SEC Info - nDivision Inc. - ‘10-Q’ for 9/30/21

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		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited) Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Information Financial Statements Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition or Plan of Operation Mine Safety Disclosures Notes to the Condensed Consolidated Financial Statements (Unaudited) Other Information Part I -- Financial Information Part Ii -- Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Part I -- Financial Information
"	Item 1
"	Financial Statements
"	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)
"	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)
"	Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)
"	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)
"	Notes to the Condensed Consolidated Financial Statements (Unaudited)
"	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
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Item 6
"	Exhibits
"	Signatures

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

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

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

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. ☒ i 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). ☒ i 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.

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) i ☐ Yes ☒ No

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

i 43,719,870 common shares, $0.001 par value per share, issued and outstanding as of November 12, 2021.

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. 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 (“US GAAP”). 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.

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

Cash is maintained with one major financial institution 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.

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 September 30, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of September 30, 2021 are:

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 accompanying unaudited condensed consolidated balance sheet as of September 30, 2021:

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 nine months ended September 30, 2021, 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:

During the nine month period ended September 30, 2020, the Company granted options to purchase i 625,000 shares of common stock with an average vesting period of i 3 years, an average expected life of i 6.5 years and an average exercise price of $ i 0.35 per common share. Total value was approximately $ i 250,700.

During the year ended December 31, 2020, the Company issued a warrant to a related party consultant to purchase up to i 750,000 shares of common stock at a per common share price of $ i 0.625. The consulting contract is for eighteen months and the warrant term is eighteen months. The warrant vests immediately and the total value was approximately $ i 174,000.

Stock-based compensation expense attributable to issued warrants was $ i 28,988 and $ i 86,984 for the three and nine month periods ended September 30, 2021, respectively. There was no expense during the three and nine month periods ended September 30, 2020. As of September 30, 2021, there was approximately $ i 67,672 of unrecognized stock compensation expense related to these warrants.

During the year ended December 31, 2020, the Company issued i 1,250,000 shares of common stock to consultants, valued $ i 437,500 or $ i 0.35 per share. These services are to be provided over i 19 months and are expensed over that period. Stock-based compensation expense attributable to issued common stock was $ i 69,079 and $ i 206,319 for the three and nine month periods ended September 30, 2021, respectively. There was no expense during the three and nine month periods ended September 30, 2020. As of September 30, 2021, there was approximately $ i 135,644 of unrecognized stock compensation expense related to the stock issuance.

The warrants issued related to the Gamwell contract acquisition remain outstanding. The warrants can be exercised for i 122,752 shares of common stock at an exercise price of $ i 0.375 per share and expire i April 23, 2028.

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

nDivision Inc. was incorporated under the laws of the State of Nevada. 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. The Company operates in most states of the United States of America.

In December 2019, COVID-19 surfaced. The spread of COVID-19 around the world 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, the Company has transitioned 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.

The Company is in contract renegotiations with a customer and has agreed to a reduction of billed services of $90,000 that will be credited to the customer over a three-month period of future services and was recorded as a reduction of sales for the three and nine months ended September 30, 2021. Although we are still in contractual negotiations, we expect the resulting agreement to result in a reduction of annual recurring revenue between $950,000 and $1,300,000. The Company expects to retain approximately $500,000 in on-going annual revenue related to a portion of the original contract.

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 September 30, 2021 and 2020, which are included herein.

Revenues increased by $218,627 or 14.8% compared with the same period last year. Revenue increased by approximately $251,448 from new customers and an increase of approximately $71,232 of new, non-recurring revenue, which was offset by approximately $41,363 from the loss of customers and an increase of $27,310 due to changes in services or devices. Included as a reduction in revenue for the quarter is a credit to a customer for implementation fees of $90,000. The loss of customers were non-renewed contracts. This loss of revenue primarily related to the loss of a single customer that continued and extended their Help Desk services.

