Item 1. Financial Statements
NDIVISION INC.
Interim Condensed Consolidated Financial
Statements
For the Quarterly Period Ended September
30, 2018
|
Page
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (Unaudited)
|
5
|
|
|
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
|
6
|
|
|
Condensed Consolidated Statements of Stockholders' (Deficit) Equity for the Nine months ended September 30, 2018 and year ended December 31, 2017 (Unaudited)
|
7
|
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
|
8
|
|
|
Notes to the Unaudited Condensed Consolidated Financial Statements
|
9
|
NDIVISION INC
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,094
|
|
|
$
|
127,933
|
|
Accounts receivable, net
|
|
|
502,342
|
|
|
|
476,255
|
|
Prepaid expenses
|
|
|
121,176
|
|
|
|
66,750
|
|
Total current assets
|
|
|
675,612
|
|
|
|
670,938
|
|
|
|
|
|
|
|
|
|
|
Equipment and software licenses - at cost, less accumulated
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
597,982
|
|
|
|
887,641
|
|
Intangible assets, less accumulated amortization
|
|
|
911,060
|
|
|
|
-
|
|
Total assets
|
|
$
|
2,184,654
|
|
|
$
|
1,558,579
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Lines of credit
|
|
$
|
-
|
|
|
$
|
92,075
|
|
Accounts payable
|
|
|
93,763
|
|
|
|
565,226
|
|
Accrued liabilities
|
|
|
408,684
|
|
|
|
517,922
|
|
Factoring credit facility
|
|
|
144,439
|
|
|
|
-
|
|
Loan from officer
|
|
|
-
|
|
|
|
137,000
|
|
Note payable
|
|
|
21,129
|
|
|
|
45,496
|
|
Current portion of acquisition note payable
|
|
|
96,974
|
|
|
|
-
|
|
Current portion of finance lease obligations
|
|
|
521,648
|
|
|
|
504,784
|
|
Total current liabilities
|
|
|
1,286,637
|
|
|
|
1,862,503
|
|
|
|
|
|
|
|
|
|
|
Acquisition note payable
|
|
|
94,203
|
|
|
|
-
|
|
Finance lease obligations
|
|
|
65,430
|
|
|
|
342,726
|
|
Total long-term liabilities
|
|
|
159,633
|
|
|
|
342,726
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder's equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 180,000,000 shares authorized, and 39,970,005 and 27,500,000 shares issued and outstanding, respectively
|
|
|
39,970
|
|
|
|
27,500
|
|
Additional paid in capital
|
|
|
4,894,729
|
|
|
|
1,566,161
|
|
Accumulated deficit
|
|
|
(4,196,315
|
)
|
|
|
(2,240,311
|
)
|
|
|
|
738,384
|
|
|
|
(646,650
|
)
|
|
|
$
|
2,184,654
|
|
|
$
|
1,558,579
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
-
|
|
|
$
|
283,351
|
|
|
$
|
67,624
|
|
|
$
|
859,334
|
|
Service revenue
|
|
|
1,142,226
|
|
|
|
935,795
|
|
|
|
2,961,787
|
|
|
|
3,200,581
|
|
Net revenues
|
|
|
1,142,226
|
|
|
|
1,219,146
|
|
|
|
3,029,411
|
|
|
|
4,059,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
-
|
|
|
|
250,714
|
|
|
|
32,315
|
|
|
|
750,441
|
|
Service costs
|
|
|
269,870
|
|
|
|
355,057
|
|
|
|
806,618
|
|
|
|
1,121,634
|
|
Cost of revenues
|
|
|
269,870
|
|
|
|
605,771
|
|
|
|
838,933
|
|
|
|
1,872,075
|
|
Gross profit
|
|
|
872,356
|
|
|
|
613,375
|
|
|
|
2,190,478
|
|
|
|
2,187,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,365,158
|
|
|
|
1,433,787
|
|
|
|
4,081,882
|
|
|
|
3,428,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(492,802
|
)
|
|
|
(820,412
|
)
|
|
|
(1,891,404
|
)
|
|
|
(1,240,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(24,383
|
)
|
|
|
(30,629
|
)
|
|
|
(64,600
|
)
|
|
|
(84,946
|
)
|
Other expense
|
|
|
(24,383
|
)
|
|
|
(30,629
|
)
|
|
|
(64,600
|
)
|
|
|
(84,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income tax
|
|
|
(517,185
|
)
|
|
|
(851,041
|
)
|
|
|
(1,956,004
|
)
|
|
|
(1,325,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(517,185
|
)
|
|
|
(851,041
|
)
|
|
|
(1,956,004
|
)
|
|
|
(1,325,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
39,731,671
|
|
|
|
26,488,598
|
|
|
|
37,689,173
|
|
|
|
24,380,575
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Common Stock
|
|
Common Stock
|
|
Additional Paid
|
|
Accumulated
|
|
Stockholders'
|
|
|
Shares
