10-Q
Skkynet Cloud Systems, Inc. (SKKY)
UNITED STATES
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, 2021
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, ON, 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: ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes: ☒ No: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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 13, 2021, there were 51,576,122 shares of Common Stock of the issuer outstanding.
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| PART I: FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Consolidated Balance Sheets as of July 31, 2021 (Unaudited) and October 31, 2020 | 4 | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended July 31, 2021 and 2020 (Unaudited) | 5 | |
| Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended July 31, 2021 and 2020 (Unaudited) | 6 | |
| Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2021 and 2020 (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 | 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 | ||
| --- |
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.
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PART I
ITEM 1: FINANCIAL STATEMENTS
SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
| **** | October 31, 2020 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current Assets: | |||||
| Cash and cash equivalents | 753,224 | $ | 816,798 | ||
| Accounts receivable | 260,005 | 194,263 | |||
| Receivable related parties | 6,661 | 6,264 | |||
| Prepaid expenses | 12,983 | 17,916 | |||
| Total current assets | 1,032,873 | 1,035,241 | |||
| Property and equipment, net of accumulated depreciation of 84,897 and 82,919 respectively | 11,020 | 12,165 | |||
| Right of use asset | 22,213 | 40,883 | |||
| Total Assets | 1,066,106 | $ | 1,088,289 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current Liabilities: | |||||
| Accounts payable and accrued expenses | 71,102 | $ | 156,668 | ||
| Accrued liabilities – related party | 123,899 | 222,603 | |||
| Deferred revenue | 210,760 | 168,728 | |||
| Current portion of operating lease liability | 20,980 | 20,980 | |||
| Total current liabilities | 426,740 | 568,980 | |||
| Loan payable | 48,159 | 30,032 | |||
| Operating lease liability- net of current portion | 1,233 | 19,903 | |||
| Total liabilities | 476,132 | 618,913 | |||
| 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, 51,576,122 shares issued and outstanding, respectively | 51,577 | 51,577 | |||
| Additional paid-in capital | 6,741,565 | 6,595,380 | |||
| Accumulative other comprehensive income | 79,129 | 56,430 | |||
| Accumulated deficit | (6,282,497 | ) | (6,234,210 | ) | |
| Total stockholders’ equity | 589,973 | 469,376 | |||
| Total Liabilities and Stockholders’ Equity | 1,066,106 | $ | 1,088,289 |
All values are in US Dollars.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS PERIODS ENDING JULY 31, 2021 AND 2020
(Unaudited)
| Three Months | **** | Nine Months | **** | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | 2021 | **** | 2020 | **** | 2021 | **** | 2020 | |||||
| Revenue | $ | 497,375 | $ | 316,918 | $ | 1,383,414 | $ | 1,155,443 | ||||
| Cost of goods | - | - | - | 1,214 | ||||||||
| Gross profit | 497,375 | 316,918 | 1,383,414 | 1,154,229 | ||||||||
| Operating Expenses: | ||||||||||||
| General & administrative expenses | 482,482 | 371,006 | 1,345,590 | 1,201,131 | ||||||||
| Depreciation | 691 | 604 | 1,978 | 1,831 | ||||||||
| Income (loss) from operations | 14,202 | (54,692 | ) | 35,846 | (48,733 | ) | ||||||
| Other Income (expense) | ||||||||||||
| Other income (expense) | 5,590 | 29,671 | 25,399 | 29,671 | ||||||||
| Gain (loss) on currency exchange | 8,543 | (35,763 | ) | (65,707 | ) | 10,539 | ||||||
| Accrued dividends – related party | (69,720 | ) | (69,720 | ) | ||||||||
| Total other income (loss) | (55,587 | ) | (6,092 | ) | (110,028 | ) | 40,210 | |||||
| Income (loss) before taxes | (41,385 | ) | (60,784 | ) | (74,182 | ) | (8,423 | ) | ||||
| Income tax refund | 25,895 | - | 25,895 | 15,913 | ||||||||
| Net income (loss) | (15,490 | ) | (60,784 | ) | (48,287 | ) | 7,390 | |||||
| Preferred dividends | (2,905 | ) | (2,905 | ) | (8,715 | ) | (8,715 | ) | ||||
| Net income (loss) to common shareholders | (18,395 | ) | (63,689 | ) | (57,002 | ) | (1,325 | ) | ||||
