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EX-32.1 - EXHIBIT 32.1 - HD View 360 Inc. | ex32_1apg.htm |
EX-31.2 - EXHIBTI 31.2 - HD View 360 Inc. | ex31_2apg.htm |
EX-31.1 - EXHIBIT 31.1 - HD View 360 Inc. | ex31_1apg.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act Of 1934
For the quarterly period ended September 30, 2017
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act Of 1934
For the transition period from __________ to __________
Commission file number: 000-55595
HD VIEW 360 INC.
(Exact name of registrant as specified in its charter)
Florida |
|
46-4264584 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S Employer Identification No.) |
150 S.E. 2nd Ave. Suite 404
Miami, Florida 33131
(Address of principal executive offices, including Zip Code)
(786) 294-0559
(Issuers telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files. Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of large accelerated filer, accelerated filer, non-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 [X] 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 [X]
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 10,203,962 shares of common stock as of November 18, 2017.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
PAGE |
|
|
Item 1. Index to Consolidated Financial Statements |
F-1 |
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
3 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
9 |
Item 4. Controls and Procedures |
9 |
|
|
PART II-- OTHER INFORMATION |
|
|
|
Item 1. Legal Proceedings |
10 |
Item 1A. Risk Factors |
10 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
10 |
Item 3. Defaults Upon Senior Securities |
10 |
Item 4. Mine Safety Disclosures |
10 |
Item 5. Other Information |
10 |
Item 6. Exhibits |
10 |
|
|
SIGNATURES |
10 |
2
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets F-2 Unaudited Condensed Consolidated Statements of Income F-3 Unaudited Condensed Consolidated Statements of Changes in Stockholders Equity F-4 Unaudited Condensed Consolidated Statements of Changes in Cash Flows F-5 Notes to Unaudited Condensed Consolidated Financial Statements F-6 |
F-1
HD VIEW 360 INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS |
September 30, 2017 |
|
December 31, 2016 |
CURRENT ASSETS |
|
|
|
Cash |
$ 95,911 |
|
$ 258,778 |
Accounts receivable |
896 |
|
6,532 |
Stock subscription receivable |
100,000 |
|
- |
Income tax refund receivable |
52,321 |
|
42,305 |
Inventory, net of reserve of $10,390 as of September 30, 2017 and December 31, 2016, respectively |
- |
|
- |
Prepaid expenses and other current assets |
9,138 |
|
12,278 |
Total current assets |
258,266 |
|
319,893 |
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
Furniture, fixtures and equipment |
166,374 |
|
50,743 |
Leasehold improvements |
11,097 |
|
11,097 |
Total Property and Equipment |
177,471 |
|
61,840 |
Less accumulated depreciation |
(24,517) |
|
(18,931) |
|
|
|
|
Property and equipment, net |
152,954 |
|
42,909 |
|
|
|
|
OTHER ASSETS |
|
|
|
Intangible assets |
6,296 |
|
- |
Intangible assets under development |
75,000 |
|
- |
Total Other Assets |
81,296 |
|
- |
|
|
|
|
Total Assets |
$ 492,516 |
|
$ 362,802 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
CURRENT LIABILITIES |
|
|
|
Accounts payable and accrued expenses |
$ 137,085 |
|
$ 54,924 |
Deferred rent |
3,446 |
|
6,891 |
|
|
|
|
Total current liabilities |
140,531 |
|
61,815 |
|
|
|
|
Total Liabilities |
140,531 |
|
61,815 |
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
Preferred stock, $0.001 par value, authorized 10,000,000 shares; 0 issued and outstanding |
- |
|
- |
Common stock, $0.001 par value, authorized 90,000,000 shares; 10,203,962 and 9,532,631 issued and outstanding shares at September 30, 2017 and December 31, 2016, respectively |
10,204 |
|
9,533 |
Additional paid-in capital |
785,374 |
|
375,046 |
Accumulated deficit |
(457,541) |
|
(95,718) |
Non-controlling interest in consolidated subsidiary |
13,948 |
|
12,126 |
|
|
|
|
Total stockholders equity |
351,985 |
|
300,987 |
Total Liabilities and Stockholders Equity |
$ 492,516 |
|
$ 362,802 |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
F-2
HD VIEW 360 INC.
