The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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, 2022 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, 2022 as reported on Form 10-K, have been omitted.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Reclassification
Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. The reclassifications have no effect on the net loss or stockholders equity.
NOTE 3- REVENUE RECOGNITION
As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the three month periods ended January 31, 2023 and 2022 the revenue by product line is as follows:
Category | | Percentage | | | 2023 | | | Percentage | | | 2022 | |
Product sales | | | 62 | % | | | 305,059 | | | | 69 | % | | | 328,096 | |
Support | | | 33 | % | | | 160,237 | | | | 30 | % | | | 145,739 | |
Cloud & Other | | | 5 | % | | | 26,823 | | | | 1 | % | | | 3,344 | |
Total | | | 100 | % | | | 492,119 | | | | 100 | % | | | 477,179 | |
The Company sells its products on a worldwide basis. During the three month periods ended January 31, 2023 and 2022 the Company’s geographic concentration of revenue is as follows:
Area | | Percentage | | | 2023 | | | Percentage | | | 2022 | |
Europe | | | 37 | % | | | 179,709 | | | | 50 | % | | | 239,964 | |
North America | | | 41 | % | | | 201,039 | | | | 33 | % | | | 156,020 | |
Asia | | | 16 | % | | | 81,044 | | | | 11 | % | | | 54,724 | |
Middle East-Africa/Other | | | 3 | % | | | 16,765 | | | | 4 | % | | | 18,043 | |
South America | | | 3 | % | | | 13,562 | | | | 2 | % | | | 8,428 | |
Total | | | 100 | % | | | 492,119 | | | | 100 | % | | | 477,179 | |
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 January 31, 2023.
As of January 31, 2023, the amount due related parties was $97,056 compared to $115,475 as of October 31, 2022.
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.
During the three months period ended January 31, 2023 the Company issued 130,000 options to four consultants, 7,500 to three directors and 100,000 to one officer of the Company. The options are exercisable into common stock of the Company at $0.22 per share. The Company calculated a fair value of the options of $53,128 using the Black Scholes option pricing model with computed volatility of 192.00%, risk-free interest rate of 4.5%, expected dividend yield 0%, stock price at measurement date of $0.22 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 three month period ended January 31, 2023, the Company recognized $52,283 of option expense. The unrecognized future balance to be expensed over the term of the options is $72,837.
The following sets forth the options granted and outstanding as of January 31, 2023:
| | Options | | | Weighted Average Exercise price | | | Weighted Average Remaining Contract Life | | | Granted Options Exercisable | | | Intrinsic value | |
Outstanding at October 31, 2021 | | | 7,958,900 | | | | 0.15 | | | | 5.16 | | | | 6,081,250 | | | $ | 3,805,201 | |
Granted | | | 241,250 | | | | 0.17 | | | | 9.00 | | | | -- | | | | -- | |
Exercised | | | (1,567,300 | ) | | | 0.001 | | | | -- | | | | -- | | | | -- | |
Forfeited/Expired by termination | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
Outstanding at October 31, 2022 | | | 6,632,450 | | | | 0.15 | | | | 4.25 | | | | 5,100,960 | | | $ | 256,000 | |
Granted | | | 237,500 | | | | 0.22 | | | | 9.9 | | | | -- | | | | -- | |
Exercised | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
Forfeited/Expired by termination | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
Outstanding at January 31, 2023 | | | 6,869,950 | | | | 0.15 | | | | 4.00 | | | | 5,135,960 | | | $ | 312,000 | |
NOTE 6 – MAJOR CUSTOMERS
The Company sells to its end-user customers both directly and through a network of resellers. Seven resellers accounted for 51% of sales, of which one reseller accounted for 24% in the three-month period ended January 31, 2023. The Company maintains all the information on their end user customers, and should a reseller discontinue operations, the Company can sell directly to the end user. In the three-month period ended January 31, 2023, thirteen end user customers were responsible for approximately 50% of gross revenue and one end user customer was responsible for more than 10% of our revenues. In the same period in 2022, fourteen end user customers were responsible for approximately 50% of gross revenue and no end user customer was responsible for more than 10% of revenues.
NOTE 7 – LOANS PAYABLE
On April 30, 2020, the Company’s subsidiary, Cogent Systems, issued a two year note for US$15,678 (CDN $20,000) under the Canadian Emergency Business Account (CEBA). The CEBA provides interest free loans to small businesses to help cover operating costs during a period when their revenues may have been reduced due to the impact of COVID-19. The loan is subject to zero interest and 25% of the amount will be forgiven if 75% of the loan amount is repaid on or before December 31, 2022. The Company has the option to extend the term of the loan for another 3 years subject to an annual interest of 5% on any balance remaining. As of January 31, 2023, the loan had been paid in full.
On December 15, 2020, the Company’s subsidiary, Cogent Systems, issued a two year note for US$30,032 (CDN $40,000) under the Canadian Emergency Business Account (CEBA). The CEBA provides interest free loans to small businesses to help cover operating costs during a period when their revenues may have been reduced due to the impact of COVID-19. The loan is subject to zero interest and 25% of the amount will be forgiven if 75% of the loan amount is repaid on or before December 31, 2022. The Company has the option to extend the term of the loan for another 3 years subject to an annual interest of 5% on any balance remaining. On January 23, 2023 the Company received notice that if CDN $2,600 is paid on the note prior to December 31, 2023, the balance of the note CDN $20,000 will be forgiven.
NOTE 8 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events to determine events occurring after January 31, 2023 through filing of this form that would have a material impact on the Company’s financial results or require disclosure and have determined none exist.