10-Q

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, 2021

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.

43,719,870 common shares issued and outstanding as of August 13, 2021.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Interim Condensed and Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition or Plan of Operation	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
SIGNATURES		29

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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NDIVISION, INC.

Interim Condensed Consolidated Financial Statements

For the Quarterly Period Ended June 30, 2021

	Page
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (Unaudited)	5
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	6
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited)	7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (Unaudited)	8
Notes to the Unaudited Condensed Consolidated Financial Statements	9

4

NDIVISION INC

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	June 30,			December 31,
	2021			2020
ASSETS
Current assets
Cash	$	784,970		$	1,806,606
Accounts receivable, net (allowance for doubtful accounts was $10,000 at June 30, 2021 and $26,000 at December 31, 2020)		721,396			531,244
Prepaid expenses		280,460			121,339
Total current assets		1,786,826			2,459,189
Equipment and software licenses - at cost, less accumulated		-			-
depreciation and amortization		472,794			540,918
Other assets
Intangible asset, less accumulated amortization		354,044			455,320
Right-of-use asset		390,748			441,940
Total other assets		744,792			897,260
Total assets	$	3,004,412		$	3,897,367
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	141,376		$	153,427
Accrued liabilities		434,557			373,487
Deferred revenue		543,042			870,184
Current portion of acquisition note payable		-			18,102
Current portion of notes payable		-			514,678
Current portion of operating lease payable		89,894			105,615
Current portion of finance lease obligations		132,522			125,449
Total current liabilities		1,341,391			2,160,942
Note payable, net of current portion		-			195,822
Convertible notes payable, net of discount		897,632			734,282
Operating lease payable, net of current portion		300,053			336,520
Finance lease obligations, net of current portion		334,325			380,209
Total long-term liabilities		1,532,010			1,646,833
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 43,719,870 and 42,499,783 shares issued and outstanding, respectively		43,720			42,500
Additional paid in capital		8,820,931			7,160,175
Accumulated deficit		(8,733,640	)		(7,113,083	)
Total stockholders' equity		131,011			89,592
Total liabilities and stockholders' equity	$	3,004,412		$	3,897,367

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

5

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Month's Ended June 30,						Six Month's Ended June 30,
	2021			2020			2021			2020
Service revenue	$	1,571,072		$	1,503,056		$	2,948,526		$	3,169,946
Service costs		1,251,361			1,010,975			2,393,384			2,031,127
Gross profit		319,711			492,081			555,142			1,138,819
Operating expenses
Selling, general and administrative expenses		1,219,531			697,198			2,590,125			1,433,151
Loss from operations		(899,820	)		(205,117	)		(2,034,983	)		(294,332	)
Other income (expense)
Interest expense		(189,739	)		(28,750	)		(302,975	)		(58,797	)
Gain on SBA PPP extinguishment		716,982			-			716,982			-
Other income		208			-			419			-
Other income (expense)		527,451			(28,750	)		414,426			(58,797	)
Net loss before income tax		(372,369	)		(233,867	)		(1,620,557	)		(353,129	)
Income tax expense		-			-			-			-
Net loss	$	(372,369	)	$	(233,867	)	$	(1,620,557	)	$	(353,129	)
Basic and diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.01	)
Weighted average shares outstanding		42,806,010			41,249,783			42,663,616			41,249,783

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

6

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)

	Common Stock		Common Stock		Additional Paid In			Accumulated			Total Shareholders Equity
	Shares		Par		Capital			Deficit			(Deficit)
2021
Balance, December 31, 2020		42,499,783		42,500		7,160,175			(7,113,083	)		89,592
Amortization of stock option and warrant expense						297,417						297,417
Beneficial conversion feature						620,375						620,375
Exercise of stock options		85,103		85		(85	)					-
Net loss for the three months ended March 31, 2021									(1,248,188	)		(1,248,188	)
Balance, March 31, 2021		42,584,886		42,585		8,077,882			(8,361,271	)		(240,804	)
Amortization of stock option and warrant expense		-		-		178,765			-			178,765
Beneficial conversion feature		-		-		405,000			-			405,000
Conversion of notes payable and accrued interest, net of unamortized discount		1,134,984		1,135		159,284			-			160,419
Net loss for the three months ended June 30, 2021		-		-		-			(372,369	)		(372,369	)
Balance, June 30, 2021		43,719,870	$	43,720	$	8,820,931		$	(8,733,640	)	$	131,011

	Common Stock		Common Stock		Additional Paid In		Accumulated			Total Shareholders' Equity
	Shares		Par		Capital		Deficit			(Deficit)
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 for the three months ended March 31, 2020		-		-		-		(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 for the three months ended June 30, 2020		-		-		-		(233,867	)		(233,867	)
Balance, June 30, 2020		41,249,783	$	41,250	$	6,322,209	$	(5,967,286	)	$	396,173

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

7

NDIVISION INC

CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(1,620,557	)	$	(353,129	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		200,404			226,016
Provision for doubtful accounts		(16,000	)		(8,190	)
Amortization of beneficial conversion feature		154,252			-
Non-cash lease expense		51,192			44,185
Stock based compensation		476,182			284,442
Forgiveness of SBA PPP loan		(716,982	)		-
Loss of sale of asset		-			1,473
Changes in assets and liabilities
Accounts receivable		(174,152	)		146,764
Prepaid expenses		(159,121	)		(67,842	)
Change in operating lease liability		(52,188	)		(20,127	)
Accounts payable and accrued liabilities		60,393			(65,381	)
Deferred revenue		(327,142	)		(742,658	)
Net cash used in operating activities		(2,123,719	)		(554,447	)
Cash flows from investing activities
Repayment of debt related to acquisition		(18,102	)		(25,677	)
Acquisition of equipment and software licenses		(3,892	)		(3,272	)
Net cash used in investing activities		(21,994	)		(28,949	)
Cash flows from financing activities
Proceeds from convertible notes payable		1,190,000			710,500
Repayment of finance lease obligations		(65,923	)		(138,050	)
Net cash provided by financing activities		1,124,077			572,450
Net decrease in cash		(1,021,636	)		(10,946	)
Cash, beginning of period		1,806,606			1,757,695
Cash, end of period	$	784,970		$	1,746,749
Supplemental cash flow disclosures
Interest paid	$	22,723		$	11,542
Non-cash financing activities:
Purchase of equipment under capital lease	$	27,112		$	550,066
Conversion of notes payable to common stock, net of unamortized discount	$	160,419		$	-
Beneficial conversion feature	$	1,025,375		$	-

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

8

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 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 (GSP). The Company operates in most states of the United States of America.

2. LIQUIDITY

The Company has experienced significant losses and negative cash flows from operations in the past. Management has secured new managed services contracts, implemented a new strategic growth strategy to increase monthly recuring revenue to improve the overall profitability and cash flows of the Company.

During the six months ended June 30, 2021, the Company received proceeds from the issuance of convertible notes payable of approximately $1,190,000. The Company also has working capital of $445,435 at June 30, 2021.

The Company has continued to increase the monthly recurring revenue during the six months ended June 30, 2021, however the Company has had to increase resources to support the new implementations and increased business at an accelerated rate.

The Company has not factored any receivables under this agreement for the three and six months ended June 30, 2021, and 2020, however management does expect to use the factoring of certain account receivable for cash flow purposes in the next twelve months.

Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand and expected cash flow from operations. 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 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.

9

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 months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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 30, 2021 from which the accompanying December 31, 2020 results are derived.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, nDivision Services Inc. (incorporated in the state of Texas). All 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 due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19.

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 we 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 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.

10

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 maintained at one bank. Balances are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

Accounts Receivable

Accounts receivables are stated at the amount 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 June 30, 2021 and December 31, 2020, respectively. The Company does not accrue interest on past due receivables.

