Company Quick10K Filing
nDivision
Price0.35 EPS-0
Shares41 P/E-17
MCap14 P/FCF64
Net Debt-0 EBIT-1
TEV14 TEV/EBIT-16
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-13
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-03-25
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-21
10-Q 2017-12-31 Filed 2018-02-06
10-K 2017-09-30 Filed 2017-12-20
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-03
10-Q 2016-12-31 Filed 2017-02-01
10-K 2016-09-30 Filed 2016-12-28
8-K 2020-09-08 Regulation FD, Exhibits
8-K 2020-09-04 Officers, Exhibits
8-K 2020-08-18 Earnings, Exhibits
8-K 2020-05-04
8-K 2020-04-07
8-K 2019-10-22
8-K 2019-10-18
8-K 2019-10-15
8-K 2019-08-12
8-K 2019-05-22
8-K 2019-05-16
8-K 2019-04-16
8-K 2019-04-03
8-K 2019-04-01
8-K 2019-03-15
8-K 2019-03-06
8-K 2019-01-10
8-K 2018-12-06
8-K 2018-03-14
8-K 2018-02-26
8-K 2018-02-13
8-K 2018-02-12

NDVN 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ndvn_ex311.htm
EX-31.2 ndvn_ex312.htm
EX-32.1 ndvn_ex321.htm
EX-32.2 ndvn_ex322.htm

nDivision Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
3.32.61.91.30.6-0.12015201620182020
Assets, Equity
1.91.40.80.3-0.3-0.82017201820192020
Rev, G Profit, Net Income
2.61.80.90.1-0.8-1.62015201620182020
Ops, Inv, Fin

10-Q 1 ndvn_10q.htm FORM 10-Q ndvn_10q.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the quarterly period ended June 30, 2020

 

or 

 

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the transition period from _______ to _______ 

 

Commission File Number 333-212446      

 

NDIVISION INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

47-5133966

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

7301 N. State Highway 161, Suite 100, Irving TX

 

75039

(Address of principal executive offices)

 

(Zip Code)

 

 

(214) 785-6355

 

 

(Registrant's telephone number, including area code)

 

 

 

 

 

 

 

 

(Former name, former address, and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

None

None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒  YES ☐  NO 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ YES ☐ NO 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   ☐ YES ☒ NO

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  

 

41,249,783 common shares issued and outstanding as of August 11, 2020. 

 

 

 

 

TABLE OF CONTENTS

 

 

 
2

 

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our unaudited consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

 

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our common stock.

 

As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean nDivision Inc., unless otherwise indicated.

 

 
3

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NDIVISION, INC.

 

Interim Condensed Consolidated Financial Statements

For the Quarterly Period Ended June 30, 2020

 

 

 
4

Table of Contents

 

NDIVISION INC

CONDENSED CONSOLDIATED BALANCE SHEETS (unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 1,746,749

 

 

$ 1,757,695

 

Accounts receivable, net (allowance for doubtful accounts was $0 at June 30, 2020 and $10,000 at December 31, 2019)

 

 

410,251

 

 

 

548,825

 

Prepaid expenses

 

 

175,270

 

 

 

107,428

 

Total current assets

 

 

2,332,270

 

 

 

2,413,948

 

 

 

 

 

 

 

 

 

 

Equipment and software licenses - at cost, less accumulated

 

 

 

 

 

 

 

 

depreciation and amortization

 

 

637,762

 

 

 

210,004

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Intangible asset, less accumulated amortization

 

 

556,595

 

 

 

657,871

 

Right-of-use asset

 

 

498,790

 

 

 

542,975

 

Total other assets

 

 

1,055,385

 

 

 

1,200,846

 

 

 

 

 

 

 

 

 

 

   Total assets

 

$ 4,025,417

 

 

$ 3,824,798

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 113,172

 

 

$ 137,582

 

Accrued liabilities

 

 

438,110

 

 

 

479,081

 

