The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Report on Form 10-K, Form 10-Q and any Current Reports on Form 8-K.
Overview and History
Nexus Enterprise Solutions, Inc. ("Nexus") was incorporated in the State of Wyoming on October 19, 1995 as Global Link Technologies, Inc. On June 10, 2008, Global Link Technologies filed Articles of Amendment with the State of Wyoming changing its name to MutuaLoan Corporation. On June 16, 2011 (as filed with the State of Wyoming on September 16, 2011), MutuaLoan Corporation entered into a business combination with Nexus Enterprise Solutions, Inc. ("Nexus Florida"). The business combination was accounted for as a reverse merger recapitalization. The accounting target/legal acquirer was MutuaLoan. The accounting acquirer/legal target was Nexus Florida. Nexus is currently conducting operations and generating revenue.
The Company operations are currently being conducted out of the Company office located at 6810 N State Road 7, Coconut Creek, FL 33073; (561) 767-4346. It considers that the current principal office space arrangement adequate and will reassess its needs based upon the future growth of the Company. Its fiscal year end is December 31
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Our Company's primary service is lead generation for its customers. The Company's target customers are currently companies in the insurance and financial service industries, but we intend to expand to additional industries in the future. Our Company uses both online leads and offline lead generation techniques in order to generate revenue by selling such leads, as well as various other services, to our customers.
Online Generation
There are many ways to generate leads online. Each has its own formula that needs to be perfected in order to find the balance between quantity and quality. The online lead generation methods used by our Company include, but are not limited to, Proprietary Lead Portals, Pay Per Click Advertising, Email Advertising and Website Banners.
Offline Lead Generation
Using a combination of a predictive dialer call center solution and an overseas outsourced call center solution, our Company is able to generate custom live transfer leads for our customers. We utilize this method of lead generation in situations where we are confident that a high volume of live leads can be generated and sold for a profit.
Revenue Model and Distribution methods of the products or services
Our revenue model is based on customer development. We either purchase leads from accredited brokers or locate leads based on the methods described above, and then resell those leads to our customers through our automated system. The leads must meet the stringent criteria of our system. The leads are vetted through our fraud filters in order to ensure quality.
We are currently focusing our attention on the auto insurance market, but expect to expand to other industries in the very near future. The Company will identify and address additional target markets for its services other than the insurance and financial industries with market research and feedback from its customers.
Results of Operations
For the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016
The Company generated $315,438 in revenue for the three month period ended September 30, 2017, which compares to revenue of $266,852 for the three month period ended September 30, 2016. Our revenues increased during the three month period ended September 30, 2017 primarily due to lower customer returns in 2017 (in the three months ended September 2017, customer returns totaled $(29,373), compared to returns of $(86,815) in the corresponding period in 2016).
Cost of sales for the three month period ended September 30, 2017 was $240,714, which compares to cost of sales of $152,891 for the three month period ended September 30, 2016. The increase was attributable to higher fees paid for leads purchased by the company and the payment of software licensing fees in 2017.
Operating expenses, which consisted solely of general and administrative expenses, and consulting and professional fees, were $169,117 for the three month period ended September 30, 2017. This compares with operating expenses for the three month period ended September 30, 2016 of $137,018. The major components of general and administrative expenses include accounting fees, legal and professional fees.
Other expenses for the three month period ended September 30, 2017 totaled $32,637, which compares to $30,133 for the three month period ended September 30, 2016. Other expenses for the three month period ended September 30, 2017 comprise interest expense ($4,208) and penalties accrued for late repayment of a convertible note ($63,000), which were offset by a gain of $34,571 on derivative liabilities.
As a result of the foregoing, we had a net loss of $127,030 for the three month period ended September 30, 2017. This compares with net loss for the three month period ended September 30, 2016 of $53,190.
For the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
The Company generated $763,273 in revenue for the nine month period ended September 30, 2017, which compares to revenue of $964,702 for the nine month period ended September 30, 2016. Our revenues decreased during the nine month period ended September 30, 2017 due to decreased sales of our services to our current customers during this period.
Cost of sales for the nine month period ended September 30, 2017 was $446,490, which compares to cost of sales of $548,798 for the nine month period ended September 30, 2016. Our revenues decreased during the nine months ended September 30, 2017, and as our revenue decreased, our cost of sales decreased correspondingly.