Intangible Assets

Customer contracts acquired were recorded at their estimated fair value at the date of acquisition and are being amortized over their estimated useful life of five years using the straight-line method.

Impairment of Long-lived Assets

The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the three and six months ended June 30, 2021, and 2020.

Paycheck Protection Note Payable

The Company received a loan from the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the amount of $710,500. The loan was subject to a note dated May 2, 2020 and has been forgiven to the extent proceeds of the loan are used for eligible expenditures such as payroll and other expenses described in the CARES Act. The Company applied for full forgiveness of this loan. As of May 15, 2021, the SBA confirmed the application for forgiveness has been approved and that the PPP loan in the amount of $710,500 plus accrued interest of $6,482 has been forgiven.

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 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.

11

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.

Convertible Debt and Securities

The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

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. For 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 14,455,500 and 13,524,000 of common stock equivalents excluded for the three and six months ended June 30, 2021, and 6,916,000 and 6,932,500 of common stock equivalents excluded for the three and six months ended June 30, 2020, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $188,670 and $347,529 for the three and six months ended June 30, 2021 and $2,405 and $7,496 for the three and six months ended June 30, 2020, 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 12 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.

12

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

4. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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.

New Accounting Pronouncements Not Yet Adopted

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.

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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.

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,
	2021			2020
Equipment and software	$	630,904		$	599,900
Software licenses		1,302,141			1,302,141
		1,933,045			1,902,041
Less - Accumulated depreciation and amortization		(1,460,251	)		(1,361,123	)
	$	472,794		$	540,918

Depreciation and amortization expense related to assets for the three and six months ended June 30, 2021, and 2020 was approximately $49,306 and $99,128, and $62,139 and $124,740, respectively.

Included in the above paragraph is depreciation and amortization expense related to leased assets for the three and six months ended June 30, 2021, of approximately $40,181 and $80,803, and approximately $44,800 and $88,363 for the three and six months ended June 30, 2020, respectively.

6. INTANGIBLE ASSETS

Intangible Assets

As of June 30, 2021

	Useful Life		Cost		Accumulated Amortization		Net Book Value
Service Contracts		5	$	1,012,335	$	658,291	$	354,044

There was approximately $50,638 and $101,276 of amortization expense for each of the three and six month periods ended June 30, 2021 and 2020. 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 three fiscal years annual amortization expense for these finite life intangible assets will total approximately $354,044 as follows: remainder of fiscal 2021 - $101,276, fiscal 2022 - $202,551, fiscal 2023 - $50,217.

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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, 2021, the Company has not recorded any impairments.

7. ACCRUED LIABILITIES

	June 30,		December 31,
	2021		2020
Accrued compensation	$	155,913	$	138,707
Accrued interest		80,815		23,185
Accrued sales tax		6,091		23,525
Accrued franchise tax		12,388		11,832
Accrued professional fees and other payables		179,350		176,238
Total accrued liabilities	$	434,557	$	373,487

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 Company has not factored any receivables under this agreement for the three and six months ended June 30, 2021, and 2020, however management does expect to use the factoring of certain account receivable for cash flow purposes in the next twelve months.

9. 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.

Under the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “Act”), up to the full principal amount of a loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll, benefits, lease/mortgage payments and/or utilities) required under the Act and any rule, regulation, or guidance issued by the Small Business Administration (the “SBA”) pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note.

On April 30, 2021, the Company submitted its PPP Loan Forgiveness Application to the SBA. On May 15, 2021, the SBA confirmed the application for forgiveness has been approved and that its PPP loan, in the amount of $710,500 plus accrued interest of $6,482, has been forgiven and included in other income on the unaudited condensed consolidated statements of operations.

Aggregate interest expense on this loan at the time of forgiveness was approximately $6,482.

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10. CONVERTIBLE NOTES PAYABLE

The Company entered into promissory notes (“the Notes”) with investors of the Company with a face value of $2,240,000 of which $200,000 is from a related party, with $1,190,000 raised during the six months ended June 30, 2021, and $1,050,000 raised during the year ended December 31, 2020. The Notes had an initial beneficial conversion feature valued at $1,361,675, which is recorded as a discount. The total discount on the Notes will be amortized over the life of the Notes and recorded as interest expense. For the three and six months ended June 30, 2021, the Company amortized $129,919 and $154,253 of the discount to interest expense. The Notes have an interest rate of 8%. The principle and interest of the Notes are due in full beginning September 2022 through April 2023 or can be converted 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 debt or equity offering that occurs subsequent to the date of the closing of the offering that results in gross offering proceeds of at least $5,000,000.

During the three months ended June 30, 2021, $550,000 of the Notes and $3,994 of accrued interest was converted into 1,134,984 shares of common stock and the related unamortized discount of $393,575 was netted against additional paid in capital.

11. LEASE OBLIGATIONS

The Company finances certain property and equipment using finance leases. 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 $354 to $4,397, including interest, ranging from 3.6% to 12% per annum.

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

Year ended
Remainder of 2021	$	84,844
2022		155,642
2023		136,058
2024		117,774
2025		43,970
Total		538,288
Less: interest		(71,441	)
Present value of net minimum lease payments		466,847
Short term		(132,522	)
Long term total	$	334,325

Lease payments for the three and six months ended June 30, 2021 and 2020 were approximately $42,905 and $85,962 and $76,917, and $146,662, respectively.

The finance lease obligations are secured by underlying leased assets with a net book value of approximately $454,474 and $509,050 as of June 30, 2021 and December 31, 2020, respectively.

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Operating Lease

The Company determines if a contract contains a lease at inception. US GAAP requires 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. 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, 2021, are:

Weighted average remaining lease term	41 Months
Weighted average incremental borrowing rate		5.0	%

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, 2021:

Remainder of 2021	$	42,381
2022		129,392
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		424,503
Less: Imputed interest		(34,556	)
Present value of operating lease obligation	$	389,947
Short term		(89,894	)
Long term total	$	300,053

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.

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For the three and six months ended June 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:

	Three months ended June 30, 2021		Three months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	31,617	$	33,194
Financing lease cost:
Amortization of financed lease assets	$	34,077	$	44,800
Interest expense		8,850		3,526
Total lease cost	$	42,927	$	48,326

	Six months ended June 30, 2021		Six months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	63,234	$	64,313
Financing lease cost:
Amortization of financed lease assets	$	67,668	$	88,363
Interest expense		19,197		7,523
Total lease cost	$	86,865	$	95,886

12. STOCK BASED COMPENSATION

Number of options outstanding:
2018 Equity Incentive Plan	8,326,677
Options granted not part of a shareholder approved plan	700,000
June 30, 2021	9,026,677

Effective on May 5, 2021, the Board approved an amended and restated stock option plan that increases the available options from 8,000,000 shares to 18,000,000 shares, which was approved majority written consent of the shareholders.

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.

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The following table reflects the stock option activity for the six months ended June 30, 2021:

Number of options outstanding:
Beginning of year		9,601,677
Granted		1,100,000
Exercised		(175,000	)
Forfeited		(1,500,000	)
June 30, 2021		9,026,677
Number of options exercisable at end of period		7,600,913
Number of options available for grant at end of period		9,673,323
Weighted average option prices per share:	$	0.40
Granted during the period		0.76
Exercised during the period		0.375
Forfeited during the period		0.34
Outstanding at end of the period		0.37
Exercisable at end of period	$	0.40

Stock-based compensation expense attributable to stock options was $137,449 and $280,946 for the three and six month periods ended June 30, 2021, and $138,645 and $284,442 for the three and six month periods ended June 30, 2020, respectively. As of June 30, 2021, there was approximately $1,101,100 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 5 years.