| Foreign currency translation adjustment | (6,300 | ) | 29,186 | 22,699 | (11,704 | ) | ||||||
| Comprehensive income (loss) | $ | (24,695 | ) | $ | (34,503 | ) | $ | (34,303 | ) | $ | (13,029 | ) |
| Net income (loss) per share to common shareholders-basic and dilutive | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) |
| Weighted average common shares outstanding -basic | 51,576,122 | 51,576,122 | 51,576,122 | 51,576,122 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED JULY 31 2021 AND 2020
(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, 2019 | 51,576,122 | $ | 51,577 | 5,000 | $ | 5 | 193,661 | $ | 193,661 | $ | 6,192,476 | $ | (5,922,877 | ) | $ | 65,472 | $ | 580,314 | |||||
| Stock option expense | - | - | - | - | - | - | 67,285 | - | - | 67,285 | |||||||||||||
| Change due to currency translation | - | - | - | - | - | - | - | - | (5,649 | ) | (5,649 | ) | |||||||||||
| Net loss | - | - | - | - | - | - | - | (8,481 | ) | - | (8,481 | ) | |||||||||||
| Balance at January 31, 2020 | 51,576,122 | 51,577 | 5,000 | 5 | 193,661 | 193,661 | 6,259,761 | (5,931,358 | ) | 59,823 | 633,469 | ||||||||||||
| Stock option expense | 47,384 | 47,384 | |||||||||||||||||||||
| Change due to currency translation | (35,241 | ) | (35,241 | ) | |||||||||||||||||||
| Net loss | 76,655 | 76,655 | |||||||||||||||||||||
| Balance at April 30, 2020 | 51,576,122 | 51,577 | 5,000 | 5 | 193,661 | 193,661 | 6,307,145 | (5,854,703 | ) | 24,582 | 722,267 | ||||||||||||
| Stock option expense | - | - | - | - | - | - | 47,384 | - | - | 47,384 | |||||||||||||
| Change due to currency translation | - | - | - | - | - | - | - | 29,186 | 29,186 | ||||||||||||||
| Net loss | - | - | - | - | - | - | - | (60,784 | ) | - | (60,784 | ) | |||||||||||
| Balance at July 31, 2020 | 51,577,122 | $ | 51,577 | 5,000 | $ | 5 | 193,661 | $ | 193,661 | $ | 6,354,529 | $ | (5,915,487 | ) | $ | 53,768 | $ | 738,053 | |||||
| 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 income (loss) | - | - | - | - | - | - | - | 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 income (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 |
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, | **** | |||||
|---|---|---|---|---|---|---|
| **** | 2021 | **** | 2020 | |||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net income (loss) | $ | (48,287 | ) | $ | 7,390 | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation | 1,987 | 1,831 | ||||
| Option based compensation | 146,185 | 162,053 | ||||
| Non-cash lease expense | 18,670 | 15,510 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | (65,742 | ) | 7,656 | |||
| Accounts payable and accrued expenses | (85,566 | ) | (40,850 | ) | ||
| Accrued liabilities – related parties | (99,101 | ) | (76,821 | ) | ||
| Prepaid expenses and other assets | 4,933 | 6,443 | ||||
| Operating lease liability | (18,670 | ) | (15,510 | ) | ||
| Deferred income | 42,032 | 16,686 | ||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (103,559 | ) | 84,388 | |||
| CASH FLOWS FROM FINANCING ACTIVITY | ||||||
| Proceeds from Canadian loan activity | 15,678 | 28,717 | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITY | 15,678 | 28,717 | ||||
| Effect of exchange rate changes on cash and cash equivalents | 24,307 | (16,646 | ) | |||
| Net increase (decrease) in cash and cash equivalents | (63,574 | ) | 96,459 | |||
| Cash and cash equivalents, beginning of period | 816,798 | 700,410 | ||||
| Cash and cash equivalents, end of period | $ | 753,224 | $ | 796,869 | ||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||
| Interest paid | $ | - | $ | - | ||
| Income taxes paid | $ | - | $ | - | ||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||
| Capitalization of right to use asset and operating liability | $ | - | $ | 62,869 |
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, 2020 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, 2020 as reported on Form 10-K, have been omitted.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has adopted the new accounting pronouncement and recorded a right to use asset and operating lease liability of $68,584 as of November 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The adoption of the policy did not have a cumulative impact on retained earnings.
