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 March 31, 2022

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	☒
(Do not check if a 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.

 47,586,537 common shares issued and outstanding as of May 13, 2022.

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	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 1A.	Risk Factors	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	11
Item 4.	Mine Safety Disclosures	11
Item 5.	Other Information	11
Item 6.	Exhibits	12
SIGNATURES		13

2

FORWARD-LOOKING STATEMENTS

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

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

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

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

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NDIVISION, INC.

Interim Condensed Consolidated Financial Statements

For the Quarterly Period Ended March 31, 2022

	Page
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (Unaudited)	F-1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	F-2
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	F-4
Notes to the Unaudited Condensed Consolidated Financial Statements	F-5

4

NDIVISION INC

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	March 31,			December 31,
	2022			2021
ASSETS
Current assets
Cash	$	249,302		$	521,039
Accounts receivable, net (allowance for doubtful accounts was $40,000 as of March 31, 2022 and December 31, 2021)		471,623			571,994
Prepaid expenses		158,631			163,087
Total current assets		879,556			1,256,120
Equipment and software licenses - at cost, less accumulated
depreciation and amortization		379,051			418,635
Other assets
Right-of-use asset		310,162			337,179
Total other assets		310,162			337,179
Total assets	$	1,568,769		$	2,011,934
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	305,376		$	233,217
Accrued liabilities		774,473			812,188
Derivative liability		173,986			76,137
Deferred revenue		74,657			229,327
Factoring credit facility		199,958			213,606
Current portion of note payable		577,783			118,277
Current portion of convertible notes payable, net of discount		1,159,179			831,991
Current portion of operating lease payable		130,065			129,392
Current portion of finance lease obligations		134,207			136,220
Total current liabilities		3,529,684			2,780,355
Convertible notes payable, net of discount		163,931			358,770
Operating lease payable, net of current portion		197,984			226,846
Finance lease obligations, net of current portion		253,369			287,911
Total long-term liabilities		615,284			873,527
Commitments
Stockholders' Deficit
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value, 180,000,000 shares authorized, and 45,919,870 and 44,919,870 shares issued and outstanding, respectively		45,920			44,920
Additional paid in capital		9,913,058			9,492,125
Accumulated deficit		(12,535,177	)		(11,178,993	)
Total stockholders' deficit		(2,576,199	)		(1,641,948	)
Total liabilities and stockholders' deficit	$	1,568,769		$	2,011,934

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

F-1

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
	2022			2021
Service revenue	$	1,254,870		$	1,377,454
Service costs		1,362,960			1,142,023
Gross profit		(108,090	)		235,431
Operating expenses
Selling, general and administrative expenses		783,490			1,370,594
		783,490			1,370,594
Loss from operations		(891,580	)		(1,135,163	)
Other (expense) income
Interest expense		(459,950	)		(113,236	)
Gain on change in derivative liability		(4,654	)		-
Other income		-			211
Other (expense) income		(464,604	)		(113,025	)
Net loss before income tax		(1,356,184	)		(1,248,188	)
Income tax expense		-			-
Net loss		(1,356,184	)		(1,248,188	)
Basic and diluted loss per share	$	(0.03	)	$	(0.03	)
Weighted average shares outstanding		45,297,648			42,519,640

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

F-2

NDIVISION INC

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

											Total
											Shareholders'
	Common Stock		Common Stock		Additional Paid			Accumulated			(Deficit)
	Shares		Par		In Capital			Deficit			Equity
2021
Balance, December 31, 2020		42,499,783	$	42,500	$	7,160,175		$	(7,113,083	)	$	89,592
Amortization of stock-based compensation and warrant expense		-		-		297,417			-			297,417
Beneficial conversion feature		-		-		620,375			-			620,375
Common stock issued for services		85,103		85		(85	)		-			-
Net loss		-		-		-			(1,248,188	)		(1,248,188	)
Balance, March 31, 2021		42,584,886	$	42,585	$	8,077,882		$	(8,361,271	)	$	(240,804	)
2022
Balance, December 31, 2021		44,919,870	$	44,920	$	9,492,125		$	(11,178,993	)	$	(1,641,948	)
Amortization of stock-based compensation and warrant expense		-		-		211,283			-			211,283
Common stock issued for commitment fee		1,000,000		1,000		168,900			-			169,900
Warrant issued with debt		-		-		40,750			-			40,750
Net loss		-		-		-			(1,356,184	)		(1,356,184	)
Balance, March 31, 2022		45,919,870	$	45,920	$	9,913,058		$	(12,535,177	)	$	(2,576,199	)

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

F-3

NDIVISION INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net loss	$	(1,356,184	)	$	(1,248,188	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		39,584			100,463
Provision for doubtful accounts		-			(16,000	)
Amortization of beneficial conversion feature		132,349			70,567
Amortization of debt discount		247,852			-
Non-cash lease expense		27,017			25,596
Stock based compensation		211,283			297,417
Gain on the change in derivative liability		4,654			-
Changes in assets and liabilities
Accounts receivable		100,371			49,024
Prepaid expenses		4,456			(154,677	)
Accounts payable		72,158			104,103
Accrued liabilities		(37,715	)		141,131
Deferred revenue		(154,670	)		(167,381	)
Operating lease payable		(28,189	)		(26,094	)
Net cash used in operating activities		(737,034	)		(824,039	)
Cash flows from investing activities
Repayment of debt related to acquisition		-			(14,302	)
Net cash used in investing activities		-			(14,302	)
Cash flows from financing activities
Proceeds from factor credit facility, net		(13,648	)		-
Proceeds from note, net		515,500			-
Proceeds from convertible notes payable, net		-			785,000
Repayment of finance lease obligations		(36,555	)		(31,896	)
Net cash provided by financing activities		465,297			753,104
Net decrease in cash		(271,737	)		(85,237	)
Cash, beginning of period		521,039			1,806,606
Cash, end of period	$	249,302		$	1,721,369
Supplemental cash flow disclosures
Interest paid	$	47,278		$	10,332
Non-cash financing activities
Cashless exercise of options	$	-		$	85
Purchase of equipment under capital lease	$	-		$	26,211
Beneficial conversion feature	$	-		$	620,375
Debt discount issued in connection with debt	$	93,195		$	-
Common stock issued for commitment fees	$	169,900		$	-
Warrants issued with debt	$	40,750		$	-

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

F-4

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. GOING CONCERN AND LIQUIDITY

The Company has, and is continuing to, experience significant losses and negative cash flows from operations. Management has secured new managed services contracts as well as continued its implementation of a strategic sales strategy, focusing on selling through and with channel partners in the industry to increase monthly recurring revenue to improve the overall profitability and cash flows of the Company.  The Company continues to explore additional options for short-term and long-term financing until these new strategies have fully developed and are generating the necessary cash flow.

During the three months ended March 31, 2022, the Company received net proceeds from the issuance of notes payable of approximately $515,500.  Moreover, subsequent to the end of the first quarter of 2022, the Company closed another convertible debt issuance on May 4, 2022, in the net amount of $408,500.  The Company had negative working capital of $2,650,128 on March 31, 2022.

The Company exited some unprofitable contracts during the quarter which resulted in negative gross margin.  With these contracts finalized, the Company does not anticipate the recurrence of such detrimental and dilutive arrangements in the future.

The Company factored approximately $652,866 of its invoices and received approximately $638,132 during the period ended March 31, 2022 from receivables factored under the Company’s factoring credit facility agreement. Additionally, principal payments amounting to $651,780 as well as the remittance of interest and fees totaling $15,856 were tendered under the Company’s factoring arrangements for the quarterly period ended March 31, 2022. The Company receives 90% of the factored receivables for a fee of 2.4% of the factored invoice and has committed to a minimum balance of $150,000 of invoices factored for six months from the initial funding in November 2021.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the near future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited consolidated condensed financial statements with existing cash on hand, factoring of receivables, obtaining additional debt and/or the private placement of common stock. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months and at the same time pay back various convertible notes due during this same time period. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these unaudited consolidated condensed financial statements. The accompanying unaudited consolidated condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world caused significant volatility in U.S. and international markets. There continues to be 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 transitioned its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company remains 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.

F-5

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-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 April 14, 2022 from which the accompanying December 31, 2021 numbers 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 significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

Management uses estimates and assumptions in preparing these unaudited condensed consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Revenue Recognition

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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

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

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

F-6

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.

Cash

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

The balances of 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 $40,000 as of March 31, 2022 and December 31, 2021. 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 months ended March 31, 2022 and 2021.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and accounts receivable. See Note 13 for significant customer concentration disclosure.

Cash is maintained with a 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.  As of December 31, 2021, deposits in excess of FDIC limits were $271,039, while the FDIC limit of $250,000 per depositor per bank was not exceeded on March 31, 2022.

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.

F-7

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.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Earnings and Loss per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. There were approximately 15,624,000 of common stock equivalents excluded for the three months ended March 31, 2022 and 15,387,000 of common stock equivalents excluded for the three months ended March 31, 2021, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $26,779 for the three months ended March 31, 2022 and $158,859 for the three months ended March 31, 2021, respectively and is included in selling, general and administrative expenses.

Stock-Based Compensation

Compensation expense related to share-based transactions, including employee stock options, is measured in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation.