During the six month period ended June 30, 2021, the Company granted options to purchase 1,100,000 shares of common stock with an average vesting period of 3 years, an average expected life of 6.5 years and an average exercise price of $0.76 per common share. Total value was $691,128.

The Company did not issue any options or warrants during the six month period ended June 30, 2020.

	2021
Expected option life (years)		6.5
Expected stock price volatility	114%-117		%
Expected dividend yield	—		%
Risk-free interest rate	1.15%-1.58		%

During the year ended December 31, 2020, the Company issued a warrant to a related party consultant to purchase up to 750,000 shares of common stock at a per common share price of $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 $174,000.

Stock-based compensation expense attributable to issued warrants was $28,988 and $57,996 for the three and six month periods ended June 30, 2021, respectively. There was no expense during the three and six month periods ended June 30, 2020. As of June 30, 2021, there was approximately $96,660 of unrecognized stock compensation expense related to these warrants.

During the year ended December 31, 2020, the Company issued 1,250,000 share of Company stock to consultants, valued $437,500 or $0.35 per common share. These services are for a 19 months and are expensed over that period.

Stock-based compensation expense attributable to issued Company common stock was $69,079 and $137,240 for the three and six month periods ended June 30, 2021, respectively. There was no expense during the three and six month periods ended June 30, 2020. As of June 30, 2021, there was approximately $204,723 of unrecognized stock compensation expense related to the stock issuance.

The Gamwell contract acquisition warrants remain outstanding. The warrant can be exercised for 122,752 of the Company’s common stock at an exercise price of $0.375 per share and expire April 23, 2028.

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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 $45,000 for the six-month period ended June 30, 2021. 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.

During the year ended December 31, 2020, the Company obtained $200,000 in debt and granted a warrant to a related party for consulting services over the following 18 months, see Notes 10 and 12 for additional related party transaction details.

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, 2021 and 2020 include revenues from significant customers as follows:

	Three Month Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Customer A	59%	38%	57%	39%
Customer C	10%	34%	11%	33%

Accounts receivable balances as of June 30, 2021 and December 31, 2020 from significant customers are as follows:

	June 30,	December 31,
	2021	2020
Customer A	76%	79%
Customer C	9%	14%

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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 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 (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 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.

Results of Operations

The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020, which are included herein.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

	June 30,
	2021			2020			Change
Revenue	$	1,571,072		$	1,503,056		$	68,016
Cost of revenue		1,251,361			1,010,975			240,386
Operating expenses		1,219,531			697,198			522,333
Other income (expenses)		527,451			(28,750	)		556,201
Net loss	$	(372,369	)	$	(233,867	)	$	138,502

Revenues increased by $68,016 or 5% compared with the same period last year. Revenue increased by approximately $270,606 from new customers and an increase of approximately $110,650 of new, non-recurring revenue, which was offset by approximately $81,566 loss of customers and loss of $231,674 due to changes in services or devices. 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. TPart of these costs that are recurring and fixed to provide our minimum service level as a managed service provider. Cost of revenue increased by $240,386 or 24% 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 $172,370 and the gross margin decreased by approximately 13%. This was caused by the lower-than-planned for revenue and the additional costs incurred from the new service employees, professional services cost and increase is MSP costs.

The Company’s management team is continuing to focus on controling operating expenses while also implementing new growth strategies Operating expenses increased by $522,333 or 75% compared with the same period last year. There was an increase for a new marketing campaign, compensation for a new Chief Revenue Officer and the addition of one new sales director, sales commissions, and consulting fees, increased stock compensation expense which was partially offset by decreases in travel, depreciation, and other general expenses. The Company’s management is continuing to control operating expenses while also implementing management growth strategies.

Other income (expenses) increased by $556,201 compared with the same period last year. The increase was primarily due to the gain from the SBA PPP loan forgiveness, which was partially offset by the increase in interest expense related to the convertible debt.

The Company incurred a net loss of $372,369 and $233,867 for the three months ended June 30, 2021, and 2020, respectively. The increase in the net loss is primarily related to the increase in operating expenses and lower profit margins.

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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

	June 30,
	2021			2020			Change
Revenue	$	2,948,526		$	3,169,946		$	(221,420	)
Cost of revenue		2,393,384			2,031,127			362,257
Operating expenses		2,590,125			1,433,151			1,156,974
Other income (expenses)		414,426			(58,797	)		473,223
Net loss	$	(1,620,557	)	$	(353,129	)	$	1,267,428

Revenues decreased by $221,420 or 7% compared with the same period last year. The Company increased recurring revenue by approximately $470,992 from new customers and increased implementation fees by approximately $182,480 for these new contracts. This was offset by approximately $955,899 from a lost customers and overall lower services fees to existing customers based on changes in these customers services and monitored devices. These decreasea in revenue were primarily from a single customer.

Cost of revenue increased by $362,257 or 18% 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 is MSP costs.

Operating expenses increased by $1,156,974 or 81% 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 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 and the amortization of the beneficial conversion feature of newly issued convertible debt. Management is in the process of implementing its sales strategy that has increased operating expenses to achieve long-term revenue growth and profitability.

Other income (expenses) increased by $473,223 compared with the same period last year. The increase was primarily due to the gain from the SBA PPP loan forgiveness, which was partially offset by the increase in interest expense related to the convertible debt.

The Company incurred a net loss of $1,620,557 and $353,129 for the six months ended June 30, 2021 and 2020, respectively. The increase in the net loss is primarily related to the increases in cost of revenue and operating expenses.

Liquidity and Capital Resources

Working Capital

	As at June 30, 2021		As at December 31, 2020
Current assets	$	1,786,826	$	2,459,189
Current liabilities	$	1,341,391	$	2,160,942
Working capital	$	445,435	$	298,247

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Cash Flows

	Six Months Ended June 30,
	2021			2020
Cash flows used in operating activities	$	(2,123,719	)	$	(554,447	)
Cash flows used in investing activities		(21,994	)		(28,949	)
Cash flows provided by financing activities		1,124,077			572,450
Net decrease in cash during period	$	(1,021,636	)	$	(10,946	)

On June 30, 2021, the Company had cash of $784,970 or a decrease of $1,021,636 from the December 31, 2020. Cash used in operating activities was $2,123,719 for the six months ended June 30, 2021. The increase in cash used in operating activity is primarily related to increased net loss sustained during the period. On June 30, 2021 and December 31, 2020 deferred revenue was $543,042 and $870,184, respectively.

Net cash used in investing activities for the six months ended June 30, 2021 and 2020 was $21,994 and $28,949, respectively. The acquisition loan was paid in full during the six months ended June 30, 2021

Net cash flows provided by financing activities for the six months ended June 30, 2021 was $1,124,077 compared to $572,450 for the six months ended June 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 this agreement for the three and six months ended June 30, 2021 and 2020, however management does expect to use the factoring of certain account receivable for cash flow purposes in the next twelve months.

Management intends to finance operating costs over the next twelve months from the date of filing these unaudited condensed consolidated financial statements with existing cash on hand, projected cash flow from operations and short-term debt from the factoring of receivables. Management continues to monitor cash flow and monthly recurring revenues to adjust expenses as necessary to complete the implementation of several new recurring revenue contracts and support the business until these contracts are fully implemented, and the monthly billing begins. 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 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.

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.

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

Intangible Assets

Customer contracts acquired were recorded at their estimated fair value at the date of acquisition and are being amortized over their estimated useful life of five years using the straight-line method.

Impairment of Long-lived Assets

The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the three and six months ended June 30, 2021 and June 30, 2020.

24

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.

New Accounting Pronouncements Not Yet Adopted

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.

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.

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.

25

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, 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:

(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 by the end of the 2021 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, 2021 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, 2021 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

26

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

During the six months ended June 30, 2021 the Company entered 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 six months ended June 30, 2021, $550,000 of the promissory notes and $3,994 of accrued interest was converted into 1,134,984 shares of common stock.