NOTE 3 - REVENUE RECOGNITION
As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the nine months period ended July 31, 2021 and 2020, the revenue by product line is as follows:
| Category | Percentage | 2021 | Percentage | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Product sales | 71 | % | 977,945 | 69 | % | 797,967 | ||||
| Support | 28 | % | 383,164 | 30 | % | 346,505 | ||||
| Cloud & Other | 1 | % | 22,305 | 1 | % | 10,971 | ||||
| Total | 100 | % | 1,383,414 | 100 | % | 1,155,443 | ||||
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The Company sells its products on a worldwide basis. During the nine months period ended July 31, 2021 and 2020 the Company’s geographic concentration of revenue is as follows:
| Area | Percentage | 2021 | Percentage | 2020 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| North America | 36 | % | 494,135 | 46 | % | 417,279 | ||||
| Europe | 40 | % | 546,650 | 35 | % | 398,546 | ||||
| Asia Pacific | 13 | % | 174,041 | 13 | % | 152,730 | ||||
| South America | 1 | % | 32,869 | 4 | % | 50,188 | ||||
| Middle East-Africa/Other | 10 | % | 135,718 | 12 | % | 136,700 | ||||
| Total | 100 | % | 1,383,414 | 100 | % | 1,155,443 |
NOTE 4 - RELATED PARTY TRANSACTIONS
Sakura Software, a corporation owned by our CEO and Chairman of the Board of Directors, Andrew S. Thomas, and Benford Consultancy, a corporation owned by our COO and a member of our Board of Directors, Paul Benford, own, respectively, 72.34% and 27.66% of the issued and outstanding shares of Real Innovations International LLC, (“Real Innovations”) a corporation organized under the laws of Nevis, West Indies. In March 2012, Cogent, our operating subsidiary, assigned all of its intellectual property including the pending patent applications for its real-time data transmission and display technology (the “IP”) to Real Innovations under an assignment of intellectual property agreement (the “Assignment Agreement”). In return for the assignment Real Innovations required a one-time payment of $30,000 to Cogent. Cogent elected to forgo the payment allowing Real Innovations to offset future expenses against the payment. There is no ongoing royalty payment or other form of compensation from Real Innovations to Cogent under the Assignment Agreement.
Real Innovations, in turn, entered into a master intellectual property license agreement (the “License Agreement”) with Cogent for all of the same IP. Under the License Agreement Real Innovations granted a royalty-free license in perpetuity to Cogent for the use and exploitation of the IP in return for which Cogent agreed to: (i) pay all operating expenses of Real Innovations incurred in connection with the continued prosecution of pending patent applications and others that may be prepared; (ii) prosecute all claims for infringement of the IP; (iii) defend and indemnify Real Innovations from and against all claims of infringement of the IP asserted by third parties against Real Innovations, Cogent or our Company; (iv) purchase liability insurance in favor of Real Innovations for this purpose. Under the termination provision of the licenses agreement, there is no unilateral right of termination. Termination may occur by mutual consent of the 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, 2021.
As of July 31, 2021 the outstanding liabilities due related parties was $123,899.
NOTE 5 - OPTIONS
The Company, under its 2012 Stock Option Plan, issues options to various officers, directors, and consultants. The options vest in equal annual installments over a five year period with the first 20% vested when the options are granted. All of the options are exercisable at a purchase price based on the last trading price of the Company’s common stock.
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On December 12, 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.
During the nine month period ended July 31, 2021, the Company recognized $146,185 of option expense. The unrecognized future balance to be expensed over the term of the options is $181,125.
The following sets forth the options granted and outstanding as of July 31, 2021:
| Options | Weighted Average Exercise price | Weighted Average Remaining Contract Life | Granted Options Exercisable | Intrinsic value | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Outstanding at October 31, 2019 | 7,581,400 | 0.13 | 7.19 | 5,470,540 | $ | 1,827,117 | ||||
| Granted | 336,250 | 0.56 | 9.50 | -- | -- | |||||
| Exercised | -- | -- | -- | -- | -- | |||||
| Forfeited/Expired by termination | -- | -- | -- | -- | - | |||||
| Outstanding at October 31, 2020 | 7,917,650 | 0.15 | 6.16 | 5,765,680 | $ | 3,627,845 | ||||
| Granted | 41,250 | 0.64 | 9.63 | -- | -- | |||||
| Exercised | -- | -- | -- | -- | -- | |||||
| Forfeited/Expired by termination | -- | -- | -- | -- | -- | |||||
| Outstanding at July 31, 2021 | 7,958,900 | 0.17 | 5.31 | 6,005,750 | $ | 6,910,038 |
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 yearly rental obligations including the lease agreements are as follows:
| Fiscal Year | |||
|---|---|---|---|
| 2021 | $ | 5,330 | |
| 2022 | $ | 21,321 | |
| Total lease payments | $ | 26,651 | |
| Less present value discount | (4,438 | ) | |
| 22,213 | |||
| Less operating lease short term | (20,980 | ) | |
| Operating lease liability, long term | $ | 1,233 |
Under the new standards the lease has been determined to be a right to 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 to 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, 2021 the asset was amortized by $18,670 and liability was reduced by $18,670.
