10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 30, 2016

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 306. Mississauga, Ontario, Canada L5N 2X7

(Address of principal executive offices)

(888) 628-2028

(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: x No: ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x 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	x

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

As June 6, 2016 there were 50,876,600 shares of Common Stock of the issuer outstanding.

  

		Page
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of April 30, 2016 (Unaudited) and October 31, 2015	4
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended April 30, 2016 and 2015 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2016 and 2015 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis and Plan of Operation	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults upon Senior Securities	13
Item 4.	Mine Safety Information	13
Item 5.	Other Information	13
Item 6.	Exhibits	14
	Signatures	15

2

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 subsequently to 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

PART I

ITEM 1: FINANCIAL STATEMENTS

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	April 30, 2016			October 31, 2015
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	373,869		$	469,994
Accounts receivable		141,467			168,488
Inventory		12,469			11,078
Prepaid		1,473			--
Total current assets		529,278			649,560
Property and equipment, net of accumulated depreciation of $74,852 and $70,484 respectively		1,918			1,762
Other assets		16,659			9,095
Total Assets	$	547,855		$	660,417
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses	$	37,689		$	93,460
Accrued liabilities – related party		184,732			24,098
Deferred revenue		134,865			77,864
Total current liabilities		357,286			195,422
Total liabilities		357,286			195,422
Stockholders' Equity:
Preferred stock; $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding		5			5
Series B Preferred convertible stock: $0.001 par value, 500,000 shares authorized, 193,661 issued and 193,661 outstanding, respectively		193,661			193,661
Common stock; $0.001 par value, 70,000,000 shares authorized, 50,876,600 and 50,876,600 shares issued and outstanding, respectively		50,877			50,877
Additional paid-in capital		3,662,604			3,314,187
Accumulative other comprehensive income (loss)		(29,887	)		(77,925	)
Accumulated deficit		(3,686,691	)		(3,015,810	)
Total shareholders' equity		190,569			464,995
Total Liabilities and Stockholders' Equity	$	547,855		$	660,417

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

4

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2016			2015			2016			2015
Revenue	$	285,422		$	309,886		$	561,366		$	541,750
Direct material costs		6,196			24,458			18,511			27,145
Operating Expenses:
General & administrative		580,683			583,601			1,213,271			1,345,986
Depreciation and amortization		240			5,609			480			11,226
Loss from operations		(301,697	)		(303,782	)		(670,896	)		(842,607	)
Other Income (Expenses):
Other income		10			172			15			168
Interest expense		--			(2,288	)		--			(4,296	)
Total other income (expenses)		10			(2,116	)		15			(4,128	)
Net loss	$	(301,687	)	$	(305,898	)	$	(670,881	)	$	(846,735	)
Foreign currency translation adjustment		54,091			(50,777	)		48,038			(44,812	)
Comprehensive (loss)	$	(247,596	)	$	(356,675	)	$	(622,843	)	$	(891,547	)
Net loss per common share attributable to common stockholders (basic and diluted)	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Weighted average common shares outstanding (basic and diluted):		50,876,600			50,795,500			50,876,600			50,779,555

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

5

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

	Six Months Ended
	April 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(670,881	)	$	(846,735	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		480			11,226
Option based compensation		348,417			218,736
Stock based compensation		--			37,250
Changes in operating assets and liabilities:
Accounts receivable		27,021			(107,319	)
Accounts payable and accrued expenses		(55,771	)		(33,801	)
Inventory		(1,391	)		595
Accrued liabilities – related parties		160,634			139,251
Prepaid		(9,037	)		(21,498	)
Deferred Income		57,001			73,234
NET CASH (USED IN) OPERATING ACTIVITIES		(143,527	)		(529,061	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received, net of cash paid for Nic		--			(1,118	)
NET CASH (USED IN) INVESTING ACTIVITIES		--			(1,118	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock		--			100,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		--			100,000
Effect of exchange rate changes on cash		47,402			(53,891	)
Net increase (decrease) in cash		(96,125	)		(484,070	)
Cash, beginning of period		469,994			977,688
Cash, end of period	$	373,869		$	493,618
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid	$	--		$	--
Income taxes paid	$	--		$	--
Non-Monetary Transactions
Assets acquired in acquisition through stock issuance	$	--		$	74,500

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

 

6

 

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), Skkynet, Inc. (USA) and Nic Corporation ("NiC") (Japan). Skkynet was formed primarily for the purpose of taking the existing business lines of Cogent and its current and future customers and integrating these businesses with Cloud based systems. We also intend to expand the areas of business activity to which the kinds of products and services we provide are applied.