The above Convertible Promissory Notes are exempt from registration pursuant to Regulation D, Rule 506(b), and related state securities laws.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

27

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	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).

__________

* Filed herewith.

** Furnished herewith.

28

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 16, 2021	/s/ Alan Hixon
	Alan Hixon
	President, Chief Executive Officer, and Director
	(Principal Executive Officer)

Dated: August 16, 2021	/s/ Andrew J. Norstrud
	Andrew J. Norstrud
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

29

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alan Hixon, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of nDivision, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2021

/s/ Alan Hixon

Alan Hixon President,

Chief Executive Officer and Director

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew J. Norstrud, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of nDivision, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2021

/s/ Andrew J. Norstrud

Andrew J. Norstrud, Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Alan Hixon, President and Chief Executive Officer, of nDivision, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the quarterly report on Form 10-Q of nDivision, Inc. for the period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of nDivision, Inc.

Dated: August 16, 2021

/s/ Alan Hixon

Alan Hixon President,

Chief Executive Officer and Director

(Principal Executive Officer) 

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Andrew J. Norstrud, Chief Financial Officer, of nDivision, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the quarterly report on Form 10-Q of nDivision, Inc. for the period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of nDivision, Inc.

Dated: August 16, 2021

/s/ Andrew J. Norstrud

Andrew J. Norstrud, Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer) 

XML

Cover - shares	6 Months Ended
	Jun. 30, 2021	Aug. 13, 2021
Cover [Abstract]
Entity Registrant Name	NDIVISION INC.
Entity Central Index Key	0001659183
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	true
Entity Current Reporting Status	Yes
Document Period End Date	Jun. 30, 2021
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2021
Entity Ex Transition Period	true
Entity Common Stock Shares Outstanding		43,719,870
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Entity File Number	333-212446
Entity Incorporation State Country Code	NV
Entity Tax Identification Number	47-5133966
Entity Address Address Line 1	7301 N. State Highway 161
Entity Address Address Line 2	Suite 100
Entity Address City Or Town	Irving
Entity Address State Or Province	TX
Entity Address Postal Zip Code	75039
City Area Code	214
Local Phone Number	785-6355

XML

CONDENSED CONSOLDIATED BALANCE SHEETS - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Current assets
Cash	$ 784,970	$ 1,806,606
Accounts receivable, net (allowance for doubtful accounts was $10,000 at June 30, 2021 and $26,000 at December 31, 2020)	721,396	531,244
Prepaid expenses	280,460	121,339
Total current assets	1,786,826	2,459,189
Equipment and software licenses - at cost, less accumulate depreciation and amortization	472,794	540,918
Other assets
Intangible asset, less accumulated amortization	354,044	455,320
Right-of-use asset	390,748	441,940
Total other assets	744,792	897,260
Total assets	3,004,412	3,897,367
Current liabilities
Accounts payable	141,376	153,427
Accrued liabilities	434,557	373,487
Deferred revenue	543,042	870,184
Current portion of acquisition note payable		18,102
Current portion of notes payable		514,678
Current portion of operating lease payable	89,894	105,615
Current portion of finance lease obligations	132,522	125,449
Total current liabilities	1,341,391	2,160,942
Note payable, net of current portion	0	195,822
Convertible notes payable, net of discount	897,632	734,282
Operating lease payable, net of current portion	300,053	336,520
Finance lease obligations, net of current portion	334,325	380,209
Total long-term liabilities	1,532,010	1,646,833
Commitments	0	0
Stockholders' equity
Common stock, $0.001 par value, 180,000,000 shares authorized, and 43,719,870 and 42,499,783 shares issued and outstanding, respectively	43,720	42,500
Additional paid in capital	8,820,931	7,160,175
Accumulated deficit	(8,733,640)	(7,113,083)
Total stockholders' equity	131,011	89,592
Total liabilities and stockholders' equity	$ 3,004,412	$ 3,897,367

XML

CONDENSED CONSOLDIATED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Current assets
Allowance for doubtful debts	$ 10,000	$ 26,000
Stockholder's equity
Preferred stock, shares par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Common stock, shares par value	$ 0.001	$ 0.001
Common stock, shares authorized	180,000,000	180,000,000
Common stock, shares issued	43,719,870	42,499,783
Common stock, shares outstanding	43,719,870	42,499,783

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Service revenue	$ 1,571,072	$ 1,503,056	$ 2,948,526	$ 3,169,946
Service costs	1,251,361	1,010,975	2,393,384	2,031,127
Gross profit	319,711	492,081	555,142	1,138,819
Operating expenses
Selling, general and administrative expenses	1,219,531	697,198	2,590,125	1,433,151
Loss from operations	(899,820)	(205,117)	(2,034,983)	(294,332)
Other income (expense)
Interest expense	(189,739)	(28,750)	(302,975)	(58,797)
Gain on SBA PPP extinguishment	716,982	0	716,982	0
Other income	208	0	419	0
Other income (expense)	527,451	(28,750)	414,426	(58,797)
Net loss before income tax	(372,369)	(233,867)	(1,620,557)	(353,129)
Income tax expense	0	0
Net loss	$ (372,369)	$ (233,867)	$ (1,620,557)	$ (353,129)
Basic and diluted loss per share	$ (0.01)	$ (0.01)	$ (0.04)	$ (0.01)
Weighted average shares outstanding	42,806,010	41,249,783	42,663,616	41,249,783

