10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2018

OR

¨ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________.

Commission File Number 000-54747

SKKYNET CLOUD SYSTEMS INC.

(Exact name of registrant as specified in its charter)

Nevada	45-3757848
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

2233 Argentia Road Suite 306. Mississauga, Ontario, Canada L5N 2X7

(Address of principal executive offices)

 

(888) 628-2028

(Issuer's telephone number)

Indicate by check mark whether the Company (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes: x No: ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: x No: ¨

Indicate by check mark whether the Company is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.

Large accelerated filer	¨	Accelerated filed	¨
Non-accelerated filer	¨	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As June 14, 2018, there were 51,343,311 shares of Common Stock of the issuer outstanding.

		Page
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of April 30, 2018 (Unaudited) and October 31, 2017	4
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Month Periods Ended April 30, 2018 and 2017 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Month Periods Ended April 30, 2018 and 2017 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis and Plan of Operation	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	12
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 2.	Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults upon Senior Securities	13
Item 4.	Mine Safety Information	13
Item 5.	Other Information	13
Item 6.	Exhibits	14
Signatures		15

 

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FORWARD LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical or current facts are forward-looking statements. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties, and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Among the factors that could cause actual results to differ materially from the forward-looking statements are the following: the Company’s ability to obtain necessary capital, the Company’s ability to meet anticipated development timelines, the Company’s ability to protect its proprietary technology and knowhow, the Company’s ability to establish a global market, the Company’s ability to successfully consummate future acquisitions, and such other risk factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission, including those filed with this Form 10-Q quarterly report. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

 

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PART I

ITEM 1: FINANCIAL STATEMENTS

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

	April 30, 2018			October 31, 2017
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	537,815		$	582,671
Accounts receivable		257,287			147,174
Inventory		2,742			2,634
Prepaid		30,032			19,528
Total current assets		827,876			752,007
Property and equipment, net of accumulated depreciation of $82,726 and $82,271 respectively		4,703			961
Other assets		16,852			5,996
Total Assets	$	849,431		$	758,964
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	85,775		$	56,653
Accrued liabilities – related party		33,372			29,987
Deferred revenue		151,246			103,204
Total current liabilities		270,393			189,844
Total liabilities		270,393			189,844
Stockholders’ Equity:
Preferred stock; $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding, respectively		5			5
Series B Preferred convertible stock: $0.001 par value, 500,000 shares authorized, 193,661 issued and 193,661 outstanding, respectively		193,661			193,661
Common stock; $0.001 par value, 70,000,000 shares authorized, 51,343,311 and 51,287,266 shares issued and outstanding, respectively		51,344			51,288
Additional paid-in capital		5,617,763			5,240,833
Accumulative other comprehensive loss		3,601			(60,487	)
Accumulated deficit		(5,287,336	)		(4,856,180	)
Total shareholders’ equity		579,038			569,120
Total Liabilities and Stockholders’ Equity	$	849,431		$	758,964

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017
Revenue	$	307,911		$	378,551		$	693,817		$	663,620
Direct material costs		10,622			17,351			24,736			27,622
Gross Profit		297,289			361,200			669,081			635,998
Operating Expenses:
General & administrative		538,923			536,665			1,060,566			1,050,518
Depreciation and amortization		125			171			251			341
Loss from operations		(241,759	)		(175,636	)		(391,736	)		(414,861	)
Other Income (Expenses):
Loss on settlement of liabilities		(39,193	)		--			(39,193	)		--
Currency exchange		20,233			11,589			(227	)		7,084
Total other income (expenses)		(18,960	)		11,589			(39,420	)		7,084
Net loss before tax		(260,719	)		(164,047	)		(431,156	)		(407,777	)
Tax		--			(175	)		--			(2,007	)
Net loss after tax		(260,719	)		(164,222	)		(431,156	)		(409,784	)
Preferred dividends		(2,905	)		(2,905	)		(5,810	)		(5,810	)
Net loss to common shareholders		(263,624	)		(167,127	)		(436,966	)		(415,594	)
Foreign currency translation adjustment		27,763			5,245			64,088			5,665
Comprehensive (loss)	$	(235,861	)	$	(161,882	)	$	(372,878	)	$	(409,929	)
Net loss per common share attributable to common stockholders (basic and diluted)	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding (basic and diluted):		51,318,229			50,969,607			51,302,714			50,949,123