Deferred revenue

 

 

1,235,167

 

 

 

1,977,825

 

Current portion of acquisition note payable

 

 

46,481

 

 

 

57,492

 

Current portion of note payable

 

 

276,442

 

 

 

-

 

Current portion of operating lease payable

 

 

124,452

 

 

 

124,452

 

Current portion of finance lease obligations

 

 

133,910

 

 

 

129,532

 

Total current liabilities

 

 

2,367,734

 

 

 

2,905,964

 

 

 

 

 

 

 

 

 

 

Acquisition note payable

 

 

-

 

 

 

14,666

 

Note payable

 

 

434,058

 

 

 

-

 

Operating lease payable, net of current portion

 

 

392,175

 

 

 

412,302

 

Finance lease obligations, net of current portion

 

 

435,277

 

 

 

27,006

 

Total long-term liabilities

 

 

1,261,510

 

 

 

453,974

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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 41,249,783 and 41,249,783 shares issued and outstanding, respectively

 

 

41,250

 

 

 

41,250

 

Additional paid in capital

 

 

6,322,209

 

 

 

6,037,767

 

Accumulated deficit

 

 

(5,967,286 )

 

 

(5,614,157 )

Total stockholders' equity

 

 

396,173

 

 

 

464,860

 

Total liabilities and stockholders' equity

 

$ 4,025,417

 

 

$ 3,824,798

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
5

Table of Contents

 

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

Three Month's Ended June 30,

 

 

Six Month's Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

$ 1,503,056

 

 

$ 1,385,303

 

 

$ 3,169,946

 

 

$ 2,841,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service costs

 

 

1,010,975

 

 

 

925,088

 

 

 

2,031,127

 

 

 

1,839,686

 

Gross profit

 

 

492,081

 

 

 

460,215

 

 

 

1,138,819

 

 

 

1,001,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

697,198

 

 

 

788,201

 

 

 

1,433,151

 

 

 

1,506,463

 

Change in contingent consideration

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,757 )

 

 

 

697,198

 

 

 

788,201

 

 

 

1,433,151

 

 

 

1,475,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(205,117 )

 

 

(327,986 )

 

 

(294,332 )

 

 

(474,162 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(28,750 )

 

 

(13,544 )

 

 

(58,797 )

 

 

(32,440 )

Other expense

 

 

(28,750 )

 

 

(13,544 )

 

 

(58,797 )

 

 

(32,440 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before income tax

 

 

(233,867 )

 

 

(341,530 )

 

 

(353,129 )

 

 

(506,602 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (233,867 )

 

$ (341,530 )

 

$ (353,129 )

 

$ (506,602 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$ (0.01 )

 

$ (0.01 )

 

$ (0.01 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

41,249,783

 

 

 

41,109,368

 

 

 

41,249,783

 

 

 

40,845,309

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
6

Table of Contents

  

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Common Stock

 

 

Additional Paid

 

 

Accumulated

 

 

Shareholders'

 

 

 

 Shares

 

 

Par

 

 

In Capital

 

 

Deficit

 

 

Equity

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

41,249,783

 

 

$ 41,250

 

 

$ 6,037,767

 

 

$ (5,614,157 )

 

$ 464,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

-

 

 

 

-

 

 

 

145,797

 

 

 

-

 

 

 

145,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(119,262 )

 

 

(119,262 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance,March 31, 2020

 

 

41,249,783

 

 

$ 41,250

 

 

$ 6,183,564

 

 

$ (5,733,419 )

 

$ 491,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

-

 

 

 

-

 

 

 

138,645

 

 

 

-

 

 

 

138,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(233,867 )

 

 

(233,867 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

 

41,249,783

 

 

$ 41,250

 

 

$ 6,322,209

 

 

$ (5,967,286 )

 

$ 396,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

40,504,005

 

 

$ 40,504

 

 

$ 5,184,493

 

 

$ (4,633,932 )

 