|
|
Par
|
|
In Capital
|
|
Deficit
|
|
(Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
23,139,904
|
|
|
$
|
23,140
|
|
|
$
|
367,665
|
|
|
$
|
(432,450
|
)
|
|
$
|
(41,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for modification of stock options
|
|
|
1,482,296
|
|
|
|
1,482
|
|
|
|
168,627
|
|
|
|
-
|
|
|
|
170,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
57,857
|
|
|
|
58
|
|
|
|
17,442
|
|
|
|
-
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
15,247
|
|
|
|
-
|
|
|
|
15,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
2,819,943
|
|
|
|
2,820
|
|
|
|
997,180
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,807,861
|
)
|
|
|
(1,807,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
27,500,000
|
|
|
$
|
27,500
|
|
|
$
|
1,566,161
|
|
|
$
|
(2,240,311
|
)
|
|
$
|
(646,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of reverse acquisition on February 13, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustement for reverse acquisition
|
|
|
4,400,000
|
|
|
|
4,400
|
|
|
|
(18,285
|
)
|
|
|
-
|
|
|
|
(13,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock option and warrant expense
|
|
|
-
|
|
|
|
-
|
|
|
|
312,757
|
|
|
|
-
|
|
|
|
312,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
13,158
|
|
|
|
13
|
|
|
|
4,987
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued for acquisition of contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
21,158
|
|
|
|
-
|
|
|
|
21,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, net
|
|
|
8,056,847
|
|
|
|
8,057
|
|
|
|
3,007,951
|
|
|
|
-
|
|
|
|
3,016,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,956,004
|
)
|
|
|
(1,956,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018
|
|
|
39,970,005
|
|
|
$
|
39,970
|
|
|
$
|
4,894,729
|
|
|
$
|
(4,196,315
|
)
|
|
$
|
738,384
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
NDIVISION INC
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,956,004
|
)
|
|
$
|
(1,325,123
|
)
|
Adjustments to reconcile net income to net cash used in
|
|
|
|
|
|
|
|
|
operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
417,269
|
|
|
|
334,564
|
|
Stock based compensation
|
|
|
312,757
|
|
|
|
192,528
|
|
Stock issued for services
|
|
|
5,000
|
|
|
|
-
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(26,087
|
)
|
|
|
196,297
|
|
Prepaid expenses
|
|
|
(54,426
|
)
|
|
|
37,984
|
|
Other current assets and liabilities, net
|
|
|
-
|
|
|
|
102,469
|
|
Accounts payable and accrued liabilities
|
|
|
(580,701
|
)
|
|
|
(19,827
|
)
|
Net cash used in operating activities
|
|
|
(1,882,192
|
)
|
|
|
(481,108
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of contracts
|
|
|
(813,855
|
)
|
|
|
-
|
|
Acquisition of equipment and software licenses
|
|
|
(26,365
|
)
|
|
|
(15,281
|
)
|
Net cash used in investing activities
|
|
|
(840,220
|
)
|
|
|
(15,281
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Lines of credit, net
|
|
|
(92,075
|
)
|
|
|
(116,696
|
)
|
Proceeds from issuance of common stock, net
|
|
|
3,016,008
|
|
|
|
1,015,903
|
|
Factoring credit facility, net
|
|
|
144,439
|
|
|
|
-
|
|
(Repayments of) proceeds from loans from officers
|
|
|
(137,000
|
)
|
|
|
136,286
|
|
(Repayments of) proceeds from of long-term debt
|
|
|
(24,367
|
)
|
|
|
(45,847
|
)
|
(Repayments of) proceeds from of finance lease obligations
|
|
|
(260,432
|
)
|
|
|
(198,373
|
)
|
Net cash provided by financing activities
|
|
|
2,646,573
|
|
|
|
791,273
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(75,839
|
)
|
|
|
294,884
|
|
Cash, beginning of period
|
|
|
127,933
|
|
|
|
181,700
|
|
Cash, end of period
|
|
$
|
52,094
|
|
|
$
|
476,584
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
52,437
|
|
|
$
|
66,013
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
Consideration for the purchase of contracts (warrants and acquisition note)
|
|
$
|
212,335
|
|
|
$
|
-
|
|