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

	Six Months Ended April 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(431,156	)	$	(409,784	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		251			341
Option based compensation		205,097			258,037
Loss on settlement of accrued liabilities		39,193			--
Changes in operating assets and liabilities:
Accounts receivable		(110,113	)		(75,083	)
Accounts payable and accrued expenses		29,122			11,791
Inventory		(108	)		262
Accrued liabilities – related parties		136,081			144,009
Prepaid and other assets		(21,360	)		(570	)
Deferred income		48,042			45,386
NET CASH (USED IN) OPERATING ACTIVITIES		(104,951	)		(25,611	)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock sold for cash		--			256,300
NET CASH FLOWS FROM FINANCING ACTIVITIES		--			256,300
Effect of exchange rate changes on cash		60,095			5,400
Net increase (decrease) in cash		(44,856	)		236,089
Cash, beginning of period		582,671			266,860
Cash, end of period	$	537,815		$	502,949
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid	$	--		$	--
Income taxes paid	$	--		$	--
NON-MONETARY TRANSACTIONS
Conversion of accrued commissions to equity- related parties	$	132,696		$	36,604

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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SKKYNET CLOUD SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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), Skkynet, Inc. (USA) and Skkynet Japan 株式会社 (Ltd.) (Japan). 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.

On November 1, 2014, the Company acquired Skkynet Japan Ltd. (formerly NiC Corporation) as a wholly owned subsidiary. On February 1, 2015, the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.

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. The series B is convertible by the holder into common stock at $1.35 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 cumulative dividend. On July 30, 2015, the Company issued 193,661 shares of Series B convertible preferred stock to three related parties in exchange for the outstanding notes payable and accrued interest of $193,661. Dividends are not paid. The Company has accounted for $5,810 in Series B dividends which increases the loss to common shareholders from $431,156 to $436,966 for the six month period ended April 30, 2018. As of April 30, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $31,955 equating to $0.165 per share.

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, 2017 Annual Report filed with the SEC on Form 10-K. 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 audited financial statements for the most recent fiscal year end October 31, 2017 as reported on Form 10-K, have been omitted.

NOTE 2 - RELATED PARTY TRANSACTIONS

On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition, the Company is accruing director compensation at the rate of $2,500 per director per month. As of April 30, 2018, the accrued liability for compensation was converted to common stock and options.

On January 11, 2018 the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the options for 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

 

7

On January 31, 2018 and April 30, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the six months ended April 30, 2018 in exchange for shares of common stock and options. The $132,696 of accrued compensation was exchanged for 248,500 options granted with a value of $140,061 and 56,111 shares of common stock were exchanged for $24,609 of accrued compensation.

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	33,583		78,100		--
Paul Benford	$	22,252		50,900		--
Paul Thomas	$	22,252		50,900		--
Lowell Holden	$	9,609		--		21,897
All three directors	$	45,000		68,600		34,214
Total	$	132,696		248,500		56,111

As of April 30, 2018, and October 31, 2017, the Company had the following outstanding accrued liabilities due to related parties:

As of	April 30, 2018		October 31, 2017
Accrued Commissions	$	33,372	$	29,987
Total accrued liabilities and accrued expense	$	33,372	$	29,987

NOTE 3 – EQUITY

On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

On April 30, 2018, the Company issued 25,361 shares of common stock at $0.77 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $19,528 for the settlement of a liability of $12,309 which resulted in a loss of $7,219 which was expensed at settlement.

NOTE 4 – 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.

On January 11, 2018, the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the term of the options 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

On January 31, 2018, the company issued 138,000 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $55,114 with computed volatility of 206% and a discount rate of 2.72%. The options were vested upon issuance.

 

8

On March 27, 2018, the company issued 215,000 options to various employees and consultants with an exercise price of $0.38. The options have a fair value using the Black Sholes valuation of $105,270 with computed volatility of 208% and a discount rate of 2.82%. The options are vested at 20% upon issuance and 20% each annual anniversary thereafter.

