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EX-32.1 - SUPERCLICK INC | v210141_ex32-1.htm |
EX-23.1 - SUPERCLICK INC | v210141_ex23-1.htm |
EX-31.1 - SUPERCLICK INC | v210141_ex31-1.htm |
EX-31.2 - SUPERCLICK INC | v210141_ex31-2.htm |
EX-32.2 - SUPERCLICK INC | v210141_ex32-2.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Mark
One)
x
|
Annual
report pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended October 31, 2010
or
|
¨
|
Transition
report pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from _________ to
_________.
|
Commission
File No. 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 Identification Number)
|
incorporation
or organization)
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10222
St-Michel Blvd., Suite 300
Montreal,
Quebec, H1H 5H1
(Address,
Including Zip Code, Including Area Code, Of Registrant's mailing address in
Montreal)
Registrant’s
telephone number, including area code:
(514)
847-0333
SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common
Stock, par value $.0006 per share
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
(Do
not check if a smaller reporting
company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO
x
The
aggregate market value of the Registrant's common stock held by non-affiliates
of the Registrant on January 11, 2011 (based on the closing sale price of US
$0.21 per share of the Registrant's common stock, as reported on
Over-The-Counter Bulletin Board on that date) was approximately U.S. $7,353,238.
Common stock held by each officer and director and by each person known to the
Registrant to own 5% or more of the outstanding common stock has been excluded
in that those persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The
number of shares of the Registrant's common stock outstanding on January 11,
2011 was 45,959,870.
Transitional
Small Business Disclosure Format (Check one): YES ¨ NO
x
EXPLANATORY
NOTE
We are
filing this Amendment No. 1 to the Annual Report on Form 10-K for the
fiscal year ended October 31, 2010 (the “Annual Report”), which was
filed with the Securities and Exchange Commission on February 3, 2011, solely
for the purpose of including Exhibit 23.1, “Consent of Independent Public
Accountant, dated January 12, 2011” which was inadvertently not included in the
initial filing on February 3, 2011.
This
Amendment No. 1 does not affect any other section of the Annual Report not
otherwise discussed herein and continues to speak as of the date of the Annual
Report. Accordingly, this Amendment No. 1 should be read in
conjunction with our other filings made with the Securities and Exchange
Commission subsequent to the filing of the Annual Report.
TABLE OF
CONTENTS
ITEM
NUMBER AND CAPTION
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PAGE
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Forward-Looking
Statements
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1
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PART
I
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|||
Item
1
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Business
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1
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Item
1A
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Risk
Factors
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4
|
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Item
1B
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Unresolved
Staff Comments
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10
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Item
2
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Properties
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10
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Item
3
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Legal
Proceedings
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10
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Item
4
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(Removed
and Reserved)
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11
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PART
II
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|||
Item
5
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Market
for Registrant’s Common Equity, Related Stockholder
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||
Matters
and Issuer purchases of Equity Securities
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11
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||
Item
6
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Selected
Financial Data
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15
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Item
7
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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22
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Item
8
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Financial
Statements and Supplementary Data
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22
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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23
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Item
9A
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Controls
and Procedures
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23
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Item
9B
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Other
Information
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24
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PART
III
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|||
Item
10
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Directors,
Executive Officers and Corporate Governance
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25
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Item
11
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Executive
Compensation
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27
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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30
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Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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30
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Item
14
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Principal
Accounting Fees and Services
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31
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PART
IV
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|||
Item
15
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Exhibits,
financial Statement Schedules
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31
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Signatures
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33
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FORWARD-LOOKING
STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve risks and uncertainties, including, among
other things, statements regarding our business strategy, future revenues and
anticipated costs and expenses. Such forward-looking statements include, among
others, those statements including the words "expects," "anticipates,"
"intends," "believes" and similar language. Our actual results may differ
significantly from those projected in the forward-looking statements. Factors
that might cause or contribute to such differences include, but are not limited
to, those discussed in the section "Management's Discussion and Analysis of
Financial Condition and Results of Operations." You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
taking place after the date of this document.
