10-Q: Skkynet Cloud Systems Narrows Losses, Boosts Cash

Skkynet Cloud Systems, Inc. reported a reduced net loss and increased cash for the nine months ended July 31, 2025, despite stagnant revenue and identified material weaknesses in internal controls.

Summary

• Reported a net loss of $14,105 for the nine months ended July 31, 2025, an improvement from a $23,401 net loss in the same period of 2024.
• Operating loss improved to $48,859 for the nine months ended July 31, 2025, compared to an operating loss of $53,632 in the prior year period.
• Revenue remained largely flat at $1,897,446 for the nine months ended July 31, 2025, a less than 1% decrease from $1,898,701 in 2024.
• Subscription revenue significantly increased to $224,730 (12% of sales) for the nine months ended July 31, 2025, up from $47,336 (2% of sales) in 2024, reflecting a shift from perpetual to subscription licenses.
• Cash and cash equivalents increased to $1,352,883 as of July 31, 2025, from $1,158,255 at October 31, 2024.
• Working capital stood at $946,634 as of July 31, 2025.
• Identified material weaknesses in internal control over financial reporting due to a lack of full-time accounting and financial staff, insufficient technical expertise, and inadequate formal review processes.
• Accrued liabilities to related parties totaled $182,485 as of July 31, 2025, including $116,200 in accrued but unpaid Series B preferred dividends.

Sentiment

Score: 4

Explanation: The company showed some improvement in reducing net and operating losses and a positive shift towards subscription revenue. However, stagnant overall revenue, a significant quarterly revenue drop, and critically, the disclosed material weaknesses in internal controls over financial reporting, weigh heavily on the sentiment. The unpaid preferred dividends and related-party transactions also add a layer of concern regarding corporate governance and financial health.

Positives

• Net loss significantly narrowed to $14,105 for the nine months ended July 31, 2025, from $23,401 in the prior year.
• Operating loss improved to $48,859 for the nine months ended July 31, 2025, from $53,632 in the prior year.
• Cash and cash equivalents increased by $194,628 to $1,352,883 at July 31, 2025, demonstrating improved liquidity.
• Net cash provided by operating activities increased slightly to $203,449 for the nine months ended July 31, 2025, from $199,502 in the prior year.
• Subscription revenue grew substantially to $224,730 (12% of sales) in 2025 from $47,336 (2% of sales) in 2024, indicating successful transition to a recurring revenue model.
• Stockholders' equity increased by $57,488 during the nine-month period ending July 31, 2025, reaching $947,018.

Negatives

• Revenue remained stagnant, decreasing by less than 1% to $1,897,446 for the nine months ended July 31, 2025, compared to $1,898,701 in 2024.
• Reported a net loss for both the three and nine months ended July 31, 2025, indicating continued unprofitability.
• Experienced a 28% decrease in revenue for the quarter ending July 31, 2025, compared to the same quarter in 2024, attributed to fewer individual software orders.
• Incurred a bad debt expense of $13,631 for the nine months ended July 31, 2025, compared to none in the prior year.
• Accrued dividends on Series B preferred shares totaling $116,200 remain unpaid as of July 31, 2025, increasing related party liabilities.
• Identified material weaknesses in internal control over financial reporting due to insufficient accounting and financial staff, lack of technical expertise, and absence of formal review processes.

Risks

• Ability to obtain necessary capital for operations and growth.
• Ability to meet anticipated development timelines for products and services.
• Ability to protect proprietary technology and know-how.
• Ability to establish a global market for products and services.
• Ability to successfully consummate future acquisitions.
• Fluctuations in revenue due to the timing of customer orders, especially from larger customers.
• Impact of the shift from perpetual licenses to subscription agreements on revenue recognition and comparability.
• Material weaknesses in internal control over financial reporting, which could lead to material misstatements in financial statements.
• Dependence on a small number of resellers for a significant portion of sales (7 resellers accounted for 52% of sales in 2025).

Future Outlook

Management's forward-looking statements indicate that future results are subject to risks including the ability to obtain necessary capital, meet development timelines, protect proprietary technology, establish a global market, and consummate future acquisitions. The shift to subscription agreements is expected to impact revenue recognition and comparability in future periods.

Management Comments

• "Revenue from quarter-to-quarter is dependent on the timing of orders placed by its customers. Additionally, as larger customers place orders, the revenue volume can fluctuate significantly."
• "The decrease in revenue for the nine month period can be partially attributed to the $177,394 increased subscription license agreements over perpetual license in 2025 over 2024."
• "The Company cannot determine if there were any significant external factors in the marketplace that impacted the results [for the quarter ending July 31, 2025]."
• "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."
• "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."

Industry Context

Skkynet operates in the Industrial Internet of Things (IoT) market, also known as Industry 4.0, providing software and systems for real-time data collection, processing, and distribution. The shift towards Software-as-a-Service (SaaS) and subscription models is a broader industry trend, which Skkynet is adopting. This transition, while potentially stabilizing future revenue, can initially impact reported revenue growth due to different recognition patterns compared to one-time perpetual licenses. The market for real-time industrial data management is competitive, with increasing demand for cloud-based solutions.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Currently not aware of any legal proceedings or claims that are believed to have a material adverse effect on the business, financial condition, or operating results.

Related Party Transactions

• Cogent, a wholly-owned subsidiary, assigned all its intellectual property to Real Innovations International LLC, a corporation owned by CEO Andrew S. Thomas and COO Paul Benford.
• Cogent holds a royalty-free license for the IP but is responsible for all operating expenses of Real Innovations related to patent prosecution, infringement claims, and indemnification.
• Accrued liabilities to related parties totaled $182,485 as of July 31, 2025, including $116,200 in accrued dividends on Series B preferred shares, which remain unpaid.

Stakeholder Impact

• **Shareholders:** Continued losses and material weaknesses in internal controls could negatively impact investor confidence and share value. The accumulation of unpaid preferred dividends could also be a concern for common shareholders regarding future cash flow allocation.
• **Employees:** The lack of full-time accounting and financial staff suggests potential understaffing in critical areas, which could impact workload and operational efficiency.
• **Customers:** The shift to subscription models may offer more predictable service and support, but fluctuations in quarterly revenue suggest potential inconsistencies in order fulfillment or customer acquisition.
• **Creditors:** Improved cash position and working capital are positive for short-term liquidity, but ongoing losses and internal control weaknesses could raise concerns about long-term solvency and financial reporting reliability.

Next Steps

• Continue to integrate Cloud-based systems and expand business activity for Cogent's existing lines.
• Deliver Software-as-a-Service (SaaS) products targeting the Industrial Internet of Things (IoT) market.
• Address the identified material weaknesses in internal control over financial reporting by hiring and training accounting and financial personnel and implementing formal review processes.

Key Dates

Recommendation

While Skkynet Cloud Systems showed some positive trends like reduced losses and growth in subscription revenue, the stagnant overall revenue and a significant quarterly revenue decline are concerning. The most critical factor is the disclosed material weaknesses in internal control over financial reporting, which casts doubt on the reliability of financial statements and operational integrity. This fundamental governance issue, combined with accumulated unpaid preferred dividends and related-party transactions, suggests significant underlying risks. A seasoned investor would likely 'hold' to monitor the company's ability to address these control deficiencies and demonstrate consistent, profitable growth, or 'sell' if the internal control issues are deemed too severe without clear remediation plans.

Keywords

Cloud Systems, Industrial IoT, Industry 4.0, SaaS, Real-time Data, Software, Financial Reporting, SEC Filing, 10-Q, Skkynet