Operating expenses, consisting of general and administrative expenses and consulting and professional fees, for the nine month period ended September 30, 2017, were $415,845. This compares with operating expenses for the nine month period ended September 30, 2016 of $470,032. The major components of general and administrative expenses include accounting fees, legal and professional fees.
Other expenses for the nine month period ended September 30, 2017 totaled $380,193, which compares to $37,803 for the nine month period ended September 30, 2016. Other expenses for the nine month period ended September 30, 2017 comprise interest expense ($22,286), penalties accrued for late repayment of a convertible note ($236,000), and a loss of ($121,907) on derivative liabilities.
As a result of the foregoing, we had a net loss of $479,255 for the nine month period ended September 30, 2017. This compares with a net loss for the nine month period ended September 30, 2016 of $91,931. The principal reasons for the increase in our net loss during the nine months ended September 30, 2017 over 2016 were our decreased revenue and increase in other expenses during the period.
Liquidity and Capital Resources
In its audited financial statements as of December 31, 2016, the Company was issued an opinion by its auditors that raised substantial doubt about the ability to continue as a going concern based on the Company's current financial position. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues.
As of September 30, 2017 we had cash or cash equivalents of $1,448. As of December 31, 2016, we had cash or cash equivalents of $6,176. We also had a working capital deficit of $1,172,621.
In the second quarter of 2017, after a year of negotiations, the Company was able to secure new technology to be used to sell leads to its clients. This technology allows better segmentation of data. It allowed the Company to sign up a significant leads buyer in June, which resulted in improved monthly financial performance for that month. The Company believes that other new customers will contract with the Company to use the technology, which the Company believes will allow it to return to consistent levels of profitability. However, these efforts to establish a stabilized source of revenues have been insufficient to cover operating costs over an extended period of time, or have not materialized.
Management anticipates that until such time as new technology and customers become established, the Company will be dependent on additional investment capital, primarily from its shareholders, to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the private placement of its common stock. In light of management's efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Net cash used by operating activities was $6,128 for the nine month period ended September 30, 2017. This compares to net cash provided by operating activities of $37,288 for the nine month period ended September 30, 2016. This change is primarily due to an increase in the period in the net loss, offset by a gain on derivatives, the amortization of debt discount, an increase in accrued expenses, a decrease in accounts receivable and an increase in accounts payable.
Cash inflows from financing activities was $1,400 for the nine month period ended September 30, 2017 which compares to cash flows used in financing activities of $56,000 for the nine month period ended September 30, 2016. The change in cash flows related to financing activities is due to the fact that there was a substantial decrease in repayment of notes payable during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
As of September 30, 2017, our total assets were $56,060 and our total liabilities were $1,228,681. As of December 31, 2016, our total assets were $86,573 and our total liabilities were $795,159.
Off-Balance Sheet Arrangements
The Company does not have any 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 investors.
Plan of Operation
Our plan for the twelve months beginning September 30, 2017 is to operate at a profit or at break even. Our plan is to attract sufficient additional product sales and services within our present organizational structure and resources to become profitable in our operations. We are also looking to diversify the products we sell.
Our revenue model is based on customer development. We either purchase leads from accredited brokers or locate leads based on the methods described above, and then resell those leads to our customers through our automated system. The leads must meet the stringent criteria of our system. The leads are vetted through our fraud filters in order to ensure quality.
We are currently focusing our attention on the auto insurance market, but expect to expand to other industries in the very near future.
Nexus Enterprise Solutions, Inc. (Nexus) is redefining the current prospect and lead generation and acquisition industry by developing an information exchange service which allows sellers and buyers of leads, and other information assets, to operate in an optimized, transparent, and efficient way to transact deals in a more efficient manner than what is experienced in today's markets and systems. This is accomplished primarily through systems and processes which enable enhanced business intelligence and management thereby empowering stakeholders on both sides of the transaction to make well-informed and meaningful connections with each other.
Our Company generates revenue through its lead generation services, which are comprised of the lead generation methods described above and are accessed by our customers through our automated system. The cost of developing an automated system such as ours is prohibitive for a majority of companies. We fulfill a need by allowing these companies to use our technology, forms, landing pages etc., for a fee. We currently are back logged with the amount of companies looking to buy and sell leads to us, our carriers and agencies. In return, we get compensated when we sell a lead by charging our customers a fee for each lead purchased.
The Company will identify and address additional target markets for its services other than the insurance and financial industries with market research and feedback from its customers.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
Seasonality
We do not expect our revenues to be impacted by seasonal demands for our services.