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 July 31, 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 September 18, 2018, there were 51,363,022 shares of Common Stock of the issuer outstanding.

		Page
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of July 31, 2018 (Unaudited) and October 31, 2017	4
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Month Periods Ended July 31, 2018 and 2017 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis and Plan of Operation	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults upon Senior Securities	14
Item 4.	Mine Safety Information	14
Item 5.	Other Information	14
Item 6.	Exhibits	15
Signatures		16

2

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.

3

PART I

ITEM 1: FINANCIAL STATEMENTS

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

	July 31, 2018			October 31, 2017
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	637,019		$	582,671
Accounts receivable		209,571			147,174
Inventory		2,691			2,634
Prepaid		22,236			19,528
Total current assets		871,517			752,007
Property and equipment, net of accumulated depreciation of $81,516 and $82,271 respectively		4,505			961
Other assets		17,854			5,996
Total Assets	$	893,876		$	758,964
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	98,488		$	56,653
Accrued liabilities – related party		38,340			29,987
Deferred revenue		138,988			103,204
Total current liabilities		275,816			189,844
Total liabilities		275,816			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, 51,363,022 and 51,287,266 shares issued and outstanding, respectively		51,364			51,288
Additional paid-in capital		5,772,138			5,240,833
Accumulative other comprehensive income (loss)		11,580			(60,487	)
Accumulated deficit		(5,410,688	)		(4,856,180	)
Total shareholders’ equity		618,060			569,120
Total Liabilities and Stockholders’ Equity	$	893,876		$	758,964

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

4

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended July 31,						Nine Months Ended July 31,
	2018			2017			2018			2017
Revenue	$	354,183		$	363,049		$	1,048,000		$	1,026,669
Direct material costs		22,421			447			47,157			28,069
Gross Profit		331,762			362,602			1,000,843			998,600
Operating Expenses:
General & administrative		499,721			460,242			1,560,287			1,510,760
Depreciation and amortization		122			173			373			514
Loss from operations		(168,081	)		(97,813	)		(559,817	)		(512,674	)
Other Income (Expenses):
Other income		--			1,090			--			1,090
Loss on settlement of liabilities		--			--			(39,193	)		--
Currency exchange		11,696			(49,201	)		11,469			(42,117	)
Total other income (expenses)		11,696			(48,111	)		(27,724	)		(41,027	)
Net loss before tax		(156,385	)		(145,924	)		(587,541	)		(553,701	)
Tax refund		33,033			34,593			33,033			32,586
Net loss after tax		(123,352	)		(111,331	)		(554,508	)		(521,115	)
Preferred dividends		(2,905	)		(2,905	)		(8,715	)		(8,715	)
Net loss to common shareholders		(126,257	)		(114,236	)		(563,223	)		(529,830	)
Foreign currency translation adjustment		7,979			19,343			72,067			25,008
Comprehensive (loss)	$	(118,278	)	$	(94,893	)	$	(491,156	)	$	(504,822	)
Net loss per common share attributable to common stockholders (basic and diluted)	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding (basic and diluted):		51,343,311			51,164,200			51,316,247			51,020,288

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

5

SKKYNET CLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

	Nine Months Ended July 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(554,508	)	$	(521,115	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		373			514
Option based compensation		294,163			343,078
Loss on settlement of accrued liabilities		39,193			--
Changes in operating assets and liabilities:
Accounts receivable		(62,397	)		(21,570	)
Accounts payable and accrued expenses		41,835			18,595
Inventory		(57	)		245
Accrued liabilities – related parties		206,378			217,459
Prepaid and other assets		(14,566	)		(18,386	)
Deferred income		35,784			40,510
NET CASH (USED IN) OPERATING ACTIVITIES		(13,802	)		59,330
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		68,150			24,632
Net increase (decrease) in cash		54,348			340,262
Cash, beginning of period		582,671			266,860
Cash, end of period	$	637,019		$	607,122
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid	$	--		$	--
Income taxes paid	$	--		$	--
NON-MONETARY TRANSACTIONS
Conversion of accrued compensation to equity- related parties	$	198,025		$	36,604

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

6

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 NiC 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 $8,715 in Series B dividends which increases the loss to common shareholders from $554,508 to $563,223 for the nine month period ended July 31, 2018. As of July 31, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $34,860 equating to $0.18 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 July 31, 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

During the nine months ended July 31, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the nine months ended July 31, 2018 in exchange for shares of common stock and options. The $198,025 of accrued compensation was exchanged for 333,400 options granted with a fair value of $193,090 and 75,822 shares of common stock with a fair value of $44,128.

