consideration for Twenty Seven Million
Five Hundred Thousand (27,500,000) newly-issued shares of Common Stock of the Company (the "Merger Shares").
As a result of the Merger, nDivision
became a wholly-owned subsidiary of the Registrant and following the consummation of the Merger and giving effect to the issuance
of the Merger Shares and the retirement of 10,000,000 shares of the then 14,400,000 shares issued and outstanding of the Registrant
by its principal stockholders, the stockholders of nDivision beneficially owned approximately Seventy percent (70%) of the issued
and outstanding Common Stock of the Registrant.
For accounting
purposes, nDivision was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated
as a recapitalization of the Company. Accordingly, nDivision's assets, liabilities and results of operations are the historical
consolidated financial statements of the Company and the Company's assets, liabilities and results of operations are consolidated
with nDivision effective as of the date of the Merger. No step-up in basis or intangible assets or goodwill was recorded in this
transaction.
On February
26, 2018, the Company executed an Asset Purchase Agreement (the "Agreement") with Gamwell Technologies Inc., a Texas
corporation ("Gamwell"). Gamwell is engaged in the business of providing managed services, VOIP telephone, security
consulting and professional services to its customers.
As a result of the Agreement, nDivision acquired
various managed services contracts (the "Purchased Contracts") from Gamwell. As consideration for the Purchased Contracts,
nDivision paid $800,000 (the "Cash Consideration") to Gamwell. In addition, Gamwell received a promissory note
(the "Promissory Note") in an amount that equals fourteen (14) multiplied by the closing monthly recurring revenue from
managed services. The Promissory Note was estimated at approximately $191,177 based on the closing monthly recurring revenue.
Gamwell also received warrants (the "Warrants") to purchase common stock of the Company equal to one fourth percent (0.25%)
of the outstanding stock of the Company as of the agreement date.
The Warrants were valued at approximately $21,158.
The consideration for the contracts purchased was approximately $1,012,335. The Cash Consideration, Promissory Note and Warrants
shall be defined as the "Purchase Price" and can be adjusted after one year, based on the newly calculated monthly recurring
revenue. The Company calculated an approximate 3% decline in the purchased contracts monthly recurring revenue and recognized a
gain in contingent consideration of $30,757 and reduced the loan $30,757.
Since February 13, 2018, the Company
has sold approximately 8,692,181 shares of the Registrant's common shares at a price of approximately $0.375 per share for approximately
$3,253,738. There were no material fees paid in association with these shares being sold.
On April 9, 2018, the parent company
Go2Green Landscaping, Inc. changed its name to nDivision Inc. and changed the ticker symbol to NDVN.
Results of Operations
The following summary of the Company’s
operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended
March 31, 2019 and 2018.
Three Months Ended March 31, 2019
Compared to Three Months Ended March 31, 2018
|
|
March 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Revenue
|
|
$
|
1,455,927
|
|
|
$
|
812,605
|
|
|
$
|
643,322
|
|
Cost of revenue
|
|
|
275,859
|
|
|
|
314,089
|
|
|
|
(38,230
|
)
|
Selling, general and administrative expenses
|
|
|
1,357,001
|
|
|
|
1,224,810
|
|
|
|
132,191
|
|
Net loss
|
|
$
|
(165,072
|
)
|
|
$
|
(744,409
|
)
|
|
$
|
579,337
|
|
Revenues increased by approximately $643,322
or 79% compared with the same period last year. This includes $67,624 of product sales in 2018 that management has eliminated as
a revenue stream. Approximately $200,000 of the increase is related to the purchase of service contracts from Gamwell and approximately
$500,000 is from new customers, offset by approximately $67,624 from management’s decision to discontinue product sales.
Cost of revenue declined by approximately
$38,230 or 12% compared with the same period last year. Approximately $41,460 of the decline was related to managements' decision
to focus on recurring services and eliminate product sales. There was an increase of manage service costs and professional
service costs of approximately $40,000 based on the new customers and a decrease of approximately $21,600 of assets that have become
fully depreciated. The gross margin of product sales is significantly lower than recurring revenue, which has increased the overall
gross profit of the quarter.
