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EX-31.1 - CERTIFICATION - Skkynet Cloud Systems, Inc.skky_ex311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2020

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ____________.

 

Commission File Number 000-54747

 

SKKYNET CLOUD SYSTEMS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

45-3757848

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

2233 Argentia Road Suite 306. Mississauga, Ontario, Canada L5N 2X7

(Address of principal executive offices)

 

(888) 628-2028

(Issuer's telephone number)

 

Indicate by check mark whether the Company (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes: x No: ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: ¨

 

Indicate by check mark whether the Company is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

¨

Accelerated filed

¨

Non-accelerated filer

x

Smaller reporting company

x

Emerging growth company

x

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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

 

As June 10, 2020, there were 51,576,122 shares of Common Stock of the issuer outstanding.

 

 

 

        

 

 

Page

 

PART I: FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

4

 

 

Consolidated Balance Sheets as of April 30, 2020 (Unaudited) and October 31, 2019

 

4

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended April 30, 2020 and 2019 (Unaudited)

 

5

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended April, 2020 and 2019 (Unaudited)

 

6

 

 

Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2020 and 2019 (Unaudited)

 

7

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

Item 2.

Management’s Discussion of Financial Condition and Results of Operations

 

12

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

13

 

 

 

 

Item 4.

Controls and Procedures

 

13

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

14

 

 

 

 

Item 1A.

Risk Factors

 

14

 

 

 

 

Item 2.

Sales of Equity Securities and Use of Proceeds

 

14

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

14

 

 

 

 

Item 4.

Mine Safety Information

 

14

 

 

 

 

Item 5.

Other Information

 

14

 

 

 

 

Item 6.

Exhibits

 

15

 

 

 

 

Signatures

 

16

 

 
2

 

  

FORWARD LOOKING STATEMENTS

 

Statements made in this Form 10-Q that are not historical or current facts are forward-looking statements. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Among the factors that could cause actual results to differ materially from the forward-looking statements are the following: the Company’s ability to obtain necessary capital, the Company’s ability to meet anticipated development timelines, the Company’s ability to protect its proprietary technology and knowhow, the Company’s ability to establish a global market, the Company’s ability to successfully consummate future acquisitions, and such other risk factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission, including those filed with this Form 10-Q quarterly report. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

 
3

Table of Contents

  

PART I

 

ITEM 1: FINANCIAL STATEMENTS

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

April 30,

2020

 

 

October 31,

2019

 

 

 

(Unaudited)

 

 

 

ASSETS

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 725,774

 

 

$ 700,410

 

Accounts receivable

 

 

154,289

 

 

 

146,277

 

Prepaid expenses

 

 

1,703

 

 

 

10,690

 

Total current assets

 

 

881,766

 

 

 

857,377

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $81,846 and $81,653 respectively

 

 

12,818

 

 

 

8,469

 

Right of use lease asset

 

 

53,965

 

 

 

--

 

Total Assets

 

$ 948,549

 

 

$ 865,846

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 52,615

 

 

$ 96,979

 

Accrued liabilities – related party

 

 

--

 

 

 

76,821

 

Deferred revenue

 

 

90,985

 

 

 

111,732

 

Current portion of operating lease liability

 

 

20,980

 

 

 

--

 

Total current liabilities

 

 

164,580

 

 

 

285,532

 

 

 

 

 

 

 

 

 

 

Long Term Liability

 

 

 

 

 

 

 

 

Loan payable

 

 

28,717

 

 

 

--

 

Operating lease liability- net of current portion

 

 

32,985

 

 

 

--

 

Total liabilities

 

 

226,282

 

 

 

285,532

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding, respectively

 

 

5

 

 

 

5

 

Series B Preferred convertible stock: $0.001 par value, 500,000 shares authorized, 193,661 issued and outstanding, respectively

 

 

193,661

 

 

 

193,661

 

Common stock: $0.001 par value, 70,000,000 shares authorized, 51,576,122 shares issued and outstanding, respectively

 

 

51,577

 

 

 

51,577

 

Additional paid-in capital

 

