Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Financial Statements
For the year ended December 31, 2017 and
the period from December 17, 2016 (date of incorporation) to December 31, 2016
Independent Auditors' Report
To the Shareholders of Universal mCloud Corp. (formerly Universal Ventures Inc.)
We have audited the accompanying consolidated financial statements of Universal mCloud Corp. (formerly Universal
Ventures Inc.) which comprise the statements of consolidated financial position as at December 31, 2017 and 2016, and the
consolidated statements of loss and comprehensive loss, changes in shareholders’ equity (deficiency) and cash flows for
the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of Universal mCloud Corp. (formerly Universal Ventures Inc.) as at December 31, 2017 and 2016, and its consolidated
financial performance and its consolidated cash flows for the year ended December 31, 2017 and the period from December
17, 2016 (date of incorporation) to December 31, 2016 in accordance with International Financial Reporting Standards.
Emphasis of Matter – Going Concern
Without qualifying our opinion, we draw attention to Note 1 to the consolidated financial statements which indicates the
existence of material uncertainties which may cast significant doubt about the Company’s ability to continue as a going
concern.
Calgary, Alberta
April 26, 2018
Chartered Professional Accountants
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Financial Position
(Stated in Canadian dollars, unless otherwise noted)
As at December 31,
Notes
2017
2016
ASSETS
Current assets
Cash
Trade and other receivables
Prepaid expenses and deposits
Due from related party
Total current assets
Non-current assets
Deposits
Property and equipment
Intangible assets
Goodwill
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade payables and accrued liabilities
Due to related party
Business acquisition payable
Total current liabilities
Shareholders’ equity (deficiency)
Share capital
Contributed surplus
Deficit
20
21
7
8
9
10
21
11
13
Accumulative other comprehensive income
Total shareholders’ equity deficiency
Total liabilities and shareholders’ equity (deficiency)
Going concern (Note 1)
Commitments (Note 23)
Subsequent events (Note 24)
Approved by the Board of Directors:
“Russ McMeekin”
Director
“Michael Sicuro”
Director
$
$
$
$
$
$
$
$
$
105,759
287,961
338,404
50,183
782,307
23,102
25,165
1,722,743
262,152
2,033,162
2,815,469
$
$
2,353,315
$
111,651
1,563,044
4,028,010
4,736,577
121,922
(6,209,558)
138,518
(1,212,541)
2,815,469
$
$
$
$
$
165
-
-
-
$
165
-
-
-
-
-
165
-
-
-
-
165
-
-
-
165
165
The accompanying notes are an integral part of the consolidated financial statements.
1
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Loss and Comprehensive Loss
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
Revenue
Cost of sales
Gross margin
Expenses
Consulting fees
Salaries, wages and benefits
Sales, travel and business development
Research and development
General and administrative
Professional fees
Share based compensation
Depreciation and amortization
Change in fair value of derivative
$
$
$
$
Notes
16
17
22
17
13
7,8
12
Accretion - convertible notes and business acquisition payable
11,12
Total expenses
Loss before other expense
Other expense
$
$
$
$
2017
839,820
384,081
455,739
670,249
2,135,452
640,054
533,900
216,955
194,713
260,218
210,042
283,095
342,206
$
$
5,486,884
(5,031,145)
$
$
Listing expense on reverse takeover
5
(1,178,413)
Net loss for the year
Other comprehensive income:
$
(6,209,558)
$
Item that may be reclassed subsequently to net loss:
Foreign exchange translation difference
138,518
Net loss and comprehensive loss for the year
$
(6,071,040)
$
Loss per share
Basic
Diluted
15
$
$
(0.22)
$
(0.22)
$
2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes are an integral part of the consolidated financial statements.
2
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
(Stated in Canadian dollars, unless otherwise noted)
(unaudited)
Notes
Share (1)
Capital
Contributed
Surplus
Accumulated
Other
Comprehensive
Income
Total
Equity
(Deficiency)
Deficit
At incorporation Dec 17, 2016
$
-
$
Share issuance
165
-
-
Balance at December 31, 2016
$ 165
$ -
Issued for services
Issued on business combination
Convertible note conversion
6
12
260,218
144,785
1,083,872
-
-
-
Issued for cash, net
5,13
2,358,370
121,922
Issued on reverse take-over
Comprehensive loss
889,167
-
-
-
$ -
-
$ -
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$ -
165
$ 165
260,218
144,785
1,083,872
2,480,292
889,167
138,518
(6,209,558)
(6,071,040)
Balance at December 31, 2017
$ 4,736,577
$ 121,922
$ 138,518
$ (6,209,558)
$ (1,212,541)
(1) On September 14, 2017, the Company completed a 14.15971678 to 1 forward stock split of the outstanding common
shares. All references to share numbers in these consolidated financial statements reflect the forward stock split.
The accompanying notes are an integral part of the consolidated financial statements.
3
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
Notes
2017
2016
Cash flows related to the following activities:
Operating activities
Net loss
Items not affecting cash:
Depreciation and amortization
Shares for services
Accretion
Change in fair value of derivative
Inventory impairment
Listing expense on reverse takover
Foreign currency exchange
Net change in non-cash working capital items:
Trade and other receivables
Prepaid expenses and deposits
Trade payables and accrued liabilities
$
(6,209,558)
$
5,6
9
8
8
210,042
260,218
342,206
283,095
14,119
1,178,413
156,140
$
319,290
$
(337,049)
1,432,127
Cash flows used in operating activities
$
(2,350,957)
$
Financing activities
Proceeds from convertible notes
Issuance of common shares
Payments on business acquisition payable
Payment of Universal director loan
Advances from related party
8
13
11
4
$
712,735
$
2,480,292
(768,520)
(100,288)
111,651
-
-
-
-
-
-
-
-
-
-
-
-
-
165
-
-
-
Cash flows from financing activities
$
2,435,870
$
165
Investing activities
Acquired on business combination
Cash flows provided by investing activities
Foreign currency on cash held
Increase in cash
Cash at beginning of the year
Cash at end of the year
15,077
15,077
5,604
105,594
165
105,759
$
$
$
$
-
-
-
165
-
165
The accompanying notes are an integral part of the consolidated financial statements.
4
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
1.
Incorporation and operations
Universal Ventures Inc. (“Universal”) was incorporated pursuant to the British Columbia Business Corporations Act on
December 21, 2010. On October 13, 2017, Universal completed a merger agreement the mCloud Corp. (“mCloud”) whereby
Universal issued 35,844,296 common shares to the shareholders of mCloud, resulting in mCloud’s shareholders controlling
Universal and therefore constituting a reverse takeover of Universal (the “Transaction”). In conjunction with the Transaction,
Universal changed its name to Universal mCloud Corp. (the “Company”).
mCloud was incorporated under the laws of the State of Delaware on December 17, 2016. The Company is headquartered
in Vancouver, British Columbia with technology and operations centers in San Francisco, California and Bristol,
Pennsylvania. The Company is an IoT connected asset care cloud solution company utilizing connected IoT devices, leading
deep energy analytics, secure mobile and 3D technologies that rally all asset stakeholders around an Asset-Circle-of-Care™,
providing complete real-time and historical data coupled with guidance and advice based on deep analytics and diagnostics
resulting in optimal performance and care of critical equipment.
