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SKKYNET CLOUD SYSTEMS, INC. - 10-K - : MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION.

February 11, 2014

OVERVIEW

The Company was incorporated on August 31, 2011 in the State of Nevada. On March 26, 2012 the Company acquired Cogent Real-Time Systems, Inc.

Skkynet is an evolution of Cogent, an established financial and industrial middleware software vendor. Cogent's specialization has focused on providing connectivity and data acquisition to a wide variety of industrial and office hardware and software products, and then making that data available over a network using industry-standard protocols. The architecture of Cogent's software naturally suits it for use both as a data aggregation platform at the process level, and as a data server at the Cloud level. By marrying these two capabilities together, Skkynet can effectively and securely offer the Cloud as an extension to any local process.

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Cogent's market has been primarily in industrial automation. With very little advertising, Cogent has also acquired a number of financial trading companies as clients, due to the fact that Cogent's software is both source and content agnostic. High-speed trading and high-speed industrial automation behave very similarly at the level of abstraction that Cogent's software uses. Recently, Cogent has been working with Japanese companies to penetrate the lucrative embedded device manufacturing world. Japan is one of the largest producers of consumer and business electronics devices, more and more of which contain small embedded computers. Cogent has been working with partners in Japan to establish a name and presence in this world, with the aim of having Cogent's software installed directly on the electronic devices, allowing the manufacturers to instantly make them network-accessible.

The Company believes that deploying its product in a Cloud environment will increase the potential applications for customers and broaden its usage and expansion into various markets including Cloud industrial middleware, Cloud financial services, home monitoring, fleet tracking, and energy usage monitoring. New applications that may not exist today but will through the new Cloud platform may also open new markets unknown to Skkynet today. However, Management will carefully monitor the growth in new markets and manage each opportunity to maximize its return and minimize risks. This includes selecting specific markets with known trends to introduce its products and services and maintain a controlled release until the market has been understood and sales in the market have become significant to the Company. Only then will the Company risk new markets for its product. We must also include additional staffing at the senior management level with proven experiences and business records in the Company's environment to implement these markets.

The expansion into new markets will require additional cash resources from sources other than those available to the Company today. Only after the Company has secured specific amounts of financing it believes is required for development of each market application enumerated above will Skkynet begin its marketing efforts.

The additional staffing will not begin until Skkynet has funded itself to finance both the staff increase and the required capital to carry out its marketing plan. If the Company is not successful in obtaining the required additional capital, it believes the present business operation will be able to sustain Skkynet' s additional costs as a public company at a minimal level.

RESULTS OF OPERATIONS

The following table sets forth selected statement of operations data as a percentage of total revenues for the periods indicated:

For Years Ended October 31, 2013 2012(Restated) Revenue $ 783,773 100 % $ 733,446 100 % Direct material costs 7,759 .9 % 4,908 .6 % Gross profit 776,014 99.1 % 728,538 99.4 %



Operating expenses: General and administrative expense 1,090,266 (139.1 )% 889,615 (121 )% Depreciation

1,761 0 % 1,813 0 % Bad debt expense -- -- (31,633 ) (4.3 )% Income (loss) from operations (316,013 ) (40.3 )% (131,257 ) (26.5 )% Other income (expense) (11,545 ) (1.4 )% (6,215 ) (0.8 )% Net income (loss) before taxes (327,558 ) (41.8 )% (137,472 ) (18.7 )% Tax refund 85,870 10.9 % - 0 % Net income (loss) $ (241,688 ) (30.8 )% $ (137,472 ) (18.7 )% 15



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Revenue: For the year ended October 31, 2013, the Company had revenues of $783,773 compared to $733,446 of revenue for the year ended October 31, 2012. This reflects an increase of $50,327 from 2012 to 2013. Sales increase can be attributed to the addition of new customers, and the increase in sales to the base of our existing customers. All increases in sales were attributable to the present product line as no new products were introduced during the last two years. During the year ended October 31, 2013 the Company deferred revenue of $59,312 compared to deferred revenue of $ 46, 105 during the same period in 2012 or an increase of $13,207. Deferred revenue consists of services billed but not yet provided to the customer and reflects revenues that will be gained in the future.