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	50,102		104,600		--
Paul Benford	$	33,007		68,100		--
Paul Thomas	$	33,007		68,100		--
Lowell Holden	$	14,409		--		29,589
All three directors	$	67,500		92,600		46,233
Total	$	198,025		333,400		75,822

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

As of	July 31, 2018		October 31, 2017
Accrued Commissions	$	38,340	$	29,987
Total accrued liabilities and accrued expense	$	38,340	$	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.

On July 31, 2018, the Company issued 19,711 shares of common stock at $0.61 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.

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.

8

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 Scholes 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 exercise price of $0.38. The options have a fair value using the Black Scholes 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 Scholes 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.

On July 31, 2018, the company issued 84,900 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 Scholes valuation of $52,976 with computed volatility of 197% and a discount rate of 3.05%.The liability for which the options were issued was $52,976 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 nine months period ended July 31, 2018, the Company expensed $294,163 for options. The unrecognized future balance to be expensed over the term of the options is $938,163.

The following sets forth the options granted and outstanding as of July 31, 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		548,400		0.17		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at July 31, 2018		7,772,200		0.33		5.49		6,249,780		2,781,533

9

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	$	12,345
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	196,710

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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 Corporation (“formally Nic”). 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 nine months period ending July 31, 2018, revenue was $354,183 and $1,048,000 compared to $363,049 and $1,026,669 for the same periods in 2017. Revenue increased for the nine months periods ending July 31, 2018 over same period ended July 31, 2017 by 2.1%. The increase in revenue for the nine month period ended July 31, 2018 is attributed higher sales by the Cogent division.

General and administrative expense was $499,721 and $1,560,287 for the three and nine months period ended July 31, 2018 compared to $460,242 and $1,510,760 for the same period in 2017. The increase in general and administrative expenses for the three and nine months periods ended July 31, 2018, was a result of higher options expense along with lower payroll in 2018 over 2017.

11

For the three and nine months periods ending July 31, 2018, the Company posted operating loss of $168,081 and $559,817 compared to operating loss of $97,813 and $512,674 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 increase during the nine month periods is attributable to higher expenses in of 2018 over 2017.

Other income and expense for the three and nine months periods ending July 31, 2018, were other income of $11,696 and other expenses of $27,724 compared to other expenses of $48,111 and $41,027 for the same periods in 2017. The losses for the none months period in 2018 were to a loss on a liability settlement of $39,193 that was not incurred in the same period in 2017.

Net loss before income taxes of $156,385 and $587,541 was recorded for the three and nine months periods ending July 31, 2018, compared to a net loss before income taxes of $145,924 and $553,701 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 plus a loss on settlement of a liability of $39,193 in 2018 compared to 2017 while the higher loss for the nine months period was attributed to slightly higher general and administrative costs and a loss on settlement of a liability of $39,193 in 2018 over 2017.

Net loss after taxes of $123,352 and $554,508 was recorded for the three and nine months periods ending July 31, 2018, compared to a net loss after taxes of $111,331 and $521,115 for the same periods in 2017.

The Company incurred a comprehensive loss of $118,278 and $491,156 for the three and nine months periods ended July 31, 2018 compared to a comprehensive loss of $94,893 and $504,822 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 July 31, 2018, Skkynet had current assets of $871,517 and current liabilities of $275,816, resulting in working capital of $595,701. Accumulated deficit, as of July 31, 2018, was $5,410,688 with total shareholders’ equity of $618,060.

Net cash used in operations for the nine months ending July 31, 2018, was $13,802 compared to net cash provided of $59,330 for the same period in 2017.

Net cash used in operations increased by $73,132 primarily due changes in accounts receivable and accounts payable in 2018 over 2017.

Net cash provided from financing activities, during the nine months period ended July 31, 2018 was $0 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.

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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.

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 July 31, 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.