The head office of the Company is located at 1500 – 855 W Georgia Street, Vancouver, British Columbia, V6C 3E8 while
the registered office is located at 580 California Street, San Francisco, CA 94104 USA.
On February 15, 2017, the Company incorporated mCloud Technologies (Canada) Inc. as a wholly owned subsidiary
pursuant to the laws of the province of British Columbia.
On September 15, 2017, the Company acquired all of the issued and outstanding shares of Field Diagnostic Services, Inc.
(“Field”) (Note 6). Field operates in the United States and provides advanced enterprise software handheld energy efficiency
diagnostic tools and related training, and project management services that enable more rapid and accurate servicing of
heating, ventilation, and air conditioning (“HVAC”) equipment decreasing energy and operational costs.
Going concern
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize
its assets and discharge its liabilities in the normal course of business. The Company generated a net loss and accumulated
deficit of $6,209,558 during the year ended December 31, 2017. As at December 31, 2017, the Company has negative cash
flows from operations of $2,350,957 and a working capital deficit of $3,245,703. As such, there is a material uncertainty
related to these events and conditions that may cast significant doubt on the ability to continue as a going concern and
therefore, it may be unable to realize its assets and discharge its liabilities in the normal course of business. The continuation
of the Company as a going concern is dependent on the ability of the Company to achieve positive cash flow from operations
and/or obtain necessary equity or other financing to increase the number of assets under care and continue with expansion
in the asset care market.
Subsequent to the year end, the Company was successful in closing two equity raises that provided gross proceeds of
CAD$4.2 million (Note 24(i), (ii)) and completed the acquisition of a Canadian operating company that provides artificial
intelligence and 3D technology services to aerospace and military companies and signed a letter of intent to purchase a
technology company with operations in the United States and Slovakia (Note 24(iii), (iv)).
The ability of the Company to be successful in obtaining additional future financing, if required, cannot be predicted at this
present time. These financial statements do not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going
concern.
2. Basis of Preparation
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and the interpretations of the International
Financial Reporting Interpretations Committee (“IFRIC”) that are effective on January 1, 2017.
These consolidated financial statements were authorized for issue in accordance with a resolution of the Board of Directors
on April 26, 2018.
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for certain financial
instruments that have been measured at fair value.
5
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
2. Basis of Preparation (continued)
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries which are consolidated from
the date of acquisition, being the date on which the Company obtained control, and continue to be consolidated until the date
that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the
parent, using consistent accounting policies. All intercompany balances and transactions are eliminated in full upon
consolidation.
Details of the entities contained in the consolidated financial statements are as follows:
Entity
Universal mCloud Corp.
mCloud Corp.
Principle activity
Parent company
Operating company
mCloud Technologies (Canada) Inc.
Operating company
Place of business
and operations
Equity
percentage
Canada
United States
Canada
100%
100%
100%
Field Diagnostic Services, Inc.
Operating company, HVAC monitoring
United States
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars. The functional currency of Universal and mCloud
Technologies (Canada) Inc. is the Canadian dollar while the United States dollar is the functional currency of mCloud and
Field.
3. Significant Accounting Policies
Cash
Cash consists of bank balances with United States and Canadian financial institutions.
Foreign currencies
Transactions in currencies other than the Company's functional currency are recognized at the rates of exchange prevailing
at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are not translated.
Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.
The financial results of operations that have a functional currency different from the presentation currency are translated into
the presentation currency. Income and expenditures of operations are translated at the average rate of the exchange for the
year. All assets and liabilities are translated at the rate of exchange ruling at the reporting date. Differences arising on
translation are recognized as other comprehensive income.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost
includes expenditures that are directly attributable to the acquisition of the asset.
Depreciation is recorded to recognize the cost of assets over their useful lives, using the straight-line method over the
following useful lives:
Asset
Computers and software
Office equipment and machinery
Leasehold improvements
Life
3 to 5 years
7 years
5 years
6
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
When a property and equipment asset has significant components with different useful lives, each significant component is
depreciated separately.
The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any
changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and
equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is
recognized in profit or loss.
Repairs and maintenance costs that do not improve or extend productive life are recognized in profit or loss in the period in
which the costs are incurred.
Business combination
Acquisitions of subsidiaries and assets that meet the definition of a business under IFRS are accounted for using the
acquisition method. The consideration for each acquisition is measured at the date of exchange as the aggregate of the fair
values of assets given, liabilities incurred or assumed, and equity instruments issued by the Company. The identifiable assets
acquired and liabilities and contingent liabilities assumed that meet the conditions for recognition under IFRS 3 are
recognized at their fair values at the acquisition date, except for, deferred income taxes, employee benefit arrangements,
share-based compensation, and assets held for sale, which are measured in accordance with their applicable IFRS. Any
excess consideration over the fair value of the identifiable net assets is recognized as goodwill. Acquisition-related costs,
other than those associated with the issuance of debt or equity, are recognized in earnings as incurred.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional
amounts are adjusted retrospectively during the measurement period, or additional assets or liabilities are recognized, to
reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would
have affected the amounts recognized as of that date. The measurement period is the period from the date of acquisition to
the date the Company obtains complete information about facts and circumstances that existed as of the acquisition date up
to a maximum of one year.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, will be
recognized in accordance with IAS 39 either in earnings or as a change to other comprehensive income. If the contingent
consideration is classified as equity, it shall not be re-measured and its final settlement shall be accounted for within equity.
Goodwill
The Company measures goodwill as the fair value of the consideration transferred less the net recognized amount (generally
fair value) of the identifiable assets acquired and the liabilities assumed, all measured as of the acquisition date. Since
goodwill results from the application of the acquisition method of accounting for a business combination, it is inherently
imprecise and requires judgement in the determination of the fair value of assets and liabilities.
Goodwill is allocated to the Company’s CGUs or group of cash generating units that are expected to benefit from the
synergies of the business combination. Goodwill is not amortized, but is tested for impairment at least annually. An
impairment loss in respect of goodwill is not reversed. On the disposal or termination of a previously acquired business, any
remaining balance of associated goodwill is included in the determination of the gain or loss on disposal.
Inventory
Inventory consist of handheld tools and parts and are stated at the lower of cost and net realizable value. Costs of inventory
is determined on a standard cost basis. Net realizable value represents the estimated selling price for inventory less all
estimated costs of completion and costs necessary to make the sale.
7
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and
accumulated impairment losses. Amortization is recognized on a straight-line basis over the estimated useful lives which is
5 years for the customer relationships and technology assets. The estimated useful life and amortization method are
reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective
basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated
impairment losses.