On April 30, 2018, the company issued 110,500 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $84,947 with computed volatility of 207% and a discount rate of 2.95%.The liability for which the options were issued was $52,973 with a loss recognized at settlement of $31,974 which was expensed. The options were vested upon issuance.

The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,780,512. During the six months period ended April 30, 2018, the Company expensed $205,097 for options. The unrecognized future balance to be expensed over the term of the options is $1,006,516.

The following sets forth the options granted and outstanding as of April 30, 2018:

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2017		7,223,800		0.40		4.77		5,518,640		1,401,820
Granted		463,500		0.18		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at April 30, 2018		7,687,300		0.34		5.71		6,074,480		3,208,914

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario, Canada L5N 2X7.

During May 2017, the Company signed a new 5 year lease for the Company’s office being effective on August 1, 2017 through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a gross monthly rental cost including common area charges of $4,097.

The yearly rental obligations including the lease agreements are as follows:

Fiscal Year
2018	$	24,649
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	209,014

 

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Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Skkynet’s actual results could differ materially from those set forth on the forward-looking statements as a result of the risks set forth in Skkynet’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

OVERVIEW

Skkynet is a Nevada corporation headquartered in Mississauga, Canada. Skkynet operates three different lines of business through its wholly-owned subsidiaries Cogent Real-Time Systems, Inc. (“Cogent”), Skkynet, Inc. (“Skkynet (USA)”), Skkynet Corp. (“Skkynet (Canada)”), and Skkynet Japan 株式会社 (Ltd.) (“Skkynet Japan”). Skkynet was established to enhance Cogent’s existing business lines through the integration of Cloud-based systems, and to deliver a Software-as-a-Service (“SaaS”) product targeting the Industrial Internet of Things (“IoT”) market, now referred to by the terms “Industry 4.0” and “Industrial Internet Consortium”.

The Company provides software and related systems and facilities to collect process and distribute real-time information over a network. This capability allows the customers to both locally and remotely manage, supervise and control industrial processes and financial information systems. By using this software and, when requested by a client, our web based assets, our clients and their customers (to the extent relevant) are given the ability and the tools to observe and interact with these processes and services in real-time as they are underway and to give them the power to analyze, alter, stop or otherwise influence these activities to conform to their plans.

RESULTS OF OPERATIONS

For the three and six month periods ending April 30, 2018, revenue was $307,911 and $693,817 compared to $378,551 and $663,620 for the same periods in 2017. Revenue increased for the six month period ending April 30, 2018 over same period ended April 30, 2017 by 4.6%. The increase in revenue for the six month period ended April 30, 2018 is attributed higher sales by the Cogent and Skkynet Japan divisions.

General and administrative expense was $538,923 and $1,060,566 for the three and six month periods ended April 30, 2018 compared to $536,665 and $1,050,518 for the same periods in 2017. The increase in general and administrative expenses for the three and six month periods ended April 30, 2018, was a result of higher options expense along with lower payroll in 2018 over 2017.

For the three and six month periods ending April 30, 2018, the Company posted operating loss of $241,759 and $391,736 compared to operating loss of $175,636 and $414,861 for the same periods in 2017. The increase in operating loss during the three months is attributable to lower sales in 2018 over 2017 and the decrease during the six month periods is attributable to higher sales in of 2018 over 2017 and decreased expenses in consulting, salaries, and office expenses.

Other expense for the three and six month periods ending April 30, 2018, were $18,960 and $39,420 compared to other income of $11,589 and $7,084 for the same periods in 2017. The losses in 2018 were to a loss on settlement of a liability of $39,193 that was not incurred in the same period in 2017.

 

10

Net loss before income taxes of $260,719 and $431,156 was recorded for the three and six month periods ending April 30, 2018, compared to a net loss before income taxes of $164,047 and $407,777 for the same periods in 2017. The higher losses for the three months period in 2018 can be attributed to increased general and administrative expenses and lower sales plus a loss on settlement of liabilities of $39,193 in 2018 compared to 2017, while the higher loss for the six months period was attributed to slightly higher general and administrative costs and a loss on settlement of liabilities of $39,193 in 2018 over 2017.

Net loss after taxes of $260,179 and $431,156 was recorded for the three and six month periods ending April 30, 2018, compared to a net loss after taxes of $164,222 and $409,784 for the same periods in 2017.