Cost of revenue includes system infrastructure, software licenses, wages and related payroll taxes and employee benefits of the engineers providing direct services to our customers. Part of these costs are recurring and fixed to provide our minimum service level as a managed service provider. Cost of revenue increased by $413,872 or 40% compared with the same period last year. The increase was related to the addition of nine service employees in 2021 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. Gross profit decreased by $195,245 and the gross margin decreased by approximately 52.36% to 15.3%. This decrease in gross margin is primarily related to a single customer contract where support volumes exceeded the estimates expected when services were contracted and additional employees were necessary to provide support to both this customer and our other customers to maintain expected service levels. Ultimately the Company was not able to bill for these additional services and the Company discounted its services during the period by $90,000, which all significantly impacted our gross margin.

The Company’s management team is continuing to focus on controlling operating expenses while also implementing new growth strategies. Operating expenses for the quarter increased by $427,656 or 45.89% compared with the same period last year. The increases in payroll expenses, and the $302,115 impairment of intangible assets were the primary reason for the increase of operating expenses.

Other income (expenses) decreased by $209,659 compared with the same period last year. The decrease was primarily related to the non-cash interest expense related to the convertible debt issued in 2020 and the first quarter of 2021 and the impairment loss on the intangible asset.

The Company incurred a net loss of $1,332,504 and $499,944 for the three months ended September 30, 2021, and 2020, respectively. The increase in the net loss is primarily related to the increase in operating expenses, other income (expenses) and lower profit margins.

Revenues decreased by $2,793 compared with the same period last year. The Company increased recurring revenue by approximately $438,241 from new customers and increased implementation fees by approximately $253,711 for these new contracts. This was offset by approximately $340,111 from lost customers and overall lower services fees of more than $300,000 to existing customers based on changes in these customers’ services and monitored devices. These decreases in revenue were primarily from a single customer.

Cost of revenue increased by $776,129 or 25% compared with the same period last year. The increase was related to the addition of nine service employees in the second quarter of 2021 to support recurring contracts and additional direct expenses incurred. This was offset by the decrease in depreciation for fully depreciated assets. This was a result of lower-than-planned revenue and the additional costs incurred from the new service employees, professional services cost and increase in MSP costs. Gross profit decreased by $778,992 and the gross margin decreased by approximately 50%. The decrease in gross margin is primarily related to a single customer contract where support volumes exceeded the estimates expected when services were contracted, and additional employees were necessary to provide support to both this customer and our other customers to maintain expected service levels. Ultimately the Company was not able to bill for these additional services and the Company discounted its services during the period by $90,000, which all impacted our gross margin.

Operating expenses increased by $1,584,630 or 67% compared with the same period last year. The primary difference was the increased expenses in a new marketing campaign, investor relations expenses, compensation for new Chief Revenue Officer, the $302,115 impairment of intangible asset and the addition of two new sales directors and related sales expenses. In addition, there was an increase in non-cash expenses of stock-based compensation. Management is in the process of implementing its channel partner sales strategy that has increased operating expenses to achieve long-term revenue growth and profitability.

Other income (expenses) increased by $263,564 compared with the same period last year. The increase was primarily due to the gain from the SBA PPP loan forgiveness, which was offset by the increase in interest expense related to the convertible debt and the impairment of the intangible asset.

The Company incurred a net loss of $2,953,061 and $853,073 for the nine months ended September 30, 2021 and 2020, respectively. The increase in the net loss is primarily related to the increases in cost of revenue, operating expenses and other income (expense).

On September 30, 2021, the Company had cash of $362,786 or a decrease of $1,443,820 from December 31, 2020. Cash used in operating activities was $2,512,604 for the nine months ended September 30, 2021. The increase in cash used in operating activities is primarily related to increased net loss sustained during the period. On September 30, 2021 and December 31, 2020 deferred revenue was $485,431 and $870,184, respectively.

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 was $21,994 and $51,223, respectively. The decrease in net cash used in investing activities is due to the acquisition loan for the purchase of the MSP contracts purchased from Gamwell being paid in full during the nine months ended September 30, 2021.

