Quarterly Report (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, 2015

 

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)

[phone]
(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

 

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 of September 14, 2015 there were 50,795,500 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, 2015 (Unaudited) and October 31, 2014		4
	Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine months Ended July 31, 2015 and 2014 (Unaudited)		5
	Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2015 and 2014 (Unaudited)		6
	Notes to Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		12
Item 4.	Controls and Procedures		13
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings		14
Item 1A.	Risk Factors		14
Item 2.	Unregistered 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 

(Unaudited)

 

		July 31, 2015				October 31, 2014
ASSETS
Current Assets:
Cash and cash equivalents		$	525,072			$	977,688
Accounts receivable			139,867				86,564
Inventory			12,593				--
Total current assets			677,532				1,064,252
Property and equipment, net of accumulated depreciation of $71,765 and $70,484 respectively			2,175				3,456
Intangibles -net			46,714				2,248
Other assets			32,420				--
Total Assets		$	758,841			$	1,069,956
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses		$	58,480			$	58,104
Accrued expense – related parties			--				6,911
Accrued liabilities – related party			420,224				241,926
Notes payable – related parties			--				153,580
Deferred revenue			91,897				44,845
Total current liabilities			570,601				505,366
Total liabilities			570,601				505,366
Stockholders’ Equity:
Preferred stock; $0.001 par value, 5,000,000 shares authorized, 5,000 shares issued and outstanding			5				5
Series B Preferred convertible stock: $0.001 par value, 500,000 share authorized,193,661 issued and zero outstanding, respectively			193,661				--
Common stock; $0.001 par value, 70,000,000 shares authorized, 50,795,500 and 50,642,500 shares issued and outstanding, respectively			50,796				50,643
Additional paid-in capital			2,732,132				2,206,424
Accumulative other comprehensive income (loss)			(93,509	)			10,846
Accumulated deficit			(2,694,845	)			(1,703,328	)
Total shareholders’ equity			188,240				564,590
Total Liabilities and Stockholders’ Equity		$	758,841			$	1,069,956

 

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,
		2015				2014				2015				2014
Revenue		$	308,028			$	209,578			$	849,778			$	774,925
Direct material costs			528				1,116				26,617				2,571
Gross profit			307,500				208,462				823,161				742,354
Operating Expenses:
General & administrative			523,634				458,884				1,869,620				1,264,706
Depreciation and amortization			5,609				428				16,835				1,238
Loss from operations			(221,743	)			(250,850	)			(1,063,294	)			(523,590	)
Other Income (Expenses):
Other income			(8	)			--				160				--
Gain on debt forgiveness			--				--				--				11,982
Interest expense			(2,113	)			(2,418	)			(6,409	)			(7,686	)
Tax refund			--				--				78,026				--
Total other income (expenses)			(2,121	)			(2,418	)			71,777				4,296
Net loss		$	(223,864	)		$	(253,268	)		$	(991,517	)		$	(519,294	)
Foreign currency translation adjustment			(59,543	)			(6,908	)			(104,355	)			(13,671	)
Comprehensive (loss)		$	(283,407	)		$	(260,176	)		$	(1,095,872	)		$	(532,965	)
Net loss per common share attributable to common stockholders (basic and diluted)		$	(0.01	)		$	(0.01	)		$	(0.02	)		$	(0.01	)
Weighted average common shares outstanding (basic and diluted):			50,795,500				49,844,000				50,784,831				49,703,890

 

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,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(991,517	)		$	(519,294	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense			16,835				1,238
Option based compensation			314,111				235,822
Stock based compensation			37,250				--
Gain on debt forgiveness			--				(11,982	)
Changes in operating assets and liabilities:
Accounts receivable			(16,214	)			7,216
Accounts payable and accrued expenses			(35,588	)			(11,843	)
Inventory			(5,417	)			--
Accrued liabilities – related parties			178,298				(1,002	)
Taxes payable			--				(8,227	)
Prepaid			(21,509	)			--
Deferred Income			43,239				3,918
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			(480,512	)			(304,514	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of fixed assets			--				(2,020	)
Cash received, net of cash paid for Nic			(1,118	)			--
NET CASH USED IN INVESTING ACTIVITIES			(1,118	)			(2,020	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock			100,000				369,750
Payments on notes payable – related parties			--				(39,342	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			100,000				330,408
Effect of exchange rate changes on cash			(70,986	)			15,223
Net increase (decrease) in cash			(452,616	)			39,457
Cash, beginning of period			977,688				365,415
Cash, end of period		$	525,072			$	404,872
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid		$	--			$	21,007
Income taxes paid		$	--			$	--
Non-Monetary Transactions
Assets acquired in acquisition through stock issuance		$	74,500			$	--
Preferred series B shares issued for debt- related parties		$	193,661			$	--

 

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 subsidiary Cogent Real-Time Systems, Inc. (“Cogent”). 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.