Internally-generated intangible assets - Research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is
recognized if, and only if, all of the following have been demonstrated:
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
The intention to complete the intangible asset and use or sell it;
The ability to use or sell the intangible asset;
How the intangible asset will generate probable future economic benefits;
The availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset; and,
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above.
Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss
in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization
and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Patents
It is the Company’s practice to seek patent protection on processes and products. The Company capitalizes the costs
incurred for patent applications filed and pending approval. Patents are carried at cost less accumulated amortization and
accumulated impairment losses. Amortization is recognized on a straight-line basis over the estimated useful life of 15 years.
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Operating lease payments are recognized as an expense as incurred.
In the event that lease incentives, such as deferral of cash payments, are received to enter into operating leases, such
incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense
on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed.
8
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it
is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of
the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision
is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those
cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
Revenue recognition
Revenue is measured at the fair value of consideration received or receivable, net of sales tax, trade discounts, rebates and
similar allowances.
Revenue is recognized when the criteria specific to each separately identifiable component is met and the following
conditions are satisfied:
The amount of revenue can be measured reliably;
It is probable that the economic benefits associated with the transaction will flow to the Company; and,
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Sale of goods
Revenue from the sale of tools is recognized when the Company has transferred to the buyer the significant risks and
rewards of ownership of the goods. Significant risks and rewards are transferred to the buyer when the goods are
delivered and legal title has passed.
Rendering of services
Efficiency sharing
Efficiency sharing revenue represents performance incentives earned by the Company based on customers achieving
defined HVAC operational efficiency levels. The Company receives a fee based on certain efficiency levels reached. Due to
uncertainties surrounding the attainment of such levels, the Company recognizes efficiency sharing revenue upon receipt of
performance reports or other information from the customer supporting the determination of amounts.
Training and consulting
Revenue is recognized as the services are performed.
Cost of sales
Cost of sales includes direct materials, direct labour, shipping and handling, and indirect overhead related to the sale of
goods or rendering of services.
Employee benefits
Post-employment benefits
The Company does not provide post-employment benefits.
Short-term benefits
Short-term benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short term cash bonus if the Company has a present legal
or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably.
9
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Share-based payment arrangements
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of
the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is recognized as an employee
expense, with a corresponding increase in equity, over the vesting period, based on the Company's estimate of equity
instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of
equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss
such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled
employee benefits reserve.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the
goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at
the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders
the service.
Taxation
Tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statements of comprehensive loss because of items of income or expense that are taxable or deductible in
other years and items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the
consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it
is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability
is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end
of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Current and deferred tax for the period
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other
comprehensive loss or directly in equity, in which case the current and deferred tax are also recognized in other
comprehensive loss or directly in equity respectively.
Earnings (loss) per share
Basic earnings per share are calculated by dividing the profit or loss attributable to equity holders of the Company by the
weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share are calculated by dividing the profit attributable to equity holders of the Company by the
weighted average number of common shares outstanding, adjusted for the effects of all dilutive potential common shares.
The weighted average number of common shares outstanding is increased by the total number of additional common shares
that would have been issued by the Company assuming exercise of all share options with exercise prices below the average
market price for the year.
10
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of
the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in profit or loss.
The Company’s financial assets and financial liabilities are classified into the following categories:
Financial asset/liability
Cash
Trade and other receivables
Due from related party
Trade payables and accrued liabilities
Due to related party
Classification
Measurement
Fair value through profit or loss
Fair value
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Business acquisition payable
Fair value through profit or loss
Fair value
Financial assets
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss'
(“FVTPL”), ‘held-to-maturity' investments, ‘available-for-sale' (“AFS”) financial assets and ‘loans and receivables'. The
classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. Loans and receivables are measured at amortized cost using the effective interest method, less any
impairment.
The Company has no fair value through profit or loss, held-to-maturity or available-for-sale financial assets.
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or
when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On de-recognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive
income and accumulated in equity is recognized in profit or loss.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL' or ‘other financial liabilities'.
Other financial liabilities are initially measured at fair value plus transaction costs and subsequently measured at amortized
cost using the effective interest method. FVTPL are carried in the consolidated statement of financial position at fair value
with changes in fair value recognized in the consolidated statement of loss and comprehensive loss.
The Company derecognizes financial liabilities when, and only when, the Company's obligations are discharged, cancelled
or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid
and payable is recognized in profit or loss.
Derivative financial instruments and hedge accounting
To date, the Company has not utilized hedges or other derivative financial instruments in its operations.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.
11
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Impairment
Financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period.
Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been
affected.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the
asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception
of trade receivables, where the carrying amount is reduced through the use of the an allowance or provision for impairment
account. Such a provision is established when there is reasonable expectation that the Company will not be able to collect
all amounts due. When a trade receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been
recognized.
Non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets, other than
inventories and deferred taxes, to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the
smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least
annually and whenever there is an indication that the asset may be impaired.
The Company assesses goodwill at least annually. Goodwill is allocated to each operating segment, which represents the
lowest level within the Company at which the goodwill is monitored for internal management purposes. The fair value of each
operating segment is compared to the carrying value of its net assets.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the
asset (or CGU) is reduced to its recoverable amount.
When an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised
estimate of its recoverable amount, limited such that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal
of an impairment loss is recognized immediately in profit or loss. Impairment recognized on goodwill is not reversed.
New accounting policies
There were no new IFRS or IFRIC interpretations that became effective on or after January 1, 2017 that had a material
impact on the Company.
12
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
3. Significant Accounting Policies (continued)
Recently issued accounting standards not yet applied
In January 2016, the IASB issued IFRS 16 Leases, which requires lessees to recognize all leases on the statement of
Financial Position. IFRS 16 is effective for annual periods beginning on or after January 1, 2019 with earlier application
permitted for companies that also applies IFRS 15 Revenue from Contracts with Customers. The Company is currently
evaluating the impact of the standard on its consolidated financial statements.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 18 Revenue, IAS 11
Construction Contracts, and related interpretations. The standard is required to be adopted either retrospectively or using a
modified transition approach for fiscal years beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 15
will come into effect for annual periods beginning on or after January 1, 2018. The Company is currently conducting its
assessment and evaluation of the standard’s impact on the recognition of revenue.
In July 2014, the IASB completed the final elements of IFRS 9 Financial Instruments. The Standard supersedes earlier
versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9, as amended, includes a principle based approach for classification and measurement of financial assets, a single
‘expected loss’ impairment model and a substantially reformed approach to hedge accounting. IFRS 9 will come into effect
for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company does not expect the
standard to significantly impact its consolidated financial statements.
4. Accounting Estimates and Judgments
In the application of the Company's accounting policies, management is required to make judgements, estimates and
assumptions that affect the carrying 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 for the periods presented. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be
relevant, the results of which form the basis of the valuation of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and
future years if the revision affects both current and future years.