On July 31, 2018, the Company issued 19,711 shares of common stock at $0.61 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

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

15

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.
	By:	/s/ Andrew Thomas
		Andrew Thomas
		Chief Executive Officer (Duly Authorized, Principal Executive Officer)
Date: September 18, 2018	By:	/s/ Lowell Holden
		Lowell Holden
		Chief Financial Officer (Duly Authorized Principal Financial Officer)

16

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: September 18, 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: September 18, 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 July 31, 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: September 18, 2018	By:	/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 July 31, 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: September 18, 2018	By:	/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	9 Months Ended
	Jul. 31, 2018	Sep. 18, 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	Jul. 31, 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		51,363,022
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jul. 31, 2018	Oct. 31, 2017
Current Assets:
Cash and cash equivalents	$ 637,019	$ 582,671
Accounts receivable	209,571	147,174
Inventory	2,691	2,634
Prepaid	22,236	19,528
Total current assets	871,517	752,007
Property and equipment, net of accumulated depreciation of $81,516 and $82,271 respectively	4,505	961
Other assets	17,854	5,996
Total Assets	893,876	758,964
Current Liabilities:
Accounts payable and accrued expenses	98,488	56,653
Accrued liabilities - related party	38,340	29,987
Deferred revenue	138,988	103,204
Total current liabilities	275,816	189,844
Total liabilities	275,816	189,844
Stockholders' Equity:
Preferred stock value	5	5
Common stock; $0.001 par value, 70,000,000 shares authorized, 51,363,022 and 51,287,266 shares issued and outstanding, respectively	51,364	51,288
Additional paid-in capital	5,772,138	5,240,833
Accumulative other comprehensive income (loss)	11,580	(60,487)
Accumulated deficit	(5,410,688)	(4,856,180)
Total shareholders' equity	618,060	569,120
Total Liabilities and Stockholders' Equity	893,876	758,964
Series B Preferred Stock [Member]
Stockholders' Equity:
Preferred stock value	$ 193,661	$ 193,661

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Jul. 31, 2018	Oct. 31, 2017
ASSETS
Property and equipment, Accumulated depreciation	$ 81,516	$ 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	51,363,022	51,287,266
Common stock, Outstanding	51,363,022	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		9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017	Jul. 31, 2018	Jul. 31, 2017
Consolidated Statements Of Operations And Comprehensive Loss
Revenue	$ 354,183	$ 363,049	$ 1,048,000	$ 1,026,669
Direct material costs	22,421	447	47,157	28,069
Gross Profit	331,762	362,602	1,000,843	998,600
Operating Expenses:
General & administrative	499,721	460,242	1,560,287	1,510,760
Depreciation and amortization	122	173	373	514
Loss from operations	(168,081)	(97,813)	(559,817)	(512,674)
Other Income (Expenses):
Other income		1,090		1,090
Loss on settlement of liabilities			(39,193)
Currency exchange	11,696	(49,201)	11,469	(42,117)
Total other income (expenses)	11,696	(48,111)	(27,724)	(41,027)
Net loss before tax	(156,385)	(145,924)	(587,541)	(553,701)
Tax refund	33,033	34,593	33,033	32,586
Net loss after tax	(123,352)	(111,331)	(554,508)	(521,115)
Preferred dividends	(2,905)	(2,905)	(8,715)	(8,715)
Net loss to common shareholders	(126,257)	(114,236)	(563,223)	(529,830)
Foreign currency translation adjustment	7,979	19,343	72,067	25,008
Comprehensive (loss)	$ (118,278)	$ (94,893)	$ (491,156)	$ (504,822)
Net loss per common share attributable to common stockholders (basic and diluted)	$ 0.00	$ 0.00	$ (0.01)	$ (0.01)
Weighted average common shares outstanding (basic and diluted):	51,343,311	51,164,200	51,316,247	51,020,288

XML

CONSOLDIATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Jul. 31, 2018	Jul. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (554,508)	$ (521,115)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	373	514
Option based compensation	294,163	343,078
Loss on settlement of accrued liabilities	39,193
Changes in operating assets and liabilities:
Accounts receivable	(62,397)	(21,570)
Accounts payable and accrued expenses	41,835	18,595
Inventory	(57)	245
Accrued liabilities - related parties	206,378	217,459
Prepaid and other assets	(14,566)	(18,386)
Deferred income	35,784	40,510
NET CASH (USED IN) OPERATING ACTIVITIES	(13,802)	59,330
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	68,150	24,632
Net increase (decrease) in cash	54,348	340,262
Cash, beginning of period	582,671	266,860
Cash end of period	637,019	607,122
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid
Income taxes paid
NON-MONETARY TRANSACTIONS
Conversion of accrued compensation to equity - related parties	$ 198,025	$ 36,604