 

6,307,145

 

 

 

6,192,476

 

Accumulative other comprehensive income

 

 

24,582

 

 

 

65,472

 

Accumulated deficit

 

 

(5,854,703 )

 

 

(5,922,877 )

Total stockholders’ equity

 

 

722,267

 

 

 

580,314

 

Total Liabilities and Stockholders’ Equity

 

$ 948,549

 

 

$ 865,846

 

 

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

 

 
4

Table of Contents

  

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended April 30,

 

 

Six Months Ended April 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$ 419,043

 

 

$ 372,824

 

 

$ 838,525

 

 

$ 635,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

400,306

 

 

 

636,229

 

 

 

831,432

 

 

 

1,031,652

 

Depreciation

 

 

600

 

 

 

119

 

 

 

1,227

 

 

 

239

 

Income (loss) from operations

 

 

18,137

 

 

 

(263,524 )

 

 

5,866

 

 

 

(396,078 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on settlement of liabilities

 

 

--

 

 

 

(11,233 )

 

 

--

 

 

 

(11,233 )

Other expense

 

 

1

 

 

 

(2,100 )

 

 

4

 

 

 

(2,099 )

Currency exchange

 

 

42,515

 

 

 

12,396

 

 

 

46,302

 

 

 

18,832

 

Total other income (expense)

 

 

42,516

 

 

 

(937 )

 

 

46,306

 

 

 

5,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

60,653

 

 

 

(264,461 )

 

 

52,172

 

 

 

(390,578 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax recovery

 

 

16,002

 

 

 

--

 

 

 

16,002

 

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

76,655

 

 

 

(264,461 )

 

 

68,174

 

 

 

(390,578 )

Loss from discontinued operations

 

 

--

 

 

 

(14,411 )

 

 

--

 

 

 

(42,606 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

76,655

 

 

 

(278,872 )

 

 

68,174

 

 

 

(433,184 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

 

(2,905 )

 

 

(2,905 )

 

 

(5,810 )

 

 

(5,810 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) to common shareholders

 

 

73,750

 

 

 

(281,777 )

 

 

62,364

 

 

 

(438,994 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(35,241 )

 

 

39,567

 

 

 

(40,890 )

 

 

30,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$ 38,509

 

 

$ (242,210 )

 

$ 21,474

 

 

$ (408,173 )

Net income (loss) per common share from continuing operations-basic

 

$ 0.00

 

 

$ (0.01 )

 

$ 0.00

 

 

$ (0.01 )

Net income (loss) per common share from discontinued operations-basic

 

 

--

 

 

$ (0.00 )

 

 

--

 

 

$ (0.00 )

Net income (loss) per common share from continuing operations-diluted

 

$ 0.00

 

 

$ (0.01 )

 

$ 0.00

 

 

$ (0.01 )

Net income (loss) per common share from discontinued operations-diluted

 

 

--

 

 

$ (0.00 )

 

 

--

 

 

$ (0.00 )

Net income (loss) per share to common shareholders

 

$ 0.00

 

 

$ (0.01 )

 

$ 0.00

 

 

$ (0.01 )

Weighted average common shares outstanding-basic

 

 

51,576,122

 

 

 

51,364,396

 

 

 

51,576,122

 

 

 

51,363,709

 

Weighted average common shares outstanding-diluted

 

 

59,493,772

 

 

 

51,364,396

 

 

 

59,493,772

 

 

 

51,363,709

 

 

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

 

 
5

Table of Contents

  

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED APRIL 30, 2020 AND 2019

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Series B Preferred

Convertible Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Comprehensive

Loss

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Income)

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2018

 

 

51,363,022

 

 

$ 51,364

 

 

 

5,000

 

 

$ 5

 

 

 

193,661

 

 

$ 193,661

 

 

$ 5,832,725

 

 

$ (5,347,023 )

 

$ (74,643 )

 

$ 656,089

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

59,844

 

 

 

--

 

 

 

--

 

 

 

59,844

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(8,746 )

 

 

(8,746 )

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(154,312 )

 

 

--

 

 