Net cash flows provided by financing activities for the nine months ended September 30, 2021 was $1,090,778 compared to $1,031,101 for the nine months ended September 30, 2020. The increase is primarily related to the issuance of convertible notes payable of $1,190,000 net of repayment of the finance lease obligations.

The Company has not factored any receivables under the Company’s factoring credit facility agreement for the three and nine months ended September 30, 2021, and 2020. The Company receives 90% of the factored receivables for a fee of 2.4% of the factored invoice and has committed to a minimum balance of $150,000 of invoices factored for six months. As of November 13, 2021, the Company has factored approximately $210,000 of its invoices and received approximately $189,000 as an advance against these factored invoices.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements with existing cash on hand, invoice factoring, obtaining additional debt 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, and existing cash on hand will be insufficient to finance operations over the next twelve months, see Note 2 for more information.

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 U.S. 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.

For revenue recognition arrangements that we determine are within the scope of 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 ASC 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 ASC 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. Any early termination fees are recognized in the period the contract is terminated and the termination invoice is paid.

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 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 $10,000 and $26,000 as of September 30, 2021 and December 31, 2020, respectively. The Company does not accrue interest on past due receivables.

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.

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. During the three and nine months ended September 30, 2021, the Company recorded a $302,115 impairment related to the contracts purchased in February 2018 based on the expected negative cash flow from the business unit over the next 18-month period. The Company did not record any impairment during the three and nine months ended September 30, 2020.

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 were effective for the Company in the first quarter of 2021. The Company determined that the adoption of this ASU had no impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 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.

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity”, which simplifies the guidance for certain convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its convertible debt and reduce its reported interest expense. In addition, the Company will be required to use the if-converted method for calculating diluted earnings per share. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements.

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

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 (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 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.

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 (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 U.S. GAAP. 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 September 30, 2021. 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:

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.

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, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes by the end of the 2021 fiscal year as resources allow:

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 September 30, 2021 are fairly stated, in all material respects, in accordance with U.S. GAAP.

There have been no changes in our internal controls over financial reporting that occurred during the nine months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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.

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

During the nine months ended September 30, 2021 the Company entered into several promissory notes with various investors of the Company with a face value of $1,190,000. The principle and interest of the note is convertible into the Company’s common stock at a purchase price of the lesser of $0.40 per common share at any time after issuance or a 25% discount of the common stock price of a Qualified Offering.

During the nine months ended September 30, 2021, $450,000 of principal and $3,994 of accrued interest on the notes was converted into 1,134,984 shares of common stock.

The offer and sale of the above described notes were exempt from registration pursuant to Rule 506(b) under Regulation D of the Securities Act.

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.

i Nevada		i 47-5133966
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

i 7301 N. State Highway 161, i Suite 100, i Irving i TX		i 75039
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

	·	our business is dependent on key clients, and the loss of a key client could have an adverse effect on our business and results of operations;

	·	a loss of business or non-payment from significant clients could materially affect our results of operations;

	·	if we provide inadequate service or cause disruptions in our clients’ businesses or fail to comply with the quality standards required by our clients under our agreements, it could result in significant costs to us, the loss of our clients and damage to our corporate reputation;

	·	our failure to detect and deter criminal or fraudulent activities or other misconduct by our employees could result in loss of trust from our clients and negative publicity, which would have an adverse effect on our business and results of operations;

	·	our business depends in part on our capacity to invest in technology as it develops, and substantial increases in the costs of technology or our inability to attract and retain the necessary computer engineers could have a material adverse effect on our business, financial condition, results of operations and prospects;

	·	competitive pricing pressure may reduce our revenue or gross profits and adversely affect our financial results.