The Company incurred a comprehensive loss of $235,861 and $372,878 for the three and six month periods ended April 30, 2018 compared to a comprehensive loss of $161,882 and $409,929 for the same periods in 2017. The comprehensive loss is an adjustment to net loss with accrued preferred stock dividends and foreign currency translation adjustments along with taxes taken into account.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2018, Skkynet had current assets of $827,876 and current liabilities of $270,393, resulting in working capital of $557,483. Accumulated deficit, as of April 30, 2018, was $5,287,336 with total shareholders’ equity of $579,038.

Net cash used in operations for the six months ending April 30, 2018, was $104,951 compared to net cash used of $25,611 for the same period in 2017.

Net cash used in operations increased by $79,340 primarily due changes in account receivable and option based compensation in 2018 over 2017.

Net cash provided from financing activities, during the six months period ended April 30, 2018 was zero compared to $256,300 from the sale of common stock during the same period in 2017.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, Skkynet is not required to provide information required under this Item.

 

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ITEM 4: CONTROLS AND PROCEDURES

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, our management, under the supervision and with participation of our Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2018. Based on that evaluation, our management concluded that there is a material weakness in our disclosure controls and procedures over financial reporting. The material weakness results from a lack of written procedures which effectively documents the proper procedures and descriptions of the duties of all persons involved in the disclosure controls of the Company. The Company hopes to implement plans to document the procedures and internal controls of the Company. A material weakness is a deficiency, or a combination of control deficiencies, in disclosure control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. This does not include an evaluation by the Company’s registered public accounting firm regarding the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

 

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PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 1A: RISK FACTORS

There have been no material changes to Skkynet’s risk factors as previously disclosed in our most recent 10-K filing for the year ending October 31, 2017.

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

On April 30, 2018, the Company issued 25,361 shares of common stock at $0.77 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $19,519 for the settlement of a liability of $12,300 which resulted in a loss of $7,219 which was expensed at settlement.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY INFORMATION

None.

ITEM 5: OTHER INFORMATION

None.

 

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ITEM 6: EXHIBITS

EXHIBIT 31.1	Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 31.2	Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1	Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 32.2	Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SKKYNET CLOUD SYSTEMS INC.
Date: June 14, 2018	By:	/s/ Andrew Thomas
		Andrew Thomas, Chief Executive Officer (Duly Authorized, Principal Executive Officer)
	By:	/s/ Lowell Holden
		Lowell Holden, Chief Financial Officer (Duly Authorized Principal Financial Officer)

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Andrew Thomas, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2018	By:	/s/ Andrew Thomas
	Name:	Andrew Thomas
	Title:	Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Lowell Holden, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Skkynet Cloud Systems Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change to the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2018	By:	/s/ Lowell Holden
	Name:	Lowell Holden
	Title:	Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the “Company”) on Form 10-Q for the period ended April 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Thomas, Principal Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: June 14, 2018	/s/ Andrew Thomas
	Andrew Thomas
	Chief Executive Officer
	(Duly Authorized Principal Executive Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Skkynet Cloud Systems Inc. (the “Company”) on Form 10-Q for the period ended April 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lowell Holden, Principal Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Skkynet.

Dated: June 14, 2018	/s/ Lowell Holden
	Lowell Holden
	Chief Financial Officer
	(Duly Authorized Principal Financial Officer)

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Skkynet for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

