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

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

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

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

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.

7

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.

8

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

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

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.

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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)”), 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.

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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.

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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

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.

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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

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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)

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