On November 1, 2014, the Company acquired NiC as a wholly owned subsidiary. On February 1, 2015 the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.

On July 30, 2015, the Company designated 500,000 shares of the preferred stock as Series B Convertible preferred. The Series B shares have a par value of $0.001 and issue value of $1.00 per share. The series B is convertible by the holder into common stock at $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.

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, 2015 Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end October 31, 2015 as reported on Form 10-K, have been omitted.

Inventory

Inventories are stated at the lower of cost and market using the first-in; first-out (FIFO) cost method of accounting.

7

NOTE 2 – RELATED PARTY TRANSACTIONS

On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition the Company is accruing director compensation at the rate of $2,500 per director per month. As of April 30, 2016 the accrued liability for compensation was $184,732.

As of April 30, 2016 and October 31, 2015, the Company had the following outstanding accrued liabilities due to related parties:

As of	April 30, 2016		October 31, 2015
Accrued salaries	$	83,765	$	--
Director fees	$	45,000	$	--
Accrued Commissions	$	46,367	$	24,098
Consulting fees	$	9,600	$	--
Total accrued liabilities and accrued expense	$	184,732	$	24,098

NOTE 3 – OPTIONS

The Company, under its 2012 Stock Option Plan, issues option 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 were granted. All of the options are exercisable at a purchase price based on the last trading price of the Company's common stock.

On January 6, 2016, the Company issued 509,500 options with a conversion price of $1.02 per share to 14 officers, directors, employees and consultants of the Company.

The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,459,889. During the six months period ended April 30, 2016, the Company expensed $348,417 for options. The unrecognized future balance to be expensed over the term of the options is $1,891,114.

8

The following sets forth the options granted and outstanding as of April 30, 2016:

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2015		5,768,200		0.50		7.88		2,317,600		3,209,363
Granted		509,500		1.02		9.26		403,600		--
Exercised		--		--		--		--		--
Outstanding at April 30, 2016		6,277,700		0.56		7.76		2,721,200		2,910,863

NOTE 4 – COMMITMENTS AND CONTINGENCIES

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. The offices contain approximately 2,810 square feet of office space and are leased from July 1, 2014 through July 31, 2017. Under the terms of the lease, the gross monthly rental cost including common area charges is $6,700 per month. The lease terminates on July, 31, 2017. The yearly rental obligations under the lease agreement are as follows:

2016	$	35,203
2017	$	61,538
2018	$	0
2029	$	0
thereafter	$	0
Total	$	96,741

NOTE 5 – DEFERRED REVENUE

The Company receives part of its revenue from the sale of software support. The revenue received is for one year of support from the date of the support sale. The Company defers the revenue for the future periods in which it is obligated to perform the support service. As of April 30, 2016, the Company had deferred revenue of $134,865.

9

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)"), Skkynet Corp. ("Skkynet (Canada)"), and Nic Corporation ("NiC"). 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". We will also expand the areas of business activity to which our products and services are applied.

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 where requested by a client, our web based assets, this gives clients and their customers (to the extent relevant) 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 and six month periods ending April 30, 2016, revenues were $285,422 and $561,366 compared to $309,886 and $541,750 for the same periods in 2015. Revenue decreased for the three months period ending April 30, 2016 over the three months period ended April 30, 2015 but increased by 4% for the six months period in 2016 over 2015. The decrease in revenue for the three months period ending April 30, 2016 is attributed to an intentional change in NiC's operations, which is focusing less on custom hardware design work, and more on the sale and support of Skkynet's software and services. As a result of this change in focus, we are experiencing good progress in the relationships with our partners in Japan.

