10-K: SKKYNET CLOUD SYSTEMS Reports FY2025 Results

Skkynet Cloud Systems, Inc. reports a decrease in net income and revenue for fiscal year 2025, driven by a strategic shift to subscription-based sales, while securing new AI development funding.

Summary

• Revenue for the fiscal year ended October 31, 2025, was $2,550,951, a decrease of $10,672 from $2,561,745 in FY2024.
• Net income for FY2025 was $35,351, significantly down from $99,090 in FY2024.
• The company reported an operating loss of $6,488 in FY2025, compared to an operating income of $58,697 in FY2024.
• Subscription revenue increased by 268% to $364,395 in FY2025 from $136,770 in FY2024, reflecting a strategic shift from perpetual license payments.
• Deferred revenue increased to $347,686 as of October 31, 2025, from $338,382 in the prior year.
• Working capital stood at $1,027,715 with a current ratio of 2.28 to 1 as of October 31, 2025.
• The company secured $1.9 million in Industrial AI Product Development Initiative funding through FedDev Ontario, with up to $750,000 as an interest-free repayable loan.
• A material weakness in internal control over financial reporting was identified due to a lack of full-time accounting and financial staff.
• Gary Tillery was elected as the new Chief Executive Officer on December 8, 2025.

Sentiment

Score: 4

Explanation: While the company has a strong strategic vision, patented technology, and secured new funding, the significant decline in net income and shift to an operating loss, coupled with identified material weaknesses in internal controls and the need for future capital raises, indicate near-term financial challenges and execution risks. The positive growth in subscription revenue is a good sign, but it hasn't offset the overall decline yet.

Positives

• Subscription revenue increased by 268% to $364,395 in FY2025, indicating successful transition to a recurring revenue model.
• Maintained a strong working capital position of $1,027,715 with a current ratio of 2.28 to 1 as of October 31, 2025.
• Secured $1.9 million in Industrial AI Product Development Initiative funding from FedDev Ontario, supporting future growth in AI.
• Established strategic partnerships with world-class hardware companies including Microsoft, Siemens AG, and AVEVA.
• Possesses patented and patent-pending technologies for secure, real-time cloud-based data transmission, offering a competitive advantage.
• Serves a diversified customer base of over 3,000 clients across various industries, reducing exposure to cyclical swings in any single sector.
• Experienced growth in Asia Pacific revenue, which now accounts for 17% of total revenue, up from 9% in FY2024.
• Shareholders' equity continued to grow year over year, reaching $1,027,715 as of October 31, 2025.

Negatives

• Overall revenue slightly decreased by $10,672 in FY2025 to $2,550,951 compared to FY2024.
• Net income significantly decreased to $35,351 in FY2025 from $99,090 in FY2024.
• The company reported an operating loss of $6,488 in FY2025, a reversal from an operating income of $58,697 in FY2024.
• The strategic shift from perpetual to subscription revenue negatively impacted near-term revenue recognition.
• General operating expenses increased by $53,665 in FY2025, attributed to higher salary, wages, and consulting fees.
• A material weakness in internal control over financial reporting was identified due to insufficient accounting and financial staff, leading to inadequate segregation of duties and oversight.
• Accrued dividends on Series B preferred shares totaled $119,105 as of October 31, 2025, which remain unpaid.
• Accrued liabilities to related parties increased to $245,712 as of October 31, 2025, from $166,940 in FY2024.

Risks

• Ability to attract new clients and induce them to renew subscriptions for products and services.
• Ability to expand the sales organization effectively to target new industries, geographies, and types of organizations.
• Ability to accurately forecast revenue and appropriately plan expenses.
• Continued market acceptance of products and services, including alternate technologies.
• Attraction and retention of qualified employees and key personnel.
• Ability to protect and defend intellectual property, and costs associated with infringement claims.
• Events in the markets for products and applications, and alternatives to them, in the United States and global markets.
• Future regulatory, judicial, and legislative changes in the industry.
• Changes in the competitive environment in the industry and markets of operation.
• Developments and acceptance, favorable and unfavorable, about the use of cloud systems for product implementation.
• The occurrence of uncontrollable events such as pandemics (e.g., COVID-19) may negatively affect operations by limiting access to customers, management, and staff.
• High dependence on third-party provided software applications for key operations, posing cybersecurity risks.
• Cybersecurity threats and vulnerabilities, requiring ongoing mitigation efforts including training, third-party risk management, and incident response planning.
• Inability to secure additional capital needed to hire personnel and develop marketing strategies for new business areas.
• Liquidity and capital are dependent on internally generated revenue, loans from officers and directors, and deferral of accrued salaries.
• No assurance that there will be a demand for the company's services in the future or that it will become profitable.
• Exposure to credit risk on cash deposits that may exceed insured amounts.
• Material weakness in internal control over financial reporting due to insufficient accounting and financial staff, which could lead to undetected material misstatements.

