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 April 30, 2023

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 June 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 April 30, 2023 (Unaudited) and October 31, 2022(Audited)

 

4

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended April 30, 2023 and 2022 (Unaudited)

 

5

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended April 30, 2023 and 2022 (Unaudited)

 

6

 

 

Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2023 and 2022 (Unaudited)

 

7

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

11

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

12

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

12

 

 

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

14

 

 

 

 

 

 

Item 1A.

Risk Factors

 

14

 

 

 

 

 

 

Item 2.

Sales of Equity Securities and Use of Proceeds

 

14

 

 

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

14

 

 

 

 

 

 

Item 4.

Mine Safety Information

 

14

 

 

 

 

 

 

Item 5.

Other Information

 

14

 

 

 

 

 

 

Item 6.

Exhibits

 

15

 

 

 

 

 

 

Signatures

 

16

 

 

 
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

 

 

 

April 30, 2023

 

 

October 31, 2022

 

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$770,825

 

 

$729,936

 

Accounts receivable

 

 

336,534

 

 

 

377,491

 

Receivable related parties

 

 

4,796

 

 

 

4,776

 

Prepaid expenses

 

 

14,162

 

 

 

25,733

 

Total current assets

 

 

1,126,317

 

 

 

1,137,936

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $95,578 and $94,357 respectively

 

 

5,868

 

 

 

7,058

 

Total Assets

 

$1,132,185

 

 

$1,144,994

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$136,312

 

 

$58,202

 

Accrued liabilities – related party

 

 

130,636

 

 

 

115,475

 

Deferred revenue

 

 

349,143

 

 

 

281,615

 

Total current liabilities

 

 

616,091

 

 

 

455,292

 

 

 

 

 

 

 

 

 

 

Long Term Liability

 

 

 

 

 

 

 

 

Loan payable

 

 

14,756

 

 

 

19,106

 

Total liabilities

 

 

630,847

 

 

 

474,398

 

 

 

 

 

 

 

 

 

 

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

 

 

7,056,635

 

 

 

6,990,526

 

Accumulative other comprehensive income

 

 

77,475

 

 

 

76,011

 

Accumulated deficit

 

 

(6,686,116)

 

 

(6,449,285)

Total stockholders’ equity

 

 

501,338

 

 

 

670,596

 

Total Liabilities and Stockholders’ Equity

 

$1,132,185

 

 

$1,144,994

 

 

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 LOSS

(Unaudited)

 

 

 

 For Three Months Ended April 30,

 

 

For Six Months ended April 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$625,464

 

 

$540,093

 

 

$1,117,583

 

 

$1,017,272

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

608

 

 

 

651

 

 

 

1,221

 

 

 

1,302

 

Salary and wages

 

 

307,788

 

 

 

189,640

 

 

 

503,515

 

 

 

373,170

 

Advertising

 

 

123,886

 

 

 

187,507

 

 

 

220,597

 

 

 

276,522

 

Stock compensation

 

 

13,826

 

 

 

49,337

 

 

 

66,109

 

 

 

98,674

 

General & administrative expenses

 

 

296,869

 

 

 

166,596

 

 

 

577,499

 

 

 

421,353

 

Operating expense

 

 

742,977

 

 

 

593,731

 

 

 

1,368,941

 

 

 

1,171,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(117,513)

 

 

(53,638)

 

 

(251,358)

 

 

(153,749)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

50

 

 

 

26

 

 

 

60

 

 

 

4,492

 

Currency exchange

 

 

3,809

 

 

 

(3,710)

 

 

(9,562)

 

 

17,771

 

Total other income (expense)

 

 

3,859

 

 

 

(3,684)

 

 

(9,502)

 

 

22,263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(113,654)

 

 

(57,322)

 

 

(260,860)

 

 

(131,486)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes refund

 

 

29,839

 

 

 

39,367

 

 

 

29,839

 

 

 

39,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(83,815)

 

 

(17,955)

 

 

(231,021)

 

 

(92,119)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

 