General and administrative expense was $580,683 and $1,213,271 for the three and six months ended April 30, 2016 compared to $583,601 and $1,345,986 for the same periods in 2015. The decrease in general and administrative expenses for the six months ended April 30, 2016, even with the options expensed of $348,417 compared to $218,736 in 2015, resulted from decreased consulting and lower other G&A expenses in 2016 versus 2015.

10

For the three and six month periods ending April 30, 2016, the Company posted an operating loss of $301,697 and $670,896 compared to an operating loss of $303,782 and $842,607 for the same periods in 2015. The decrease in operating loss during the six months periods is attributable to decreased expenses in consulting, salaries, and office expenses, plus higher revenue for the same period in 2016 over 2015.

Other income and expenses for the three months and six month periods ending April 30, 2016, was other income of $10 and $15 compared to other expense of $2,116 and $4,128 in the same periods in 2015.

Net loss of $301,687 and $670,881 was recorded for the three months and six months periods ending April 30, 2016, compared to a net loss of $305,898 and $846,735 for the same periods in 2015. The lower loss for the three months period in 2016 can be attributed to increased revenue and lower marketing and general and administrative expenses in 2016 compared to 2015. The lower loss for the six months period ended April 30, 2016 was attributable to higher revenue and lower expenses during that period over the same period in 2015.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2016, Skkynet had current assets of $529,278 and current liabilities of $357,286, resulting in working capital of $171,992. Accumulated deficit, as of April 30, 2016, was $3,686,691 with total shareholders' equity of $190,569.

Net cash used in operations for the six months ending April 30, 2016, was $143,527 compared to net cash used of $529,061 for the same period in 2015. Net cash used in operations decreased primarily due to a decrease in the net loss of $175,854 and increase in option expense of $129,681 and a decrease in accounts receivable of $134,340 in 2016 over 2015 and accounts payable change of $21,900. This is offset by accrued liabilities to related parties increasing by $21,383, and deferred revenue of $57,001.

Cash used in investing activities in the six months period ended April 30, 2016 was zero and in 2015 was $1,118.

Net cash provided in financing activities, during the six months ended April 30, 2016, was zero compared to net cash provided of $100,000 for the same period in 2015. The difference was due to the sale of common stock of $100,000 in the six month period ended April 30, 2015 and none in the same period in 2016.

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.

11

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.

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.

In connection with the preparation of this report, our management, under the supervision and with participation of our Principal Executive Officer and Principal Financial Officer (the "Certifying Officers") conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2016. Based on that evaluation, our management concluded that there is a material weakness in our disclosure controls and procedures over financial reporting. The material weakness results from a lack of written procedures which effectively documents the proper procedures and descriptions of the duties of all persons involved in the disclosure controls of the Company. The Company hopes to implement plans to document the procedures and internal controls of the Company. A material weakness is a deficiency, or a combination of control deficiencies, in disclosure 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. This does not include an evaluation by the Company's registered public accounting firm regarding the Company's internal control over financial reporting.

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.

12

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 ending October 31, 2015.

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.

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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	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

14

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.
Date: June 6, 2016	By:	/s/ Andrew Thomas
		Andrew Thomas, Chief Executive Officer (Duly Authorized, Principal Executive Officer)
	By:	/s/ Lowell Holden
		Lowell Holden, Chief Financial Officer (Duly Authorized Principal Financial Officer)

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Andrew Thomas, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: June 6, 2016	By:	/s/ Andrew Thomas
	Name:	Andrew Thomas
	Title:	Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Lowell Holden, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: June 6, 2016	By:	/s/ Lowell Holden
	Name:	Lowell Holden
	Title:	Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the "Company") on Form 10-Q for the period ended April 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Thomas, Principal Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: June 6, 2016	/s/ Andrew Thomas
	Andrew Thomas
	Chief Executive Officer
	(Duly Authorized Principal Executive Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the "Company") on Form 10-Q for the period ended April 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lowell Holden, Principal Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Skkynet.