ITEM
1. DESCRIPTION OF BUSINESS
SUMMARY
OF CORPORATE HISTORY
Superclick,
Inc. (“Superclick” or the “Company”) was founded on June 3, 1999 as a holding
company with the primary objective of acquisitions.
Pursuant
to a share purchase (the “Share Purchase Agreement”) agreement dated October 7,
2003, Superclick, Inc. completed an acquisition of Superclick Networks,
Inc. The acquisition was accounted for as a recapitalization effected
by a reverse merger, wherein Superclick Networks, Inc. is considered the
acquirer for accounting and financial reporting purposes. The
pre-merger assets and liabilities of the acquired entity have been brought
forward at their book value and no goodwill has been recognized. The
accumulated deficit of Superclick Networks, Inc. has been brought forward, and
common stock and additional paid-in-capital of the combined company have been
retroactively restated to give effect to the exchange rates as set forth in the
merger agreement.
Superclick
Networks, Inc. (“SNI”) was organized on August 24, 2000, in Montreal, Quebec,
Canada. SNI is a software development company in the business of
providing and installing broadband high speed Internet connection equipment in
hotels on a worldwide basis, and 24/7/365 customer support at it’s
Montreal-based call center.
On
October 6, 2003, Superclick, Inc. amended its articles of incorporation by
changing the name of the Company from Grand Prix Sports, Inc. to Superclick,
Inc.
Pursuant
to the Share Purchase Agreement, Superclick acquired 100% of the issued and
outstanding shares of SNI from its shareholders. In consideration for
acquiring all of SNI’s shares Superclick issued to SNI’s shareholders 14,025,800
shares of Superclick, Inc.’s common stock. As a result of the
acquisition, the former shareholders of SNI held immediately after the
acquisition 71.7% of the issued and outstanding shares of the Subsidiary’s
common stock. The remaining 28.3% was held by Superclick, Inc.’s
shareholders. In addition, and pursuant to the Share Purchase
Agreement, Superclick changed its year-end to October 31 to coincide with the
year-end of SNI. In October, the Company also retroactively affected a 1 for 6
common stock split and retroactively assigned $0.0006 par value to common stock
where no value had been previously stated. All share and per share
amounts shown in these financial statements reflect the stock split for all
periods presented.
1
The
Company emerged from the development stage during the year ended October 31,
2005. The primary objective is to continue to globally expand the installed room
base and to provide 24/7/365 customer support. At present, the
Company has installed its IP management products in approximately 125,000
rooms.
In order
to manage existing operations we will rely on the working capital generated by
the Company’s operations as well as to seek additional debt or equity financing.
However, there can be no assurance that any such additional financing will be
available on terms, in amounts, or at timing acceptable to us, if available at
all.
BUSINESS
Superclick
provides IP-based data management solutions via its SIMS™ (“Superclick Internet
Management System”) supported by a 24/7/365 customer support center to the
hospitality market. SIMS™ is Linux-based software, typically referred to as
Visitor-Based Networking (VBN) software, which manages the provisioning, and
administration of Internet access over private and local area networks
(“LANS”).
We market
and install SIMS™ as part of a turnkey hardware and software deployment for our
customers and also provide guest service support through our 24/7/365 helpdesk.
SIMS™ is typically deployed with hardware, which provides High Speed Internet
Access (HSIA) via Ethernet, DSL, WiFi or in combination. Our SIMS™
platform has been successfully deployed in approximately 550 hotels
globally.
Our
customers include the Fairmont Raffles Hotels, Four Seasons Hotels Limited,
Commonwealth Hospitality Group, InterContinental Hotels Group, Mandarin Oriental
Hospitality Group, Candlewood Suites, Staybridge Suites, Comfort Inn, Crowne
Plaza, Doubletree, Fairfield Inn, Four Points by Sheraton, Hampton Inn &
Suites, Hilton, Holiday Inn, Hampton Inn, JW Marriott, Novotel, Quality Suites,
Radisson, Residence Inn, Sheraton, Westin and Wyndham.
