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 July 31, 2022

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 September 12, 2022, 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  July 31, 2022 (Unaudited) and October 31, 2021

 

4

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended July 31, 2022 and 2021 (Unaudited)

 

5

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended July 31, 2022 and 2021 (Unaudited)

 

6

 

Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2022 and 2021 (Unaudited)

 

7

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

Item 2.

Management’s Discussion of Financial Condition and Results of Operations

 

12

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

13

 

 

 

 

Item 4.

Controls and Procedures

 

13

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

15

 

 

 

 

Item 1A.

Risk Factors

 

15

 

 

 

 

Item 2.

Sales of Equity Securities and Use of Proceeds

 

15

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

15

 

 

 

 

Item 4.

Mine Safety Information

 

15

 

 

 

 

Item 5.

Other Information

 

15

 

 

 

 

Item 6.

Exhibits

 

16

 

 

 

 

Signatures

 

17

 

 
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

 

 

 

July 31, 2022

 

 

October 31, 2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$672,297

 

 

$797,808

 

Accounts receivable

 

 

244,613

 

 

 

253,359

 

Receivable related parties

 

 

5,078

 

 

 

6,362

 

Prepaid expenses

 

 

13,908

 

 

 

19,770

 

Total current assets

 

 

935,896

 

 

 

1,077,299

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $90,798 and $91,794 respectively

 

 

8,148

 

 

 

10,414

 

Right of use asset

 

 

-

 

 

 

16,234

 

Total Assets

 

$944,044

 

 

$1,103,947

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$11,758

 

 

$159,840

 

Accrued liabilities – related party

 

 

134,990

 

 

 

221,924

 

Deferred revenue

 

 

267,653

 

 

 

204,961

 

Current portion of operating lease liability

 

 

-

 

 

 

16,234

 

Total current liabilities

 

 

414,401

 

 

 

602,959

 

 

 

 

 

 

 

 

 

 

Loan payable

 

 

28,282

 

 

 

48,421

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

442,683

 

 

 

651,380

 

 

 

 

 

 

 

 

 

 

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 and 51,576,122 shares issued and outstanding, respectively

 

 

53,145

 

 

 

51,577

 

Additional paid-in capital

 

 

6,939,753

 

 

 

6,790,306

 

Accumulative other comprehensive income

 

 

61,155

 

 

 

80,908

 

Accumulated deficit

 

 

(6,552,891)

 

 

(6,470,423)

Total stockholders’ equity

 

 

501,361

 

 

 

452,567

 

Total Liabilities and Stockholders’ Equity

 

$944,044

 

 

$1,103,947

 

 

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 July 31,

 

 

For Ended Nine Months July 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$530,075

 

 

$497,375

 

 

$1,547,347

 

 

$1,383,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General & administrative expenses

 

 

503,419

 

 

 

482,482

 

 

 

1,673,138

 

 

 

1,345,590

 

Depreciation

 

 

641

 

 

 

691

 

 

 

1,943

 

 

 

1,987

 

Income (loss) from operations

 

 

26,015

 

 

 

14,202

 

 

 

(127,734)

 

 

35,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

1,906

 

 

 

5,590

 

 

 

6,398

 

 

 

25,399

 

Gain (loss) on currency exchange

 

 

(9,555)

 

 

8,543

 

 

 

8,216

 

 

 

(65,707)

Accrued dividends-related party

 

 

-

 

 

 

(69,720)

 

 

-

 

 

 

(69,720)

Total other income (expense)

 

 

(7,649)

 

 

(55,587)

 

 

14,614

 

 

 

(110,028)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

18,366

 

 

 

(41,385)

 

 

(113,120)

 

 

(74,182)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes refund

 

 

-

 

 

 

25,895

 

 

 

39,367

 

 

 

25,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

18,366

 

 

 

(15,490)

 

 

(73,753)

 

 

(48,287)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

 

(2,905)

 

 

(2,905)

 

 

(8,715)

 

 

(8,715)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) to common stockholders

 

 

15,461

 

 

 

(18,395)

 

 

(82,468)

 

 

(57,002)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,819

 

 

 

(6,300)

 

 

19,753

 

 

 

22,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$17,280

 

 

$(24,695)

 

$(62,715)

 

$(34,303)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$0.00

 

 

$(0.00)

 

$(0.00)

 

$(0.00)

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

 

$0.00

 

 

$(0.00)

 

$(0.00)

 

$(0.00)