 

(154,312 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2019

 

 

51,363,022

 

 

 

51,364

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

193,661

 

 

 

5,892,569

 

 

 

(5,501,335 )

 

 

(83,389 )

 

 

552,875

 

Common stock issued for options

 

 

125,000

 

 

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,950

 

 

 

 

 

 

 

 

 

 

 

5,075

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

215,476

 

 

 

--

 

 

 

 

 

 

 

215,476

 

Stock options issued for accrued liabilities- related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,933

 

 

 

 

 

 

 

 

 

 

 

55,933

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

---

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

39,567

 

 

 

39,567

 

Net loss

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(278,872 )

 

 

--

 

 

 

(278,872 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2019

 

 

51,488,022

 

 

 

51,489

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

193,661

 

 

 

6,168,928

 

 

 

(5,780,207 )

 

 

(43,822 )

 

 

590,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2019

 

 

51,576,122

 

 

$ 51,577

 

 

 

5,000

 

 

$ 5

 

 

 

193,661

 

 

$ 193,661

 

 

$ 6,192,476

 

 

$ (5,922,877 )

 

$ 65,472

 

 

$ 580,314

 

Stock option expense

 

 

--

 

 

 

---

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

67,285

 

 

 

--

 

 

 

--

 

 

 

67,285

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(5,649 )

 

 

(5,649 )

Net loss

 

----

 

 

 

--

 

 

 

---

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(8,481 )

 

 

--

 

 

 

(8,481 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2020

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

193,661

 

 

 

6,259,761

 

 

 

(5,931,358 )

 

 

59,823

 

 

 

633,469

 

Stock option expense

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

47,384

 

 

 

--

 

 

 

--

 

 

 

47,384

 

Change due to currency translation

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

(35,241 )

 

 

(35,241 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

76,655

 

 

 

--

 

 

 

76,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2020

 

 

51,576,122

 

 

 

51,577

 

 

 

5,000

 

 

 

5

 

 

 

193,661

 

 

 

193,661

 

 

$ 6,307,145

 

 

$ (5,854,703 )

 

$ 24,582

 

 

$ 722,267

 

 

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

 

 
6

Table of Contents

  

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Six Months

Ended April 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income (loss)

 

$ 68,174

 

 

$ (433,184 )

Loss from discontinued operations

 

 

 

 

 

 

42,606

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,227

 

 

 

239

 

Option based compensation

 

 

114,669

 

 

 

275,320

 

Loss on settlement of accrued liabilities

 

 

--

 

 

 

11,233

 

Non-cash lease expense

 

 

14,619

 

 

 

--

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(8,012 )

 

 

50,104

 

Accounts payable and accrued expenses

 

 

(44,364 )

 

 

26,851

 

Accrued liabilities – related parties

 

 

(76,821 )

 

 

(13,075 )

Prepaid expenses and other assets

 

 

8,987

 

 

 

(21,567 )

Operating lease liability

 

 

(12,020 )

 

 

--

 

Deferred income

 

 

(20,747 )

 

 

(14,287 )

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

45,712

 

 

 

(75,760 )

 

 

 

 

 

 

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash paid for the purchase of fixed assets

 

 

(6,023 )

 

 

--

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(6,023 )

 

 

--

 

 

 

 

 

 

 

 

 

 

NET CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from loan payable

 

 

28,717

 

 

 

--

 

Proceeds from the exercise of options

 

 

--

 

 

 

5,075

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

28,717

 

 

 

5,075

 

 

 

 

 

 

 

 

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

--

 

 

 

(24,458

Net cash used in discontinued operations

 

 

--

 

 

 

(24,458

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(43,042 )

 

 

28,148

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

25,364

 

 

 

(66,995 )

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

700,410

 

 

 

670,827

 

Cash and cash equivalents, end of period

 

$ 725,774

 

 

$ 603,832

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOWS INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$ --

 

 

$ --

 

Income taxes paid

 

$ --

 

 

$ --

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Capitalization of right to use asset and operating liability

 

$ 68,584

 

 

$ --

 

Conversion of accrued compensation to equity- related parties

 

$ --

 

 

$ 44,700

 

  

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

 

 
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Table of Contents

 

SKKYNET CLOUD SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

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

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s October 31, 2019 Annual Report on form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the consolidated financial statements for the most recent fiscal year end October 31, 2019 as reported on Form 10-K, have been omitted.

