10-Q 1 skky_10q.htm FORM 10-Q skky_10q.htm

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2024

OR

 

   TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ____________.

 

Commission File Number 000-54747

 

SKKYNET CLOUD SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

45-3757848

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

2233 Argentia Road Suite 302. Mississauga, Ontario, Canada L5N 2X7

(Address of principal executive offices)

 

  (888) 702-7851

(Issuer's telephone number)

 

Indicate by check mark whether the Company (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes: ☒ No: ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ☒ No: ☐

 

Indicate by check mark whether the Company is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company. 

 

Large accelerated filer

Accelerated filed

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ☒

 

As March 13, 2023, there were 53,143,822 shares of Common Stock and 193,661 shares of series B preferred of the issuer outstanding.

 

 

 

 

 

Page

PART I: FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

Consolidated Balance Sheets as of January 31, 2024 (Unaudited) and October 31, 2023 (Audited)

 

4

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended January 31, 2024 and 2023 (Unaudited)

 

5

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended January 31, 2024 and 2023 (Unaudited)

 

6

Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2024 and 2023 (Unaudited)

 

7

Notes to Consolidated Financial Statements(Unaudited)

 

8

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

14

 

 

 

Item 4. Controls and Procedures

 

14

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

16

 

 

 

Item 1A. Risk Factors

 

16

 

 

 

Item 2. Sales of Equity Securities and Use of Proceeds

 

16

 

 

 

Item 3. Defaults upon Senior Securities

 

16

 

 

 

Item 4. Mine Safety Information

 

16

 

 

 

Item 5. Other Information

 

16

 

 

 

Item 6. Exhibits

 

17

 

 

 

Signatures

 

18

 

 
2

Table of Contents

 

FORWARD LOOKING STATEMENTS

 

Statements made in this Form 10-Q that are not historical or current facts are forward-looking statements. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Among the factors that could cause actual results to differ materially from the forward-looking statements are the following: the Company’s ability to obtain necessary capital, the Company’s ability to meet anticipated development timelines, the Company’s ability to protect its proprietary technology and knowhow, the Company’s ability to establish a global market, the Company’s ability to successfully consummate future acquisitions, and such other risk factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission, including those filed with this Form 10-Q quarterly report. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

 
3

Table of Contents

 

PART I

 

ITEM 1: FINANCIAL STATEMENTS

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

January 31, 2024

 

 

October 31, 2023

 

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$922,098

 

 

$916,780

 

Accounts receivable

 

 

367,596

 

 

 

306,255

 

Receivable related parties

 

 

-

 

 

 

4,695

 

Prepaid expenses

 

 

19,818

 

 

 

24,261

 

Total current assets

 

 

1,309,512

 

 

 

1,251,991

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $90,352 and $86,930 respectively

 

 

4,085

 

 

 

4,554

 

Total Assets

 

$1,313,597

 

 

$1,256,545

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$129,904

 

 

$84,870

 

Accrued liabilities – related party

 

 

98,770

 

 

 

95,865

 

Deferred revenue

 

 

325,445

 

 

 

360,170

 

Total current liabilities

 

 

554,119

 

 

 

540,905

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

554,119

 

 

 

540,905

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding, respectively

 

 

5

 

 

 

5

 

Series B Preferred convertible stock: $0.001 par value, 500,000 shares authorized, 193,661 issued and outstanding, respectively

 

 

194

 

 

 

194

 

Common stock; $0.001 par value, 70,000,000 shares

authorized, 53,143,822 shares issued and outstanding, respectively

 

 

53,145

 

 

 

53,145

 

Additional paid-in capital

 

 

7,166,880

 

 

 

7,146,991

 

Accumulative other comprehensive income

 

 

79,554

 

 

 

74,082

 

Accumulated deficit

 

 

(6,540,298)

 

 

(6,558,777)

Total stockholders’ equity

 

 

759,480

 

 

 

715,640

 

Total Liabilities and Stockholders’ Equity

 

$1,313,597

 

 

$1,256,545

 

 

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

 

 
4

Table of Contents

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 For Three Months Ended January 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$630,536

 

 

$492,119

 

Operating Expenses:

 

 

 

 

 

 

 

 

Depreciation

 

 

611

 

 

 

613

 

Salaries and wages

 

 