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (Unaudited) - USD ($)	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Balance, shares at Dec. 31, 2019		41,249,783
Balance, amount at Dec. 31, 2019	$ 464,860	$ 41,250	$ 6,037,767	$ (5,614,157)
Amortization of stock options	145,797	0	145,797	0
Net loss	(119,262)	$ 0	0	(119,262)
Balance, shares at Mar. 31, 2020		41,249,783
Balance, amount at Mar. 31, 2020	491,395	$ 41,250	6,183,564	(5,733,419)
Balance, shares at Dec. 31, 2019		41,249,783
Balance, amount at Dec. 31, 2019	464,860	$ 41,250	6,037,767	(5,614,157)
Net loss	(353,129)
Balance, shares at Jun. 30, 2020		41,249,783
Balance, amount at Jun. 30, 2020	396,173	$ 41,250	6,322,209	(5,967,286)
Balance, shares at Mar. 31, 2020		41,249,783
Balance, amount at Mar. 31, 2020	491,395	$ 41,250	6,183,564	(5,733,419)
Amortization of stock options	138,645	0	138,645	0
Net loss	(233,867)	$ 0	0	(233,867)
Balance, shares at Jun. 30, 2020		41,249,783
Balance, amount at Jun. 30, 2020	396,173	$ 41,250	6,322,209	(5,967,286)
Balance, shares at Dec. 31, 2020		42,499,783
Balance, amount at Dec. 31, 2020	89,592	$ 42,500	7,160,175	(7,113,083)
Net loss	(1,248,188)			(1,248,188)
Amortization of stock option and warrant expense	297,417		297,417
Beneficial conversion feature	620,375		620,375
Exercise of stock options, shares		85,103
Exercise of stock options, amount	0	$ 85	(85)
Balance, shares at Mar. 31, 2021		42,584,886
Balance, amount at Mar. 31, 2021	(240,804)	$ 42,585	8,077,882	(8,361,271)
Balance, shares at Dec. 31, 2020		42,499,783
Balance, amount at Dec. 31, 2020	89,592	$ 42,500	7,160,175	(7,113,083)
Net loss	(1,620,557)
Balance, shares at Jun. 30, 2021		43,719,870
Balance, amount at Jun. 30, 2021	131,011	$ 43,720	8,820,931	(8,733,640)
Balance, shares at Mar. 31, 2021		42,584,886
Balance, amount at Mar. 31, 2021	(240,804)	$ 42,585	8,077,882	(8,361,271)
Net loss	(372,369)	0	0	(372,369)
Amortization of stock option and warrant expense	178,765	0	178,765	0
Beneficial conversion feature	405,000	$ 0	405,000	0
Conversion of notes payable and accrued interest, net of unamortized discount, shares		1,134,984
Conversion of notes payable and accrued interest, net of unamortized discount, amount	160,419	$ 1,135	159,284	0
Balance, shares at Jun. 30, 2021		43,719,870
Balance, amount at Jun. 30, 2021	$ 131,011	$ 43,720	$ 8,820,931	$ (8,733,640)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities
Net loss	$ (1,620,557)	$ (353,129)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	200,404	226,016
Provision for doubtful accounts	(16,000)	(8,190)
Amortization of beneficial conversion feature	154,252
Non-cash lease expense	51,192	44,185
Stock based compensation	476,182	284,442
Forgiveness of SBA PPP loan	(716,982)	0
Loss of sale of asset	0	1,473
Changes in assets and liabilities
Accounts receivable	(174,152)	146,764
Prepaid expenses	(159,121)	(67,842)
Change in operating lease liability	(52,188)	(20,127)
Accounts payable and accrued liabilities	60,393	(65,381)
Deferred revenue	(327,142)	(742,658)
Net cash used in operating activities	(2,123,719)	(554,447)
Cash flows from investing activities
Repayment of debt related to acquisition	(18,102)	(25,677)
Acquisition of equipment and software licenses	(3,892)	(3,272)
Net cash used in investing activities	(21,994)	(28,949)
Cash flows from financing activities
Proceeds from convertible notes payable	1,190,000	710,500
Repayment of finance lease obligations	(65,923)	(138,050)
Net cash provided by financing activities	1,124,077	572,450
Net decrease in cash	(1,021,636)	(10,946)
Cash, beginning of period	1,806,606	1,757,695
Cash, end of period	784,970	1,746,749
Supplemental cash flow disclosures
Interest paid	22,723	11,542
Non-cash financing activities:
Purchase of equipment under capital lease	27,112	550,066
Conversion of notes payable to common stock, net of unamortized discount	160,419	0
Beneficial conversion feature	$ 1,025,375	$ 0

XML

DESCRIPTION OF BUSINESS

6 Months Ended

Jun. 30, 2021

DESCRIPTION OF BUSINESS

1. DESCRIPTION OF BUSINESS

1. DESCRIPTION OF BUSINESS

nDivision Inc. (“nDivision” or the “Company”) 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 (GSP). The Company operates in most states of the United States of America.

XML

LIQUIDITY

6 Months Ended

Jun. 30, 2021

LIQUIDITY

2. LIQUIDITY

2. LIQUIDITY

The Company has experienced significant losses and negative cash flows from operations in the past. Management has secured new managed services contracts, implemented a new strategic growth strategy to increase monthly recuring revenue to improve the overall profitability and cash flows of the Company.

During the six months ended June 30, 2021, the Company received proceeds from the issuance of convertible notes payable of approximately $1,190,000. The Company also has working capital of $445,435 at June 30, 2021.

The Company has continued to increase the monthly recurring revenue during the six months ended June 30, 2021, however the Company has had to increase resources to support the new implementations and increased business at an accelerated rate.

The Company has not factored any receivables under this agreement for the three and six months ended June 30, 2021, and 2020, however management does expect to use the factoring of certain account receivable for cash flow purposes in the next twelve months.

Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand and expected cash flow from operations. 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 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.

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SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2021

SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3. SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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 30, 2021 from which the accompanying December 31, 2020 results are derived.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, nDivision Services Inc. (incorporated in the state of Texas). All 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 due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19.

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 we 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 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.

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 maintained at one bank. Balances are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

Accounts Receivable

Accounts receivables are stated at the amount 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 June 30, 2021 and December 31, 2020, respectively. The Company does not accrue interest on past due receivables.

Intangible Assets

Customer contracts acquired were recorded at their estimated fair value at the date of acquisition and are being amortized over their estimated useful life of five years using the straight-line method.

Impairment of Long-lived Assets

The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the three and six months ended June 30, 2021, and 2020.

Paycheck Protection Note Payable

The Company received a loan from the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the amount of $710,500. The loan was subject to a note dated May 2, 2020 and has been forgiven to the extent proceeds of the loan are used for eligible expenditures such as payroll and other expenses described in the CARES Act. The Company applied for full forgiveness of this loan. As of May 15, 2021, the SBA confirmed the application for forgiveness has been approved and that the PPP loan in the amount of $710,500 plus accrued interest of $6,482 has been forgiven.

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 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.

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.

Convertible Debt and Securities

The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

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. For 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 14,455,500 and 13,524,000 of common stock equivalents excluded for the three and six months ended June 30, 2021, and 6,916,000 and 6,932,500 of common stock equivalents excluded for the three and six months ended June 30, 2020, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $188,670 and $347,529 for the three and six months ended June 30, 2021 and $2,405 and $7,496 for the three and six months ended June 30, 2020, 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 12 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, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

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RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2021

RECENT ACCOUNTING PRONOUNCEMENTS

4. RECENT ACCOUNTING PRONOUNCEMENTS

4. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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.

New Accounting Pronouncements Not Yet Adopted

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.

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.

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.

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EQUIPMENT AND SOFTWARE LICENSES

6 Months Ended

Jun. 30, 2021

EQUIPMENT AND SOFTWARE LICENSES

5. EQUIPMENT AND SOFTWARE LICENSES

5. EQUIPMENT AND SOFTWARE LICENSES

Equipment and software licenses consist of the following:

	June 30,			December 31,
	2021			2020
Equipment and software	$	630,904		$	599,900
Software licenses		1,302,141			1,302,141
		1,933,045			1,902,041
Less - Accumulated depreciation and amortization		(1,460,251	)		(1,361,123	)
	$	472,794		$	540,918

Depreciation and amortization expense related to assets for the three and six months ended June 30, 2021, and 2020 was approximately $49,306 and $99,128, and $62,139 and $124,740, respectively.

Included in the above paragraph is depreciation and amortization expense related to leased assets for the three and six months ended June 30, 2021, of approximately $40,181 and $80,803, and approximately $44,800 and $88,363 for the three and six months ended June 30, 2020, respectively.

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INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2021

INTANGIBLE ASSETS

6. INTANGIBLE ASSETS

6. INTANGIBLE ASSETS

Intangible Assets

As of June 30, 2021

	Useful Life		Cost		Accumulated Amortization		Net Book Value
Service Contracts		5	$	1,012,335	$	658,291	$	354,044

There was approximately $50,638 and $101,276 of amortization expense for each of the three and six month periods ended June 30, 2021 and 2020. 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 three fiscal years annual amortization expense for these finite life intangible assets will total approximately $354,044 as follows: remainder of fiscal 2021 - $101,276, fiscal 2022 - $202,551, fiscal 2023 - $50,217.

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, 2021, the Company has not recorded any impairments.

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ACCRUED LIABILITIES

6 Months Ended

Jun. 30, 2021

ACCRUED LIABILITIES

7. ACCRUED LIABILITIES

7. ACCRUED LIABILITIES

	June 30,		December 31,
	2021		2020
Accrued compensation	$	155,913	$	138,707
Accrued interest		80,815		23,185
Accrued sales tax		6,091		23,525
Accrued franchise tax		12,388		11,832
Accrued professional fees and other payables		179,350		176,238
Total accrued liabilities	$	434,557	$	373,487

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FACTORING CREDIT FACILITY

6 Months Ended

Jun. 30, 2021

FACTORING CREDIT FACILITY

8. FACTORING CREDIT FACILITY

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 Company has not factored any receivables under this agreement for the three and six months ended June 30, 2021, and 2020, however management does expect to use the factoring of certain account receivable for cash flow purposes in the next twelve months.

