SKKY 10-K/A
Skkynet Cloud Systems, Inc. (SKKY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment-1
For the fiscal year ended
For the transition period from ___________ to ___________.
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incorporation or organization) | Identification Number) |
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Securities registered pursuant to Section 12(b) of the Act: None.
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Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15d of the Act ☐ Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or such shorter period of that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by checkmark 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 previous 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Indicate by checkmark if disclosure of delinquent filers to Item 405 of Regulation S-K (§229.405) is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging Growth Company |
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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 registrant is a shell company (as defined in Rule 12b-2 of the Act,) Yes
The aggregate number of shares of the voting stock held by non-affiliates on April 29, 2022 was 15,801,100 with a market value of $
The number of shares outstanding of the Company’s $.001 Par Value Common Stock as of January 27, 2023, was
DOCUMENTS INCORPORATED BY REFERENCE: None.
The Company 10-K for the year ended October 31, 2022 and filed January 27, 2023 is being amended to clarify the statements in Item 9A- Controls and Procedures-. Management’s Annual Report on Internal Control Over Financial Reporting. This change does not impact any other part the this 10-K as initially filed.
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements in this Annual Report on Form 10-K, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of our business activities, our revenues, income and capital spending. We generally identify forward-looking statements with the words “believe,” “intend,” “expect,” “seek,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project” or their negatives, and other similar expressions. All statements we make relating to our estimated timelines and commencement of operations, and our projected earnings, costs, expenditures, cash flows, and financial results or to our expectations regarding future industry trends are forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. The forward-looking statements contained in this Form 10-K are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. In addition, management's assumptions about future events may prove to be inaccurate. We caution all readers that the forward-looking statements contained in this Form 10-K are not guarantees of future performance, and we cannot assure any reader that such statements will prove correct, or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the numerous risks and uncertainties as described elsewhere in this Form 10-K.
All forward-looking statements are based upon information available to us on the date of this Form 10-K. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. The risks, contingencies and uncertainties associated with our forward-looking statements relate to, among other matters, the following:
| • | our ability to attract new clients to enter into subscriptions or one time installations for our products and services; |
| • | our ability to service those clients effectively and induce them to renew their subscriptions to our products and services; |
| • | our ability to expand our sales organization to effectively address the new industries, geographies and types of organizations we intend to target; |
| • | our ability to accurately forecast revenue and appropriately plan our expenses; |
| • | continued market acceptance of our products and services, including alternate ways of addressing needs for coordination and control of manufacturing and financial services processes through modified or new technologies we create; |
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• | continued acceptance of our products and services as an effective method for delivering manufacturing and financial services management solutions and other manufacturing and financial services management applications; |
| • | the attraction and retention of qualified employees and key personnel; |
| • | our ability to protect and defend our intellectual property; |
| • | costs associated with defending intellectual property infringement and other claims; |
| • | events in the markets for our products and applications and alternatives to our products and applications, in the United States and global markets generally; |
| • | future regulatory, judicial and legislative changes in our industry; |
| • | changes in the competitive environment in our industry and the markets in which we operate; |
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| • | developments and acceptance, favorable and unfavorable, about the use of cloud systems for the implementation of our products and services; |
| • | other factors discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K. |
We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.
As used in this Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “the Company,” “Skkynet” and “Cogent” refer to Skkynet Cloud Systems, Inc., a Nevada corporation, and its subsidiaries.
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ITEM 1: BUSINESS.
Overview
Skkynet is a Nevada corporation headquartered in Mississauga, Canada. Skkynet operates its business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet, Inc. (“Skkynet (USA)”), Skkynet Corp. (“Skkynet (Canada)”). Skkynet was established to enhance Cogent’s existing business lines through the integration of cloud-based systems (“Cloud”), and to deliver a Software-as-a-Service (“SaaS”) product targeting the Industrial Internet of Things (“IoT”) market, now referred to by the terms “Industry 4.0” and “Industrial Internet Consortium”. We will also expand the areas of business activity to which our products and services are applied.
Boston Consulting Group issued reports on Industry 4.0 and how the future of productivity and growth in manufacturing industries will be impacted by the convergence of nine new technologies[1], and how it will transform the industrial workforce[2]. Of the nine new technologies, several fit within the scope of Skkynet’s core technical expertise: the cloud, cybersecurity, the industrial internet of things, and horizontal and vertical system integration. Specifically, Skkynet provides software and related systems and facilities to collect process and distribute real-time information over networks. This capability allows our customers to both locally and remotely manage, supervise and control industrial processes and financial information systems. By using our software and web-based assets we provide our clients and their end-customers, the ability and tools to observe and interact with these processes in real-time. We give our customers the power to analyze, change and control their local and remote systems to meet regulatory requirements and exceed target objectives.
We believe there is a steady movement of manufacturing facilities from developed countries to underdeveloped countries because of the economic advantages of lowering production costs; however, this relocation process should not be viewed in traditional frameworks alone. In the United States there is a movement from high to low-cost states such as Alabama, and, for other reasons, European and Asian manufacturers are locating their own manufacturing facilities within the United States. The tendency is to relocate physical plants while preserving the overall engineering skills, process analytics and related intellectual property and management systems at home. This geographical distinction between production and engineering requires the ability to remotely monitor these systems during operations to control processes in real-time while preserving the safety, confidentiality and integrity of the manufacturer’s process and information. Our products and Cloud-based services are designed to address these issues and concerns.
Although we are primarily involved thus far in the areas of industrial processing and financial services, the concepts and software underlying our existing products and services are applicable to a variety of areas including fleet tracking, energy usage monitoring and control including wind power, solar power and agriculture. Our products are modular in design and are therefore well-suited for use in OEM and embedded products. We have obtained existing clients in some of these areas, but to date we have not had the resources to pursue systematically the marketing and sale of our products and services to these industries.
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1 https://www.bcgperspectives.com/content/articles/engineered_products_project_business_industry_40_future_productivity_growth_manufacturing_industries/
2 https://www.bcgperspectives.com/content/articles/technology-business-transformation-engineered-products-infrastructure-man-machine-industry-4/
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Our acquisition of Cogent
In March 2012, we completed the acquisition of all of the issued and outstanding shares of common stock of Cogent from Sakura Software Inc. and Benford Consultancy Inc. in exchange for a total of thirty million (30,000,000) restricted shares of our common stock, as a result of which Cogent became our wholly-owned subsidiary. As part of the exchange transaction, we also issued 5,000 Series A Preferred share to Sakura Software and Benford Consultancy. Prior to the closing of the exchange transaction, we did not have any operating revenues. At the acquisition closing, Cogent’s business consisted primarily of providing connectivity and data acquisition to a wide variety of industrial and office hardware and software products, and then making that data available over a network using industry-standard protocols. Cogent currently markets its products and services primarily to manufacturers in industrial processes and financial services companies. Cogent had $2,151,463 in annual revenues from its operations for its fiscal year ended October 31, 2022 and $1,830,459 in annual revenues for the fiscal year ended October 31, 2021.
Our business
We are an industrial middleware vendor that has specialized in providing connectivity and data acquisition to a wide variety of industrial and office hardware and software products and making that data available over a network using industry-standard protocols. We have introduced a number of innovations to our real-time data products including a high speed redundancy facility and a web-based user interface providing desk-top quality graphics, and more recently, inclusion of high speed storage capabilities. We have patented and patent-pending technologies that address the data transmission problems of data rate, latency, redundancy, and security in Cloud based systems with a unique push-pull system that insulates both a plant and a remote user from opening their firewalls to the Internet.
Our system can operate as a simple add-on to existing Supervisory Control and Data Acquisition (“SCADA”) or as the basis for new deployment. SCADA is a system that collects information from various sensors installed at a factory or other remote locations. All of the collected data is sent to a common or central computer for further processing and storage and is used to describe control processes in various industries such as water treatment, manufacturing processes, and environmental procedures.
Skkynet’s award-winning SkkyHub™ service is compatible with our existing DataHub® and Embedded Toolkit (ETK) software. Current customers of our DataHub® software can easily configure it to immediately take advantage of our Cloud services. Our DataHub® software includes applications for all of the following uses:
| — | real-time graphical web display of data, which includes collaborative screen development and full permissions-based access; |
| — | connection to data from OPC (open process control), DDE (dynamic data exchange) and Modbus servers to produce immersive real-time displays to analyze the current status of factory production, embedded systems or financial strategies; |
| — | connection to data from MQTT clients to connect remote sensors and other Cloud-based services, such as ‘big data’ analytics and Artificial Intelligence applications, offered by Amazon, Microsoft and Google; |
| — | a feature that enables full data mirroring designed to overcome DCOM (distributed component object models) server issues to permit connection to the most recent data available if a server is temporarily unavailable; |
| — | data logging which enables both reading and writing of data with any ODBC (open database connectivity) database such as most Windows and Linux databases; |
| — | creation of a data bridging interface to permit association of data points in one system with corresponding data points in another control system; |
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| — | the ability to provide historical data within Amazon Kinesis, AVEVA Historian, AVEVA Insight, OSIsoft PI and/or InfluxDB, including unique store-and-forward capabilities; |
| — | data redundancy features; and |
| — | network system monitoring with the ability to query the operating system it is running on for system status and resource capacity such that this system wide monitoring of critical network resources can help identify problems. |
These DataHub® features make our existing customer base a logical first marketing source for the adoption of our Cloud services. We recently launched Skkynet DataHub for Microsoft Azure, which is a fully managed service available within the Azure Marketplace. The Skkynet DataHub service connects seamlessly to Azure IoT Hub for real-time remote monitoring, control, and data logging, as well as offering many of the same features as the standalone DataHub software. Security is based on Skkynet’s patented technology that uses outbound-only connections to ensure that no attack surface is exposed on a local plant network. It requires no IT policy changes, no open inbound firewall ports, no VPNs, and no extra hardware while allowing real-time bi-directional data flow through DMZs and network proxies up to the cloud.