(2,905)

 

 

(2,905)

 

 

(5,810)

 

 

(5,810)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) to common stockholders

 

 

(86,720)

 

 

(20,860)

 

 

(236,831)

 

 

(97,929)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(4,020)

 

 

1,385

 

 

 

1,464

 

 

 

17,934

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$(90,740)

 

$(19,475)

 

$(235,367)

 

$(79,995)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$(0.00)

 

$(0.00)

 

$(0.00)

 

$(0.00)

Weighted average common shares outstanding -basic and diluted

 

 

53,143,822

 

 

 

51,576,122

 

 

 

53,143,822

 

 

 

51,576,122

 

 

 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 SIX MONTHS ENDED APRIL 30, 2023 AND 2022

(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, 2021

 

 

51,576,122

 

 

$51,577

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$6,790,306

 

 

$(6,470,423)

 

$80,908

 

 

$452,567

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

49,337

 

 

 

--

 

 

 

--

 

 

 

49,337

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(16,549)

 

 

(16,549)

Dividends accrued on series B preferred shares

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(2,905)

 

 

---

 

 

 

(2,905)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(74,164)

 

 

--

 

 

 

(74,164)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2022

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

6,839,643

 

 

 

(6,547,492)

 

 

64,359

 

 

 

408,286

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

---

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

49,337

 

 

 

--

 

 

 

--

 

 

 

49,337

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(1,385)

 

 

(1,385)

Dividends accrued on series B preferred

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(2,905)

 

 

--

 

 

 

(2,905)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

---

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(17,955)

 

 

--

 

 

 

(17,955)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2022

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

6,888,980

 

 

 

(6,568,352)

 

 

62,974

 

 

 

435,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 on series B preferred

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(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

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

13,826

 

 

 

--

 

 

 

--

 

 

 

13,826

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(4,020)

 

 

(4,020)

Dividend on series B preferred

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(2,905)

 

 

--

 

 

 

(2,905)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(83,815)

 

 

--

 

 

 

(83,815)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2023

 

 

53,143,822

 

 

$53,145

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$7,056,635

 

 

$(6,686,116)

 

$77,475

 

 

$501,338

 

 

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 Six Months Ended April 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(231,021)

 

$(92,119)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

1,221

 

 

 

1,302

 

Option based compensation

 

 

66,109

 

 

 

98,674

 

Non-cash lease expense

 

 

--

 

 

 

11,608

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

40,957

 

 

 

(86,822)

Accounts payable and accrued expenses

 

 

78,110

 

 

 

(99,705)

Accrued liabilities – related parties

 

 

9,331

 

 

 

(114,490)

Prepaid expenses and other assets

 

 

11,571

 

 

 

8,282

 

Operating lease liability

 

 

--

 

 

 

(11,608)

Deferred income

 

 

67,528

 

 

 

76,925

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

43,806

 

 

 

(207,953)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from (payment on) Canadian loan activity

 

 

(4,350)

 

 

(12,135)

NET CASH USED IN FINANCING ACTIVTIES

 

 

(4,350)

 

 

(12,135)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

1,433

 

 

 

(17,623)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

40,889

 

 

 

(237,711)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

729,936

 

 

 

797,808

 

Cash and cash equivalents, end of period

 

$770,825

 

 

$560,097

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOWS INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$--

 

 

$--

 

Income taxes paid

 

$--

 

 

$--

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Dividends accrued on Series B preferred shares

 

$5,810

 

 

$5,810

 

 

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, 2022 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, 2022 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- REVENUE RECOGNITION

 

As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the six month periods ended April 30, 2023 and 2022 the revenue by product line is as follows:

 

Category

 

Percentage

 

 

2023

 

 

Percentage

 

 

2022

 

Product sales

 

 

68%

 

 

758,280

 

 

 

70%

 

$712,634

 

Support

 

 

28%

 

 

312,373

 

 

 

29%

 

 

296,631

 

Cloud & Other

 

 

4%

 

 

46,930

 

 

 

1%

 

