Form 10-Q Skkynet Cloud Systems, Inc.

10-Q - Quarterly report [Sections 13 or 15(d)]


Filed: 2018-09-18 16:01:04
Dated: 2018-09-18
Period of Report: 2018-07-31
skky_10q.htm FORM 10-Q

skky_10q.htm

 

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 July 31, 2018

 

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

¨

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 September 18, 2018, there were 51,363,022 shares of Common Stock of the issuer outstanding.

 

 
 
 
 

  

 

 

Page

 

PART I: FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 4

 

 

Consolidated Balance Sheets as of July 31, 2018 (Unaudited) and October 31, 2017

 

4

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)

 

5

 

 

Consolidated Statements of Cash Flows for the Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)

 

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis and Plan of Operation

 

11

 

 

 

 

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

 

 

 
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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 subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

 
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PART I

 

ITEM 1: FINANCIAL STATEMENTS

 

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

July 31,

2018

 

 

October 31,

2017

 

 

 

(Unaudited)

 

 

 

ASSETS

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 637,019

 

 

$ 582,671

 

Accounts receivable

 

 

209,571

 

 

 

147,174

 

Inventory

 

 

2,691

 

 

 

2,634

 

Prepaid

 

 

22,236

 

 

 

19,528

 

Total current assets

 

 

871,517

 

 

 

752,007

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $81,516 and $82,271 respectively

 

 

4,505

 

 

 

961

 

Other assets

 

 

17,854

 

 

 

5,996

 

Total Assets

 

$ 893,876

 

 

$ 758,964

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 98,488

 

 

$ 56,653

 

Accrued liabilities – related party

 

 

38,340

 

 

 

29,987

 

Deferred revenue

 

 

138,988

 

 

 

103,204

 

Total current liabilities

 

 

275,816

 

 

 

189,844

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

275,816

 

 

 

189,844

 

 

 

 

 

 

 

 

 

 

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 193,661 outstanding, respectively

 

 

193,661

 

 

 

193,661

 

Common stock; $0.001 par value, 70,000,000 shares authorized, 51,363,022 and 51,287,266 shares issued and outstanding, respectively

 

 

51,364

 

 

 

51,288

 

Additional paid-in capital

 

 

5,772,138

 

 

 

5,240,833

 

Accumulative other comprehensive income (loss)

 

 

11,580

 

 

 

(60,487 )

Accumulated deficit

 

 

(5,410,688 )

 

 

(4,856,180 )

Total shareholders’ equity

 

 

618,060

 

 

 

569,120

 

Total Liabilities and Stockholders’ Equity

 

$ 893,876

 

 

$ 758,964

 

 

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

 

 
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SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended July 31,

 

 

Nine Months Ended July 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 354,183

 

 

$ 363,049

 

 

$ 1,048,000

 

 

$ 1,026,669

 

Direct material costs

 

 

22,421

 

 

 

447

 

 

 

47,157

 

 

 

28,069

 

Gross Profit

 

 

331,762

 

 

 

362,602

 

 

 

1,000,843

 

 

 

998,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General & administrative

 

 

499,721

 

 

 

460,242

 

 

 

1,560,287

 

 

 

1,510,760

 

Depreciation and amortization

 

 

122

 

 

 

173

 

 

 

373

 

 

 

514

 

Loss from operations

 

 

(168,081 )

 

 

(97,813 )

 

 

(559,817 )

 

 

(512,674 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

--

 

 

 

1,090

 

 

 

--

 

 

 

1,090

 

Loss on settlement of liabilities

 

 

--

 

 

 

--

 

 

 

(39,193 )

 

 

--

 

Currency exchange

 

 

11,696

 

 

 

(49,201 )

 

 

11,469

 

 

 

(42,117 )

Total other income (expenses)

 

 

11,696

 

 

 

(48,111 )

 

 

(27,724 )

 

 

(41,027 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before tax

 

 

(156,385 )

 

 

(145,924 )

 

 

(587,541 )

 

 

(553,701 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax refund

 

 

33,033

 

 

 

34,593

 

 

 

33,033

 

 

 

32,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss after tax

 

 

(123,352 )

 

 

(111,331 )

 

 

(554,508 )

 

 

(521,115 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred dividends

 

 

(2,905 )

 

 

(2,905 )

 

 

(8,715 )

 

 

(8,715 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss to common shareholders

 

 

(126,257 )

 

 

(114,236 )

 

 

(563,223 )

 

 

(529,830 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

7,979

 

 

 

19,343

 

 

 

72,067

 

 

 

25,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss)

 

$ (118,278 )

 

$ (94,893 )

 

$ (491,156 )

 