Our SkkyHub™ service provides the following additional functionality and features over the DataHub®:
| — | scalable remote networking of industrial SCADA systems and embedded devices in real-time with built-in consolidation of data; |
| — | lower cost of ownership by not requiring any programing, no software to buy, no additional PC or server hardware to buy; |
| — | high-speed data throughput with the ability to collect, send, and receive up to 50,000 data changes per second at speeds just a few milliseconds over Internet latency; |
| — | robust security model, where no inbound connection requests to the SCADA system or embedded device are required; |
| — | full supports of industry standard SSL encryption protection, and no requirement for virtual private networks (VPNs) or additional security hardware; |
| — | no changes to the hardware or software of an existing system. Our customers can decide what data to transmit, and how: one-way or bidirectional, where all configuration changes are in the customers’ control; |
| — | view any connected process in a fully web-based interface, providing immersive graphics and real-time response that replicates or exceeds the performance of traditional human-machine-interfaces (HMIs); |
| — | granular security permissions so that qualified users can configure security settings to provide read-only access to limited data sets for public use, while giving bi-directional access to insiders. Authorized developers can access the complete online design interface; |
| — | create and edit screens from any location, all within a standard web browser; no coding or development system is required, and our customers can drag-and-drop desktop-quality graphics to build HMI screens right inside a web browser as it populates and displays data in real-time on the same screen; changes can be deployed to all users instantly; |
| — | DataHub® Embedded Toolkit (ETK) provides a direct link to SkkyHub™ from a wide range of devices and operating systems, a seamless, end-to-end solution for M2M and viewing customer data from their device on the Internet. |
Our customers
Currently, our customers can be broadly categorized into two groups: industrial automation and financial trading. Industrial automation systems (including remote monitoring and tracking systems) account for approximately 80% of revenue, while financial trading, software support, custom development and legacy system support account for the remainder.
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The Company, including the historical operations of Cogent, have provided our products and services to more than 2,000 customers in the following industries: Aerospace, Automation & Control, Chemicals, Communications, Education, Engineering, Energy & Utilities, Financial, Food& Beverage, Government & Municipal, Healthcare & Pharmaceutical, Instrumentation, Manufacturing, Natural Resources and System Integrators. We are well-diversified across these industries such that cyclical swings in any individual industries does not expose us significantly.
The Company sells to their end-user customers both directly and through resellers. Seven (7) resellers accounted for 50% of sales in 2022 and six (6) resellers accounted for 50% of sales in 2021. The Company maintains all the information on their end user customers, and should a reseller discontinue operations, the Company can sell directly to the end user. No reseller has exclusivity in their territory. In 2022, no end user customers were responsible for more than 10% of our revenues and twenty-seven (27) end user customers were responsible for approximately 50% of gross revenue. In 2021, no end user customer was responsible for more than 10% of revenue and twenty-six (26) end user customers were responsible for approximately 50% of gross revenue.
Our financial customers are typically small to medium sized specialist trading firms or hedge funds targeting specific niches. We have customers working in risk management, futures trading, commodities trading, arbitrage, energy spot trading and other areas. Our software is used as a data transmission middleware allowing the customer’s analysts to apply proprietary algorithms to market data and then to distribute it to their clients at extremely high speed. Our customers in the financial sector are generally reluctant to share the details of their deployments due to competitive concerns, making sales by example more difficult.
Our products and services
Our business is organized such that we license our software under a variety of packaging and financial arrangements.
Our software is designed to be modular, with a set of more than 20 different features. We offer license packs (“Product Packs”) which represent common customer use-cases and individual add-on licenses (“Add-ons”). The combination of Product Packs and Add-on licenses allows the customer to fully customize a solution based on their own project requirements.
In addition, we offer customers the ability to license our products for use as SaaS with a view to relicensing them to others with whom they do business. We also offer our licenses with upgrades in the form of an on-going maintenance program and service program for which we charge additional fees depending upon the package of services requested.
We offer OEM customers the ability to re-brand our software to integrate it with their own product offering. This re-branding can be “shallow” or “deep.” Shallow rebranding modifies the icons, images, name and contact information our software presents to the end user. There is no attempt to hide the fact that the software was developed by us. Deep rebranding attempts to remove all visible indications that our software is being used by the OEM customer. This requires more work and ongoing maintenance, as well as formal agreements with regard to our intellectual property.
Industrial automation systems require expertise to configure properly. Generally, the customer has in-house IT expertise regarding its particular process but may have limited experience with our software or the details of communication integration. We offer consulting services to assist customers in configuring their systems and our software to smoothly integrate into their processes. We provide a limited amount of assistance at no charge as part of the sales cycle. Where the customer requires more involved assistance, we offer consulting services at market rates.
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As part of our expansion into Cloud services, we provide three types of Cloud service: remotely hosted Cloud systems, locally hosted Cloud systems, or a hybrid of the two. In the remotely located case, we maintain and manage the operating system infrastructure that allows users to access their industrial automation data via the Internet. We subcontract the Cloud hardware infrastructure from large, established vendors. In the locally hosted case, the customer is responsible for the hardware and data connectivity, and we will provide the software, and optionally the system administration for that software. A customer who wants a remotely located Cloud system will still be required to run some software locally. Our existing on-premises software acts as a bridge between the plant and the remote Cloud system, making a hybrid implementation possible. If the Cloud system becomes unavailable due to communication outage or hardware failure, the customer’s plant will still continue to run in isolation from the remote Cloud system, simply reconnecting once the remote system becomes available again. In effect, our Cloud offering acts as an extension of the local process to a wide-area network or to the Internet. For reasons of speed, security and resiliency we do not anticipate that customers will accept a purely Cloud-based system for their immediate industrial automation data needs. We believe that this may change in the future as technology and market expectations change, as they have done in other markets that have adopted purely Cloud-based services, such as, for example, Salesforce.com and customer relations management (CRM) software.
Our on-premises software is available for download from our product website, https://cogentdatahub.com. Our Cloud-based service is available for registration at https://skkynet.com and at the Microsoft Azure Marketplace 3. A customer can install and use the on-premises software in demonstration mode for a limited time, after which they can re-start the software to reset the time limit. This allows a potential customer to configure and test the software in their system before purchase, both to ensure that it will meet their needs and to determine which product features they will want to purchase. Similarly, the Cloud-based service is available to potential customers to sign up and use it for a paid trial to configure and test, as well as other service levels for full system implementations.
To ensure smooth implementation of our software in a customer’s environment we have organized approximately fifty (50) different technical partners and resellers in different geographic areas with whom we cooperate. Some of them also sell related hardware and software products of their own, and assist us in the installation, monitoring, and maintenance of our products within their customer base. These technical partners may be listed on our website. We continuously seek to recruit new technical partners. We have made recent progress on partnering with world-class hardware companies such as Microsoft (world’s largest software vendor), Siemens AG (world’s largest industrial automation vendor), AVEVA Group plc (formerly Schneider Electric Software, the world’s largest industrial software market channel) and Red Lion Controls, part of Spectris plc, (a major industrial hardware vendor, and subsidiary of Spectris plc, a constituent of the FTSE 250 Index).
Our service supports potential and existing customers
The nature of our market and our sales style demand timely and thorough customer support both before and after a sale is made. Because a potential customer can download and test our software, we provide service support even before the sale is made. This supplies the customer with a no-risk mechanism for ensuring that the software will work in their system and gives us early feedback from the customer. If the customer has questions or concerns, they are answered immediately, making the subsequent sale and installation process simpler.
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3 https://azuremarketplace.microsoft.com/en-us/marketplace/apps/cogentrealtimesystemsinc1581352149215.skkynetdatahub
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During the sales process, we work with customers via telephone or email to help them understand which product features are necessary for their projects. This starts with asking the customer to fill out a short questionnaire explaining their project needs when they ask for a cost quotation. If the customer is unsure about their software requirements, we assist by asking pertinent questions regarding the intended application and by providing clarification on the types of features they need.
We offer customer support via telephone email, fax and Internet message board during office hours. Where appropriate, we offer live desktop-sharing sessions with customers via video conference. This dramatically reduces the time to resolution when the customer’s network and security policy allow it. We have distributors in different parts of the world who offer support in the customer’s time zone and language. We place a high priority on support of distributors, including joint phone calls and video conference sessions with their customers to arrive at quick and satisfactory resolutions.
We incentivize distributors and resellers to develop their technical support capabilities by offering a price discount structure on software sales based on the degree to which the distributor can handle technical support requests from customers. Our goal is to have our sales occur through a combination of our direct efforts and reliance upon our global network of distributors, where the distributor provides support to the customer, and we provide support to the distributor.
Our marketing
We have a variety of marketing activities. We maintain a website at https://skkynet.com focused on general company information, updates, and press releases regarding the general operations of the business, and as an information portal for the SkkyHub™ service. We also maintain a complete library information section of blog articles, whitepapers, and industry news on implementing real-time data access over the Cloud. In 2018, we launched a Japanese version of our website at https://skkynet.jp.
Our primary means of contacting customers is through direct telephone and email contact; appearances at tradeshows, publications in recognized industry magazines and periodicals, our websites coupled with Google advertising and marketed WebEx presentations, including joint promotions with key partners and resellers. We use Google ad-words and search engine optimization to draw the attention of customers in our market. Some of our website materials can be technical in nature, and may include live demonstrations, training videos and instruction manuals. We invite potential customers to download trial versions of our software prior to purchase.
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We maintain distribution relationships with approximately 50 companies around the world. These companies perform their own marketing and promotion to varying degrees, using both original material and material that we provide. We continue to seek new qualified distribution partners, and in 2019 we partnered with Siemens Mobility to co-market a hardware/software combined solution that includes our DataHub software, 4 and we also became a Certified Technology Partner to AVEVA where our DataHub software is made available directly from AVEVA’s website for download and evaluation.5,6
In addition to the foregoing, we engage in the following activities as part of our marketing efforts. We have previously retained ARC Advisory Group and Gartner to promote our new version of the DataHub and the security model of our SkkyHub service. This is augmented by a product features within ARC email publications, and ARC Forum conferences in which direct client meetings are arranged. We send a monthly newsletter to an opt-in mailing list of approximately 10,000 customers and contacts. We produce periodic press releases through a press release service. We maintain LinkedIn, Twitter, YouTube, and blog accounts for outreach to our customers and to draw attention to aspects of our software and market.
We write and publish case studies of successful implementations of our software. These are sometimes produced in cooperation with distributors and are occasionally published in industry trade magazines. We publish white papers on technical subjects and send them to prospects and distributors, as well as distribute them on our website and through trade magazine websites. These activities are focused on education rather than promotion.
Our revenue sources
Our revenue comes from the following sources:
| · | Software licensing for industrial automation systems |
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| · | Software licensing for OEM customers |
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| · | Software licensing for financial trading systems |
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| · | Software support program renewals |
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| · | Legacy installation support |
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| · | Custom integration and development |
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| · | Monthly revenue from financial clients of Skkynet’s Vine™ |
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| · | SaaS revenue from industrial clients of SkkyHub™ |
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| · | SaaS revenue from Skkynet DataHub on Microsoft Azure |
More than 80% of our revenues are derived from software licensing for industrial automation systems, while financial trading, software support, custom development and legacy system support account for the remainder.
Our expenses
Our typical expenses are primarily incurred in the following areas: wages, benefits and contractors of which about half are for software development; office and general; sales, marketing, advertising and promotion. In future years we expect the proportion of expenses in our operating budgets allocable to the categories of programming development and sales personnel to increase as well as the expenses associated with maintaining and improving our Cloud-based site for our customers.