Selling, general and administrative
expenses increased by approximately $132,191 or 11% compared with the same period last year. The Company’s management is
continuing to control operating expenses while also implementing management growth strategies. The increase was primarily related
to increases in payroll, marketing and other general and administrative expenses.
The Company incurred a net loss of $165,072
and $744,409 for the three months ended March 31, 2019 and March 31, 2018, respectively. The decrease in the net loss is primarily
related to higher gross profit offset by a slight increase in selling, general and administrative expenses.
Liquidity and Capital Resources
Working Capital
|
|
As at
March 31, 2019
|
|
|
As at
December 31, 2018
|
|
Current assets
|
|
$
|
814,445
|
|
|
$
|
706,089
|
|
Current liabilities
|
|
$
|
1,324,490
|
|
|
$
|
1,359,046
|
|
Working capital
|
|
$
|
(510,045)
|
|
|
$
|
(652,957
|
)
|
Cash Flows
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
108,094
|
|
|
$
|
(727,387)
|
|
Cash flows used in investing activities
|
|
|
(2,381
|
)
|
|
|
(810,811)
|
|
Cash flows (used in) provided by financing activities
|
|
|
(169,855)
|
|
|
|
2,510,196
|
|
Net (decrease) increase in cash during period
|
|
$
|
(64,142)
|
|
|
$
|
971,998
|
|
At March 31, 2019, the Company had
cash of $90,799. The decrease in cash of $64,142 from the December 31, 2018 cash balance of $154,941 was related to cash provided
by operating activities which was offset primarily by the repayments of the factor credit facility and the repayment of finance
lease obligations. Cash flow in operating activities was approximately $108,094 for the three months ended March 31, 2019 and primarily
related to the non-cash expenses of depreciation, amortization and stock-based compensation, in addition to the decrease in deferred
revenue as the Company recognized service revenue related to two new customer implementations.
Net cash used in investing activities
for the three months ended March 31, 2019 was approximately $2,381 with $810,811 being used for the period ended March 31, 2018.
The use of cash was primarily used in the acquisition of contracts for the period ended March 31, 2018 as compared to the period
ended March 31, 2019 where there were no acquisitions. For the period ended March 31, 2019 the use of cash was primarily due to
acquisition of equipment and software licenses.
Net cash flows used in financing
activities for the three months ended March 31, 2019 was approximately $169,855 compared to net cash flows provided by financing
activities of approximately $2,510,196 in the three months ended March 31, 2018. The Company issued approximately 7,676,846 shares
of common stock and received approximately $2,874,000 with no material fees offset by repayments of debt of approximately $267,000
and repayments of financed leases of approximately $97,000 in 2018 and issued approximately 101,334 shares of common stock and
received approximately $38,000 with no material fees offset by repayments of factor credit facility of approximately $51,000 and
repayments of finance lease obligation of approximately $150,000 in 2019. In both years the primary use of funds in financing activities
was the repayment of equipment financing contracts and the reduction of other debt.
The ability to continue as a going concern
is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance
operating costs over the next twelve months from the date of the issuance of these condensed consolidated financial statements
with existing cash on hand, cash flow from operations and short-term debt from the factoring of receivables. Management believes
the Company will only need to raise additional capital for acquisitions, sales initiatives and unexpected decreases in operating
cashflow. If the Company must raise capital, there is, however, no assurance that the Company will be able to raise any additional
capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance
operations over the next twelve months.
Limited Operating History; Need for Additional
Capital
The level of revenues being generated
by the Company is not presently sufficient to meet its working capital requirements and it cannot guarantee it will be successful
in its business operations. The shortfall of working capital has been financed through the completion of equity transactions and
advances from shareholders. There is no assurance that future equity capital and debt financing will be available to the Company
in the amounts or at the times desired by the Company or on terms that are acceptable to it, if at all. Although the Company has
been successful in raising funds to date, there can be no assurance that adequate funding will be available in the future, or under
terms favorable to the Company.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to
stockholders.