$ (504,822 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.01 )

 

$ (0.01 )

Weighted average common shares outstanding (basic and diluted):

 

 

51,343,311

 

 

 

51,164,200

 

 

 

51,316,247

 

 

 

51,020,288

 

 

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

 

 
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SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

 

 

Nine Months Ended July 31,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$ (554,508 )

 

$ (521,115 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

373

 

 

 

514

 

Option based compensation

 

 

294,163

 

 

 

343,078

 

Loss on settlement of accrued liabilities

 

 

39,193

 

 

 

--

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(62,397 )

 

 

(21,570 )

Accounts payable and accrued expenses

 

 

41,835

 

 

 

18,595

 

Inventory

 

 

(57 )

 

 

245

 

Accrued liabilities – related parties

 

 

206,378

 

 

 

217,459

 

Prepaid and other assets

 

 

(14,566 )

 

 

(18,386 )

Deferred income

 

 

35,784

 

 

 

40,510

 

NET CASH (USED IN) OPERATING ACTIVITIES

 

 

(13,802 )

 

 

59,330

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Common stock sold for cash

 

 

--

 

 

 

256,300

 

NET CASH FLOWS FROM FINANCING ACTIVITIES

 

 

--

 

 

 

256,300

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

68,150

 

 

 

24,632

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

54,348

 

 

 

340,262

 

 

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

582,671

 

 

 

266,860

 

Cash, end of period

 

$ 637,019

 

 

$ 607,122

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOWS INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$ --

 

 

$ --

 

Income taxes paid

 

$ --

 

 

$ --

 

 

 

 

 

 

 

 

 

 

NON-MONETARY TRANSACTIONS

 

 

 

 

 

 

 

 

Conversion of accrued compensation to equity- related parties

 

$ 198,025

 

 

$ 36,604

 

 

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

 

 
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SKKYNET CLOUD SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Skkynet Cloud Systems, Inc. (“Skkynet” or “the Company”) is a Nevada corporation formed on August 31, 2011 and headquartered in Toronto, Canada. Skkynet operates its business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet Corp. (Canada), Skkynet, Inc. (USA) and Skkynet Japan 株式会社 (Ltd.) (Japan). 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.

 

On November 1, 2014, the Company acquired Skkynet Japan NiC as a wholly owned subsidiary. On February 1, 2015, the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.

 

On July 30, 2015, the Company designated 500,000 shares of the preferred stock as Series B Convertible preferred. The Series B shares have a par value of $0.001 and issue value of $1.00 per share. The series B is convertible by the holder into common stock at $1.35 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum cumulative dividend. On July 30, 2015, the Company issued 193,661 shares of Series B convertible preferred stock to three related parties in exchange for the outstanding notes payable and accrued interest of $193,661. Dividends are not paid. The Company has accounted for $8,715 in Series B dividends which increases the loss to common shareholders from $554,508 to $563,223 for the nine month period ended July 31, 2018. As of July 31, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $34,860 equating to $0.18 per share.

 

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, 2017 Annual Report filed with the SEC on Form 10-K. 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 audited financial statements for the most recent fiscal year end October 31, 2017 as reported on Form 10-K, have been omitted.

 

NOTE 2 - RELATED PARTY TRANSACTIONS

 

On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition, the Company is accruing director compensation at the rate of $2,500 per director per month. As of July 31, 2018, the accrued liability for compensation was converted to common stock and options.

 

On January 11, 2018 the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the options for 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

 

 
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During the nine months ended July 31, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the nine months ended July 31, 2018 in exchange for shares of common stock and options. The $198,025 of accrued compensation was exchanged for 333,400 options granted with a fair value of $193,090 and 75,822 shares of common stock with a fair value of $44,128.

 

 

 

Accrued compensation

 

 

Options Issued for accrued compensation

 

 

Common stock issued for accrued compensation

 

Andrew Thomas

 

$ 50,102

 

 

 

104,600

 

 

 

--

 

Paul Benford

 

$ 33,007

 

 

 

68,100

 

 

 

--

 

Paul Thomas

 

$ 33,007

 

 

 

68,100

 

 

 

--

 

Lowell Holden

 

$ 14,409

 

 

 

--

 

 

 

29,589

 

All three directors

 

$ 67,500

 

 

 

92,600

 

 

 

46,233

 

Total

 

$ 198,025

 

 

 

333,400

 

 

 

75,822

 

 

As of July 31, 2018, and October 31, 2017, the Company had the following outstanding accrued liabilities due to related parties:

 

As of

 

July 31,

2018

 

 

October 31,

2017

 

Accrued Commissions

 

$ 38,340

 

 

$ 29,987

 

Total accrued liabilities and accrued expense

 

$ 38,340

 

 

$ 29,987

 

 

NOTE 3 – EQUITY

 

On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

 

On April 30, 2018, the Company issued 25,361 shares of common stock at $0.77 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $19,528 for the settlement of a liability of $12,309 which resulted in a loss of $7,219 which was expensed at settlement.