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 owns 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 note is currently estimated at approximately $191,177 based on the closing monthly recurring revenue.
Gamwell also received a warrant (the "Warrant") 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 warrant was valued at approximately $21,158.
The consideration for the contracts purchased was $1,012,335. The cash Consideration, Promissory Note and Warrant shall be
defined as the "Purchase Price" and can be adjusted after one year, based on the newly calculated monthly recurring revenue.
This transaction was accounted under the guidance in Topic 805-50 Acquisition of Assets rather than a business.
Since February 13, 2018, the Company has sold
8,056,847 shares of the Registrant's common shares at a price of approximately $0.375 per share for $3,016,008. 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. 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 and nine-month period ended September 30, 2018 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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 8-KA filed on April 30, 2018.
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. (inactive
subsidiary). All significant inter-company accounts and transactions are eliminated in consolidation.
Liquidity
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 included cost reduction efforts, as well as identifying strategic acquisitions to improve the overall profitability and cash
flows of the Company.
During the nine months ended September 30,
2018, the Company sold 8,056,847 shares of common stock at a price of approximately $0.375 per share for $3,016,008.
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 November 13, 2018, the Company has factored approximately $226,506 of its 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 unaudited 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.
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)
2. SUMMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue
from Contracts with Customers (“Topic 606”): 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 is 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 accumulated deficit at January 1, 2018.
For revenue recognition arrangements that we
determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers
to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods
or services promised within each contract related performance obligation and assess whether each promised good or service is distinct.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when
(or as) the performance obligation is satisfied.
Project based, services revenue is recognized
when the professional consulting, maintenance or other ancillary services are provided 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 is a value-added reseller and engages
in "drop-shipping" whereby products are transferred directly from the Company's supplier to the customer. Product sales
are recognized as revenue upon shipment of the products by the vendor. Shipping and handling costs charged to customers are
classified as revenue, and the shipping and handling costs incurred are included in cost of sales.
The Company provides customers with payment
terms of thirty days.
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)
2. 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. Management
has determined that there was no allowance required for the period ended September 30, 2018 and 2017. The Company does not
accrue interest on past due receivables.
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. Leasehold
improvements are amortized over the shorter of the useful life of the related asset or the period of the lease.
Long-Lived Assets
The Company reviews the carrying value of its
long-lived assets whenever events or changes in circumstances indicate that the carrying values may no longer be appropriate.