$ 591,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

-

 

 

 

-

 

 

 

114,321

 

 

 

-

 

 

 

114,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash, net

 

 

101,334

 

 

 

101

 

 

 

37,899

 

 

 

-

 

 

 

38,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165,072 )

 

 

(165,072 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

 

40,605,339

 

 

$ 40,605

 

 

$ 5,336,713

 

 

$ (4,799,004 )

 

$ 578,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

-

 

 

 

-

 

 

 

156,466

 

 

 

-

 

 

 

156,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash, net

 

 

533,333

 

 

 

534

 

 

 

199,466

 

 

 

-

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(341,530 )

 

 

(341,530 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

 

41,138,672

 

 

$ 41,139

 

 

$ 5,692,645

 

 

$ (5,140,534 )

 

$ 593,250

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
7

Table of Contents

 

NDIVISION INC

CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$ (353,129 )

 

$ (506,602 )

Adjustments to reconcile net loss to net cash (used in) provided by

 

 

 

 

 

 

 

 

operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

226,016

 

 

 

270,044

 

Provision for doubtful accounts

 

 

(8,190 )

 

 

(7,026 )

Non-cash lease expense

 

 

44,185

 

 

 

-

 

Stock based compensation

 

 

284,442

 

 

 

270,787

 

Stock issued for services

 

 

-

 

 

 

(23,012 )

Change in contingent consideration

 

 

-

 

 

 

(30,757 )

Loss of sale of asset

 

 

1,473

 

 

 

-

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

146,764

 

 

 

(210,379 )

Prepaid expenses

 

 

(67,842 )

 

 

23,505

 

Change in operating lease liability

 

 

(20,127 )

 

 

-

 

Accounts payable and accrued liabilities

 

 

(65,381 )

 

 

(78,860 )

Deferred revenue

 

 

(742,658 )

 

 

404,687

 

Net cash (used in) provided by operating activities

 

 

(554,447 )

 

 

112,387

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Repayment of debt related to acquisition

 

 

(25,677 )

 

 

(59,516 )

Proceeds from sale of equipment and software license

 

 

-

 

 

 

26,700

 

Acquisition of equipment and software licenses

 

 

(3,272 )

 

 

(2,382 )

Net cash used in investing activities

 

 

(28,949 )

 

 

(35,198 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

-

 

 

 

238,000

 

Repayment of proceeds of factor credit facility

 

 

-

 

 

 

(41,662 )

Proceeds (repayments) of note payable

 

 

710,500

 

 

 

(13,358 )

Repayment of finance lease obligations

 

 

(138,050 )

 

 

(274,968 )

Net cash provided by (used in) financing activities

 

 

572,450

 

 

 

(91,988 )

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

(10,946 )

 

 

(14,799 )

Cash, beginning of period

 

 

1,757,695

 

 

 

154,941

 

Cash, end of period

 

$ 1,746,749

 

 

$ 140,142

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$ 11,542

 

 

$ 27,436

 

Non-cash financing activities

 

 

 

 

 

 

 

 

Purchase of equipment under capital lease

 

$ 550,066

 

 

$ 49,624

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

 

 
8

Table of Contents

 

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 7301 N. State Highway 161, Suite 100, Irving, TX, 75039. 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.

 

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.

 

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 August 12, 2020, the Company has no factored invoices.

 

Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited consolidated financial statements with existing cash on hand, expected cash flow from operations and short-term debt from the factoring of receivables. With the prepayment of annual services from two customers, the current monthly recurring revenue and the existing cash on hand, management believes the expected cash flow from operations and cash on hand will be sufficient to finance operations over the next twelve months from the date of this report.

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first and second quarters of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, as of August 12th the Company has transition its operations to 100% work from home and there has been minimal impact to our internal operations from the transition.  The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues. 

 

3. SUMMARY 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 six month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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 25, 2020 from which the accompanying December 31, 2019 numbers are derived.