 

On August 1, 2019, the Company disposed of its wholly owned subsidiary Skkynet Japan which represented a strategic shift in the Company’s operations. The assets and liabilities have been accounted for as discontinued operations in the Company’s consolidated balance sheets for the periods presented. The operating results related to this subsidiary have been included in discontinued operations in the Company’s consolidated statements of operations and comprehensive loss for all periods presented.

 

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 (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods. The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition, and results of operations is highly uncertain and subject to change. We considered the potential impact of the COVID-19 pandemic on our estimates and assumptions and there was not a material impact to our consolidated financial statements as of and for the quarter ended April 30, 2020. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)". The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has adopted the new accounting pronouncement and recorded a right to use asset and operating lease liability of $68,584 as of November 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The adoption of the policy did not have a cumulative impact on retained earnings.

 

 
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NOTE 3 - REVENUE RECOGNITION

 

As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the six-month periods ended April 30, 2020 and 2019 the revenue by product line is as follows:

  

Category

 

Percentage

 

 

2020

 

 

Percentage

 

 

2019

 

Product sales

 

 

71 %

 

 

597,528

 

 

 

62 %

 

 

499,463

 

Support

 

 

28 %

 

 

231,804

 

 

 

35 %

 

 

183,691

 

Cloud & Other

 

 

1 %

 

 

9,193

 

 

 

3 %

 

 

18,043

 

Discontinued operations

 

 

--

 

 

 

--

 

 

 

 

 

 

 

(65,384 )

Total

 

 

100 %

 

 

838,525

 

 

 

100 %

 

 

635,813

 

 

The Company sells its products on a worldwide basis. During the six-month periods ended April 30, 2020 and 2019 the Company’s geographic concentration of revenue is as follows:

  

Area

 

Percentage

 

 

2020

 

 

Percentage

 

 

2019

 

North America

 

 

40 %

 

 

332,451

 

 

 

39 %

 

 

269,858

 

Europe

 

 

32 %

 

 

264,641

 

 

 

36 %

 

 

252,293

 

Asia

 

 

13 %

 

 

109,015

 

 

 

17 %

 

 

121,900

 

South America

 

 

4 %

 

 

37,269

 

 

 

1 %

 

 

10,276

 

Other

 

 

11 %

 

 

95,149

 

 

 

7 %

 

 

46,870

 

Discontinued operations

 

 

--

 

 

 

--

 

 

 

 

 

 

 

(65,384 )

Total

 

 

100 %

 

 

838,525

 

 

 

100 %

 

 

635,813

 

 

NOTE 4 - RELATED PARTY TRANSACTIONS

 

Sakura Software, a corporation owned by our CEO and Chairman of the Board of Directors, Andrew S. Thomas, and Benford Consultancy, a corporation owned by our COO and a member of our Board of Directors, Paul Benford, own, respectively, 72.34% and 27.66% of the issued and outstanding shares of Real Innovations International LLC, (“Real Innovations”) a corporation organized under the laws of Nevis, West Indies. In March 2012, Cogent, our operating subsidiary, assigned all of its intellectual property including the pending patent applications for its real-time data transmission and display technology (the “IP”) to Real Innovations under an assignment of intellectual property agreement (the “Assignment Agreement”). In return for the assignment Real Innovations required a one-time payment of $30,000 to Cogent. Cogent elected to forgo the payment allowing Real Innovations to offset future expenses against the payment. There is no ongoing royalty payment or other form of compensation from Real Innovations to Cogent under the Assignment Agreement.