Document and Entity Information - shares	6 Months Ended
	Apr. 30, 2018	Jun. 14, 2018
Document And Entity Information
Entity Registrant Name	Skkynet Cloud Systems, Inc.
Entity Central Index Key	0001546853
Document Type	10-Q
Document Period End Date	Apr. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--10-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		51,343,311
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Apr. 30, 2018	Oct. 31, 2017
Current Assets:
Cash and cash equivalents	$ 537,815	$ 582,671
Accounts receivable	257,287	147,174
Inventory	2,742	2,634
Prepaid	30,032	19,528
Total current assets	827,876	752,007
Property and equipment, net of accumulated depreciation of $82,726 and $82,271 respectively	4,703	961
Other assets	16,852	5,996
Total Assets	849,431	758,964
Current Liabilities:
Accounts payable and accrued expenses	85,775	56,653
Accrued liabilities - related party	33,372	29,987
Deferred revenue	151,246	103,204
Total current liabilities	270,393	189,844
Total liabilities	270,393	189,844
Stockholders' Equity:
Preferred stock value	5	5
Common stock; $0.001 par value, 70,000,000 shares authorized, 51,343,311 and 51,287,266 shares issued and outstanding, respectively	51,344	51,288
Additional paid-in capital	5,617,763	5,240,833
Accumulative other comprehensive loss	3,601	(60,487)
Accumulated deficit	(5,287,336)	(4,856,180)
Total shareholders' equity	579,038	569,120
Total Liabilities and Stockholders' Equity	849,431	758,964
Series B Preferred Stock [Member]
Stockholders' Equity:
Preferred stock value	$ 193,661	$ 193,661

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Apr. 30, 2018	Oct. 31, 2017
ASSETS
Property and equipment, Accumulated depreciation	$ 82,726	$ 82,271
Stockholders' Deficit:
Preferred stock, Par value	$ 0.001	$ 0.001
Preferred stock, Authorized	5,000,000	5,000,000
Preferred stock, Issued	5,000	5,000
Preferred stock, Outstanding	5,000	5,000
Common stock, Par value	$ 0.001	$ 0.001
Common stock, Authorized	70,000,000	70,000,000
Common stock, Issued	51,343,311	51,287,266
Common stock, Outstanding	51,343,311	51,287,266
Series B Preferred Stock [Member]
Stockholders' Deficit:
Preferred stock, Par value	$ 0.001	$ 0.001
Preferred stock, Authorized	500,000	500,000
Preferred stock, Issued	193,661	193,661
Preferred stock, Outstanding	193,661	193,661

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Consolidated Statements Of Operations And Comprehensive Loss
Revenue	$ 307,911	$ 378,551	$ 693,817	$ 663,620
Direct material costs	10,622	17,351	24,736	27,622
Gross Profit	297,289	361,200	669,081	635,998
Operating Expenses:
General & administrative	538,923	536,665	1,060,566	1,050,518
Depreciation and amortization	125	171	251	341
Loss from operations	(241,759)	(175,636)	(391,736)	(414,861)
Other Income (Expenses):
Loss on settlement of liabilities	(39,193)		(39,193)
Currency exchange	20,233	11,589	(227)	7,084
Total other income (expenses)	(18,960)	11,589	(39,420)	7,084
Net loss before tax	(260,719)	(164,047)	(431,156)	(407,777)
Tax		(175)		(2,007)
Net loss after tax	(260,719)	(164,222)	(431,156)	(409,784)
Preferred dividends	(2,905)	(2,905)	(5,810)	(5,810)
Net loss to common shareholders	(263,624)	(167,127)	(436,966)	(415,594)
Foreign currency translation adjustment	27,763	5,245	64,088	5,665
Comprehensive (loss)	$ (235,861)	$ (161,882)	$ (372,878)	$ (409,929)
Net loss per common share attributable to common stockholders (basic and diluted)	$ (0.01)	$ 0.00	$ (0.01)	$ (0.01)
Weighted average common shares outstanding (basic and diluted):	51,318,229	50,969,607	51,302,714	50,949,123

XML

CONSOLDIATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (431,156)	$ (409,784)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	251	341
Option based compensation	205,097	258,037
Loss on settlement of accrued liabilities	39,193
Changes in operating assets and liabilities:
Accounts receivable	(110,113)	(75,083)
Accounts payable and accrued expenses	29,122	11,791
Inventory	(108)	262
Accrued liabilities related parties	136,081	144,009
Prepaid and other assets	(21,360)	(570)
Deferred income	48,042	45,386
NET CASH (USED IN) OPERATING ACTIVITIES	(104,951)	(25,611)
Common stock sold for cash		256,300
NET CASH FLOWS FROM FINANCING ACTIVITIES		256,300
Effect of exchange rate changes on cash	60,095	5,400
Net increase (decrease) in cash	(44,856)	236,089
Cash, beginning of period	582,671	266,860
Cash end of period	537,815	502,949
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid
Income taxes paid
NON-MONETARY TRANSACTIONS
Conversion of accrued compensation to equity- related parties	$ 132,696	$ 36,604

XML

ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Apr. 30, 2018

Notes to 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), Skkynet, Inc. (USA) and Skkynet Japan 株式会社 (Ltd.) (Japan). 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.