XML

ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Jul. 31, 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 NiC 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 $8,715 in Series B dividends which increases the loss to common shareholders from $554,508 to $563,223 for the nine month period ended July 31, 2018. As of July 31, 2018, the aggregate arrearages in cumulative preferred dividends was approximately $34,860 equating to $0.18 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

9 Months Ended

Jul. 31, 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 July 31, 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.

During the nine months ended July 31, 2018, the Officers and directors of the Company elected to forgo their accrued compensation for the nine months ended July 31, 2018 in exchange for shares of common stock and options. The $198,025 of accrued compensation was exchanged for 333,400 options granted with a fair value of $193,090 and 75,822 shares of common stock with a fair value of $44,128.

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	50,102		104,600		--
Paul Benford	$	33,007		68,100		--
Paul Thomas	$	33,007		68,100		--
Lowell Holden	$	14,409		--		29,589
All three directors	$	67,500		92,600		46,233
Total	$	198,025		333,400		75,822

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

As of	July 31, 2018		October 31, 2017
Accrued Commissions	$	38,340	$	29,987
Total accrued liabilities and accrued expense	$	38,340	$	29,987

XML

EQUITY

9 Months Ended

Jul. 31, 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.

On July 31, 2018, the Company issued 19,711 shares of common stock at $0.61 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.

XML

OPTIONS

9 Months Ended

Jul. 31, 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 Scholes 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 exercise price of $0.38. The options have a fair value using the Black Scholes 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 Scholes 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.

On July 31, 2018, the company issued 84,900 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 Scholes valuation of $52,976 with computed volatility of 197% and a discount rate of 3.05%.The liability for which the options were issued was $52,976 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 nine months period ended July 31, 2018, the Company expensed $294,163 for options. The unrecognized future balance to be expensed over the term of the options is $938,163.

 The following sets forth the options granted and outstanding as of July 31, 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		548,400		0.17		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at July 31, 2018		7,772,200		0.33		5.49		6,249,780		2,781,533

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jul. 31, 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	$	12,345
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	196,710

XML

RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Jul. 31, 2018

Related Party Transactions

Contribution to capital

	Accrued compensation		Options Issued for accrued compensation		Common stock issued for accrued compensation
Andrew Thomas	$	50,102		104,600		--
Paul Benford	$	33,007		68,100		--
Paul Thomas	$	33,007		68,100		--
Lowell Holden	$	14,409		--		29,589
All three directors	$	67,500		92,600		46,233
Total	$	198,025		333,400		75,822

Outstanding accrued liabilities due to related parties

As of	July 31, 2018		October 31, 2017
Accrued Commissions	$	38,340	$	29,987
Total accrued liabilities and accrued expense	$	38,340	$	29,987

XML

OPTIONS (Tables)

9 Months Ended

Jul. 31, 2018

Options

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		548,400		0.17		10.0		--		--
Exercised		--		--		--		--		--
Forfeited/Expired by termination		--		--		--		--		--
Outstanding at July 31, 2018		7,772,200		0.33		5.49		6,249,780		2,781,533

XML

COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Jul. 31, 2018

Commitments And Contingencies

Lease obligations

Fiscal Year
2018	$	12,345
2019	$	49,164
2020	$	49,164
2021	$	49,164
2022	$	36,873
Total	$	196,710

XML

ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Jul. 30, 2015	Jul. 31, 2018	Jul. 31, 2017	Jul. 31, 2018	Jul. 31, 2017
Organization And Basis Of Presentation
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		$ (123,352)	$ (111,331)	$ (554,508)	$ (521,115)
Net loss to common shareholders		(126,257)	(114,236)	(563,223)	(529,830)
Preferred dividends		$ 2,905	$ 2,905	8,715	$ 8,715
Aggregate cumulative preferred dividend				$ 34,860
Aggregate cumulative preferred dividend, per share				$ 0.18