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NOTE PAYABLE

6 Months Ended

Jun. 30, 2021

NOTE PAYABLE

9. NOTE PAYABLE

9. 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.

Under the PPP of the Coronavirus Aid, Relief and Economic Security Act (the “Act”), up to the full principal amount of a loan and any accrued interest can be forgiven if the borrower uses all of the loan proceeds for forgivable purposes (payroll, benefits, lease/mortgage payments and/or utilities) required under the Act and any rule, regulation, or guidance issued by the Small Business Administration (the “SBA”) pursuant to the Act (collectively, the “Forgiveness Provisions”). The amount of forgiveness of the PPP loan depends on the borrower’s payroll costs over either an eight-week or twenty-four-week period beginning on the date of funding. Any processes or procedures established under the Forgiveness Provisions must be followed and any requirements of the Forgiveness Provisions must be fully satisfied to obtain such loan forgiveness. Pursuant to the provisions of the Act, the first six monthly payments of principal and interest will be deferred. Interest will accrue during the deferment period. The borrower must pay principal and interest payments on the fifth day of each month beginning seven months from the date of the applicable promissory note.

On April 30, 2021, the Company submitted its PPP Loan Forgiveness Application to the SBA. On May 15, 2021, the SBA confirmed the application for forgiveness has been approved and that its PPP loan, in the amount of $710,500 plus accrued interest of $6,482, has been forgiven and included in other income on the unaudited condensed consolidated statements of operations.

Aggregate interest expense on this loan at the time of forgiveness was approximately $6,482.

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CONVERTIBLE NOTES PAYABLE

6 Months Ended

Jun. 30, 2021

CONVERTIBLE NOTES PAYABLE

10. CONVERTIBLE NOTES PAYABLE

10. CONVERTIBLE NOTES PAYABLE

The Company entered into promissory notes (“the Notes”) with investors of the Company with a face value of $2,240,000 of which $200,000 is from a related party, with $1,190,000 raised during the six months ended June 30, 2021, and $1,050,000 raised during the year ended December 31, 2020. The Notes had an initial beneficial conversion feature valued at $1,361,675, which is recorded as a discount. The total discount on the Notes will be amortized over the life of the Notes and recorded as interest expense. For the three and six months ended June 30, 2021, the Company amortized $129,919 and $154,253 of the discount to interest expense. The Notes have an interest rate of 8%. The principle and interest of the Notes are due in full beginning September 2022 through April 2023 or can be converted 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 debt or equity offering that occurs subsequent to the date of the closing of the offering that results in gross offering proceeds of at least $5,000,000.

During the three months ended June 30, 2021, $550,000 of the Notes and $3,994 of accrued interest was converted into 1,134,984 shares of common stock and the related unamortized discount of $393,575 was netted against additional paid in capital.

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LEASE OBLIGATIONS

6 Months Ended

Jun. 30, 2021

LEASE OBLIGATIONS

11. LEASE OBLIGATIONS

11. LEASE OBLIGATIONS

The Company finances certain property and equipment using finance leases. 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 $354 to $4,397, including interest, ranging from 3.6% to 12% per annum.

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

Year ended
Remainder of 2021	$	84,844
2022		155,642
2023		136,058
2024		117,774
2025		43,970
Total		538,288
Less: interest		(71,441	)
Present value of net minimum lease payments		466,847
Short term		(132,522	)
Long term total	$	334,325

Lease payments for the three and six months ended June 30, 2021 and 2020 were approximately $42,905 and $85,962 and $76,917, and $146,662, respectively.

The finance lease obligations are secured by underlying leased assets with a net book value of approximately $454,474 and $509,050 as of June 30, 2021 and December 31, 2020, respectively.

Operating Lease

The Company determines if a contract contains a lease at inception. US GAAP requires 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. 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, 2021, are:

Weighted average remaining lease term	41 Months
Weighted average incremental borrowing rate		5.0	%

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, 2021:

Remainder of 2021	$	42,381
2022		129,392
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		424,503
Less: Imputed interest		(34,556	)
Present value of operating lease obligation	$	389,947
Short term		(89,894	)
Long term total	$	300,053

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, 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:

	Three months ended June 30, 2021		Three months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	31,617	$	33,194
Financing lease cost:
Amortization of financed lease assets	$	34,077	$	44,800
Interest expense		8,850		3,526
Total lease cost	$	42,927	$	48,326

	Six months ended June 30, 2021		Six months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	63,234	$	64,313
Financing lease cost:
Amortization of financed lease assets	$	67,668	$	88,363
Interest expense		19,197		7,523
Total lease cost	$	86,865	$	95,886

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STOCK BASED COMPENSATION

6 Months Ended

Jun. 30, 2021

STOCK BASED COMPENSATION

12. STOCK BASED COMPENSATION

12. STOCK BASED COMPENSATION

Number of options outstanding:
2018 Equity Incentive Plan	8,326,677
Options granted not part of a shareholder approved plan	700,000
June 30, 2021	9,026,677

Effective on May 5, 2021, the Board approved an amended and restated stock option plan that increases the available options from 8,000,000 shares to 18,000,000 shares, which was approved majority written consent of the shareholders.

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 option activity for the six months ended June 30, 2021:

Number of options outstanding:
Beginning of year		9,601,677
Granted		1,100,000
Exercised		(175,000	)
Forfeited		(1,500,000	)
June 30, 2021		9,026,677
Number of options exercisable at end of period		7,600,913
Number of options available for grant at end of period		9,673,323
Weighted average option prices per share:	$	0.40
Granted during the period		0.76
Exercised during the period		0.375
Forfeited during the period		0.34
Outstanding at end of the period		0.37
Exercisable at end of period	$	0.40

Stock-based compensation expense attributable to stock options was $137,449 and $280,946 for the three and six month periods ended June 30, 2021, and $138,645 and $284,442 for the three and six month periods ended June 30, 2020, respectively. As of June 30, 2021, there was approximately $1,101,100 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 5 years.

During the six month period ended June 30, 2021, the Company granted options to purchase 1,100,000 shares of common stock with an average vesting period of 3 years, an average expected life of 6.5 years and an average exercise price of $0.76 per common share. Total value was $691,128.

The Company did not issue any options or warrants during the six month period ended June 30, 2020.

	2021
Expected option life (years)		6.5
Expected stock price volatility	114%-117		%
Expected dividend yield	—		%
Risk-free interest rate	1.15%-1.58		%

During the year ended December 31, 2020, the Company issued a warrant to a related party consultant to purchase up to 750,000 shares of common stock at a per common share price of $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 $174,000.

Stock-based compensation expense attributable to issued warrants was $28,988 and $57,996 for the three and six month periods ended June 30, 2021, respectively. There was no expense during the three and six month periods ended June 30, 2020. As of June 30, 2021, there was approximately $96,660 of unrecognized stock compensation expense related to these warrants.

During the year ended December 31, 2020, the Company issued 1,250,000 share of Company stock to consultants, valued $437,500 or $0.35 per common share. These services are for a 19 months and are expensed over that period.

Stock-based compensation expense attributable to issued Company common stock was $69,079 and $137,240 for the three and six month periods ended June 30, 2021, respectively. There was no expense during the three and six month periods ended June 30, 2020. As of June 30, 2021, there was approximately $204,723 of unrecognized stock compensation expense related to the stock issuance.