 

On November 1, 2014 the Company acquired Nic Corporation as a wholly owned subsidiary. On February 1, 2015 the Company formed a wholly owned US subsidiary Skkynet, Inc. and wholly owned Canadian subsidiary Skkynet Corp. (See Note 7 Acquisitions)

 

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 $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.

 

The accompanying unaudited interim consolidated 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, 2014 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, 2014 as reported on Form 10-K, have been omitted.

 

Inventory

 

Inventory consists of hardware used to embed software and is stated at the lower of cost or market.

 

NOTE 2 – RELATED PARTY TRANSACTIONS

 

On July 31, 2012, Andrew Thomas, Shizuka Thomas and Paul Benford converted the salary they had accrued through our subsidiary through July 31, 2012 to notes payable due from that subsidiary. The notes matured on April 29, 2015 and bear an interest rate of 6% per annum on the outstanding balance. Interest payments are due quarterly commencing October 30, 2012.

 

7

 

On July 30, 2015 the notes and accrued interest were converted to 193,661 Series B convertible preferred shares for the outstanding principal and interest as of July 30, 2015.

 

		Note Balance				Interest				Total				Shares issued
Andrew Thomas		$	54,874			$	5,403			$	60,241				60,241
Paul Benford		$	85,842			$	8,761			$	94,603				94,603
Shizuka Thomas		$	39,197			$	3,620			$	38,817				38,817
Total		$	175,887			$	17,774			$	193,661				193,661

 

On January 1, 2012 and April 15, 2012, the Company and its subsidiary 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, 2015 the accrued liability for compensation was $420,244

 

As of July 31, 2015 and October 31, 2014, the Company had the following outstanding accrued liabilities due to related parties:

 

As of		July 31, 2015				October 31, 2014
Accrued salaries		$	297,424			$	201,026
Director fees		$	75,000			$	7,500
Consulting fees		$	47,800			$	33,400
Accrued liabilities		$	420,224			$	241,926
Accrued expense		$	--			$	6,911
Total accrued liabilities and accrued expense		$	420,244			$	248,837

 

On December 4, 2014, the Company issued 78,000 shares of common stock a $1.282 per share to a related party for $100,000 in cash.

 

NOTE 3 – EQUITY

 

On November 1, 2014, the Company issued 50,000 shares of common stock to three individuals with a value of $74,500 for the acquisition of Nic Corporation. (See Note 7 Acquisition)

 

On November 10, 2014, the Company issued 25,000 shares of common stock to one entity with a value of $37,250 for services.

 

On December 4, 2014, the Company issued 78,000 shares of common stock a $1.282 per share to a related party for $ 100,000 in cash.

 

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 $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.

 

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.

 

8

 

NOTE 4 – OPTIONS

 

The Company, under its 2012 Stock Option Plan, issues option 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 were 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 19, 2015, the Company issued 106,000 options under the 2012 Stock Option Plan to 4 employees with an exercise price of $1.32 per share.

 

On February 10, 2015, the Company issued 10,000 options to one consultant with exercise price of $1.30. 20% of the option will vest immediately, the additional 20% to vest on February 10 of each successive year.

 

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 $2,459,889. During the period ended July 31, 2015 the Company expensed $314,111 for options. The unrecognized future balance to be expensed over the term of the options is $1,802,792

 

The following sets forth the options granted and outstanding as of July 31, 2015:

 

		Options				Weighted Average Exercise price				Weighted Average Remaining Contract Life				Number of Options Exercisable				Intrinsic value
Outstanding at October 31, 2014			5,270,000				0.51				8.44				2,218,000				5,164,900
Granted			116,000				1.32				9.51				1,113,200				--
Exercised							--				--				--				--
Outstanding at July 31, 2015			5,386,000				0.52				8.46				3,331,200				4,284,900