 

 
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Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, nDivision Service, Inc. (incorporated in the state of Texas). All significant inter-company accounts and transactions are eliminated in consolidation.

 

Use of Estimates

 

Management uses estimates and assumptions in preparing these unaudited 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.

 

Reclass

 

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported assets, liabilities, or net loss. The Company reclassed $662,801 and $1,301,540 from selling, general and administrative expense to service costs for the three and six months ended June 30, 2019, respectively.

 

Revenue Recognition

 

For revenue recognition arrangements that we determine are within the scope of Topic ASC 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.

 

The Company recognizes revenue upon completion of our performance obligations or expiration of the contractual time to use services such as managed services and professional service hours purchased in bulk for a given time period. Any early termination fees are recognized in the period the contract is terminated and the termination invoice is paid.

 

The Company has elected the following practical expedients in applying ASC 606:

 

Unsatisfied Performance Obligations - all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

 

Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.

 

Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.

 

 
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Cash and Cash Equivalents

 

For purposes of the unaudited 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.

 

Accounts Receivable

 

Accounts receivable are stated at the amount’s 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 $0 and $10,000 as of June 30, 2020 and December 31, 2019, 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 six months ended June 30, 2020 and 2019.

 

Concentration of Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and accounts receivable. See Note 14 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 6,916,000 and 6,932,500 of common stock equivalents excluded for the three and six months ended June 30, 2020 and 9,059,429 and 9,080,553 of common stock equivalents excluded for the three and six months ended June 30, 2019, respectively because their effect is anti-dilutive.

 

 
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Marketing Costs

 

Marketing costs, which are expensed as incurred, totaled approximately $2,405 and $7,496 for the three and six months ended June 30, 2020 and $31,249 and $55,022 for the three and six months ended June 30, 2019, respectively and is included in selling, general and administrative expenses.

 

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

 

The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use ("ROU") assets are included in right-of-use assets on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current portion of operating lease liabilities and operating lease liabilities, net of current portion, respectively on the unaudited condensed consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

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 unaudited condensed consolidated statement of operations. As of June 30, 2020, no accrued interest or penalties are included on the related tax liability line in the balance sheet. 

 

 
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4. RECENT ACCOUNTING PRONOUNCEMENTS

 

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.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

 

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 unaudited condensed consolidated financial statements.

 

5. EQUIPMENT AND SOFTWARE LICENSES

 

Equipment and software licenses consist of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Equipment and software

 

$ 606,453

 

 

$ 489,151

 

Software licenses

 

 

1,302,141

 

 

 

868,041

 

 

 

 

1,908,594

 

 

 

1,357,192

 

Less - Accumulated depreciation and amortization

 

 

(1,270,832 )

 

 

(1,147,188 )

 

 

$ 637,762

 

 

$ 210,004

 

 

Depreciation and amortization expense related to assets for the three and six months ended June 30, 2020 and 2019 was approximately $62,139 and $124,740 and $83,994 and $168,768, respectively.

 

Included in the above paragraph is depreciation and amortization expense related to leased assets for the three and six months ended June 30, 2020 of approximately $44,800 and $88,363, and $73,991 and $148,727 for the three and six months ended June 30, 2019, respectively.

 

6. INTANGIBLE ASSETS

 

Intangible Assets

 

As of June 30, 2020

 

(In Thousands)

 

Useful Life

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

Book Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service Contracts

 

 

5

 

 

$ 1,012,335

 

 

$ 455,740

 

 

$ 556,595

 

 

 
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There was approximately $50,638 and $101,276 of amortization expense for the three and six month period ended June 30, 2020. There was approximately $50,598 and $101,276 of amortization expense for the three and six month period ended June 30, 2019. 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 four fiscal years and thereafter, annual amortization expense for these finite life intangible assets will total approximately $556,595 as follows: remainder of fiscal 2020 - $101,276, 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 June 30, 2020, the Company has not recorded any impairments.