Future Outlook

The company anticipates substantial growth by expanding its current real-time data software for industrial automation, deploying cloud-based SaaS products, and applying its offerings to new business lines such as AI-focused providers and embedded products. Future software development will prioritize enhancing security and user experience for cloud-based real-time data, alongside automating cloud components to reduce management costs. The company also plans to partner with cloud infrastructure providers in other countries to address data residency concerns. Management believes the rise of machine-to-machine communication and advancements in AI will drive demand for its cloud services, positioning it to capitalize on the 'Internet of Intelligent Things'.

Management Comments

• "We believe there is a steady movement of manufacturing facilities from developed countries to underdeveloped countries because of the economic advantages of lowering production costs."
• "We have determined a growing need for large enterprise to have the ability to safely share information on operations to third parties (e.g. suppliers, or contract manufacturers), and to access this data for Artificial Intelligence (AI) applications."
• "For reasons of speed, security, and resiliency we do not anticipate that customers will accept a purely Cloud-based system for their immediate industrial automation data needs. We believe that this may change in the future as technology and market expectations change..."
• "Skkynet provides the secure, real-time industrial data pipeline that industrial AI demands, zero-trust OT access, unified live datasets ready for models, and battle-tested reliability to close the loop safely and at scale."
• "The move to subscription revenue from perpetual revenue impacts near term revenue with the potential of future increased revenue."
• "If the Company is not successful in obtaining the required additional capital, it believes the present business operation will be able to sustain Skkynets additional costs as a public company at a minimal level."

Industry Context

The company operates within the rapidly evolving Industrial Internet of Things (IIoT) and Industry 4.0 sectors, focusing on secure, real-time data connectivity for industrial processes and financial services. Its strategy aligns with the convergence of nine new technologies, including cloud computing, cybersecurity, and big data analytics, as identified by Boston Consulting Group. The company positions itself to address critical industry challenges, such as the growing need for secure data sharing for AI applications, particularly in industrial AI, where data management and robust pipelines are significant barriers. The market for real-time cloud services is still in its formative stages, and the company aims to leverage the anticipated growth in machine-to-machine communication and the 'Internet of Intelligent Things'.

Comparison to Industry Standards

• The company's focus on six of the nine new technologies identified by Boston Consulting Group for Industry 4.0 (autonomous robots, big data analytics, Cloud, cybersecurity, Industrial IoT, horizontal/vertical system integration) positions it within key growth areas.
• Management highlights Goldman Sachs' guidance of over $1 trillion in AI capital expenditures, indicating a significant market opportunity for its AI-enabling data pipelines.
• Referenced Economist Group and S&P Global Market Intelligence surveys underscore the industry-wide challenge of data management and architecture support for AI workloads, which Skkynet aims to solve.
• The company's products are used by major industrial players like Siemens, ABB, BASF, and Equinor, suggesting a level of industry acceptance and reliability.
• Partnerships with industry giants such as Microsoft (worlds largest software vendor), Siemens AG (worlds largest industrial automation vendor), and AVEVA (wholly owned subsidiary of Schneider Electric, worlds largest industrial software market channel) demonstrate strong strategic alliances.
• While large industrial automation vendors like Siemens, ABB, and Rockwell Automation offer SCADA systems, Skkynet notes that none are currently linking SCADA functions to cloud-based systems in the same way, presenting a potential competitive advantage or partnership opportunity.
• The company differentiates itself from cloud storage providers like LogMeIn, Inc. by focusing on real-time data collection and distribution rather than just storage, addressing a distinct market need.
• Cloud infrastructure companies (Amazon, Microsoft Azure, Google) are viewed as suppliers of computing resources rather than direct competitors, indicating a complementary relationship within the cloud ecosystem.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not aware of any legal proceedings or claims that are believed to have a material adverse effect on its business, financial condition, or operating results.