Estimates
Critical accounting estimates are those that require management to make assumptions about matters that are highly
uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially
have a material impact on the Company’s financial results where a different estimate or assumption is used. The significant
areas of estimation uncertainty are:
Allowance for doubtful accounts
The Company makes an allowance for doubtful accounts based on an assessment of the recoverability of receivables.
Allowances are applied to receivables where events or changes in circumstances indicate that the carrying amounts may
not be recoverable. Management specifically analysed historical bad debts, customer concentrations, customer
creditworthiness, current economic trends and changes in customer payment terms when estimating the adequacy of the
allowance for doubtful accounts. Where the expectation is different from the original estimate, such difference will impact the
carrying value of receivables.
Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of
the equity instruments at the grant date. Determining the fair value of such share-based awards requires estimate as to the
appropriate valuation model and the inputs for the model require assumptions including the rate of forfeiture of options
granted, the expected life of the option, the Company’s share price and its expected volatility, the risk-free interest rate and
expected dividends.
13
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
4. Accounting Estimates and Judgments (continued)
Convertible notes
The Company estimates the share price at which the convertible notes will be exchanged into common shares. Management
makes a best estimate of the price based on historical prices issued to third parties and expected prices to be received from
the initial public offering.
Business acquisition payable
In determining the fair value of business acquisition payable, the Company makes estimates as to the probability of the
targets being met and the date such targets are met, as well as an appropriate discount rate.
Purchase price allocations
The acquired assets and assumed liabilities are recognized at fair value on the date the Company effectively obtains control.
The measurement of each business combination is based on the information available on the acquisition date. The estimate
of fair value of the acquired intangible assets (including goodwill), property and equipment, other assets and the liabilities
assumed are based on assumptions. The measurement is largely based on projected cash flows, discount rates and market
conditions at the date of acquisition.
Goodwill
The value in use of goodwill has been estimated using the forecasts prepared by management for the next five years. The
key assumptions for the estimate are those regarding revenue growth, gross margin, discount rate and the level of working
capital required to support the business. These estimates are based on past experience and management’s expectations of
future changes in the market and forecasted growth initiatives.
Judgements
Judgement is used in situations when there is a choice and/or assessment required by management. The following are
critical judgments apart from those involving estimations, that management has made in the process of applying the
Company’s accounting policies and that have a significant effect on the amounts recognized in the consolidated financial
statements.
Determination of CGUs
For the purposes of assessing impairment of non-financial assets, the Corporation must determine CGUs. Assets and
liabilities are grouped into CGUs at the lowest level of separately identified cash flows. Determination of what constitutes a
CGU is subject to management judgment. The asset composition of a CGU can directly impact the recoverability of assets
included within the CGU. Management has determined that the Company has one CGU.
Contingencies
Management uses judgment to assess the existence of contingencies. By their nature, contingencies will only be resolved
when one or more future events occur or fail to occur. Management also uses judgment to assess the likelihood of the
occurrence of one or more future events.
Taxation
The calculations for current and deferred taxes require management’s interpretation of tax regulations and legislation in the
various tax jurisdictions in which the Company operates, which are subject to change. The measurement of deferred tax
assets and liabilities requires estimates of the timing of the reversal of temporary differences identified and management’s
assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they
expire, which involves estimating future taxable income.
The Company is subject to assessments by various taxation authorities in the tax jurisdictions in which it operates and these
taxation authorities may interpret the tax legislation and regulations differently. In addition, the calculation of income taxes
involves many complex factors. As such, income taxes are subject to measurement uncertainty and actual amounts of taxes
may vary from the estimates made by management.
14
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
5. Reverse Takeover
On October 13, 2017, pursuant to a merger agreement, Universal Ventures Inc. (“Universal”) acquired all of the issued and
outstanding shares of mCloud Corp. (“mCloud”). Total shares issued was 35,844,297 by Universal to the shareholders of
mCloud, resulting in the Company’s shareholders controlling Universal and therefore constituting a reverse takeover of
Universal (the “Transaction”). Prior to completion of the Transaction, Universal completed a share consolidation of 2:1
resulting in a reduction of its share capital from 8,118,442 common shares to 4,059,221 common shares outstanding.
As the former shareholders of mCloud own approximately 90% of the voting shares of Universal after the transaction, and
has control of the combined entity, the acquisition of mCloud by Universal was accounted for using the reverse-takeover
(“RTO”) acquisition method of accounting in accordance with IFRS 3 with mCloud deemed to be the acquirer of the
accounting parent. The accounting information and results of operations of the legal parent, Universal, are included in the
consolidated financial statements from the date of the reverse takeover.
The fair value of the consideration is determined based on the percentage of ownership of the merged entity that was
transferred to the shareholders of Universal upon completion of the Transaction. This value represents the fair value of the
number of shares that mCloud would have had to issue, being 4,041,669, for the ratio of ownership interest in the combined
entity to be the same as if the Transaction had taken the legal form of mCloud acquiring 100% of the shares of Universal.
The percentage of ownership Universal shareholders have in the combined entity is approximately 10% based on combining
4,059,221 Universal common shares outstanding with the 35,987,153 newly issued shares of mCloud. The fair value of the
Transaction is based on the transaction price of the recent shares issued to arms length parties by mCloud.
The purchase price allocation can be summarized as follows:
4,041,669 common shares valued at approximately $0.220 (USD $0.176) per share
Total consideration
Purchase price allocation:
Net working capital deficiency
Listing expense on reverse takeover
$
$
$
$
889,167
889,167
(289,246)
1,178,413
889,167
The Transaction is accounted for as a continuation of mCloud whereby new shares are issued for the net assets of Universal,
including the public company listing expense which is deemed to be the difference between the consideration paid for
Universal shares and the net assets of Universal. The share capital, contributed surplus and deficit of Universal are charged
or credited to the share capital of the consolidated entity.
In conjunction with the RTO, the mCloud completed a private placement of 8,571,571 subscription receipts for gross
proceeds of $3,000,050 at a price of $0.35 per receipt (the “Offering”). Each subscription receipt was automatically converted
into one unit of the Company. Each Unit is comprised of one common share and one common share purchase warrant of
the Company. Each warrant is exercisable at a price of $0.45 per share for a period of 24 months following the closing of the
Offering and will be subject to accelerated expiration if the 10-day weighted average trading price of the Company’s common
shares is, at any time, greater than $0.80 per share.
In connection with the Offering, the Agents received a cash commission of $178,500, a corporate finance fee of $50,000 and
510,000 compensation options (“Agent Option”). Each Agent Option will be exercisable for one common share of the
Company at $0.35 for a period of 24 months following the closing of the Offering. The value of the Agent Options is $75,000
determined by the Black Scholes Option Pricing Model. Other costs associated with the Offering totalled $1,076,629.