The Gamwell contract acquisition warrants remain outstanding. The warrant can be exercised for 122,752 of the Company’s common stock at an exercise price of $0.375 per share and expire April 23, 2028.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2021

RELATED PARTY TRANSACTIONS

13. RELATED PARTY TRANSACTIONS

13. RELATED PARTY TRANSACTIONS

The Company contracted with Norco Professional Services, LLC. (“Norco”) to provide consulting services. The Company spent approximately $45,000 for the six-month period ended June 30, 2021. 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.

During the year ended December 31, 2020, the Company obtained $200,000 in debt and granted a warrant to a related party for consulting services over the following 18 months, see Notes 10 and 12 for additional related party transaction details.

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.

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SIGNIFICANT CUSTOMER

6 Months Ended

Jun. 30, 2021

SIGNIFICANT CUSTOMER

14. SIGNIFICANT CUSTOMERS

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, 2021 and 2020 include revenues from significant customers as follows:

	Three Month Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Customer A	59%	38%	57%	39%
Customer C	10%	34%	11%	33%

Accounts receivable balances as of June 30, 2021 and December 31, 2020 from significant customers are as follows:

	June 30,	December 31,
	2021	2020
Customer A	76%	79%
Customer C	9%	14%

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SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2021

SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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 30, 2021 from which the accompanying December 31, 2020 results are derived.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, nDivision Services Inc. (incorporated in the state of Texas). All 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 due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19.

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 we 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 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.

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 maintained at one bank. Balances are insured by the Federal Deposit Insurance Corporation subject to certain limitations.

Accounts Receivable

Accounts receivables are stated at the amount 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 June 30, 2021 and December 31, 2020, respectively. The Company does not accrue interest on past due receivables.

Intangible Assets

Customer contracts acquired were recorded at their estimated fair value at the date of acquisition and are being amortized over their estimated useful life of five years using the straight-line method.

Impairment of Long-lived Assets

The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the three and six months ended June 30, 2021, and 2020.

Paycheck Protection Note Payable

The Company received a loan from the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the amount of $710,500. The loan was subject to a note dated May 2, 2020 and has been forgiven to the extent proceeds of the loan are used for eligible expenditures such as payroll and other expenses described in the CARES Act. The Company applied for full forgiveness of this loan. As of May 15, 2021, the SBA confirmed the application for forgiveness has been approved and that the PPP loan in the amount of $710,500 plus accrued interest of $6,482 has been forgiven.

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 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.

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.

Convertible Debt and Securities

The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

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. For 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 14,455,500 and 13,524,000 of common stock equivalents excluded for the three and six months ended June 30, 2021, and 6,916,000 and 6,932,500 of common stock equivalents excluded for the three and six months ended June 30, 2020, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $188,670 and $347,529 for the three and six months ended June 30, 2021 and $2,405 and $7,496 for the three and six months ended June 30, 2020, 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 12 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, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

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EQUIPMENT AND SOFTWARE LICENSES (Tables)

6 Months Ended

Jun. 30, 2021

EQUIPMENT AND SOFTWARE LICENSES

Schedule of equipment and software licenses

	June 30,			December 31,
	2021			2020
Equipment and software	$	630,904		$	599,900
Software licenses		1,302,141			1,302,141
		1,933,045			1,902,041
Less - Accumulated depreciation and amortization		(1,460,251	)		(1,361,123	)
	$	472,794		$	540,918

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INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2021

INTANGIBLE ASSETS

Intangible Assets

	Useful Life		Cost		Accumulated Amortization		Net Book Value
Service Contracts		5	$	1,012,335	$	658,291	$	354,044

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ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2021

ACCRUED LIABILITIES

Schedule of accrued liabilities

	June 30,		December 31,
	2021		2020
Accrued compensation	$	155,913	$	138,707
Accrued interest		80,815		23,185
Accrued sales tax		6,091		23,525
Accrued franchise tax		12,388		11,832
Accrued professional fees and other payables		179,350		176,238
Total accrued liabilities	$	434,557	$	373,487

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LEASE OBLIGATIONS (Tables)

6 Months Ended

Jun. 30, 2021

LEASE OBLIGATIONS (Tables)

Schedule of future minimum lease payments

Year ended
Remainder of 2021	$	84,844
2022		155,642
2023		136,058
2024		117,774
2025		43,970
Total		538,288
Less: interest		(71,441	)
Present value of net minimum lease payments		466,847
Short term		(132,522	)
Long term total	$	334,325

Schedule of weighted average remaining lease term and discount rate for operating leases

Weighted average remaining lease term	41 Months
Weighted average incremental borrowing rate		5.0	%

Schedule of minimum lease commitments

Remainder of 2021	$	42,381
2022		129,392
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		424,503
Less: Imputed interest		(34,556	)
Present value of operating lease obligation	$	389,947
Short term		(89,894	)
Long term total	$	300,053

Schedule of consolidated statements of operations income

	Three months ended June 30, 2021		Three months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	31,617	$	33,194
Financing lease cost:
Amortization of financed lease assets	$	34,077	$	44,800
Interest expense		8,850		3,526
Total lease cost	$	42,927	$	48,326

	Six months ended June 30, 2021		Six months ended June 30, 2020
Operating lease cost:
Operating lease cost	$	63,234	$	64,313
Financing lease cost:
Amortization of financed lease assets	$	67,668	$	88,363
Interest expense		19,197		7,523
Total lease cost	$	86,865	$	95,886

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STOCK BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2021

STOCK BASED COMPENSATION

Schedule of stock based compensation

Number of options outstanding:
2018 Equity Incentive Plan	8,326,677
Options granted not part of a shareholder approved plan	700,000
June 30, 2021	9,026,677

Summary of Stock option activity

Number of options outstanding:
Beginning of year		9,601,677
Granted		1,100,000
Exercised		(175,000	)
Forfeited		(1,500,000	)
June 30, 2021		9,026,677
Number of options exercisable at end of period		7,600,913
Number of options available for grant at end of period		9,673,323
Weighted average option prices per share:	$	0.40
Granted during the period		0.76
Exercised during the period		0.375
Forfeited during the period		0.34
Outstanding at end of the period		0.37
Exercisable at end of period	$	0.40

Schedule of granted options

	2021
Expected option life (years)		6.5
Expected stock price volatility	114%-117		%
Expected dividend yield	—		%
Risk-free interest rate	1.15%-1.58		%

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SIGNIFICANT CUSTOMERS (Tables)

6 Months Ended

Jun. 30, 2021

Schedules of Concentration

	Three Month Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Customer A	59%	38%	57%	39%
Customer C	10%	34%	11%	33%

Schedules of customer accounts receivable,concenteration

	June 30,	December 31,
	2021	2020
Customer A	76%	79%
Customer C	9%	14%

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LIQUIDITY (Details Narrative)	6 Months Ended
	Jun. 30, 2021 USD ($)
LIQUIDITY
Proceeds from the issuance of notes payable	$ 1,190,000
Working capital	$ 445,435

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SUMMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	May 15, 2021	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020	May 02, 2020
Allowance for doubtful accounts		$ 10,000		$ 10,000		$ 26,000
Marketing costs		$ 188,670	$ 2,405	$ 347,529	$ 7,496
Accrued interest	$ 6,482
Paycheck Protection Program [Member]
Loan amount							$ 710,500
Forgiveness of loan	710,500
Accrued interest	$ 6,482
Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share		14,455,500	6,916,000	13,524,000	6,932,500

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EQUIPMENT AND SOFTWARE LICENSES (Details) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Property, Plant and Equipment, Gross	$ 1,933,045	$ 1,902,041
Less - accumulated depreciation and amortization	(1,460,251)	(1,361,123)
Property, Plant and Equipment, Net	472,794	540,918
Equipment and software [Member]
Property, Plant and Equipment, Gross	630,904	599,900
Software License [Member]
Property, Plant and Equipment, Gross	$ 1,302,141	$ 1,302,141