239,139

 

 

 

195,727

 

Advertising

 

 

53,032

 

 

 

96,711

 

Stock compensation

 

 

19,889

 

 

 

52,283

 

General & administrative expenses

 

 

279,509

 

 

 

280,630

 

Operating expense

 

 

592,180

 

 

 

625,964

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

38,356

 

 

 

(133,845)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Other income

 

 

2,987

 

 

 

10

 

Currency exchange

 

 

(19,959)

 

 

(13,371)

Total other income (expense)

 

 

(16,972)

 

 

(13,361)

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

21,384

 

 

 

(147,206)

 

 

 

 

 

 

 

 

 

Income taxes refund

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

21,384

 

 

 

(147,206)

 

 

 

 

 

 

 

 

 

Preferred dividends

 

 

(2,905)

 

 

(2,905

 

 

 

 

 

 

 

 

 

Income (loss) to common stockholders

 

 

18,479

 

 

 

(150,111)

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

5,472

 

 

 

5,484

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$23,951

 

 

$(144,627)

 

 

 

 

 

 

 

 

 

Net income (loss) per share to common stockholders- basic

 

$0.00

 

 

$(0.00)

Weighted average common shares outstanding -basic

 

 

53,143,822

 

 

 

53,143,822

 

Net income (loss) per share to common stockholders - diluted

 

$0.00

 

 

$(0.00)

Weighted average common shares outstanding – diluted

 

 

61,217,272

 

 

 

53,143,822

 

 

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

 

 
5

Table of Contents

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY 

FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2024 AND 2023

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Series B Preferred

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common Stock

 

 

Preferred Stock

 

 

Convertible Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss (Income)

 

Equity

Balance at October 31, 2022

 

 

53,143,822

 

 

$53,145

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$6,990,526

 

 

$(6,449,285)

 

$76,011

 

 

$670,596

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52,283

 

 

 

-

 

 

 

-

 

 

 

52,283

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,484

 

 

 

5,484

 

Dividend accrued on series B preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,905)

 

 

-

 

 

 

(2,905)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(147,206)

 

 

-

 

 

 

(147,206)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2023

 

 

53,143,822

 

 

 

53,145

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

7,042,809

 

 

 

(6,599,396)

 

 

81,495

 

 

 

578,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2023

 

 

53,143,822

 

 

 

53,145

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

7,146,991

 

 

 

(6,558,777)

 

 

74,082

 

 

 

715,640

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,472

 

 

 

5,472

 

Dividend accrued  on series B preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,905)

 

 

-

 

 

 

(2,905)

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,889

 

 

 

-

 

 

 

-

 

 

 

19,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21,384

 

 

 

 

 

 

 

21,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2024

 

 

53,143,822

 

 

$53,145

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$7,166,880

 

 

$(6,540,298)

 

$79,554

 

 

$759,480

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

 
6

Table of Contents

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

 

 

For the Three Months Ended January 31,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$21,384

 

 

$(147,206)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

611

 

 

 

613

 

Option based compensation

 

 

19,889

 

 

 

52,283

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(61,343)

 

 

156,461

 

Accounts payable and accrued expenses

 

 

45,034

 

 

 

(10,956)

Accrued liabilities – related parties

 

 

4,695

 

 

 

(21,419)

Prepaid expenses and other assets

 

 

4,443

 

 

 

8,380

 

Deferred revenue

 

 

(34,725)

 

 

(1,466)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

(12)

 

 

36,690

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from (payment on) Canadian loan activity

 

 

-

 

 

 

(4,118)

NET CASH USED IN FINANCING ACTIVITIES

 

 

-

 

 

 

(4,118)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

5,330

 

 

 

5,350

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

5,318

 

 

 

37,922

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

916,780

 

 

 

729,936

 

Cash and cash equivalents, end of period

 

$922,098

 

 

$767,858

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOWS INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$-

 

 

$-

 

Income taxes paid

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

NONCASHINVESTING AND FINANCIAL ACTIVITIES

 

 

 

 

 

 

 

 

Dividends accrued on Series B preferred shares

 

$2,905

 

 

$2,905

 

 

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

 

 
7

Table of Contents

 

SKKYNET CLOUD SYSTEMS, INC.

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) and Skkynet, Inc. (USA). 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.