Business
Model
Our
current business model is to provide our customers with a turnkey installation
of a SIMS™-based HSIA system. Customers purchase the hardware, software and
installation services outright, retaining control of how the service is marketed
to guests and other users, as well as any associated revenue
charged. This component of our business model provides us with
one-time revenue.
2
We also
provide customers with 24/7/365 guest support services through toll-free access
to our Montreal-based helpdesk. This service carries a flat fee on a
per-room, per-year basis. As customers are added to our client-list,
the customer support revenue grows accordingly. This provides the
Company with a second source of revenue, which is recurring.
In
addition, we continue to develop a suite of “IP (Internet Protocol) services”
with revenue generating applications that allow customers in select markets with
the ability to leverage their Internet infrastructure to increase revenues and
increase their potential return on investment. We are able to create
revenue sharing arrangements with hotels based on these applications, creating
yet another potential revenue stream to its business model.
COMPETITION
Most of
our business is awarded by hoteliers and property management companies through
competitive procurements. The Internet management services industry
is highly competitive and many of our competitors are larger and have greater
financial resources than we do. We obtain much of our business on the
basis of proposals to new and existing customers. Competition usually
centers on successful past performance, technical capability, management, and
price.
We have
many competitors that contend for the same customers. They are
competent, experienced and range in size from several hundred of thousands of
dollars in annual revenue to several million of dollars in annual
revenue. Many of our competitors also have significantly greater
resources than we do. Approximately 54% of our revenue is based on
one time installation type sales and we continue to look at ways to improve our
recurring revenue model through service and customer support. We have
achieved a level of trust with each of our clients that is comfortable, but not
secure. We recognize that our niche areas are desirable to other
professional service firms, and we continuously seek to improve within these
niches rather than expanding to new areas.
INTELLECTUAL
PROPERTY AND OTHER PROPRIETARY RIGHTS
We
believe that our intellectual property is important to our success, and we try
to protect it as described above and through the maintenance of trade
secrets. We feel that name brand recognition will make our products
and services stand out and become the recognized name in our
industry. However, the steps we take to protect our
intellectual property may be inadequate. Unauthorized parties may try
to disclose, obtain or use our proprietary information, which could harm our
business. Others may claim that we have violated their proprietary
rights or infringed on their intellectual property. Any such claims
could subject us to significant liability for damages and invalidate our
proprietary rights. Any efforts to protect or defend our rights could
be time-consuming and costly. Other parties may also independently
develop similar or competing technology.
3
ITEM
1A. 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.
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;
|
§
|
the
number, size and scope of the installation
contracts;
|
§
|
maintenance
contracts can create variations in revenue levels and may cause
fluctuations in quarterly results;
|
§
|
fluctuations
in demand for services resulting from budget cuts, project delays,
cyclical downturns or similar events, including the recent economic
downturn;
|
§
|
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;
|
§
|
clients'
decisions to divert resources to other projects, which may limit clients'
resources that would otherwise be allocated to solutions that we
provide;
|
§
|
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;
|
§
|
reductions
in the prices of services offered by
competitors;
|
§
|
the
level and timing of legal and other expenses (including settlement costs)
associated with our ongoing litigation and potential indemnification
obligations; and
|
§
|
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.
4
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.
Nomadix,
Inc. 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.
We have
been named in a complaint by Nomadix, Inc. alleging that we and our customers
are infringing on certain of its patents. In addition, as discussed
in the following risk factor, we could be named in a lawsuit brought by a party
claiming patent infringement by several of our customers.
5
We
believe we have meritorious defenses to these current and potential 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. We may also
have to incur substantial cost in re-designing our products and services to
avoid infringement claims. 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. See the following risk
factor. 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.
We
may be subject to indemnification obligations to our customers related to patent
infringement suits brought against them.
Several
companies providing public Internet access, including some of our customers,
have been named in a lawsuit brought by a party claiming patent infringement.