 

7. ACCRUED LIABILITIES

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued compensation

 

$ 128,830

 

 

$ 128,942

 

Accrued sales tax

 

 

84,148

 

 

 

140,683

 

Accrued franchise tax

 

 

15,308

 

 

 

5,000

 

Accrued professional fees and other payables

 

 

209,824

 

 

 

204,456

 

Total accrued liabilities

 

$ 438,110

 

 

$ 479,081

 

 

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 receivables under factoring arrangements are recorded within accounts receivable and factoring credit facility. The Company has recognized $0 and $0 and $3,019 and $7,483 in interest expense related to these arrangements for the three and six months ended June 30, 2020 and 2019, respectively.

 

9. FINANCE LEASE OBLIGATIONS

 

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 $225 to $10,813 including interest, ranging from 3.6% to 13.2% per annum.

 

 
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Future minimum lease payments, including principal and interest, under the finance leases for subsequent years are as follows:

 

Year ended

 

 

 

Remainder of 2020

 

$ 93,730

 

2021

 

 

161,394

 

2022

 

 

145,374

 

2023

 

 

125,790

 

2024

 

 

116,918

 

2025

 

 

35,508

 

 

 

 

 

 

Total

 

 

678,714

 

Less: interest

 

 

(109,527 )

Present value of net minimum lease payments

 

 

569,187

 

 

 

 

 

 

Short term

 

 

133,910

 

Long term total

 

$ 435,277

 

 

Lease payments for the three and six months ended June 30, 2020 and 2019 aggregated approximately $76,917 and $146,662 and $137,698 and $305,275, respectively.

 

The finance lease obligations are secured by underlying leased assets with a net book value of approximately $587,257 and $125,553 as of June 30, 2020 and December 31, 2019, respectively.

 

Operating Lease

 

The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.

 

Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

 

The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

 

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of June 30, 2020 are:

 

Weighted average remaining lease term

 

53 Months

 

Weighted average incremental borrowing rate

 

 

5.0 %

 

 
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The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized in the unaudited condensed consolidated balance sheet as of June 30, 2020:

 

Remainder of 2020

 

$ 62,562

 

2021

 

 

127,143

 

2022

 

 

129,841

 

2023

 

 

131,859

 

2024

 

 

98,894

 

Total undiscounted future minimum lease payments

 

 

550,299

 

Less: Imputed interest

 

 

(33,672 )

Present value of operating lease obligation

 

$ 516,627

 

 

The Company has one leased facility which is office, manufacturing, and warehouse space. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Therefore, all lease and non-lease components are combined and accounted for as single lease component.

 

For the three and six months ended June 30, 2020, the components of lease expense, included in cost of services and general and administrative expenses and the related interest expense in the consolidated statements of operations income, are as follows:

 

 

 

Three months ended June 30, 2020

 

 

Six months ended June 30, 2020

 

Operating lease cost:

 

 

 

 

 

 

Operating lease cost

 

$ 33,194

 

 

$ 64,313

 

Finance lease cost:

 

 

 

 

 

 

 

 

Amortization of financed lease assets

 

$ 44,800

 

 

$ 88,363

 

Interest expense

 

 

3,526

 

 

 

7,523

 

Total lease cost

 

$ 48,326

 

 

$ 95,886

 

 

10. NOTE PAYABLE

 

On May 2, 2020, the Company entered into a Paycheck Protection Program loan for $710,500 in connection with the CARES Act related to COVID-19. $276,442 of the Paycheck Protection Program loan is classified as current.  The promissory note has a fixed payment schedule, commencing seven months following the funding of the note and consisting of seventeen monthly payments of principal and interest, with the principal component of each payment based upon the level of amortization of principal over a two year period from the funding date. A final payment for the unpaid principal and accrued interest will be payable no later than May 2, 2022. The note will bear interest at a rate of 1.00% per annum and is deferred for the first six months of the loan. Certain portions of the loan and accrued interest may qualify for loan forgiveness based on the terms of the program.