 

Dated: June 6, 2016	/s/ Lowell Holden
	Lowell Holden
	Chief Financial Officer
	(Duly Authorized Principal Financial Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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Document and Entity Information - shares	6 Months Ended
	Apr. 30, 2016	Jun. 06, 2016
Document And Entity Information
Entity Registrant Name	Skkynet Cloud Systems, Inc.
Entity Central Index Key	0001546853
Document Type	10-Q
Document Period End Date	Apr. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--10-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		50,876,000
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Apr. 30, 2016	Oct. 31, 2015
Current Assets:
Cash and cash equivalents	$ 373,869	$ 469,994
Accounts receivable	141,467	168,488
Inventory	12,469	$ 11,078
Prepaid	1,473
Total current assets	529,278	$ 649,560
Property and equipment, net of accumulated depreciation of $74,852 and $70,484 respectively	1,918	1,762
Other assets	16,659	9,095
Total Assets	547,855	660,417
Current Liabilities:
Accounts payable and accrued expenses	37,689	93,460
Accrued liabilities related party	184,732	24,098
Deferred revenue	134,865	77,864
Total current liabilities	357,286	195,422
Total liabilities	357,286	195,422
Stockholders' Equity:
Preferred stock; $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding	5	5
Series B Preferred convertible stock: $0.001 par value, 500,000 shares authorized, 193,661 issued and 193,661 outstanding, respectively	193,661	193,661
Common stock; $0.001 par value, 70,000,000 shares authorized, 50,876,600 and 50,876,600 shares issued and outstanding, respectively	50,877	50,877
Additional paid-in capital	3,662,604	3,314,187
Accumulative other comprehensive income (loss)	(29,887)	(77,925)
Accumulated deficit	(3,686,691)	(3,015,810)
Total shareholders' equity	190,569	464,995
Total Liabilities and Stockholders' Equity	$ 547,855	$ 660,417

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Apr. 30, 2016	Oct. 31, 2015
ASSETS
Net of accumulated depreciation	$ 74,852	$ 70,484
Stockholders' Deficit:
Preferred stock, Par value	$ 0.001	$ 0.001
Preferred stock, Authorized	5,000,000	5,000,000
Preferred stock, Issued	5,000	5,000
Preferred stock, Outstanding	5,000	5,000
Series B Preferred stock, Par value	$ 0.001	$ 0.001
Series B Preferred stock, Authorized	500,000	500,000
Series B Preferred Preferred stock, Issued	193,661	193,661
Series B Preferred stock, Outstanding	193,661	193,661
Common stock, Par value	$ 0.001	$ 0.001
Common stock, Authorized	70,000,000	70,000,000
Common stock, Issued	50,876,600	50,876,600
Common stock, Outstanding	50,876,600	50,876,600

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Apr. 30, 2016	Apr. 30, 2015	Apr. 30, 2016	Apr. 30, 2015
Consolidated Statements Of Operations And Comprehensive Loss
Revenue	$ 285,422	$ 309,886	$ 561,366	$ 541,750
Direct material costs	6,196	24,458	18,511	27,145
Operating Expenses:
General and administrative	580,683	583,601	1,213,271	1,345,986
Depreciation and amortization	240	5,609	480	11,226
Loss from operations	(301,697)	(303,782)	(670,896)	(842,607)
Other Income (Expenses):
Other income	$ 10	172	$ 15	168
Interest expense		(2,288)		(4,296)
Total other income (expenses)	$ 10	(2,116)	$ 15	(4,128)
Net loss	(301,687)	(305,898)	(670,881)	(846,735)
Foreign currency translation adjustment	54,091	(50,777)	48,038	(44,812)
Comprehensive (loss)	$ (247,596)	$ (356,675)	$ (622,843)	$ (891,547)
Net loss per common share attributable to common stockholders (basic and diluted)	$ (0.01)	$ (0.01)	$ (0.01)	$ (0.02)
Weighted average common shares outstanding (basic and diluted):	50,876,600	50,795,500	50,876,600	50,779,555

