Attached files
file | filename |
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EX-31.2 - SUPERCLICK INC | v196432_ex31-2.htm |
EX-31.1 - SUPERCLICK INC | v196432_ex31-1.htm |
EX-32.1 - SUPERCLICK INC | v196432_ex32-1.htm |
EX-32.2 - SUPERCLICK INC | v196432_ex32-2.htm |
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, 2010.
¨ Transition
Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of
1934
For The
Transition Period From ______________To_________________
Commission
File Number 333-31238
Superclick,
Inc.
(Exact
Name Of Registrant As Specified In Its Charter)
Washington
|
52-2219677
|
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
|
Incorporation
or Organization)
|
Identification
No.)
|
10222
St-Michel Blvd., Suite 300
Montreal,
Quebec, H1H 5H1
(858)
518-1387
(Address,
Including Zip Code, And Telephone Number, Including
Area
Code, Of Registrant's mailing address in Montreal, Canada)
Check
whether the issuer: (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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No ¨
The
number of outstanding shares of the issuer's common stock, $0.0006 par
value, as
of August 27, 2010 was 45,512,251.
TABLE
OF CONTENTS
Page
|
||
Part
I – Financial Information
|
||
Item
1.
|
Financial
Statements
|
|
Consolidated
Balance Sheets as of July 31, 2010 (Unaudited)
|
||
and
October 31, 2009 (Audited)
|
1
|
|
Consolidated
Statements of Operations for the three and
|
||
nine
months ended July 31, 2010 and 2009 (Unaudited)
|
2
|
|
Consolidated
Statement of Stockholders Equity for the year
|
||
ended
October 31, 2009 and the nine months ended
|
||
July
31, 2010 (Unaudited)
|
3
|
|
Consolidated
Statements of Comprehensive Income for the
|
||
three
and nine months ended July 31, 2010 and 2009 (Unaudited)
|
4
|
|
Consolidated
Statements of Cash Flows for the three and
|
||
nine
months ended July 31, 2010 and 2009 (Unaudited)
|
5
|
|
Notes
To Consolidated Financial Statements (Unaudited)
|
6
|
|
Item
2.
|
Management's
Discussion and Analysis
|
17
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
|
22
|
Item
4.
|
Controls
and Procedures
|
27
|
Part
II – Other Information
|
||
Item
1.
|
Legal
Proceedings
|
28
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
and Reports on Form 8-K
|
28
|
Signatures
|
29
|
ITEM
1. FINANCIAL STATEMENTS
SUPERCLICK,
INC.
Consolidated
Balance Sheets
July 31, 2010
|
October 31,
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash
|
$ | 1,978,700 | $ | 2,192,058 | ||||
Accounts
receivable, net (Notes A&B)
|
1,598,722 | 1,481,814 | ||||||
Tax
refund receivable (Note N)
|
25,193 | - | ||||||
Inventory
(Note C)
|
621,993 | 73,276 | ||||||
Other
current assets
|
74,236 | 36,777 | ||||||
TOTAL
CURRENT ASSETS
|
4,298,844 | 3,783,925 | ||||||
Fixed
assets, net (Note D)
|
148,454 | 126,989 | ||||||
TOTAL
ASSETS
|
$ | 4,447,298 | $ | 3,910,914 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts
payable and accrued expenses (Note E)
|
$ | 956,005 | $ | 1,132,008 | ||||
Deferred
revenue (Note F)
|
1,340,280 | 1,184,537 | ||||||
TOTAL
CURRENT LIABILITIES
|
2,296,285 | 2,316,545 | ||||||
TOTAL
LIABILITIES
|
2,296,285 | 2,316,545 | ||||||
Commitments
(Note G)
|
- | - | ||||||
STOCKHOLDERS' EQUITY (Note
H)
|
||||||||
Common
stock, par value $.0006, 175,000,000 shares authorized; issued and
outstanding 45,512,251 and
45,312,251 at July 31, 2010 October 31, 2009,
respectively.
|
27,849 | 27,729 | ||||||
Additional
paid-in capital
|
6,133,369 | 6,123,489 | ||||||
Accumulated
deficit
|
(4,183,512 | ) | (4,595,719 | ) | ||||
Accumulated
other comprehensive income (loss)
|
||||||||
(Cumulative
translation adjustment)
|
188,447 | 54,010 | ||||||
Treasury
Stock
|
(15,140 | ) | (15,140 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
2,151,013 | 1,594,369 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 4,447,298 | $ | 3,910,914 |
SEE
NOTES TO FINANCIAL STATEMENTS
1
SUPERCLICK,
INC.
Consolidated
Statements of Operations (Unaudited)
For the
Three and Nine Months Ended July 31, 2010 and 2009
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenue
|
||||||||||||||||
Net
Sales
|
$ | 1,109,853 | $ | 1,186,847 | $ | 2,812,337 | $ | 2,803,371 | ||||||||
Services
|
1,035,718 | 1,024,072 | 3,115,593 | 2,726,633 | ||||||||||||
Net
revenue
|
2,145,571 | 2,210,919 | 5,927,930 | 5,530,004 | ||||||||||||
Cost
of goods sold
|
1,169,304 | 1,098,315 | 3,089,851 | 2,627,119 | ||||||||||||
Gross
profit
|
976,267 | 1,112,604 | 2,838,079 | 2,902,885 | ||||||||||||
Costs and Expenses
|
||||||||||||||||
Selling,
general & administrative
|
612,477 | 701,544 | 1,979,954 | 1,531,951 | ||||||||||||
Research
& development
|
64,184 | 65,278 | 190,265 | 154,684 | ||||||||||||
Depreciation
|
6,743 | 9,246 | 32,701 | 32,340 | ||||||||||||
Total
costs and expenses
|
683,404 | 776,068 | 2,202,920 | 1,718,975 | ||||||||||||
Income
from operations
|
292,863 | 336,536 | 635,159 | 1,183,910 | ||||||||||||
Other Income and (Expense)
|
||||||||||||||||
Interest
income
|
750 | - | 2,732 | 584 | ||||||||||||
Interest
expense
|
(495 | ) | (1,702 | ) | (1,229 | ) | (28,611 | ) | ||||||||
Gain
on forgiveness of debt
|
- | 6,167 | - | 86,137 | ||||||||||||
Total
other income and (expense)
|
255 | 4,465 | 1,503 | 58,110 | ||||||||||||
Net
income before income taxes
|
293,118 | 341,001 | 636,662 | 1,242,020 | ||||||||||||
Income
taxes
|
(100,979 | ) | (48,028 | ) | (224,455 | ) | (314,553 | ) | ||||||||
Net
income
|
$ | 192,139 | $ | 292,973 | $ | 412,207 | $ | 927,467 | ||||||||
Net
income per common share:
|
||||||||||||||||
Basic
|
$ | 0.00 | $ | 0.01 | $ | 0.01 | $ | 0.02 | ||||||||
Diluted
|
$ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.02 | ||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||
Basic
|
45,416,695 | 45,272,356 | 45,347,066 | 45,075,689 | ||||||||||||
Diluted
|
58,524,751 | 59,341,379 | 58,524,751 | 59,505,600 |
SEE
NOTES TO FINANCIAL STATEMENTS
2
SUPERCLICK,
INC.
Consolidated
Statement of Stockholder's Equity
For the
Nine Months Ended July 31, 2010 (Unaudited) and Year Ended October 31, 2009
Deficit
|
||||||||||||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||||||
Common Stock
|
Additional
|
During the
|
Other
|
Total
|
||||||||||||||||||||||||||||
Number of
|
Paid-in
|
Developmental
|
Comprehensive
|
Treasury
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Payable
|
Capital
|
Stage
|
Income (loss)
|
Stock
|
Equity
|
|||||||||||||||||||||||||
BALANCES
October 31, 2008
|
44,937,251 | $ | 27,504 | $ | 18,000 | $ | 6,060,714 | $ | (5,863,820 | ) | $ | (212,989 | ) | $ | (15,140 | ) | $ | 14,269 | ||||||||||||||
Shares
issued during the period:
|
||||||||||||||||||||||||||||||||
Shares
issued for services
|
375,000 | 225.00 | (18,000 | ) | 62,775 | 45,000 | ||||||||||||||||||||||||||
Other
|
(24,023 | ) | (24,023 | ) | ||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
266,999 | 266,999 | ||||||||||||||||||||||||||||||
Net
profit
|
1,292,125 | 1,292,125 | ||||||||||||||||||||||||||||||
BALANCES
October 31, 2009
|
45,312,251 | $ | 27,729 | $ | - | $ | 6,123,489 | $ | (4,595,719 | ) | $ | 54,010 | $ | (15,140 | ) | $ | 1,594,369 | |||||||||||||||
Stock
options exercised
|
200,000 | $ | 120 | $ | 9,880 | 10,000 | ||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
134,437 | 134,437 | ||||||||||||||||||||||||||||||
Net
profit
|
412,207 | 412,207 | ||||||||||||||||||||||||||||||
BALANCES
July 31, 2010
|
45,512,251 | $ | 27,849 | $ | - | $ | 6,133,369 | $ | (4,183,512 | ) | $ | 188,447 | $ | (15,140 | ) | $ | 2,151,013 |
SEE
NOTES TO FINANCIAL STATEMENTS
3
SUPERCLICK,
INC.