Weighted average common shares outstanding - basic

 

 

52,454,723

 

 

 

51,576,122

 

 

 

51,880,474

 

 

 

51,576,122

 

Weighted average common shares outstanding - diluted

 

 

59,087,173

 

 

 

51,576,122

 

 

 

51,880,474

 

 

 

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 NINE MONTHS ENDED JULY 31, 2022 AND 2021

(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, 2020

 

 

51,576,122

 

 

$51,577

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$6,595,380

 

 

$(6,234,210)

 

$56,430

 

 

$469,376

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,703

 

 

 

-

 

 

 

-

 

 

 

48,703

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,636

 

 

 

8,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(41,712)

 

 

-

 

 

 

(41,712)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2021

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

6,644,083

 

 

 

(6,275,922)

 

 

65,066

 

 

 

485,003

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,741

 

 

 

-

 

 

 

-

 

 

 

48,741

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,363

 

 

 

20,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net incomes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,915

 

 

 

-

 

 

 

8,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2021

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

194

 

 

 

6,692,824

 

 

 

(6,267,007)

 

 

85,429

 

 

 

563,022

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,741

 

 

 

-

 

 

 

-

 

 

 

48,741

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,300)

 

 

(6,300)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,490)

 

 

-

 

 

 

(15,490)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2021

 

 

51,576,122

 

 

$51,577

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$6,741,565

 

 

$(6,282,497)

 

$79,129

 

 

 

589,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,773

 

 

 

-

 

 

 

-

 

 

 

50,773

 

Change due to currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,819)

 

 

(1,819)

Common stock issued for option conversion

 

 

1,567,700

 

 

 

1,568

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,568

 

Dividends accrued on series B preferred

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,905)

 

 

-

 

 

 

(2,905)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,366

 

 

 

-

 

 

 

18,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2022

 

 

53,143,822

 

 

$53,145

 

 

 

5,000

 

 

$5

 

 

 

193,661

 

 

$194

 

 

$6,939,753

 

 

$(6,552,891)

 

$61,155

 

 

$501,361

 

 

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

 

 
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SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

 

 

For the Nine Months ended July 31,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$(73,753)

 

$(48,287)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

1,943

 

 

 

1,987

 

Option based compensation

 

 

149,447

 

 

 

146,185

 

Non-cash lease expense

 

 

16,234

 

 

 

18,670

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

8,746

 

 

 

(65,742)

Accounts payable and accrued expenses

 

 

(148,082)

 

 

(85,566)

Accrued liabilities – related parties

 

 

(94,365)

 

 

(99,101)

Prepaid expenses and other assets

 

 

5,862

 

 

 

4,933

 

Operating lease liability

 

 

(16,234)

 

 

(18,670)

Deferred income

 

 

62,692

 

 

 

42,032

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(87,510)

 

 

(103,559)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITY

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options - related parties

 

 

1,568

 

 

 

-

 

Proceeds from (payment on) Canadian loan activity

 

 

(20,139)

 

 

15,678

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITY

 

 

(18,571)

 

 

15,678

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(19,430)

 

 

24,307

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(125,511)

 

 

(63,574)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

797,808

 

 

 

816,798

 

Cash and cash equivalents, end of period

 

$672,297

 

 

$753,224

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOWS INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$-

 

 

$-

 

Income taxes paid

 

$-

 

 

$-

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Dividends accrued on Series B preferred shares

 

$8,715

 

 

$-

 

 

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

 

 
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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, 2021 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, 2021 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 nine-month periods ended July 31, 2022 and 2021 the revenue by product line is as follows:

 

Category

 

Percentage

 

 

2022

 

 

Percentage

 

 

2021

 

Product sales

 

 

70%

 

 

1,081,856

 

 

 

71%

 

$977,945

 

Support

 

 

29%

 

 

451,664

 

 

 

28%

 

 

383,164

 

Cloud & Other

 

 

1%

 

 

13,827

 

 

 

1%

 

 

22,305

 

Total

 

 

100%

 

$1,547,347

 

 

 

100%

 

$1,383,414

 

 

The Company sells its products on a worldwide basis. During the nine-month periods ended July 31, 2022 and 2021 the Company’s geographic concentration of revenue is as follows:

 

Area

 

Percentage

 

 

2022

 

 

Percentage

 

 

2021

 

Europe

 

 

35%

 

 

541,255

 

 

 

40%

 

 

546,650

 

North America

 

 

33%

 

 

516,211

 

 

 

36%

 

 

494,135

 

Asia Pacific

 

 

22%

 

 

346,573

 

 

 

13%

 

 

174,041

 

Middle East-Africa/Other

 

 

9%

 

 

131,276

 

 

 

10%

 

 

135,718

 

South America

 

 

1%

 

 

12,031

 

 

 

1%

 

 

32,869

 

Total

 

 

100%

 

$1,547,347

 

 

 

100%

 

$1,383,414

 

 

 
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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 parities, 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 July 31, 2022.