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

The Company leases office space located at 2233 Argentia Road Suite 306 Mississauga, Ontario Canada L5N 2X7. The offices contain approximately 2,810 square feet of office space and are leased from July 1, 2014 through July 31, 2017. Under the terms of the lease the gross monthly rental cost including common area charges is $6,700 per month. The lease terminates on July, 31, 2017. The yearly rental obligations under the lease agreement are as follows:

 

2015		$	7,265
2016		$	70,567
2017		$	61,538
2018		$	0
2029		$	0
thereafter		$	0
Total		$	139,370

 

9

 

NOTE 6 – DEFERRED REVENUE

 

The Company receives part of its revenue from the sale of software support. The revenue received is for one year of support from the date of the support sale. The Company defers the revenue for the future periods in which it is obligated to perform the support service. As of July 31, 2015 the Company had deferred revenue of $91,897.

 

NOTE 7 – ACQUISITION

 

On November 1, 2014, the Company acquired all the outstanding shares of Nic Corporation, based in Japan, for $110,000 in cash plus 50,000 share of common stock. The Company determined in accordance with ASC 805-10-25-6 that the 50,000 shares of common stock was valued at the closing price on the date of purchase at $1.49 for a total value of $74,500. In accordance with purchase acquisition accounting, the company initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Customer Lists represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.

 

The Company estimates the useful life to the customer list to be three years and thus it is being amortized over a three year period. The amortization for the nine month period that was recorded is $15,571. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company has not finalized its purchase price allocation and this is preliminary.

 

Cash and cash equivalents		$	108,882
Accounts receivable			37,089
Inventory			7,175
Prepaid			4,726
Intangible asset			62,285
Other assets			6,185
Total Assets			226,342
Accounts payable			31,874
Deposits			3,813
Taxes payable			6,155
Total Liabilities			41,842
Total Purchase Price		$	184,500

 

The following unaudited consolidated pro forma information gives effect to the Nic Corporation acquisition as if this transaction had occurred at the beginning of the period presented. The following unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of this business been completed at the beginning of each period presented, nor are they indicative of results that may occur in any future periods.

 

As of July 31, 2015(Unaudited)		Three Months Period				Nine Months period
Revenue		$	231,529			$	1,140,459
Operating expense		$	566,193			$	1,560,476
Other income(expense)		$	25,712			$	(23,829	)
Net loss		$	(365,213	)		$	(443,847	)

 

10

 

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

 

The Company operates its traditional business through its wholly-owned subsidiary Cogent Real-Time Systems, Inc. The Company has taken the existing business lines of Cogent and integrated these with cloud based systems. The Company operates the cloud based business through its wholly-owned subsidiaries Skkynet, Inc. (US) and Skkynet Corp. (Canada). The Company also operates embedded hardware-based business though its wholly-owned subsidiary Nic Corporation (Japan).

 

The Company provides software and related embedded 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 where requested by a client, our web based assets, this gives clients and their customers (to the extent relevant) 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 month periods ending July 31, 2015, revenues were $308,028 and $849,778 compared to $209,578 and $744,925 for the same period in 2014. Revenue increased for the three and nine month period ending July 31, 2015 over the three and nine month period ended July 31, 2014, plus higher deferred revenue of $91,897 in 2015 compared to $44,845 in 2014, confirmed higher sales to customers during 2015. The Company has concentrated on launching its cloud services which, in the long term, should result in increased sales.

 

General and administrative expense increased to $523,634 and $1,869,620 for the three and nine months ended July 31, 2015 from $458,884 and $1,264,706 for the same periods in 2014. The increase in general and administrative expenses for the three and nine months ended July 31, 2015 included options expensed of $314,111 compared to $235,822 in 2014, increased consulting, the opening of a new office, plus added marketing expenses to launch the cloud service and propel business growth.

 

For the three and nine month periods ending July 31, 2015 the Company posted an operating loss of $221,743 and $1,063,294 compared to an operation loss of $250,850 and $523,590 for the same periods in 2014. The increase in operating loss is attributable to increased expenses in consulting, salaries and office opening expenses, plus option based compensation of $314,111, stock compensation of $37,250, and depreciation of $16,835.

 

Other income and expenses for the three and nine month periods ending July 31, 2015 was an expense of $2,121 and income of $71,777 compared to other expense of $2,418 and income of $4,296 for the same periods in 2014. Interest expense, plus a tax refund of $78,026 comprised the other income in 2015.