In addition, the Agents were issued 142,857 common shares at $0.35 for services provided having a total value of $50,000.
15
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
6. Business Combination
On June 15, 2017, the Company acquired all of the issued and outstanding shares of Field Diagnostics Services, Inc., from
arm’s length parties (the “Acquisition”).
Consideration given consists of:
i.
ii.
iii.
On completion of the RTO (the “Closing Date”), an amount equal to cash of USD$1,000,000 (“RTO Closing
Payment”) adjusted upwards by positive, or downward by negative, working capital;
Issuance of 1,228,501 common shares of the Company at a deemed value of USD$500,000 and,
Business acquisition payable comprised of:
a. USD$1,000,000, payable no later than April 30, 2018 if revenue for the year ended December 31, 2017 is
equal to or greater than USD $2,000,000 (the “Revenue Milestone”);
b. USD$200,000 if the first sale of a computer application system that oversees and analyzes data (“Asset
Care”) to a customer (the “Initial Asset Care Milestone”) occurs on or before three months from the Closing
Date. If this milestone is achieved, the USD$200,000 is payable no later than five business days from
when the Company receives full or partial payment from the sale;
c. USD$1,000,000 if the Asset Care is monitoring 1000 assets (the “1000 Asset Care Milestone”) by
December 15, 2018. If this milestone is achieved, the USD$1,000,000 is payable no later than five
business days from when the milestone is achieved; and,
d. USD$1,000,000 if the Asset Care is monitoring 5,000 assets (the “5000 Asset Care Milestone”) by May
20, 2022. If this milestone is achieved, the USD$1,000,000 is payable no later than five business days
from when the milestone is achieved.
At the date of acquisition, management estimated the fair value of the business acquisition payable to be CAD$1,502,307
(USD$1,131,000). The calculation was determined using management’s best estimates of the time period in which the Asset
Care Platform sales milestones are achieved, and the likelihood of achieving the USD$2 million revenue target. The values
were adjusted after considering the time value of money using a discount rate of 22.5%.
Initially, the fair value of the net assets acquired and aggregate consideration was as follows:
Fair value of net assets acquired:
Net working capital deficiency, including cash of $15,077
Property and equipment
Deposits
Intangible assets – patents and trademark
Intangible assets – customer relationships
Intangible assets – technology
Goodwill
Total net assets acquired
Consideration given:
Cash on RTO closing date
1,228,501 common shares
Business acquisition payable
Total consideration
(42,651)
33,308
24,457
187,290
912,542
937,800
856,231
2,908,977
1,261,885
144,785
1,502,307
2,908,977
16
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
6. Business Combination (continued)
Subsequent to the initial accounting, it was determined that a lien existed on certain property and assets of Field. As this lien
was not known at the time of the Acquisition, the Company and the vendors of Field agreed to replace the RTO Closing
Payment and Business Acquisition Payable with the following cash payments (the “Revised Consideration”)”
i.
ii.
iii.
USD$400,000 paid on November 17, 2017;
USD$200,000 paid on December 8, 2017; and,
USD$1,400,000 payable in eleven monthly installments commencing January 31, 2018 of USD$120,000 with a
final payment of USD$80,000 payable on December 31, 2018.
The Revised Consideration is unsecured and non-interest bearing. The value of the Revised Consideration, being
$2,185,535 (USD$1,645,362), was determined based on a market rate of interest of 22.5%. The difference between the
initial Business Acquisition Payable and the Revised Consideration of $578,658 (USD$435,638) has been applied against
goodwill.
Goodwill arising from the acquisition of Field is attributable to the assembled workforce and the synergies that the Company
will obtain. Those assets do not meet the recognition criteria prescribed by IFRS 3 Business Combinations, and therefore
have not been recognized as separate intangible assets.
From the period of acquisition to December 31, 2017, Field contributed revenue of $839,820 and a net loss of $759,260.
Had Field been acquired on January 1, 2017, it would have contributed additional revenue of approximately $1,050,500 and
additional net loss of $468,000.
7. Property and Equipment
Cost
Balance at December 31, 2016
Acquisition (Note 6)
Foreign currency translation
Balance at December 31, 2017
Accumulated depreciation
Balance at December 31, 2016
Depreciation
Balance at December 31, 2017
Carrying amounts
At December 31, 2016
At December 31, 2017
Office
equipment and
machinery
Leasehold
improvements
Computers
and
software
-
956
(70)
886
-
138
138
-
748
-
24,563
(1,143)
23,420
-
4,773
4,773
-
7,789
(575)
7,214
-
1,444
1,444
Total
-
33,308
(1,788)
31,520
-
6,355
6,355
-
-
-
18,647
5,770
25,165
17
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
8.
Intangible Assets
Cost
Balance at December 31, 2016
Acquisition (Note 6)
Foreign currency translation
Balance at December 31, 2017
Accumulated Amortization
Balance at December 31, 2016
Amortization
Balance at December 31, 2017
Carrying amounts
At December 31, 2016
At December 31, 2017
9. Goodwill
Balance, beginning of the period
Acquisition (note 6)
Revision to consideration (Note 6)
Foreign currency translation
Balance, end of year
Patents and
Trademark
Customer
Relationships Technology
-
187,290
(10,284)
177,006
-
12,266
12,266
-
912,542
(49,761)
-
937,800
(51,157)
Total
-
2,037,632
(111,202)
862,781
886,643
1,926,430
-
94,513
94,513
-
96,908
96,908
-
203,687
203,687
-
-
-
-
164,740
768,268
789,735
1,722,743
2017
-
856,231
(578,658)
(15,421)
262,152
2016
-
-
-
-
-
The Company performed its annual impairment test at December 31, 2017. The Company has determined that it has one
CGU, consisting of the group of assets acquired via the Field acquisition and all goodwill was allocated to the Field CGU.
The recoverable amount of the Field CGU was determined based on a value in use calculation using the following key
assumptions:
5 year post-tax cash flow projections expected to be generated based on financial budgets with a terminal growth rate of
2%:
• Budgeted cash flows at an average growth rate of 19% and were determined by management based on the CGU’s
•
performance and future growth prospects; and,
Cash flows were discounted at the CGU’s weighted average cost of capital of 23% based a build up model and
adjusted for the risk of the CGU.
The most sensitive inputs to the value in use model are the growth and gross margin percentage. All else being equal:
• A 2% decrease in the gross margin percentage would have resulted in a reduction to the recoverable amount of
$60,000; and,
• A 5% decrease in growth rates would have resulted in a reduction to the recoverable amount of $99,000.
Changing the above assumptions did not indicate any impairment.