 

On July 31, 2018, the Company issued 19,711 shares of common stock at $0.61 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

 

NOTE 4 – OPTIONS

 

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

 

On January 11, 2018, the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the term of the options 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

 

 
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On January 31, 2018, the company issued 138,000 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Scholes valuation of $55,114 with computed volatility of 206% and a discount rate of 2.72%. The options were vested upon issuance.

 

On March 27, 2018, the company issued 215,000 options to various employees and consultants with exercise price of $0.38. The options have a fair value using the Black Scholes valuation of $105,270 with computed volatility of 208% and a discount rate of 2.82%. The options are vested at 20% upon issuance and 20% each annual anniversary thereafter.

 

On April 30, 2018, the company issued 110,500 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Scholes valuation of $84,947 with computed volatility of 207% and a discount rate of 2.95%.The liability for which the options were issued was $52,973 with a loss recognized at settlement of $31,974 which was expensed. The options were vested upon issuance.

 

On July 31, 2018, the company issued 84,900 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Scholes valuation of $52,976 with computed volatility of 197% and a discount rate of 3.05%.The liability for which the options were issued was $52,976 which was expensed. The options were vested upon issuance.

 

The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,780,512. During the nine months period ended July 31, 2018, the Company expensed $294,163 for options. The unrecognized future balance to be expensed over the term of the options is $938,163.

 

The following sets forth the options granted and outstanding as of July 31, 2018:

 

 

 

Options

 

 

Weighted Average Exercise price

 

 

Weighted Average Remaining Contract Life

 

 

Granted Options Exercisable

 

 

Intrinsic value

 

Outstanding at October 31, 2017

 

 

7,223,800

 

 

 

0.40

 

 

 

4.77

 

 

 

5,518,640

 

 

 

1,401,820

 

Granted

 

 

548,400

 

 

 

0.17

 

 

 

10.0

 

 

 

--

 

 

 

--

 

Exercised

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Forfeited/Expired by termination

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

 

 

--

 

Outstanding at July 31, 2018

 

 

7,772,200

 

 

 

0.33

 

 

 

5.49

 

 

 

6,249,780

 

 

 

2,781,533

 

 

 
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NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7.

 

During May 2017, the Company signed a new 5 year lease for the Company’s office being effective on August 1, 2017 through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a gross monthly rental cost including common area charges of $4,097.

 

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

 

Fiscal Year

 

 

 

2018

 

$ 12,345

 

2019

 

$ 49,164

 

2020

 

$ 49,164

 

2021

 

$ 49,164

 

2022

 

$ 36,873

 

Total

 

$ 196,710

 

 

 
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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)”), Skkynet Corp. (“Skkynet (Canada)”), and Skkynet Japan Corporation (“formally Nic”). Skkynet was established to enhance Cogent’s existing business lines through the integration of Cloud-based systems, and to deliver a Software-as-a-Service (“SaaS”) product targeting the Industrial Internet of Things (“IoT”) market, now referred to by the terms “Industry 4.0” and “Industrial Internet Consortium”.

 

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

 

RESULTS OF OPERATIONS

 

For the three and nine months period ending July 31, 2018, revenue was $354,183 and $1,048,000 compared to $363,049 and $1,026,669 for the same periods in 2017. Revenue increased for the nine months periods ending July 31, 2018 over same period ended July 31, 2017 by 2.1%. The increase in revenue for the nine month period ended July 31, 2018 is attributed higher sales by the Cogent division.

 

General and administrative expense was $499,721 and $1,560,287 for the three and nine months period ended July 31, 2018 compared to $460,242 and $1,510,760 for the same period in 2017. The increase in general and administrative expenses for the three and nine months periods ended July 31, 2018, was a result of higher options expense along with lower payroll in 2018 over 2017.

 

 
11
 
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For the three and nine months periods ending July 31, 2018, the Company posted operating loss of $168,081 and $559,817 compared to operating loss of $97,813 and $512,674 for the same periods in 2017. The increase in operating loss during the three months is attributable to lower sales in 2018 over 2017 and the increase during the nine month periods is attributable to higher expenses in of 2018 over 2017.

 

Other income and expense for the three and nine months periods ending July 31, 2018, were other income of $11,696 and other expenses of $27,724 compared to other expenses of $48,111 and $41,027 for the same periods in 2017. The losses for the none months period in 2018 were to a loss on a liability settlement of $39,193 that was not incurred in the same period in 2017.