XML

RELATED PARTY TRANSACTIONS (Details)	Jul. 31, 2018 USD ($)
Accrued compensation	$ 198,025
Options Issued for accrued compensation	333,400
Common stock issued for accrued compensation	75,822
Andrew Thomas [Member]
Accrued compensation	50,102
Options Issued for accrued compensation	104,600
Common stock issued for accrued compensation
Paul Benford [Member]
Accrued compensation	33,007
Options Issued for accrued compensation	68,100
Common stock issued for accrued compensation
Paul Thomas [Member]
Accrued compensation	33,007
Options Issued for accrued compensation	68,100
Common stock issued for accrued compensation
Lowell Holden [Member]
Accrued compensation	14,409
Options Issued for accrued compensation
Common stock issued for accrued compensation	29,589
All three directors [Member]
Accrued compensation	67,500
Options Issued for accrued compensation	92,600
Common stock issued for accrued compensation	$ 46,233

XML

RELATED PARTY TRANSACTIONS (Details 1) - USD ($)	Jul. 31, 2018	Oct. 31, 2017
Related Party Transactions Details 1Abstract
Accrued Commissions	$ 38,340	$ 29,987
Total accrued liabilities and accrued expense	$ 38,340	$ 29,987

XML

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Jan. 11, 2018	Jul. 31, 2018	Aug. 22, 2014
Accrued compensation per month		$ 2,500
Total Accrued compensation		$ 198,025
Options Issued for accrued compensation		333,400
Common stock issued for accrued compensation		75,822
Granted fair value		$ 193,090
Fair value of common stock		$ 44,128
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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EQUITY (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 30, 2018	Jul. 31, 2018	Jul. 31, 2017	Jul. 31, 2018	Jul. 31, 2017	Jan. 31, 2018	Oct. 31, 2017
Common stock, issued		51,363,022		51,363,022			51,287,266
Common stock, par value		$ 0.001		$ 0.001			$ 0.001
Loss on settlement of liability				$ 39,193
Officer and director [Member]
Common stock, issued	25,361	19,711		19,711		30,750
Common stock, par value	$ 0.77	$ 0.61		$ 0.61		$ 0.40
Accrued compensation	$ 19,528					$ 12,300
Settlement of a liability	12,309	$ 12,300		$ 12,300
Loss on settlement of liability	$ 7,219

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OPTIONS (Details)	9 Months Ended
	Jul. 31, 2018 USD ($) $ / shares shares
Stock Options
Shares outstanding	7,223,800
Shares granted	548,400
Shares exercised
Shares Forfeited/Expired by termination
Shares outstanding	7,772,200
Weighted Average Exercise Price
Weighted average exercise price of share outstanding | $ / shares	$ 0.40
Weighted average exercise price of share granted | $ / shares	0.17
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	$ 0.33
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 5 months 27 days
Shares outstanding	5,518,640
Shares granted
Shares exercised
Shares outstanding	6,249,780
Intrinsic Value
Aggregate intrinsic value of share outstanding | $	$ 1,401,820
Aggregate intrinsic value of share outstanding | $	$ 2,781,533

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OPTIONS (Details Narrative) - USD ($)

1 Months Ended

3 Months Ended

9 Months Ended

Jan. 11, 2018

Apr. 30, 2018

Mar. 27, 2018

Jan. 31, 2018

Jul. 31, 2018

Jul. 31, 2017

Jul. 31, 2018

Jul. 31, 2017

Aug. 22, 2014

Option vested

20.00%

Option expense

$ 2,780,512

Total Expense

$ 294,163

294,163

Unrecognized future balance

938,163

938,163

Loss on settlement of liability

$ 39,193

Two independent directors and three officers [Member]

Options issued

110,500

138,000

84,900

Exercise price

$ 0.001

$ 0.001

$ 0.001

Computed volatility

207.00%

206.00%

197.00%

Option discount rate

2.95%

2.72%

3.05%

Fair value of the option

$ 84,947

$ 55,114

$ 52,976

Options issued, Value

52,973

$ 52,976

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]	Jul. 31, 2018 USD ($)
2018	$ 12,345
2019	49,164
2020	49,164
2021	49,164
2022	36,873
Total	$ 196,710

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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