18
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
10. Trade Payables and Accrued Liabilities
Accounts payable
Accrued salaries
Accrued liabilities
Other
11. Business Acquisition Payable
Balance, beginning of year
Acquisition (Note 6)
Payments
Accretion
Foreign currency translation
Balance, end of year
12. Convertible Notes
2017
1,079,891
947,943
296,521
28,960
2,353,315
2017
-
2,185,535
(768,520)
254,164
(108,135)
1,563,044
2016
-
-
-
-
-
2016
-
-
-
-
-
-
During 2017, the Company issued USD$650,000 of unsecured convertible promissory notes (“Convertible Notes”) to certain
related parties. Interest on the Convertible Notes is accrued daily from the date on which the demand for payment has been
made at a rate equal to 15% per annum until the Convertible Notes are paid in full.
In conjunction with the closing of the RTO, 3,346,200 common shares were issued on the conversion of the Convertible
Notes for an amount of $1,083,872 (USD$868,000), as calculated below. The Conversion Price was determined based on
an amount per share equal to the lowest price per share at which a common share was issued for cash consideration
pursuant to the IPO, excluding any common shares issued from the exercise of the Convertible Notes, multiplied by 0.75.
The terms of the Convertible Notes provided settlement into a variable number of the Company’s equity instruments, the
value of which changes in response to the conversion price. It was therefore determined that the Convertible Notes are a
hybrid instrument, with a host debt contract and an embedded derivative which should be separated from the host debt
contract. As the fair value of the embedded derivative is not reliably measurable based on its terms and conditions, at initial
recognition, the embedded derivate was assigned the residual value after removing the fair value of the debt component
from the host contract.
The fair value of the debt component at initial recognition was determined to be $722,908 (USD$581,444) based on the
contractual cash flows discounted at a market rate of 22.5%, resulting in $149,717 (USD$68,556) assigned to the derivative
liability. Subsequent to initial recognition, more reliable information became available regarding the key inputs into the
conversion option which allowed management to utilize the Black-Scholes pricing model to value the conversion option at
the reporting periods within the year and immediately before conversion of the Convertible Notes. Key assumptions utilized
in the Black-Scholes pricing model include share price between $0.12 (USD$0.09 to $0.176), exercise price equal to a 25%
discount of the share price and volatility of 155%. The change in fair value of the derivative liability for the year ended
December 31, 2017 totalled $283,095 (USD$218,000) and accretion on the debt component totalled $88,042 (USD $62,931).
19
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
13. Share Capital
Authorized:
Unlimited number of voting common shares
Incorporation, December 17, 2016
Issued for cash
Balance, December 31, 2016
Issued for services (i)
Consideration for the Acquisition (Note 6)
Issued on conversion of promissory notes (Note 12)
Conversion of subscription receipts (Note 5)
Agent shares (Note 5)
Universal common shares outstanding prior to RTO (Note 5)
Shares issued to effect RTO (Note 5)
Elimination of mCloud shares and Universal equity
Shares issued for services (ii)
Shares issued for cash (iii)
Balance, December 31, 2017
Number of Shares
-
17,699,646
17,699,646
4,998,379
1,228,501
3,346,200
8,571,571
142,857
4,059,221
35,844,297
(35,844,297)
600,000
2,420,000
43,066,375
$
-
165
165
14,218
144,785
1,083,872
1,569,921
50,000
1,141,548
889,167
(1,141,548)
246,000
738,449
4,736,577
i)
The Company issued 4,856,782 (pre-split 343,000) voting Common Shares to key management and other personnel
for services rendered or to be rendered (“Unvested Shares”). In the event the relationship is terminated with the
Company for any reason, the Company has the option for a period of 120 days after such date to repurchase the shares
(“Repurchase Option”) at the lower of (i) the par value per share or (ii) the fair market value per share of such Unvested
Shares at the date of repurchase. 3/36th of the Unvested Shares will be released from the Repurchase Option and
escrow every 3 months from the date of the issuance. If within one month before, or 12 months following, a change in
control the individual is terminated without cause or resigns for good reason, the Repurchase Option shall lapse as to
100% of the Unvested Shares which shall immediately become fully vested.
In addition, the Company issued 141,597 (pre-split 10,000) shares to a director for consulting services rendered.
(ii)
(iii)
During October 2017, the Company issued 600,000 common shares for consulting services provided. The Company
valued these common shares based on the trading price of the Company’s shares on the date of grant.
On December 6, 2017, the Company issued 2,420,000 units at $0.40 for gross proceeds of $968,000. Each unit consists
of one common share and one-half of one common share purchase warrant. Each warrant is exercisable at a price of
$0.50 per share for 36 months after December 6, 2017, subject to accelerated expiration if the 10 day weighted average
trading price exceeds $0.80. The Agent received a cash commission of $67,760 and was issued 169,400 agent
warrants having a value of $47,000 exercisable for 24 months for one common share at a price of $0.40 per common
share. Other share issue costs totalled $114,791.
Escrow
On the date of the RTO, the Company had a total of 24,757,224 common shares that were subject to escrow conditions. As
at December 31, 2017, the Company has 22,282,138 common shares subject to escrow conditions whereby 10% of the
shares were released on the date of the final Exchange Bulletin. An additional 15% of the escrow common shares will be
released on each six month anniversary date thereafter unless otherwise permitted by the Exchange.
20
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
13. Share Capital (continued)
Warrants
A summary of the Company’s warrants at December 31 is as follows:
2017
Weighted
Average
Exercise Price
-
0.46
0.50
0.46
Weighted
Average
Remaining
Contractual Life
-
2.12
1.93
1.93
2016
Weighted
Average
Exercise Price
-
-
-
-
Number
-
-
-
-
Weighted
Average
Contractual
Remaining Life
-
-
-
-
Balance, beginning of the year
Granted with Unit offerings
Granted to Agent
Balance, end of the year
Number
-
9,781,571
169,400
9,950,971
14. Share Based Payments
On December 17, 2016, the Company established an equity incentive plan (the “Plan”) which provides for the granting of
incentive share options, nonstatutory share options, share appreciation rights, restricted share awards, restricted share unit
awards, and other share awards (collectively “Share Awards”) to selected directors, employees and consultants for a period
of 10 years from the establishment of the Plan. The Plan is intended to help the Company secure and retain the services and
provide incentives for increased efforts for the success of the Company.
The Board of Directors grants Share Awards from time to time based on its assessment of the appropriateness of doing so
in light of the long-term strategic objectives of the Company, its current stage of development, the need to retain or attract
particular key personnel, the number of Share Awards already outstanding and overall market conditions.
The number of common shares reserved for issuance under the Plan is fixed at a maximum of 4,004,637 shares (the “Share
Reserve”). Repurchase or return of previously issued shares to the Plan increases the number of shares available for issue.