 

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, 2023 Annual Report on form 10-K filed with the SEC. 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 consolidated financial statements for the most recent fiscal year end October 31, 2023 as reported on Form 10-K, have been omitted.

 

Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. The reclassifications have no effect on the net loss or stockholders’ equity.

 

NOTE 2- RECENT ADOPTED ACCOUNTING STANDARDS

 

Recent adopted accounting standards

 

In June 2016, the Financials Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-Financial Instruments- Credit Losses, which replaces the incurred impairment methodology  to reflect expected  credit losses. The amendments requires the measurement of all expected credit losses for financial assets held at the reporting due to the performed based on historical experience, current conditions and reasonable supportable forecasts. ASU  2016-13 is effective for annual and interim periods beginning after December 31, 2022. The Company adopted the standard on October 31, 2023. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

Revenue Recognition 

 

In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606.

 

 
8

Table of Contents

 

ASC Topic 606 prescribes a new five-step model entities should follow in order to recognize revenue in accordance with the core principle. These five steps are:

 

 

1.

Identify the contract(s) with a customer.

 

2.

Identify the performance obligations in the contract.

 

3.

Determine the transaction price.

 

4.

Allocate the transaction price to the performance obligations in the contract.

 

5.

Recognize revenue when (or as) the entity satisfied the performance obligations.

 

Effective November 1, 2018, the Company implemented the transition using the modified retrospective method of transition. Under this method, the determination date of open contracts which could affect any adjustments was November 1, 2018. The open contracts at the time period are the unfulfilled portions of the maintenance contracts.

 

The Company has four revenue streams, each of which the revenue is recognized in accordance to the five steps included in Topic 606. The revenue streams are:

 

 

1.

Sale of software direct to the end customer

 

2.

Sale of software through distributors and channel partners

 

3.

Maintenance support services

 

4.

Cloud services

 

Revenue for the sale of software both directly to end users and through the distributor and channel partners is recognized upon delivery of the software and code required for the customer to install the software. Maintenance support services are recognized as revenue on a straight-line basis over the service period of the arrangement.

 

Revenue from cloud services is recognized over time (typically, on a monthly basis) as service is provided. 

 

Payments received in advance of services being rendered are recorded as deferred revenue and recognized to revenue when earned. During the three months period ended January 31, 2024 $146,915 of sales was classified as deferred revenue and $193,268 of deferred revenue was reported in sales. As of January 31, 2024 and October 31, 2023 the deferred revenue was $325,445 and $360,170, respectively.

 

Accounts Receivable

 

Accounts Receivable are carried at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable include receivables from customers that have received software and support from the Company. Bad debt expense is a recognition of uncollectable receivables based on past years’ experience and management’s estimate of likely losses for the year. No allowance for bad debt was considered necessary for the years ended October 31, 2023 and October 31, 2022, respectively. However, the Company expensed $18,712 in bad debt for the year ending in 2023 compared to the recovery of $1,914 during the same period in 2022.

 

NOTE 3- REVENUE RECOGNITION

 

 
9

Table of Contents

 

As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the three month periods ended January 31, 2024 and 2023 the revenue by product line is as follows:

 

Category

 

Percentage

 

 

2024

 

 

Percentage

 

 

2023

 

Product sales

 

 

65%

 

 

409,276

 

 

 

62%

 

 

305,059

 

Support

 

 

31%

 

 

195,248

 

 

 

33%

 

 

160,237

 

Cloud & Other

 

 

4%

 

 

26,012

 

 

 

5%

 

 

26,823

 

Total

 

 

100%

 

 

630,536

 

 

 

100%

 

 

492,119

 

 

The Company sells its products on a worldwide basis. During the three month periods ended January 31, 2024 and 2023 the Company’s geographic concentration of revenue is as follows:

 

Area

 

Percentage

 

 

2024

 

 

Percentage

 

 

2023

 

Europe

 

 

49%

 

$310,171

 

 

 

37%

 

$179,709

 

North America

 

 

32%

 

 

203,807

 

 

 

41%

 

 

201,039

 

Asia Pacific

 

 

9%

 

 

53,780

 

 

 

16%

 

 

81,044

 

Middle East-Africa/Other

 

 

7%

 

 

42,824

 

 

 

3%

 

 

16,765

 