Related Party Transactions

• Cogent, a subsidiary, assigned all its intellectual property (IP) to Real Innovations International LLC (owned by CTO Andrew S. Thomas and COO Paul Benford) in March 2012. In return, Real Innovations required a one-time payment of $30,000 to Cogent, which Cogent forgave to offset future expenses. No ongoing royalty payments are made.
• Real Innovations granted a royalty-free, perpetual license of the IP back to Cogent. Cogent agreed to pay Real Innovations' operating expenses for patent prosecution, prosecute infringement claims, defend and indemnify Real Innovations from infringement claims, and purchase liability insurance. No payments have been made as of October 31, 2024, under this agreement.
• Accrued liabilities to related parties totaled $245,712 as of October 31, 2025, an increase from $166,940 in 2024. This includes $126,607 for consulting services and expenses to LifeCycle IP Management Inc., a company owned by President Paul E. Thomas.
• Accrued dividends on Series B preferred shares amounted to $119,105 as of October 31, 2025. These dividends accrue at 6% per annum on the 193,661 outstanding Series B shares, with $11,620 recognized but not paid in both FY2025 and FY2024.
• Andrew S. Thomas (CTO) and Paul Benford (COO) were each paid $152,158 (USD equivalent) in salary for the fiscal year ended October 31, 2025.
• Lowell Holden (CFO) was paid $57,595 in consulting fees for the fiscal year ended October 31, 2025.
• Paul E. Thomas (President) was paid $152,158 for consulting services for the fiscal year ended October 31, 2025.

Stakeholder Impact

• Shareholders: The decrease in net income and shift to an operating loss, coupled with the identified material weakness in internal controls, may negatively impact investor confidence and share price. The strategic shift to subscription revenue offers long-term potential but impacts near-term profitability. Accrued but unpaid dividends on Series B preferred shares could be a concern for preferred shareholders.
• Employees: Increased salary and wages, along with increased consulting fees, indicate ongoing investment in human capital. The need for additional accounting and financial staff suggests potential new employment opportunities. Stock options granted to employees and new management/directors provide incentives.
• Customers: Continued development of secure, real-time cloud services and AI integration aims to enhance product offerings and user experience, potentially leading to more robust and efficient solutions. The hybrid cloud model offers flexibility and resiliency.
• Suppliers/Partners: Strong partnerships with major industry players like Microsoft, Siemens, and AVEVA are beneficial for product integration and market reach. The company's reliance on cloud infrastructure providers highlights the importance of these relationships.
• Creditors: The company's liquidity and capital resources are dependent on internal revenue, loans from officers/directors, and deferred salaries. The stated need for additional financing for growth could impact future debt levels and creditworthiness.

Next Steps

• Expand current lines of business providing real-time data software to industrial automation markets.
• Deploy products and services through Cloud-based SaaS products.
• Apply products and services to new business lines such as AI-focused providers, embedded products, or combination solutions.
• Expand and focus software development on modifying existing products to provide a smoother and more secure user experience for real-time data handling in the Cloud.
• Improve the user experience and automation of the Cloud component to reduce the cost of management, deployment, and scaling.
• Partner with Cloud infrastructure providers in other countries where there is sensitivity over customer data remaining inside those countries.
• Hire personnel needed to explore and develop a strategy to pursue potential customers in new business areas (contingent on capital).
• Establish a cybersecurity training program.
• Set up and implement a third-party risk management program to support a Third-Party Risk Management Policy and process.
• Set up and test a Cybersecurity Incident Response Plan.
• Establish additional processes for identifying cybersecurity threats and vulnerabilities within the operating environment.
• Enhance technical security safeguards and configurations.
• Address the material weakness in internal control over financial reporting by hiring sufficient accounting and financial staff.

Key Dates

Recommendation

The company is undergoing a strategic transition to a subscription-based model and expanding into high-growth areas like industrial AI and cloud services, which are positive long-term drivers. The recent funding and new CEO bring fresh impetus. However, the significant decline in net income, the shift to an operating loss, and the identified material weakness in internal controls present near-term financial and operational challenges. The stock is currently speculative, and while there's potential, the immediate financial performance warrants a cautious "hold" until the benefits of the strategic shift and new initiatives become more evident in the financial results and the internal control issues are resolved.

Keywords

Industrial IoT, Industry 4.0, Cloud Systems, SaaS, Real-time Data, SCADA, OPC UA, MQTT, Microsoft Azure, AI Platforms, Cybersecurity, DataHub, Financial Services Software, Industrial Automation, Software Licensing, Intellectual Property, Patents, Embedded Systems, Machine-to-Machine Communication, Edge Processing, Financial Reporting, 10-K