4 https://skkynet.com/siemens/
5 https://skkynet.com/aveva/
6 For example, https://www.aveva.com/en/products/datahub-tunneller-for-opc/
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Our business plans
We believe that we have substantial room for growth in three primary areas of our business. The first is the expansion of our current lines of business providing real-time data middleware to the industrial automation and financial trading markets. Second, is the deployment of our products and services through Cloud-based SaaS products. Third, is the application of our products and services to new business lines such as embedded products or combination solutions (such as our recent partnering with Siemens); where “edge-processing” is required (e.g. remote monitoring and control of assets over third party networks). We have had limited resources to apply to marketing and sales in these areas. We believe that this revenue can be improved through dedicated marketing and sales effort.
We expect the second area of growth to be in the provision of Cloud services for real-time data. This is a market that is still in its formative stages around the world, and our technology is well suited to its development. We will expand and focus our software development on modifying our existing products to provide a smoother and more secure user experience for real-time data handling in the Cloud. Real-time Cloud systems require two components – a local component running at the customer’s site, and a Cloud component running on a managed Cloud infrastructure system. Our software development will focus on improving the security and reducing the friction for users to deploy the local component on their systems. At the same time, we will improve the user experience and automation of the Cloud component to reduce the cost of management, deployment and scaling as the number of customers grows. We rent Cloud server space from Cloud infrastructure providers such as Amazon Web Services and Microsoft Azure, and/or run and maintain our own servers. In the future, we may transition to our own servers as resources permit, and if there is an economic rationale to do so.
We recognize that not all customers will be willing to entrust some of their data transmission to a third party, or to an Internet-based server. In these cases, we offer to deploy our software on private servers managed by the customer or local Cloud infrastructure providers. These “private Cloud” systems will require IT professionals to maintain them and will further require the attention of experts knowledgeable in real-time data systems. We offer our expertise on an ongoing basis to partially or completely manage private Cloud systems on behalf of our customers. For this reason, we are currently working to partner with Cloud infrastructure providers in other countries where there is sensitivity over customer data remaining inside those countries. In 2015, one such partner launched a new private Cloud service, iBRESS™, in Japan, and in December 2017, this partner launched a next-generation Cloud service localized to the Asian markets based on our SkkyHub™ service.
The third area of growth is also related to Cloud systems. For the past 20 years, commercial activity on the Internet has been dominated by business-to-consumer or business-to-business applications. The advent of extremely low-cost and low power consumption sensors will change that, making the Internet into a viable medium for machine-to-machine applications. That is, sensors, machines, appliances and other devices will become directly-connected data transmitters, numbering in the billions. This rise of machine-to-machine communication will require the kinds of real-time data distribution that will be at the center of our Cloud activity. We believe that our Cloud services will be positioned to take advantage of the future development of this “Internet of Things.” Some examples of applications that need this kind of data access are home energy monitoring, commercial building energy management, agricultural monitoring, weather monitoring, remote seismic sensing, fleet tracking and asset maintenance.
Currently, we have a growing customer based in this area, but it is too soon to foresee to what extent, if at all, this aspect of our potential business will develop. However, we garnered significant industry recognition for our technology and SkkyHub™ service by winning Nokia’s Open Innovation Challenge 2015 in Helsinki, Finland. We have also garnered recognition in academia, as exemplified by the 2016 IEEE publication titled “Cloud Communication for Remote Access Smart Grid Testbeds” by Mehmet H. Cintuglu and Osama A. Mohammed of Florida International University, which concluded that “cloud communication can be successfully implemented for actual smart grid power systems test beds.”
These business areas are inter-related. A customer of our Cloud services may also want to install our middleware software in their plant facility. Any existing middleware customer is a potential customer for our Cloud services. In effect, each of our commercial offerings will act as a possible source of sales for the others. Our goals in increasing our sales of middleware software are both to improve short-term revenue and to create a market for our Cloud services. Once established, our Cloud services will further create a market for our middleware products.
In order to pursue all of these business areas, we will require capital to hire the personnel needed to explore and develop a strategy to pursue potential customers in each area.
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Our intellectual property
We have an exclusive license of all of our intellectual property and enhancements thereof, licensed to Cogent Real-Time Systems, Inc., our wholly owned subsidiary, from an affiliated corporation, Real Innovations International LLC, (“Real Innovations”) that is 100% indirectly owned by our CEO and COO. See “Certain Relationships and Related Transactions.” 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. As a result of this license we have five U.S. patents and several patent applications pending for the real-time technologies employed in our software products. The first patent family is directed toward a system and method for providing real-time data to a web browser through use of a Rich Internet Application (“RIA”). Specifically, the graphical and networking features of RIA frameworks allow our software to provide low-latency, real-time data applications in a traditional web browser. The patent family includes U.S. Utility Patent Serial Nos. 8,661,092, 9,667,689 and 10,498,796, Japanese Patent Nos. JP6227249 and JP6314204, and Canadian Patent No. 2,813,076.
The second patent family includes U.S. Patent Serial Nos. 9,100,424, 9,288,272 and 9,762,675 directed towards system and methods for secure real-time cloud services. The system and methods provide a communication framework between sensors, devices, and machinery and the users of that data from any remote location that is connected to the Internet without requiring open inbound firewall ports, while at the same time enabling high data rates, low latency and full bi-directionality. The graphical and networking features of RIA frameworks in combination with the patented system and method provide low-latency, real-time data applications in a web browser securely over the Internet. The patent family includes Japanese Patent No. JP6689838 and Canadian Patent Application No. 2,991,685.
A third patent family includes U.S. Patent Serial Nos. 10,462,206 and 10,558,744 for improved methods to network bidirectional real-time data directly from within Microsoft Excel. Corresponding Canadian Patent Application No. 3,062,745 is pending.
A fourth patent family includes U.S. Patent Serial No. 17/239,988 for novel methods for tunnel historical data. Corresponding Canadian Patent Application No. 3,181,369 is pending.
A fifth patent family includes a U.S. provisional application filed to cover novel methods of multi-device support for certain IoT protocols. Corresponding U.S. and international applications will be filed within appropriate timelines.
Further patents are being sought as new technologies are being developed.
As part of our license we have the exclusive right to use several registered trademarks including “DATAHUB” and “SKKYNET” which are registered in the United States and Canada. We have trade secrets and technical know-how that we protect through confidentiality and restrictive covenants with our employees and contractors. Finally, under our license agreement, we have exclusive rights to all copyrighted software and written materials, which are stored as backups in several different physical locations, and in secure, encrypted format.
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Our competition
We face competition from several vendors who offer products similar to ours in the industrial automation space. Some of these competitors have resources and revenues larger than ours; however, our software is compatible with their products, making it common for a customer to install software from both us and our competition in the same system. We are not aware of direct competition for our products in the financial services sector. Two companies, Tibco Software, Inc. and Lightstreamer Srl, provide software that overlaps with some of the capabilities of our software; however, to our knowledge the Cogent DataHub® and Vine™ are the only products that provides real-time, bi-directional data links between Excel spreadsheets over the Internet or on a network. There are also a number of large industrial automation vendors who offer SCADA systems to their clients. Examples include Siemens, ABB, Emerson Process Management, Rockwell Automation, Honeywell Process Solutions, Schneider Electric, GE Invensys and PTC. We view these companies and others performing similar services as potential competitors inasmuch as they have resources to link their SCADA functions to a Cloud based system; however, we are not currently aware that any vendor is doing so yet. Since these companies already have an installed base of SCADA customers whose systems can be easily connected to our software, these companies also represent an opportunity for joint sales or OEM licensing. A number of these companies are already our customers, and two are official partners (Siemens and AVEVA/Schneider).
There do not currently appear to be Cloud system companies organized for the purpose of hosting real-time industrial data and connectivity. One company, LogMeIn, Inc. (previously Pachube and then Cosm Ltd.), is providing Cloud storage services for sensor data, but we do not regard them as competitive due to their focus on storage rather than real-time collection and distribution. Cloud infrastructure companies such as Amazon, Microsoft (Azure) and Google offer pre-configured applications or computing platforms for remotely hosting a customer’s IT activities. Their primary purpose is to provide the computing substrate for the customer’s applications. As such, these companies, as presently operated, act as suppliers of computing resources to us, not as competition.
Employees
Currently, other than our five officers, we have seven full time employees and five consultants.
ITEM 1A: RISK FACTORS
The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans, and quarantine. This may limit access to our customers, management, support staff and professional advisors. As the Company’s operations depends on numerous unknown factors, we cannot measure the impact on our operations or financial condition at this point in time.
ITEM 1B: UNSOLVED STAFF COMMENTS
None
ITEM 2: PROPERTIES
The Company principal office address is located at 2233 Argentia Road Suite 302 Mississauga, Ontario Canada L5N 2X7. The office address is leased, on a month-to-month basis, with a monthly cost of CDN $100.
ITEM 3: 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 4: MINE SAFETY DISCLOSURE
Not applicable
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PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company’s common stock is currently traded on the OTC.BB market under the ticker symbol SKKY. The Company commenced trading on April 16, 2013, As of October 31, 2022; the Company had 53,143,822 shares of its common stock issued and outstanding, of which 15,840,500 were held by non-affiliates. The Company has authorized 70,000,000 shares of common stock, par value $.001 and 5,000,000 shares of preferred stock, par value $.001, of which 500,000 are designated as Series B preferred shares, par value $.001. As of October 31, 2022, 5,000 preferred shares were issued and outstanding, and 193,661 shares of Series B Preferred authorized were issued and outstanding.
The high and low closing prices are noted below:
Period |
| High Bid |
|
| Low Bid |
| ||
1 st Qtr. 2021 |
|
| 1.63 |
|
|
| 0.31 |
|
2 nd Qtr. 2021 |
|
| 2.50 |
|
|
| 0.75 |
|
3 rd. Qtr. 2021 |
|
| 1.59 |
|
|
| 0.80 |
|
4 th Qtr. 2021 |
|
| 1.19 |
|
|
| 0.26 |
|
1st Qtr. 2022 |
|
| 0.78 |
|
|
| 0.23 |
|
2nd Qtr. 2022 |
|
| 0.38 |
|
|
| 0.15 |
|
3rd Qtr. 2022 |
|
| 0.17 |
|
|
| 0.11 |
|
4th Qtr. 2022 |
|
| 0.29 |
|
|
| 0.17 |
|
As of October 31, 2022, the Company estimates there are approximately 114 “holders of record” of its common stock.
Dividends
We have not declared nor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers significant.
Dividends of 6% of the value of $1.00 per share are being accrued on our Series B preferred shares and as of October 31, 2022 the balance due was $84,245.
Unregistered Sale of Equity Securities
During the year ended October 31, 2022 the Company issued 1,567,700 common stock for the exercise of options with a value of $1,568. The company did not issue any preferred stock.