 

A net loss of $223,864 and $991,517 was recorded for the three and nine months period ending July 31, 2015 compared to a net loss of $253,268 and $519,294 for the same periods in 2014. The loss can be attributed to added employee costs and increased marketing activity in 2015 compared to 2014.

 

11

  

LIQUIDITY AND CAPITAL RESOURCES

 

At July 31, 2015, Skkynet had current assets of $677,532 and current liabilities of $570,601, resulting in working capital of $106,931. Accumulated deficit, as of July 31, 2015, was $2,754,642 with total shareholders’ equity of $188,240.

 

Net cash used in operations for the nine months ending July 31, 2015 was $480,512 compared to net cash used of $304,154 for the same period in 2014. Net cash used in operations increased primarily due to an increase in the net loss of $472,223 and increase in accounts payable of $23,745. These were offset by stock based compensation of $37,250; stock option based compensation of $314,111, accrued liabilities to related parties of $178,298, and deferred revenue of $73,234.

 

Cash used in investing activities in the nine months period ended July 31, 2015 and 2014 was $1,118 and $2,020. The investing activity in 2015 included the acquisition of Nic Corporation for $110,000, in cash, offset by cash received of $108,882, plus stock of $74,500.

 

Net cash provided in financing activities during the nine months ended July 31, 2015 was $100,000 compared to net cash provided of $330,408 for the same period in 2014. The difference was due to the sale of common stock of $369,750 offset by the reduction of notes payable to related parties of $39,342 in 2014 compared to the sale of common stock for cash of $100,000 in the same period in 2015.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We have no significant 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.

 

12

 

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, 2015. 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.

 

13

 

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, 2014.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On November 1, 2014, the Company issued 50,000 shares of common stock to three individuals with a value of $74,500 for the acquisition of Nic Corporation.

 

On November 10, 2014, the Company issued 25,000 shares of common stock with a value of $37,250 for services.

 

On December 4, 2014, the Company issued 78,000 shares of common stock a $1.282 per share to a related party for $ 100,000 in cash.

 

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.

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4: MINE SAFETY INFORMATION

 

None

 

ITEM 5: OTHER INFORMATION

 

None

 

14

 

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.
Date: September 14, 2015	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)

 

 

16

---

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 14, 2015	By:	/s/ Andrew Thomas
	Name:	Andrew Thomas
	Title:	Chief Executive Officer (Principal Executive Officer)

 

 

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 14, 2015	By:	/s/ Lowell Holden
	Name:	Lowell Holden
	Title:	Chief Financial Officer (Principal Financial Officer)

 

 

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 from ended July 31, 2015 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 14, 2015	By:	/s/ Andrew Thomas
	Name:	Andrew Thomas
	Title:	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.

 

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 from ended July 31, 2015 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 14, 2015	By:	/s/ Lowell Holden
	Name:	Lowell Holden
	Title:	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 Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

Document and Entity Information - shares	9 Months Ended
	Jul. 31, 2015	Sep. 14, 2015
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, 2015
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		50,795,500
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015

CONSOLIDATED BALANCE SHEETS - USD ($)	Jul. 31, 2015	Oct. 31, 2014
Current Assets:
Cash and cash equivalents	$ 525,072	$ 977,688
Accounts receivable	139,867	$ 86,564
Inventory	12,593
Total current assets	677,532	$ 1,064,252
Property and equipment, net of accumulated depreciation of $71,765 and $70,484 respectively	2,175	3,456
Intangible - net	46,714	$ 2,248
Other assets	32,420
Total Assets	758,841	$ 1,069,956
Current Liabilities:
Accounts payable and accrued expenses	$ 58,480	58,104
Accrued expense - related parties		6,911
Accrued liabilities - related party	$ 420,224	241,926
Notes payable - related parties		153,580
Deferred revenue	$ 91,897	44,845
Total current liabilities	570,601	505,366
Total liabilities	570,601	505,366
Stockholders' Equity:
Preferred stock; $0.001 par value, 5,000,000 shares authorized 5,000 shares issued and outstanding	5	$ 5
Series B Preferred convertible stock: $0.001 par value, 500,000 share authorized,193,661 issued and zero outstanding, respectively	193,661
Common stock; $0.001 par value, 70,000,000 shares authorized, 50,795,500 and 50,642,500 shares issued and outstanding, respectively	50,796	$ 50,643
Additional paid-in capital	2,732,132	2,206,424
Accumulative other comprehensive income (loss)	(93,509)	10,846
Accumulated deficit	(2,694,845)	(1,703,328)
Total stockholders' equity	188,240	564,590
Total Liabilities and Stockholders' Equity	$ 758,841	$ 1,069,956