	Page

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)		F-1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)		F-2

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)		F-3

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)		F-4

Notes to the Condensed Consolidated Financial Statements (Unaudited)		F-5

	September 30,			December 31,
	2021			2020

ASSETS
Current assets
Cash	$	i 362,786		$	i 1,806,606
Accounts receivable, net (allowance for doubtful accounts was $ i 10,000 at September 30, 2021 and $ i 26,000 at December 31, 2020)		i 676,502			i 531,244
Prepaid expenses		i 222,961			i 121,339
Total current assets		i 1,262,249			i 2,459,189

Equipment and software licenses - at cost, less accumulated depreciation and amortization		i 431,731			i 540,918

Other assets
Intangible asset, less accumulated amortization		i -			i 455,320
Right-of-use asset		i 365,152			i 441,940
Total other assets		i 365,152			i 897,260

Total assets	$	i 2,059,132		$	i 3,897,367

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	i 205,737		$	i 153,427
Accrued liabilities		i 500,043			i 373,487
Deferred revenue		i 485,431			i 870,184
Current portion of acquisition note payable		i -			i 18,102
Current portion of notes payable		i -			i 514,678
Current portion of operating lease payable		i 107,640			i 105,615
Current portion of finance lease obligations		i 132,522			i 125,449
Total current liabilities		i 1,431,373			i 2,160,942

Note payable, net of current portion		i -			i 195,822
Convertible notes payable, net of discount		i 1,050,430			i 734,282
Operating lease payable, net of current portion		i 254,925			i 336,520
Finance lease obligations, net of current portion		i 301,026			i 380,209
Total long-term liabilities		i 1,606,381			i 1,646,833

Commitments

Stockholders' equity (deficit)
Preferred stock, $ i 0.001 par value, i 20,000,000 shares authorized, no shares issued and outstanding		i -			i -
Common stock, $0.001 par value, 180,000,000 shares authorized, and i 43,719,870 and i 42,499,783 shares issued and outstanding, respectively		i 43,720			i 42,500
Additional paid in capital		i 9,043,802			i 7,160,175
Accumulated deficit		( i 10,066,144	)		( i 7,113,083	)
Total stockholders' equity (deficit)		( i 978,622	)		i 89,592
Total liabilities and stockholders' equity (deficit)	$	i 2,059,132		$	i 3,897,367

nDivision Inc. – ‘10-Q’ for 9/30/21

On: Monday, 11/15/21, at 4:06pm ET · For: 9/30/21 · Accession #: 1477932-21-8369 · File #: 0-55920

Previous ‘10-Q’: ‘10-Q’ on 8/16/21 for 6/30/21 · Next & Latest: ‘10-Q’ on 5/16/22 for 3/31/22 · 1 Reference: To: nDivision Inc. – ‘S-1’ on 7/8/16

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

1 Previous Filing that this Filing References

Large accelerated filer	☐	Accelerated filer	☐
i Non-accelerated filer	☐	Smaller reporting company	i ☒
		Emerging growth company	i ☒

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition or Plan of Operation	5

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10

Item 4.	Controls and Procedures	10

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	12

Item 1A.	Risk Factors	12

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12

Item 3.	Defaults Upon Senior Securities	12

Item 4.	Mine Safety Disclosures	12

Item 5.	Other Information	12

Item 6.	Exhibits	13

SIGNATURES		14

	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities
Net loss	$	( i 2,953,061	)	$	( i 853,073	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		i 293,396			i 331,128
Provision for doubtful accounts		(16,000	)		i 15,713
Amortization of beneficial conversion feature		i 307,050			i 555
Non-cash lease expense		i 76,788			i 81,973
Stock based compensation		i 699,053			i 515,309
Forgiveness of SBA PPP loan		( i 716,982	)		i -
Impairment of intangible asset		i 302,115
Loss of sale of asset		i -			i 2,210
Changes in assets and liabilities
Accounts receivable		( i 129,258	)		i 16,694
Prepaid expenses		( i 101,622	)		( i 49,592	)
Change in operating lease liability		( i 79,570	)		( i 68,889	)
Accounts payable and accrued liabilities		i 190,240			i 77,615
Deferred revenue		( i 384,753	)		( i 957,244	)
Net cash used in operating activities		( i 2,512,604	)		( i 887,601	)

Cash flows from investing activities
Repayment of debt related to acquisition		( i 18,102	)		( i 39,829	)
Acquisition of equipment and software licenses		( i 3,892	)		( i 11,394	)
Net cash used in investing activities		( i 21,994	)		( i 51,223	)