The fair value of options granted during the year ended December 31, 2017 was estimated on the date of the grant using the
Black-Scholes option pricing model. Where relevant, the expected life used in the model has been adjusted based on
management's best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. The
assumptions utilized in the Black-Scholes option pricing model is as follows:
Grant date
Grant date share price
Exercise price
Expected volatility
Expected life (years)
Expected dividend yield
Risk-free interest rate
Forfeiture rate
Fair value per option
October 13,
2017
$0.22
$0.35
155%
2
0%
1.54%
0%
$0.15
21
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
14. Share Based Payments (continued)
A summary of the Company’s options outstanding at December 31 is as follows:
2017
Weighted
Average
Exercise
Price
(CAD$)
-
0.35
0.35
0.35
Weighted
Average
Remaining
Contractual
Life
-
1.93
1.93
1.93
2016
Weighted
Average
Exercise Price
-
-
-
-
Weighted
Average
Contractual
Remaining
Life
-
-
-
-
Number
-
-
-
-
Number
-
510,000
510,000
510,000
Balance, beginning of the year
Granted to Agent
Balance, end of the year
Exercisable, end of the year
15. Loss per Share
Basic loss per share
Loss for the period attributable to ordinary equity holders
Weighted average number of common shares for the purposes of basic loss per share
Basic loss per share
Diluted loss per share
2017
2016
$
$
(6,209,558)
28,304,125
(0.22)
-
-
-
Shares deemed to be issued are not included in the computation of diluted earnings per share, because to do so would have
been anti-dilutive.
16. Revenue
The following is an analysis of the Company’s revenue:
Tool sales
Efficiency sharing
Training and consulting
17. Nature of Expenses
2017
122,716
90,284
626,820
839,820
The nature of the Company’s cost of sales and general administration expenses are as follows:
Salaries, wages and benefits
Consulting
Rent
Insurance
Travel and lodging
Utilities and maintenance
2017
44,385
409,355
70,813
22,068
8,716
45,699
601,036
2016
-
-
-
-
2016
-
-
-
-
-
-
-
22
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
18. Taxes
The tax provision recorded in the consolidated financial statements differs from the amount computed by applying the
combined Canadian federal and provincial income tax statutory rates to loss before tax as follows:
Loss before taxes
Statutory income tax rate (%)
Expected recovery at statutory rate
Increase (decrease) in taxes resulting from:
Non-deductible items
Foreign tax rate and other foreign tax differences
Change in enacted rates
Deferred tax benefits not recognized
Income tax provision
2017
(6,209,558)
27%
(1,676,580)
528,398
667,695
205,948
274,539
-
The Company has not recognized a differed tax asset in respect of the following deductible temporary differences:
Property and equipment
Intangible assets
Net operating losses – United States
Non-capital losses - Canada
Total deductible temporary differences
2017
69,200
216,190
9,821,000
1,360,800
11,467,190
2016
-
-
-
-
-
-
-
2016
-
-
-
-
-
The Company has net operating losses of approximately USD$9.8 million and non-capital losses of approximately $1.3
million which are available to reduce future years’ taxable income in the United States and Canada, respectively. The net
operating losses will commence to expire in fiscal 2028 while the non-capital losses will commence to expire in 2031 if not
utilized. Deferred tax assets are recorded only to the extent that future taxable income will be available against which the
deferred tax asset can be offset. Management estimates future income using forecasts based on the best available current
information. Based on the current estimates, no deferred tax asset has been recorded.
19. Capital Management
The Company’s capital consists of share capital. The Company sets the amount of capital in relation to risk and manages
the capital structure and makes adjustments to it in light of changes to economic conditions and the risk characteristics of
the underlying assets.
The Company’s objectives when managing capital are:
i.
ii.
to maintain a flexible capital structure, which optimizes the cost of capital at acceptable risk; and,
to maintain investor, creditor and market confidence in order to sustain the future development of the business.
23
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
20. Financial Instruments and Risk Management
The Company’s activities expose it to a variety of financial risks. The Company is exposed to credit risk and liquidity risk
because of holding certain financial instruments. The Company is not exposed to market risk (interest rate, or other price)
as it does not hold financial instruments that exposed the Company to market risk. The Company’s overall risk management
program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the
Company’s financial performance.
Risk management is carried out by senior management, in particular, the Board of Directors.
Fair Value
The Company’s financial instruments consist of cash, trade and other receivables, due from related party, trade payables
and accrued liabilities, due to related party and business acquisition payable. The carrying amounts of these items
approximate their fair value due to their short period to maturity.
IFRS establishes a three-level hierarchy that prioritizes the inputs relative to the valuation techniques used to measure fair
value. Fair values of assets and liabilities included in Level 1 of the hierarchy are determined by reference to quoted prices
in active markets for identical assets and liabilities. Fair value of assets and liabilities in Level 2 are determined using inputs
other than quoted prices for which all significant outputs are observable, either directly or indirectly. Fair value of assets and
liabilities in Level 3 are determined based on inputs that are unobservable and significant to the overall fair value
measurement. Accordingly, the Company has categorized its financial instruments carried at fair value into one of three
different levels depending on the observability of the inputs employed in the measurement. The Company’s cash balance is
subject to level 1 valuation. The Company’s convertible notes and business acquisition payable are subject to level 2
valuation. The risk from the due from related party is limited as it is with senior management of Field.
Credit risk
Credit risk arises when one party to a financial instrument will cause a financial loss for the other party by failing to discharge
its obligation. Financial instruments that subject the Company to credit risk consist primarily of cash, trade and other
receivables and due from related party. The credit risk relating to cash balances is limited because the counterparty are large
commercial banks in the United States and Canada.The amounts reported for trade and other receivables in the statement
of financial position is net of allowances for doubtful accounts and bad debts and the net carrying value represents the
Company’s maximum exposure to credit risk.
Trade and other receivables credit exposure is minimized by entering into transactions with creditworthy counterparties and
monitoring the age and balances outstanding on an ongoing basis. Most of the Company’s credit exposures are with
counterparties in the utility industry and are subject to normal industry credit risk. Payment terms with customers are 30 days
from invoice date.
At December 31, 2017, $nil in trade and other receivables were written off due to doubts of their collectability.
The following table sets forth details of the aging profile of trade and other receivables and the allowance for doubtful
accounts:
As at December 31,
Current (for less than 30 days)
31 – 60 days past due
61 – 90 days past due
Past due for greater than 90 days
Trade and other receivables
2017
222,792
52,620
6,243
6,306
287,961
2016
-
-
-
-
-
During the year ended December 31, 2017, 41% of revenues were generated from one customer.
As at December 31, 2017, two customers accounted for 80% of trade and other receivables, each with balances greater
than 10%.
24
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
20. Financial Instruments and Risk Management (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
generally relies on funds generated from operations or key management to provide sufficient liquidity to meet budgeted
operating requirements.
The following table sets forth details of the aging profile of financial liabilities as at December 31, 2017 based on their
undiscounted cash flows:
Trade payables and accrued liabilities
Due to related party
Business acquisition payable
<1 year
1-2 years
>2years
Total
2,353,315
111,651
1,756,300
4,221,266
-
-
-
-
-
-
-
-
2,353,315
111,651
1,756,300
4,221,266
The Company has current assets of $782,307 to satisfy its financial liabilities and therefore will have to generate sources of
cash through positive operating cash flows and/or equity financing (Note 24) to satisfy liabilities as they come due.