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Jul. 31, 2015	Oct. 31, 2014
ASSETS
Net of accumulated depreciation	$ 71,765	$ 70,484
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
Series B Preferred stock, Par value	$ 0.001	$ 0.001
Series B Preferred stock, Authorized	500,000	500,000
Series B Preferred stock, Issued	193,661	193,661
Series B Preferred stock, Outstanding	0	0
Common stock, Par value	$ 0.001	$ 0.001
Common stock, Authorized	70,000,000	70,000,000
Common stock, Issued	50,795,500	50,642,500
Common stock, Outstanding	50,795,500	50,642,500

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jul. 31, 2015	Jul. 31, 2014	Jul. 31, 2015	Jul. 31, 2014
Consolidated Statements Of Operations And Comprehensive Loss
Revenue	$ 308,028	$ 209,578	$ 849,778	$ 774,925
Direct material costs	528	1,116	26,617	2,571
Gross profit	307,500	208,462	823,161	742,354
Operating Expenses:
General and administrative	523,634	458,884	1,869,620	1,264,706
Depreciation and amortization	5,609	428	16,835	1,238
Loss from operations	(221,743)	$ (250,850)	(1,063,294)	$ (523,590)
Other Income (Expenses):
Other Income	$ (8)		$ 160
Gain on debt forgiveness				$ 11,982
Interest expense	$ (2,113)	$ (2,418)	$ (6,409)	$ (7,686)
Tax refund			78,026
Total other income (expenses)	$ (2,121)	$ (2,418)	71,777	$ 4,296
Net loss	(223,864)	(253,268)	(991,517)	(519,294)
Foreign currency translation adjustment	(59,543)	(6,908)	(104,355)	(13,671)
Comprehensive (loss)	$ (283,407)	$ (260,176)	$ (1,095,872)	$ (532,965)
Net loss per common share attributable to common stockholders (basic and diluted)	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.01)
Weighted average common shares outstanding (basic and diluted):	50,795,500	49,844,000	50,784,831	49,703,890

CONSOLDIATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Jul. 31, 2015	Jul. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (991,517)	$ (519,294)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	16,835	1,238
Option based compensation	314,111	$ 235,822
Stock based compensation	$ 37,250
Gain on debt forgivenes		$ (11,982)
Changes in operating assets and liabilities:
Accounts receivable	$ (16,214)	7,216
Accounts payable and accrued expenses	(35,588)	$ (11,843)
Inventory	(5,417)
Accrued liabilities - related parties	$ 178,298	$ (1,002)
Taxes payable		$ (8,227)
Prepaid	$ (21,509)
Deferred Income	43,239	$ 3,918
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$ (480,512)	(304,514)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of fixed assets		$ (2,020)
Cash received, net of cash paid for Nic	$ (1,118)
NET CASH USED IN INVESTING ACTIVITIES	(1,118)	$ (2,020)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock	$ 100,000	369,750
Payments on notes payable - related parties		(39,342)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	$ 100,000	330,408
Effect of exchange rate changes on cash	(70,986)	15,223
Net increase (decrease) in cash	(452,616)	39,457
Cash, beginning of period	977,688	365,415
Cash, end of period	$ 525,072	404,872
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid		$ 21,007
Income taxes paid
Non-Monetary Transactions
Assets acquired in acquisition through stock issuance	$ 74,500
Preferred series B shares issued for debt- related parties	$ 193,661

ORGANIZATION AND BASIS OF PRESENTATION	9 Months Ended
	Jul. 31, 2015
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 subsidiary Cogent Real-Time Systems, Inc. (“Cogent”). 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.   On November 1, 2014 the Company acquired Nic Corporation as a wholly owned subsidiary. On February 1, 2015 the Company formed a wholly owned US subsidiary Skkynet, Inc. and wholly owned Canadian subsidiary Skkynet Corp. (See Note 7 Acquisitions)   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 $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.   The accompanying unaudited interim consolidated 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, 2014 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, 2014 as reported on Form 10-K, have been omitted.   Inventory   Inventory consists of hardware used to embed software and is stated at the lower of cost or market.