Condensed Consolidated Statements of Income
(Unaudited)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, | ||||
|
2017 |
|
2016 |
|
2017 |
|
2016 |
SALES: |
|
|
|
|
|
|
|
Product sales |
$ 51,024 |
|
$ 115,961 |
|
$ 199,291 |
|
$ 370,191 |
Installation sales |
81,957 |
|
110,603 |
|
242,836 |
|
401,853 |
Total sales |
132,981 |
|
226,564 |
|
442,127 |
|
772,044 |
|
|
|
|
|
|
|
|
COST OF SALES: |
|
|
|
|
|
|
|
Cost of product |
82,788 |
|
81,784 |
|
204,337 |
|
259,824 |
Cost of installation |
66,816 |
|
121,143 |
|
203,442 |
|
295,113 |
Total cost of sales |
149,604 |
|
202,927 |
|
407,779 |
|
554,937 |
Gross Profit |
(16,623) |
|
23,637 |
|
34,348 |
|
217,107 |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
General and administrative expenses |
113,951 |
|
79,315 |
|
304,297 |
|
205,470 |
Depreciation expense |
1,862 |
|
4,077 |
|
5,586 |
|
10,631 |
Professional fees |
41,434 |
|
12,304 |
|
92,386 |
|
68,302 |
Total operating expenses |
157,247 |
|
95,696 |
|
402,269 |
|
284,403 |
LOSS FROM OPERATIONS |
(173,870) |
|
(72,059) |
|
(367,921) |
|
(67,296) |
|
|
|
|
|
|
|
|
OTHER INCOME AND (EXPENSE) |
|
|
|
|
|
|
|
Interest expense |
- |
|
- |
|
- |
|
(397) |
Interest income |
13 |
|
56 |
|
72 |
|
178 |
Other income |
595 |
|
633 |
|
1,524 |
|
2,730 |
Other expense |
- |
|
(469) |
|
- |
|
(469) |
Bad debt expense |
(3,445) |
|
- |
|
(3,445) |
|
- |
Total other income |
(2,837) |
|
220 |
|
(1,849) |
|
2,042 |
Net loss before income taxes |
(176,707) |
|
(71,839) |
|
(369,770) |
|
(65,254) |
Income tax benefit |
(9,769) |
|
(10,456) |
|
(9,769) |
|
(10,456) |
Net loss |
(166,938) |
|
(61,383) |
|
(360,001) |
|
(54,798) |
Non controlling interest in net income of consolidated subsidiary |
(789) |
|
(35) |
|
(1,822) |
|
(35) |
Net loss attributable to HD View 360 |
$ (166,149) |
|
$ (61,348) |
|
$ (361,823) |
|
$ (54,763) |
|
|
|
|
|
|
|
|
Loss per weighted average common share - basic and diluted |
$ (0.02) |
|
$ (0.01) |
|
$ (0.04) |
|
$ (0.01) |
|
|
|
|
|
|
|
|
Number of weighted average common shares outstanding-basic and diluted |
9,967,549 |
|
9,332,631 |
|
9,683,391 |
|
9,328,704 |
The accompanying notes are an integral part of the condensed consolidated financial statements
F-3
HD VIEW 360 INC.
Condensed Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
|
Number Shares Pfd |
|
Number Shares Common |
|
Par Amount Pfd |
|
Par Amount Common |
|
Additional Paid-in Capital |
|
Retained Earnings / Accumulated Deficit |
|
Non-Controlling Interest in Consol Sub |
|
Total Stockholders Equity |
Balance, December 31, 2015 |
- |
|
9,285,132 |
|
$ - |
|
$ 9,285 |
|
$ 196,794 |
|
$ 35,927 |
|
$ - |
|
$ 242,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
- |
|
247,499 |
|
- |
|
248 |
|
178,252 |
|
- |
|
- |
|
178,500 |
Non-controlling interest in consolidated subsidiary |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
12,126 |
|
12,126 |
Net loss |
- |
|
- |
|
- |
|
- |
|
- |
|
(131,646) |
|
- |
|
(131,646) |
Balance, December 31, 2016 |
- |
|
9,532,631 |
|
- |
|
9,533 |
|
375,046 |
|
(95,719) |
|
12,126 |
|
300,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash and receivable |
- |
|
671,331 |
|
- |
|
671 |
|
410,328 |
|
- |
|
- |
|
410,999 |
Non-controlling interest in consolidated subsidiary |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
1,822 |
|
1,822 |
Net loss |
- |
|
- |
|
- |
|
- |
|
- |
|
(361,822) |
|
- |
|
(361,822) |
Balance, September 30, 2017 |
- |
|
10,203,962 |
|
$ - |
|
$ 10,204 |
|
$ 785,374 |
|
$ (457,541) |
|
$ 13,948 |
|
$ 351,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements
F-4
HD VIEW 360 INC.