South America

 

 

3%

 

 

19,954

 

 

 

3%

 

 

13,562

 

Total

 

 

100%

 

$630,536

 

 

 

100%

 

$492,119

 

 

NOTE 4- RELATED PARTY TRANSACTIONS

 

Sakura Software, a corporation owned by our CEO and Chairman of the Board of Directors, Andrew S. Thomas, and Benford Consultancy, a corporation owned by our COO and a member of our Board of Directors, Paul Benford, own, respectively, 72.34% and 27.66% of the issued and outstanding shares of Real Innovations International LLC, (“Real Innovations”) a corporation organized under the laws of Nevis, West Indies. In March 2012, Cogent, our operating subsidiary, assigned all of its intellectual property including the pending patent applications for its real-time data transmission and display technology (the “IP”) to Real Innovations under an assignment of intellectual property agreement (the “Assignment Agreement”). In return for the assignment Real Innovations required a one-time payment of $30,000 to Cogent. Cogent elected to forgo the payment allowing Real Innovations to offset future expenses against the payment. There is no ongoing royalty payment or other form of compensation from Real Innovations to Cogent under the Assignment Agreement.

 

Real Innovations, in turn, entered into a master intellectual property license agreement (the “License Agreement”) with Cogent for all of the same IP. Under the License Agreement Real Innovations granted a royalty-free license in perpetuity to Cogent for the use and exploitation of the IP in return for which Cogent agreed to: (i) pay all operating expenses of Real Innovations incurred in connection with the continued prosecution of pending patent applications and others that may be prepared; (ii) prosecute all claims for infringement of the IP; (iii) defend and indemnify Real Innovations from and against all claims of infringement of the IP asserted by third parties against Real Innovations, Cogent or our Company; (iv) purchase liability insurance in favor of Real Innovations for this purpose. Under the termination provision of the licenses agreement, there is no unilateral right of termination. Termination may occur by mutual consent of the parties, the Company ceasing doing business, by breach by the Company or by the Company failing to maintain the license and the support to prosecute and protect the license under applicable laws.

 

Under the License Agreement, Messrs. Andrew S. Thomas and Paul Benford will benefit indirectly from their indirect ownership of all of the shares of Real Innovations to the extent of any such payments or other undertakings by Cogent on behalf of Real Innovations, but the exact amount of these benefits cannot be determined at this time. No payments have been made as of January 31, 2024.

 

As of January 31, 2024, the amount due related parties was $98,770 compared to $95,865 as of October 31, 2023.

 

 
10

Table of Contents

 

NOTE 5 – 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. 

 

During the three month period ended January 31, 2023 the Company issued 130,000 options to four consultants, 7,500 to three directors and 100,000 to one officer of the Company. The options are exercisable into common stock of the Company at $0.22 per share. The Company calculated a fair value of the options of  $53,128 using the Black Scholes option pricing model with computed volatility of 192.00%, risk-free interest rate of 4.5%, expected dividend yield 0%, stock  price at measurement date of $0.22, and the expected term of ten years. The options are expensed over a five year period with 20% upon issuance and 20% for the first and each subsequent year.

 

During the three months period ended January 31, 2024 no additional option were granted.

 

As of January 31, 2024 the total number of options outstanding was 8,073,450 of which 6,163,950 were exercisable and 1,909,500 were not exercisable.

 

During the three month period ended January 31, 2024, the Company recognized $19,889 of option expense. The unrecognized future balance to be expensed over the term of the options is $43,503

 

 The following sets forth the options granted and outstanding as of January 31, 2024:

 

 

 

Options

 

 

Weighted  Average Exercise price

 

 

Weighted Average Remaining Contract Life

 

 

Granted Options Exercisable

 

 

Intrinsic value

 

Outstanding at October 31,2022

 

 

6,632,450

 

 

$

0.15

 

 

 

4.25

 

 

 

5,100,960

 

 

$256,000

 

Granted

 

 

1,754,750

 

 

 

0.19

 

 

 

9.25

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/Expired by termination

 

 

(313,750)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding at October 31, 2023

 

 

8,073,450

 

 

$0.16

 

 

 

4.60

 

 

 

6,157,950

 

 

$1,320,431

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/Expired by termination

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding as January 31, 2024

 

 

8,073,450

 