 

8,007

 

Total

 

 

100%

 

$1,117,583

 

 

 

100%

 

$1,017,272

 

 

The Company sells its products on a worldwide basis. During the six month periods ended April 30, 2023 and 2022 the Company’s geographic concentration of revenue is as follows:

 

Area

 

Percentage

 

 

2023

 

 

Percentage

 

 

2022

 

Europe

 

 

31%

 

 

342,460

 

 

 

39%

 

$395,759

 

North America

 

 

43%

 

 

475,664

 

 

 

34%

 

 

341,028

 

Asia Pacific

 

 

15%

 

 

179,965

 

 

 

22%

 

 

225,946

 

Middle East-Africa/Other

 

 

9%

 

 

96,955

 

 

 

4%

 

 

45,465

 

South America

 

 

2%

 

 

22,539

 

 

 

1%

 

 

9,074

 

Total

 

 

100%

 

$1,117,583

 

 

 

100%

 

$1,017,272

 

 

 
8

Table of contents

 

NOTE 3- 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 April 30, 2023.

 

As of April 30, 2023, the amount due related parties was $130,636 compared to $115,475 as of October 31, 2022.

 

NOTE 4 – OPTIONS

 

The Company, under its 2012 Stock Option Plan, issues options to various officers, directors, and consultants. The options vest in equal annual installments over a five year period with the first 20% vested when the options are granted. All of the options are exercisable at a purchase price based on the last trading price of the Company’s common stock.

 

On December 15, 2020, the Company issued 41,250 options of which 11,250 options were issued to three independent directors and 30,000 options were issued to three consultants. The options are exercisable into common stock of the Company at $0.64 per share. The Company calculated a fair value of the options of $27,190 using the Black Scholes option pricing model with computed volatility of 201.22%, risk-free interest rate of 2%, expected dividend yield 0%, stock price at measurement date of $0.64 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.

 

On February 4, 2022 the Company granted 37,500 options to three directors and four Company personnel. The options are for 10 years and are exercisable into common stock at $0.31 per share.

 

On March 14, 2022, the Company granted 3,750 options to three directors. The options are for 10 years and are exercisable into common stock at $0.21 per share.

 

 
9

Table of contents

 

During the six month period ended April 30, 2023, the Company recognized $66,109 of option expense. The unrecognized future balance to be expensed over the term of the options is $76,074

 

The following sets forth the options granted and outstanding as of April 30, 2023:

 

 

 

Options

 

 

Weighted

Average Exercise price

 

 

Weighted Average Remaining Contract Life

 

 

Granted Options Exercisable

 

 

Intrinsic value

 

Outstanding at October 31, 2021

 

 

7,958,900

 

 

$0.15

 

 

 

5.16

 

 

 

6,081,250

 

 

$3,805,201

 

Granted

 

 

241,250

 

 

 

0.17

 

 

 

9.00

 

 

 

--

 

 

 

--

 

Exercised

 

 

(1,567,300)

 

 

0.001

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited/Expired by termination

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding at October 31,2022

 

 

6,632,450

 

 

 

0.15

 

 

 

4.25

 

 

 

5,100,960

 

 

$256,000

 

Granted

 

 

237,500

 

 

 

0.22

 

 

 

9.90

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited/Expired by termination

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding at April 30, 2023

 

 

6,869,950

 

 

$0.15

 

 

 

3.75

 

 

 

5,576,450

 

 

$920,663

 

 

NOTE 5 – MAJOR CUSTOMERS

 

The Company sells to their end-user customers both directly and through a network of resellers. Six resellers accounted for 49% of sales, of which one reseller accounted for 27% in the six-month period ended April 30, 2023. 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. In the six-month period ended April 30, 2023, nineteen end user customers were responsible for approximately 50% of gross revenue, with no end user customer responsible for more than 10% of revenue. In the same period in 2022, thirteen end user customers were responsible for approximately 50% of gross revenue, with one end user customers responsible for 12% of revenue.