Foreign currency risk
Foreign currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. The Company maintains cash balances and enters into transactions
denominated in foreign currencies, principally in Canadian dollars, which exposes the Company to fluctuating balances and
cash flows due to variations in foreign exchange rates.
The United States equivalent carrying amounts of the Company’s foreign currency denominated monetary assets and
monetary liabilities is follows:
Cash
Trade and other receivables
Monetary assets
Trade payables and accrued liabilities
Business acquisition payable
Monetary liabilities
Net monetary liabilities
2017
95,257
273,151
368,408
2,187,898
1,563,044
(3,750,942)
(3,382,534)
2016
-
-
-
-
-
-
Assuming all other variables remain constant, a fluctuation of +/- 5.0 percent in the exchange rate between the United States
dollar and the foreign currency would impact profit (loss) for the year by approximately $195,000 (2016 - $nil).
To date, the Company has not entered into financial derivative contracts to manage exposure to fluctuations in foreign
exchange rates.
25
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
21. Related Party Transactions
Key management personnel compensation
The Company defines key management personnel as being the Chief Executive Officer, Chief Financial Officer, and Chief
Growth Officer.
For 2017, key management personnel compensation included in general and administrative expenses on the consolidated
statements of comprehensive loss was $942,242.
Profit sharing plan
The Company has a profit sharing/401(k) plan covering all employees that meet certain eligibility requirements. Under the
plan, participants may contribute up to 15% of their annual compensation up to the allowable limits. During 2017, the
Company contributed $18,851 which is included in salaries, wages and benefits on the consolidated statement of
comprehensive loss.
Due from related party
The Company has an unsecured demand note receivable with a former shareholder of Field bearing interest at 2% per
annum.
Due to related party
The due to related party is an amount due to an officer of the Company and is due on demand, unsecured and bears no
interest.
Transactions with related parties are in the normal course of operations and are initially recorded at fair value.
22. Non-recurring project investigation costs
During 2017, the Company incurred $100,000 in research expenditures for its Asset Care wind solution software. These
expenditures provided knowledge for the development of the Asset Care software, creating unique market capabilities which
will be the focus of the Company going forward. It was determined that these expenditures did not qualify for capitalization
as internally generated intangible assets and therefore have been expensed as consulting fees in the consolidated
statements of loss and comprehensive loss.
23. Commitments
Leases
The Company leases office space under a noncancelable operating lease that expires in 2020. The future minimal annual
rental payments for the next four years under the operating lease are as follows:
As at December 31,
2018
2019
2020
Master license and services agreement
51,094
104,284
53,190
The Company entered into a Master License and Services Agreement with an arm’s length party (the “Licensor”) for the right
to license certain computer software (“Software”) and develop enhancements based on this Software exclusive to the
Company. If the Company utilizes the Software, monthly fees to be paid range from USD$1 to USD$12 per asset under care.
If the Licensor causes certain events to occur, including, but not limited to, discontinues products and services, files for
bankruptcy, fails to maintain the software or sells or assigns the software to a Company competitor (“Triggering Events”),
and the Company decides to continue to use the Software, then the Company is obligated to pay 25% of a one-time license
fee (USD$415,000) if the Triggering Events occur prior to the Company’s acceptance of a statement of work deliverables
(“SOW’s”) and 50% of a one-time license fee if the Triggering Events occur subsequent to the Company’s acceptance of the
SOW’s.
26
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
24. Subsequent events and Letter of Intent
Subsequent to the end of the year the Company had incurred the following events:
(i) On March 19, 2018, the Company closed a brokered private placement and issued 6,027,282 Units ("Unit") at a
price of $0.35 per Unit for aggregate gross proceeds of approximately $2.1 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $0.45 per share for a period of 36 months following closing, subject to accelerated
expiration if the 10-day weighted average trading price of the Company's common shares is at any time greater
than $0.80.
As consideration for services provided the agent received:
• Cash commission equal to 7% of the gross proceeds raised; and,
•
421,910 agent warrants. Each warrant is exercisable for one common share of the Company at a price of
$0.45 per common share until March 19, 2020.
(ii) On February 15, 2018, the Company closed a non-brokered private placement and issued 6,010,641 Units ("Unit")
at a price of $0.35 per Unit for aggregate gross proceeds of approximately $2.1 million. Each Unit consists of one
common share of the Company and one-half of one common share purchase warrant of the Company, with each
warrant exercisable at a price of $0.45 per share for a period of 36 months following closing, subject to accelerated
expiration if the 10-day weighted average trading price of the Company's common shares is at any time greater
than $0.80.
The Company has agreed to compensate finders who introduced purchasers in the Offering as follows:
(i)
(ii)
a cash commission equal to 7% of the gross proceeds from the sale of Units to subscribers introduced by the
finder; and
that number of finder warrants which is equal to 7% of the number of Units sold to subscribers introduced by
the finder.
All securities issued by the Company under the Offering are subject to a statutory four-month hold period expiring
July 20, 2018, in accordance with applicable securities legislation.
(iii) On March 8, 2018, the Company completed the closing of a share purchase agreement (“SPA”) to acquire 100%
of the issue and outstanding shares of NGRAIN (Canada) Corporation (“NGRAIN”). NGRAIN is an arms length
company and provides artificial intelligence and 3D technology services to aerospace and military companies and
organizations.
As considered, the Company will pay the following:
4,750,000 common chares of the Company having a deemed value of $1.9 million;
• A closing cash payment equal to $300,000;
•
• An employee value of $200,000;
• Payment or receipt of the difference between actual working capital and a target working capital of nil;
• Unsecured promissory note having a principal balance of $307,500.
The above consideration will be reduced by the principal amount of a promissory note of $393,934 currently owned
by NGRAIN and certain parties related to the vendors.
27
Universal mCloud Corp.
(formerly Universal Ventures Inc.)
Consolidated Statements of Cash Flows
(Stated in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2017 and the period from December 17, 2016 (date of incorporation) to December 31, 2016
24. Subsequent events and Letter of Intent (continued
This acquisition will enable the Company to incorporate the NGRAIN technology into its services offering to
maximize the performance of energy assets.
As of the date of authorization of these consolidated financial statements by the Board of Directors, the initial
accounting of this business combination has not been completed and therefore the fair value of the net assets
acquired cannot be determined and disclosed.
(iv) On December 20, 2017, the Company signed a letter of intent (“LOI”) to purchase 100% of CSA, Inc. (“CSA”), an
arm’s length technology development company with operations in the United States and Slovakia. Total anticipated
consideration for the acquisition is USD$4.8 million comprised of USD$2.4 million shares of the Company and cash
of up to USD$2.4 million including performance over based payments. Completion of the transaction is subject to
finalization of due diligence by the parties and approval of TSX Venture Exchange.
28