F-8

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 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 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 is 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 consolidated statement operations. As of March 31, 2022 and December 31, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

Reclassification of Certain Prior Year Balances

The account, “Derivative Liability,” has been reclassified in the balance sheet as of December 31, 2021, as reflected herein, from the line item entitled, “Accrued Liabilities,” as presented in the balance sheet as of December 31, 2021, as contained in the Company’s Form 10-K for the fiscal year then ended and presented as a separate line item herein. 

Similarly, the presentation of certain liability accounts differs between the balance sheets as of March 31, 2022 and December 31, 2021 as compared to March 31, 2021 balance sheet.  As reflected on the balance sheets as contained herein, the balances of Accounts Payable and Accrued Liabilities are shown as separate item lines.  As of the period ended March 31, 2021, as provided in the Company Form 10-Q for that quarter, these accounts were combined into a single item line.

F-9

4. RECENT ACCOUNTING PRONOUNCEMENTS

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 unaudited condensed 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 effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies, for fiscal year beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is 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 of the new guidance on its unaudited condensed consolidated financial statements and related disclosures

No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future unaudited condensed consolidated financial statements.

5. EQUIPMENT AND SOFTWARE LICENSES

Equipment and software licenses consist of the following:

	March 31,			December 31,
	2022			2021
Equipment and software	$	656,073		$	656,073
Software licenses		1,302,143			1,302,143
		1,958,216			1,958,216
Less - Accumulated depreciation and amortization		(1,579,165	)		(1,539,581	)
	$	379,051		$	418,635

Depreciation and amortization expense related to assets for the three months ended March 31, 2022 and 2021 was approximately $39,584 and $49,825, respectively.

Included in the above paragraph is depreciation and amortization expense related to leased assets for the three months ended March 31, 2022 and 2021 of approximately $37,880 and $40,622, respectively.

F-10

6. ACCRUED LIABILITIES

	March 31,		December 31,
	2022		2021
Accrued compensation	$	262,734	$	187,534
Accrued interest		177,528		144,773
Accrued sales tax		2,163		5,810
Accrued franchise tax		17,637		14,862
Accrued payables		314,411		459,209
Total accrued liabilities	$	774,473	$	812,188

7. FACTORING CREDIT FACILITY

On October 22, 2021, the Company entered into a new one-year purchase and security agreement to factor its accounts receivable, replacing the previously signed factoring agreement. The agreement provides for an advanced rate of 90% with a fee of 2.4% to be charged on the gross face amount of the invoices purchased for 30 days.  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 factored approximately $652,866 of its invoices and received approximately $638,132 during the period ended March 31, 2022 from receivables factored under the Company’s factoring credit facility agreement. Additionally, principal payments amounting to $651,780 as well as the remittance of interest and fees totaling $15,856 were tendered under the Company’s factoring arrangements for the quarterly period ended March 31, 2022.

The balance of the accounts receivable amount factored, and the related factor payable is $199,958 as of March 31, 2022, and $213,606 on December 31, 2021, respectively.  The Company has recognized $15,856 and $0 in interest expense related to these arrangements for the three-months ended March 31, 2022 and 2021, respectively.

8. NOTES PAYABLE

The balances of Notes Payable as reflected herein relate to two notes as more fully described below. 

AJB No. 1 Note

On December 20, 2021, the Company entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB No. 1 Note”) with respect to the sale and issuance of (i) a promissory note in the principal amount of $600,000; (ii) a common stock purchase warrant to purchase up to 500,000 shares of common stock with an exercise price of $0.40 per share; and (iii) a guaranteed commitment fee in the amount of $150,000 for six months and an additional $150,000 if the loan is extended an additional six months to be paid in stock or cash. The Company received the aggregate cash proceeds of $515,500, net of $60,000 original issue discount, $12,000 for broker fees and $12,500 in legal fees.  The AJB No. 1 Note can be extended for six months at the sole discretion of the Company beyond its current maturity date pursuant to the note of June 20, 2022.

F-11

The Company issued 1,200,000 shares of the Company’s common stock as partial consideration for the commitment fee. The stock price on December 20, 2021, was approximately $0.15 per common share and 1,000,000 or $150,000 was recorded as the six-month commitment fee and considered to be a derivative based on the Company’s guarantee of the stock value when AJB Capital Investments, LLC liquidates the stock. The Company recorded a derivative liability of $76,136 and $76,136 as a debt discount at the issuance of the debt related to 1,000,000 of the shares of the Company’s common stock. The Company recognized $27,600 as a reduction of the commitment fee accrual for the 200,000 shares issued of the Company’s common stock.

As of March 31, 2022, the net debt balance and derivative liability for the AJB No. 1 Note was $292,775 and $86,835, respectively.   Moreover, for the quarter ended March 31, 2022, the Company recorded a gain in the change of the derivative liability for AJB No. 1 Note of $10,698 and amortization of the discount to interest expense in the amount of $174,498.

Pursuant to the terms of the AJB No.1 Note, the investor has the right, only following an event of default, to convert all amounts outstanding under this note into the shares of Common Stock (the “Conversion Shares”). The initial conversion price, following and during an event of default, for the principal and interest of the AJB No.1 note equals the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day period ending on the date of issuance of the Conversion Shares, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the AJB No.1 Note, subject to adjustment as provided said note.

The AJB No.1 Note also contains certain negative covenants, including, among other things, prohibitions on incurrence of indebtedness, sales of assets, stock repurchases, and distributions.

AJB No. 2 Note

On February 25, 2022, the Company entered into a Securities Purchase Agreement (the “AJB No. 2 Note”) with AJB Capital Investments (the “Investor”), with respect to the sale and issuance of (i) a promissory note in the principal amount of $600,000; (ii) a common stock purchase warrant to purchase up to 500,000 shares of the Company’s common stock with an exercise price of $0.40 per share; (iii) a guaranteed commitment fee of $150,000 in the form of 1,000,000 shares of Common Stock, and (iv) an additional commitment fee of $150,000 in the form of 1,000,000 shares of the Common Stock to be issued upon the extension of the note’s maturity date. The AJB No. 2 Note can be extended for six months at the sole discretion of the Company beyond its current maturity date pursuant to the note of August 25, 2022.

The Company received the aggregate net cash proceeds of $515,500 in the transactions due to reductions in the purchase price for $60,000 in original issue discount, $12,000 in broker fees, and $12,500 in legal fees and due diligence expenses of the Investor. The AJB No. 2 Note further provides for an adjustment mechanism with respect to the shares conveyed in connection with the commitment fees such that the Investor may recuperate any shortfall amount resulting from the sale of these shares if the net proceeds from such sale do not at least equal the commitment fees.

The Company issued 1,000,000 shares of the Company’s common stock as partial consideration for the commitment fee. The stock price on February 25, 2022, was approximately $0.17 per common share and 1,000,000 or $169,900 was recorded as the six-month commitment fee and considered to be a derivative based on the Company’s guarantee of the stock value when the Investor liquidates the stock. The Company recorded a derivative liability of $93,196 and $206,446 as a discount at the issuance of the debt related to 1,000,000 of the shares of the Company’s common stock and the related warrants.

As of March 31, 2022, the net debt balance and derivative liability for the AJB No. 2 Note was $285,008 and $87,152, respectively. Additionally, for the quarter ended March 31, 2022, the Company recorded a loss in the change of the derivative liability for AJB No. 2 Note of $6,044 and amortization of the discount to interest expense in the amount of $73,354.

F-12

The AJB No. 2 Note also contains representations and warranties, other covenants, and other provisions similar to those contained in the AJB No. 1 Note.

9. 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 year ended December 31, 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-month periods ended March 31, 2022 and March 31, 2021, the amortization of the discount to interest expense amounted to $132,349 and $24,334, respectively. The Notes have an interest rate of 8%. The principal 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.

	March 31,		December 31,
	2022		2021
Convertible debt	$	1,790,000	$	1,790,000
Debt discount		466,890		599,239
Convertible debt, net of debt discount		1,323,100		1,190,761
Short-term convertible debt, net of debt discount		1,159,179		831,991
Long-term convertible debt, net of debt discount	$	163,931	$	358,770

10. LEASE OBLIGATIONS

Finance Leases

The Company finances certain property and equipment using finance leases. These leases range from one to five years. The finance lease obligations represent the present value of the minimum lease payments, net of imputed interest. The finance lease obligations are secured by the underlying leased assets. Leases are payable in monthly installments ranging from $354 to $4,397 including interest, ranging from 6.99% to 12% per annum.

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

Year Ended
Remainder of 2022	$	120,216
2023		145,383
2024		126,320
2025		43,970
Total		435,889
Less: interest		(48,313	)
Present value of net minimum lease payments		387,576
Short term		134,207
Long term total	$	253,369

Lease payments for the three months ended March 31, 2022 and 2021 aggregated approximately $44,753 and $43,057, respectively.

F-13

The finance lease obligations are secured by underlying leased assets with a net book value of approximately $368,478 and $406,358 as of March 31, 2022 and December 31, 2021, respectively.

Operating Lease

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

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

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

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2022 are:

Weighted average remaining lease term	32 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 consolidated balance sheet as of March 31, 2022:

Remainder of 2022	$	97,100
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		349,830
Less: Imputed interest		(21,781	)
Present value of operating lease obligation	$	328,049

The Company has one leased facility which involves office 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.