 

$0.16

 

 

 

4.35

 

 

 

6,163,950

 

 

$1,160,762

 

 

NOTE 6 – MAJOR CUSTOMERS

 

The Company sells to their end-user customers both directly and through resellers.  Seven (7) resellers accounted for 50% of sales in the three months ended January 31, 2024, of which one (1) reseller accounted 25% of sales.  In the three months ended January 31, 2023, eight (8) resellers accounted for 51% of sales, of which one (1) reseller accounted for 24%. The Company maintains all the information on their end user customers, and should a reseller discontinue operations, the Company can sell directly to the end user.  No reseller has exclusivity in their territory.  In the three months ended January 31, 2024, no end user customers were responsible for more than 10% of our revenues and eighteen (18) end user customers were responsible for approximately 50% of gross revenue.  In the three months ended January 31, 2023, thirteen (13) end user customers were responsible for more than 50% of revenue and no end user customers was responsible for approximately 10% of gross revenue.

 

 
11

Table of Contents

 

NOTE 7 – LOANS PAYABLE

 

On April 30, 2020, the Company’s subsidiary Cogent Systems issued a two year note for US$15,678 (CDN $20,000) under the Canadian Emergency Business Account (CEBA). The CEBA provides interest free loans to small businesses to help cover operating costs during a period when their revenues may have been reduced due to the impact of COVID-19. The loan is subject to zero interest and 25% of the amount will be forgiven if 75% of the loan amount is repaid on or before December 31, 2022. The Company has the option to extend the term of the loan for another 3 years subject to an annual interest of 5% on any balance remaining.

 

On December 15, 2020, the Company’s subsidiary Cogent Systems issued a two year note for US$30,032 (CDN $40,000) under the Canadian Emergency Business Account (CEBA). The CEBA provides interest free loans to small businesses to help cover operating costs during a period when their revenues may have been reduced due to the impact of COVID-19. The loan is subject to zero interest and 25% of the amount will be forgiven if 75% of the loan amount is repaid on or before December 31, 2022. The Company has the option to extend the term of the loan for another 3 years subject to an annual interest of 5% on any balance remaining.

 

On May 28, 2023, the outstanding balance of the CEBA loans payable of CDN $20,000, US ($14,756) were forgiven per the terms of the notes agreements leaving the balance of both notes at $0 as of January 31, 2024.

 

NOTE 8 – SUBSEQUENT EVENTS

 

On February 29, 2024, the Company paid $83,069 in awards to 10 employees and consultants, $43,340 to 2 officers and accrued US$54,175 for three officers.

 

The Company has evaluated subsequent events to determine events occurring after January 31, 2024 through the filing of this report that would have a material impact on the Company’s financial results or require disclosure and have determined none exist other than those noted above.

 

 
12

Table of Contents

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Skkynet’s actual results could differ materially from those set forth on the forward-looking statements as a result of the risks set forth in Skkynet’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

 

OVERVIEW

 

Skkynet is a Nevada corporation headquartered in Mississauga, Canada. Skkynet operates three different lines of business through its wholly owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet, Inc. (“Skkynet (USA)”), and Skkynet Corp. (“Skkynet (Canada)”).  Skkynet was established to enhance Cogent’s existing business lines through the integration of Cloud-based systems, and to deliver a Software-as-a-Service (“SaaS”) product targeting the Industrial Internet of Things (“IoT”) market, now referred to by the terms “Industry 4.0” and “Industrial Internet Consortium”. 

 

The Company provides software and related systems and facilities to collect, process, and distribute real-time information over a network. This capability allows the customers to both locally and remotely manage, supervise, and control industrial processes and financial information systems. By using this software and, when requested by a client, our web based assets, our clients and their relevant customers are given the ability and the tools to observe and interact with these processes and services in real-time as they are underway and to give them the power to analyze, alter, stop, or otherwise influence these activities to conform to their plans.

 

RESULTS OF OPERATIONS

 

For the three month period ended January 31, 2024, revenue was $630,536 compared to $492,119 for the same period in 2023. Revenue increased for the three  month period ended January 31, 2024 over the same period in 2023 by 28.1%.  The increase in revenue for the three month period is attributed to higher sales by Cogent.