ITEM 6: SELECTED FINANCIAL DATA.
Not applicable.
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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company was incorporated on August 31, 2011 in the State of Nevada. On March 26, 2012, the Company acquired Cogent Real-Time Systems, Inc.
Skkynet is an evolution of Cogent, an established financial and industrial middleware software vendor. Cogent’s specialization has focused on providing connectivity and data acquisition to a wide variety of industrial and office hardware and software products, and then making that data available over a network using industry-standard protocols. The architecture of Cogent’s software naturally suits it for use both as a data aggregation platform at the process level, and as a data server at the Cloud level. By marrying these two capabilities together, Skkynet can effectively and securely offer the Cloud as an extension to any local process.
Cogent’s market has been primarily in industrial automation. With little advertising, Cogent has also acquired a number of financial trading companies as clients, due to the fact that Cogent’s software is both source and content agnostic. High-speed trading and high-speed industrial automation behave very similarly at the level of abstraction that Cogent’s software uses. Recently, Cogent has been working with Japanese companies to penetrate the lucrative embedded device manufacturing world. Japan is one of the largest producers of consumer and business electronics devices, more and more of which contain small embedded computers. Cogent has been working with partners in Japan to establish a name and presence in this world, with the aim of having Cogent’s software installed directly on the electronic devices, allowing the manufacturers to instantly make them network-accessible.
The Company believes that deploying its product in a Cloud environment will increase the potential applications for customers and broaden its usage and expansion into various markets including Cloud industrial middleware, Cloud financial services, home monitoring, fleet tracking, and energy usage monitoring. New applications that may not exist today but will through the new Cloud platform may also open new markets unknown to Skkynet today. However, management will carefully monitor the growth in new markets and manage each opportunity to maximize its return and minimize risks. This includes selecting specific markets with known trends to introduce its products and services and maintain a controlled release until the market has been understood and sales in the market have become significant to the Company. Only then will the Company risk new markets for its product. We must also include additional staffing at the senior management level with proven experiences and business records in the Company’s environment to implement these markets.
The expansion into new markets will require additional cash resources from sources other than those available to the Company today. Only after the Company has secured specific amounts of financing it believes is required for development of each market application enumerated above will Skkynet begin its marketing efforts.
The additional staffing will not begin until Skkynet has funded itself to finance both the staff increase and the required capital to carry out its marketing plan. If the Company is not successful in obtaining the required additional capital, it believes the present business operation will be able to sustain Skkynet’s additional costs as a public company at a minimal level.
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RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data as a percentage of total revenue for the periods indicated:
|
| For Years Ended October 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Revenue |
| $ | 2,156,880 |
|
|
| 100 | % |
| $ | 1,830,459 |
|
|
| 100 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General operating expense |
|
| 2,214,765 |
|
|
| (102.8 | )% |
|
| 1,983,596 |
|
|
| (108.5 | )% |
Depreciation |
|
| 2,563 |
|
|
| 0.0 | % |
|
| 2,624 |
|
|
| (0.00 | )% |
Income (loss) from operations |
|
| (60,448 | ) |
|
| (3.0 | )% |
|
| (155,761 | ) |
|
| (8.5 | )% |
Other income (expense) |
|
| 54,463 |
|
|
| 2.5 | % |
|
| (33,728 | ) |
|
| (1,8 | )% |
Net income (loss) before taxes |
|
| (5,985 | ) |
|
| (0.5 | )% |
|
| (189,489 | ) |
|
| (10.3 | )% |
Tax refund |
|
| 38,743 |
|
|
| 1.8 | % |
|
| 25,901 |
|
|
| 1.4 | % |
Net income (loss) |
|
| 32,758 |
|
|
| 1.5 | % |
| $ | (163,588 | ) |
|
| (8.9 | )% |
Revenue: For the year ended October 31, 2022, the Company had revenues of $2,156,880 compared to $1,830,459 of revenue for the year ended October 31, 2021. This reflects an increase of $326,421 from 2021 to 2022. Revenue increases can be attributed to the increase of sales in the Cogent subsidiary. During the year ended October 31, 2022, the Company’s deferred revenue was $281,615 compared to a deferred revenue balance of $204,961 as of October 31, 2021, an increase of $76,654. Deferred revenue consists of services billed but not yet provided to the customer and reflects revenues that will be recognized in the future.
Operating Expenses: Total operating expenses, excluding depreciation, increased to $2,214,765 in the year ended October 31, 2022 from $1,983,596 for the same period in 2021. This was an increase of $231,169 and as a percent of revenue G&A decreased to 102.8% in 2022 from 108.5% in 2021. The decrease as a percentage is attributed to higher sales in the Cogent subsidiary in 2022 over 2021.
Depreciation and Amortization: The Company had depreciation of $2,563 in the year ended October 31, 2022 compared to $2,624 in the same period in 2021.
Other Income (Expense): Other income totaled $54,463 during the year ended October 31, 2022 compared to other expense of $33,728 during the same period in 2021. The currency exchange in 2022 of $ 46,675 was a positive change of $120,046 in currency exchange from the same period in 2021. This was the primary reason for the other income in the year ended October 31, 2022 verses other expense in the same period in 2021.
Income Tax: During the years ended October 31, 2022 and 2021 the Company and its subsidiary incurred no tax. The subsidiary filed tax returns as a foreign corporation. During the year ended October 31, 2022 the subsidiary received a tax refund of $38,743 compared to $25,901 for the same period in 2021.
Net Income (Loss): The Company recorded net income of $32,758 for the year ended October 31, 2022 compared to net loss of $163,588 in 2021, a net positive variance of $196,346. The increase in sales in the Cogent subsidiary was the key element in the result of net income in 2022 over the net loss in 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity and capital has been dependent on the revenue generated internally by the Company’s subsidiaries, by loans from its officers and directors and by deferral of accrued salaries. There are no agreements or understandings with regard to future loans by or with the officers, directors, principals, affiliates or shareholders of the Company. In the past, officers and directors of the Company have lent or advanced monies to the Company to fund operations, but there are no formal agreements or arrangements for them to continue to do so.
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The Company anticipates continually expanding its business through the planned expansion of the Company’s marketing of venues in expanded markets. The Company’s plans will be limited, however, by its ability to finance such a proposed expansion of its business. If the revenues generated are not sufficient to finance these proposed operations, then the Company will have to scale back its proposed operations. The Company’s ultimate success will be based upon whether or not there continues to be a demand for the services that the Company anticipates providing, which is also very dependent on the economy. There can be no assurance that there will be a demand for the Company’s services in the future or that the Company will become profitable in providing these services. As the Company’s expands its operations, the revenues received, in addition to paying current expenses may increase the Company’s capital requirements.
The Company is attempting to secure additional capital from independent sources in the form of equity and debt. The success and ability to meet its capital needs is highly dependent on its success in generating additional revenue and profitability now and in the future.
Working Capital: At October 31, 2022, the Company had working capital of $682,644 with current assets of $1,137,936 and current liabilities of $455,292 with a current ratio of 2.50 to 1. The current assets consisted of cash of $729,936, account receivable of $377,491, accounts receivable from related parties of $4,776 and prepaid expense and other receivable of $25,733. The current liabilities of the Company at October 31, 2022 are composed primarily of accounts payable and accrued expenses of $58,202, accrued liabilities to related party of $115,475, deferred revenue of $281,615, plus an operating lease liability of zero.
Operating Activities: Net cash used in operating activities during the year ended October 31, 2022 was $36,021 compared to net cash used of $60,985 for the same period in 2021. This represents a positive change of $24,964. The change in cash flow from operating activities is significant from 2022 to 2021 and due primary to increased sales resulting in net income of $32,758 in 2022 over a net loss of $163,588 in 2021.
Financing Activities: Net cash used in financing was $27,747 for the year ended October 31, 2022 compared to net cash provided by financing activities of $15,678 in 2021. The change results from the proceeds of the Canadian emergency loans in 2021 of $15,678 compared to loan payback of $29,315 in 2022.
As of October 31, 2022, the Company had total assets of $1,144,994 and total liabilities of $474,398 compared to $1,103,947 and $651,380, respectively in the same period in 2021. Stockholders’ equity as of October 31, 2022 was $670,596 compared to stockholder’s equity of $452,567 at October 31, 2021, an increase of $218,029 or 48.2%.
NEED FOR ADDITIONAL FINANCING
The Company’s existing capital is sufficient to meet the Company’s cash needs if the Company continues to operate its ongoing business as presently conducted through revenues generated from operations of our subsidiary for the next twelve months. The Company may from time to time seek additional equity or debt financing as it feels is required to continue the growth of the Company.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies and Recent Accounting Pronouncements
The accounting policies and pronouncements are discussed in the financial footnotes of the Company and should be referenced therein. (See Note -2 Significant Accounting Policies)
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8: FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.
Financial statements are audited and included in this Form 10-K as an exhibit and are incorporated herein by this reference.
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
None
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO has concluded that the Company’s disclosure controls and procedures are not effective because of the identification of a material weakness in our internal control over financial reporting, which is identified below, which we view as an integral part of our disclosure controls and procedures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed 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. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of October 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. Based on this evaluation, management has concluded that the Company’s control over financial reporting is not effective.
This Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting because the attestation report requirement has been removed for “smaller reporting companies” under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Changes in Internal Controls over Financial Reporting
We have not made any changes in our internal controls over financial reporting during the fourth fiscal period of the year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None
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PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers of the Company
The following table sets forth the names and ages of all directors and executive officers of the Company and all persons nominated or chosen to become a director, indicating all positions and offices with the Company held by each such person and the period during which they have served as a director:
The principal executive officers and directors of the Company are as follows:
Name | Age | Director Since | Position |
Mr. Andrew S. Thomas | 59 | November 2011 | Chairman of the Board of Directors ,CEO & Director |
Mr. Paul E. Thomas | 48 | March 2013 | Director, President and Secretary |
Mr. Paul Benford | 55 | March 2013 | Director and COO |
Mr. Lowell Holden | 80 |
| CFO and Treasurer |
Mr. Xavier Mesrobian | 59 |
| VP Sales & Marketing |
Mr. Norman Evans | 68 | August 2013 | Independent Director |
Mr. Kenneth W. Jennings | 74 | August 2013 | Independent Director |
Mr. John X. Adiletta | 74 | September 2014 | Independent Director |
The Directors named above will serve until the next annual meeting of the Company’s stockholders. Thereafter, Directors will be elected for one-year terms at the annual stockholders’ meeting. There is no arrangement or understanding between the Directors and Officers of the Company and any other person pursuant to which any Director or Officer was or is to be selected as a Director or Officer of the Company.
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There is no family relationship between or among any Officer and Director except that Andrew S. Thomas and Paul E. Thomas are brothers.
