The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Skkynet Cloud Systems, Inc. (“Skkynet” or “the Company”) is a Nevada corporation formed on August 31, 2011 and headquartered in Toronto, Canada. Skkynet operates its business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet Corp. (Canada), Skkynet, Inc. (USA) and Skkynet Japan 株式会社 (Ltd.) (Japan). Skkynet was formed primarily for the purpose of taking the existing business lines of Cogent and its current and future customers and integrating these businesses with Cloud based systems. We also intend to expand the areas of business activity to which the kinds of products and services we provide are applied.
On November 1, 2014, the Company acquired Skkynet Japan Ltd. (formerly NiC Corporation) as a wholly owned subsidiary. On February 1, 2015, the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.
On July 30, 2015, the Company designated 500,000 shares of the preferred stock as Series B Convertible preferred. The Series B shares have a par value of $0.001 and issue value of $1.00 per share. The series B is convertible by the holder into common stock at $1.35 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum cumulative dividend. On July 30, 2015, the Company issued 193,661 shares of Series B convertible preferred stock to three related parties in exchange for the outstanding notes payable and accrued interest of $193,661. Dividends are not paid. The Company has recognized $2,905 in Series B dividends which increases the loss to common shareholders from $169,102 to $172,007 for the three month period ended January 31, 2018. As of January 31, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $29,050 equating to $0.15 per share
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s October 31, 2017 Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end October 31, 2017 as reported on Form 10-K, have been omitted.
NOTE 2 – RELATED PARTY TRANSACTIONS
On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition, the Company is accruing director compensation at the rate of $2,500 per director per month. As of January 31, 2018, the accrued liability for compensation was $30,885.
On January 11, 2018 the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the options for 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.
On January 31, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the quarter ended January 31, 2018 in exchange for shares of common stock and options. The $67,414 of accrued compensation was exchanged for 138,000 options granted with a value of $55,114 and 30,750 shares of common stock was exchanged for $12,300 of accrued compensation
|
|
Accrued compensation
|
|
|
Options Issued for accrued compensation
|
|
|
Common stock issued for accrued compensation
|
|
Andrew Thomas
|
|
$
|
17,424
|
|
|
|
43,600
|
|
|
|
--
|
|
Paul Benford
|
|
$
|
11,345
|
|
|
|
28,400
|
|
|
|
--
|
|
Paul Thomas
|
|
$
|
11,345
|
|
|
|
28,400
|
|
|
|
--
|
|
Lowell Holden
|
|
$
|
4,800
|
|
|
|
--
|
|
|
|
12,000
|
|
All three directors
|
|
$
|
22,500
|
|
|
|
37,600
|
|
|
|
18,750
|
|
Total
|
|
$
|
67,414
|
|
|
|
138,000
|
|
|
|
30,750
|
|
As of January 31, 2018, and October 31, 2017, the Company had the following outstanding accrued liabilities due to related parties:
As of
|
|
January 31, 2018
|
|
|
October 31, 2017
|
|
Accrued Commissions
|
|
$
|
30,885
|
|
|
$
|
29,987
|
|
Total accrued liabilities and accrued expense
|
|
$
|
30,885
|
|
|
$
|
29,987
|
|
On October 31, 2017, the Officers and directors of the Company elected to forgo their accrued compensation for the fiscal year ended 2017 in exchange for shares of common stock and options. The $204,180 of accrued compensation was exchanged for 510,400 options granted with a value of $204,180 and 123,000 shares of common stock was exchanged for $49,200 of accrued compensation
NOTE 3 – EQUITY
On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.
NOTE 4 – OPTIONS
The Company, under its 2012 Stock Option Plan, issues options to various officers, directors, and consultants. The options vest in equal annual installments over a five year period with the first 20% vested when the options are granted. All of the options are exercisable at a purchase price based on the last trading price of the Company’s common stock.
On April 7, 2017, the Company issued 74,500 options with an exercise price of $0.50 to one employee for the reduction of $36,604 of accrued commissions (CDN $94,404 to CDN $44,404). The options have a fair value using the Black Sholes valuation of $36,604, with computed volatility of 130.12% and a discount rate of 2.25. The options were vested upon issuance.
On April 7, 2017, the Company issued 418,200 options with an exercise price of $0.50 per share to 13 officers, employees and consultants of the Company. The options vest in equal annual installments over a five-year period with the first 20% vested when the options were granted. Computed volatility of 195.43% and a discount rate of 2.25 were used in calculating the fair value of the options of $207,887.
On October 31, 2017, the Company issued 7,500 options to three directors with exercise price of $0.40 per share. 20% of the option will vest immediately, the additional 20% to vest on October 31 of each successive year. Computed volatility of 159.26% and a discount rate of 2.25% were used in calculating the fair value of the option of $2,968.”
On October 31, 2017, the Company issued 510,400 options with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $204,180 with computed volatility of $174.03% and a discount rate of 2.25. The options were vested upon issuance.
On January 11, 2018, the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the term of the options 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.
On January 31, 2018, the Company issued 138,000 options to five directors and officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $55,114 with computed volatility of 206% and a discount rate of 2.72%. The options were vested upon issuance.
The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,675,243. During the three month period ended January 31, 2018, the Company expensed $102,912 for options. The unrecognized future balance to be expensed over the term of the options is $1,003,457.
The following sets forth the options granted and outstanding as of January 31, 2018:
|
|
Options
|
|
|
Weighted Average Exercise price
|
|
|
Weighted Average Remaining Contract Life
|
|
|
Granted Options Exercisable
|
|
|
Intrinsic value
|
|
Outstanding at October 31, 2017
|
|
|
7,223,800
|
|
|
|
0.40
|
|
|
|
4.77
|
|
|
|
5,518,640
|
|
|
|
1,401,820
|
|
Granted
|
|
|
138,000
|
|
|
|
0.00
|
|
|
|
10.0
|
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited/Expired by termination
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at January 31, 2018
|
|
|
7,361,800
|
|
|
|
0.40
|
|
|
|
5.79
|
|
|
|
5,923,740
|
|
|
|
1,456,882
|
|
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7.
During May 2017, the Company signed a new 5 year lease for the Company’s office being effective on August 1, 2017 through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a gross monthly rental cost including common area charges of $4,097.
The yearly rental obligations including the lease agreements are as follows:
Fiscal Year
|
|
|
|
2018
|
|
$
|
36,973
|
|
2019
|
|
$
|
49,164
|
|
2020
|
|
$
|
49,164
|
|
2021
|
|
$
|
49,164
|
|
2022
|
|
$
|
36,873
|
|
Total
|
|
$
|
221,338
|
|