 

During the nine months ended July 31, 2022, five officers and directors exercised 1,567,700 options for 1,567,700 shares of common stock with an exercise value of $1,568.

 

As of July 31, 2022, the amount due related parties was $134,990 compared to $221,924 as of October 31, 2021.

 

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.

 

 
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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 convertible 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 convertible into common stock at $0.28 per share.

 

On July 1, 2022, the Company granted 200,000 options to 2 consultants. The options are for 10 years and are convertible into common stock at $0.14 per share.

 

During the nine month period ended July 31 2022, the Company recognized $149,447 of option expense. The unrecognized future balance to be expensed over the term of the options is $171,700. 

 

During the nine months ended July 31, 2022, five officers and directors exercised 1,567,700 options for 1,567,700 shares of common stock with an exercise value of $1,568.

 

 The following sets forth the options granted and outstanding as of July 31, 2022:

 

 

 

Options

 

 

Weighted Average Exercise price

 

 

Weighted

Average

Remaining

Contract

Life

 

 

Granted

Options

Exercisable

 

 

Intrinsic

value

 

Outstanding at October 31, 2020

 

 

7,917,650

 

 

 

0.15

 

 

 

6.06

 

 

 

5,765,680

 

 

$3,627,845

 

Granted

 

 

41,250

 

 

 

0.64

 

 

 

9.63

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/Expired by termination

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding at October 31, 2021

 

 

7,958,900

 

 

 

0.15

 

 

 

5.16

 

 

 

6,081,250

 

 

$3,805,201

 

Granted

 

 

241,250

 

 

 

0.17

 

 

 

9.25

 

 

 

-

 

 

 

-

 

Exercised

 

 

(1,567,700)

 

 

0.001

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/Expired by termination

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding at July 31, 2022

 

 

6,632,450

 

 

 

0.15

 

 

 

4.66

 

 

 

5,025,460

 

 

$264,000

 

 

NOTE 5 – EQUITY

 

During the nine months ended July 31, 2022, five officers and directors exercised 1,567,700 options for 1,567,700 shares of common stock with an exercise value of $1,568.

 

NOTE 6- LEASES

 

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. During May 2017, the Company signed a new 5-year lease for the Company’s office being effective on August 1, 2017, through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a base monthly rental cost including common area charges of $2,369. The lease expired on July 31, 2022 and was not renewed.

 

Under the new standards the lease has been determined to be a right of use operating lease and is recognized based on the present value of the lease payments over the lease term at the commencement date which upon adoption of ASC 842 the value was determined to be $68,584 which is presented in the balance sheet as an asset labeled “right of use lease” offset by a liability labeled “lease liability”. The rate was determined as a fair value of the lease over a 30 month period using an 8% interest rate for the present value calculation. During the nine months ended July 31, 2022, the asset was amortized by $16,234 and liability was reduced by $16,234.

 

 
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NOTE 7 – MAJOR CUSTOMERS

 

The Company sells to their end-user customers both directly and through a network of resellers. Seven resellers accounted for 50% of sales of which one reseller accounted for 24% in the nine-month period ended July 31, 2022. 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 nine-month period ended July 31, 2022, twenty-one end user customers were responsible for approximately 50% of gross revenue, with no end user customers responsible for more than 10% of revenue. In the same period in 2021, nine end user customers were responsible for approximately 50% of gross revenue, with no end user customers responsible for more than 10% of revenue.

 

 NOTE 8 – 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.

 

As of July 31, 2022, the outstanding balance on the notes was $28,282.

 

NOTE 9 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events to determine events occurring after July 31, 2022 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.