Because our service contracts with these customers generally require us to
indemnify them for patent infringement claims and damages relating to their use
of our intellectual property, and our ability to terminate our customer
agreements to prevent future infringement is limited, we may be required to fund
the ongoing litigation between our customers and that plaintiff, and pay damage
awards relating thereto. These or other future indemnification
obligations could materially and adversely affect our business, results of
operations and financial position. In addition, if we are named in
the lawsuit, it will require us to incur legal expenses, which will have a
negative impact on our business, results of operations and financial position.
This in turn, may have a negative impact on our stock price.
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;
|
§
|
the
ability of competitors to undertake more extensive marketing
campaigns;
|
§
|
the
extent, if any, to which competitors develop proprietary offerings that
improve their ability to
compete;
|
6
§
|
the
ability of our customers to supply the solutions themselves;
and
|
§
|
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 will
increase. 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.
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;
|
§
|
greater
difficulties in managing and supplying turnkey installation at foreign
locations;
|
§
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cultural
differences that adversely affect
utilization;
|
§
|
unexpected
changes in trading policies, legal and regulatory requirements, tariffs
and other foreign taxes;
|
§
|
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;
|
§
|
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.
|
7
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.
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.
8
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
October 31, 2010, we had exercisable stock options outstanding to purchase
12,725,000 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
October 31, 2010, a total of 10,105,896 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.
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.
9
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Our
research and development activities and administrative offices are located in
Montreal, Quebec, Canada. Superclick, Inc. does not own any real
property. The following information presents certain information about our
leased properties:
Approximate
|
Date Current
|
|||||||
Location
|
Square Feet
|
Expires
|
Monthly Rent
|
|||||
10222
St-Michel Boulevard
|
5,900
sq. ft.
|
Sept.
30, 2014
|
US$ |
4,695
|
||||
Suite
300 Montreal, Quebec
|
||||||||
CANADA
H1H 5H1
|
|
|
|
ITEM
3. LEGAL PROCEEDINGS
On
November 17, 2009 we were named as a defendant in Nomadix, Inc. v. Hewlett-Packard
Company, et al., a lawsuit filed in the United States District Court for
the Central District of California. Nomadix alleges that we infringe U.S. Patent
Nos. 6,130,892, 7,088,727, 7,554,995, 6,636,894, 7,194,554, 6.868,399 and
7,689,716 by the
use of our network gateway devices that connect computers and mobile devices to
a network. The lawsuit includes claims that relate to technology that
is material to our products and services. In relation to its claims under each
patent, Nomadix, Inc. seeks a compensatory damages and a permanent injunction
against infringement by us, and a trebling of any damages based on an allegation
of willful infringement. We believe we have meritorious defenses to
the claims and intend to defend ourselves vigorously.
10
ITEM 4. (REMOVED AND
RESERVED)
PART
II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our
common stock trades on the OTC Bulletin Board under the symbol "SPCK.OB". The
following table lists the high and low closing price for our common stock as
quoted on the OTC Bulletin Board during each quarter within the last two fiscal
years.
These
prices represent inter-dealer quotations without retail markup, markdown, or
commission and may not necessarily represent actual transactions.
|
Low
|
High
|
||||||
2009 | ||||||||
First
Quarter
|
$ | .03 | $ | .13 | ||||
Second
Quarter
|
$ | .08 | $ | .17 | ||||
Third
Quarter
|
$ | .11 | $ | .18 | ||||
Fourth
Quarter
|
$ | .09 | $ | .15 | ||||
2010
|
||||||||
First
Quarter
|
$ | .11 | $ | .15 | ||||
Second
Quarter
|
$ | .11 | $ | .14 | ||||
Third
Quarter
|
$ | .11 | $ | .13 | ||||
Fourth
Quarter
|
$ | .10 | $ | .17 |
On
January 7, 2011, the closing price was $0.21 for our stock.
Holders
Excluding
equity held through CEDE, there are approximately one thousand one hundred
ninety-five (1,125) holders of record of common equity as of January 7,
2011
Dividends
We have
not declared any dividends on our common stock during the last three fiscal
years and we do not expect to declare dividends in the foreseeable future since
we intend to utilize our earnings, if any, to finance our future growth,
including possible acquisitions.