XML

CONSOLDIATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Apr. 30, 2016	Apr. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (670,881)	$ (846,735)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	480	11,226
Option based compensation	$ 348,417	218,736
Stock based compensation		37,250
Changes in operating assets and liabilities:
Accounts receivable	$ 27,021	(107,319)
Accounts payable and accrued expenses	(55,771)	(33,801)
Inventory	(1,391)	595
Accrued liabilities - related parties	160,634	139,251
Prepaid	(9,037)	(21,498)
Deferred Income	57,001	73,234
NET CASH (USED IN) OPERATING ACTIVITIES	$ (143,527)	(529,061)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received, net of cash paid for Nic		(1,118)
NET CASH USED IN INVESTING ACTIVITIES		(1,118)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock		100,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		100,000
Effect of exchange rate changes on cash	$ 47,402	(53,891)
Net increase (decrease) in cash	(96,125)	(484,070)
Cash, beginning of period	469,994	977,688
Cash, end of period	$ 373,869	$ 493,618
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid
Income taxes paid
Non-Monetary Transactions
Assets acquired in acquisition through stock issuance		$ 74,500

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ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Apr. 30, 2016

Notes to Financial Statements

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Skkynet Cloud Systems, Inc. ("Skkynet" or "the Company") is a Nevada corporation formed on August 31, 2011 and headquartered in Toronto, Canada. Skkynet operates its business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. ("Cogent"), Skkynet Corp. (Canada), Skkynet, Inc. (USA) and Nic Corporation ("NiC") (Japan). Skkynet was formed primarily for the purpose of taking the existing business lines of Cogent and its current and future customers and integrating these businesses with Cloud based systems. We also intend to expand the areas of business activity to which the kinds of products and services we provide are applied.

On November 1, 2014, the Company acquired NiC as a wholly owned subsidiary. On February 1, 2015 the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.

On July 30, 2015, the Company designated 500,000 shares of the preferred stock as Series B Convertible preferred. The Series B shares have a par value of $0.001 and issue value of $1.00 per share. The series B is convertible by the holder into common stock at $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.

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, 2015 Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end October 31, 2015 as reported on Form 10-K, have been omitted.

Inventory

Inventories are stated at the lower of cost and market using the first-in; first-out (FIFO) cost method of accounting.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Apr. 30, 2016

Notes to Financial Statements

NOTE 2 - RELATED PARTY TRANSACTIONS

On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition the Company is accruing director compensation at the rate of $2,500 per director per month. As of April 30, 2016 the accrued liability for compensation was $184,732.

As of April 30, 2016 and October 31, 2015, the Company had the following outstanding accrued liabilities due to related parties:

As of	April 30, 2016		October 31, 2015
Accrued salaries	$	83,765	$	--
Director fees	$	45,000	$	--
Accrued Commissions	$	46,367	$	24,098
Consulting fees	$	9,600	$	--
Total accrued liabilities and accrued expense	$	184,732	$	24,098

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OPTIONS

6 Months Ended

Apr. 30, 2016

Notes to Financial Statements

NOTE 3 - OPTIONS

The Company, under its 2012 Stock Option Plan, issues option 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 were granted. All of the options are exercisable at a purchase price based on the last trading price of the Company's common stock.

On January 6, 2016, the Company issued 509,500 options with a conversion price of $1.02 per share to 14 officers, directors, employees and consultants of the Company.

The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,459,889. During the six months period ended April 30, 2016, the Company expensed $348,417 for options. The unrecognized future balance to be expensed over the term of the options is $1,891,114.