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EQUIPMENT AND SOFTWARE LICENSES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
EQUIPMENT AND SOFTWARE LICENSES
Depreciation and amortization related to assets	$ 49,306	$ 62,139	$ 99,128	$ 124,740
Depreciation and amortization expenses related to leased assets	$ 40,181	$ 44,800	$ 80,803	$ 88,363

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INTANGIBLE ASSETS (Details)	6 Months Ended
	Jun. 30, 2021 USD ($)
Intangible assets net	$ 354,044
Service Contracts [Member]
Intangible assets gross	1,012,335
Accumulated amortization	658,291
Intangible assets net	$ 354,044
Useful life of intangible assets	5 years

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INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
INTANGIBLE ASSETS
Amortization expense	$ 50,638	$ 50,638	$ 101,276	$ 101,276
2021	101,276		101,276
2022	202,551		202,551
2023	50,217		50,217
Intangible assets net	$ 354,044		$ 354,044

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ACCRUED LIABILITIES (Details) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
NOTE PAYABLE
Accrued compensation	$ 155,913	$ 138,707
Accrued interest	3,994	23,185
Accrued sales tax	6,091	23,525
Accrued franchise tax	12,388	11,832
Accrued professional fees and other payables	179,350	176,238
Total accrued liabilities	$ 434,557	$ 373,487

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FACTORING CREDIT FACILITY (Details Narrative)	6 Months Ended
	Jun. 30, 2021
Factoring Credit Facility [Member]
Agreement description	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.

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NOTE PAYABLE (Details Narrative) - USD ($)		1 Months Ended
	May 15, 2021	May 02, 2020
Accrued interest	$ 6,482
Investor [Member]
Accrued interest	6,482
Proceeds from loan		$ 710,500
Loan amount	$ 710,500

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CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Proceeds from offering , gross			$ 5,000,000
Convertible promissory note	$ 550,000		550,000
Accrued interest	3,994		$ 3,994		$ 23,185
Convertible common stock, shares			1,134,984
Unamortized discount			$ 393,575
Interest expense	189,739	$ 28,750	302,975	$ 58,797
Several Investors [Member]
Convertible promissory note	1,190,000		1,190,000		1,050,000
Interest expense	$ 129,919		154,253
Beneficial conversion feature			$ 1,361,675
Rate of interest			8.00%
Price per share	$ 0.40		$ 0.40
Due to related party	$ 2,240,000		$ 2,240,000
Discount rate			25.00%
A Related Party [Member]
Convertible promissory note	$ 200,000		$ 200,000		$ 200,000

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LEASE OBLIGATIONS (Details) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
LEASE OBLIGATIONS (Tables)
2021	$ 84,844
2022	155,642
2023	136,058
2024	117,774
2025	43,970
Total	538,288
Less: interest	71,441
Present value of net minimum lease payments	(466,847)
Short term	(132,522)	$ (125,449)
Long term total	$ 334,325	$ 380,209

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LEASE OBLIGATIONS (Details 1)	6 Months Ended
	Jun. 30, 2021
LEASE OBLIGATIONS (Tables)
Weighted average remaining lease term	41 years
Weighted average incremental borrowing rate	5.00%

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LEASE OBLIGATIONS (Details 2) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
LEASE OBLIGATIONS (Tables)
2021	$ 42,381
2022	129,392
2023	131,859
2024	120,871
Total undiscounted future minimum lease payments	424,503
Less: Imputed interest	(34,556)
Present value of operating lease obligation	389,947
Short term	(89,894)	$ (105,615)
Long term total	$ 300,053	$ 336,520

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LEASE OBLIGATIONS (Details 3) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Operating lease cost
Operating lease cost	$ 31,617	$ 33,194	$ 63,234	$ 64,313
Finance lease cost
Amortization of leased assets	34,077	44,800	67,668	88,363
Interest expense	8,850	3,526	19,197	7,523
Total lease cost	$ 42,927	$ 48,326	$ 86,865	$ 95,886

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LEASE OBLIGATIONS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Lease payments	$ 42,905	$ 76,917	$ 86,962	$ 146,662
Leased assets, net book value	$ 454,474		454,474		$ 509,050
Minimum [Member]
Leases periodic payments			$ 354
Interest rate			3.60%
Maximum [Member]
Leases periodic payments			$ 4,397
Interest rate			12.00%

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STOCK BASED COMPENSATION (Details)	6 Months Ended
	Jun. 30, 2021 shares
Number of options outstanding
2018 Equity incentive plan	8,326,677
Options granted not part of a shareholder approved plan	700,000
June 30, 2021	9,026,677

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STOCK BASED COMPENSATION (Details 1) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Number of options outstanding
Number of options outstanding, begining balance	$ 9,601,677
Granted	1,100,000	1,250,000
Exercised, converted	(175,000)
Forfeited / exchanged / modification	(1,500,000)
Number of options outstanding, ending balance	9,026,677
Number of options exercisable at end of period	7,600,913
Number of options available for grant at end of period	9,673,323
Weighted average option prices per share
Weighted average option prices per share	$ 0.40
Granted during the period	0.76
Exercised during the period	0.375
Forfeited during the period	0.34
Outstanding at end of the period	0.37
Exercisable at end of period	$ 0.40

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STOCK BASED COMPENSATION (Details 2)	6 Months Ended
	Jun. 30, 2021
STOCK BASED COMPENSATION
Expected option life (years)	6 years 6 months
Expected stock price volatility, minimum	114.00%
Expected stock price volatility, maximum	117.00%
Expected dividend yield	0.00%
Risk-free interest rate, minimum	1.15%
Risk-free interest rate, maximum	1.58%

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STOCK BASED COMPENSATION (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended		12 Months Ended
	May 05, 2021	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Stock-based compensation expense		$ 137,449	$ 138,645	$ 280,946	$ 284,442
Unrecognized compensation expense		1,101,100		$ 1,101,100
Average expected life				6 years 6 months
Average vesting period of options				3 years
Stock option granted during the period				1,100,000		1,250,000
Total value of options/rights granted				$ 691,128		$ 437,500
Exercise price				$ 0.76		$ 0.35
Weighted average vesting period of options				5 years		19 months
2018 Equity Incentive Plan [Member]
Maximum number of shares granted under plan	18,000,000			8,000,000
Stock option shares available	8,000,000
Warrants [Member]
Stock-based compensation expense		28,988	0	$ 57,996	0
Unrecognized compensation expense		$ 96,660		$ 96,660
Warrants [Member] | Consultant [Member]
Total value of options/rights granted						$ 174,000
Exercise price						$ 0.625
Common stock shares issuable upon exercise of options/rights						750,000
Term of options/rights						18 months
Warrants [Member] | The Gamwell Contract [Member]
Exercise price				$ 0.375
Common stock shares issuable upon exercise of options/rights		122,752		122,752
Expiration date				Apr. 23, 2028
Common Stock [Member]
Stock-based compensation expense		$ 69,079	$ 0	$ 137,240	$ 0
Unrecognized compensation expense		$ 204,723		$ 204,723

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Convertible promissory note	$ 550,000
Norco Professional Services, LLC [Member]
Related party expenses	45,000
A Related Party [Member]
Convertible promissory note	$ 200,000	$ 200,000

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SIGNIFICANT CUSTOMERS (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Net Revenue [Member] | Customer A [Member]
Concentration percentage	59.00%	38.00%	57.00%	39.00%
Net Revenue [Member] | Customer C [Member]
Concentration percentage	10.00%	34.00%	11.00%	33.00%
Accounts receivable [Member] | Customer A [Member]
Concentration percentage			76.00%		79.00%
Accounts receivable [Member] | Customer C [Member]
Concentration percentage			9.00%		14.00%