Cash flows from financing activities
Proceeds of convertible notes payable		i -			i 500,000
Proceeds from convertible notes payable		i 1,190,000			i 710,500
Repayment of finance lease obligations		( i 99,222	)		( i 179,399	)
Net cash provided by financing activities		i 1,090,778			i 1,031,101

Net (decrease) increase in cash		( i 1,443,820	)		i 92,277
Cash, beginning of period		i 1,806,606			i 1,757,695
Cash, end of period	$	i 362,786		$	i 1,849,972

Supplemental cash flow disclosures
Interest paid	$	i 34,610		$	i 23,354
Non-cash financing activities:
Purchase of equipment under capital lease	$	i 27,112		$	i 550,066
Conversion of notes payable to common stock, net of unamortized discount	$	i 160,419		$	i -
Beneficial conversion feature	$	i 1,025,375		$	i 75,000

Year ended
Remainder of 2021	$	i 42,422
2022		i 155,642
2023		i 136,058
2024		i 117,774
2025		i 43,970

Total		i 495,866
Less: interest		( i 62,318	)
Present value of net minimum lease payments		i 433,548

Short term		(132,522	)
Long term total	$	i 301,026

Weighted average remaining lease term		i 38 Months
Weighted average incremental borrowing rate			i 5.0	%

Remainder of 2021	$	i 10,764
2022		i 129,392
2023		i 131,859
2024		i 120,871
Total undiscounted future minimum lease payments		i 392,886
Less: Imputed interest		( i 30,321	)
Present value of operating lease obligation	$	i 362,565

Short term		(107,640	)
Long term total	$	i 254,925

	Three months ended September 30, 2021		Three months ended September 30, 2020
Operating lease cost:
Operating lease cost	$	i 31,617	$	i 30,946
Financing lease cost:
Amortization of financed lease assets	$	i 33,298	$	i 39,104
Interest expense		i 9,124		i 11,375
Total lease cost	$	i 42,422	$	i 50,479

	Nine months ended September 30, 2021		Nine months ended September 30, 2020
Operating lease cost:
Operating lease cost	$	i 94,851	$	i 92,840
Financing lease cost:
Amortization of financed lease assets	$	i 99,221	$	i 127,466
Interest expense		i 29,164		i 18,768
Total lease cost	$	i 128,385	$	i 146,234

Number of options outstanding:
2018 Equity Incentive Plan			i 8,235,011
Options granted not part of a shareholder approved plan			i 700,000

September 30, 2021			i 8,935,011

Number of options outstanding:
Beginning of year		i 9,601,677
Granted		i 1,700,000
Exercised		( i 175,000	)
Forfeited / Expired		( i 2,191,666	)

September 30, 2021		i 8,935,011

Number of options exercisable at end of period		i 6,997,510
Number of options available for grant at end of period		i 9,679,886

Weighted average option prices per share:	$	i 0.41
Granted during the period		i 0.55
Exercised during the period		i 0.375
Forfeited during the period		i 0.40
Outstanding at end of the period		i 0.38
Exercisable at end of period	$	i 0.40

	2021

Expected option life (years)		i 6.5
Expected stock price volatility		i 114%- i 117	%
Expected dividend yield		—	%
Risk-free interest rate		i 1.15%- i 1.58	%

	As at September 30, 2021			As at December 31, 2020
Current assets	$	1,262,249		$	2,459,189
Current liabilities		1,431,373			2,160,942
Working capital	$	(169,124	)	$	298,247

	(i)	inadequate segregation of duties consistent with control objectives; and

	(ii)	lack of multiple levels of supervision and review.

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		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

		NDIVISION, INC.
		(Registrant)

Dated: November 15, 2021		/s/ *Alan Hixon*
		Alan Hixon
		President, Chief Executive Officer, and Director
		(Principal Executive Officer)

Dated: November 15, 2021		/s/ *Andrew J. Norstrud*
		Andrew J. Norstrud
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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