Skkynet Cloud Systems, Inc.

NOTES TO CONDENSED 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 condensed 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, 2025 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, 2025 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 – SUMMARY OF SIGNIFICANT ACCOUNTING POICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries Cogent Real Time Systems, Inc (Canada), Skkynet Corp. (Canada) and Skkynet Inc (US). All material intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Cash deposits are insured up to US$250,000 in US banks and CDN$100,000 in Canadian banks. The concentration of the Company’s cash deposits at times may exceed the insured amount, leaving the Company exposed to a credit risk on its deposits.

Income tax

The Company accounts for income taxes under ASC 740. Current tax expense (benefit) is recognized for taxes payable for the period; deferred tax assets and liabilities are recognized for temporary differences between financial and tax bases of assets and liabilities.

Basic and Diluted Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities, such as stock options and convertible preferred shares, were exercised or converted to common stock. The treasury method is used to calculate the effect of options, and if the converted method is used for convertible preferred shares. Securities that are antidilutive are excluded from the computation of diluted EPS.

Recent adopted accounting standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-Financial Instruments- Credit Losses, which replaces the incurred impairment methodology to reflect expected credit losses. The amendments requires 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 December 15, 2024. The Company adopted the standard on October 31, 2025. The adoption did not have a material impact on the Company’s consolidated financial statements.

In July 2025, the FASB issued ASU 2025‑05, which provides a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from revenue transactions within the scope of ASC 606. The expedient allows entities to assume that current conditions as of the balance sheet date remain unchanged over the remaining life of the asset when developing reasonable and supportable forecasts. Public business entities are not permitted to elect the optional accounting policy to consider subsequent cash collections The Company adopted ASU 2025‑05 on January 1, 2026, on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements. Upon adoption, the Company elected the practical expedient for current accounts receivable and current contract assets. No other changes were made to the Company’s credit‑loss estimation methodologies.

The Company adopted ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, in the quarter ended January 31, 2026 consistent with the effective date for public business entities (annual periods beginning after December 15, 2024). The Company applied the amendments on a prospective basis to the condensed consolidated financial statements for the current reporting period. Impact on financial statements and disclosures — Adoption of ASU 2023‑09 did not affect the Company’s measurement of income tax expense, deferred tax assets or liabilities, or its effective tax rate.

Accounts receivable

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 three months ended January 31, 2026 and 2025, respectively.

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:

Revenue for the sale of software both directly to end users and through the distributor and channel partners is recognized upon delivery of the software and code required for the customer to install the software. Maintenance support services are recognized as revenue on a straight-line basis over the service period of the arrangement.

Revenue from cloud services is recognized over time (typically, on a monthly basis) as service is provided.

Payments received in advance of services being rendered are recorded as deferred revenue and recognized to revenue when earned. During the three months period ended January 31, 2026, $272,654 of sales was classified as deferred revenue and $206,377 of deferred revenue was reported as sales. As of January 31, 2026 and October 31, 2025 the deferred revenue was $424,545 and $347,686, respectively.

Payments for subscription revenue has increased 271% to $73,337 in the three months period ending January 31, 2026 from $19,763 in the same period in 2025. Perpetual revenue for the three months ended January 31, 2026 was $476,056 compared to $808,289 for the same period in 2025. The move to subscription revenue from perpetual revenue impacts the Company’s revenue reported as subscription licenses pay over a three year period while perpetual licenses are paid ,in full, on the purchase of the license.

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, 2026, and 2025 the revenue by product line is as follows:

The Company sells its products on a worldwide basis. During the three month periods ended January 31, 2026, and 2025 the Company’s geographic concentration of revenue is as follows:

NOTE 4 – RELATED PARTY TRANSACTIONS

Sakura Software, a corporation owned by our CTO, 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 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 January 31, 2026.

As of January 31, 2026, the amount due to related parties was $273,754 compared to $245,712 as of October 31, 2025. As of January 31, 2026, the amount consisted of accrued dividends of $122,010, directors fees of $9,000 and accrued liabilities of $142,475.

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, 2025 the Company issued 631,250 options 18 individuals. The options are exercisable into common stock of the Company at $0.41 per share. The Company calculated a fair value of the outstanding options of $53,128 using the Black Scholes option pricing model with computed volatility of 128.00%, risk-free interest rate of 4.5%, expected dividend yield 0%, stock price at measurement date of $0.51 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, 2026 the Company issued 1,595,000 to options 19 individuals. The options are exercisable into common stock of the Company at $0.33-$0.48 per share. The Company calculated a fair value for the outstanding options as of January 31, 2026 of $64,429 using the Black Scholes option pricing model with computed volatility of 142%, risk-free interest rate of 4.5%, expected dividend yield 0%, stock price at measurement date of $0.33-$0.48 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 January 31, 2026 the total number of options was 10,332,200 with 7,315,450 exercisable and 3,016,750 not exercisable.

During the three month period ended January 31, 2026, the Company recognized $64,429 of option expense. The unrecognized future balance to be expensed over the term of the options is $803,085.

The following sets forth the options granted and outstanding as of January 31, 2026:

NOTE 6 – MAJOR CUSTOMERS

The Company sells to their end-user customers both directly and indirectly, through resellers. In the three months ended January 31, 2026, 7 resellers accounted for 50% of sales, of which one reseller accounted for 23% of sales. In the three months ended January 31st, 2025, 7 resellers accounted for 53% of sales, of which two resellers each accounted for more than 10%, representing 26% 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 three months ended January 31, 2026, no end user customers were responsible for more than 10% of gross revenue and 17 end user customers were responsible for approximately 50% of gross revenue. In the three months ended January 31, 2025, one end user customer was responsible for 14% gross revenue, and nine end user customers were responsible for approximately 51% of gross revenue.

NOTE 7 – SEGMENT REPORTING

ASC Topic 280, “Segment Reporting” establishes the standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services categories, business segments and major customers in financial statements. The Company is managed as one operating unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making and discloses its operating results in a single reportable segment. The Company’s chief operating decision maker (“CODM”), represented by the Company’s Chief Executive Officer, reviews financial information and assesses the operations of the Company in order to make strategic decisions such as allocation of resources and assessing operating performance.

NOTE 8 – INITIATIVE LOAN

On December 18, 2025, the Company received a $1.9 million Industrial AI Product Development Initiative funding through FedDev Ontario’s Regional Artificial Intelligence Initiative. The Company and FedDev Ontario entered into a loan agreement whereby up to $750,000 will be provided to the Company over the Project period in the form of an interest-free repayable loan after the Project completion. As of January 31, 2026 the Company had not received any funding from the loan agreement.

NOTE 9 – SUBSEQUENT EVENTS

On February 24, 2026 the Industrial AI Product Development Initiative authorized a payment of CDN $187,209 ( US $136,649) to the Company for the initiative loan (see Note 8 above)

The Company has evaluated subsequent events to determine events occurring after January 31, 2026 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 .