Condensed Consolidated Statements of Changes in Cash Flows
Nine Months Ended September 30,
(Unaudited)
|
2017 |
|
2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
Net loss |
$ (361,823) |
|
$ (54,763) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
Non controlling interest in net income of consolidated subsidiary |
1,822 |
|
35 |
Depreciation |
5,586 |
|
10,631 |
Bad debt expense |
3,445 |
|
- |
Inventory valuation reserve expense |
- |
|
7,640 |
Loss on disposal of fixed asset |
- |
|
469 |
Changes in operating assets and liabilities: |
|
|
|
Decrease in accounts receivable |
2,191 |
|
- |
Increase in income tax receivable |
(10,016) |
|
(63,837) |
Decrease (increase) in prepaid expenses and other assets |
3,140 |
|
(9,840) |
Increase in accounts payable and accrued expenses |
82,161 |
|
20,348 |
(Decrease) increase in deferred rent |
(3,445) |
|
8,040 |
|
|
|
|
Net cash used in operating activities |
(276,939) |
|
(81,277) |
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES: |
|
|
|
Purchase of property and equipment |
(115,631) |
|
(31,755) |
Increase in intangible assets |
(81,296) |
|
- |
|
|
|
|
Net cash used in investing activities |
(196,927) |
|
(31,755) |
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES: |
|
|
|
Common stock issued for cash |
310,999 |
|
28,500 |
Principal payments on capital lease obligation |
- |
|
(2,506) |
|
|
|
|
Net cash provided by financing activities |
310,999 |
|
25,994 |
|
|
|
|
Net decrease in cash |
(162,867) |
|
(87,038) |
|
|
|
|
CASH, beginning of period |
258,778 |
|
292,010 |
|
|
|
|
CASH, end of period |
$ 95,911 |
|
$ 204,972 |
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
Interest paid in cash |
$ - |
|
$ 397 |
Income taxes paid in cash |
$ 247 |
|
$ 50,000 |
Non-Cash Investing and Financing Activities: |
|
|
|
Common stock issued for receivable |
$ 100,000 |
|
$ - |
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements
F-5
HD VIEW 360 INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) NATURE OF OPERATIONS
HD View 360 Inc, (the Company), was formed with an effective date of January 1, 2014, under the laws of the State of Florida. The Company design and installs closed-circuit television (CCTV) systems, using Analog, Internet Protocol and Serial Digital Interface technology. The Company also distributes network video recorders, HD cameras and accessories.
HD View Quick Fix Inc., (HDQF), was incorporated on May 18, 2016, under the laws of the State of Florida. It will be a combination of our installation company and a subscription based rapid response entity for computer/surveillance equipment repairs and is a wholly owned subsidiary.
HD View Technologies Inc., (HDVT), was incorporated on May 26, 2016, under the laws of the State of Florida. It will be a credit card/debit card merchant processor and is a wholly owned subsidiary.
SimpleFone Inc., (SFI), was incorporated on June 17, 2016, under the laws of the State of Florida. It will lease a telephone switch and sell/lease telephone equipment and telephone service and is a majority owned subsidiary.
