Skkynet Cloud Systems, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2024 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, 2024 as reported on Form 10-K, have been omitted.

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 2 –**SIGNIFICANT ACCOUNTING POLICIES

Recent adopted accounting standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13 Financial Instruments- Credit Losses, which replaces the impairment methodology incurred to reflect expected credit losses. The amendments require the measurement of all expected credit losses for financial assets held at the reporting due to the performance based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 is effective for annual and interim periods beginning after December 31, 2022. The Company adopted the standard on October 31, 2024. The adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07 Segment Reporting The change in this announcement requires more detailed profit and loss reporting by business segments used by the Company to determine the allocation of assets. ASU 2016-07 is effective for annual periods beginning after December 15, 2023 and interim periods within the fiscal years beginning after December 15, 2024. The Company is evaluating the adoption of the standard but believe it will not have a material impact on the Company’s consolidated financial statements.

Accounts Receivable are carried at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable include receivables from customers that have received software and support from the Company. Credit losses is a recognition of uncollectable receivables based on past years’ experience and management’s estimate of likely losses for the year. No allowance for bad debt was considered necessary for the nine months ended July 31, 2025 and the year ended October 31, 2024, respectively. However, the Company expensed $13,631 in credit loss for the nine months ended July 31, 2025 compared to none during the same period in 2024.

Basic and Diluted Net Loss Per Share

Basic and diluted net income per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. They include the dilutive effect of common stock equivalents in years with net income. For the nine months ended July 31, 2025 and the nine months ended July 31, 2024,8,737,200 and 8,073,450, respectively, of potentially issuable shares of common stock from stock options have not been included in the calculations due to losses in each respective period. Due to the net profit for the quarter ending July 31, 2024, the Company reported 61,217,272 as the number of shares to calculate the per share earnings on a diluted basis.

**NOTE 3 –**REVENUE RECOGNITION

In April 2016, the FASB issued ASU 2016–10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606.

ASC Topic 606 prescribes a new five-step model entities should follow in order to recognize revenue in accordance with the core principle. These five steps are:

The Company has four revenue streams, each of which the revenue is recognized in accordance to the five steps included in Topic 606. The revenue streams are:

As part of the revenue recognition reporting, the Company reports revenue by product line and geographic area. During the nine month periods ended July 31, 2025, and 2024 the revenue by product line is as follows:

The Company sells its products on a worldwide basis. During the nine month periods ended July 31, 2025, and 2024 the Company’s geographic concentration of revenue is as follows:

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 license’s agreement, there is no unilateral right of termination. Termination may occur by mutual consent of the parties, 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 July 31, 2025.

As of July 31, 2025, the amount due to related parties was $182,485 compared to $166,940 as of October 31, 2024. As of July 31, 2025, the amount consisted of accrued dividends of $116,200 and accrued liabilities of $66,285.

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 nine month period ended July 31, 2025 the Company issued 763,750 options to 19 individuals. The options can be exercised into common stock of the Company at $0.41- $0.88 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 126.00%, risk-free interest rate of 4.5%, expected dividend yield 0%, stock price at measurement date of $0.41-0.88 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.

As of July 31, 2025 the total number of options was 8,737,200 of which 6,656,700 can be exercised and 2,080,500 not exercisable.

During the nine month period ended July 31, 2025, the Company recognized $89,140 of option expense. The unrecognized future balance to be expensed over the term of the options is $433,666.

The following sets forth the options granted and outstanding as of July 31, 2025:

NOTE 6 – MAJOR CUSTOMERS

The Company sells to their end-user customers both directly and indirectly, through resellers. In the nine months ended July 31, 2024, 5 resellers accounted for 51% of sales, of which 1 reseller accounted for 27% of sales. In the nine months ended July 31, 2025, 7 resellers accounted for 52% of sales, of which 1 reseller accounted for 20% of sales. 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. No reseller has exclusivity in their territory. In the nine months ended July 31, 2024, no end user customers were responsible for more than 10% of gross revenue and 32 end user customers were responsible for approximately 50% of gross revenue. In the nine months ended July 31, 2025, no end user customers were responsible for more than 10% of gross revenue and 19 end user customers were responsible for approximately 50% of gross revenue.

NOTE 7 – EQUITY

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. Series B is convertible by the holder into common stock at $1.32 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 accumulative dividend. During the nine months periods ended July 31, 2025 and 2024, the Company recognized but did not pay dividends of $2,905 for the respective quarters. As of July 31, 2025, the total amount of dividends due to the preferred shareholders was $116,200.

NOTE 8 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events to determine events occurring after July 31, 2025 through the filing of this report that would have a material impact on the Company’s financial results or require disclosure and have determined none exist other than noted above.