 

 
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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 customers (to the extent relevant) 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 nine month periods ended July 31, 2022, revenue was $530,075 and $1,547,347 compared to $497,375 and $1,383,414 for the same periods in 2021. Revenue increased for the nine month period ended July 31, 2022 over the same period in 2021 by 11.8%. The increase in revenue for the nine-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 $503,419 and $1,673,138 for the three and nine month periods ended July 31, 2022 compared to $482,482 and $1,345,590 for the same periods in 2021. The increase in general and administrative expenses for the three and the nine month periods ended July 31, 2022 over the same periods in 2021, resulted from increased expenditures primarily in legal and accounting, hired consulting services, and advertising and promotion.

 

For the three and nine month periods ended July 31, 2022, the Company reported an operating income of $26,015 and operating loss of $127,734 compared to operating income of $14,202 and $35,846 for the same periods in 2021. The operating loss during the nine-month periods ended July 31, 2022 compared to the operating income for same periods in 2021 is attributable to higher general and administrative costs in the period ended July 31, 2022, as noted in the above paragraph compared to 2021.

 

Other income and expense for the three and nine month periods ended July 31, 2022, was other expense of $7,649 and other income of $14,614 compared to other expense of $55,587 and $110,028 for the same periods in 2021. The amount of change in the period ended July 31, 2022 was due to other income of $6.398 and gain on currency of $8,216 compared to the accrual of dividends on the preferred shares of $69,720 and loss on currency of $65,707, offset by other income of $25,399 for the same period in 2021.

 

 
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Net income after income taxes of $18,366 and net loss of $73,753 was reported for the three and nine month periods ended July 31, 2022, compared to a net loss after income taxes of $15,490 and $48,387 for the same periods in 2021. The net income for the three month period in 2022 can be attributed higher revenue in 2022 compared to the same period in 2021. The loss for the nine month period ended July 31, 2022 of $73,753 was higher than the net loss of $48,387 for the same period in 2021.This was due to other income of $14,614 in 2022 compared to other expense of $110,028 in 2021, an improvement of $124,642 in 2022 which was offset by loss from operations of $127,734 in 2022 compared to operating income of $35,846 in 2021.

 

Net income to common stockholders was $15,461 and net loss of $82,468 for the three and nine month periods ended July 31, 2022, compared to net loss of $18,395 and $57,002 for the same periods in 2021. The expense include dividends for preferred stockholders of $8,715 being accrued for the nine month period ended both in July 31, 2022 and 2021.

 

The Company reported comprehensive income of $17,280 and loss of $62,715 for the three and nine month periods ended July 31, 2022 compared to a comprehensive loss of $24,695 and $34,348 for the same periods in 2021. The comprehensive loss is an adjustment to net loss with foreign currency translation adjustments.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At July 31, 2022, Skkynet had current assets of $935,896 and current liabilities of $414,401 resulting in working capital of $521,495. Accumulated deficit, as of July 31, 2022, was $6,552,891. Total stockholders’ equity was $501,361, an improvement in equity from $452,567 at October 31, 2021 of $48,794.

 

Net cash used in operating activities for the nine month period ended July 31, 2022, was $87,510 compared to net cash used in operating activities of $103,559 for the same period in 2021, an improvement of $16,049.

 

The decrease in cash used in operating activities for the nine-month period ended July 31, 2022 over the same period in 2021 was primarily due to a decrease in accounts receivable and deferred revenue offset by a decrease of accounts payable and due related parties.

 

Net cash used in financing activities was $18,571 consisting of cash provided by exercise of options of $1,568 offset by repayment of loan of $20,139.

 

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.

 

 
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Table of Contents

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2022 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.

 

 
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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, 2021.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the nine months ended July 31, 2022, five officers and directors exercised 1,567,700 options for 1,567,700 shares of common stock with an exercise value of $1,568

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4: MINE SAFETY INFORMATION

 

None.

ITEM 5: OTHER INFORMATION

 

None.

 

 
15

Table of Contents

 

ITEM 6: EXHIBITS

 

 

 

 

EXHIBIT 31.1

 

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

 

 

 

EXHIBIT 31.2

 

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

 

 

 

EXHIBIT 32.1

 

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

 

 

 

EXHIBIT 32.2

 

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

 

 

 

101.INS

 

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

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

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

 

 
16

Table of Contents

 

SIGNATURES

 

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

 

 

SKKYNET CLOUD SYSTEMS INC.

    
By:/s/ Andrew Thomas

 

 

Andrew Thomas, Chief Executive Officer (Duly Authorized, Principal Executive Officer) 
   
 By: /s/ Lowell Holden 

 

 

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

 

 

 

 

 

Date: September 12, 2022

 

 

 

 

 
17

 

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