 

 
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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.

 

The following table reflects the stock options for the six months ended June 30, 2020:

 

A summary of stock option activity is as follows:

 

Number of options outstanding:

 

 

 

Beginning of year

 

 

6,939,178

 

Granted

 

 

-

 

Exercised, converted

 

 

-

 

Forfeited

 

 

(145,834 )

 

 

 

 

 

June 30, 2020

 

 

6,793,344

 

 

 

 

 

 

Number of options exercisable at end of period

 

 

4,766,509

 

Number of options available for grant at end of period

 

 

1,206,656

 

 

 

 

 

 

Weighted average option prices per share:

 

 

 

 

Granted during the period

 

$ -

 

Exercised during the period

 

 

-

 

Terminated during the period

 

$ 0.60

 

Outstanding at end of the period

 

$ 0.45

 

Exercisable at end of period

 

$ 0.41

 

 

Stock-based compensation expense attributable to stock options was $138,645 and $284,442 for the three and six month periods ended June 30, 2020 and $156,466 and $270,787 for the three and six month periods ended June 30, 2019. As of June 30, 2020, there was approximately $644,360 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3 years.

 

The Company did not issue any options or warrants during the period ended June 30, 2020. The only warrants remaining are related to the Gamwell contract acquisition. The warrant can be exercised for 122,752 of the Company’s common stock at an exercise price of $0.375 per share and expires April 23, 2028. 

 

12. COMMON STOCK

 

During the six months ended June 30, 2020 and 2019, the Company issued the following stock:

 

2020

 

None.

 

2019

 

Issued 101,334 shares of common stock and received $38,000 with no material fees.

 

Issued 533,333 shares of common stock and received approximately $200,000 with no material fees.

 

 
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13. RELATED PARTY TRANSACTIONS

 

The Company contracted with Norco Professional Services, LLC. (“Norco”) to provide consulting services. The Company spent approximately $42,500 for the six-month period ended June 30, 2020. 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.

 

14.  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 end of the period.

 

Net revenues for the three and six months ended June 30, 2020 and 2019 include revenues from significant customers as follows:

 

 

 

Three Month Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Customer A

 

 

38 %

 

 

55 %

 

 

39 %

 

 

56 %

Customer B

 

 

0 %

 

 

5 %

 

 

0 %

 

 

5 %

Customer C

 

 

34 %

 

 

0 %

 

 

33 %

 

 

0 %

 

Accounts receivable balances as of June 30, 2020 and December 31, 2019 from significant customers are as follows:

 

 

 

June 30, 2020

 

December 31, 2019

Customer A

 

 

96

%

 

 

75

%

Customer D

 

 

0

%

 

 

17

%

 

15. SUBSEQUENT EVENTS

 

On August 4, 2020, the Company issued an option to a perspective employee to purchase up to 2,000,000 shares of common stock at a per common share price of $0.344 per common share.  The option vests over 5 years; 400,000 shares on the employees 12 month anniversary and vests the remaining 1,600,000 shares 1/48th per month over the following 48 months.  

 

 
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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.

 

nDivision Inc. (“nDivision” or the “Company”) was incorporated under the laws of the state of Texas. nDivision’s registered office is located at 7301 N. State Highway 161, Suite 100, Irving, TX, 75039. 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.

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first and second quarters of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, as of August 12th the Company has transition its operations to 100% work from home and there has been minimal impact to our internal operations from the transition.  The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues. 

 

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 June 30, 2020 and 2019, which are included herein.