Direct Costs: For the year ended October 31, 2013, the Company's direct costs were $7,759 compared to $4,908 for the same period in 2012 or an increase of $2,851. The increase resulted from higher costs in 2013 compared to 2012. Costs as a percent of revenue increased in 2013 over the same period in 2012 by .3% and was insignificant. Specific to this direct cost increase was an increase in the purchase for resale items.

General and Administrative Expenses: (G&A) Total general and administrative expenses increased to $1,090,266 in the year ended October 31, 2013 from $889,615 for the same period in 2012. This was an increase of $200,651, and as a percent of revenue G&A decreased from 121% in 2012 to 139.1%in 2013. Higher costs in 2013 had a direct effect on the increase in costs for product improvement and sales. The increase in G&A can be directly attributed to additional staff added to work on new product usage plus the administrative costs incurred in preparation of the public offering of the Company.

Salaries and Wages: Salaries and wages totaled $598,254 for the year ended October 31, 2013 compared to $474,478 for the same period in 2012. This was an increase of $123,776 from 2012 to 2013. The increase of wages was attributable to higher pay to related parties in 2013 over 2012.

Professional Fees: For the year ending October 31, 2013 professional fees were $279,109 compared to $204,690 for the same period in 2012. The Company experienced an increase due primarily to services required as a public Company.

Depreciation and Amortization: The Company experienced depreciation of $1,716 in 2013 compared to $1,813 in 2012. The amortization expense was higher in 2012 due to the equipment depreciation schedule was greater in 2012.

Other General and Administrative Expenses: Expenses including travel, meals and entertainment, utilities, bank charges and postage and deliver totaled $212,903 for the period ending October 31, 2013 compared to $210,447 for the same period in 2012. The increase can be attributed mostly to consulting, legal and accounting costs of $104,995, travel and meals and entertainment of $13,931, advertising and promotion of $19,180 and option expense of $8,000. The Company incurred a gain on reversal of bad debt expense of $31,633 in 2012 compared to none in 2013.

Other Income Expenses: Other income and expense totaled $11,545 in expense during the year ended October 31, 2013 compared to $6,215 in expense during the same period in 2012. The expenses consisted mostly of interest of $12,640 in 2013 compared to interest of $6,320 in the same period for 2012.

Income Tax: During the periods ending October 31, 2013 and 2012 the Company incurred no tax and the subsidiary paid tax as a foreign corporation. The Company received a tax refund of $85,870 during 2013

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Net Income (Loss): The Company recorded a net loss of $241,688 for the year ending October 31, 2013 compared to net loss of $137,472 for the same period in 2012 an increase of $104,216. The significant increase in G&A of $200,651 was most of the increase in net loss in 2013 over 2012.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity and capital has been dependent on the revenue generated internally by the Company's subsidiary, by loans from its officers and directors and by deferral of accrued salaries. There are no agreements or understandings with regard to future loans by or with the officers, directors, principals, affiliates or shareholders of the Company. In the past, officers and directors of the Company have lent or advanced monies to the Company to fund operations, but there are no formal agreements or arrangements for them to continue to do so. As of October 31, 2013, the Company had issued notes to officers and directors consisting of $197,434 in loans payable plus interest of $18,063 for a total of $215,497 in accrued liabilities. During the year ended October 31, 2013 the Company repaid $6,652 of these loans to the related parties.