Recoverability of carrying values is assessed by estimating future net cash flows from the assets. Based on management's
evaluations, no impairment charge was deemed necessary at September 30, 2018 and 2017. Impairment assessment inherently involves
judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future
events and changing market conditions may impact management's assumptions as to sales prices, rental rates, costs, holding periods
or other factors that may result in changes in the Company's estimates of future cash flows. Although management believes
the assumptions used in testing for impairment are reasonable, changes in any one of the assumptions could produce a significantly
different result.
Fair Value Measurement
The Company follows the provisions of the accounting
standard which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure.
Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
The standard establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring
that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing
the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are
inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. The hierarchy is described below:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority
to Level 1 inputs.
Level 2: Observable prices that are based on
inputs not quoted on active markets but corroborated by market data.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
2. SUMMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The fair value of the Company's current assets
and current liabilities approximate their carrying values due to their short-term nature. The carrying value of the Company's long-term
liabilities represents their fair value based on level 3 inputs. See Note 9 and 10 for acquisition note payable and financial
lease obligations.
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. 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 8,142,000 and 2,138,286 of common stock equivalents
excluded for the periods ended September 30, 2018 and 2017, respectively because their effect is anti-dilutive.
Marketing Costs
Marketing costs, which are expensed as incurred,
totaled approximately $687 and $11,341, and $0 and $6,322 for the three and nine months ended September 30, 2018 and 2017, respectively.
Stock-Based Compensation
The Company accounts for stock-based awards
to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions,
including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair
value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton ("Black-Scholes")
pricing model. For all employee stock options, we recognize expense over the requisite service period on an accelerated basis over
the employee's requisite service period (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.
Options awarded to purchase shares of common
stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting
principles. Such options are valued using the Black-Scholes option pricing model.
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.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
2. SUMMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 September 30, 2018, no accrued interest or penalties are included on the related tax liability line in the balance sheet.
3. RECENT ACCOUNTING PRONOUNCEMENTS
On May 28, 2014, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers,
which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods
or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In
August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities
to choose to adopt the standard as of the original effective date. This ASU permits the use of either the retrospective or cumulative
effect transition method. The Company has used the retrospective method in the presentation of these condensed consolidated financial
statements, however there was no adjustment necessary.
In November 2015, the FASB issued authoritative
guidance which changes how deferred taxes are classified on a company's balance sheet. The new guidance eliminates the current
requirement for companies to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet.
Instead, companies will be required to classify all deferred tax assets and liabilities as noncurrent. The new guidance is effective
for annual reporting periods beginning after December 15, 2016. Early adoption is permitted for all entities as of the beginning
of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities,
or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include
a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include
quantitative information about the effects of the change on prior periods, except for balance sheet classification requirements
related to deferred tax assets and liabilities. The adoption of this guidance had no material effect on the Company as of September 30,
2018.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity
or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this guidance had no material effect
on the Company as of September 30, 2018.
In February 2016, the FASB issued ASU 2016-02,
"Leases (Topic 842)", as modified by ASUs 2018-01, 2018-10 and 2018-11 (collectively ASU 2016-02). Under ASU 2016-02,
an entity will be required to be recognize assets and liabilities for the rights and obligations created by leases on the entity's
balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to
not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease.
ASU 2016-02 will require new disclosures that depict the amount, timing and uncertainty of cash flows pertaining to an entity's
leases. Companies may adopt the new standard using a modified retrospective approach or a cumulative effect upon adoption
approach for the annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted.
When adopted, ASU 2016-02 will not have a material impact on the Company's balance sheet, results of operations, equity or cash
flows.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
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. The Company believes the adoption of this guidance will not have a material impact
on its consolidated financial statements.
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 will be effective for the Company in the first quarter of 2019. Early adoption is permitted. In June 2018, the FASB
issued ASU 2018-07, which simplifies the accounting for nonemployee 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 will be effective in the first quarter of fiscal
year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company is currently evaluating
the effect the adoption of this ASU will have on its financial statements.
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.