RELATED PARTY TRANSACTIONS	9 Months Ended
	Jul. 31, 2015
Notes to Financial Statements
NOTE 2 - RELATED PARTY TRANSACTIONS	On July 31, 2012, Andrew Thomas, Shizuka Thomas and Paul Benford converted the salary they had accrued through our subsidiary through July 31, 2012 to notes payable due from that subsidiary. The notes matured on April 29, 2015 and bear an interest rate of 6% per annum on the outstanding balance. Interest payments are due quarterly commencing October 30, 2012.   On July 30, 2015 the notes and accrued interest were converted to 193,661 Series B convertible preferred shares for the outstanding principal and interest as of July 30, 2015.       Note Balance     Interest     Total     Shares issued   Andrew Thomas   $ 54,874     $ 5,403     $ 60,241       60,241   Paul Benford   $ 85,842     $ 8,761     $ 94,603       94,603   Shizuka Thomas   $ 39,197     $ 3,620     $ 38,817       38,817   Total   $ 175,887     $ 17,774     $ 193,661       193,661     On January 1, 2012 and April 15, 2012, the Company and its subsidiary 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, 2015 the accrued liability for compensation was $420,244   As of July 31, 2015 and October 31, 2014, the Company had the following outstanding accrued liabilities due to related parties:   As of   July 31, 2015     October 31, 2014   Accrued salaries   $ 297,424     $ 201,026   Director fees   $ 75,000     $ 7,500   Consulting fees   $ 47,800     $ 33,400   Accrued liabilities   $ 420,224     $ 241,926   Accrued expense   $ --     $ 6,911   Total accrued liabilities and accrued expense   $ 420,244     $ 248,837     On December 4, 2014, the Company issued 78,000 shares of common stock a $1.282 per share to a related party for $100,000 in cash.

EQUITY	9 Months Ended
	Jul. 31, 2015
Notes to Financial Statements
NOTE 3 - EQUITY	On November 1, 2014, the Company issued 50,000 shares of common stock to three individuals with a value of $74,500 for the acquisition of Nic Corporation. (See Note 7 Acquisition)   On November 10, 2014, the Company issued 25,000 shares of common stock to one entity with a value of $37,250 for services.   On December 4, 2014, the Company issued 78,000 shares of common stock a $1.282 per share to a related party for $ 100,000 in cash.   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 $1.32 per share. The Company may, any time at its option, redeem the Series B shares at their stated value. The Series B preferred shares hold a 6% per annum accumulative dividend.   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.

OPTIONS	9 Months Ended
	Jul. 31, 2015
Notes to Financial Statements
NOTE 4 - OPTIONS	The Company, under its 2012 Stock Option Plan, issues option 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 were 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 19, 2015, the Company issued 106,000 options under the 2012 Stock Option Plan to 4 employees with an exercise price of $1.32 per share.   On February 10, 2015, the Company issued 10,000 options to one consultant with exercise price of $1.30. 20% of the option will vest immediately, the additional 20% to vest on February 10 of each successive year.   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 $2,459,889. During the period ended July 31, 2015 the Company expensed $314,111 for options. The unrecognized future balance to be expensed over the term of the options is $1,802,792   The following sets forth the options granted and outstanding as of July 31, 2015:       Options     Weighted Average Exercise price     Weighted Average Remaining Contract Life     Number of Options Exercisable     Intrinsic value   Outstanding at October 31, 2014     5,270,000       0.51       8.44       2,218,000       5,164,900   Granted     116,000       1.32       9.51       1,113,200       --   Exercised             --       --       --       --   Outstanding at July 31, 2015     5,386,000       0.52       8.46       3,331,200       4,284,900

COMMITMENTS AND CONTINGENCIES	9 Months Ended
	Jul. 31, 2015
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. The offices contain approximately 2,810 square feet of office space and are leased from July 1, 2014 through July 31, 2017. Under the terms of the lease the gross monthly rental cost including common area charges is $6,700 per month. The lease terminates on July, 31, 2017. The yearly rental obligations under the lease agreement are as follows:   2015   $ 7,265   2016   $ 70,567   2017   $ 61,538   2018   $ 0   2029   $ 0   thereafter   $ 0   Total   $ 139,370

DEFERRED REVENUE	9 Months Ended
	Jul. 31, 2015
Notes to Financial Statements
NOTE 6 - DEFERRED REVENUE	The Company receives part of its revenue from the sale of software support. The revenue received is for one year of support from the date of the support sale. The Company defers the revenue for the future periods in which it is obligated to perform the support service. As of July 31, 2015 the Company had deferred revenue of $91,897.