Although each of our employment agreements permit the employee to engage in other business activities, Mr. Andrew S. Thomas and Mr. Paul Benford, respectively, our CEO and COO, devote substantially all of their business activities time to the business of the Company and its subsidiaries, Cogent, Skkynet (Canada), Skkynet (USA). Mr. Paul E. Thomas and Mr. Lowell Holden devote not less than 80% and 15%, respectively, of their overall business activities to the business of the Company and its subsidiaries Cogent, Skkynet (Canada) and Skkynet (USA).
Committees of the Board of Directors
The Company has an audit committee comprising Norman Evans (Chair), Kenneth Jennings, and John X Adiletta, each of whom is an “independent” director as determined under the rules of the Exchange Act and NASDAQ and a compensation committee comprising Kenneth Jennings (Chair), John X Adiletta, and Norman Evans. The Company currently does not have a nominating committee.
Business Experience: The following is a brief account of the business experience for the past five years of the directors and executive officers, indicating their principal occupations and employment during that period, and the names and principal businesses of the organizations in which such occupations and employment were carried out.
ANDREW S. THOMAS: Mr. Andrew S. Thomas has been the Chief Executive Officer and the Chairman of the Board of Director of Skkynet since November 1, 2011. From May 1995 to the present, Mr. Thomas has been the founder, President and CEO of Cogent Real-Time Systems, Inc. our wholly-owned subsidiary. Prior thereto from 1992-1995 Mr. Thomas was an independent process control consultant and systems integrator and software developer of real time data communications systems. Mr. Thomas received a Master of Applied Science in Engineering from the University of Waterloo in 1991 and a B.A. in Applied Science from the University of Waterloo in 1987. Mr. Andrew Thomas’s qualifications to serve as a director of the Company consist of his experience in our products and services development and strategic planning, and his broad, fundamental understanding of the business drivers affecting the Company.
PAUL E. THOMAS: Mr. Paul E. Thomas has been the President and Assistant Secretary of Skkynet since November 26, 2011 and became a member of the Board of Directors on March 26, 2013. Mr. Paul Thomas has also been Vice President of Intellectual Property for Cogent since January 1, 2012. Mr. Paul Thomas is the brother of our CEO and Board Chairman, Andrew S. Thomas. From September 2008 to the present Mr. Thomas has been the founder and principal of a group of affiliated companies, LifeCycle IP Management, Inc. and LifeCycle Capital Partners, Inc. that are engaged in various IP related businesses including valuations, due diligence, transactions analysis and structuring, strategic partnering and filing and processing IP applications to regulatory authorities. Prior thereto, from January to September 2008, Mr. Thomas was Assistant General Counsel at Iovate Health Sciences at which he managed the global IP portfolio of more than 100 patent families of products. Prior thereto, Mr. Thomas from 2007 to 2008 Mr. Thomas was IP and Corporate Development Counsel at Cipher Pharmaceuticals, Ltd., and during the period between 2000-2007 Mr. Thomas practiced intellectual property law as an associate lawyer at three different law firms in Toronto Canada. Mr. Thomas is a registered patent agent with the U.S Patent and Trademark Office and a registered patent and trademark agent with the Canadian Patent Office. Mr. Thomas received his J.D. from the University of British Columbia in 2000. He also received a Master of Applied Science in Chemical Engineering from the University of British Columbia in 1998 and a B.A in Applied Science, Chemical Engineering from Queen’s University, Kingston in 1995. Mr. Paul Thomas’s qualifications to serve as a director of the Company consist of his experience in fund raising activities for developing companies, public and private, and proper planning for intellectual property development and protection of our products and services.
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PAUL BENFORD: Mr. Paul Benford has been the Chief Operating Officer of Skkynet since November 1, 2011 and became a member of our Board of Directors on March 26, 2013. From 1995 to the present Mr. Benford has been the Business Manager of Cogent. Prior thereto, from 1992 through 1995 Mr. Benford was an independent process control consultant and an application engineer. Mr. Benford received a Master of Applied Science in Mineral Process Engineering from the University of British Columbia in 1993, and a B.A. with honors from the Camborne School of Mines in Cornwall, United Kingdom in 1990. Mr. Paul Benford’s qualifications to serve as a director of the Company consist of his experience in the fields of strategies of customer development and forms of communication with a variety of corporate constituencies in the industries within which we operate.
LOWELL HOLDEN: Lowell Holden has been the CFO and Chief Accounting Officer of the Company since March 2012. Since 1983, Mr. Holden owns and operates his own consulting firm, LS Enterprises, Inc., which provides business consulting, accounting and other services to businesses. Mr. Holden has a broad range of business experience including managing, securing financing, structuring of transactions, and is experienced and knowledgeable in managing relationships with customers, financing institutions and stockholders. He also serves as CFO and director of Nascent Biotech (NBIO), PTS, Inc (PTSH), and CFO and director of EMR Technology Solutions Inc. Mr. Holden also has a background in assisting companies in fulfilling their financial auditing and SEC reporting requirements. Mr. Lowell Holden has a Bachelor of Science degree from Iowa State University.
XAVIER MESROBIAN: Mr. Xavier Mesrobian has been the Vice President of Sales and marketing since October 1, 2013. He has direct experience with cutting edge venture-backed software start-ups and possesses extensive experience in technical sales. Since 2008, Mr. Mesrobian was an Account Development Executive at ADP Inc., Dealer Services Division. Prior to his work at ADP, from 2003 to 2007, he was Director of Product Management and Business Development at Decisiv, Inc., a leading provider of a Service Relationship Management (SRM) platform, and prior thereto he was the Director of Market Development at Novarra Inc., an internet mobility software company. Mr. Mesrobian received a BA from Carleton University in Economics.
NORMAN EVANS: Mr. Norman Evans has been a director of the Company since August 2013 and has retired as the Chief Financial Officer of Cipher Pharmaceuticals Inc., a Canadian publicly-listed pharmaceutical company. Mr. Evans is also a Chartered Accountant with over 25 years of business experience. Prior to his work at Cipher, from 1996 to 2006, Mr. Evans was Vice-President of Finance at MDS Pharma Services, a pharmaceutical services company, and prior thereto was a Partner at Ernst & Young Inc. Mr. Evans received a B.Sc. from Concordia University and received his Canadian Chartered Accountant designation in 1980. Mr. Evans’ qualifications to serve as a director of Skkynet consist of his experience in conducting audits, corporate governance and financial reporting for public companies.
KENNETH JENNINGS: Mr. Kenneth Jennings has been a director if the Company since August 2013 and is also Vice President of Kinesis Identity Security System Inc., a software security company. Prior to his work at Kinesis, from 1991 to 2009, Mr. Jennings held senior roles including VP of Manufacturer Solutions & Consulting, VP of Marketing, and VP of Sales at ADP Dealer Services, a division of ADP Inc., the payroll outsourcing company. Mr. Jennings’ qualifications to serve as a Director of Skkynet consist of over 30 years of experience in business development, strategy and in leading business-to-business software sales and marketing teams.
| 23 |
| Table of Contents |
JOHN X. ADILETTA: Mr. Adiletta has been a director of the Company since September 2014. As managing partner of PCS Management Group since its founding in 1993, Mr. Adiletta has hands on experience in mergers and acquisitions as they pertain to medical and security products and services, telecommunications providers, data carriers, and related suppliers. He has also served on boards of directors for technology companies in various capacities including the audit, compensation, and corporate governance committee.
Conflict of Interest
Although each of our employment agreements permit the employee to engage in other business activities, Mr. Andrew S. Thomas and Mr. Paul Benford, respectively, our CEO and COO, devote substantially all of their business activities time to the business of the Company and its subsidiary, Cogent. Mr. Paul E. Thomas and Mr. Lowell Holden devote not less than 80% and 15%, respectively, of their overall business activities to the business of the Company and its subsidiaries. There will be occasions when the time requirements of the Company’s business conflict with the demands of their other business and investment activities. Such conflicts may require that the Company attempt to employ additional personnel. There is no assurance that the services of such persons will be available or that they can be obtained upon terms favorable to the Company.
There is no procedure in place which would allow the Officers and Directors to resolve potential conflicts in an arms-length fashion. Accordingly, they will be required to use their discretion to resolve them in a manner which they consider appropriate.
Director or Officer Involvement in Certain Legal Proceedings
Our directors and executive officers have not been involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.
Board Independence
As currently constituted and applying the rules of NASDAQ, Norman Evans, Kenneth Jennings, and John X. Adiletta are the members of our Board of Directors that are independent. We are committed to eventually establishing a board in which a majority of our members consist of independent directors, as defined under the NASDAQ rules. Our ability to implement this goal will depend upon the growth of the Company and our ability to attract and compensate strategic persons willing to serve in that function.
Code of Ethics
We have adopted a Code of Ethics which covers the Chief Executive Officer and Chief Financial Officer, which is administered and monitored by the Board of Directors as a whole.
| 24 |
| Table of Contents |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission (SEC) require our directors, executive officers and persons who own more than 10% of our Class A common stock to file reports of their ownership and changes in ownership of our Class A common stock with the SEC. Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we determined that no director, executive officer or beneficial owner of more than 10% of our common stock failed to file a report on a timely basis during the year ended October 31, 2022:
Name |
| Position |
| Filed Reports Timely |
Andrew S. Thomas |
| Officer, Director |
| Yes |
Paul E. Thomas |
| Officer, Director |
| Yes |
Paul Benford |
| Officer, Director |
| Yes |
Lowell Holden |
| Officer |
| Yes |
Xavier Mesrobin |
| Officer |
| Yes |
Norman Evans |
| Director |
| Yes |
Kenneth Jennings |
| Director |
| Yes |
John X Adiletta |
| Director |
| Yes |
Michael Thomas |
| Advisor |
| Yes |
ITEM 11: EXECUTIVE COMPENSATION.