In June 2018, the FASB issued ASU 201/-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 will be effective in the first quarter of fiscal year
2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company is currently evaluating
the effect of the adoption of this ASU will have on its 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 financial
statements.
4. EQUIPMENT AND SOFTWARE LICENSES
Equipment and software licenses consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Equipment and software
|
|
$
|
1,146,100
|
|
|
$
|
1,119,765
|
|
Software licenses
|
|
|
955,408
|
|
|
|
955,408
|
|
|
|
|
2,101,508
|
|
|
|
2,075,173
|
|
Less - Accumulated depreciation and amortization
|
|
|
(1,503,526
|
)
|
|
|
(1,187,532
|
)
|
|
|
$
|
597,982
|
|
|
$
|
887,641
|
|
Depreciation and Amortization expense for the
three and nine months ended September 30, 2018 and 2017 was approximately $101,318 and $315,994, and $94,512 and $309,640, respectively.
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
5. INTANGIBLE ASSETS
Intangible Assets
As of September 30, 2018
(In Thousands)
|
|
Useful Life
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships / Service Contracts
|
|
|
5
|
|
|
$
|
1,012,335
|
|
|
$
|
101,275
|
|
|
$
|
911,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no amortization expense attributable
to the amortization of identifiable intangible assets for the three month and nine-month period ended September 30, 2017 as the
assets were not transferred until after March 31, 2018. There was approximately $50,638 and $101,276 for the three month and nine-month
period ended September 30, 2018, respectively. Customer relationships and service contracts are amortized based on the future undiscounted
cash flows or straight – line basis over estimated remaining useful lives of five years.
Over the next five years and thereafter, annual
amortization expense for these finite life intangible assets will total approximately $911,060, as follows: remainder of fiscal
2018 - $50,638, fiscal 2019 - $202,551, fiscal 2020 - $202,551, fiscal 2021- $202,551, fiscal 2022- $202,551 and thereafter - $50,218.
6. ACCRUED LIABILITIES
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued compensation
|
|
$
|
54,871
|
|
|
$
|
314,722
|
|
Accrued sales tax
|
|
|
144,070
|
|
|
|
157,218
|
|
Accrued franchise tax
|
|
|
32,234
|
|
|
|
43,372
|
|
Accrued professional fees and other payables
|
|
|
177,509
|
|
|
|
2,610
|
|
Total accrued liabilities
|
|
$
|
408,684
|
|
|
$
|
517,922
|
|
7. LINE OF CREDIT
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
The Company obtained a line of credit on April 4, 2014 with an original maturity date of April 4, 2015, an interest rate of 6% and maximum borrowings of $500,000. The line of credit was renewed in 2015 under the same terms, with a maturity date of April 4, 2016, and renewed again in 2016 with a maturity date of April 4, 2018. This line of credit is secured by the accounts receivable of the Company. This obligation was repaid in 2018, and the line of credit was terminated.
|
|
$
|
-
|
|
|
$
|
92,075
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
92,075
|
|
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 arrangement notes 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 $144,439 and $0 as of September 30,
2018 and 2017, respectively.
The Company
has recognized
$6,897 and $
0 in interest expense related to these arrangements
for the nine-month period ended September 30, 2018 and 2017, respectively.
The Company
has
recognized
$6,897 and $
0 in interest expense related to
these arrangements for the three-month period ended September 30, 2018 and 2017, respectively.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
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.
|
|
$
|
144,439
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,439
|
|
|
$
|
-
|
|
9. NOTE PAYABLE
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
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.
|
|
$
|
19,905
|
|
|
$
|
38,932
|
|
|
|
|
|
|
|
|
|
|
The Company obtained a $20,175 promissory note with a maturity date of November 17, 2018, an interest rate of 6%, which is repayable in monthly installments of principal and interest of $615. This note was guaranteed by the shareholders of the Company.