Transfer
Agent
The
Transfer Agent and Registrar for our common stock is First American Stock
Transfer. Their address is 706 East Bell Road, Suite 202, Phoenix,
AZ, 85022 and its telephone number at that location is
602-485-1346.
11
Equity
Compensation 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 total
number of shares of Stock set aside for Awards may be granted under the Plan is
2,000,000 shares. 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 effective April 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, 2005, the Board of Directors authorized an increase
in the shares allotted under the plan to 3,500,000 shares.
During
the year ended October 31, 2006, the Board of Directors authorized an increase
in the shares allotted under the Plan to 30,000,000 shares. Also,
during fiscal year 2006, 111,667 options were canceled due to employee
terminations, 376,250 options that were out-of-the-money at $0.50 and $0.60 were
exchanged for new options at $0.05 to purchase 15,523,750 shares and no options
were exercised. The balance of options outstanding at the end of the
year was 16,732,148. The Company granted 15,900,000 fully vested
options to employees on October 30, 2006 and valued the options utilizing the
Black Scholes Option Pricing Model with the following inputs: Risk-free interest
rate 4.67%, Volatility 37% (here we used the standard deviation of closing share
prices from November 1, 2002 through October 30, 2006, or 4 years), duration of
4 years, strike price of $.05, which yielded a per share fair market value of
$.0179. The Company recognized $285,078 of compensation expense
related to the 15,900,000 grants and $83,551 for previously granted options
bringing the total recognized option related compensation expense for the fiscal
year ended October 31, 2006 to $368,629.
During
the year ended October 31, 2007, 490,000 options were exercised resulting in
$24,500 to the company and the issuance of 490,000 shares of common
stock. An additional 230,000 options were exercised on October 31,
2007 resulting in $11,500 received with shares issued in four tranches of 57,500
per month subsequent to the fiscal year ended October 31, 2007. Also, during the
year, the Company canceled 1,549,792 options (874,792 options due to employee
terminations and 675,000 voluntary cancellations from upper
management).
12
During
the year ended October 31, 2008, no options were canceled or
granted. 740,000 shares of common stock were issued pursuant to
option exercises, including 1) 230,000 shares issued pursuant to prior year
option exercises, and; 2) 510,000 shares issued pursuant to options exercised
during 2008 which resulted in $25,500 to the company. No other option
activity occurred.
During
the year ended October 31, 2009, 100,000 options were canceled and none were
granted or exercised.
During
the year ended October 31, 2010, 1) 777,356 common stock options with a weighted
average exercise price of $0.50 expired and 2) the Company received $17,500 upon
the exercise of options to acquire 350,000 shares of common stock. No
options were granted. The Company has recorded compensation expense
of $767,017 through October 31, 2010.
On
October 30, 2010, the Board of Directors approved the extension of the
expiration date of options granted by the Company on October 30, 2006 to
purchase 12,725,000 shares of the Company’s common stock. Pursuant to
the amended option agreements, the new expiration date for the options is
October 31, 2012 and the exercise price of the options was adjusted to $0.0504
from the original exercise price of $0.05. The exercise price was
increased to $0.0504 from $0.0500 in order to fully capture the expense of
$5,090 that would have been recorded by the Company had the original exercise
price remained unchanged from $0.0500.