Consolidated
Statements of Comprehensive Income (Unaudited)
For the
Three and Nine Months Ended July 31, 2010 and 2009
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income
|
$ | 192,139 | $ | 292,973 | $ | 412,207 | $ | 927,467 | ||||||||
Other
comprehensive income
|
||||||||||||||||
Foreign
currency translation adjustment
|
(50,950 | ) | 213,737 | 134,437 | 255,851 | |||||||||||
Net
comprehensive income
|
$ | 141,189 | $ | 506,710 | $ | 546,644 | $ | 1,183,318 |
SEE
NOTES TO FINANCIAL STATEMENTS
4
SUPERCLICK,
INC.
Consolidated
Statements of Cash Flows (Unaudited)
For the
Three and Nine Months Ended July 31, 2010 and 2009
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||
Net
income
|
$ | 192,139 | $ | 292,973 | $ | 412,207 | $ | 927,467 | ||||||||
Adjustments
to reconcile net income to net cash provided (used) by operating
activities:
|
||||||||||||||||
Depreciation
|
6,743 | 9,246 | 32,700 | 32,340 | ||||||||||||
Stock
issued for services
|
- | 54,000 | - | 54,000 | ||||||||||||
Gain
on forgiveness of debt
|
- | (6,167 | ) | - | (86,137 | ) | ||||||||||
Deferred
taxes
|
- | - | - | (113,412 | ) | |||||||||||
CHANGES
IN ASSETS AND LIABILITIES:
|
||||||||||||||||
Accounts
receivable
|
(744,905 | ) | 102,435 | (38,399 | ) | 1,403,858 | ||||||||||
Other
receivables
|
(8,103 | ) | 94 | (8,695 | ) | 3,462 | ||||||||||
Prepaid
expenses
|
26,575 | 47,539 | (32,533 | ) | (10,098 | ) | ||||||||||
Inventory
|
(110,675 | ) | 115,267 | (543,614 | ) | 217,531 | ||||||||||
Accounts
payable and accrued expenses
|
166,015 | 109,440 | 251,121 | (303,227 | ) | |||||||||||
Accrued
payroll
|
(1,465 | ) | (7,871 | ) | (55,348 | ) | (32,228 | ) | ||||||||
Income
taxes payable and receivable
|
(25,815 | ) | 27,645 | (432,616 | ) | 328,411 | ||||||||||
Deferred
revenue
|
98,479 | (320,688 | ) | 79,326 | (683,614 | ) | ||||||||||
CASH
PROVIDED BY OPERATING ACTIVITIES
|
(401,012 | ) | 423,913 | (335,851 | ) | 1,738,353 | ||||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||
Acquisition
of furniture and equipment
|
(24,546 | ) | (6,459 | ) | (47,508 | ) | (11,502 | ) | ||||||||
CASH
(USED) FOR INVESTING ACTIVITIES
|
(24,546 | ) | (6,459 | ) | (47,508 | ) | (11,502 | ) | ||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||
Repayment
of loans
|
- | (100,382 | ) | - | (151,767 | ) | ||||||||||
Repayment
of convertible debenture
|
- | - | - | (761,588 | ) | |||||||||||
Stock
options exercised
|
10,000 | - | 10,000 | - | ||||||||||||
CASH
(USED) FOR FINANCING ACTIVITIES
|
10,000 | (100,382 | ) | 10,000 | (913,355 | ) | ||||||||||
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
(64,527 | ) | 271,894 | 160,001 | 347,666 | |||||||||||
NET
INCREASE (DECREASE) IN CASH
|
(480,085 | ) | 588,966 | (213,358 | ) | 1,161,162 | ||||||||||
CASH,
beginning of period
|
2,458,785 | 1,353,716 | 2,192,058 | 781,520 | ||||||||||||
CASH,
end of period
|
$ | 1,978,700 | $ | 1,942,682 | $ | 1,978,700 | $ | 1,942,682 | ||||||||
Interest
paid
|
$ | - | $ | - | $ | 734 | $ | 22,503 | ||||||||
Taxes
paid
|
$ | 114,067 | $ | 22,188 | $ | 643,618 | $ | 109,530 | ||||||||
Other
non-cash investing and financing activities:
|
||||||||||||||||
Shares
issued for services
|
$ | - | $ | 54,000 | $ | - | $ | 54,000 |
SEE
NOTES TO FINANCIAL STATEMENTS
5
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND NINE MONTHS ENDED JULY 31, 2010 AND 2009
NOTE A-ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The unaudited
financial statements of Superclick, Inc. as of July 31, 2010 and for the three
and nine month periods ended July 31, 2010 and 2009 have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial reporting. Accordingly, they do not include all of the
disclosures required by accounting principles generally accepted in the United
States for complete financial statements and should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Superclick, Inc's Form 10-K for the year ended October 31, 2009. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the interim financial
information have been included. The results of operations for any interim period
are not necessarily indicative of the results of operations for the entire
year.
Organization
Superclick
Networks, Inc. was organized on August 24, 2000, in Montreal, Quebec, Canada.
Superclick, Inc. was incorporated on June 3, 1999. As a result of a
reverse merger in 2003, Superclick Networks, Inc. is considered the parent for
financial reporting purposes.
Superclick
Networks, Inc. is in the business of providing and installing broadband high
speed Internet connection equipment and IP (“Internet Protocol”) infrastructure
management systems with 24x7x365 help desk support predominantly to hotels on a
worldwide basis. However, the Superclick solution is also deployed in multi
dwelling units (“MDU’s”), universities and Hospitals. Superclick, Inc.
commercialized its initial Internet access management products in
2002.
All share
and per share amounts shown in these financial statements reflect the stock
split for all periods presented.
Superclick,
Inc’s plan of business is committed to the commercialization activities of
Superclick Network, Inc.’s products, with an emphasis on broadening its market
penetration and building product and brand awareness amongst its target customer
base in the hospitality and healthcare markets. Superclick, Inc. intends to grow
its revenue through expanding its sales of Superclick Network, Inc.’s products
and call center support services such that it can reasonably support its
operating expenses through cash flow.
Summary of Significant
Accounting Principles
Principles of
consolidation
The
consolidated financial statements include the accounts of Superclick, Inc. and
its wholly-owned subsidiary, Superclick Networks, Inc. which is 100%
consolidated in the financial statements. All material inter-company accounts
and transactions have been eliminated.
Accounting
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
6
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND NINE MONTHS ENDED JULY 31, 2010 AND 2009
NOTE A-ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash
equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents.
Accounts
receivable
Accounts
receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts. Interest is not accrued on overdue accounts
receivable. The Company evaluates receivables on a regular basis for potential
reserve.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined on a first-in,
first-out method. Management performs periodic assessments to determine the
existence of obsolete, slow moving and non-salable inventories, and records
necessary provisions to reduce such inventories to net realizable
value.
Property and
equipment
Property
and equipment are stated at cost. Major renewals and improvements are charged to
the asset accounts while replacements, maintenance and repairs, which do not
improve or extend the lives of the respective assets, are expensed. At the time
property and equipment are retired or otherwise disposed of, the asset and
related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
The
Company depreciates its property and equipment on a declining balance method at
the following rates as applied to net depreciable value:
Furniture
and fixtures:
|
20 | % | ||
Computer
equipment and software:
|
30 | % | ||
Leasehold
improvements
|
20 | % | ||
Fabrication
equipment
|
20 | % |
Long-lived
assets
Accounting
for the Impairment or Disposal of Long-Lived Assets requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may not be
recovered. The Company assesses recoverability of the carrying value of an asset
by estimating the fair value of the asset. If the fair value is less than the
carrying value of the asset, an impairment loss is recorded equal to the
difference between the asset's carrying value and fair value. The Company has
never recognized an impairment charge.