|
|
|
1,224
|
|
|
|
6,564
|
|
|
|
|
|
|
|
|
|
|
Current portion of debt
|
|
|
21,129
|
|
|
|
45,496
|
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
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
|
|
|
Remaining in 2018
|
|
$
|
169,482
|
|
2019
|
|
|
410,800
|
|
2020
|
|
|
46,584
|
|
2021
|
|
|
2,021
|
|
Total
|
|
|
628,887
|
|
Less: interest
|
|
|
(41,809
|
)
|
Present value of net minimum lease payments
|
|
|
587,078
|
|
Short term
|
|
|
521,648
|
|
Long term total
|
|
$
|
65,430
|
|
Lease payments for the three and nine months
ended September 30, 2018 and 2017 aggregated approximately $169,538 and $473,891, and $138,858 and $398,841, respectively.
The finance lease obligations are secured by underlying leased assets
with a net book value of approximately $540,695 and $848,250 as of September 30, 2018 and December 31, 2017, respectively.
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 nine months ended September 30, 2018:
A summary of stock option activity is as follows:
Number of options outstanding:
|
|
|
|
Beginning of year
|
|
$
|
752,062
|
|
Granted
|
|
|
6,405,314
|
|
Exercised, converted
|
|
|
-
|
|
Forfeited / exchanged / modification
|
|
|
1,215,698
|
|
|
|
|
|
|
September 30, 2018
|
|
|
5,941,678
|
|
|
|
|
|
|
Number of options exercisable at end of period
|
|
|
-
|
|
Number of options available for grant at end of period
|
|
|
2,058,322
|
|
|
|
|
|
|
Weighted average option prices per share:
|
|
|
|
|
Granted during the period
|
|
$
|
0.38
|
|
Exercised during the period
|
|
|
-
|
|
Forfeited/exchanged/modified during the period
|
|
|
0.13
|
|
Outstanding at end of the period
|
|
$
|
0.38
|
|
Exercisable at end of year
|
|
|
-
|
|
The average fair value of stock options granted
was estimated to be $0.19 per share during the period ended September 30, 2018. This estimate was made using the Black-Scholes
option pricing model and the following weighted average assumptions:
|
|
September 30, 2018
|
|
|
|
|
|
|
|
Expected option life (years)
|
|
|
6.5
|
|
|
Expected stock price volatility
|
|
|
51 - 135%
|
|
|
Expected dividend yield
|
|
|
—%
|
|
|
Risk-free interest rate
|
|
|
2.00 – 2.82%
|
|
|
Stock-based compensation expense attributable
to stock options was $250,977 for the period ended September 30, 2018. As of September 30, 2018, there was approximately $932,488
of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for
those options was 3 years.
The Company issued approximately 2,200,000
warrants related to three consulting agreements during the period. The fair value of the warrants granted was approximately
$61,780 for the period ended September 30, 2018. The compensation was recognized as stock compensation expense in the current
period 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 and the following weighted average assumptions:
nDivision Inc
Notes to the Condensed Consolidated Financial
Statements
(Unaudited)
|
|
September 30, 2018
|
|
|
|
|
|
|
|
Expected option life (years)
|
|
|
1 to 1.5
|
|
|
Expected stock price volatility
|
|
|
51%
|
|
|
Expected dividend yield
|
|
|
—%
|
|
|
Risk-free interest rate
|
|
|
2.00%
|
|
|
These warrants are
fully vested at the time of issuance and there is no unamortized expense related to these warrants. In connection with the
issuance of the common shares during the three months ended, September 30, 2018 the Company issued a warrant to purchase up to
750,000 shares of the Company’s common stock at a price of $0.625 for one year. At September 30, 2018, there were warrants
outstanding to purchase up to 2,950,000 common stock of the Company’s common stock at an exercise price of $0.625.