F-14

For the three months ended March 31, 2022 and 2021, respectively, 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 March 31, 2022		Three months ended March 31, 2021
Operating lease cost:
Operating lease cost	$	32,292	$	31,617
Financing lease cost:
Amortization of financed lease assets	$	36,557	$	26,200
Interest expense		8,196		5,417
Total lease cost	$	44,753	$	31,617

11. STOCK BASED COMPENSATION

Number of options outstanding:
2018 Equity Incentive Plan	8,826,544
Options granted not part of a shareholder approved plan	700,000
March 31, 2022	9,526,544

Effective on May 5, 2021, the Board of Directors of the Company (the “Board of Directors”) 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 by 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 18,000,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.

The following table reflects the stock options for the three months ended March 31, 2022:

A summary of stock option activity is as follows:

Number of options outstanding:
Beginning of year		9,226,544
Granted		300,000
Exercised		-
Forfeited		-
March 31, 2022		9,526,544
Number of options exercisable at end of period		7,476,554
Number of options available for grant at end of period		9,173,456
Weighted average option prices per share:	$	0.41
Granted during the period		0.17
Exercised during the period		-
Forfeited during the period		-
Outstanding at end of the period		0.43
Exercisable at end of period	$	0.41

F-15

Stock-based compensation expense attributable to stock options, restricted stock awards, and warrants was $211,283 for the three-month period ended March 31, 2022 and $297,417 for the three-month period ended March 31, 2021. As of March 31, 2022, there was approximately $786,932 of unrecognized compensation expense related to unvested stock options outstanding and warrants, and the weighted average vesting period for those options was 5 years.

During the three-month period ended March 31, 2022, the Company granted options to purchase 300,000 shares of common stock with an average vesting period of three years, an average expected life of 6.5 years and an average exercise price of $0.17 per common share. The total value of these options was $46,346 and was derived based upon the following parameters:

	2022			2021
Expected option life (years)		6.5			6.5
Expected stock price volatility		130	%
					117	%
Expected dividend yield		—	%		—	%
Risk-free interest rate		2.03	%		1.15	%

During the three-month period ended March 31, 2021, the Company granted options to purchase 500,000 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 $0.56 per common share. Total value was $243,964.

In addition to options, the Company has issued warrants at various times. 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.  Moreover, 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 warrant vested immediately and remained outstanding as of March 31, 2022.  This warrant expired subsequent to the end of the first quarter on May 8, 2022.

During the quarter ended March 31, 2022, the Company granted a warrant to purchase 500,000 shares of common stock for $0.40 per share. The warrant vests immediately and has a three-year term.  The value of the warrant was $39,295. This warrant, along with the warrants issued in December 2021, as discussed herein above, contain certain anti-dilution language such that while the warrant is outstanding, if the Company issues or sells, or if it is deemed to have issued or sold, any warrant or option to purchase the Company’s common stock and/or common stock equivalents with a purchase price per share less than the aforementioned per share exercise price of $0.625 or the exercise price at the time of the issuance or sale or deemed sale, with certain exceptions, the then exercise price is lowered to purchase price at which the applicable warrant or option was issued or sold. 

	2021
Number of warrants outstanding:
Beginning of period		1,372,752
Granted		500,000
Exercised, converted		-
Forfeited / exchanged / modification		-
End of period		1,872,752

F-16

12. RELATED PARTY TRANSACTIONS

The Company contracted with Norco Professional Services, LLC. (“Norco”) to provide consulting services. The Company incurred approximately $22,500 for the three-month period ended March 31, 2022. Norco is owned by Andrew J. Norstrud, who joined the Company in January of 2019, as the Company’s Chief Financial Officer.  Mr. Norstrud resigned from his position as the Company’s Chief Financial Officer on April 29, 2022.

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.

13. 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 months ended March 31, 2022 and 2021 include revenues from significant customers as follows:

	Three Month Ended March 31,
	2022			2021
Customer A		53	%		54	%
Customer B		12	%		11	%

Accounts receivable balances as of March 31, 2022 and December 31, 2021 from significant customers are as follows:

	March  31,			December 31,
	2022			2021
Customer A		85	%		92	%

14. SUBSEQUENT EVENTS

On May 4, 2022, the Company entered into a Securities Purchase Agreement with Mast Hill Fund, L.P. with respect to the sale and issuance of (i) a 10% promissory note in the principal amount of $500,000; (ii) a common stock purchase warrant to purchase up to 416,667 shares of common stock with an exercise price of $0.40 per share; and (iii) a commitment fee of 1,666,667 shares of the Company’s common stock.  The Company received the aggregate cash proceeds of $408,500, net of $50,000 original issue discount, $31,500 for broker fees and $10,000 in legal fees. 

As mentioned previously, Mr. Norstrud resigned from his position as the Company’s Chief Financial Officer on April 29, 2022.  On that date, the Company executed that certain Proposal and Master Service Agreement by and between the Company and Harris & Dickey, LLC (the “Agreement”), pursuant to which John Tittle, Jr., CPA/CFF/CGMA, CTP, CIRA, CDBV will serve as the Company’s fractional CFO to fulfill the typical duties, responsibilities, and obligations of a public company CFO. The Company will compensate Harris & Dickey, LLC for the services of Mr. Tittle at an hourly rate of $250, subject to the payment of certain monthly retainers and other arrangements as outlined in the Agreement.

F-17

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 caused significant volatility in U.S. and international markets. There continues to be 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 transitioned its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company remains unable to determine if there will be a material future impact to its customers’ operations and ultimately an impact to the Company’s overall revenues.

Results of Operations

The following summary of the Company’s operations should be read in conjunction with its unaudited condensed consolidated financial statements for the three months ended March 31, 2022 and 2021, which are included herein.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

	March 31,
	2022			2021			Change
Revenue	$	1,254,870		$	1,377,454		$	(122,584	)
Cost of revenue		1,362,960			1,142,023			220,937
Operating expenses		783,490			1,370,594			(587,104	)
Other (expenses) income		(464,604	)		(113,025	)		(351,579	)
Net loss	$	(1,356,184	)	$	(1,248,188	)	$	(107,996	)

Revenues decreased by $122,584 or 8.9% compared with the same period last year. Revenue increased by approximately $75,616 from new customers, which was offset by approximately $163,417 in reduced non-recurring projects and $34,783 due to changes in services or devices.

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. There is a component of these costs that are recurring and fixed to provide our minimum service level as a managed service provider. Cost of revenue increased by $220,937 or 19.3% compared with the same period last year. The increase was related to the addition of nine service employees compared to the first quarter 2021, additional contract labor for customer support, and increased cost of services passed through to customers, including certain termination fees. These increased costs were offset by decreases in outlays for certain professional services attributable to the cost of revenue. Gross profit decreased by $343,521 and the gross margin decreased from 17.1% to -8.6%. This was caused by the aforementioned reduced revenue levels and the additional costs incurred primarily due to new service employees and certain contract labor, primarily as a result of unprofitable contracts that were properly completed during the three-month period ended March 31, 2022.

Operating expenses decreased by $587,104 or 42.8% compared with the same period last year. This decrease was due to lower marketing costs, reductions in headcount related to the departure of the former Chief Revenue Officer and other sales and administrative personnel, decreased salaries as a result of reassignment of employees to operations, and decreases in stock compensation costs as well as depreciation and amortization expenses. These declines in operating expenses were partially offset by certain sales tax and bad debt adjustments and increases in other general expenses. The Company’s management is continuing to control operating expenses while also implementing management growth strategies.

Other (expenses) income increased by $351,579 in the three months ended March 31, 2022, compared to the same period in the previous year.  The incremental expense in this line item related to increased interest expenses on the Company’s debt.

5

The Company incurred a net loss of $1,356,184 and $1,248,188 for the three months ended March 31, 2022, and March 31, 2021, respectively. The increase in the net loss is primarily related to lower profit margins as offset by significantly reduced operating expenses.

Liquidity and Capital Resources

Working Capital

	As of March 31, 2022			As of December 31, 2021
Current assets	$	879,556		$	1,256,120
Current liabilities	$	3,529,684		$	2,780,355
	$	(2,650,128	)	$	(1,524,235	)

Cash Flows

	Three Months Ended March 31,
	2022			2021
Cash flows used in operating activities	$	(737,034	)	$	(824,039	)
Cash flows used in investing activities		-			(14,302	)
Cash flows provided by (used in) financing activities		465,297			753,104
Net decrease in cash during period	$	(271,737	)	$	(85,237	)

As of March 31, 2022, the Company had cash of $249,302 or a decrease of $271,737 from the December 31, 2021 cash balance. Cash flow used in operating activities was $737,032 for the three months ended March 31, 2022. The decrease is primarily related to the net loss sustained during the quarter as well as a decrease in deferred revenue.  As of March 31, 2022 and December 31, 2021, deferred revenue was $74,657 and $229,327, respectively.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $0 and $14,302, respectively. For the period ended March 31, 2021 the use of cash was primarily due to the repayment of debt related to the acquisition of equipment and software licenses.