ACQUISITION	9 Months Ended
	Jul. 31, 2015
Notes to Financial Statements
NOTE 7 - ACQUISITION	On November 1, 2014, the Company acquired all the outstanding shares of Nic Corporation, based in Japan, for $110,000 in cash plus 50,000 share of common stock. The Company determined in accordance with ASC 805-10-25-6 that the 50,000 shares of common stock was valued at the closing price on the date of purchase at $1.49 for a total value of $74,500. In accordance with purchase acquisition accounting, the company initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Customer Lists represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.   The Company estimates the useful life to the customer list to be three years and thus it is being amortized over a three year period. The amortization for the nine month period that was recorded is $15,571. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The company has not finalized its purchase price allocation and this is preliminary.   Cash and cash equivalents   $ 108,882   Accounts receivable     37,089   Inventory     7,175   Prepaid     4,726   Intangible asset     62,285   Other assets     6,185   Total Assets     226,342   Accounts payable     31,874   Deposits     3,813   Taxes payable     6,155   Total Liabilities     41,842   Total Purchase Price   $ 184,500     The following unaudited consolidated pro forma information gives effect to the Nic Corporation acquisition as if this transaction had occurred at the beginning of the period presented. The following unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of this business been completed at the beginning of each period presented, nor are they indicative of results that may occur in any future periods.   As of July 31, 2015(Unaudited)   Three Months Period     Nine Months period   Revenue   $ 231,529     $ 1,140,459   Operating expense   $ 566,193     $ 1,560,476   Other income(expense)   $ 25,712     $ (23,829 ) Net loss   $ (365,213 )   $ (443,847 )

RELATED PARTY TRANSACTIONS (Tables)	9 Months Ended
	Jul. 31, 2015
Related Party Transactions Tables
Summary of notes payable related party	On July 30, 2015 the notes and accrued interest were converted to 193,661 Series B convertible preferred shares for the outstanding principal and interest as of July 30, 2015.       Note Balance     Interest     Total     Shares issued   Andrew Thomas   $ 54,874     $ 5,403     $ 60,241       60,241   Paul Benford   $ 85,842     $ 8,761     $ 94,603       94,603   Shizuka Thomas   $ 39,197     $ 3,620     $ 38,817       38,817   Total   $ 175,887     $ 17,774     $ 193,661       193,661
Outstanding accrued liabilities due to related parties	As of July 31, 2015 and October 31, 2014, the Company had the following outstanding accrued liabilities due to related parties:   As of   July 31, 2015     October 31, 2014   Accrued salaries   $ 297,424     $ 201,026   Director fees   $ 75,000     $ 7,500   Consulting fees   $ 47,800     $ 33,400   Accrued liabilities   $ 420,224     $ 241,926   Accrued expense   $ --     $ 6,911   Total accrued liabilities and accrued expense   $ 420,244     $ 248,837

OPTIONS (Tables)	9 Months Ended
	Jul. 31, 2015
Options Tables
Options granted and outstanding	The following sets forth the options granted and outstanding as of July 31, 2015:       Options     Weighted Average Exercise price     Weighted Average Remaining Contract Life     Number of Options Exercisable     Intrinsic value   Outstanding at October 31, 2014     5,270,000       0.51       8.44       2,218,000       5,164,900   Granted     116,000       1.32       9.51       1,113,200       --   Exercised             --       --       --       --   Outstanding at July 31, 2015     5,386,000       0.52       8.46       3,331,200       4,284,900

COMMITMENTS AND CONTINGENCIES (Tables)	9 Months Ended
	Jul. 31, 2015
Commitments And Contingencies Tables
Lease obligations	The yearly rental obligations under the lease agreement are as follows:   2015   $ 7,265   2016   $ 70,567   2017   $ 61,538   2018   $ 0   2029   $ 0   thereafter   $ 0   Total   $ 139,370

ACQUISITION (Tables)	9 Months Ended
	Jul. 31, 2015
Acquisition Tables
Estimated fair values of the assets acquired and liabilities	The company has not finalized its purchase price allocation and this is preliminary.   Cash and cash equivalents   $ 108,882   Accounts receivable     37,089   Inventory     7,175   Prepaid     4,726   Intangible asset     62,285   Other assets     6,185   Total Assets     226,342   Accounts payable     31,874   Deposits     3,813   Taxes payable     6,155   Total Liabilities     41,842   Total Purchase Price   $ 184,500
Consolidated pro forma information	The following unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results that would have been attained had the acquisition of this business been completed at the beginning of each period presented, nor are they indicative of results that may occur in any future periods.   As of July 31, 2015(Unaudited)   Three Months Period     Nine Months period   Revenue   $ 231,529     $ 1,140,459   Operating expense   $ 566,193     $ 1,560,476   Other income(expense)   $ 25,712     $ (23,829 ) Net loss   $ (365,213 )   $ (443,847 )