12. COMMON STOCK
nDivision recorded
the issuance of 4,400,000 common shares and the assumed liabilities of approximately $13,885 in connection with the reverse acquisition.
nDivision issued 13,158
common shares for services provided to the Company during the period ended June 30, 2018. The services provided were valued
at approximately $5,000.
nDivision issued 8,056,847
shares of common stock and received approximately $3,016,008 with no material fees. In connection with the issuance of the common
shares during the three months ended, September 30, 2018 the Company issued a warrant to purchase up to 750,000 shares of the Company’s
common stock at a price of $0.625 for one year.
Subsequent to September
30, 2018 the Company issued 400,666 shares of common stock and received approximately $150,250 with no material fees.
13. RELATED PARTY TRANSACTIONS
To ensure the
Company had adequate near-term liquidity, the officers of the Company loaned the Company short-term
loans at an interest rate of .05%. At September 30, 2018 and December 31, 2017 there was approximately $0 and $137,000,
respectively, owed to officers of the Company, other than reimbursable expenses.
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
The Company leases office and Data Center space.
Future minimum lease payments are as follows:
|
|
|
September 30,
|
|
|
Remainder of 2018
|
|
|
$
|
10,233
|
|
2019
|
|
|
|
30,998
|
|
|
|
|
$
|
41,221
|
|
Lease payments for the three and nine months
ended September 30, 2018 and 2017 aggregated $16,089 and $49,374, and $15,684 and $47,616, respectively.
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.
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 and nine months
ended September 30, 2018 and 2017 include revenues from significant customers as follows:
|
Three Month Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Customer A
|
43%
|
|
30%
|
|
41%
|
|
30%
|
Customer B
|
9%
|
|
16%
|
|
10%
|
|
17%
|
Accounts receivable balances as of September
30, 2018 and December 31, 2017 from significant customers are as follows:
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Customer A
|
|
76%
|
|
46%
|
Customer B
|
|
4%
|
|
8%
|
Customer C
|
|
5%
|
|
-%
|
Customer D
|
|
1%
|
|
25%
|
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation
General Overview
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 owns 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 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 warrant was 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.
Since February 13, 2018, the Company has sold
approximately 8,056,847 shares of the Registrant's common shares at a price of approximately $0.375 per share for approximately
$3,016,008. 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 and nine months ended
June 30, 2018 and 2017.
Three Months Ended September 30, 2018
Compared to Three Months Ended September 30, 2017
|
|
September 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Revenue
|
|
$
|
1,142,226
|
|
|
$
|
1,219,146
|
|
|
$
|
(76,920
|
)
|
Cost of revenue
|
|
|
269,870
|
|
|
|
605,771
|
|
|
|
(335,901
|
)
|
Operating expenses
|
|
|
1,365,158
|
|
|
|
1,433,787
|
|
|
|
(68,629)
|
|
Net loss
|
|
$
|
(517,185
|
)
|
|
$
|
(851,041
|
)
|
|
$
|
333,856
|
|
Revenues declined by approximately $76,920
or 6% compared with the same period last year. Approximately $283,350 of the decline was related to managements' decision to focus
on recurring services and eliminate product sales during the quarter, this was offset by additional professional fees and the purchased
contracts.
Cost of revenue declined by approximately $335,901
or 55% compared with the same period last year. Approximately $250,714 of the decline was related to managements' decision
to focus on recurring services and eliminate product sales. The remaining decrease was related to the negotiated reduction
or elimination of certain contracted services used to generate these revenues and overall lower staff needed to support professional
services. The gross margin of product sales is significantly lower than recurring revenue, which has increased the
overall gross profit of the quarter.
Operating expenses decreased by approximately
$68,629 or 5% compared with the same period last year. The Company’s management is continuing to control operating
expenses while also implementing management growth strategies. In addition, the Company had significantly more stock based compensation
expense and warrant expenses that in the same period in the prior year and the amortization of contracts purchased.
The Company incurred a net loss of $517,185
and $851,041 for the three months ended September 30, 2018 and September 30, 2017, respectively. The decrease in the net
loss is primarily related to higher gross profit and the decrease in operating expenses.