Revenue recognition
policy
Revenue
from the sale of Internet high speed connection equipment and installation is
recognized when the earning process is complete and the risk and rewards of
ownership have transferred to the customer, which is considered to have occurred
after the delivery and installation of the equipment to the
customer.
Deferred
revenue
Deferred
revenue related to support and maintenance is recorded in a manner consistent
with the Company’s revenue recognition policy. The Company typically enters into
one-year upgrade and maintenance contracts with its customers. The upgrade and
maintenance contracts are generally paid in advance. The Company defers such
payment and recognizes revenue ratably over the contract period.
7
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Shipping and handling
costs
The
Company's policy is to classify shipping and handling costs as part of cost of
goods sold in the statement of operations.
Advertising
The
Company expenses all advertising as incurred. For the three months ended July
31, 2010 and 2009, the Company incurred approximately $48,098 and $28,021,
respectively in marketing and advertising expense. For the nine months ended
July 31, 2010 and 2009, the Company incurred approximately $83,860 and $37,829,
respectively in marketing and advertising expense.
Earnings per common
share
The
Company reports both basic and diluted earnings per share. Basic earnings per
share are calculated using the weighted average number of common shares
outstanding in the period. Diluted earnings per share includes potentially
dilutive securities such as outstanding options and warrants using the “treasury
stock” method and convertible securities using the “if-converted”
method.
Issuance of common
stock
The
issuance of common stock for other than cash is recorded by the Company at
management’s estimate of the fair value of the assets acquired or services
rendered.
Fair Value of Financial
Instruments
The
Company’s financial instruments include cash and accounts receivable. The
carrying amount of these financial instruments has been estimated by management
to approximate fair value.
“Disclosures
about Fair Value of Financial Instruments,” requires disclosures of information
regarding the fair value of certain financial instruments for which it is
practicable to estimate the value. For purpose of this disclosure, the fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale of liquidation.
The
company accounts for certain assets and liabilities at fair value. The hierarchy
below lists three levels of fair value based on the extent to which inputs used
in measuring fair value are observable in the market. We categorize each of
our fair value measurements in one of these three levels based on the lowest
level input that is significant to the fair value measurement in its entirety.
These levels are:
Level
1—inputs are based upon unadjusted quoted prices for identical instruments
traded in active markets. We have no Level 1 instruments as of July 31,
2010.
Level
2—inputs are based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques (e.g. the Black-Scholes model) for
which all significant inputs are observable in the market or can be corroborated
by observable market data for substantially the full term of the assets or
liabilities. Where applicable, these models project future cash flows and
discount the future amounts to a present value using market-based observable
inputs including interest rate curves, foreign exchange rates, and forward and
spot prices for currencies and commodities. We have no Level 2 instruments as of
July 31, 2010.
Level
3—inputs are generally unobservable and typically reflect management’s estimates
of assumptions that market participants would use in pricing the asset or
liability. The fair values are therefore determined using model-based
techniques, including option pricing models and discounted cash flow models. We
have no Level 3 instruments as of July 31, 2010.
8
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income
taxes
The
Company accounts for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on differences between financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.
The
Company records net deferred tax assets to the extent the Company believes these
assets will more likely than not be realized. In making such determination, the
Company considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable
income, tax planning strategies and recent financial operations. A valuation
allowance is established against deferred tax assets that do not meet the
criteria for recognition. In the event the Company were to determine that it
would be able to realize deferred income tax assets in the future in excess of
their net recorded amount, we would make an adjustment to the valuation
allowance which would reduce the provision for income taxes.
The
Company follows the accounting guidance which provides that a tax benefit from
an uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits. Income
tax provisions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized initially and in subsequent
periods.
Also
included is guidance on measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
Recent Accounting
Pronouncements
On July
1, 2009, the FASB officially launched the FASB ASC 105 - Generally Accepted
Accounting Principles, which established the FASB Accounting Standards
Codification (“the Codification”), as the single official source of
authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the
Securities and Exchange Commission. The Codification is designed to
simplify U.S. GAAP into a single, topically ordered structure. All
guidance contained in the Codification carries an equal level of
authority. The Codification is effective for interim and annual
periods ending after September 15, 2009. Accordingly, the Company
refers to the Codification in respect of the appropriate accounting standards
throughout this document as “FASB ASC”. Implementation of the
Codification did not have any impact on the Company’s consolidated financial
statements.
On June
30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01 (Topic
105) – Generally Accepted Accounting Principles – amendments based on –
Statement of Financial Accounting Standards No. 168 –The FASB Accounting and
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. Beginning with this Statement the FASB will no longer issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standard Updates. This
ASU includes FASB Statement No. 168 in its entirety. While ASU’s will not be
considered authoritative in their own right, they will serve to update the
Codification, provide the bases for conclusions and changes in the Codification,
and provide background information about the guidance. The Codification modifies
the GAAP hierarchy to include only two levels of GAAP: authoritative and
nonauthoritative. ASU No. 2009-01 is effective for financial statements issued
for the interim and annual periods ending after September 15, 2009, and did not
result in any significant financial impact upon adoption.
9
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting
Pronouncements (Continued)
In August
2009, the FASB issued ASU No. 2009-05 – Fair Value Measurements and Disclosures
(Topic 820) – Measuring Liabilities at Fair Value. This ASU clarifies the fair
market value measurement of liabilities. In circumstances where a quoted price
in an active market for the identical liability is not available, a reporting
entity is required to measure fair value using one or more of the following
techniques: a technique that uses quoted price of the identical or a similar
liability or liabilities when traded as an asset or assets, or another valuation
technique that is consistent with the principles of Topic 820 such as an income
or market approach. ASU No. 2009-05 was effective upon issuance and it did not
result in any significant financial impact on the Company upon
adoption.
In
September 2009, the FASB issued ASU No. 2009-12 – Fair Value Measurements and
Disclosures (Topic 820) – Investments in Certain Entities That Calculate Net
Asset Value per Share (or its equivalent). This ASU permits use of a practical
expedient, with appropriate disclosures, when measuring the fair value of an
alternative investment that does not have a readily determinable fair value. ASU
No. 2009-12 is effective for interim and annual periods ending after December
15, 2009, with early application permitted. Since the Company does not currently
have any such investments, it did not experience any impact on its financial
statements upon adoption.
In May
2009, the FASB issued FASB ASC 855, “Subsequent Events.” This Statement
addresses accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or available to be issued.
FASB ASC 855 requires disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, the date issued or date
available to be issued. The Company adopted this Statement in the third quarter
of fiscal 2009. As a result the date through which the Company has evaluated
subsequent events and the basis for that date have been disclosed in Note K,
Subsequent Events.
In April
2009, the FASB issued an update to FASB ASC 820, “Fair Value Measurements and
Disclosures,” related to providing guidance on when the volume and level of
activity for the asset or liability have significantly decreased and identifying
transactions that are not orderly. The update clarifies the methodology to be
used to determine fair value when there is no active market or where the price
inputs being used represent distressed sales. The update also reaffirms the
objective of fair value measurement, as stated in FASB ASC 820, which is to
reflect how much an asset would be sold in and orderly transaction, and the need
to use judgment to determine if a formerly active market has become inactive, as
well as to determine fair values when markets have become inactive. The Company
adopted this Statement in the second quarter of 2009 without significant
financial impact.
In April
2009, the FASB ASC 320, “Investments – Debt and Equity,” amends current
other-than-temporary guidance for debt securities through increased consistency
in the timing of impairment recognition and enhanced disclosures related to
credit and noncredit components impaired debt securities that are not expected
to be sold. Also, the Statement increases disclosures for both debt and equity
securities regarding expected cash flows, securities with unrealized losses, and
credit losses. The Company adopted this Statement in the second quarter of 2009
without significant impact to our financial statements.
In April
2009, the FASB issued an update to FASB ASC 825, “Financial Instruments,” to
require interim disclosures about the fair value of financial instruments.” This
update enhances consistency in financial reporting by increasing the frequency
of fair value disclosures of those assets and liabilities falling within the
scope of FASB ASC 825. The Company adopted this update in the second quarter of
2009 without significant impact to the financial statements.