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES
a) Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America ("U.S.") as promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The information included in the December 31, 2016 consolidated financial statements should be read in conjunction with Managements Discussion and Analysis and Results of Operations contained elsewhere in this report and the audited consolidated financial statements and accompanying notes in the Form 10-K filed with the U.S. Securities and Exchange Commission on March 31, 2017.
b) Principles of Consolidation
The accompanying condensed consolidated financial statements include the results of HD View 360 and its wholly and majority-owned subsidiaries. They have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America ("U.S.") as promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
F-6
HD VIEW 360 INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
d) Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. There were no financial instruments that qualified as cash equivalents at September 30, 2017 or December 31, 2016.
e) Revenue Recognition
The Company recognizes revenues when persuasive evidence of an arrangement exists, shipment has occurred, price is fixed or determinable, and collectability is reasonably assured. Product revenues are recognized when shipped to the customer. Revenues for installation services are recognized upon customer acceptance of completion of installation.
f) Shipping and Handling Costs
The Company generally does not charge its customers separately for shipping and handling. Shipping and handling costs are included in cost of product in the accompanying statements of income.
g) Accounts Receivable
Accounts receivable are stated net of allowance for doubtful accounts. The Company estimates an allowance based on experience with customers and judgment as to the likelihood of ultimate payment.
h) Inventories
Inventories are valued using the weighted average method. Cost is determined by the first-in, first-out method. Management establishes a valuation reserve for slow-moving items.
i) Property and Equipment
All property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three, five or seven years, using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
j) Impairment of Long-Lived Assets
A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived assets exceeds its fair value.
F-7
HD VIEW 360 INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
k) Net Income (Loss) Per Share
Basic loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result in anti-dilution. There were no common stock equivalents for the three and nine months ended September 30, 2017 and 2016.
l) Income Taxes
The Company follows the provisions of ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positins taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
As of September 30, 2017, the tax years 2016, 2015 and 2014 for the Company remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
m) Related Party Transactions
All transactions with related parties are in the normal course of operations and are measured at the exchange amount.
n) Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result, we do not expect significant changes in the presentation of our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and entities are permitted to apply either prospectively or retrospectively; early adoption is permitted. The Company does not expect adoption of this guidance to have a material effect on the Companys financial position, results of operations and cash flows.
F-8
HD VIEW 360 INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES, continued
n) Recent Accounting Pronouncements, continued
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of the new standards, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income for equity securities with readily determinable fair values. The new guidance on the classification and measurement will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-01 on the Companys financial position, results of operations and cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2016-02 is expected to result in the recognition of right to use assets and associated obligations on its balance sheet.
In March 2016, the FASB issued Accounting Standards Update 2016-08 Revenue from Contracts with Customers (Topic 606) to clarify implementation guidance on principal versus agent considerations (for reporting revenue on a gross or net basis). The ASU is an amendment to Topic 606, clarifies the implementation guidance, and requires an entity to account for revenue as an agent when another entity controls the specified good or service before that good or service is transferred to the customer. This ASU is effective for annual periods beginning after December 15, 2017. The Company is in the process of evaluating the impact of the adoption of ASU 2016-08 on the Companys financial position, results of operations and cash flows.
(3) STOCKHOLDERS EQUITY
At September 30, 2017 and December 31, 2016, the Company has 90,000,000 shares of par value $0.001 common stock authorized and 10,203,963 and 9,532,631 issued and outstanding, respectively. At September 30, 2017 and December 31, 2016, the Company has 10,000,000 shares of par value $0.001 preferred stock and zero issued and outstanding.
In January 2016, the Company issued 47,499 shares of common stock in exchange for $28,500 in cash. In December 2016, the Company issued 200,000 shares of common stock in exchange for $150,000 in cash.
In February 2017, the Company issued 7,999 shares of common stock in exchange for $6,000 in cash.
In July 2017, the Company issued 500,000 shares of common stock in exchange for $150,000 in cash and $100,000 subscription receivable. In August 2017, the Company issued 163,333 shares of common stock in exchange for $155,000 in cash.
F-9
HD VIEW 360 INC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) COMMITMENTS AND CONTINGENCIES
a) Real Property Lease
The Company leases office and warehouse space with unrelated parties. During 2014, the Company executed a 1-year lease, with base rent of $2,200 per month, which was renewed on July 1, 2015. This lease required a monthly base rent payments of $2,310. This lease expired July 1, 2016, and was extended for one month. The Company relocated under a new two year lease effective July 1, 2016. The Company received a three month abatement in rent payments in exchange for completing certain leasehold improvements. These improvements were completed and the Company relocated on August 1, 2016. This lease requires a base rent of $3,063 per month. Rent expense of $8,040 and $8,040 was incurred during the three months ended September 30, 2017, and 2016, respectively. Rent expense of $24,120 and $23,697 was incurred during the nine months ended September 30, 2017, and 2016, respectively.