 

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

 

 

 

June 30,

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

Revenue

 

$ 1,503,056

 

 

$ 1,385,303

 

 

$ 117,753

 

Cost of revenue

 

 

1,010,975

 

 

 

925,088

 

 

 

85,887

 

Operating  expenses

 

 

697,198

 

 

 

788,201

 

 

 

(91,003 )

Other expenses

 

 

28,750

 

 

 

13,544

 

 

 

15,206

 

Net loss

 

$ (233,867 )

 

$ (341,530 )

 

$ (107,663 )

 

Revenues increased by $117,753 or 9% compared with the same period last year. Approximately $600,000 was from new customers. This was offset by approximately $350,000 loss of customers and a decrease of approximately $170,000 of non-recurring revenue. The loss of customers were non-renewed contracts and the non-recurring revenue primarily related to completion of one-time projects and implementation fees.

 

Cost of revenue increased by $85,887 or 9% compared with the same period last year. The increase was related to the addition of two service employees in the second quarter of 2020 to support recurring contracts and additional direct expenses incurred including annual service personnel salary increases. This was offset by the decrease in depreciation for fully depreciated assets.

 

Operating expenses decreased by $91,003 or 12% compared with the same period last year. The primary difference was the decrease of operating employee compensation and operating personnel.  The Company’s management is continuing to control operating expenses while also implementing management growth strategies.

 

The Company incurred a net loss of $233,867 and $341,530 for the three months ended June 30, 2020 and June 30, 2019, respectively. The decrease in the net loss is primarily related to the increase in revenue.

 

 
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Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

 

 

June 30,

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

Revenue

 

$ 3,169,946

 

 

$ 2,841,230

 

 

$ 328,716

 

Cost of revenue

 

 

2,031,127

 

 

 

1,839,686

 

 

 

191,441

 

Operating  expenses

 

 

1,433,151

 

 

 

1,475,706

 

 

 

(42,555 )

Other expenses

 

 

58,797

 

 

 

32,440

 

 

 

26,357

 

Net loss

 

$ (353,129 )

 

$ (506,602 )

 

$ 153,473

 

 

Revenues increased by $328,716 or 12% compared with the same period last year. Approximately $1,200,000 was from new customers. This was offset by approximately $622,000 loss of customers and a decrease of approximately $385,000 of non-recurring revenue. The loss of customers were non-renewed contracts and the non-recurring revenue primarily related to a decrease in implementation fees for new contracts in 2020.

 

Cost of revenue increased by $191,441 or 10% compared with the same period last year. The increase was related to the addition of two service employees in the second quarter of 2020 to support recurring contracts and additional direct expenses incurred. This was offset by the decrease in depreciation for fully depreciated assets.

 

Operating expenses decreased by $42,555 or 3% compared with the same period last year. The primary difference was the decrease of operating employee compensation and operating personnel. The Company’s management is continuing to control operating expenses while also implementing management growth strategies.

 

The Company incurred a net loss of $353,129 and $506,602 for the six months ended June 30, 2020 and June 30, 2019, respectively. The decrease in the net loss is primarily related to an increase in revenue.

 

Liquidity and Capital Resources

 

Working Capital

 

 

 

As at

June 30, 2020

 

 

As at

December 31, 2019

 

Current assets

 

$ 2,332,270

 

 

$ 2,413,948

 

Current liabilities

 

$ 2,367,734

 

 

$ 2,905,964

 

Working capital

 

$ (35,464 )

 

$ (492,016 )

 

 
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Cash Flows

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows (used in) provided by operating activities

 

$ (554,447 )

 

$ 112,387

 

Cash flows used in investing activities

 

 

(28,949 )

 

 

(35,198 )

Cash flows provided by (used in) financing activities

 

 

572,450

 

 

 

(91,988 )

Net decrease in cash during period

 

$ (10,946 )

 

$ (14,799 )

 

At June 30, 2020, the Company had cash of $1,746,749 or a decrease of $10,946 from the December 31, 2019. Cash flow used in operating activities was $554,447 for the six months ended June 30, 2020. The decrease is primarily related to the prepayment in 2019 of 2020 fees (reflected as deferred revenue) by certain customers. At June 30, 2020 and December 31, 2019 deferred revenue was $1,235,167 and $1,977,825, respectively.    