RELATED PARTY TRANSACTIONS (Details)	Jul. 31, 2015 USD ($) shares
Total notes payable related parties	$ 175,887
Interest	17,774
Total	$ 193,661
Shares issued | shares	193,661
Andrew Thomas [Member]
Total notes payable related parties	$ 54,874
Interest	5,403
Total	$ 60,241
Shares issued | shares	60,241
Paul Benford [Member]
Total notes payable related parties	$ 85,842
Interest	8,761
Total	$ 94,603
Shares issued | shares	94,603
Shizuka Thomas [Member]
Total notes payable related parties	$ 39,197
Interest	3,620
Total	$ 38,817
Shares issued | shares	38,817

RELATED PARTY TRANSACTIONS (Details 1) - USD ($)	Jul. 31, 2015	Oct. 31, 2014
Related Party Transactions Details 1
Accrued salaries	$ 297,424	$ 201,026
Director fees	75,000	7,500
Consulting fees	47,800	33,400
Accrued liabilities	$ 420,224	241,926
Accrued expense		6,911
Total accrued liabilities and accrued expense	$ 420,244	$ 248,837

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Jul. 31, 2015	Oct. 31, 2014
Related Party Transactions Details Narrative
Accrued liabilities - related party	$ 420,224	$ 241,926

OPTIONS (Details)	9 Months Ended
	Jul. 31, 2015 USD ($) $ / shares shares
Options Details
Outstanding options, Beginning	5,270,000
Options, Granted	116,000
Options, Exercised
Outstanding options, Ending	5,386,000
Weighted Average Exercise price, Beginning | $ / shares	$ 0.51
Weighted Average Exercise price, Granted | $ / shares	$ 1.32
Weighted Average Exercise price, Exercised | $ / shares
Weighted Average Exercise price, Ending | $ / shares	$ 0.52
Weighted Average Remaining Contract Life, Beginning	8 years 5 months 9 days
Weighted Average Remaining Contract Life, Granted	9 years 6 months 4 days
Weighted Average Remaining Contract Life, Ending	8 years 5 months 16 days
Number of Options Exercisable, Beginning	2,218,000
Number of Options Exercisable, Granted	1,113,200
Number of Options Exercisable, Exercised
Number of Options Exercisable, Ending	3,331,200
Aggregate Intrinsic Value, Beginning | $	$ 5,164,900
Aggregate Intrinsic Value, Ending | $	$ 4,284,900

OPTIONS (Details Narrative) - USD ($)	9 Months Ended
	Jul. 31, 2015	Jul. 31, 2014
Options Details Narrative
Option based compensation	$ 314,111	$ 235,822

COMMITMENTS AND CONTINGENCIES (Details)	Jul. 31, 2015 USD ($)
Commitments And Contingencies Details
2015	$ 7,265
2016	70,567
2017	61,538
2018	0
2019	0
thereafter	0
Total	$ 139,370

DEFERRED REVENUE (Details Narrative) - USD ($)	Jul. 31, 2015	Oct. 31, 2014
Deferred Revenue Details Narrative
Deferred revenue	$ 91,897	$ 44,845

ACQUISITION (Details)	Jul. 31, 2015 USD ($)
Acquisition Details
Cash and cash equivalents	$ 108,882
Accounts receivable	37,089
Inventory	7,175
Prepaid	4,726
Intangible Asset	62,285
Other assets	6,185
Total Assets	226,342
Accounts payable	31,874
Deposits	3,813
Taxes payable	6,155
Total Liabilities	41,842
Total Purchase Price	$ 184,500

ACQUISITION (Details 1) - USD ($)	3 Months Ended	9 Months Ended
	Jul. 31, 2015	Jul. 31, 2015
Acquisition Details 1
Revenues	$ 231,529	$ 1,140,459
Operating Expenses	566,193	1,560,476
Other income (expense)	25,712	(23,829)
Net Loss	$ (365,213)	$ (443,847)