Future minimum lease payments under the office lease agreement are as follows:
For the Years Ending December 31, |
|
|
2017 - three months |
$ |
9,556 |
2018 - nine months |
|
28,668 |
|
|
|
Total minimum lease payments |
|
38,224 |
Less: amount representing interest |
|
- |
Present value of net minimum lease payments |
$ |
38,224 |
b) Vehicle Lease
The Company leased a certain vehicle under an agreement which is accounted for on the balance sheet as a capital lease. The lease called for monthly payments of $366, commencing July 2015.
In 2016, the vehicle was damaged in an accident and declared a total loss. As a result the Company recognized a gain on disposal in the fourth quarter of 2016.
c) Other
The Company is subject to asserted claims and liabilities that arise in the ordinary course of business. The Company maintains insurance policies to mitigate potential losses from these actions. In the opinion of management, the amount of the ultimate liability with respect to those actions will not materially affect the Companys financial position or results of operations.
(5) CONCENTRATIONS OF CREDIT RISK
a) Cash
The Company maintains its cash in bank deposit accounts, which may, at times, may exceed federally insured limits. The Company did not have cash balances in excess of FDIC insured limits at September 30, 2017, and were in excess of FDIC insured limits by $10,307 at December 31, 2016.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Our Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim Financial Statements and related notes included in Item 1. Interim Financial Statements of this report and in Item 8. Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K, as well as the sections entitled Risk Factors in Item 1A. of our most recent Annual Report on Form 10-K and Part II, Item 1A. of this report, as well as other cautionary statements and risks described elsewhere in this report and our most recent Annual Report on Form 10-K. Our actual results could differ materially from those discussed in the forward-looking statements.
Overview
We were formed on January 1, 2014, to provide security surveillance products and systems to commercial users. We have generally had increasing revenues, and have a retained deficit of approximately ($457,541) at September 30, 2017.
During the second quarter of 2016, we incorporated three new wholly owned subsidiaries: HD View Technologies Inc., HD View Quick Fix Inc. and SimpleFone Inc.
HD View Technologies Inc. is developing a Point of Sale (POS) software that is interactive with a variety of other types of business software. HD View Quick Fix Inc. is a combination of our installation company and a subscription based rapid response entity for computer/surveillance equipment repairs. SimpleFone Inc. currently owns a telephone switch and sells/leases telephone equipment and provides telephone service.
We expect that our research, sales and marketing costs will continue to increase as a percentage of revenues in the short-term.
Liquidity and Capital Resources
We derive revenues from the sale and installation of our security related surveillance system products and services.
For the nine months ended September 30, 2017 and 2016, our net sales were $442,127 and $772,044, respectively. Our revenues declined in the first three quarters of 2017 because our CEO spent more time attending franchise shows in order to grow the business by becoming a preferred provider with additional franchisers. Our CEO was also was focused on getting our subsidiaries operating and generating revenue. In addition, during the second quarter, one of our significant franchisee customer groups that we serve had delays in new location openings, resulting in delays in order fulfillments.
We have experienced and expect an increasing trend in sales due to our ability to fulfill more orders that will come from greater brand acceptance due to previous and continuing expenditures in marketing and sales. Most of our revenues derive from the sale and installation of security and surveillance systems
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which are generally non-recurring. We sell surveillance products and install security systems primarily for commercial customers and generate revenues from the sale of these systems to our customers and, to a lesser extent, from maintenance of these systems for our customers. After we have installed a system at any particular customer site, we have generated the majority of revenues from that particular client location. We would not expect to generate significant revenues from any existing client in future years unless that client has additional installation sites for which our services might be required. Therefore, in order to maintain a level of revenues each year that is at or in excess of the level of revenues we generated in prior years, we must identify and be retained by new clients. If our business development, marketing and sales techniques do not result in an equal or greater number of projects of at least comparable size and value for us in a given year compared to the prior year, then we may be unable to increase our revenues and earnings or even sustain current levels in the future. To address this issue, we plan to target businesses which are franchisees with multiple existing locations with plans to add multiple new locations.
We do not anticipate any significant increase in the base cost of our products, but do expect increased labor cost in proportion to an increase in installation revenues.
THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Revenues
Our net revenues for the three months ended September 30, 2017 and 2016 were $132,981 and $226,564, respectively. Our installation revenues were 61.6% of total revenues in 2017 and 48.8% in 2016. Overall our net revenues fell 41.3% in 2017 over 2016, primarily due to our customers, the franchisees, delaying their equipment purchases and installations as discussed above.
Costs and Expenses
For the three months ended September 30, 2017 and 2016, our cost of sales was $149,604 and $202,927, respectively. Our cost of sales, as a percentage of sales, was 112.5% for the three months ended September 30, 2017 and 89.6% for the three months ended September 30, 2016. This percentage increase directly resulted from the delays of equipment purchases and installations discussed above and fixed costs that we incur regardless of our sales levels.
Our gross margin was $(16,623) and $23,637 for the three months ended September 30, 2017 and 2016, respectively. Our gross margin as a percentage of Net Sales was (12.5)% and 10.4% for the three months ended September 30, 2017 and 2016, respectively. This percentage decrease directly resulted from the delays of equipment purchases and installations discussed above and costs that we incur regardless of our sales levels. Our Product Cost of Sales was 162.3% and 70.5% for the three months ended September 30, 2017 and 2016, respectively.
During the three months ended September 30, 2017 and 2016, we spent $155,385 and $91,619, respectively, on general and administrative expenses inclusive of professional fees. Our general and administrative expenses increased by $63,766, or 69.6%, for the three months ended September 30, 2017
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over the three months ended September 30, 2016.
We had net loss of ($166,149) for the three months ended September 30, 2017 compared to net loss of $(61,348) for three months ended September 30, 2016.
Results of Operations
The following tables set forth selected unaudited statement of operations data for each of the periods indicated:
Statements of Operations |
Three Months Ended September 30, 2017 |
Three Months Ended September 30, 2016 |
Net Sales |
$ 132,981 |
$ 226,564 |
Cost of Sales |
$ 149,604 |
$ 202,927 |
Gross Margin |
$ (16,623) |
$ 23,627 |
Operating Expenses |
$ 157,247 |
$ 95,696 |
Net Loss |
$ (166,149) |
$ (61,348) |
Financing Activities
The Company sold 663,333 shares of common stock in exchange for $305,000 in cash and a receivable of $100,000 during the three months ended September 30, 2017 and 2016.
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
Revenues
Our net revenues for the nine months ended September 30, 2017 and 2016 were $442,127 and $772,044, respectively. Our installation revenues were 54.9% of total revenues in 2017 and 52.1% in 2016. Overall our net revenues fell 42.7% in 2017 from 2016, principally, because, in the second quarter one of our significant franchisee customer groups that we serve had delays in new location openings, resulting in delays in order fulfillments.
Costs and Expenses
For the nine months ended September 30, 2017 and 2016, our cost of sales was $407,779 and $554,937, respectively. Our cost of sales, as a percentage of sales, was 92.2% for the nine months ended September 30, 2017 and 71.9% for the nine months ended September 30, 2016. This percentage increase directly resulted from the delays of equipment purchases and installations discussed above and costs that we incur regardless of our sales levels.
Our cost of sales of product increased to 102.5% for the nine months ended September 30, 2017 from
5
70.2% for the nine months ended September 30, 2016. Cost of sales of installation increased to 83.8% for the nine months ended September 30, 2017 from 73.4% for the nine months ended September 30, 2016, due to costs that we incur regardless of our sales levels.
Our gross profit was $34,348 and $217,107 for the nine months ended September 30, 2017 and 2016, respectively. Our gross profit as a percentage of Net Sales was 7.8% and 28.1% for the nine months ended September 30, 2017 and 2016, respectively.
During the nine months ended September 30, 2017 and 2016, we spent $396,683 and $273,772, respectively, on general and administrative expenses inclusive of professional fees. Our general and administrative expenses increased by $122,911, or 44.9%, for the nine months ended September 30, 2017 over the nine months ended September 30, 2016. This increase was mainly attributable to travel expenses to trade shows and training expenses for a new telephone switch for SimpleFone.
We had net loss of ($361,823) for the nine months ended September 30, 2017 compared to net loss of ($54,623) for nine months ended September 30, 2016.