 

Real Innovations, in turn, entered into a master intellectual property license agreement (the “License Agreement”) with Cogent for all of the same IP. Under the License Agreement Real Innovations granted a royalty-free license in perpetuity to Cogent for the use and exploitation of the IP in return for which Cogent agreed to: (i) pay all operating expenses of Real Innovations incurred in connection with the continued prosecution of pending patent applications and others that may be prepared; (ii) prosecute all claims for infringement of the IP; (iii) defend and indemnify Real Innovations from and against all claims of infringement of the IP asserted by third parties against Real Innovations, Cogent or our Company; (iv) purchase liability insurance in favor of Real Innovations for this purpose. Under the termination provision of the licenses agreement, there is no unilateral right of termination. Termination may occur by mutual consent of the parities, the Company ceasing doing business, by breach by the Company or by the Company failing to maintain the license and the support to prosecute and protect the license under applicable laws.

 

Under the License Agreement, Messrs. Andrew S. Thomas and Paul Benford will benefit indirectly from their indirect ownership of all of the shares of Real Innovations to the extent of any such payments or other undertakings by Cogent on behalf of Real Innovations, but the exact amount of these benefits cannot be determined at this time. No payments have been made as of April 30, 2020.

 

 
9

Table of Contents

  

As of April 30, 2020, and October 31, 2019, the Company had the following outstanding accrued liabilities due to related parties:

 

As of

 

April 30, 2020

 

 

October 31, 2019

 

Accrued liabilities

 

$ ---

 

 

$ 55,378

 

Accrued commissions

 

$ ---

 

 

 

21,443

 

Total accrued liabilities

 

$ ---

 

 

$ 76,821

 

 

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 336,250 options: 120,000 to two officers, 11,250 to three independent directors and 205,000 to six employees and consultants. The options are exercisable into common stock of the Company at $0.59 per share. The Company calculated a fair value of the options of $132,673 using the Black Scholes option pricing model with computed volatility of 207%, risk-free interest rate of 2%, expected dividend yield 0%, stock price at measurement date of $0.39 and the expected term of ten years. The options are expensed over a five-year period with 20% upon issuance and 20% for the first and each subsequent year.

 

During the six-month period ended April 30, 2020, the Company recognized $114,669 of option expense. The unrecognized future balance to be expensed over the term of the options is $554,751.

 

The following sets forth the options granted and outstanding as of April 30, 2020:

 

 

 

Options

 

 

Weighted Average Exercise price

 

 

Weighted Average Remaining Contract Life

 

 

Granted Options Exercisable

 

 

Intrinsic value

 

Outstanding at October 31, 2019

 

 

7,581,400

 

 

 

0.13

 

 

 

7.19

 

 

 

5,470,540

 

 

$ 1,827,117

 

Granted

 

 

336,250

 

 

 

0.56

 

 

 

9.75

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited/Expired by termination

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

-

 

Outstanding at April 30, 2020

 

 

7,917,650

 

 

 

0.15

 

 

 

6.56

 

 

 

5,838,550

 

 

$

3,646,322

 

 

NOTE 6 - LEASES

 

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. During May 2017, the Company signed a 5-year lease for the Company’s office being effective on August 1, 2017 through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a base monthly rental cost including common area charges of $2,369.

 

 
10

Table of Contents

  

The yearly rental obligations including the lease agreements are as follows:

 

Fiscal Year

 

 

 

2020 (six months remaining)

 

$ 14,215

 

2021

 

 

28,428

 

2022

 

 

21,321

 

Total lease payments

 

 

63,964

 

Less present value discount

 

 

(9,999 )

 

 

 

53,965

 

Less operating lease short term

 

 

(20,980 )

Operating lease liability, long term

 

$ 32,985

 

 

Under the new standards the lease has been determined to be a right to use operating lease and is recognized based on the present value of the lease payments over the lease term at the commencement date which upon adoption of ASC 842 was determined to be $68,584 which is presented in the consolidated balance sheet as an asset labeled “right to use lease asset” offset by a liability labeled “operating lease liability”. The amount was determined as the net present value of the lease over a 30-month period using an 8% interest rate as the incremental borrowing cost. During the six months ended April 30, 2020, amortization of the right of use lease was $14,619 and the liability was reduced by $12,020.