10
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting
Pronouncements (Continued)
In April
2009, the FASB issued an update to FASB ASC 805, “Business Combinations,” that
clarifies and amends FASB ASC 805, as it applies to all assets acquired and
liabilities assumed in a business combination that arise from contingencies.
This update addresses initial recognition and measurement issues, subsequent
measurement and accounting, and disclosures regarding these assets and
liabilities arising from contingencies in a business combination. The Company
adopted this Statement in the second quarter of 2009 without significant impact
to the financial statements.
Recent Accounting Guidance
Not Yet Adopted
In
October 2009, the FASB issued ASU 2009-14—Software (Topic 985) which provides
guidance on revenue recognition that will become effective for us beginning
November 1, 2010, with earlier adoption permitted. Under the new guidance on
arrangements that include software elements, tangible products that have
software components that are essential to the functionality of the tangible
product will no longer be within the scope of the software revenue recognition
guidance, and software-enabled products will now be subject to other relevant
revenue recognition guidance. Additionally, the FASB issued guidance on revenue
arrangements with multiple deliverables that are outside the scope of the
software revenue recognition guidance. Under the new guidance, when vendor
specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. We believe adoption of this new
guidance will not have a material impact on our financial
statements.
Concentrations of credit
risk
The
Company performs ongoing credit evaluations of its customers. At July 31, 2010,
one customer accounted for 14% of accounts receivable.
During
the three months ended July 31, 2010, one customer accounted for 20% of sales.
During the nine months ended July 31, 2010, no customer accounted for more than
10% of sales.
During
the three months ended July 31, 2009, one customer accounted for 11% of
sales. During the nine months ended July 31, 2009, no customer
accounted for more than 10% of sales.
For the
three months ended July 31, 2010 and 2009, approximately 34% and 29%,
respectively, of the Company's net sales were made to customers outside the
United States.
For the
nine months ended July 31, 2010 and 2009, approximately 37% and 34%,
respectively, of the Company's net sales were made to customers outside the
United States.
The
Company has maintained balances in excess of federally insured limits from time
to time during the fiscal year. Management periodically reviews the adequacy and
strength of the financial institutions and deems this to be an acceptable
risk.
Foreign Currency
Translation
The
financial statements of the Canadian Subsidiary are measured using the Canadian
dollar as the functional currency. Assets, liabilities and equity accounts of
the company are translated at exchange rates as of the balance sheet date or
historical acquisition date, depending on the nature of the account. Revenues
and expenses are translated at average rates of exchange in effect throughout
the year. The resulting cumulative translation adjustments have been recorded as
a separate component of stockholders' equity. The financial statements are
presented in United States of America dollars.
11
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting for Share-Based
Compensation
The
Company accounts for all compensation related to stock, options or warrants
using a fair value based method whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Stock issued for compensation is
valued using the market price of the stock on the date of the related agreement.
We use the Black-Scholes pricing model to calculate the fair value of options
and warrants issued to both employees and non-employees. In calculating this
fair value, there are certain assumptions that we use consisting of the expected
life of the option, risk-free interest rate, dividend yield, volatility and
forfeiture rate. The use of a different estimate for any one of these components
could have a material impact on the amount of calculated compensation
expense.
Research and
development
Expenses
related to present and future products are expensed as incurred.
NOTE B – ACCOUNTS
RECEIVABLE
The
accounts receivable balance at July 31, 2010 and October 31, 2009 consisted of
$1,598,722 and $1,526,620, respectively, and is reported net of an allowance for
doubtful accounts of $42,787 and $44,806, respectively.
NOTE C -
INVENTORY
Inventory
is comprised of computer equipment and stated at the lower of cost or market, as
determined using the first in, first out method. The following table represents
the major components of inventory at July 31, 2010 and October 31,
2009:
July 31,
|
October 31,
|
|||||||
2010
|
2009
|
|||||||
Computer
equipment
|
$ | 579,513 | $ | 113,848 | ||||
Allowance
for obsolete inventory
|
(42,480 | ) | (40,572 | ) | ||||
Inventory,
net
|
$ | 621,993 | $ | 73,276 |
NOTE D - PROPERTY AND
EQUIPMENT
Property
and equipment consisted of the following at July 31, 2010 and October 31,
2009:
July 31,
|
October 31,
|
|||||||
2010
|
2009
|
|||||||
Computer
hardware
|
$ | 263,998 | $ | 205,834 | ||||
Furniture
& fixtures
|
151,874 | 145,052 | ||||||
Computer
software
|
102,318 | 97,722 | ||||||
Leasehold
improvements
|
34,132 | 32,599 | ||||||
Fabrication
mold and dye
|
22,109 | 21,116 | ||||||
574,431 | 502,323 | |||||||
Accumulated
depreciation
|
(425,977 | ) | (375,334 | ) | ||||
Fixed
assets, net
|
$ | 148,454 | $ | 126,989 |
12
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE D - PROPERTY AND
EQUIPMENT (Continued)
Depreciation
expense for the three months ended July 31, 2010 and 2009 was $6,743 and $9,246,
respectively. Depreciation expense for the nine months ended July 31, 2010 and
2009 was $32,700 and $32,340, respectively.
NOTE E – ACCOUNTS PAYABLE
AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following at July 31, 2010 and
October 31, 2009:
July 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Trade
payables
|
$ | 541,813 | $ | 333,826 | ||||
Professional
fees
|
92,757 | 25,762 | ||||||
Accrued
wages payable
|
230,958 | 276,722 | ||||||
Income
taxes payable
|
(76,598 | ) | 330,718 | |||||
Refunds
payable
|
167,075 | 164,980 | ||||||
$ | 956,005 | $ | 1,132,008 |
As of
July 31, 2010, accrued wages payable included $27,136 and $26,927 due to the CEO
and CFO, respectively. As of October 31, 2009, accrued payroll included $101,184
and $56,612 due to the CEO and CFO, respectively.
Income taxes
payable
During
the three and nine months ended July 31, 2010 we recorded provisions for income
taxes of $100,979 and $224,455, respectively, compared to $48,028 and $314,553
for the same period in 2009. During the three and nine months ended July 31,
2010 we made payments to the Canadian Federal and Provincial tax authorities of
$114,067 and $643,618, respectively.
The
Company recorded a provision for income taxes of $611,732 for the year ended
October 31, 2009 based on a combined Canadian Federal and Provincial tax rate of
32%. The Company updates the estimate of its annual effective tax rate at the
end of each quarterly period. The Company’s estimate takes into account
estimations of annual pre-tax income, the geographic mix of pre-tax income and
its interpretations of tax laws and the possible outcomes of current and future
audits.
NOTE F – DEFERRED
REVENUE
Deferred
revenue consists of funds received in advance of services being performed. As of
July 31, 2010, the deferred revenue balance of $1,340,280 consisted of $745,165
related to support and maintenance for multiple customers and $595,115 related
to customer deposits for future hardware installations.
As of
October 31, 2009, the deferred revenue balance of $1,184,537 consisted of 1)
$914,739 related to support and maintenance for multiple customers; 2) $174,985
related to the sale of a master license agreement which commenced August 2007
and is being amortized over its term of thirty six (36) months; and 3) $94,813
related to customer deposits for future hardware installations.
13
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE G -
COMMITMENTS
In
October 2009 the Company renewed a lease for office space. The lease extends
through September 30, 2014 at a rate of $4,695 per month. During the three and
nine months ended July 31, 2010, the Company incurred $11,416 and $40,196,
respectively, in rent expense. During the three and nine months ended July 31,
2009, the Company incurred $15,678 and $44,442, respectively, in rent
expense.
The
Company does not maintain any long-term or exclusive commitments or arrangements
to purchase merchandise from any single supplier.
NOTE H - PREFERRED AND
COMMON STOCK
Preferred
Stock
The
Company has authorized 20,000,000 shares of $.0001 par value preferred stock
available for issuance. No shares of preferred stock have been issued as of July
31, 2010
Common
Stock
During
the year ended October 31, 2009, the Company issued 75,000 shares of common
stock in exchange for director services. The shares were issued for services
performed in fiscal year 2008 which expense of $9,000 was recognized in our
fiscal year ending October 31, 2008. The balance of $9,000 expensed in 2008 was
reversed as a credit to stock compensation expense during 2009. During the year
ended October 31, 2009, the Company issued 300,000 irrevocable restricted shares
of common stock in exchange for investor relations services valued at fair
market value of $0.18 per share or $54,000.