On November 1, 2014, the Company acquired Skkynet Japan Ltd. (formerly NiC Corporation) as a wholly owned subsidiary. On February 1, 2015, the Company formed a wholly owned US subsidiary Skkynet, Inc., and a wholly owned Canadian subsidiary Skkynet Corp.

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. The series B is convertible by the holder into common stock at $1.35 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 cumulative dividend. On July 30, 2015, the Company issued 193,661 shares of Series B convertible preferred stock to three related parties in exchange for the outstanding notes payable and accrued interest of $193,661. Dividends are not paid. The Company has accounted for $5,810 in Series B dividends which increases the loss to common shareholders from $431,156 to $436,966 for the six month period ended April 30, 2018. As of April 30, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $31,955 equating to $0.165 per share.

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, 2017 Annual Report filed with the SEC on Form 10-K. 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 audited financial statements for the most recent fiscal year end October 31, 2017 as reported on Form 10-K, have been omitted.

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

NOTE 2 - RELATED PARTY TRANSACTIONS

On January 1, 2012 and April 15, 2012, the Company and its subsidiary Cogent entered into employment agreements with four of its officers and directors. As a result of these agreements the Company has accrued compensation for each of the individuals. In addition, the Company is accruing director compensation at the rate of $2,500 per director per month. As of April 30, 2018, the accrued liability for compensation was converted to common stock and options.

On January 11, 2018 the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the options for 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

On January 31, 2018 and April 30, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the six months ended April 30, 2018 in exchange for shares of common stock and options. The $132,696 of accrued compensation was exchanged for 248,500 options granted with a value of $140,061 and 56,111 shares of common stock were exchanged for $24,609 of accrued compensation.

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	33,583		78,100		--
Paul Benford	$	22,252		50,900		--
Paul Thomas	$	22,252		50,900		--
Lowell Holden	$	9,609		--		21,897
All three directors	$	45,000		68,600		34,214
Total	$	132,696		248,500		56,111

As of April 30, 2018, and October 31, 2017, the Company had the following outstanding accrued liabilities due to related parties:

As of	April 30, 2018		October 31, 2017
Accrued Commissions	$	33,372	$	29,987
Total accrued liabilities and accrued expense	$	33,372	$	29,987

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EQUITY

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

NOTE 3 - EQUITY

On January 31, 2018, the Company issued 30,750 shares of common stock at $0.40 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $12,300.

On April 30, 2018, the Company issued 25,361 shares of common stock at $0.77 per share to an officer and director of the Company for their conversion of accrued compensation to equity with a fair value of $19,528 for the settlement of a liability of $12,309 which resulted in a loss of $7,219 which was expensed at settlement.

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OPTIONS

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

NOTE 4 - 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.

On January 11, 2018, the Company modified the conversion price of 815,000 options which had been granted to Vice President of Marketing and Sales on August 22, 2014. The modification extended the term of the options 10 years, reduced the conversion price per option from $1.20 to $0.40 per share and increased the fair value of the options by $3,720 to be amortized over the term of the option with no changes to the vesting of the options.

On January 31, 2018, the company issued 138,000 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $55,114 with computed volatility of 206% and a discount rate of 2.72%. The options were vested upon issuance.

On March 27, 2018, the company issued 215,000 options to various employees and consultants with an exercise price of $0.38. The options have a fair value using the Black Sholes valuation of $105,270 with computed volatility of 208% and a discount rate of 2.82%. The options are vested at 20% upon issuance and 20% each annual anniversary thereafter.

On April 30, 2018, the company issued 110,500 options to two independent directors and three officers with exercise price of $0.001 for accrued compensation contributed to capital. The options have a fair value using the Black Sholes valuation of $84,947 with computed volatility of 207% and a discount rate of 2.95%.The liability for which the options were issued was $52,973 with a loss recognized at settlement of $31,974 which was expensed. The options were vested upon issuance.