 

 NOTE 6 – 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. (See Note 7 – Subsequent Events)

 

As of April 30, 2023, the outstanding balance on the notes totaled US $14,756,CDN ($20,000) .

 

NOTE 7 – SUBSEQUENT EVENTS

 

On May 28, 2023, the outstanding balance of the CEBA loans payable of CDN $20,000, US ($14,756) was forgiven per the terms of the note agreement.

 

The Company has evaluated subsequent events to determine events occurring after April 30, 2023 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 noted above.

 

 
10

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 and six month periods ended April 30, 2023, revenue was $625,464 and $1,117,583 compared to $540,093 and $1,017,272 for the same periods in 2022. Revenue increased for the six month period ended April 30, 2023 over the same period in 2022 by 9.9%. The increase in revenue for the six-month period is attributed to higher sales by Cogent. The Company is benefiting from its prior investment in sales and marketing and market recognition which has contributed to the increase in Cogent’s sales.

 

General and administrative expense was $742,977 and $1,368,941 for the three and six month periods ended April 30, 2023 compared to $593,731 and $1,171,021 for the same periods in 2022. The increase in general and administrative expenses for the three and six month periods ended April 30, 2023 over the same periods in 2022, resulted from increased expenditures primarily in salaries and wages and hired consultants.

 

For the three and six month periods ended April 30, 2023, the Company reported an operating loss of $117,513 and $251,358 compared to operating losses of $53,638 and $153,749 for the same periods in 2022. The operating loss during the three and six-month periods ended April 30, 2023, over the operating losses for same periods in 2022 is attributable to higher general and administrative costs and salaries and wages in the period ended April 30, 2023, as noted in the above paragraph compared to 2022.

 

Other income and expense for the three and six month periods ended April 30, 2023, was other income of $3,859 and other expense of $9,502 compared to other expense of $3,684 and other income of $22,263 for the same periods in 2022. The amount of change in both periods was due to the effect of currency exchange.

 

Net loss after income taxes of $83,815 and $231,021 was reported for the three and six month periods ended April 30, 2023, compared to a net loss after income taxes of $17,955 and $92,119 for the same periods in 2022. The higher net loss for the three and six month periods in 2023 can be attributed to higher general and administrative cost and salaries and wages in 2023 compared to the same period in 2022. During the three month period ended April 30, 2023 the Company received a tax refund for development of $29,839.

 

 
11

Table of contents

 

Net loss to common stockholders was $86,720 and $236,831 for the three and six month periods ended April 30, 2023, compared to net loss of $20,860 and $97,929 for the same periods in 2022. The loss includes the expense of dividend for preferred stockholders of $5,810 being accrued for the six months period ended April 30, 2023 and 2022.

 

The Company reported comprehensive loss of $90,740 and $235,367 for the three and six month periods ended April 30, 2023 compared to a comprehensive loss of $19,475 and $79,995 for the same periods in 2022. The comprehensive loss is an adjustment to net loss with foreign currency translation adjustments.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At April 30, 2023, Skkynet had current assets of $1,126,317 and current liabilities of $616,091, resulting in working capital of $510,226. Accumulated deficit, as of April 30, 2023, was $6,686,116 with total stockholders’ equity of $501,338.

 

Net cash provided in operating activities for the six month period ended April 30, 2023, was $43,806 compared to net cash used in operating activities of $207,953 for the same period in 2022.

 

Net cash used in financing activities for the six month period ending April 31, 2023 was $4,350 compared to $12,135 for the same period in 2022. Both periods amounts were due to the repayment of loans.

 

The cash provided by operating activities for the six-month period ended April 30, 2023 compared to the cash used in operating activities over the same period in 2022 was primarily due positive changes in accounts receivable, accounts payable, amounts due related parties plus the increase in deferred revenue during the 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.

 

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.

 

 
12

Table of contents

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2023 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.

 

 
13

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, 2022.

 

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.

 

 
14

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

 

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

 

 

 

15

 

 

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 13, 2023By:

/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)

 

 

 

16