If our revenues return to the prior levels, primarily because the franchisees resume their equipment purchases and installations we expect to have sufficient liquidity and capital resources to meet our operating costs of approximately $39,000 per month. As of September 30, 2017, we had cash and equivalents on hand of $249,128, which we believe is sufficient to meet our operating expenses for approximately six (6) months.
Results of Operations
The following tables set forth selected unaudited statement of operations data for each of the periods indicated:
Statements of Operations |
Nine Months Ended September 30, 2017 |
Nine Months Ended September 30, 2016 |
Net Sales |
$ 442,127 |
$ 772,044 |
Cost of Sales |
$ 407,779 |
$ 554,937 |
Gross Margin |
$ 34,348 |
$ 217,148 |
Operating Expenses |
$ 402,269 |
$ 284,403 |
Net Loss |
$ (361,823) |
$ (54,763) |
Cash Flow Activities
Cash decreased $162,867 for the nine month period ended September 30, 2017, from $258,778 at December 31, 2016. This decrease was principally a result of a net loss of ($361,823) for the nine months ended September 30, 2017; the sale of common stock in exchange for $310,999 in cash in the first and third quarters of 2017 and investment in fixed and intangible assets of ($196,927).
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Inventory remained the same at September 30, 2017 as compared with December 31, 2016. In early 2015 the Company revised its business model to purchase product only when a customer order had been placed and paid for. The inventory balance is composed of older product which is generally a generation or more behind current easily salable product.
Financing Activities
During the nine months ended September 30, 2017 compared to nine months ended September 30, 2016, the Company sold 671,331 shares of common stock in exchange for $310,999 in cash and receivable of $100,000 compared to 47,499 shares of common stock in exchange for $28,500 in cash.
Property and Equipment
We occupy approximately 1,598 square feet at 150 SE 2nd Ave, Suite 404, Miami Florida. This location consists of approximately 400 square feet of warehouse space and approximately 1,198 square feet of office and retail space. We occupy this location pursuant to a lease agreement that requires us to pay $3,063 monthly. The lease expires on September 30, 2018. We believe this location is suitable for our current needs.
We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.
During the second quarter of 2016, we incorporated three new wholly owned subsidiaries: HD View Technologies Inc., HD View Quick Fix Inc. and SimpleFone Inc.
HD View Technologies Inc. is currently developing a new Point of Sale (POS) software that is interactive with a variety of other types of business software. HD View Quick Fix Inc. is a combination of our installation company and a subscription based rapid response entity for computer/surveillance equipment repairs. SimpleFone, Inc. owns a telephone switch and sells/leases telephone equipment and provides telephone service.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:
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Income Taxes
We account for income taxes under ASC 740 Income Taxes which codified SFAS 109, Accounting for Income Taxes and FIN 48 Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations.
Per Share Information
We compute net income per share accordance with FASB ASC 205 Earnings per Share. FASB ASC 205 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.
Stock Option Grants
We have not granted any stock options to our officers and directors since our inception. Upon the further development of our business, we will likely grant options to directors and officers consistent with industry practice.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, prepaid expenses, payables and accrued expenses. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the
8
carrying values of our financial instruments in the financial statements to approximate fair value, due to their short-term nature.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets.
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
ITEM 3. QUANTITATIVE AND QUALITAIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
Under the direction and with the participation of the Companys management, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2017. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SECs rules and regulations, and that such information is accumulated and communicated to the Companys management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Companys disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives. Based upon this evaluation, management concluded that the Companys disclosure controls and procedures were not effective as of September 30, 2017 primarily based on these criteria, due to material weaknesses resulting from our failure to 1) provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 2) effectively implement comprehensive entity level internal controls, and 3) adequately segregate duties within the accounting department due to an insufficient number of staff.
There were no changes in the Companys internal control over financial reporting during the quarter ended September 30, 2017, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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PART II
ITEM 1. Legal Proceedings
None.
ITEM 1A. Risk Factors
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended September 30, 2017, the Company sold 163,333 shares of restricted common stock in exchange for $155,000.
The Company relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933 in connection with the sale of these shares.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None
ITEM 6. Exhibits
Exhibits
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HD VIEW 360 INC. November 20, 2017 By: /s/ Dennis Mancino Dennis Mancino Principal Executive and Financial Officer |
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