The Company has elected to expense the options over the life of the option as stock based compensation. The expense is calculated with a Black Scholes model to reach the fair value over the length of each option. The total value calculated for option expense is $2,780,512. During the six months period ended April 30, 2018, the Company expensed $205,097 for options. The unrecognized future balance to be expensed over the term of the options is $1,006,516.

The following sets forth the options granted and outstanding as of April 30, 2018:

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2017		7,223,800		0.40		4.77		5,518,640		1,401,820
Granted		463,500		0.18		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at April 30, 2018		7,687,300		0.34		5.71		6,074,480		3,208,914

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7.

During May 2017, the Company signed a new 5 year lease for the Company’s office being effective on August 1, 2017 through July 31, 2022. The lease is for approximately 2,210 square feet of office space with a gross monthly rental cost including common area charges of $4,097.

The yearly rental obligations including the lease agreements are as follows:

Fiscal Year
2018	$	24,649
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	209,014

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RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Apr. 30, 2018

Related Party Transactions Tables

Contribution to capital

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	33,583		78,100		--
Paul Benford	$	22,252		50,900		--
Paul Thomas	$	22,252		50,900		--
Lowell Holden	$	9,609		--		21,897
All three directors	$	45,000		68,600		34,214
Total	$	132,696		248,500		56,111

Outstanding accrued liabilities due to related parties

As of	April 30, 2018		October 31, 2017
Accrued Commissions	$	33,372	$	29,987
Total accrued liabilities and accrued expense	$	33,372	$	29,987

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OPTIONS (Tables)

6 Months Ended

Apr. 30, 2018

Options Tables

Options granted and outstanding

	Options		Weighted Average Exercise price		Weighted Average Remaining Contract Life		Granted Options Exercisable		Intrinsic value
Outstanding at October 31, 2017		7,223,800		0.40		4.77		5,518,640		1,401,820
Granted		463,500		0.18		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at April 30, 2018		7,687,300		0.34		5.71		6,074,480		3,208,914

XML

COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Apr. 30, 2018

Commitments And Contingencies Tables

Lease obligations

Fiscal Year
2018	$	24,649
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	209,014

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ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 30, 2015	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Organization And Basis Of Presentation Details Narrative
State or country of incorporation				Nevada
Incorporation date				Aug. 31, 2011
Series B Preferred convertible stock, Par value	$ 0.001
Series B Preferred convertible stock, Shares designated	500,000
Series B Preferred convertible stock, Issued	193,661
Sale of stock price per share	$ 1.00
Conversion price	$ 1.35
Series B convertible preferred stock, Dividend percentage	6.00%
Notes payable and accrued interest	$ 193,661
Net loss		$ (260,719)	$ (164,222)	$ (431,156)	$ (409,784)
Net loss to common shareholders		(263,624)	(167,127)	(436,966)	(415,594)
Preferred dividends		$ 2,905	$ 2,905	5,810	$ 5,810
Aggregate cumulative preferred dividend				$ 31,955
Aggregate cumulative preferred dividend, per share				$ 0.165

XML

RELATED PARTY TRANSACTIONS (Details)	Apr. 30, 2018 USD ($)
Accrued compensation	$ 132,696
Options Issued for accrued compensation	248,500
Common stock issued for accrued compensation	56,111
Andrew Thomas [Member]
Accrued compensation	33,583
Options Issued for accrued compensation	78,100
Common stock issued for accrued compensation
Paul Benford [Member]
Accrued compensation	22,252
Options Issued for accrued compensation	50,900
Common stock issued for accrued compensation
Paul Thomas [Member]
Accrued compensation	22,252
Options Issued for accrued compensation	50,900
Common stock issued for accrued compensation
Lowell Holden [Member]
Accrued compensation	9,609
Options Issued for accrued compensation
Common stock issued for accrued compensation	21,897
All three directors [Member]
Accrued compensation	45,000
Options Issued for accrued compensation	68,600
Common stock issued for accrued compensation	$ 34,214

XML

RELATED PARTY TRANSACTIONS (Details 1) - USD ($)	Apr. 30, 2018	Oct. 31, 2017
Related Party Transactions Details 1
Accrued Commissions	$ 33,372	$ 29,987
Total accrued liabilities and accrued expense	$ 33,372	$ 29,987