During
the nine months ended July 31, 2010, the Company received $10,000 upon the
exercise of options and issued 200,000 shares of common stock.
NOTE I – STOCK INCENTIVE
PLANS
The 2004 Incentive Stock
Option Plan
On April
8, 2004, the Board of Directors of the Company adopted the 2004 Incentive Stock
Option Plan. This Plan is a plan for key Employees (including officers and
employee directors) and Consultants of the Company and its Affiliates and is
intended to advance the best interests of the Company, its Affiliates, and its
stockholders by providing those persons who have substantial responsibility for
the management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue in the employ of the
Company or any of its Affiliates.
The
Company may issue each of the following under this Plan: Incentive Option,
Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or
Performance Stock Award. The Plan was effectiveApril 9, 2004 (the "Effective
Date"), provided that within one year of the Effective Date, the Plan shall have
been approved by at least a majority vote of stockholders. No Incentive Option,
Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or
Performance Stock Award shall be granted pursuant to the Plan ten years after
the Effective Date.
During
the year ended October 31, 2009, 100,000 options were canceled and none granted
or exercised.
During
the nine months ended July 31, 2010, 639,856 common stock options with a
weighted average exercise price of $0.465 expired. In addition, the Company
received $10,000 upon the exercise of options to acquire 200,000 shares of
common stock.
14
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE I – STOCK INCENTIVE
PLANS
The 2004 Incentive Stock
Option Plan
The
following table summarizes the Company's stock option activity for the nine
months ended July 31, 2010:
July 31, 2010
|
||||||||
Weighted Average
|
||||||||
Shares
|
Exercise Price
|
|||||||
Outstanding
at beginning of year
|
13,212,500 | $ | 0.056 | |||||
Granted
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Exercised
|
(200,000 | ) | 0.050 | |||||
Outstanding
at end of year
|
13,012,500 | 0.056 | ||||||
Options
exerciseable at year end
|
13,012,500 |
The
following table summarizes information about the Company's stock options
outstanding at July 31, 2010:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||
Number
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||
Range of
|
Outstanding
|
Average
|
Average
|
Average
|
||||||||||||||||
Exercise
|
At July 31,
|
Contractural
|
Exercise
|
Number
|
Exercise
|
|||||||||||||||
Prices
|
2010
|
Life (years)
|
Price
|
Outstanding
|
Price
|
|||||||||||||||
0.65
|
137,500 | - | 0.650 | 137,500 | 0.650 | |||||||||||||||
0.05
|
12,875,000 | - | 0.050 | 12,875,000 | 0.050 | |||||||||||||||
Total
|
13,012,500 | - | $ | 0.056 | 13,012,500 | $ | 0.056 |
The
Company measures the fair market value of stock options granted using the
Black-Scholes Option Pricing Model on the date of grant and recognizes related
compensation expense ratably over the options vesting period for all future
grants. The Company also estimates the amount of forfeitures or the amount of
options that will be canceled in the future. During the nine months ended July
31, 2010 and the years ended October 31, 2009 and 2008, the Company recognized
no compensation expense related to stock options. The Company has recorded
compensation expense of $767,017 through July 31, 2010 for stock option
awards.
2004 Superclick, Inc.
Non-Employee Director's Stock Incentive Plan
On
December 31, 2003, the Board of Directors of the Company adopted the 2004
Superclick, Inc. Non-Employee Director's Stock Incentive Plan.
During
the year ended October 31, 2009, the Company issued 75,000 shares of common
stock in exchange for director services. The shares were issued for services
performed in fiscal year 2008 which expense of $9,000 was recognized in our
fiscal year ending October 31, 2008.
No awards
under the Non-Employee Director's Stock Incentive Plan were granted or issued
during the nine months ended July 31, 2010
From
inception through October 31, 2009, the Company has issued 2,569,772 shares to
our directors under this stock incentive plan.
15
SUPERCLICK,
INC.
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE
THREE AND SIX MONTHS ENDED APRIL 30, 2010 AND 2009
NOTE J – RELATED PARTY
TRANSACTION
Mr.
Pitcher, Chairman of the Company’s Board of Directors, provides consulting
services to the Company in exchange for monthly compensation of $5,000 and
related expenses. During the three and nine months ended July 31, 2010, Mr.
Pitcher received $15,300 and $48,625, respectively. During the three and nine
months ended July 31, 2009, Mr. Pitcher received $15,300 and $48,148,
respectively.
Mr.
Ronald A. Fon became a Director of the Company during February 2009. Mr. Fon is
also a principal with a firm that provides investor relations (IR) consulting
services to the Company for monthly compensation of approximately $3,431. During
the three and nine months ended July 31, 2010 approximately $14,228 and $45,998,
respectively was paid to the IR firm. During the three and nine months ended
July 31, 2009 approximately $9,400 and $12,500, respectively was
paid.
NOTE K – LEGAL
PROCEEDINGS
On
November 17, 2009 the Company was named as a defendant by Nomadix, Inc. in a
complaint for patent infringement of certain U.S. patents. The matter is early
in its process and it is not possible to reasonably determine the outcome of
this complaint. The Company has been monitoring this situation closely and
believes it has meritorious defenses to the claims. Accordingly, it is not
possible, to assess whether or not the Company needs to reserve for a potential
settlement.
16
ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Note About Forward-Looking
Statements
Certain
statements in Management’s Discussion and Analysis (“MD&A”), other than
purely historical information, including estimates, projections, statements
relating to our business plans, objectives, and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “believe,” “project,” “expect,” “anticipate,”
“estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties, which may cause actual results to
differ materially from the forward-looking statements. A detailed discussion of
risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in the section
titled “Risk Factors” (refer to Item 3). We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise.
Overview
Management’s
discussion and analysis is intended to help the reader understand the results of
operations and financial condition of Superclick. The following discussion
should be read in conjunction with our Annual Report on Form 10-K for the year
ended October 31, 2009 and the Consolidated Financial Statements and
accompanying notes (“Notes”) included in this Form 10-Q.
We derive
the majority of our revenue from the installation of our Superclick Internet
Access Management System (SIMS) and from revenue generated from our call center.
Support fees are tied to the number of rooms serviced in a client’s property.
Due to our reliance on installations, variations in revenue levels may cause
fluctuations in quarterly results. Factors such as a client's
commitment to providing internet access to their guests, general economic and
industry conditions and other issues could affect our revenue and
earnings.
In
addition to our North American operations, we have installations and contracts
in Europe, Asia, Middle East and the Caribbean. With the exception of
Canadian operations, the majority of transactions in other regions are
denominated using the United States dollar. However, some of our
transactions are in Canadian dollars and we are therefore exposed to currency
fluctuation risks.
We
continue to develop our product offering and IP management solutions, listening
carefully to our customers to determine development paths that most directly
meet their needs.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, revenues and
expenses reported in the accompanying financial statements and related
footnotes. We base our estimates and assumptions on historical
experience, observance of industry trends and various other sources of
information and factors. Actual results may differ from these
estimates. Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and potentially could
result in materially different results under different assumptions and
conditions. In consultation with our Board of Directors, we have
identified five accounting principles that we believe are key to an
understanding of our financial statements. These important accounting
policies require management's most difficult, subjective
judgments.
17
Revenue
Recognition
Revenue
from the sale of Internet high speed connection equipment and installation is
recognized when the earning process is complete and the risk and rewards of
ownership have transferred to the customer, which is considered to have occurred
after the delivery and installation of the equipment to the
customer.
Maintenance
and support revenue is recognized ratably over the maintenance
term. First-year maintenance typically is sold with the related
software license and renewed on an annual basis thereafter. Estimated fair
values of ongoing maintenance and support obligations are based on separate
sales of renewals to other customers or upon renewal rates quoted in the
contracts. For such arrangements with multiple obligations, we
allocate revenue to each component of the arrangement based on the estimated
fair value of the undelivered elements. Fair value of services, such
as consulting or training, is based upon separate sales of these
services. At times, we may enter into multiple-customer contracts in
which we allocate revenue based on the number of specified users at each
customer, and recognizes revenue upon customer acceptance and satisfying the
other applicable conditions of the above described accounting
policy.