Net cash flows provided by financing activities for the three months ended March 31, 2022 was $465,297 compared to net cash flows used in financing activities of $753,104 in the three months ended March 31, 2021. The decreased cash provided by financial activities during the three months ended March 31, 2022 related primarily to the receipt of lower debt proceeds in the quarter as compared to the same period in 2021.  Certain factoring costs also contributed to the decline in these cash flows between the two periods.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand, cash flow from operations, short-term debt from the factoring of receivables, additional debt financings and additional equity financings. The Company must raise capital through additional debt and equity financings to fund the operations of the business, there is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will not be sufficient to finance operations over the next twelve months.

6

Critical Accounting Policies

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

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

Revenue Recognition

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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

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

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

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

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

7

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 $40,000 as of March 31, 2022 and December 31, 2021, 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 months ended March 31, 2022.

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.

Recent Accounting Pronouncements

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 unaudited condensed 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 effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies, for fiscal year beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is 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 of the new guidance on its unaudited condensed consolidated financial statements and related disclosures.

8

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.

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.

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 March 31, 2022. 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.

9

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.

We have planned 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 continue to plan to address these issues through the following steps when practicable and effective from a cost-benefit standpoint:

(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 March 31, 2022 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 three months ended March 31, 2022 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

10

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 three months ended March 31, 2022, the Company issued 1,000,000 shares of common stock for a commitment fee valued at $169,900 with no material fees.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

11

Item 6. Exhibits

Exhibit Number	Description
(3)	Articles of Incorporation and Bylaws
3.1	Articles of Incorporation (Incorporated by reference to our Registration Statement on Form S-1 filed on July 8, 2016)
3.2	Amended Articles of Incorporation (Incorporated by reference to our Registration Statement on Form S-1 filed on July 8, 2016)
3.3	Bylaws (Incorporated by reference to our Registration Statement on Form S-1 filed on July 2016)
(31)	Rule 13a-14 (d)/15d-14d) Certifications
31.1*	Section 302 Certification by the Principal Executive Officer
31.2*	Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer
(32)	Section 1350 Certifications
32.1*	Section 906 Certification by the Principal Executive Officer
32.2*	Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer
101**	Interactive Data File
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

__________

* Filed herewith.

** Furnished herewith.

12

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: May 16, 2022	/s/ Alan Hixon
	Alan Hixon
	President, Chief Executive Officer, and Director
	(Principal Executive Officer)

Dated: May 16, 2022	/s/ John Tittle, Jr.
	John Tittle, Jr.
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

13

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: May 16, 2022

/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, John Tittle, Jr., 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: May 16, 2022

/s/ John Tittle, Jr.

John Tittle, Jr., 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 March 31, 2022 (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: May 16, 2022

/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, John Tittle, Jr., 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 March 31, 2022 (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: May 16, 2022

/s/ John Tittle, Jr.

John Tittle, Jr.,

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

 

XML

Cover - shares	3 Months Ended
	Mar. 31, 2022	May 13, 2022
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	Mar. 31, 2022
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Entity Ex Transition Period	true
Entity Common Stock Shares Outstanding		47,586,537
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	333-212446
Entity Incorporation State Country Code	NV
Entity Tax Identification Number	47-5133966
Entity Interactive Data Current	Yes
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 ($)	Mar. 31, 2022	Dec. 31, 2021
Current assets
Cash	$ 249,302	$ 521,039
Accounts receivable, net (allowance for doubtful accounts was $40,000 as of March 31, 2022 and December 31, 2021)	471,623	571,994
Prepaid expenses	158,631	163,087
Total current assets	879,556	1,256,120
Equipment and software licenses - at cost, less accumulated depreciation and amortization	379,051	418,635
Other assets
Right-of-use asset	310,162	337,179
Total other assets	310,162	337,179
Total assets	1,568,769	2,011,934
Current liabilities
Accounts payable	305,376	233,217
Accrued liabilities	774,473	812,188
Derivative liability	173,986	76,137
Deferred revenue	74,657	229,327
Factoring credit facility	199,958	213,606
Current portion of note payable	577,783	118,277
Current portion of convertible notes payable, net of discount	1,159,179	831,991
Current portion of operating lease payable	130,065	129,392
Current portion of finance lease obligations	134,207	136,220
Total current liabilities	3,529,684	2,780,355
Convertible notes payable, net of discount	163,931	358,770
Operating lease payable, net of current portion	197,984	226,846
Finance lease obligations, net of current portion	253,369	287,911
Total long-term liabilities	615,284	873,527
Stockholders' Deficit
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.001 par value, 180,000,000 shares authorized, and 45,919,870 and 44,919,870 shares issued and outstanding, respectively	45,920	44,920
Additional paid in capital	9,913,058	9,492,125
Accumulated deficit	(12,535,177)	(11,178,993)
Total stockholders' deficit	(2,576,199)	(1,641,948)
Total liabilities and stockholders' deficit	$ 1,568,769	$ 2,011,934

XML

CONDENSED CONSOLDIATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
CONDENSED CONSOLDIATED BALANCE SHEETS
Allowance for doubtful debts	$ 40,000	$ 40,000
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	45,919,870	44,919,870
Common stock, shares outstanding	45,919,870	44,919,870

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Service revenue	$ 1,254,870	$ 1,377,454
Service costs	1,362,960	1,142,023
Gross profit	(108,090)	235,431
Operating expenses
Selling, general and administrative expenses	783,490	1,370,594
total operation exp	783,490	1,370,594
Loss from operations	(891,580)	(1,135,163)
Other (expense) income
Interest expense	(459,950)	(113,236)
Gain on change in derivative liability	(4,654)	0
Other income	0	211
Other (expense) incomes	(464,604)	(113,025)
Net loss before income tax	(1,356,184)	(1,248,188)
Income tax expense	0	0
Net loss	$ (1,356,184)	$ (1,248,188)
Basic and diluted loss per share	$ (0.03)	$ (0.03)
Weighted average shares outstanding	45,297,648	42,519,640

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (Unaudited) - USD ($)	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit
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)
Amortization of stock-based compensation and warrant expense	297,417	0	297,417	0
Beneficial conversion feature	620,375	$ 0	620,375	0
Common stock issued for services, shares		85,103
Common stock issued for services, amount	0	$ 85	(85)	0
Net loss	(1,248,188)	$ 0	0	(1,248,188)
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, 2021		44,919,870
Balance, amount at Dec. 31, 2021	(1,641,948)	$ 44,920	9,492,125	(11,178,993)
Amortization of stock-based compensation and warrant expense	211,283	0	211,283	0
Net loss	(1,356,184)	$ 0	0	(1,356,184)
Common stock issued for commitment fee, shares		1,000,000
Common stock issued for commitment fee, amount	169,900	$ 1,000	168,900	0
Warrant issued with debt	40,750	$ 0	40,750	0
Balance, shares at Mar. 31, 2022		45,919,870
Balance, amount at Mar. 31, 2022	$ (2,576,199)	$ 45,920	$ 9,913,058	$ (12,535,177)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows from operating activities
Net loss	$ (1,356,184)	$ (1,248,188)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	39,584	100,463
Provision for doubtful accounts	0	(16,000)
Amortization of beneficial conversion feature	132,349	70,567
Amortization of debt discount	247,852	0
Non-cash lease expense	27,017	25,596
Stock based compensation	211,283	297,417
Gain on the change in derivative liability	4,654	0
Changes in assets and liabilities
Accounts receivable	100,371	49,024
Prepaid expenses	4,456	(154,677)
Accounts payable	72,158	104,103
Accrued liabilities	(37,715)	141,131
Deferred revenue	(154,670)	(167,381)
Operating lease payable	(28,189)	(26,094)
Net cash used in operating activities	(737,034)	(824,039)
Cash flows from investing activities
Repayment of debt related to acquisition	0	(14,302)
Net cash used in investing activities	0	(14,302)
Cash flows from financing activities
Proceeds from factor credit facility, net	(13,648)	0
Proceeds from note, net	515,500	0
Proceeds from convertible notes payable, net	0	785,000
Repayment of finance lease obligations	(36,555)	(31,896)
Net cash provided by financing activities	465,297	753,104
Net decrease in cash	(271,737)	(85,237)
Cash, beginning of period	521,039	1,806,606
Cash, end of period	249,302	1,721,369
Supplemental cash flow disclosures
Interest paid	47,278	10,332
Non-cash financing activities
Cashless exercise of options	0	85
Purchase of equipment under capital lease	0	26,211
Beneficial conversion feature	0	620,375
Debt discount issued in connection with debt	93,195	0
Common stock issued for commitment fees	169,900	0
Warrants issued with debt	$ 40,750	$ 0

XML

DESCRIPTION OF BUSINESS

3 Months Ended

Mar. 31, 2022

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 AND GOING CONCERN

3 Months Ended

Mar. 31, 2022

LIQUIDITY AND GOING CONCERN

2. LIQUIDITY AND GOING CONCERN

2. GOING CONCERN AND LIQUIDITY

The Company has, and is continuing to, experience significant losses and negative cash flows from operations. Management has secured new managed services contracts as well as continued its implementation of a strategic sales strategy, focusing on selling through and with channel partners in the industry to increase monthly recurring revenue to improve the overall profitability and cash flows of the Company.  The Company continues to explore additional options for short-term and long-term financing until these new strategies have fully developed and are generating the necessary cash flow.