XML

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Jan. 11, 2018	Apr. 30, 2018	Aug. 22, 2014
Accrued compensation per month		$ 2,500
Total Accrued compensation		$ 132,696
Options Issued for accrued compensation		248,500
Common stock issued for accrued compensation		56,111
Granted value		$ 140,061
Accrued compensation		$ 24,609
Vice President [Member]
Increase in fair value of the option	$ 3,720
Options granted for upon conversion	815,000
Conversion price per option	$ 1.20		$ 0.40
Option extended term period	10 years

XML

EQUITY (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Jan. 31, 2018	Oct. 31, 2017
Common stock, Issued	51,343,311		51,343,311			51,287,266
Common stock, Par value	$ 0.001		$ 0.001			$ 0.001
Loss on settlement of liability	$ (39,193)		$ (39,193)
Officer and director [Member]
Common stock, Issued	25,361		25,361		30,750
Common stock, Par value	$ 0.77		$ 0.77		$ 0.40
Accrued compensation	$ 19,528		$ 19,528		$ 12,300
Settlement of a liability	$ 12,309		12,309
Loss on settlement of liability			$ 7,219

XML

OPTIONS (Details)	6 Months Ended
	Apr. 30, 2018 USD ($) $ / shares shares
Stock Options
Shares outstanding	7,223,800
Shares granted	463,500
Shares exercised
Shares Forfeited/Expired by termination
Shares outstanding	7,687,300
Weighted Average Exercise Price
Weighted average exercise price of share outstanding | $ / shares	$ 0.40
Weighted average exercise price of share granted | $ / shares	0.18
Weighted average exercise price of share exercised | $ / shares
Weighted average exercise price of share Forfeited/Expired by termination | $ / shares
Weighted average exercise price of share outstanding | $ / shares	$ 0.34
Weighted Average Remaining Contractual Terms
Weighted average remaining contractual terms of share outstanding	4 years 9 months 7 days
Weighted average remaining contractual terms of share granted	10 years
Weighted average remaining contractual terms of share outstanding	5 years 8 months 16 days
Shares outstanding	5,518,640
Shares granted
Shares exercised
Shares outstanding	6,074,480
Intrinsic Value
Aggregate intrinsic value of share outstanding | $	$ 1,401,820
Aggregate intrinsic value of share outstanding | $	$ 3,208,914

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OPTIONS (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

6 Months Ended

Jan. 11, 2018

Mar. 27, 2018

Jan. 31, 2018

Apr. 30, 2018

Apr. 30, 2017

Apr. 30, 2018

Apr. 30, 2017

Aug. 22, 2014

Option vested

20.00%

Option expense

$ 2,780,512

Total Expense

$ 205,097

205,097

Unrecognized future balance

1,006,516

1,006,516

Loss on settlement of liability

$ (39,193)

$ (39,193)

Two independent directors and three officers [Member]

Options issued

138,000

110,500

Exercise price

$ 0.001

$ 0.001

Computed volatility

206.00%

207.00%

Option discount rate

2.72%

2.95%

Fair value of the option

$ 55,114

$ 84,947

Options issued, Value

52,973

Loss on settlement of liability

$ 31,974

Various employees and consultants [Member]

Options issued

215,000

Exercise price

$ 0.38

Option vested

20.00%

Computed volatility

208.00%

Option discount rate

2.82%

Fair value of the option

$ 105,270

Description of option vested

The options are vested at 20% upon issuance and 20% each annual anniversary thereafter

Vice President [Member]

Increase in fair value of the option

$ 3,720

Options granted for upon conversion

815,000

Conversion price per option

$ 1.20

$ 0.40

Option extended term period

10 years

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COMMITMENTS AND CONTINGENCIES (Details) - Lease Agreements [Member]	Apr. 30, 2018 USD ($)
2018	$ 24,649
2019	49,164
2020	49,164
2021	49,164
2022	36,873
Total	$ 209,014

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - August 1, 2017 through July 31, 2022 [Member]	1 Months Ended
	May 31, 2017 USD ($) Integer
Office space lease | Integer	2,210
Monthly rental expense | $	$ 4,097
Lease expiration	Jul. 31, 2022
Lease Term	5 years