  

Net loss before income taxes of $156,385 and $587,541 was recorded for the three and nine months periods ending July 31, 2018, compared to a net loss before income taxes of $145,924 and $553,701 for the same periods in 2017. The higher losses for the three months period in 2018 can be attributed to increased general and administrative expenses plus a loss on settlement of a liability of $39,193 in 2018 compared to 2017 while the higher loss for the nine months period was attributed to slightly higher general and administrative costs and a loss on settlement of a liability of $39,193 in 2018 over 2017.

  

Net loss after taxes of $123,352 and $554,508 was recorded for the three and nine months periods ending July 31, 2018, compared to a net loss after taxes of $111,331 and $521,115 for the same periods in 2017.

 

The Company incurred a comprehensive loss of $118,278 and $491,156 for the three and nine months periods ended July 31, 2018 compared to a comprehensive loss of $94,893 and $504,822 for the same periods in 2017. 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 July 31, 2018, Skkynet had current assets of $871,517 and current liabilities of $275,816, resulting in working capital of $595,701. Accumulated deficit, as of July 31, 2018, was $5,410,688 with total shareholders’ equity of $618,060.

 

Net cash used in operations for the nine months ending July 31, 2018, was $13,802 compared to net cash provided of $59,330 for the same period in 2017.

 

Net cash used in operations increased by $73,132 primarily due changes in accounts receivable and accounts payable in 2018 over 2017.

 

Net cash provided from financing activities, during the nine months period ended July 31, 2018 was $0 compared to $256,300 from the sale of common stock during the same period in 2017.

 

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.

 

 
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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.

  

In connection with the preparation of this report, our management, under the supervision and with participation of our Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2018. Based on that evaluation, our management concluded that there is a material weakness in our disclosure controls and procedures over financial reporting. The material weakness results from a lack of written procedures which effectively documents the proper procedures and descriptions of the duties of all persons involved in the disclosure controls of the Company. The Company hopes to implement plans to document the procedures and internal controls of the Company. A material weakness is a deficiency, or a combination of control deficiencies, in disclosure 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. This does not include an evaluation by the Company’s registered public accounting firm regarding the Company’s internal control over financial reporting.

 

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
 
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PART II – OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

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

 

ITEM 1A: RISK FACTORS

 

There have been no material changes to Skkynet’s risk factors as previously disclosed in our most recent 10-K filing for the year ending October 31, 2017.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

 

On April 30, 2018, the Company issued 25,361 shares of common stock at $0.77 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $19,519 for the settlement of a liability of $12,300 which resulted in a loss of $7,219 which was expensed at settlement.

 

On July 31, 2018, the Company issued 19,711 shares of common stock at $0.61 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300

 

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.

       
By: /s/ Andrew Thomas

 

 

Andrew Thomas  
   

Chief Executive Officer (Duly Authorized,

Principal Executive Officer)

 

 

 

 

 

Date: September 18, 2018

By:

/s/ Lowell Holden

 

 

 

Lowell Holden

 

 

 

Chief Financial Officer (Duly Authorized

Principal Financial Officer)

 

 

 

16

  

skky_ex311.htm CERTIFICATION

skky_ex311.htm

EXHIBIT 31.1

 

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Andrew Thomas, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;

 

 

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4. The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

(d) Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

  

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

  

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

 

 

 

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  
       

Date: September 18, 2018

By: /s/ Andrew Thomas

 

Name:

Andrew Thomas  
  Title: Chief Executive Officer  
    (Principal Executive Officer)  

 

skky_ex312.htm CERTIFICATION

skky_ex312.htm

EXHIBIT 31.2

 

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Lowell Holden, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;

 

 

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4. The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

(d) Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

  

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

 

 

 

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

     

Date: September 18, 2018

By: /s/ Lowell Holden

 

Name:

Lowell Holden  
  Title: Chief Financial Officer  
    (Principal Financial Officer)  

  

skky_ex321.htm CERTIFICATION

skky_ex321.htm

 

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Thomas, Principal Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

 

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

  
       

Dated: September 18, 2018

By: /s/ Andrew Thomas

 

 

Andrew Thomas

 
   

Chief Executive Officer

 
    (Duly Authorized Principal Executive Officer)  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

skky_ex322.htm CERTIFICATION

skky_ex322.htm

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lowell Holden, Principal Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

 

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Skkynet.

 

       

Dated: September 18, 2018

By: /s/ Lowell Holden

 

 

Lowell Holden

 
   

Chief Financial Officer

 
    (Duly Authorized Principal Financial Officer)  

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Skkynet for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

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