The following sets forth the options granted and outstanding as of April 30, 2016:

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2015		5,768,200		0.50		7.88		2,317,600		3,209,363
Granted		509,500		1.02		9.26		403,600		--
Exercised		--		--		--		--		--
Outstanding at April 30, 2016		6,277,700		0.56		7.76		2,721,200		2,910,863

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Apr. 30, 2016

Notes to Financial Statements

NOTE 4 - COMMITMENTS AND CONTINGENCIES

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. The offices contain approximately 2,810 square feet of office space and are leased from July 1, 2014 through July 31, 2017. Under the terms of the lease, the gross monthly rental cost including common area charges is $6,700 per month. The lease terminates on July, 31, 2017. The yearly rental obligations under the lease agreement are as follows:

2016	$	35,203
2017	$	61,538
2018	$	0
2029	$	0
thereafter	$	0
Total	$	96,741

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DEFERRED REVENUE

6 Months Ended

Apr. 30, 2016

Notes to Financial Statements

NOTE 5 - DEFERRED REVENUE

The Company receives part of its revenue from the sale of software support. The revenue received is for one year of support from the date of the support sale. The Company defers the revenue for the future periods in which it is obligated to perform the support service. As of April 30, 2016, the Company had deferred revenue of $134,865.

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RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Apr. 30, 2016

Related Party Transactions Tables

Outstanding accrued liabilities due to related parties

As of	April 30, 2016		October 31, 2015
Accrued salaries	$	83,765	$	--
Director fees	$	45,000	$	--
Accrued Commissions	$	46,367	$	24,098
Consulting fees	$	9,600	$	--
Total accrued liabilities and accrued expense	$	184,732	$	24,098

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OPTIONS (Tables)

6 Months Ended

Apr. 30, 2016

Options Tables

Options granted and outstanding

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2015		5,768,200		0.50		7.88		2,317,600		3,209,363
Granted		509,500		1.02		9.26		403,600		--
Exercised		--		--		--		--		--
Outstanding at April 30, 2016		6,277,700		0.56		7.76		2,721,200		2,910,863

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Apr. 30, 2016

Commitments And Contingencies Tables

Lease obligations

2016	$	35,203
2017	$	61,538
2018	$	0
2029	$	0
thereafter	$	0
Total	$	96,741

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RELATED PARTY TRANSACTIONS (Details) - USD ($)	Apr. 30, 2016	Oct. 31, 2015
Related Party Transactions Details
Accrued salaries	$ 83,765
Director fees	45,000
Accrued Commissions	46,367	$ 24,098
Consulting fees	9,600
Total accrued liabilities and accrued expense	$ 184,732	$ 24,098

XML

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Apr. 30, 2016	Oct. 31, 2015
Related Party Transactions Details Narrative
Accrued liabilities - related party	$ 184,732	$ 24,098

XML

OPTIONS (Details)	6 Months Ended
	Apr. 30, 2016 USD ($) $ / shares shares
Options Details
Outstanding options, Beginning	5,768,200
Options, Granted	509,500
Options, Exercised
Outstanding options, Ending	6,277,700
Weighted Average Exercise price, Beginning | $ / shares	$ 0.50
Weighted Average Exercise price, Granted | $ / shares	$ 1.02
Weighted Average Exercise price, Exercised | $ / shares
Weighted Average Exercise price, Ending | $ / shares	$ 0.56
Weighted Average Remaining Contract Life, Beginning	7 years 10 months 17 days
Weighted Average Remaining Contract Life, Granted	9 years 3 months 4 days
Weighted Average Remaining Contract Life, Ending	7 years 9 months 4 days
Granted Options Exercisable, Beginning	2,317,600
Granted Options Exercisable, Granted	403,600
Granted Options Exercisable, Exercised
Granted Options Exercisable, Ending	2,721,200
Intrinsic Value, Beginning | $	$ 3,209,363
Intrinsic Value, Ending | $	$ 2,910,863

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OPTIONS (Details Narrative) - USD ($)	6 Months Ended
	Apr. 30, 2016	Apr. 30, 2015
Options Details Narrative
Option based compensation	$ 348,417	$ 218,736

XML

COMMITMENTS AND CONTINGENCIES (Details)	Apr. 30, 2016 USD ($)
Commitments And Contingencies Details
2016	$ 35,203
2017	61,538
2018	0
2029	0
thereafter	0
Total	$ 96,741

XML

DEFERRED REVENUE (Details Narrative) - USD ($)	Apr. 30, 2016	Oct. 31, 2015
Deferred Revenue Details Narrative
Deferred revenue	$ 134,865	$ 77,864