 

NOTE 7 - DISCONTINUED OPERATIONS

 

On August 1, 2019, the Company disposed its wholly owned subsidiary Skkynet Japan by entering into a share purchase agreement with the former owners. The following table presents the breakdown of the results of operations related to the discontinued operations for the three and six months ended April 30, 2019:

 

Operating Results of Discontinued Operations

For the Three and Six Months Ended April 30, 2019

 

 

 

 

 

 

Three Months

 

 

Six Months

 

Revenue included in discontinued operations

 

$ 35,244

 

 

$ 65,384

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses included in discontinued operations

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

4,160

 

 

 

10,314

 

General and administrative expenses

 

 

45,495

 

 

 

97,676

 

Net loss from discontinued operations

 

$ (14,411 )

 

$ (42,606 )

Net loss per share from discontinued operations - basic & diluted

 

$ (0.00 )

 

$ (0.00 )

 

NOTE 8 - MAJOR CUSTOMERS

 

The Company sells to their end-user customers both directly and through resellers. Two resellers accounted for 48% of sales (36% and 11% individually) in the three-month period ended April 30, 2020 and two resellers accounted for 47% of sales in the same period in 2019. Four resellers accounted for 48% of sales in the six-month period ended April 30, 2020 and three resellers accounted for 47% of sales in the same period in 2019. In the three-month period ended April 30, 2020, two end user customers were each responsible for more than 10%. In the same period in 2019 one end user customer was responsible for 16% of revenue. In the six-month period ended April 30, 2020, no end user customers were responsible for more than 10% of our revenues. In the same period in 2019, no end user customers were responsible for more than 10% of our. The Company maintains all the information on their end user customers, and should a reseller discontinue operations, the Company can sell directly to the end user.

 

NOTE 9 - LOAN PAYABLE

 

On April 30, 2020, the Company’s subsidiary Cogent Systems issued a two year note for US$28,717 (CDN $40,000) under the Canadian Emergency Business Account (CEBA). The CEBA provides interest free loans to small businesses to help cover operating costs during a period when their revenues may have been reduced due to the impact of COVID-19. The loan is subject to zero interest and 25% of the amount will be forgiven if 75% of the loan amount is repaid on or before December 31, 2022. The Company has the option to extend the term of the loan for another 3 years subject to an annual interest of 5% on any balance remaining.

 

 
11

Table of Contents

  

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Skkynet’s actual results could differ materially from those set forth on the forward-looking statements as a result of the risks set forth in Skkynet’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

 

OVERVIEW

 

Skkynet is a Nevada corporation headquartered in Mississauga, Canada. Skkynet operates three different lines of business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet, Inc. (“Skkynet (USA)”), and Skkynet Corp. (“Skkynet (Canada. Skkynet was established to enhance Cogent’s existing business lines through the integration of Cloud-based systems, and to deliver a Software-as-a-Service (“SaaS”) product targeting the Industrial Internet of Things (“IoT”) market, now referred to by the terms “Industry 4.0” and “Industrial Internet Consortium”.

 

The Company provides software and related systems and facilities to collect, process, and distribute real-time information over a network. This capability allows the customers to both locally and remotely manage, supervise, and control industrial processes and financial information systems. By using this software and, when requested by a client, our web based assets, our clients and their customers (to the extent relevant) are given the ability and the tools to observe and interact with these processes and services in real-time as they are underway and to give them the power to analyze, alter, stop, or otherwise influence these activities to conform to their plans.

 

The results of operations reflect the adjustments of the three and six months periods in 2019 for discontinued operations. Discontinued operations are not part of the results of operations in this section.

 

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, delivery of software and support has been  virtual for years with delivery through the internet, we do not anticipate a significant impact on our operations or financial condition, except an initial reduction for the sale for our software.

 

RESULTS OF OPERATIONS

 

For the three and six month periods ended April 30, 2020, revenue was $419,043 and $838,525 compared to $372,824 and $635,813 for the same period in 2019. Revenue increased for the six month period ended April 30, 2020 over the same period in 2019 by 31.7%. The increase in revenue for the six month period ended April 30, 2020 is attributed to higher sales by Cogent. The Company has recently increased its investment in sales and marketing which has contributed to the increase in Cogent’s sales.