Accounts
receivable
Accounts
receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts. Interest is not accrued on overdue
accounts receivable. We evaluate receivables outstanding greater than
ninety days on a regular basis for potential reserve.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined on a first-in,
first-out method or market. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
such as discontinued products, and records necessary provisions to reduce such
inventories to net realizable value.
Income
taxes
Provisions
for income taxes are based on taxes payable or refundable for the current period
and deferred taxes on temporary differences between the amount of taxable income
and pretax financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. In June 2006,
the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS
No. 109, “Accounting for Income Taxes” (SFAS 109”). FIN 48
prescribes a two-step process to determine the amount of tax benefit to be
recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external
examination. If the tax position is deemed “more-likely-than-not” to
be sustained, the tax position is then assessed to determine the amount of
benefit to recognize in the financial statements. The amount of the
benefit that may be recognized is the largest amount that has a greater than
50 percent likelihood of being realized upon ultimate
settlement. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The Company underwent a
change of control for income tax purposes on October 8, 2003 according to
Section 381 of the Internal Revenue Code. The Company's utilization of U.S.
Federal net operating losses will be limited in accordance to Section 381
rules. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
18
Foreign
Currency Translation
The
financial statements of our Canadian subsidiary are measured using the Canadian
dollar as the functional currency. Assets, liabilities and equity accounts of
the company are translated at exchange rates as of the balance sheet date or
historical acquisition date, depending on the nature of the account. Revenues
and expenses are translated at average rates of exchange in effect during the
period. The resulting cumulative translation adjustments have been recorded as a
separate component of stockholders' equity. The financial statements are
presented in United States of America dollars.
Results
of Operations
THREE
AND NINE MONTHS ENDED JULY 31, 2010 AND 2009
Revenue
Net
Revenue for the three months ended July 31, 2010 decreased $65,348 or -3.0% to
$2,145,571 compared to $2,210,919 for the three months ended July 31, 2009.
Service revenue increased by 1.1% while net sales were slightly down by -6.5%,
which when combined produced the 3% unfavorable sales variance. Net Revenue for
the nine months ended July 31, 2010 increased by 7.2% or $397,926 to $5,927,930
compared to $5,530,004 for the nine months ended July 31, 2009. The favorable
variance was mainly due to a 14.3%, or $388,960 increase in services
revenue.
Gross
Profit
Gross
profit for the three months ended July 31, 2010 decreased by $136,337 to
$976,267 compared to $1,112,604 for the three months ended July 31, 2009. Year
to date gross profit decreased by $64,806 to $2,838,079 compared to $2,902,885
for the nine months ended July 31, 2009. The gross margin for the current period
was 45.5% compared to 50.3% last year whereas the year to date margin was 47.9%
compared to 52.5% for the previous year. The main reason for the unfavorable
margin for both the quarter and year to date was due to increases in cost of
sales to support the services revenue. The increases consisted mainly of human
capital to strengthen the network operating centre.
Selling,
General and Administrative
Selling,
General and Administrative expenses for the three months ended July 31, 2010 and
2009 were $612,477 and $701,544, respectively; a 12.7% reduction. For the nine
months ended July 31, 2010 selling, general and administrative expenses
increased $448,003 or 29.2% to $1,979,954 compared to $1,531,951 last year. The
unfavorable variance for the nine months ended July 31, 2010 was mainly due to
increases in selling and marketing expenses related to increases in sales force,
business development and marketing and conference costs.
19
Research
and Development
Research
and development expenses for the three months ended July 31, 2010 and 2009
remained virtually unchanged at $64,184 and $65,278,
respectively. Research and development expenses for the nine months
ended July 31, 2010 and 2009 were $190,265 and $154,684,
respectively. The increases were mainly due to the addition of human
capital.
Income
from operations
As a
result of above, income from operations for the three months ended July 31, 2010
was $292,863 or 13.6% of net revenue compared to $336,536 or 15.2% of net
revenue for the three months ended July 31, 2009. Income from
operations for the nine months ended July 31, 2010 was $635,159 or 10.7% of net
revenue compared to $1,183,910 or 21.4% of net revenue for the nine months ended
July 31, 2009.
Other
Income and Expense
The total
other income and expense for the three months ended July 31, 2010 and 2009 was
income of $255 and $4,465, respectively. The total other income and
expense for the nine months ended July 31, 2010 and 2009 was income of $1,503
and $58,110, respectively. The $56,607 nine month decrease in other
income was primarily due to the 2009 recognition of a $86,167 gain on the
forgiveness of convertible debentures offset by higher interest expense of
$28,611 in 2009.
Net
Income
The net
income before income taxes for the three months ended July 31, 2010 was $293,118
or 13.7% of net revenue compared to $341,001 or 15.4% of net revenue during the
three months ended July 31, 2009. The Company recorded a provision
for income taxes of $100,979 during the three months ended July 31, 2010
compared to $48,028 in 2009. Third quarter 2010 net income was
$192,139 or 9.0% of net revenue compared to $292,973 or 13.3% of net revenue
during 2009 representing a decrease of $100,834.
The net
income before income taxes for the nine months ended July 31, 2010 was $636,662
or 10.7% of net revenue compared to $1,242,020 or 22.5% of net revenue during
the nine months ended July 31, 2009. The Company recorded a provision
for income taxes of $224,455 during the nine months ended July 31, 2010 compared
to $314,553 in 2009. Net income for the nine months ended July 31,
2010 was $412,207 or 7.0% of net revenue compared to $927,467 or 16.8% of net
revenue for the same period last year.
Net
Income Per Common Share
For the
three months ended July 31, 2010, the net income per common share basic and
diluted was $0.00 compared to $0.01 basic and $0.00 diluted for the three months
ended July 31, 2009. The basic and fully diluted weighted average
shares for the quarter were 45,416,695 and 58,524,751,
respectively. The basic and fully diluted weighted average shares for
the third quarter of 2009 were 45,272,356 and 59,341,379,
respectively.
For the
nine months ended July 31, 2010, the net income per common share basic and
diluted was $0.01 compared to $0.02 basic and diluted for the nine months ended
July 31, 2009. The basic and fully diluted weighted average shares
for the first nine months of fiscal 2010 were 45,347,066 and 58,524,751,
respectively. The basic and fully diluted weighted average shares for
the first nine months of fiscal 2009 were 45,075,689 and 59,505,600,
respectively.
20
Financial
Condition
From
inception to July 31, 2009, we have incurred an accumulated deficit of
$4,183,512. This loss has been incurred through a combination of
professional fees and expenses supporting our plans to acquire synergistic
businesses as well as continued operating losses. However, from 2007
through the current quarter we have experienced stabilization in our business
and implemented efficiency initiatives that have resulted in a larger customer
base and improved profitability that has allowed us to reduce our accumulated
deficit by $4,119,363 from its high of $8,302,875 on January 31,
2007.
During
the three and nine months ended July 31, 2010 we had a net decrease in cash of
$480,085 and 213,358, respectively. Total cash resources as of July
31, 2010 were $1,978,700 compared to $2,192,058 at October 31,
2009.
Our
available working capital and capital requirements will depend upon numerous
factors, including the deployment and sale of Internet access management
solutions, the timing and cost of expanding into new markets, the cost of
developing competitive technologies, changes in our existing collaborative and
licensing relationships, the resources that we devote to developing new products
and commercializing capabilities, the status of our competitors, our ability to
establish collaborative arrangements with other organizations, and our ability
to attract and retain key employees.
The
Company's Liquidity Plan
Net
income for the nine months ended July 31, 2010 was $412,207 compared to $927,467
for the nine months ended July 31, 2009 and the operations used $335,851 of cash
compared to providing $1,738,353 for the nine months ended July 31,
2009.
During
the years ended October 31, 2009 and 2008 and the nine months ended July 31,
2010, the Company has financed operations solely with cash generated through
sales and the collection of its accounts receivable.
During
2009, the Company paid $203,317 in satisfaction of all note
holders. All notes have been paid in full as at October 31,
2009.
On
January 23, 2009, the Company made a $726,079 settlement payment in full
satisfaction of all outstanding debentures. This payment was in
addition to other principle payments of $41,588 made during the
quarter. The holder of our debentures accepted 90% of the outstanding
principle and interest in full satisfaction resulting in a gain to the Company
of $79,970.