The
following table summarizes the Company's stock option activity for the year
ended October 31, 2010 and 2009:
2009
|
2010
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Average
|
Average
|
|||||||||||||||
Shares
|
Exercise Price
|
Shares
|
Exercise Price
|
|||||||||||||
Outstanding
at beginning of year
|
13,952,356 | $ | 0.075 | 13,852,356 | $ | 0.075 | ||||||||||
Granted
|
- | - | - | - | ||||||||||||
Forfeited
|
(100,000 | ) | 0.050 | (777,356 | ) | 0.500 | ||||||||||
Exercised
|
- | - | (350,000 | ) | 0.050 | |||||||||||
Outstanding
at end of year
|
13,852,356 | 0.075 | 12,725,000 | 0.050 | ||||||||||||
Options
exerciseable at year end
|
13,852,356 | 12,725,000 |
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 (the
"Stock Incentive Plan"). The Stock Incentive Plan provides for the
issuance of Options, Restricted Stock, and/or Deferred Stock to an
Awardee. The total number of shares of Common Stock which may be
awarded under the Plan is 1,500,000. If any awarded shares are
forfeited, they become available for future issuance. An annual
aggregate limit of 300,000 shares (including Options, Restricted Stock, and
Deferred Stock) is set for any individual Director.
13
The Stock
Incentive Plan has a duration of ten years commencing on January 1,
2004. Awardees are defined as director to whom an award is
made. An eligible director is any person who on the date of grant is
a member of the Board of Directors of the Company and is not an employee of the
Company or of any Subsidiary. Stock Options are non-qualified
right-to-buy Options for the purchase of Common Stock of the
Company. The term of each Option shall be ten years from the Date of
Grant. The Option Price shall be the Fair Market Value of Superclick,
Inc. Common Stock on the date the Option is granted. Under no
circumstances shall any Option vest in less than one year from the date of
grant. Shares purchased upon exercise of an Option must be paid for
in full at the time of exercise either in cash or with currently owned
shares. Neither the Committee on Directors and Governance nor the
Board of Directors may re-price any Option that is less than the option exercise
price. Restricted Stock is Common Stock of the Company restricted as
to sale in such fashion as the Committee on Directors and Governance shall
determine. Prior to the lifting of the restrictions, the Awardee will
be entitled to receive dividends from and to vote the shares of Restricted
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.
No awards
under the Non-Employee Director's Stock Incentive Plan were granted or issued
during the year ended October 31, 2010
From
inception through October 31, 2010, the Company has issued 2,569,772 shares to
our directors under this stock incentive plan.
Common
Stock
Private Placement and
Warrant Activity
In August
of 2005, we issued $2,250,000 of convertible debentures with 965,997 warrants
attached. These warrants were canceled pursuant to a settlement
agreement dated January 23, 2009 whereby the Company made a $726,079 settlement
payment in full satisfaction of our outstanding debentures.
Stock issued for
Services
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. Also, 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.
No stock
was issued for services during the year ended October 31, 2010.
14
Stock
Options
On
October 30, 2006 the Board of Directors increased the employee stock option pool
established by the employee stock option plan to 30,000,000 from
3,500,000.
During
the year ended October 31, 2009, 100,000 options were canceled, and none were
granted or exercised.
During
the year ended October 31, 2010, 1) 777,356 common stock options expired, 2) the
Company received $17,500 upon the exercise of options to acquire 350,000 shares
of common stock and 3) The Board of Directors approved the extension of the
expiration date of 12,725,000 options to October 31, 2012 and increased the exercise
price to $0.0504 from $0.05.
On
October 30, 2010, the Board of Directors approved the extension of the
expiration date of options granted by the Company on October 30, 2006 to
purchase 12,725,000 shares of the Company’s common stock. Pursuant to
the amended option agreements, the new expiration date for the options is
October 31, 2012 and the exercise price of the options was adjusted to $0.0504
from the original exercise price of $0.05. The exercise price was
increased to $0.0504 from $0.0500 in order to fully capture the expense of
$5,090 that would have been recorded by the Company had the original exercise
price remained unchanged from $0.0500.
Warrants
At
October 31, 2009 the Company had no warrants outstanding. The 965,997
warrants related to the convertible debentures which entitled the holder thereof
the right to purchase one common share for each warrant were canceled as a
result of the debenture settlement on January 23, 2009. No other
warrant activity occurred during 2010 and 2009.
ITEM
6. SELECTED FINANCIAL DATA
Smaller
reporting companies:
A
registrant that qualifies as a smaller reporting company, as defined by
§229.10(f)(1), is not required to provide the information required by this
Item.