On April 30, 2012, Andrew Thomas, Shizuka Thomas and Paul Benford converted the salary they had accrued through our subsidiary through January 31, 2013 to notes payable due from that subsidiary. The notes mature on April 29, 2015 and bear an interest rate of 6% per annum on the outstanding balance. Interest payments are due quarterly commencing October 30, 2013. The balance of the notes and accrued interest for each person is as described in the table below:

As of: October 31, 2013 Related Party Note Balance Accrued Interest Total Andrew Thomas $ 59,572 $ 5,575 $ 65,147 Paul Benford $ 97,545 $ 8,860 $ 106,405 Shizuka Thomas $ 40,317 $ 3,628 $ 43,945 Total $ 197,434 $ 18,063 $ 215,497



The Company anticipates continually expanding its business through the planned expansion of the Company's marketing of venues in expanded markets. The Company's plans will be limited, however, by its ability to finance such a proposed expansion of its business. If the revenues generated are not sufficient to finance these proposed operations, then the Company will have to scale back its proposed operations. The Company's ultimate success will be based upon whether or not there continues to be a demand for the services that the Company anticipates providing, which is also very dependent on the economy. There can be no assurance that there will be a demand for the Company's services in the future or that the Company will become profitable in providing these services. As the Company's expands its operations, the revenues received, in addition to paying current expenses may increase the Company's capital requirements.

The Company is attempting to secure additional capital from independent sources in the form of equity and debt. The success and ability to meet its capital needs is highly dependent on its success in generating additional revenue and profitability now and in the future.

Working Capital: At October 31, 2013, the Company had working capital of $164,038 with current assets of $454,221 and current liabilities of $290,183 or a current ratio of 1.56 to 1. The current assets consisted of cash of $365,415 and account receivable of $88,806. The current liabilities of the Company at October 31, 2013 are composed primarily of accounts payable and accrued expenses of $47,325, accrued liabilities to related parties of $196,304, deferred revenue of $59,312 and a tax credit of $12,758.

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Operating Activities: Net cash provided in operating activities, during the year ending October 31, 2013 was $249,884 compared to cash used of $113,687 for the same period in 2012. This represents a positive change of $363,571. The primary factor in the change in cash flow from operating activities is the change in related party liabilities of $392,962 and accrued expenses of $75,362 in the period ending October 31, 2013. Related party liabilities change was due to the contribution to paid in capital by officers of the Company of their accrued salary.

Investing Activities: Net cash used in investing activity was $4,617 for the year ended October 31, 2013 compared to cash acquired of $8,720 in 2012.

Financing Activities: Net cash used in financing was $6,652 for the year ending October 31, 2013 compared to net cash provided of $93,127 for the same period in 2012. Net cash used in 2013 was due to repayment of related party loans of $6,652. Cash provided in 2012 consisted of common stock sold for cash for $4,600 and net proceeds from related parties in notes payable of $88,527.

As of October 31, 2013, the Company had total assets of $461,267 and total liabilities of $487,617. Stockholders' deficit as of October 31, 2013 was $26,350 compared to stockholders deficit of $368,772 at October 31, 2012. Liabilities decreased in 2013 due to the decrease in accrued liabilities due related parties from $315,435 in 2012 to $143,872 for the same period in 2013.

On April 30, 2012 Andrew S. Thomas, Shizuka Thomas, his wife, and Paul Benford converted accrued payroll liabilities into notes payable. The Company, with the agreement of the officers, termed the notes payable to 3 year notes as of April 30, 2012 with an interest rate of 6% per annum. As of October 31, 2012 the notes payable of $197,434 plus accrued interest of $18,063 is a total amount due of $215,497.

NEED FOR ADDITIONAL FINANCING

The Company's existing capital is sufficient to meet the Company's cash needs if the Company continues to operate its ongoing business as presently conducted through revenues generated from operations of our subsidiary for the next 12 months; provided, however, that the funding of the Company independent of the operations of the subsidiary will require an additional $50,000 over the next year including professional fees for the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended. The Company secured additional funds through a private equity financing of $369,750 completed on January 14, 2014. The Company may from time to time seek additional equity or debt financing as it feels is required to continue the growth of the Company.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Policies and Recent Accounting Pronouncements

The critical accounting policies and account pronouncements are an integral part of the footnotes of the audited financial statements and should be reviewed as part of our discussion of the financial results.

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Source: Edgar Glimpses


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