The following tables sets for the compensation for all officers and directors during the past two years:
DIRECTORS and OFFICERS – COMPENSATION
|
|
|
| Annual compensation |
| Long-term compensation |
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
| Awards |
| Payouts |
|
|
|
| |||||||||||||||
Name and Principal Position |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Other annual compen -sation ($) |
| Restricted stock award(s) ($) |
|
| Securities under- lying options/ SARs (#) |
| LTIP payouts ($) |
|
| All other compen- sation ($) |
|
| Total Compensation |
| ||||||
Andrew S. Thomas, (1,4,7) hief Executive Officer |
| 2022 |
|
| 132,056 |
|
|
| -- |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 132,056 |
|
|
| 2021 |
|
| 111,340 |
|
|
| 42,542 |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 153,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Benford, (1,7) Chief Operating Officer |
| 2022 |
|
| 132,056 |
|
|
| -- |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 132,056 |
|
|
| 2021 |
|
| 111,340 |
|
|
| 42,542 |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 153,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowell Holden, (2) Chief Financial Officer |
| 2022 |
|
| 48,000 |
|
|
| -- |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 48,000 |
|
|
| 2021 |
|
| 48,000 |
|
|
| 7,755 |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 55,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul E. Thomas, (3,7) resident |
| 2022 |
|
| 132,056 |
|
|
| -- |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 132,056 |
|
|
| 2021 |
|
| 111,340 |
|
|
| 42,542 |
|
|
|
|
| - |
|
|
|
|
| -- |
|
|
| - |
|
|
| 153,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xavier Mesrobin. Vice President Sales(6,7) |
| 2022 |
|
| 104,868 |
|
|
| -- |
|
|
|
|
| 33,451 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 138,319 |
|
|
| 2021 |
|
| 107,364 |
|
|
| 21,673 |
|
|
|
|
| 29,301 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 158,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norman Evans, Director (5) |
| 2022 |
|
| -- |
|
|
| - |
|
|
|
|
| 30,000 |
|
|
|
|
| - |
|
|
| - |
|
|
| 30,000 |
|
|
| 2021 |
|
| -- |
|
|
| - |
|
|
|
|
| 30,000 |
|
|
|
|
| - |
|
|
| - |
|
|
| 30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth Jennings, Director(5) |
| 2022 |
|
| -- |
|
|
| -- |
|
|
|
|
| 30,000 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 30,000 |
|
|
| 2021 |
|
| -- |
|
|
| -- |
|
|
|
|
| 30,000 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John X Adiletta, Director(5) |
| 2022 |
|
| -- |
|
|
| -- |
|
|
|
|
| 30,000 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 30,000 |
|
|
| 2021 |
|
| -- |
|
|
| -- |
|
|
|
|
| 30,000 |
|
|
|
|
| -- |
|
|
| -- |
|
|
| 30,000 |
|
| 25 |
| Table of Contents |
(1) | Mr. Andrew S. Thomas and Mr. Benford each received cash salary paid by Cogent Real-Time Systems Inc. of $132,056, respectively. |
|
|
(2) | Mr. Holden through LS Enterprises, Inc., a company of which he is President, received $48,000. |
|
|
(3) | Mr. Paul E. Thomas received cash payments of $132,056 for consulting services through LifeCycle IP Management Inc., which he owns. |
|
|
(4) | Ms. Shizuka Thomas, wife of Mr. Andrew S. Thomas, was paid $41,947 during fiscal year 2022 for services as a Japanese business manager and translator. |
|
|
(5) | Directors fees of $30,000 per year per director were paid in cash to three outside directors. |
|
|
(6) | Mr. Mesrobin was paid in cash $104,868 in salary and $33,451 in commissions. |
|
|
(7) | Compensation is calculated in US dollars for reporting purposes causing a variance from year to year on persons paid in Canadian dollars. |
Employment Agreements
We and our subsidiary, Cogent, have employment agreements with all of our executive officers. The terms and conditions of each such agreement are described below.
Effective January 1, 2012, our subsidiary, Cogent, entered into an Employment Agreement (the “Agreement”) with our CEO, Andrew S. Thomas commencing January 1, 2012. Mr. Thomas will perform identical duties for our Company as well. The Agreement is for a three-year term commencing on January 1, 2012 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. Thomas is to receive an annual base salary of CDN$140,000, subject to annual increase at the discretion of our Board of Directors. In addition, Mr. Thomas is eligible for an annual cash bonus in an amount to be determined by and otherwise subject to the discretion of the Board of Directors. Under the Agreement, this determination is to be based upon the Board of Directors review of Mr. Thomas’s performance. While employed with the Company, the Agreement allows Mr. Thomas to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company. The Employment Agreement permits Mr. Thomas to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company.
| 26 |
| Table of Contents |
Effective January 1, 2012, our subsidiary, Cogent, entered into an Employment Agreement (the “Agreement”) with our COO, Paul Benford commencing January 1, 2012. Mr. Benford will perform identical duties for our Company as well. The Agreement is for a three-year term commencing on January 1, 2012 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. Benford is to receive an annual base salary of CDN $140,000, subject to annual increase at the discretion of our Board of Directors. In addition, Mr. Benford is eligible for an annual cash bonus in an amount to be determined by and otherwise subject to the discretion of the Board of Directors. Under the Agreement, this determination is to be based upon the Board of Directors review of Mr. Benford’s performance. While employed with the Company, the Agreement allows Mr. Benford to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company. The Employment Agreement permits Mr. Benford to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company.
Effective January 1, 2012, our subsidiary, Cogent, entered into an Employment Agreement (the “Agreement”) with its Vice President of Intellectual Property, Paul E. Thomas commencing January 1, 2012. Mr. Paul Thomas will also serve as President for our Company as well. The Agreement is for a three-year term commencing on January 1, 2012 and provides for automatic renewal of successive one-year terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. Paul Thomas is to receive an annual base salary of CDN $140,000, subject to annual increase at the discretion of our Board of Directors. In addition, Mr. Thomas is eligible for an annual cash bonus in an amount to be determined by and otherwise subject to the discretion of the Board of Directors. Under the Agreement, this determination is to be based upon the Board of Directors review of Mr. Paul Thomas’s performance. While employed with the Company, the Agreement allows Mr. Paul Thomas to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company. The Employment Agreement permits Mr. Paul Thomas to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company.
Effective April 16, 2012, the Company entered into an Employment Agreement (the “Agreement”) with our Chief Financial Officer, Lowell T. Holden commencing April 16, 2012. The Agreement is for an eight-month term commencing on April 16, 2012 and provides for automatic renewal of successive quarterly terms unless notice is provided ninety (90) days prior to the expiration of the then current term. The agreement provides that Mr. Holden is to receive an annual base salary of $48,000, subject to annual increase at the discretion of our Board of Directors. In addition, Mr. Holden is eligible for an annual cash bonus in an amount to be determined by and otherwise subject to the discretion of the Board of Directors. Under the Agreement, this determination is to be based upon the Board of Directors review of Mr. Holden’s performance. While employed with the Company, the Agreement allows Mr. Holden to engage in other limited business activities that are not competitive with and do not involve the Company, subject to the prior disclosure to the Company. The Employment Agreement permits Mr. Holden to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company.
Effective October 1, 2013, the Company entered into an Employment Agreement (the “Agreement”) with our Vice President, Sales & Marketing, Xavier Mesrobian commencing November 1, 2013 for an indefinite term. The agreement provides that Mr. Mesrobian is to receive an annual base salary of CDN$100,000, subject to annual increase at the discretion of our Board of Directors, and a commission calculated quarterly based on sales/revenue growth of the Company. In addition, Mr. Mesrobian is eligible for an annual cash bonus in an amount to be determined by and otherwise subject to the discretion of the Board of Directors. Under the Agreement, this determination is to be based upon the Board of Directors review of Mr. Mesrobian’s performance. The Employment Agreement permits Mr. Mesrobian to terminate his employment in the event of a change of control or certain enumerated material breaches thereof by the Company.
| 27 |
| Table of Contents |
Directors each receive $2,500 per month in fees that had been accrued but not paid and are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meeting of the Board of Directors.
The Company has no material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company’s directors or executive officers.
The Company has no compensatory plan or arrangements, including payments to be received from the Company, with respect to any executive officer or director, where such plan or arrangement would result in any compensation or remuneration being paid resulting from the resignation, retirement or any other termination of such executive officer’s employment or from a change-in-control of the Company or a change in such executive officer’s responsibilities following a change-in-control and the amount, including all periodic payments or installments where the value of such compensation or remuneration exceeds $100,000 per executive officer.
During the last completed fiscal year, no funds were set aside or accrued by the Company to provide pension, retirement, or similar benefits for Directors or Executive Officers.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT and RELATED STOCKHOLDER MATTERS
The following table sets forth, , certain information concerning the beneficial ownership of our common stock, by (i) each person known by us to own beneficially five per cent (5%) or more of the outstanding shares of each class, (ii) each of our directors and executive officers, and (iii) all of our executive officers and directors as a group.
The number of shares beneficially owned by each 5% stockholder, director or executive officer is determined under the rules of the Securities and Exchange Commission, or SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and also any shares that the individual or entity has the right to acquire through the exercise of any stock option, warrant or other right, or the conversion of any security. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion in the table below of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
Name and Address (1) |
| Shares of Common Stock Beneficially Owned |
|
| Percent of Common Stock |
|
| Exercisable Options |
| |||
Andrew S. Thomas (2) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 22,308,300 |
|
|
| 41.81 |
|
|
| 160,000 |
|
Paul E. Thomas 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 5,338,900 |
|
|
| 10.05 |
|
|
| 152,000 |
|
Paul Benford 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 8,660,400 |
|
|
| 16.29 |
|
|
| 120,000 |
|
Lowell Holden (3) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 208,989 | (2) |
|
| 0.39 |
|
|
| 138,000 |
|
Norman Evans (1) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 245,600 |
|
|
| 0.46 |
|
|
| 62,000 |
|
Kenneth Jennings (1) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 308,600 |
|
|
| 0.58 |
|
|
| 62,000 |
|
John X Adiletta(1) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 185,533 |
|
|
| 0.35 |
|
|
| 54,000 |
|
Xavier Mesrobian (1) 2233 Argentia Road, Suite 306, Mississauga, Ontario, Canada, L5N 2X7 |
|
| 86,400 |
|
|
| 0.00 |
|
|
| 368,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group |
|
| 37,342,722 |
|
|
| 70.27 |
|
|
| 1,116,000 |
|
(1) | Denotes officer or director. |
(2) | Mr. Andrew Thomas’s shares are held by Sakura Software, which is owned by Mr. Thomas. |
(3) | Mr. Holden holds 198,989 of his shares directly and 10,000 indirectly through a related party. |
| 28 |
| Table of Contents |
Change in Control:
There are no arrangements known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change of control of the Company.
Options
We have adopted a 2012 Stock Option Plan (the “2012 Plan”) under which we are authorized to issue up to a maximum of 10,000,000 incentive stock options and non-qualified stock options to our directors, officers, employees and consultants. The 2012 Plan has been approved by our stockholders. The 2012 Plan authorizes the Board of Directors or a committee thereof, to grant awards of incentive stock options and non-qualified stock options upon such terms and conditions as the Board may determine. The total number of options granted and outstanding as of October 31, 2022, is 6,632,450 options. Currently, the 2012 Plan is administered by the Board of Directors.
We currently have 6,632,450 options issued and outstanding under our 2012 Stock Option Plan which have been granted to four key employees, four officers, two consultants and three directors. Each of the foregoing individuals has been awarded options which will vest in equal annual installments over a five-year period with the first 20% vesting at the date of grant. All of the options are exercisable at a purchase price range of $0.001 to $0.64 per share.