15
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains certain financial information and statements regarding our
operations and financial prospects of a forward-looking nature. Although these
statements accurately reflect management's current understanding and beliefs, we
caution you that certain important factors may affect our actual results and
could cause such results to differ materially from any forward-looking
statements which may be deemed to be made in this prospectus. For this purpose,
any statements contained in this prospectus which are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as, "may", "intend", "expect",
"believe", "anticipate", "could", "estimate", "plan" or "continue" or the
negative variations of those words or comparable terminology are intended to
identify forward-looking statements. There can be no assurance of any kind that
such forward-looking information and statements will be reflective in any way of
our actual future operations and/or financial results, and any of such
information and statements should not be relied upon either in whole or in part
in connection with any decision to invest in the shares.
The
following discussion should be read in conjunction with our Consolidated
Financial Statements and the notes thereto and the other information included in
this Annual Report on Form 10-K.
Overview
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 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; therefore, we are 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. Superclick emerged from the development stage during the
fiscal year ended October 31, 2005.
16
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 six 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.
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.
The
Company has agreed, on occasion, to sell equipment under
lease. The Company uses the Leases Topic of the FASB ASC 840,
Leases, to evaluate whether an arrangement is a lease and the classification of
the lease. Arrangements not within the scope of the accounting
standard are accounted for either as a sales or services arrangement, as
applicable. A lease arrangement that transfers substantially
all the benefits and risks incident to ownership of the equipment is classified
as a sales-type lease; otherwise the lease is classified as an operating
lease. We currently have no operating leases.
For
sales-type leases, the revenue allocated to the equipment is recognized when the
lease term commences, which the Company deems to be when all of the following
conditions have been met: (i) the equipment has been installed (ii)
receipt of the written customer acceptance certifying the completion of
installation, provided collectability is reasonably assured. The
initial revenue recognized for sales-type leases consists of the initial
payments received and the present value of future payments computed at the
interest rate implicit in the lease. The determination of the fair
value of the leased equipment requires judgment and can impact the split between
revenue and finance income over the lease term.
Finance
income is recognized over the term of the lease or over the period of time
specified in the sales arrangement, provided collectability is reasonably
assured.
17
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.
When
accounting for Uncertainty in Income Taxes, first, the tax position is 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.
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.
18
Results
of Operations
Twelve
Months Ended October 31, 2010 and 2009
Revenue
During
the year ended October 31, 2010, revenue increased $1,404,122 or 18.3% to
$9,093,208 compared to $7,689,086 for the year ended October 31,
2009. The favorable sales variances were incurred in both revenue
streams. Compared to the previous year, net service revenue which
includes installation revenue increased 26.0% to $4,942,469 from $3,924,024 in
2009 and services revenue which includes guest support services increased 10.2%
to $4,150,739 from $3,765,062 in 2009. The Superclick solution continues to
receive strong validation from new clients and existing
clients. Along with year over year increases in net sales, the
Company was able to secure support contracts not only with new customers but
successfully renew services with existing clients.
Gross
Profit
Gross
profit for the year ended October 31, 2010 increased by $102,024 or 2.6% to
$4,075,882 compared to $3,973,858 for the year ended October 31,
2009. Gross margin for the current year was 44.8% compared to 51.7%
the previous year. The unfavorable margin was due to increases in
cost of sales to support the services revenue. The increases consisted mainly of
human capital to strengthen both the call center and the network operating
center expertise. A higher skill level Call Center and NOC is
required to adequately service our target market which includes some of the most
prestigious brands in the industry. Accordingly, the support centers’ operated
at a lower margin than the previous year.
Selling,
General and Administrative
For the
years ended October 31, 2010 and 2009, selling, general and administrative
expenses were $2,584,065 and $1,868,656, respectively. The $715,409 or 38.3%
increase in SG&A was primarily due to approximately $564,000 increase in
sales and marketing expenses and $163,000 increase in general
expenses.
The
unfavorable sales and marketing variance was attributable to essentially two
categories. Namely, costs associated with the increase of human
capital and the greater participation in industry conferences and other business
development costs. Human capital increases represented approximately
60% of the total variance.