 

General and administrative expense was $400,306 and $831,432 for the three and six month periods ended April 30, 2020 compared to $636,229 and $1,031,652 for the same period in 2019. The decrease in general and administrative expenses for the three and six-month periods ended April 30, 2020 resulted from lower option expenses in 2020 over the same period in 2019.

 

For the three and six- month period ended April 30, 2020, the Company reported an operating income of $76,655 and $68,174 compared to operating loss from continuing operations of $264,461 and $390,578 for the same periods in 2019. The change in operating loss during the three- and six-month periods ended April 30, 2019 to operating income in the same period in 2020 is attributable to higher revenue in 2020 compared to 2019.

   

Other income and expense for the three and six-month periods ended April 30, 2020, includes other income of $42,516 and $46,306 compared to other expense of $937 and other income of $5,500 for the same periods in 2019. The amount in both periods were due primarily to the effect of currency exchange.

 

Net income of $76,655 and $68,174 was reported for the three and six month periods ended April 30, 2020, compared to a net loss from continuing operations of $264,461 and a loss from discontinued operations of $14,411 for the three month period and a net loss from continuing operations of $390,578 and a loss from discontinued operations of $42,606 in 2019 for the six month period. The net income for the three and six month periods in 2020 is attributed to higher sales in 2020 compared to the same period in 2019.

 

 
12

Table of Contents

  

The Company reported comprehensive income of $38,509 and $21,474 for the three and six month periods ended April 30, 2020 compared to a comprehensive loss of $242,210 and $408,173 for the same periods in 2019. The comprehensive loss is an adjustment to net loss with accrued preferred stock dividends and foreign currency translation adjustments along with taxes taken into account.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At April 30, 2020, Skkynet had current assets of $881,766 and current liabilities of $164,580, resulting in working capital of $717,186. Accumulated deficit, as of April 30, 2020, was $5,854,703 with total shareholders’ equity of $722,267.

 

Net cash provided by operating activities for the six month period ended April 30, 2020, was $45,712 compared to net cash used in operating activities of $118,366 for the same period in 2019.

 

The increase in cash provided by operating activities for the six month period ended April 30, 2020 over the same period in 2019 was primarily due to income of $68,174 for the six months ended April 30, 2020 compared to a net loss of $390,578 for the same period in 2019.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, Skkynet is not required to provide information required under this Item.

 

ITEM 4: CONTROLS AND PROCEDURES

 

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

 

Evaluation of Disclosure Controls and Procedures

 

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

   

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2020 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework- 2013. Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting. We lack full time personnel in accounting and financial staff to sufficiently monitor and process financial transactions in an efficient and timely manner. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lacked sufficient technical expertise, reporting standards and written policies and procedures along with a lack of a formal review process which includes multiple layers of review. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Our management believes that the Unaudited Financial Statements included herein present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.

 

 
13

Table of Contents

  

PART II – OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating results.

 

ITEM 1A: RISK FACTORS

 

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, delivery of software and support has been  virtual for years with delivery through the internet, we do not anticipate a significant impact on our operations or financial condition, except an initial reduction for the sale for our software.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4: MINE SAFETY INFORMATION

 

None.

 

ITEM 5: OTHER INFORMATION

 

None.

 

 
14

Table of Contents

  

ITEM 6: EXHIBITS

 

EXHIBIT 31.1

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

 

 

 

EXHIBIT 31.2

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

 

 

 

EXHIBIT 32.1

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

 

 

 

EXHIBIT 32.2

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

 

 

 

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

  

 
15

Table of Contents

 

SIGNATURES

 

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

 

  SKKYNET CLOUD SYSTEMS INC.
        

Date: June 10, 2020

By: /s/ Andrew Thomas

 

 

Andrew Thomas, Chief Executive Officer (Duly Authorized, Principal Executive Officer)

 
     
  By: /s/ Lowell Holden  

 

 

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