Our need
to raise additional equity or debt financing and our ability to generate cash
flow from operations will depend on its future performance and our ability to
successfully implement business and growth strategies. Our
performance will also be affected by prevailing economic
conditions. Many of these factors are beyond our
control. If future cash flows and capital resources are insufficient
to meet our commitments, we may be forced to reduce or delay activities and
capital expenditures or obtain additional equity capital. In the
event that we are unable to do so, we may be left without sufficient
liquidity.
Off-Balance
Sheet Arrangements
At July
31, 2010 we had no obligations that would qualify to be disclosed as off-balance
sheet arrangements.
21
Contractual
Obligations
Operating lease obligations:
Operating lease obligations consist of office rental commitment for our offices
in Montréal, Québec, Canada. On October 1, 2009 we renewed a lease for office
space in Montréal. The lease extends through September 30, 2014 at a rate of
$4,695 per month.
Inflation
Although
our operations are influenced by general economic conditions, we do not believe
inflation had a material effect on the results of operations during the three
and nine months ended July 31, 2010. However, there can be no assurance our
business will not be affected by inflation in the future.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK
FACTORS
Interested
persons should carefully consider the risks described below in evaluating the
Company. Additional risks and uncertainties not presently known to us, or that
we currently consider immaterial, may also impair our business operations. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In that case, the
trading price of our common stock would likely decline.
We
may be subject to indemnification obligations to our customers related to patent
infringement suits brought by separate vendors in our industry against some of
our customers.
We have
been made aware that several companies providing public Internet access have
been named in a lawsuit brought by a party claiming patent infringement. We have
not been named in this action, although some companies that have been named are
our customers. We have provided indemnification in our service contracts to
several of these customers. We believe that it is too early to determine whether
we have any exposure, but we have retained and consulted legal counsel to
maintain a vigilant and proactive posture. We are actively discussing with our
counsel ways that we can limit our potential liability. We are not defendants to
this suit, nor have we retained litigation counsel on the matter. We will
continue to monitor the situation. If we are named in the suit, it will require
us to incur legal expenses, which will have a negative impact on our
profitability. This in turn, may have a negative impact on our stock
price.
Risks
Related To Our Business:
Our
revenue and operating results may fluctuate significantly from quarter to
quarter, and fluctuations in operating results could cause its stock price to
decline.
Our
revenue and operating results may vary significantly from quarter-to-quarter due
to a number of factors. In future quarters, operating results may be below the
expectations of public market analysis or investors, and the price of its common
stock may decline. Factors that could cause quarterly fluctuations
include:
§
|
the
beginning and ending of significant contracts during a
quarter;
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§
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the
number, size and scope of the installation
contracts;
|
§
|
maintenance
contracts can create variations in revenue levels and may cause
fluctuations in quarterly results;
|
§
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fluctuations
in demand for services resulting from budget cuts, project delays,
cyclical downturns or similar events, including the recent economic
downturn;
|
§
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the
possibility and subsequent duration of conflicts involving the United
States military could cause delays in program operations related to our
hospitality clients by reducing
travel;
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22
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|
clients'
decisions to divert resources to other projects, which may limit clients'
resources that would otherwise be allocated to solutions that we
provide;
|
§
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recessionary
pressures in the United States may reduce the level of travel for business
and leisure, which may, in turn limit our clients’ resources that would
otherwise be allocated to solutions that we
provide;
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reductions
in the prices of services offered by competitors;
and
|
§
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because
a significant portion of expenses are relatively fixed, a variation in the
number of installations or the timing of the initiation or the completion
of client contracts may cause significant variations in operating results
from quarter-to-quarter and could result in
losses.
|
Any
inability to adequately retain or protect our employees, customer relationships
and proprietary technology could harm our ability to compete.
Our
future success and ability to compete depends in part upon our employees,
customer relationships, proprietary technology and trademarks, which we attempt
to protect with a combination of patent, copyright, trademark and trade secret
claims, as well as with our confidentiality procedures and contractual
provisions. These legal protections afford only limited protection and are
time-consuming and expensive to obtain and/or maintain. Further, despite our
efforts, we may be unable to prevent third parties from soliciting our employees
or customers or infringing upon or misappropriating our intellectual
property.
Our
employees, customer relationships and intellectual property may not be adequate
to provide us with a competitive advantage or to prevent competitors from
entering the markets for our products and services. Additionally, our
competitors could independently develop non-infringing technologies that are
competitive with, and equivalent or superior to, our technology. Monitoring
infringement and/or misappropriation of intellectual property can be difficult,
and there is no guarantee that we would detect any infringement or
misappropriation of our proprietary rights.
Even if
we do detect infringement or misappropriation of our proprietary rights,
litigation to enforce these rights could cause us to divert financial and other
resources away from our business operations. The departure of certain key
personnel could harm the financial condition of the Company.
Sandro
Natale, one of our founders and our current CEO, is intimately involved in our
business and has day-to-day relationships with critical customers. Mr Natale is
also critical to our product development.
We may
not be able to afford additional staff to supplement these key personnel.
Competition for highly skilled business, product development, technical and
other personnel is intense, and there can be no assurance that we will be
successful in recruiting new personnel or in retaining our existing personnel. A
failure on our part to retain the services of key personnel could have a
material adverse effect on our operating results and financial condition. We do
not maintain key man life insurance on any of our employees.
A
third party has asserted that we and our customers are infringing on its
intellectual property. Whether successful or not, it could subject us to costly
and time-consuming litigation or expensive licenses, which could harm our
business.
There is
considerable patent and other intellectual property development activity in the
networking field and public Internet access industry. Our success depends, in
part, upon our not infringing upon the intellectual property rights of others.
Our competitors, as well as a number of other entities and individuals, own or
claim to own intellectual property relating to our industry and may have
substantially larger and broader patent portfolios than we do. We expect that
networking and public Internet access-related intellectual property, including
ours, will be increasingly subject to third-party infringement claims as the
number of competitors in our industry segment grows and the functionality of
products and breadth of services in different industry segments expands and
overlaps.
23
We have
been named in a complaint by a competitor alleging that we and our customers are
infringing on certain of its patents.
We
believe we have meritorious defenses to these allegations. Our counsel has
contacted counsel for the other party to discuss these allegations. Responding
to and defending against claims may cause us to incur significant expense and
divert the time and efforts of our management and employees. Successful
assertion of such claims could require that we pay substantial damages or
ongoing royalty payments, prevent us from selling our products and services,
damage our reputation, or require that we comply with other unfavorable terms,
any of which could materially harm our business. In addition, we may decide to
pay substantial settlement costs in connection with any claim or litigation,
whether or not successfully asserted.
Litigation
with respect to intellectual property rights in the networking and Internet
access industries is not uncommon and can often involve patent holding companies
who have little or no product revenue and against whom our own patents may
provide little or no deterrence. As our customers increasingly demand that we
indemnify them broadly from all damages and losses resulting from intellectual
property litigation against them, we may also be obligated to indemnify our
customers or business partners in connection with any such litigation, which
could further exhaust our resources. Furthermore, as a result of an intellectual
property challenge, we may be required to enter into royalty, license or other
agreements. We may not be able to obtain these agreements on terms acceptable to
us or at all. We may have to incur substantial cost in re-designing our products
and services to avoid infringement claims. In addition, disputes regarding our
intellectual property rights may dissuade potential customers from purchasing
such products and services. As such, third-party claims with respect to
intellectual property may reduce sales of our products and services, and may
have a material and adverse effect on our business.
The
market in which we compete is intensely competitive and actions by competitors
could render our services less competitive, causing revenue and income to
decline.
The
ability to compete depends on a number of factors outside of our control,
including:
§
|
the
prices at which others offer competitive systems, including aggressive
price competition and discounting on individual contracts, which may
become increasingly prevalent due to worsening economic
conditions;
|
§
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the
ability of competitors to undertake more extensive marketing
campaigns;
|
§
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the
extent, if any, to which competitors develop proprietary offerings that
improve their ability to compete;
|
§
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the
ability of our customers to supply the solutions themselves;
and
|
§
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the
extent of competitors' responsiveness to customer
needs.
|
We may
not be able to compete effectively on these or other factors. If we are unable
to compete effectively, market position, and therefore revenue and
profitability, would decline.
The
uncertain environment in the lodging industry and the economy will continue to
impact our financial results and growth.