 

Operating expense was $592,180 for the three months period ended January 31, 2024 compared to $625,964 for the same period in 2023. The decrease in general and administrative expenses for the three month period ended January 31, 2024 over the same period in 2023, resulted from decreased expenditures primarily in advertising and stock compensation.

 

For the three  month period ended January 31, 2024, the Company reported an operating income of $38,356 compared to operating loss of $133,845 for the same period in 2023. The operating income during the three month period ended January 31, 2024 over the operating loss for same period in 2023 is attributable to higher sales along with lower expenses in advertising and stock compensation expenses in the three month period ended January 31, 2024, versus the same period in 2023.

 

Other expense for the three  month period ended January 31, 2024 was $16,972, consisting of  other income of $2,987 and a currency loss of $19,959. This compared to other expenses of $13,361 consisting of other income of $10 and currency loss of $13,371 for the same period in 2023. The amount of change in both periods was due mostly to the effect of currency exchange.

 

 
13

Table of Contents

 

Net income after income taxes of $21,384 was reported for the three  month period ended January 31, 2024, compared to a net loss after income taxes of $147,206 for the same period in 2023. The net income  for the three month period in 2024 can be attributed to an increase of sales of 28.1% more than during the same period in 2023. Additionally, the operating expenses for the three month period ended January 31, 2024 was $33,784  less than the same period in 2023.

 

Net income to common stockholders was $18,479 for the three month period ended January 31, 2024, compared to net loss of $150,111 for the same period in 2023. The reduced amounts include the expense of dividend for preferred stockholders of $2,905 being accrued for the three months period ended January 31, 2024 and 2023

 

The Company reported comprehensive income of $23,951 for the three month period ended January 31, 2024 compared to a comprehensive loss of $144,627 for the same period in 2023. The comprehensive loss is an adjustment to net loss with foreign currency translation adjustments.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At January 31, 2024, Skkynet had current assets of $1,309,512 and current liabilities of $554,119, resulting in working capital of $755,393. Accumulated deficit, as of January 31, 2024, was $6,540,298 with total stockholders’ equity of $759,480.

 

Net cash used in operating activities for the three month period ended January 31, 2024, was $12 compared to net cash provided in operating activities of $36,690 for the same period in 2023.  The cash used in operating activities for the three month period ended January 31, 2024 compared to the cash provided by operating activities over the same period in 2023 was primarily due an increase in accounts receivable and deferred revenue in 2024 over 2023.

 

Net cash provided by financing activities for the three month period ending January 31, 2024 was zero compared to net used in financing activities of  $4,118 for the same period in 2023. The repayment of loans during the three months ended January 31, 2023 accounted for the use of funds during that period.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, Skkynet is not required to provide information required under this Item.

 

ITEM 4: CONTROLS AND PROCEDURES

 

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

 

 
14

Table of Contents

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, to allow timely decisions regarding required disclosures.

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 2024 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework- 2013. Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting. We lack full time personnel in accounting and financial staff to sufficiently monitor and process financial transactions in an efficient and timely manner. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lacked sufficient technical expertise, reporting standards and written policies and procedures along with a lack of a formal review process which includes multiple layers of review. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management believes that the Unaudited Financial Statements included herein present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.

 

 
15

Table of Contents

 

PART II – OTHER INFORMATION

 

ITEM 1:  LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A:  RISK FACTORS

 

There have been no material changes to Skkynet’s risk factors as previously disclosed in our most recent 10-K filing for the year ended October 31, 2023.

 

ITEM 2:  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3:  DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4:  MINE SAFETY INFORMATION

 

None.

 

ITEM 5:  OTHER INFORMATION

 

None.

 

 
16

Table of Contents

 

ITEM 6: EXHIBITS

 

EXHIBIT 31.1  

 

Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

EXHIBIT 31.2

 

Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

EXHIBIT 32.1

 

Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

EXHIBIT 32.2

 

Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 

 

 
17

Table of Contents

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 SKKYNET CLOUD SYSTEMS INC.
    
By:/s/ Andrew Thomas

 

 

Andrew Thomas, Chief Executive Officer (Duly Authorized, Principal Executive Officer) 
   

 

 

/s/ Lowell Holden

 

 

 

Lowell Holden, Chief Financial Officer (Duly Authorized Principal Financial Officer)

 

Date: March 13, 2024   

 

 
18