During the three months ended March 31, 2022, the Company received net proceeds from the issuance of notes payable of approximately $515,500.  Moreover, subsequent to the end of the first quarter of 2022, the Company closed another convertible debt issuance on May 4, 2022, in the net amount of $408,500.  The Company had negative working capital of $2,650,128 on March 31, 2022.

The Company exited some unprofitable contracts during the quarter which resulted in negative gross margin.  With these contracts finalized, the Company does not anticipate the recurrence of such detrimental and dilutive arrangements in the future.

The Company factored approximately $652,866 of its invoices and received approximately $638,132 during the period ended March 31, 2022 from receivables factored under the Company’s factoring credit facility agreement. Additionally, principal payments amounting to $651,780 as well as the remittance of interest and fees totaling $15,856 were tendered under the Company’s factoring arrangements for the quarterly period ended March 31, 2022. The Company receives 90% of the factored receivables for a fee of 2.4% of the factored invoice and has committed to a minimum balance of $150,000 of invoices factored for six months from the initial funding in November 2021.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the near future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited consolidated condensed financial statements with existing cash on hand, factoring of receivables, obtaining additional debt and/or the private placement of common stock. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months and at the same time pay back various convertible notes due during this same time period. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these unaudited consolidated condensed financial statements. The accompanying unaudited consolidated condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world caused significant volatility in U.S. and international markets. There continues to be 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 transitioned its operations to 100% work from home and there has been minimal impact to our internal operations from the transition. The Company remains 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.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3. SUMMARY 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-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 April 14, 2022 from which the accompanying December 31, 2021 numbers 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 significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

Management uses estimates and assumptions in preparing these unaudited condensed consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Revenue Recognition

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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

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

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

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

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

Cash

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

The balances of 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 $40,000 as of March 31, 2022 and December 31, 2021. 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 months ended March 31, 2022 and 2021.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and accounts receivable. See Note 13 for significant customer concentration disclosure.

Cash is maintained with a 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.  As of December 31, 2021, deposits in excess of FDIC limits were $271,039, while the FDIC limit of $250,000 per depositor per bank was not exceeded on March 31, 2022.

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.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Earnings and Loss per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. There were approximately 15,624,000 of common stock equivalents excluded for the three months ended March 31, 2022 and 15,387,000 of common stock equivalents excluded for the three months ended March 31, 2021, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $26,779 for the three months ended March 31, 2022 and $158,859 for the three months ended March 31, 2021, respectively and is included in selling, general and administrative expenses.

Stock-Based Compensation

Compensation expense related to share-based transactions, including employee stock options, is measured in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation.

Leases

The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets on the 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 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 is 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 consolidated statement operations. As of March 31, 2022 and December 31, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

Reclassification of Certain Prior Year Balances

The account, “Derivative Liability,” has been reclassified in the balance sheet as of December 31, 2021, as reflected herein, from the line item entitled, “Accrued Liabilities,” as presented in the balance sheet as of December 31, 2021, as contained in the Company’s Form 10-K for the fiscal year then ended and presented as a separate line item herein. 

Similarly, the presentation of certain liability accounts differs between the balance sheets as of March 31, 2022 and December 31, 2021 as compared to March 31, 2021 balance sheet.  As reflected on the balance sheets as contained herein, the balances of Accounts Payable and Accrued Liabilities are shown as separate item lines.  As of the period ended March 31, 2021, as provided in the Company Form 10-Q for that quarter, these accounts were combined into a single item line.

XML

RECENT ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2022

RECENT ACCOUNTING PRONOUNCEMENTS

4. RECENT ACCOUNTING PRONOUNCEMENTS

4. RECENT ACCOUNTING PRONOUNCEMENTS

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 unaudited condensed 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 effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies, for fiscal year beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is 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 of the new guidance on its unaudited condensed consolidated financial statements and related disclosures

No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future unaudited condensed consolidated financial statements.

XML

EQUIPMENT AND SOFTWARE LICENSES

3 Months Ended

Mar. 31, 2022

EQUIPMENT AND SOFTWARE LICENSES

5. EQUIPMENT AND SOFTWARE LICENSES

5. EQUIPMENT AND SOFTWARE LICENSES

Equipment and software licenses consist of the following:

	March 31,			December 31,
	2022			2021
Equipment and software	$	656,073		$	656,073
Software licenses		1,302,143			1,302,143
		1,958,216			1,958,216
Less - Accumulated depreciation and amortization		(1,579,165	)		(1,539,581	)
	$	379,051		$	418,635

Depreciation and amortization expense related to assets for the three months ended March 31, 2022 and 2021 was approximately $39,584 and $49,825, respectively.

Included in the above paragraph is depreciation and amortization expense related to leased assets for the three months ended March 31, 2022 and 2021 of approximately $37,880 and $40,622, respectively.

XML

ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2022

ACCRUED LIABILITIES

6. ACCRUED LIABILITIES

6. ACCRUED LIABILITIES

	March 31,		December 31,
	2022		2021
Accrued compensation	$	262,734	$	187,534
Accrued interest		177,528		144,773
Accrued sales tax		2,163		5,810
Accrued franchise tax		17,637		14,862
Accrued payables		314,411		459,209
Total accrued liabilities	$	774,473	$	812,188

XML

FACTORING CREDIT FACILITY

3 Months Ended

Mar. 31, 2022

FACTORING CREDIT FACILITY

7. FACTORING CREDIT FACILITY

7. FACTORING CREDIT FACILITY

On October 22, 2021, the Company entered into a new one-year purchase and security agreement to factor its accounts receivable, replacing the previously signed factoring agreement. The agreement provides for an advanced rate of 90% with a fee of 2.4% to be charged on the gross face amount of the invoices purchased for 30 days.  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 factored approximately $652,866 of its invoices and received approximately $638,132 during the period ended March 31, 2022 from receivables factored under the Company’s factoring credit facility agreement. Additionally, principal payments amounting to $651,780 as well as the remittance of interest and fees totaling $15,856 were tendered under the Company’s factoring arrangements for the quarterly period ended March 31, 2022.

The balance of the accounts receivable amount factored, and the related factor payable is $199,958 as of March 31, 2022, and $213,606 on December 31, 2021, respectively.  The Company has recognized $15,856 and $0 in interest expense related to these arrangements for the three-months ended March 31, 2022 and 2021, respectively.

XML

NOTE PAYABLE

3 Months Ended

Mar. 31, 2022

NOTE PAYABLE

8. NOTE PAYABLE

8. NOTES PAYABLE

The balances of Notes Payable as reflected herein relate to two notes as more fully described below. 

AJB No. 1 Note

On December 20, 2021, the Company entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB No. 1 Note”) with respect to the sale and issuance of (i) a promissory note in the principal amount of $600,000; (ii) a common stock purchase warrant to purchase up to 500,000 shares of common stock with an exercise price of $0.40 per share; and (iii) a guaranteed commitment fee in the amount of $150,000 for six months and an additional $150,000 if the loan is extended an additional six months to be paid in stock or cash. The Company received the aggregate cash proceeds of $515,500, net of $60,000 original issue discount, $12,000 for broker fees and $12,500 in legal fees.  The AJB No. 1 Note can be extended for six months at the sole discretion of the Company beyond its current maturity date pursuant to the note of June 20, 2022.

The Company issued 1,200,000 shares of the Company’s common stock as partial consideration for the commitment fee. The stock price on December 20, 2021, was approximately $0.15 per common share and 1,000,000 or $150,000 was recorded as the six-month commitment fee and considered to be a derivative based on the Company’s guarantee of the stock value when AJB Capital Investments, LLC liquidates the stock. The Company recorded a derivative liability of $76,136 and $76,136 as a debt discount at the issuance of the debt related to 1,000,000 of the shares of the Company’s common stock. The Company recognized $27,600 as a reduction of the commitment fee accrual for the 200,000 shares issued of the Company’s common stock.

As of March 31, 2022, the net debt balance and derivative liability for the AJB No. 1 Note was $292,775 and $86,835, respectively.   Moreover, for the quarter ended March 31, 2022, the Company recorded a gain in the change of the derivative liability for AJB No. 1 Note of $10,698 and amortization of the discount to interest expense in the amount of $174,498.

Pursuant to the terms of the AJB No.1 Note, the investor has the right, only following an event of default, to convert all amounts outstanding under this note into the shares of Common Stock (the “Conversion Shares”). The initial conversion price, following and during an event of default, for the principal and interest of the AJB No.1 note equals the lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day period ending on the date of issuance of the Conversion Shares, or (ii) during the previous twenty (20) trading day period ending on date of conversion of the AJB No.1 Note, subject to adjustment as provided said note.

The AJB No.1 Note also contains certain negative covenants, including, among other things, prohibitions on incurrence of indebtedness, sales of assets, stock repurchases, and distributions.

AJB No. 2 Note

On February 25, 2022, the Company entered into a Securities Purchase Agreement (the “AJB No. 2 Note”) with AJB Capital Investments (the “Investor”), with respect to the sale and issuance of (i) a promissory note in the principal amount of $600,000; (ii) a common stock purchase warrant to purchase up to 500,000 shares of the Company’s common stock with an exercise price of $0.40 per share; (iii) a guaranteed commitment fee of $150,000 in the form of 1,000,000 shares of Common Stock, and (iv) an additional commitment fee of $150,000 in the form of 1,000,000 shares of the Common Stock to be issued upon the extension of the note’s maturity date. The AJB No. 2 Note can be extended for six months at the sole discretion of the Company beyond its current maturity date pursuant to the note of August 25, 2022.