The
present economic slowdown and the uncertainty over its breadth, depth and
duration have left it unclear whether the lodging industry’s growth environment
during the past few years will continue. Many economists have reported that the
U.S. economy is in a recession. Recent substantial increases in transportation
fuel costs, increases in air and ground travel costs and decreases in airline
capacity that could stem from higher fuel costs, could also reduce demand for
our customers’ hotel rooms which could result in lower demand for our solutions.
Accordingly, our financial results and growth could be harmed if the economic
slowdown continues for a significant period or becomes worse, or if
transportation costs remain at current high levels for an extended period or
increase further.
24
International
business exposes our company to various foreign requirements, which could
interfere with business or operations and could result in increased expenses and
declining profitability.
International
operations create special risks, including:
§
|
statutory
requirements, which may impair our ability to expatriate foreign profits
to help fund domestic operations;
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§
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greater
difficulties in managing and supplying turnkey installation at foreign
locations;
|
§
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cultural
differences that adversely affect
utilization;
|
§
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unexpected
changes in trading policies, legal and regulatory requirements, tariffs
and other foreign taxes;
|
§
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greater
difficulties in enforcing agreements with clients and collecting accounts
receivable;
|
§
|
the
tax system of foreign countries, which may tax our foreign income at
higher rates than in the United States and may subject foreign earnings to
withholding requirements or tariffs, exchange controls or other
restrictions;
|
§
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legal
requirements and regulations of various foreign countries, which may make
compliance by us with such laws and regulations difficult and may make
enforcement of our intellectual property rights more difficult;
and
|
§
|
fluctuations
in currency exchange rates, which may affect demand for our products and
services and may adversely affect the profitability in United States
dollars of services provided by us in foreign markets where payment for
its products and services is made in the local currency; and general
economic conditions in the foreign countries into which we sell, which
could have an adverse impact on its earnings from operations in those
countries.
|
If
we and/or our product offerings fail to perform effectively, our reputation, and
therefore our competitive position and financial performance, could be
harmed.
Many of
our new installation opportunities come from existing clients or from referrals
by existing clients. Therefore, growth is dependent on our reputation and on
client satisfaction. The failure to provide solutions or perform services that
meet a client's expectations may damage our reputation and harm its ability to
attract new business. Damage to our reputation arising from client
dissatisfaction could therefore harm financial performance.
The
inability to protect intellectual property could harm our competitive position
and financial performance.
Despite
efforts to protect proprietary rights from unauthorized use or disclosure,
parties, including former employees or consultants, may attempt to disclose,
obtain or use our solutions or technologies. The steps we have taken may not
prevent misappropriation of solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect proprietary
rights as fully as in the United States. Unauthorized disclosure of proprietary
information could make our solutions and technologies available to others and
harm our competitive position.
There
are risks associated with our planned growth.
We have
limited assets available to rely upon for adjusting to business variations and
for growing new businesses. Should we look for new funding to assist in the
acquisition of other profitable businesses, it is uncertain whether such funds
will be available. If we are to grow and expand our operations, we will need to
raise significant amounts of additional capital. There can be no assurance that
we will be successful in raising a sufficient amount of additional capital, or
if we are successful, that we will be able to raise capital on reasonable terms.
If we do raise additional capital, our existing shareholders may incur
substantial and immediate dilution.
25
The
sales cycle for our products is lengthy and unpredictable.
The sales
cycle between an initial customer contact and execution of a contract or license
agreement with a customer, or purchase of our products, can vary widely.
Initially, we must educate our customers about the potential applications and
benefits association with our products. In addition, changes in our customers’
budgets, or the priority they assign to control network administration and
development could also affect the sales cycle.
Due
to our foreign client installations in Canada, the Caribbean and Europe, we are
exposed to transaction adjustments with respect to foreign
currency.
Our
functional currency is the United States dollar. However, our operating
functional currency is the Canadian Dollar. Under United States dollar
functional currency, the financial statements of foreign subsidiaries are
re-measured from the recording currency to the United States dollar. The
resulting re-measurement adjustment has been recorded as separate component of
stockholder’s equity. We believe that operating under United States dollar
functional currency, combined with transacting business in countries with
traditionally stable currencies mitigates the effect of any near-term foreign
currency transaction adjustments on our financial position, results of
operations and cash flows.
We have
not engaged in foreign currency hedging transactions nor do we have any
derivative financial instruments. However, going forward, we will assess the
need to enter into hedging transactions to limit its risk due to fluctuations in
exchange rates.
Risks
Relating To Our Common Stock:
There
is a limited market for our common stock.
Our
common stock is traded in the Over-the-Counter Bulletin Board market. This may
cause delays in the timing of transactions, reductions in the number and quality
of securities analysts' reporting on us, and the extent of our coverage in the
media. Trading in our common stock has been sporadic, and at present, there is a
limited market for it. There can be no assurance that a stronger market will
develop. Even if such a market does develop, it may not be
sustained.
Shareholders
may suffer dilution upon the exercise of outstanding options.
As of
July 31, 2010, we had exercisable stock options outstanding to purchase
13,012,500 shares of common stock. To the extent such options are exercised
there will be further dilution. In addition, in the event that any future
financing should be in the form of securities convertible into, or exchangeable
for, equity securities, investors may experience additional dilution upon the
conversion or exchange of such securities.
Future
sales of our common stock by existing shareholders under Rule 144 could decrease
the trading price of our common stock.
As of
July 31, 2010, a total of 10,106,001 shares of our outstanding common stock were
"restricted securities" and could be sold in the public markets only in
compliance with Rule 144 adopted under the Securities Act of 1933 or other
applicable exemptions from registration. As of February 15, 2008, Rule 144 was
amended to provide that a person who is not affiliated with the issuer, holding
restricted securities for a period of six months may thereafter sell those
securities, if the issuer is current with its reporting requirements. Persons
who are not affiliated with the issuer and who have held their restricted
securities for at least one year are not subject to any limitations. Possible or
actual sales of our common stock by present shareholders under Rule 144 could
have a depressive effect on the price of our common stock.
26
Our
common stock is subject to "penny stock" rules.
Our
common stock is classified as a penny stock by the Securities and Exchange
Commission. This classification severely and adversely affects the market
liquidity for our common stock. The Commission has adopted Rule 15g-9, which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, sets forth (i) the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in public offerings and secondary trading and about the commissions
payable to the broker-dealer and registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure
Controls and Procedures
Based on
management’s evaluation (with the participation of our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by
this report, our CEO and CFO have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide
reasonable assurance that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and is accumulated and communicated to
management, including our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control
over Financial Reporting
There
were no changes to our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
27
Inherent Limitations on
Effectiveness of Controls
Our
management, including the CEO and CFO, does not expect that our disclosure
controls or our internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. The design of any
system of controls is based in part on certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Projections of
any evaluation of the effectiveness of controls to future periods are subject to
risks. Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with policies or
procedures.
PART
II. OTHER INFORMATION
Item 1.
Legal Proceedings.
On
November 17, 2009 the Company was named as a defendant by Nomadix, Inc. in a
complaint for patent infringement of certain U.S. patents. The matter is
early in its process and it is not possible to reasonably determine the outcome
of this complaint. The Company has been monitoring this situation closely and
believes it has meritorious defenses to the claims. Accordingly, it is not
possible, to assess whether or not the Company needs to reserve for a potential
settlement.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds. None
Item 3.
Defaults Upon Senior Securities. None
Item 4.
Submission of Matters to a Vote of Security Holders. None
Item 5.
Other Information. None.
Item 6.
Exhibits and Reports On Form 8-K.
(a) Exhibits
31.1 Certificate
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934
31.2 Certificate
of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934
32.1 Certificate
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2 Certificate
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*
28
(b)
Reports on Form 8-K
On June
16, 2010, the Company filed form 8-K with the SEC announcing the results of our
annual general meeting held on June 15, 2010.
On June
16, 2010, the Company filed form 8-K with the SEC reporting our results of
operations for the three and six months ended April 31, 2010.
On June
4, 2010, the Company filed form 8-K with the SEC announcing our annual general
meeting for the 2009 fiscal year.
On
January 14, 2010, the company filed form 8-K with the SEC reporting our results
of operations for the year ended October 31, 2009.
On
November 23, 2009, the company filed form 8-K with the SEC disclosing that the
Company had been a named defendant by Nomadix, Inc.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
August 27, 2010
|
Superclick,
Inc.
|
/s/ Sandro Natale
|
|
Name:
Sandro Natale
|
|
Title:
President & CEO
|
29