The following table sets forth the option holder as of October 31, 2022:
Recipient |
| Title |
|
| Number Options |
| ||
Andrew Thomas |
| Officer and Director |
|
|
| 200,000 |
| |
Paul Benford |
| Officer and Director |
|
|
| 150,000 |
| |
Paul Thomas |
| Officer and Director |
|
|
| 190,000 |
| |
Lowell Holden |
| Officer |
|
|
| 172,500 |
| |
Xavier Mesrobian |
| Officer |
|
|
| 1,275,000 |
| |
Kenneth Jennings |
| Director |
|
|
| 81,250 |
| |
Norman Evans |
| Director |
|
|
| 81,250 |
| |
John X Adiletta |
| Director |
|
|
| 71,250 |
| |
Employees and consultant as a group |
|
| -- |
|
|
| 4,411,200 |
|
Total |
|
|
|
|
|
| 6,632,450 |
|
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders | 10,000,000 | -- | 3,367,550 |
Equity compensation plans not approved by security holders | -- | -- |
|
Total | 10,000,000 | -- | 3,367,550 |
The Company utilizes the shares available under the Plan described above to issue shares of stock as compensation to employees, consultants and officers and directors. At the end of each quarter, the Board of Directors of the Company determines the number of shares to be issued pursuant to the Plan.
| 29 |
| Table of Contents |
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
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 license 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. As of October 31, 2022 the Company has not made payments per the agreement.
Mr. Andrew S. Thomas and Mr. Paul Benford were each paid $132,056 as salary for the fiscal year ended October 31, 2022 for serving as the CEO and COO of Cogent. Ms. Shizuka Thomas, the wife of Mr. Andrew S. Thomas, received $41,947 as salary for the fiscal year ended October 31, 2022 for services as a Japanese business manager and translator.
Mr. Lowell Holden, the Chief Financial Officer of the Company, was paid $48,000 during the year ended October 31, 2022 in consulting fees by the Company
Mr. Paul E. Thomas, the President of the Company was paid $132,056 for services for the fiscal year ended October 31, 2022.
Mr. Xavier Mesrobin was paid in cash $104,868 in salary and $33,451 in commissions for services for the fiscal year ended October 31, 2022.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
|
| 2022 |
|
| 2021 |
| ||
Audit fees |
| $ | 37,440 |
|
| $ | 31,200 |
|
Audit related fees |
|
| -- |
|
|
| -- |
|
Tax fees |
|
| -- |
|
|
| -- |
|
All other fees |
| $ | -- |
|
| $ | -- |
|
Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees. Services provided by the audit firm are reviewed and approved by the audit committee prior to engagement of the audit firm.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for in the other categories.
| 30 |
| Table of Contents |
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SECHEDULES.
(a) The following financial statements and schedules are filed as part of this report:
Consolidated Audited Financial Statements of Skkynet Cloud Systems Inc. for years ended October 31, 2022 and 2021.
(b)
Exhibit Number |
| Description |
|
|
|
(31) |
| Section 302 Certifications |
| ||
(32) |
| Section 906 Certification |
| ||
101** |
| Interactive Data Files |
101.INS |
| Inline XBRL Instance Document |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| 31 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Las Vegas, State of Nevada, on January 27, 2023.
| SKKYNET CLOUD SYSTEMS, INC. | ||
|
|
|
|
By: | /s/ Andrew Thomas | ||
|
| Andrew Thomas, |
|
|
| Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on January 27, 2023.
Signature |
| Title |
|
|
|
|
|
/s/ Andrew Thomas |
| Chairman, Chief Executive Officer |
|
Andrew Thomas |
| (Principal Executive Officer) and Director |
|
|
|
|
|
/s/ Paul Thomas |
| Director, President |
|
Paul Thomas |
|
|
|
|
|
|
|
/s/ Paul Benford |
| Director and COO |
|
Paul Benford |
|
|
|
|
|
|
|
/s/ Lowell Holden |
| Chief Financial Officer (Principal Financial Officer), |
|
Lowell Holden |
| Principal Accounting Officer, Treasurer |
|
|
|
|
|
/s/ Norman Evans |
| Director |
|
Norman Evans |
|
|
|
|
|
|
|
/s/ Kenneth Jennings |
| Director |
|
Kenneth Jennings |
|
|
|
|
|
|
|
/s/ John X Adiletta |
| Director |
|
John X Adiletta |
|
|
|
| 32 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Skkynet Cloud Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Skkynet Cloud Systems, Inc. (“the Company”) as of October 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended October 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Refer to Note 2 to the financial statements
Description of the Critical Audit Matter
As discussed in Note 2, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
Significant judgment is exercised by the Company in determining revenue recognition for its software and services, and includes the following:
| · | Determination of whether software and services (including installation, maintenance support, and cloud services) are considered distinct performance obligations that should be accounted for separately. |
| · | Identification and treatment of contract terms that may impact the timing and amount of revenue recognized. |
| · | Determination of stand-alone selling prices for each distinct performance obligation and for software and services that are not sold separately. |
Auditing management’s revenue recognition was highly judgmental due to the significant estimation required for the recognition of revenue.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company's revenue recognition for these customer agreements included the following, among others:
| · | We evaluated management's significant accounting policies related to revenue recognition and reviewed underlying customer invoices for reasonableness of the application of ASC 606. |
| · | We obtained an understanding of the process by which accounting estimates are utilized by management in determining when performance obligations are satisfied for the Company’s various revenue streams and how this affects the related recognition of revenue over time. |
| · | We obtained and read contract source documents for selected revenue invoices and tested management’s treatment of those terms. |
| · | We tested the mathematical accuracy of management's calculations of revenue and the associated timing of revenue and deferred revenue recognized in the financial statements. |
| |
We have served as the Company’s auditor since 2020.
| |
January 27, 2023 (0 |
|
| F-2 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
|
| October 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Accounts receivable |
|
|
|
|
|
| ||
Receivables – related parties |
|
|
|
|
|
| ||
Prepaid |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $ |
|
|
|
|
|
| ||
Right of use lease asset |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expense |
| $ |
|
| $ |
| ||
Accrued liability - related parties |
|
|
|
|
|
| ||
Deferred income |
|
|
|
|
|
| ||
Current portion of operating lease liability |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long Term Liability |
|
|
|
|
|
|
|
|
Loan payable |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitment and Contingencies |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock; $ |
|
|
|
|
|
| ||
Series B Preferred convertible stock: $ |
|
|
|
|
|
| ||
Common stock, $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated other comprehensive income (loss) |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total stockholders’ equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
| Years Ended October 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salary and wages |
|
|
|
|
|
| ||
Consultants |
|
|
|
|
|
| ||
Advertising |
|
|
|
|
|
| ||
Option discount |
|
|
|
|
|
| ||
General and administrative expense |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Operating expense |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
| ||
Debt recovery |
|
|
|
|
|
| ||
Canadian emergency business relief account |
|
|
|
|
|
| ||
Currency exchange |
|
|
|
|
| ( | ) | |
Total other income (expense) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Preferred dividends |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Income (loss) to common shareholders |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Net income (loss) per share to common shareholders, basic |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Net income (loss) per share to common shareholders, diluted |
| $ |
|
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, diluted |
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED October 31, 2022 AND 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| Equity |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at October 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||||||
Stock option expenses |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Change due to currency exchange |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dividends accrued on Series B preferred shares |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||||||
Common stock issued for option exercise |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock option expense |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Change due to currency exchange |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Dividends accrued on series B preferred shares |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Years Ended October 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income (loss) |
| $ |
|
| $ | ( | ) | |
Adjustments to reconcile net income (loss) to net cash |
|
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
| ||
Option based compensation |
|
|
|
|
|
| ||
Non-cash lease expense |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Operating lease liability |
|
| ( | ) |
|
| ( | ) |
Prepaid and other assets |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued expense |
|
| ( | ) |
|
|
| |
Accrued liability-related party |
|
| ( | ) |
|
| ( | ) |
Deferred revenue |
|
|
|
|
|
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from loan |
|
|
|
|
|
| ||
Repayment of loan |
|
| ( | ) |
|
|
| |
Proceeds from exercise of stock options- related parties |
|
|
|
|
|
| ||
Net cash provided by (used in) financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
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|
Net increase (decrease) in cash and cash equivalents |
|
| ( | ) |
|
| ( | ) |
Cash and cash equivalents– beginning of year |
|
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|
|
|
| ||
Cash and cash equivalents– end of year |
| $ |
|
| $ |
| ||
|
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|
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|
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|
|
SUPPLEMENT DISCLOSURES: |
|
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|
Interest paid |
| $ |
|
| $ |
| ||
Income taxes paid |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
NON MONETARY TRANSACTIONS |
|
|
|
|
|
|
|
|
Dividends accrued on series B preferred shares |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| F-6 |
| Table of Contents |
SKKYNET CLOUD SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Skkynet Cloud Systems, Inc. (“Skkynet”, the “Company”), a Nevada Corporation headquartered in Toronto, Canada was formed on August 31, 2011. Skkynet operates it business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (Cogent)(Canada), 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.
In March 2012, we completed the acquisition of all of the issued and outstanding shares of common stock of Cogent from Sakura Software Inc. and Benford Consultancy Inc. in exchange for a total of thirty million (
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries Cogent Real Time Systems, Inc (Canada), Skkynet Corp. (Canada) and Skkynet Inc (US). All material intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Cash deposits are insured up to US$
| F-7 |
| Table of Contents |
Revenue Recognition
In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606.
ASC Topic 606 prescribes a new five-step model entities should follow in order to recognize revenue in accordance with the core principle. These five steps are:
| 1. | Identify the contract(s) with a customer. |
| 2. | Identify the performance obligations in the contract. |
| 3. | Determine the transaction price. |
| 4. | Allocate the transaction price to the performance obligations in the contract. |
| 5. | Recognize revenue when (or as) the entity satisfied the performance obligations. |
Effective November 1, 2018, the Company implemented the transition using the modified retrospective method of transition. Under this method, the determination date of open contracts which could affect any adjustments was November 1, 2018. The open contracts at the time period are the unfulfilled portions of the maintenance contracts.
The Company has four revenue streams, each of which the revenue is recognized in accordance to the five steps included in Topic 606. The revenue streams are:
| 1. | Sale of software direct to the end customer |
| 2. | Sale of software through distributors and channel partners |
| 3. | Maintenance support services |
| 4. | Cloud services |
Revenue for the sale of software both directly to end users and through the distributor and channel partners is recognized upon delivery of the software and code required for the customer to install the software.
Maintenance support services are recognized as revenue on a straight-line basis over the service period of the arrangement.
Revenue from cloud services is recognized over time (typically, on a monthly basis) as service is provided.