The Company received the aggregate net cash proceeds of $515,500 in the transactions due to reductions in the purchase price for $60,000 in original issue discount, $12,000 in broker fees, and $12,500 in legal fees and due diligence expenses of the Investor. The AJB No. 2 Note further provides for an adjustment mechanism with respect to the shares conveyed in connection with the commitment fees such that the Investor may recuperate any shortfall amount resulting from the sale of these shares if the net proceeds from such sale do not at least equal the commitment fees.

The Company issued 1,000,000 shares of the Company’s common stock as partial consideration for the commitment fee. The stock price on February 25, 2022, was approximately $0.17 per common share and 1,000,000 or $169,900 was recorded as the six-month commitment fee and considered to be a derivative based on the Company’s guarantee of the stock value when the Investor liquidates the stock. The Company recorded a derivative liability of $93,196 and $206,446 as a discount at the issuance of the debt related to 1,000,000 of the shares of the Company’s common stock and the related warrants.

As of March 31, 2022, the net debt balance and derivative liability for the AJB No. 2 Note was $285,008 and $87,152, respectively. Additionally, for the quarter ended March 31, 2022, the Company recorded a loss in the change of the derivative liability for AJB No. 2 Note of $6,044 and amortization of the discount to interest expense in the amount of $73,354.

The AJB No. 2 Note also contains representations and warranties, other covenants, and other provisions similar to those contained in the AJB No. 1 Note.

XML

CONVERTIBLE NOTES PAYABLE

3 Months Ended

Mar. 31, 2022

CONVERTIBLE NOTES PAYABLE

9. CONVERTIBLE NOTES PAYABLE

9. 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 year ended December 31, 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-month periods ended March 31, 2022 and March 31, 2021, the amortization of the discount to interest expense amounted to $132,349 and $24,334, respectively. The Notes have an interest rate of 8%. The principal 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.

	March 31,		December 31,
	2022		2021
Convertible debt	$	1,790,000	$	1,790,000
Debt discount		466,890		599,239
Convertible debt, net of debt discount		1,323,100		1,190,761
Short-term convertible debt, net of debt discount		1,159,179		831,991
Long-term convertible debt, net of debt discount	$	163,931	$	358,770

XML

LEASE OBLIGATIONS

3 Months Ended

Mar. 31, 2022

LEASE OBLIGATIONS

10. LEASE OBLIGATIONS

10. LEASE OBLIGATIONS

Finance Leases

The Company finances certain property and equipment using finance leases. These leases range from one to five years. The finance lease obligations represent the present value of the minimum lease payments, net of imputed interest. The finance lease obligations are secured by the underlying leased assets. Leases are payable in monthly installments ranging from $354 to $4,397 including interest, ranging from 6.99% to 12% per annum.

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

Year Ended
Remainder of 2022	$	120,216
2023		145,383
2024		126,320
2025		43,970
Total		435,889
Less: interest		(48,313	)
Present value of net minimum lease payments		387,576
Short term		134,207
Long term total	$	253,369

Lease payments for the three months ended March 31, 2022 and 2021 aggregated approximately $44,753 and $43,057, respectively.

The finance lease obligations are secured by underlying leased assets with a net book value of approximately $368,478 and $406,358 as of March 31, 2022 and December 31, 2021, respectively.

Operating Lease

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

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

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

The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2022 are:

Weighted average remaining lease term	32 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 consolidated balance sheet as of March 31, 2022:

Remainder of 2022	$	97,100
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		349,830
Less: Imputed interest		(21,781	)
Present value of operating lease obligation	$	328,049

The Company has one leased facility which involves office 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 months ended March 31, 2022 and 2021, respectively, 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 March 31, 2022		Three months ended March 31, 2021
Operating lease cost:
Operating lease cost	$	32,292	$	31,617
Financing lease cost:
Amortization of financed lease assets	$	36,557	$	26,200
Interest expense		8,196		5,417
Total lease cost	$	44,753	$	31,617

XML

STOCK BASED COMPENSATION

3 Months Ended

Mar. 31, 2022

STOCK BASED COMPENSATION

11. STOCK BASED COMPENSATION

11. STOCK BASED COMPENSATION

Number of options outstanding:
2018 Equity Incentive Plan	8,826,544
Options granted not part of a shareholder approved plan	700,000
March 31, 2022	9,526,544

Effective on May 5, 2021, the Board of Directors of the Company (the “Board of Directors”) 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 by 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 18,000,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.

The following table reflects the stock options for the three months ended March 31, 2022:

A summary of stock option activity is as follows:

Number of options outstanding:
Beginning of year		9,226,544
Granted		300,000
Exercised		-
Forfeited		-
March 31, 2022		9,526,544
Number of options exercisable at end of period		7,476,554
Number of options available for grant at end of period		9,173,456
Weighted average option prices per share:	$	0.41
Granted during the period		0.17
Exercised during the period		-
Forfeited during the period		-
Outstanding at end of the period		0.43
Exercisable at end of period	$	0.41

Stock-based compensation expense attributable to stock options, restricted stock awards, and warrants was $211,283 for the three-month period ended March 31, 2022 and $297,417 for the three-month period ended March 31, 2021. As of March 31, 2022, there was approximately $786,932 of unrecognized compensation expense related to unvested stock options outstanding and warrants, and the weighted average vesting period for those options was 5 years.

During the three-month period ended March 31, 2022, the Company granted options to purchase 300,000 shares of common stock with an average vesting period of three years, an average expected life of 6.5 years and an average exercise price of $0.17 per common share. The total value of these options was $46,346 and was derived based upon the following parameters:

	2022			2021
Expected option life (years)		6.5			6.5
Expected stock price volatility		130	%
					117	%
Expected dividend yield		—	%		—	%
Risk-free interest rate		2.03	%		1.15	%

During the three-month period ended March 31, 2021, the Company granted options to purchase 500,000 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 $0.56 per common share. Total value was $243,964.

In addition to options, the Company has issued warrants at various times. 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.  Moreover, 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 warrant vested immediately and remained outstanding as of March 31, 2022.  This warrant expired subsequent to the end of the first quarter on May 8, 2022.

During the quarter ended March 31, 2022, the Company granted a warrant to purchase 500,000 shares of common stock for $0.40 per share. The warrant vests immediately and has a three-year term.  The value of the warrant was $39,295. This warrant, along with the warrants issued in December 2021, as discussed herein above, contain certain anti-dilution language such that while the warrant is outstanding, if the Company issues or sells, or if it is deemed to have issued or sold, any warrant or option to purchase the Company’s common stock and/or common stock equivalents with a purchase price per share less than the aforementioned per share exercise price of $0.625 or the exercise price at the time of the issuance or sale or deemed sale, with certain exceptions, the then exercise price is lowered to purchase price at which the applicable warrant or option was issued or sold. 

	2021
Number of warrants outstanding:
Beginning of period		1,372,752
Granted		500,000
Exercised, converted		-
Forfeited / exchanged / modification		-
End of period		1,872,752

XML

RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2022

RELATED PARTY TRANSACTIONS

12. RELATED PARTY TRANSACTIONS

12. RELATED PARTY TRANSACTIONS

The Company contracted with Norco Professional Services, LLC. (“Norco”) to provide consulting services. The Company incurred approximately $22,500 for the three-month period ended March 31, 2022. Norco is owned by Andrew J. Norstrud, who joined the Company in January of 2019, as the Company’s Chief Financial Officer.  Mr. Norstrud resigned from his position as the Company’s Chief Financial Officer on April 29, 2022.

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.

XML

SIGNIFICANT CUSTOMERS

3 Months Ended

Mar. 31, 2022

SIGNIFICANT CUSTOMERS

13. SIGNIFICANT CUSTOMERS

13. 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 months ended March 31, 2022 and 2021 include revenues from significant customers as follows:

	Three Month Ended March 31,
	2022			2021
Customer A		53	%		54	%
Customer B		12	%		11	%

Accounts receivable balances as of March 31, 2022 and December 31, 2021 from significant customers are as follows:

	March  31,			December 31,
	2022			2021
Customer A		85	%		92	%

XML

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2022

SUBSEQUENT EVENTS

14. SUBSEQUENT EVENTS

14. SUBSEQUENT EVENTS

On May 4, 2022, the Company entered into a Securities Purchase Agreement with Mast Hill Fund, L.P. with respect to the sale and issuance of (i) a 10% promissory note in the principal amount of $500,000; (ii) a common stock purchase warrant to purchase up to 416,667 shares of common stock with an exercise price of $0.40 per share; and (iii) a commitment fee of 1,666,667 shares of the Company’s common stock.  The Company received the aggregate cash proceeds of $408,500, net of $50,000 original issue discount, $31,500 for broker fees and $10,000 in legal fees. 