 

Net cash used in investing activities for the six months ended June 30, 2020 and June 30, 2019 was $28,949 and $35,198, respectively. For the period ended June 30, 2019 the use of cash was primarily due to the repayment of debt related to the acquisition of managed service contracts.

 

Net cash flows provided by financing activities for the six months ended June 30, 2020 was $572,450 compared to net cash flows used in financing activities of $91,988 in the six months ended June 30, 2019. The Paycheck Protection Program provided for a bank loan for $710,500, offset by $138,050 of payments related to finance obligations.      

 

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, cash flow from operations and short-term debt from the factoring of receivables. With the prepayment of annual services from two customers, the current monthly recurring revenue and the existing cash on hand, management believes the cash flow from operations and cash on hand will be sufficient to finance operations over the next twelve months.

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first and second quarters of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, as of August 12th the Company has transition its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company is unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues. 

 

 
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Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, intangible assets, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 

We have identified below the accounting policies, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results

 

Revenue Recognition

 

For revenue recognition arrangements that we determine are within the scope of Topic ASC 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.

 

The Company recognizes revenue upon completion of our performance obligations or expiration of the contractual time to use services such as professional service hours purchased in bulk for a given time period. Any early termination fees are recognized in the period the contract is terminated and the termination invoice is paid.

 

The Company has elected the following practical expedients in applying ASC 606:

 

Unsatisfied Performance Obligations - all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

 

Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.

 

Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.

 

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 $0 and $10,000 as of June 30, 2020 and December 31, 2019, respectively. The Company does not accrue interest on past due receivables.

 

 
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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 six months ended June 30, 2020 and June 30, 2019.

 

Recent Accounting Pronouncements

 

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 consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company”, the Company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

 
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Management’s Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our management, with the participation of our principal executive officer and principal financial officer have conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2020. The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses, which are indicative of many small companies with small staff:

 

 

(i)

inadequate segregation of duties consistent with control objectives; and

 

 

 

 

(ii)

lack of multiple levels of supervision and review.

 

We believe that the weaknesses identified above have not had any material effect on our financial results. We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting, and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

 

Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Management’s Remediation Plan

 

The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

 

However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:

 

(i)

Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and

 

(ii)

We will attempt to implement the remediation efforts set out herein by the end of the 2021 fiscal year. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended June 30, 2020 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during the six months ended June 30, 2020 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not involved in any pending legal proceeding or litigation and, to the best of its knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of its properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

 

Item 1A. Risk Factors

 

As a "smaller reporting company", the Company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
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Table of Contents

 

Item 6. Exhibits

 

Exhibit Number

 

Description

(3)

 

Articles of Incorporation and Bylaws

3.1

 

Articles of Incorporation (Incorporated by reference to our Registration Statement on Form S-1 filed on July 8, 2016)

3.2

 

Amended Articles of Incorporation (Incorporated by reference to our Registration Statement on Form S-1 filed on July 8, 2016)

3.3

 

Bylaws (Incorporated by reference to our Registration Statement on Form S-1 filed on July 2016)

(31)

 

Rule 13a-14 (d)/15d-14d) Certifications

31.1*

Section 302 Certification by the Principal Executive Officer

31.2*

 

Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer

(32)

 

Section 1350 Certifications

32.1*

Section 906 Certification by the Principal Executive Officer

32.2*

 

Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer

101**

 

Interactive Data File

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

______ 

* Filed herewith.

** Furnished herewith.

 

 
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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

NDIVISION, INC.

 

 

 

(Registrant)

 

 

 

 

 

Dated: August 12, 2020

By:

/s/ Alan Hixon

 

 

 

Alan Hixon

 

 

 

President, Chief Executive Officer, and Director

 

 

 

(Principal Executive Officer)

 

 

Dated: August 12, 2020

By:

/s/ Andrew J. Norstrud

 

 

 

Andrew J. Norstrud

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 
27