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NOTE 7 - MAJOR CUSTOMERS
The Company sells to their end-user customers both directly and through resellers. Five resellers accounted for 51% of revenue in the three-month period ended July 31, 2020, and nine resellers accounted for 50% of revenue in the same period in 2021. Five resellers accounted for 51% of revenue in the nine-month period ended July 31, 2020, and six resellers accounted for 50% of revenue in the same period in 2021. In the three-month period ended July 31, 2020,no end user customer was responsible for more than 10% of our revenue. In the same period in 2021, no end user customer was responsible for more than 10% of revenue. In the nine-month period ended July 31, 2020, no end user customer was responsible for more than 10% of our revenues. In the same period in 2021, no end user customer was responsible for more than 10% of revenue. 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.
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
NOTE 9 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events to determine events occurring after July 31, 2021 through September 8, 2021 that would have a material impact on the Company’s financial results or require disclosure and have determined none exist.
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ITEM2: 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 months periods ended July 31, 2021, revenue was $497,375 and $1,383,414 compared to $316,918 and $1,155,443 for the same periods in 2020. Revenue increased for the nine month period ended July 31 2020 over the same period in 2020 by 19.7%. The increase in revenue for the nine months period ended July 31, 2021 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, excluding depreciation, was $482,482 and $1,345,590 for the three and nine month periods ended July 31, 2021 compared to $371,006 and $1,201,131 for the same periods in 2020. The increase in general and administrative expenses for the three and nine month periods ended July 31, 2021 resulted from increased employment expenditures over the same period in 2020. Depreciation for the three and nine months ended July 31, 2021 were $691 and $1,978 compared to $604 and $1,831 for the same periods in 2020.
For the three and nine month periods ended July 31, 2021, the Company reported an operating income of $14,202 and $35,846 compared to operating losses of $54,692 and $48,733 for the same periods in 2020. The increase of operating income during the three and nine month periods ended July 31, 2021 over the same periods in 2020 is attributable to higher revenue in 2021 compared to 2020.
Other income and expense for the three and nine month periods ended July 31, 2021, was other loss of $55,587 and $110,028 compared to other loss of $6,092 and other income of $40,210 for the same periods in 2020. The amount of change in both periods was due to the effect of currency exchange along with an accrual of $69,720 in dividends during the three and nine months period in July 31, 2021.
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Net loss before income taxes of $15,490 and $48,287, respectively, was reported for the three and nine month periods ended July 31, 2021, compared to net loss before and after income taxes of $60,784 and net income of $7,390, respectively, for the same periods in 2020. The higher net income for the three and nine month periods in 2021 can be attributed primarily to increased revenue in 2021 over 2020
The Company reported comprehensive losses of $24,695 and $34,303, respectively, for the three and nine month periods ended July 31, 2021, respectively, compared to a comprehensive losses of $34,503 and $13,029 for the same periods in 2020. The comprehensive income and loss is an adjustment to net income and loss with the preferred stock dividends and foreign currency translation adjustments along with taxes taken into account during the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2021, Skkynet had current assets of $1,032,873 and current liabilities of $426,740, resulting in working capital of $606,133 for a current ratio of 2.42 to 1. Accumulated deficit, as of July 31, 2021, was $6,212,777 with total shareholders’ equity of $589,973.
Net cash used in operating activities for the nine months period ended July 31, 2021, was $103,559 compared to net cash provided from operating activities of $84,388 for the same period in 2020. The increase in cash used in operating activities for the nine months period ended July 31, 2021 over the same period in 2020 was primarily due to an increase in accounts receivable of $65,742, reduction in accounts payable and accrued expenses of $85,566 plus a reduction of $22,280 in accrued liabilities to related parties.
Net cash received in financing activities was US$15,708 (CDN$20,000) received from the Canadian Emergency Business Account.
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.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2021 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, 2020.
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
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: September 13, 2021 | 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) | ||
| 16 | ||
| --- |
skky_ex311.htm 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: September 13, 2021 | By: | /s/ Andrew Thomas |
|---|
| | Name: | Andrew Thomas |
| | Title: | Chief Executive Officer |
| | | (Principal Executive Officer) |
skky_ex312.htm 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: September 13, 2021 | By: | /s/ Lowell Holden |
|---|
| | Name: | Lowell Holden |
| | Title: | Chief Financial Officer |
| | | (Principal Financial Officer) |
skky_ex321.htm 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 July 31, 2021 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: September 13, 2021 | /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.
skky_ex322.htm 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 July 31, 2021 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: September 13, 2021 | /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 Skkynet for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.