As mentioned previously, Mr. Norstrud resigned from his position as the Company’s Chief Financial Officer on April 29, 2022.  On that date, the Company executed that certain Proposal and Master Service Agreement by and between the Company and Harris & Dickey, LLC (the “Agreement”), pursuant to which John Tittle, Jr., CPA/CFF/CGMA, CTP, CIRA, CDBV will serve as the Company’s fractional CFO to fulfill the typical duties, responsibilities, and obligations of a public company CFO. The Company will compensate Harris & Dickey, LLC for the services of Mr. Tittle at an hourly rate of $250, subject to the payment of certain monthly retainers and other arrangements as outlined in the Agreement.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2022

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-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 April 14, 2022 from which the accompanying December 31, 2021 numbers 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 significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

Management uses estimates and assumptions in preparing these unaudited condensed consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Revenue Recognition

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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

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

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

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

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

Cash

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

The balances of 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 $40,000 as of March 31, 2022 and December 31, 2021. 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 months ended March 31, 2022 and 2021.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash and accounts receivable. See Note 13 for significant customer concentration disclosure.

Cash is maintained with a 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.  As of December 31, 2021, deposits in excess of FDIC limits were $271,039, while the FDIC limit of $250,000 per depositor per bank was not exceeded on March 31, 2022.

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.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Earnings and Loss per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. There were approximately 15,624,000 of common stock equivalents excluded for the three months ended March 31, 2022 and 15,387,000 of common stock equivalents excluded for the three months ended March 31, 2021, respectively because their effect is anti-dilutive.

Marketing Costs

Marketing costs, which are expensed as incurred, totaled approximately $26,779 for the three months ended March 31, 2022 and $158,859 for the three months ended March 31, 2021, respectively and is included in selling, general and administrative expenses.

Stock-Based Compensation

Compensation expense related to share-based transactions, including employee stock options, is measured in the financial statements based on a determination of the fair value. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all stock options, the Company recognizes expense over the requisite service period on a straight-line basis (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation.

Leases

The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets on the 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 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 is 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 consolidated statement operations. As of March 31, 2022 and December 31, 2021, no accrued interest or penalties are included on the related tax liability line in the balance sheet.

Reclassification of Certain Prior Year Balances

The account, “Derivative Liability,” has been reclassified in the balance sheet as of December 31, 2021, as reflected herein, from the line item entitled, “Accrued Liabilities,” as presented in the balance sheet as of December 31, 2021, as contained in the Company’s Form 10-K for the fiscal year then ended and presented as a separate line item herein. 

Similarly, the presentation of certain liability accounts differs between the balance sheets as of March 31, 2022 and December 31, 2021 as compared to March 31, 2021 balance sheet.  As reflected on the balance sheets as contained herein, the balances of Accounts Payable and Accrued Liabilities are shown as separate item lines.  As of the period ended March 31, 2021, as provided in the Company Form 10-Q for that quarter, these accounts were combined into a single item line.

XML

EQUIPMENT AND SOFTWARE LICENSES (Tables)

3 Months Ended

Mar. 31, 2022

EQUIPMENT AND SOFTWARE LICENSES

Schedule of equipment and software licenses

	March 31,			December 31,
	2022			2021
Equipment and software	$	656,073		$	656,073
Software licenses		1,302,143			1,302,143
		1,958,216			1,958,216
Less - Accumulated depreciation and amortization		(1,579,165	)		(1,539,581	)
	$	379,051		$	418,635

XML

ACCRUED LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2022

ACCRUED LIABILITIES

Schedule of accrued liabilities

	March 31,		December 31,
	2022		2021
Accrued compensation	$	262,734	$	187,534
Accrued interest		177,528		144,773
Accrued sales tax		2,163		5,810
Accrued franchise tax		17,637		14,862
Accrued payables		314,411		459,209
Total accrued liabilities	$	774,473	$	812,188

XML

CONVERTIBLE NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2022

CONVERTIBLE NOTES PAYABLE (Tables)

Convertible Notes Payable

	March 31,		December 31,
	2022		2021
Convertible debt	$	1,790,000	$	1,790,000
Debt discount		466,890		599,239
Convertible debt, net of debt discount		1,323,100		1,190,761
Short-term convertible debt, net of debt discount		1,159,179		831,991
Long-term convertible debt, net of debt discount	$	163,931	$	358,770

XML

LEASE OBLIGATIONS (Tables)

3 Months Ended

Mar. 31, 2022

LEASE OBLIGATIONS (Tables)

Schedule of future minimum lease payments

Year Ended
Remainder of 2022	$	120,216
2023		145,383
2024		126,320
2025		43,970
Total		435,889
Less: interest		(48,313	)
Present value of net minimum lease payments		387,576
Short term		134,207
Long term total	$	253,369

Lease payments for the three months ended March 31, 2022 and 2021 aggregated approximately $44,753 and $43,057, respectively.

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

Weighted average remaining lease term	32 Months
Weighted average incremental borrowing rate		5.0	%

Schedule of minimum lease commitments

Remainder of 2022	$	97,100
2023		131,859
2024		120,871
Total undiscounted future minimum lease payments		349,830
Less: Imputed interest		(21,781	)
Present value of operating lease obligation	$	328,049

Schedule of consolidated statements of operations income

	Three months ended March 31, 2022		Three months ended March 31, 2021
Operating lease cost:
Operating lease cost	$	32,292	$	31,617
Financing lease cost:
Amortization of financed lease assets	$	36,557	$	26,200
Interest expense		8,196		5,417
Total lease cost	$	44,753	$	31,617

XML

STOCK BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2022

STOCK BASED COMPENSATION

Schedule of stock based compensation

Number of options outstanding:
2018 Equity Incentive Plan	8,826,544
Options granted not part of a shareholder approved plan	700,000
March 31, 2022	9,526,544

Summary of Stock option activity

Number of options outstanding:
Beginning of year		9,226,544
Granted		300,000
Exercised		-
Forfeited		-
March 31, 2022		9,526,544
Number of options exercisable at end of period		7,476,554
Number of options available for grant at end of period		9,173,456
Weighted average option prices per share:	$	0.41
Granted during the period		0.17
Exercised during the period		-
Forfeited during the period		-
Outstanding at end of the period		0.43
Exercisable at end of period	$	0.41

Schedule of granted options

	2022			2021
Expected option life (years)		6.5			6.5
Expected stock price volatility		130	%
					117	%
Expected dividend yield		—	%		—	%
Risk-free interest rate		2.03	%		1.15	%

warrant option

	2021
Number of warrants outstanding:
Beginning of period		1,372,752
Granted		500,000
Exercised, converted		-
Forfeited / exchanged / modification		-
End of period		1,872,752

XML

SIGNIFICANT CUSTOMERS (Tables)

3 Months Ended

Mar. 31, 2022

Schedules of Concentration

	Three Month Ended March 31,
	2022			2021
Customer A		53	%		54	%
Customer B		12	%		11	%

Schedules of customer accounts receivable,concenteration

	March  31,			December 31,
	2022			2021
Customer A		85	%		92	%

XML

GOING CONCERN (Details Narrative)	3 Months Ended
	Mar. 31, 2022 USD ($)
LIQUIDITY AND GOING CONCERN
Proceeds from the issuance of notes payable	$ 515,500
Invoices	652,866
Net amount	408,500
Received advance	638,132
Interest and fees	15,856
Fee related factoring agreement	651,780
Working capital	$ (2,650,128)
Description of factored receivables	The Company receives 90% of the factored receivables for a fee of 2.4% of the factored invoice and has committed to a minimum balance of $150,000 of invoices factored for six months from the initial funding in November 2021

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Allowance for doubtful accounts	$ 40,000		$ 40,000
Marketing costs	26,779	$ 158,859
Deposits in excess of FDIC limits	271,039
FDIC limit per depositor	$ 250,000
Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share	15,624,000	15,387,000

XML

EQUIPMENT AND SOFTWARE LICENSES (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Property, Plant and Equipment,Gross	$ 1,958,216	$ 1,958,216
Less - accumulated depreciation and amortization	(1,579,165)	(1,539,581)
Property, Plant and Equipment, Net	379,051	418,635
Equipment and software [Member]
Property, Plant and Equipment,Gross	656,073	656,073
Software License [Member]
Property, Plant and Equipment,Gross	$ 1,302,143	$ 1,302,143

XML

EQUIPMENT AND SOFTWARE LICENSES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
EQUIPMENT AND SOFTWARE LICENSES
Depreciation and amortization related to assets	$ 39,584	$ 49,825
Depreciation and amortization expenses related to leased assets	$ 37,880	$ 40,622

XML

ACCRUED LIABILITIES (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
NOTE PAYABLE
Accrued compensation	$ 262,734	$ 187,534
Accrued interest	177,528	144,773
Accrued sales tax	2,163	5,810
Accrued franchise tax	17,637	14,862
Accrued payables	314,411	459,209
Total accrued liabilities	$ 774,473	$ 812,188

XML

FACTORING CREDIT FACILITY (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	Oct. 22, 2021	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Agreement description	The agreement provides for an advanced rate of 90% with a fee of 2.4% to be charged on the gross face amount of the invoices purchased for 30 days
Invoices		$ 652,866
Received advance		638,132
Fee related factoring agreement		$ 651,780
Factoring Credit Facility [Member]
Agreement description		The agreement provides for an advanced rate of 90% with a fee of 2.4% 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.
Accounts receivable amount factored		$ 199,958		$ 213,606
Invoices		652,866
Interest expense		15,856	$ 0
Received advance		638,132
Fee related factoring agreement		$ 651,780