Nine Months Ended September 30, 2018
Compared to Nine Months Ended September 30, 2017
|
|
September 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Revenue
|
|
$
|
3,029,411
|
|
|
$
|
4,059,915
|
|
|
$
|
(1,030,504
|
)
|
Cost of revenue
|
|
|
838,933
|
|
|
|
1,872,075
|
|
|
|
(1,033,142
|
)
|
Operating expenses
|
|
|
4,081,882
|
|
|
|
3,428,017
|
|
|
|
653,865
|
|
Net loss
|
|
$
|
(1,956,004
|
)
|
|
$
|
(1,325,123
|
)
|
|
$
|
(630,881
|
)
|
Revenues declined by approximately $1,030,504
or 25% compared with the same period last year. $718,126 of the decline was related to managements' decision to focus on recurring
services and eliminate product sales. There was a decline in recurring revenue of approximately $250,00 with the majority of the
decline attributable to two customers.
Cost of revenue declined by approximately $1,033,142
or 55% compared with the same period last year. Approximately $791,710 of the decline was related to managements' decision
to focus on recurring services and eliminate product sales. The remaining decrease was related to the negotiated reduction
or elimination of certain contracted services used to generate these revenues and overall lower staff needed to support professional
services. The gross margin of product sales is significantly lower than recurring revenue, which has increased the
overall gross profit of the quarter.
Operating expenses increased by approximately
$653,865 or 19% compared with the same period last year. The Company’s management is continuing to control operating expenses while also implementing management
growth strategies. Some of these strategies temporarily increased the sales and marketing expenses incurred during the period.
In addition, the Company had significantly more stock based compensation expense and warrant expenses that in the same period in
the prior year and the amortization of contracts purchased.
The Company incurred a net loss of $1,956,004
and $1,325,123 for the nine months ended September 30, 2018 and September 30, 2017, respectively. The increase in the net
loss is related to the decline in product and service revenue and gross profit and increase in operating expenses, primarily related
to new sales efforts in addition, the Company had significantly more stock options and warrants expense than in the same period
in the prior year and amortization of customer contracts purchased.
Liquidity and Capital Resources
Working Capital
|
|
As at
September 30, 2018
|
|
|
As at
December 31, 2017
|
|
Current assets
|
|
$
|
675,612
|
|
|
$
|
670,938
|
|
Current liabilities
|
|
$
|
1,286,637
|
|
|
$
|
1,862,503
|
|
Working capital
|
|
$
|
(611,025
|
)
|
|
$
|
(1,191,565
|
)
|
Cash Flows
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows used in operating activities
|
|
$
|
(1,882,192
|
)
|
|
$
|
(481,108
|
)
|
Cash flows used in investing activities
|
|
|
(840,220
|
)
|
|
|
(15,281
|
)
|
Cash flows provided by financing activities
|
|
|
2,646,573
|
|
|
|
791,273
|
|
Net (decrease) increase in cash during period
|
|
$
|
(75,839
|
)
|
|
$
|
294,884
|
|
At September 30, 2018, the Company had cash
of $52,094. The decrease in cash of $75,839 from the December 31, 2017 cash balance of $127,933 was related to the cash provided
by the issuance of common stock, which was offset by the acquisition of recurring service contracts and an increase in operating
expenses. Cash outflow in operating activities was approximately $1,882,192 for the nine months ended September 30, 2018 and primarily
related to the losses of the Company.
Net cash used in investing activities for the
nine months ended September 30, 2018 was $840,220 with $15,281 being used for the period ended September 30, 2017. The use
of cash was primarily used in the acquisition of recurring service contracts.
Net cash flows provided by financing activities
for the nine months ended September 30, 2018 was $2,646,573 compared to $791,275 in the nine months ended September 30, 2017.
The Company issued 8,056,847 shares of common stock and received $3,016,008 with no material fees. This was partially offset
by the reduction of 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 unaudited condensed consolidated financial statements
with existing cash on hand and 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.
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.