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 Nic Corporation (“NiC”) (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 NiC 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 accounted for $8,715 in Series B dividends which increases the loss to common shareholders from $521,115 to $529,830 for the nine month period ended July 31, 2017.
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, 2016 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, 2016 as reported on Form 10-K, have been omitted.
Inventory
Inventories are stated at the lower or cost of market using the first-in; first-out (FIFO) cost method of accounting. The inventory consists of switch boxes held by the Company’s subsidiary NiC programs for resale.
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 July 31, 2017, the accrued liability for compensation was $230,839.
As of July 31, 2017, and October 31, 2016, the Company had the following outstanding accrued liabilities due to related parties:
As of
|
|
July 31,
2017
|
|
|
October 31,
2016
|
|
Accrued salaries
|
|
$
|
111,272
|
|
|
$
|
--
|
|
Director fees
|
|
$
|
67,500
|
|
|
$
|
--
|
|
Accrued Commissions (1)
|
|
$
|
37,667
|
|
|
$
|
49.984
|
|
Consulting fees
|
|
$
|
14,400
|
|
|
$
|
--
|
|
Total accrued liabilities and accrued expense
|
|
$
|
230,839
|
|
|
$
|
49,984
|
|
_________
(1) An officer of the Company elected to take 74,500 zero cost options reducing the accrued commission by $36,604 (CDN $94,404 to CDN $44,404).
NOTE 3 – EQUITY
On March 7, 2017, the Company issued 233,000 shares of common stock to one individual at $1.10 per share with a value of $256,300 for cash.
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 January 6, 2016, the Company issued 509,500 options with an exercise price of $1.02 per share to 14 officers, directors, employees and consultants of the Company.
On April 7, 2017, the Company issued 418,200 options with an exercise price of $0.50 per share to 14 officers, employees and consultants of the Company
On April 7, 2017, the Company issued 74,500 options with a zero exercise price 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 $35,392.
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 $2,661,593. During the nine month period ended July 31, 2017, the Company expensed $343,078 for options. The unrecognized future balance to be expensed over the term of the options is $1,379,785.
The following sets forth the options granted and outstanding as of July 31, 2017:
|
|
Options
|
|
|
Weighted Average
Exercise price
|
|
|
Weighted Average Remaining Contract Life
|
|
|
Granted
Options Exercisable
|
|
|
Intrinsic
value
|
|
Outstanding at October 31, 2016
|
|
|
6,263,200
|
|
|
|
0.54
|
|
|
|
5.18
|
|
|
|
4,308,600
|
|
|
|
2,857,703
|
|
Granted
|
|
|
492,700
|
|
|
|
0.42
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited/Expired by termination
|
|
|
(50,000
|
)
|
|
|
(1.14
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding at July 31, 2017
|
|
|
6,705,900
|
|
|
|
0.52
|
|
|
|
4.94
|
|
|
|
4,938,240
|
|
|
|
1,198,174
|
|
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. The offices contain approximately 2,810 square feet of office space and are leased from July 1, 2014 through July 31, 2017. Under the terms of the lease, the gross monthly rental cost including common area charges is $6,700. The lease terminates on July 31, 2017.
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:
Calendar Year
|
|
|
|
2017
|
|
$
|
20,485
|
|
2018
|
|
$
|
49,164
|
|
2019
|
|
$
|
49,164
|
|
2020
|
|
$
|
49,164
|
|
2021
|
|
$
|
49,164
|
|
2022
|
|
$
|
28,679
|
|
Total
|
|
$
|
245,820
|
|
NOTE 6 – DEFERRED REVENUE
The Company receives part of its revenue from the sale of software support. The revenue received is for one year of support from the date of the support sale. The Company defers the revenue for the future periods in which it is obligated to perform the support service. As of July 31, 2017, the Company had deferred revenue of $135,221.