XML

NOTE PAYABLE (Details Narrative) - USD ($)	1 Months Ended		3 Months Ended
	Feb. 25, 2022	Dec. 20, 2021	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Common stock Issued			45,919,870		44,919,870
Derivative liability			$ 173,986		$ 76,137
Amortization of discount to interest expense			247,852	$ 0
Securities Purchase Agreement AJB No. 1 Note [Member]
Derivative liability			86,835
Guaranteed commitment fee		$ 150,000
Commitment fee additional		150,000
Aggregate cash proceeds		515,500
Broker fees		12,000
Original issue discount		60,000
Legal fees		12,500
commitment fee maximum		1,000,000
commitment fee minimum		$ 150,000
Net debt balance			292,775
Amortization of discount to interest expense			174,498
Gain on the change in derivative liability			10,698
Securities Purchase Agreement AJB No. 2 Note [Member]
Derivative liability			87,152
Guaranteed commitment fee	$ 150,000
Number of shares of Common Stock, shares	1,000,000
Commitment fee additional	$ 150,000
Aggregate cash proceeds	515,500
Broker fees	12,000
Original issue discount	60,000
Legal fees	12,500
commitment fee maximum	1,000,000
commitment fee minimum	$ 169,900
Net debt balance			285,008
Amortization of discount to interest expense			73,354
Gain on the change in derivative liability			$ 6,044
Common Stock [Member] | Securities Purchase Agreement AJB No. 1 Note [Member]
Exercise price per share		$ 0.40
Principal amount		$ 600,000
Warrant to purchase shares		500,000
Common stock Issued		1,200,000
Stock price		$ 0.15
Derivative liability		$ 76,136
Debt discount		$ 76,136
Common stock issuance related to debt		1,000,000
Reduction of the commitment fee accrual		$ 27,600
Issued of common stock for reduction of commitment fee accrual		200,000
Discount Minimum			10.00%
Discount Maximum			90.00%
Common Stock [Member] | Securities Purchase Agreement AJB No. 2 Note [Member]
Exercise price per share	$ 0.40
Principal amount	$ 600,000
Warrant to purchase shares	500,000
Common stock Issued	1,000,000
Derivative liability	$ 93,196
Debt discount	$ 206,446
Common stock issuance related to debt	1,000,000
Issued shares of common stock as partial consideration for commitment fee	1,000,000
Per common share of common stock as partial consideration for commitment fee	$ 0.17

XML

CONVERTIBLE NOTES PAYABLE (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
CONVERTIBLE NOTES PAYABLE
ConvertibleDebt	$ 1,790,000	$ 1,790,000
Debt discount	466,890	599,239
Convertible debt, net of debt discount	1,323,100	1,190,761
Short-term convertible debt, net of debt discount	1,159,179	831,991
Long-term convertible debt, net of debt discount	$ 163,931	$ 358,770

XML

CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Gross offering proceeds	$ 5,000,000
A Related Party [Member]
Convertible promissory note	200,000		$ 200,000
Several Investors [Member]
Convertible promissory note	1,190,000		$ 1,050,000
Interest expense	132,349	$ 24,334
Beneficial conversion feature	$ 1,361,675
Rate of interest	8.00%
Price per share	$ 0.40
Due to related party	$ 2,240,000
Discount rate	25.00%

XML

LEASE OBLIGATIONS (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
LEASE OBLIGATIONS (Tables)
Remainder of 2022	$ 120,216
2023	145,383
2024	126,320
2025	43,970
Total	435,889
Less: interest	(48,313)
Present value of net minimum lease payments	387,576
Short term	134,207	$ 136,220
Long term total	$ 253,369	$ 287,911

XML

LEASE OBLIGATIONS (Details 1)	3 Months Ended
	Mar. 31, 2022
LEASE OBLIGATIONS (Tables)
Weighted average remaining lease term	32 years
Weighted average incremental borrowing rate	5.00%

XML

LEASE OBLIGATIONS (Details 2)	Mar. 31, 2022 USD ($)
LEASE OBLIGATIONS (Tables)
Remainder of 2022	$ 97,100
2023	131,859
2024	120,871
Total undiscounted future minimum lease payments	349,830
Less: Imputed interest	(21,781)
Present value of operating lease obligation	$ 328,049

XML

LEASE OBLIGATIONS (Details 3) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Operating lease cost
Operating lease cost	$ 32,292	$ 31,617
Finance lease cost
Amortization of leased assets	36,557	26,200
Interest expense	8,196	5,417
Total lease cost	$ 44,753	$ 31,617

XML

LEASE OBLIGATIONS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Lease payments	$ 44,753	$ 43,057
Lessee, Finance Lease, Description	These leases range from one to five years.
finance lease obligations secured by underlying leased assets	$ 368,478		$ 406,358
Minimum [Member]
Leases Periodic payments	$ 354
Interest rate	6.99%
Maximum [Member]
Leases Periodic payments	$ 4,397
Interest rate	12.00%

XML

STOCK BASED COMPENSATION (Details)	3 Months Ended
	Mar. 31, 2022 shares
Number of options outstanding
2018 Equity incentive plan	8,826,544
Options granted not part of a shareholder approved plan	700,000
March 31, 2022	9,526,544

XML

STOCK BASED COMPENSATION (Details 1)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Number of options outstanding
Number of options outstanding, begining balance	9,226,544
Granted	300,000
Exercised	0
Forfeited / exchanged / modification	0
Number of options outstanding, ending balance	9,526,544
Number of options exercisable at end of period	7,476,554
Number of options available for grant at end of period	9,173,456
Weighted average option prices per share
Weighted average option prices per share, Outstanding at beginning of the period | $ / shares	$ 0.41
Granted during the period | $ / shares	0.17
Exercised during the period | $ / shares	0
Terminated during the period | $ / shares	0
Weighted average option prices per share, Outstanding at end of the period | $ / shares	0.43
Exercisable at end of period | $ / shares	$ 0.41

XML

STOCK BASED COMPENSATION (Details 2)	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2020
STOCK BASED COMPENSATION
Expected option life (years)	6 years 6 months	6 years 6 months
Expected stock price volatility	130.00%	117.00%
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	2.03%	1.15%

XML

STOCK BASED COMPENSATION (Details 3)	3 Months Ended
	Mar. 31, 2022 shares
Number of options outstanding, begining balance	9,226,544
Granted	300,000
Exercised, converted	0
Forfeited / exchanged / modification	0
Number of options outstanding, ending balance	9,526,544
Warrants [Member]
Number of options outstanding, begining balance	1,372,752
Granted	500,000
Exercised, converted	0
Forfeited / exchanged / modification	0
Number of options outstanding, ending balance	1,872,752

XML

STOCK BASED COMPENSATION (Details Narrative) - USD ($)		3 Months Ended
	May 05, 2021	Mar. 31, 2022	Mar. 31, 2021
Stock-based compensation expense		$ 211,283	$ 297,417
Description of stock option of shares	stock option plan that increases the available options from 8,000,000 shares to 18,000,000 shares, which was approved by majority written consent of the shareholders
Unrecognized compensation expense		$ 786,932
Weighted average vesting period of options		5 years
2018 Equity Incentive Plan
Maximum number of shares granted under plan		18,000,000
Warrants [Member]
Granted warrant to purchase shares of common stock		500,000
Granted warrant to purchase common stock, per share		$ 0.40
Exercise price		$ 0.625
Total value of warrants granted		$ 39,295
Term of options/rights		three-year
Warrants [Member] | Consultant [Member]
Issued warrant to purchase up to shares of common stock		750,000
Warrants [Member] | The Gamwell Contract [Member]
Exercise price		$ 0.375
Common stock shares issuable upon exercise of options/rights		122,752
Expiration date		Apr. 23, 2028
Per common share price		$ 0.625
Stock Options [Member]
Weighted average vesting period of options		3 years	3 years
Exercise price		$ 0.17	$ 0.56
Average expected life		6 years 6 months	6 years 6 months
Common stock shares issuable upon exercise of options/rights		300,000	500,000
Total value of options/rights granted		$ 46,346	$ 243,964

XML

RELATED PARTY TRANSACTIONS (Details Narrative)	3 Months Ended
	Mar. 31, 2022 USD ($)
RELATED PARTY TRANSACTIONS
Related party expenses	$ 22,500

XML

SIGNIFICANT CUSTOMERS (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Net Revenue [Member] | Customer B [Member]
Concentration percentage	12.00%	11.00%
Net Revenue [Member] | Customer A [Member]
Concentration percentage	53.00%	54.00%
Accounts receivable [Member] | Customer A [Member]
Concentration percentage	85.00%		92.00%

XML

SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member]	May 04, 2022 USD ($) $ / shares shares
Promissory note principal amount	$ 500,000
Common stock purchase warrant | shares	416,667
Common stock, shares guaranteed commitment fee | shares	1,666,667
Aggregate cash proceeds	$ 408,500
Original issue discount	50,000
Broker fee	31,500
Legal fee	$ 10,000
Exercise price | $ / shares	$ 0.40
Payment of monthly retainers, per hour rate	$ 250