Payments received in advance of services being rendered are recorded as deferred revenue and recognized to revenue when earned. As of October 31, 2022 and 2021 the deferred revenue was $
Accounts Receivable
Accounts Receivable are carried at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable include receivables from customers that have received software and support from the Company. Bad debt expense is a recognition of uncollectable receivables based on past years’ experience and management’s estimate of likely losses for the year. No allowance for bad debt was considered necessary for the years ended October 31, 2022 and October 31, 2021, respectively.
| F-8 |
| Table of Contents |
Advertising
Advertising costs are expensed as incurred. Advertising expenses for the years ended October 31, 2022 and 2021 were $
Property and Equipment
Property and equipment are carried at the cost of acquisition and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance is expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets.
Foreign Currency Translation
The Company’s reporting currency is in U.S. dollars. The functional currency of the Company’s foreign operations is their local currency. The financial statements of the Company’s subsidiaries in Canada are translated to U.S. dollars in accordance with ASC 830-30, “Foreign Currency Translation”. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date while the income statement accounts are translated using the average exchange rate for the year. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Impairment of Long-lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or estimated salvage value.
Basic and Diluted Net Loss Per Share
Basic and diluted net income per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. They include the dilutive effect of common stock equivalents in years with net income. For the years ended October 31, 2022 and 2021,
Income Taxes
Income taxes are provided in accordance with Accounting Standards Codification (“ASC”), Topic 740 Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
| F-9 |
| Table of Contents |
Income taxes for subsidiaries Cogent Real-Time Systems are subject to the tax statutes in their country of domicile which is Canada.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the fair value recognition provision of the Financial Accounting Standards Board(“FASB”) Accounting Standards Codification (“ASC”) No 718. The Company issues restricted stock to employees and consultants for their services. Cost of these transactions are measured at fair value of the equity instrument issued at the date of grant. These shares are considered fully vested and the fair market value is recognized as the expense in the period granted. The Company recognized consulting expense and a corresponding increase to the additional paid in capital related to the stock issued for services. For agreements requiring future services the consulting expense is to be recognized ratably over the requisite service period.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.”
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments- Credit Losses (Topic 326)". The Change in this announcement requires immediate recognition of management’s estimates of current expected losses (CELC). Under the prior model, losses were recognized only as the incurred. The amendment was effective for smaller reporting Companies for the fiscal years beginning after December 15,2022. The Company is reviewing the standard on its financial reporting based on the Company’s experience requiring prepayment for it services.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at October 31, 2022 and 2021:
|
| 2022 |
|
| 2021 |
| ||
Property and equipment |
| $ |
|
| $ |
| ||
Less: accumulation depreciation |
|
| ( | ) |
|
| ( | ) |
Net property and equipment |
| $ |
|
| $ |
| ||
Depreciation expense totaled $
| F-10 |
| Table of Contents |
NOTE 4 - INCOME TAXES
The Company follows Accounting Standards Codification 740, Accounting for Income Taxes. During 2009, there was a change in control of the Company.
Under section 382 of the Internal Revenue Code such a change in control negates much of the tax loss carry forward and deferred income tax. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. For federal income tax purposes, the Company uses the accrual basis of accounting, the same that is used for financial reporting purposes.
The Company’s deferred tax assets for the U.S. parent company and its US subsidiary consisted of the following as of October 31, 2022, and 2021:
|
| 2022 |
|
| 2021 |
| ||
Income/(Loss) Before Income Taxes |
| $ |
|
| $ | ( | ) | |
Income Tax Recovery |
|
|
|
|
| ( | ) | |
Valuation Allowance |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net Operating Losses |
| $ |
|
| $ |
| ||
Tax Rate |
|
| % |
|
| % | ||
|
|
|
|
|
|
|
|
|
Deferred Tax Assets |
|
|
|
|
|
| ||
Valuation Allowance |
|
| ( | ) |
|
| ( | ) |
Net Deferred Tax Assets |
| $ |
|
| $ |
| ||
The US companies had a net income of $
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended October 31, 2022 and 2021 is as follows:
|
| 2022 |
|
| 2021 |
| ||
U.S. federal statutory rate |
|
|
|
| ||||
Net operating loss |
| ( |
|
| ( |
| ||
Effective tax rate |
| -% |
|
| -% |
| ||
The US Companies due to their loss have not filed US Corporate tax returns and is subject to examination back to October 31, 2012.
| F-11 |
| Table of Contents |
The Company’s deferred tax assets for the Canadian subsidiary companies consisted of the following as of October 31, 2022, and 2021:
|
| 2022 |
|
| 2021 |
| ||
Income/(Loss) Before Income Taxes |
| $ | ( | ) |
| $ |
| |
|
|
|
|
|
|
|
|
|
Income Tax Expense |
|
|
|
|
|
| ||
Valuation Allowance |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net Operating Losses |
| $ |
|
| $ |
| ||
Tax Rate |
|
| % |
|
| % | ||
|
|
|
|
|
|
|
|
|
Deferred Tax Assets |
|
|
|
|
|
| ||
Valuation Allowance |
|
| ( | ) |
|
| ( | ) |
Net Deferred Tax Assets |
| $ |
|
| $ |
| ||
The Canadian Companies had net loss of $
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended October 31, 2022 and 2021 is as follows:
|
| 2022 |
|
| 2021 |
| ||
Canadian federal statutory rate |
|
|
|
| ||||
Net operating loss |
| ( |
|
| ( |
| ||
Effective tax rate |
| -% |
|
| -% |
| ||
The Canadian Companies have filed corporate tax returns through October 31, 2022 and returns since 2014 are open to examination.
During the years ended October 31, 2022 and 2021 Cogent received tax refunds of $
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.
On December 12, 2019, the Company issued
On December 15, 2020, the Company issued
| F-12 |
| Table of Contents |
On February 4, 2022, the Company granted
On March 14, 2022, the Company granted
On July 1, 2022, the Company granted
The Company has elected to amortize the options over the vesting period of the option as stock-based compensation. During the year ended October 31, 2022, the Company expensed $
During the year ended October 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 number of outstanding options as of year ended October 31, 2022 was
The following sets forth the options granted and outstanding as of October 31, 2022:
|
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| Weighted |
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| Weighted |
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| Average |
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| Average |
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| Remaining |
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| Granted |
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| |||||
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|
| Exercise |
|
| Contract |
|
| Options |
|
| Intrinsic |
| |||||
|
| Options |
|
| Price |
|
| Life |
|
| Exercisable |
|
| Value |
| |||||
Outstanding at Year Ended October 31, 2020 |
|
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| $ |
| |||||
Granted |
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| -- |
|
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| -- |
| |||
Exercised |
|
| - |
|
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| -- |
|
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| -- |
|
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| -- |
| |
Forfeited |
|
| - |
|
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|
|
|
| -- |
|
|
| -- |
|
|
| -- |
| |
Outstanding at Yar Ended October 31, 2021 |
|
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| $ |
| |||||
Granted |
|
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|
| -- |
|
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| -- |
| |||
Exercised |
|
| ( | ) |
|
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|
|
| -- |
|
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| -- |
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| -- |
| |
Forfeited/Expired by termination |
|
| - |
|
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|
|
| -- |
|
|
| -- |
|
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| -- |
| |
Outstanding at October 31, 2022 |
|
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| $ |
| |||||
| F-13 |
| Table of Contents |
NOTE 6 - 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,
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 license 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 payment have been made as of October 31, 2022.
During the years ended October 31, 2022 and 2021 the Company recognized but did not pay dividends of $
During the year ended October 31, 2022, Ms. Shizuka Thomas, wife of Mr. Andrew S. Thomas, was paid $
As of October 31, 2022, and 2021 the Company had the following outstanding accrued liabilities due to related parties:
As of October 31, |
| 2022 |
|
| 2021 |
| ||
Accrued liabilities - related parties |
| $ |
|
| $ |
| ||
Accrued commissions |
|
|
|
|
|
| ||
Accrued dividends preferred shares |
|
|
|
|
|
| ||
Total accrued liabilities- related parties |
| $ |
|
| $ |
| ||
During the year ended October 31, 2022, five officers and directors exercised
| F-14 |
| Table of Contents |
NOTE 7 - MAJOR CUSTOMERS
The Company sells to their end-user customers both directly and through resellers. Seven (7) resellers accounted for 50% of sales in 2022 and six (6) resellers accounted for 50% of sales in 2021. The Company maintains all the information on their end user customers, and should a reseller discontinue operations, the Company can sell directly to the end user. No reseller has exclusivity in their territory. In 2022, no end user customers were responsible for more than 10% of our revenues and twenty-seven (27) end user customers were responsible for approximately 50% of gross revenue. In 2021, no end user customer was responsible for more than 10% of revenue and twenty-six (26) end user customers were responsible for approximately 50% of gross revenue
NOTE 8 - REVENUE BY PRODUCT LINES AND GEOGRAPHIC AREAS
The Company revenue by product line during the years ended October 31, 2022 and 2021 was as follows:
|
| 2022 |
|
| 2021 |
| ||||||||||
Category |
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
| ||||
Software sales |
|
| % |
| $ |
|
|
| % |
| $ |
| ||||
Support sales |
|
| % |
|
|
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|
| % |
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|
| ||||
Other sales |
|
| % |
|
|
|
|
| % |
|
|
| ||||
Total |
|
| % |
| $ |
|
|
| % |
| $ |
| ||||
The Company sells its products on a worldwide basis. During the years ended October 31, 2022 and 2021 the Company’s revenue resulted in the following amounts geographically:
|
| 2022 |
|
| 2021 |
| ||||||||||
Area |
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
| ||||
North America |
|
| % |
|
|
|
|
| % |
| $ |
| ||||
Europe |
|
| % |
|
|
|
|
| % |
|
|
| ||||
Asia Pacific |
|
| % |
|
|
|
|
| % |
|
|
| ||||
South America |
|
| % |
|
|
|
|
| % |
|
|
| ||||
Other |
|
| % |
|
|
|
|
| % |
|
|
| ||||
Total |
|
| % |
| $ |
|
|
| % |
| $ |
| ||||
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leased office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. During May 2017, the Company signed a
NOTE 10 - LOAN PAYABLE
On April 30, 2020, the Company’s subsidiary Cogent Systems issued a two year note for US$
| F-15 |
| Table of Contents |
On December 15, 2020, the Company’s subsidiary Cogent Systems issued a two year note for US$
NOTE 11 - EQUITY
The Company’s authorized shares of common stock is
The Company’s authorized shares of preferred stock is
On July 31, 2015, the Company authorized
During year ended October 31, 2022, five officers and directors exercised
NOTE 12 - SUBSEQUENT EVENTS
On December 9, 2022, the Company issued
The Company has evaluated subsequent events to determine events occurring after October 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 other than the ones indicated above.
| F-16 |