The
increase in general expenses was mainly due to increases in legal
costs.
Research
and Development
For the
years ended October 31, 2010 and 2009, research and development expense was
$284,226 and $217,211, respectively. The $67,015 or 30.9%
year-over-year increase was mainly due to increases in human resources to
further solidify our solutions.
19
Income
from operations
Income
from operations for the year ended October 31, 2010 was $1,162,632 or 12.8% of
net revenue compared to $1,845,665 or 24.0% of net revenue for the year ended
October 31, 2009; a $683,033 or 37.0% decrease.
Other
Income and Expense
Total
other income and expense for the year ended October 31, 2010 was income of
$1,794 compared to income of $58,192 in 2009.
Interest
income for the years ended October 31, 2010 and 2009 was $3,163 and $584,
respectively.
Interest
expense for the years ended October 31, 2009 and 2008 was $1,369 and $31,689,
respectively. The decrease in interest expense is primarily due to
only one month of debenture interest in 2009 compared to nil in
2010.
During
the years ended October 31, 2010 and 2009, the Company recognized a gain on the
forgiveness of debt of $0 and $89,297, respectively. $79,970 of the
2009 gain was the result of a negotiated decrease in repayment amount for the
debenture in exchange for the settlement of the balance. The
remainder of the gain was due to a reduction in the amounts agreed to be paid on
three Hotel Net notes in exchange for early settlement.
Net
Income
The net
income before income taxes for the year ended October 31, 2010 was $1,164,426 or
12.8% of net revenue compared to $1,903,857 or 24.8% of net revenue during the
year ended October 31, 2009. The Company recorded $373,904 in income
tax expense during the year ended October 31, 2010 compared to $611,732 in
2009. As a result, net income for the year ended October 31, 2010 was
$790,522 or 8.7% of revenue and $501,603 or 38.8% lower compared net income of
$1,292,125, or 16.8% of revenue for 2009.
Net
Income (Loss) Per Common Share
For the
years ended October 31, 2010, the net income per common share basic was $0.02
and $0.01 fully diluted, compared to $0.03 basic and $0.02 fully diluted for the
year ended October 31, 2009. The basic and fully diluted weighted
average shares for the current fiscal year end was 45,424,991 and 58,149,991,
respectively. The basic and fully diluted weighted average shares for
the year ended October 31, 2009 was 45,134,205 and 58,986,561,
respectively.
FINANCIAL
CONDITION
From
inception to October 31, 2010, we have incurred an accumulated deficit of
$3,805,197. This loss has been incurred through a combination of
professional fees and expenses supporting our plans to acquire synergistic
businesses as well as past operating losses. Beginning in 2007 we
have experienced stabilization in our business and implemented efficiency
initiatives that have resulted in a larger customer base and improved
profitability. This has allowed us to reduce our accumulated deficit
by $4,497,678 from its high of $8,302,875 on January 31, 2007.
20
From
inception through 2005, we financed our operations primarily through debt and
equity financing. However, during the past five fiscal years all
prior debts have been repaid and operations have been financed solely from
operating earnings. During the year ended October 31, 2010 we had a
net decrease in cash of $99,249. Total cash resources as of October
31, 2010 was $2,092,809 compared with $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
During
the years ended October 31, 2010 and 2009, the Company has financed operations
solely with cash generated through sales and the collection of its accounts
receivable.
Net
income for the year ended October 31, 2010 was $790,522 compared to $1,292,125
for the year ended October 31, 2009. During 2010 operations used
$238,155 compared to providing $2,009,223 for the year ended October 31,
2009.
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 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
October 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.
At
October 31, 2010, our contractual obligations under this lease were as
follows:
2011
|
56,340 | |||
2012
|
56,340 | |||
2013
|
56,340 | |||
2014
|
51,645 | |||
2015
and thereafter
|
- | |||
$ | 220,665 |
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Currency Exchange
Rates
A
majority of our revenue, expense, and capital purchasing activities are
transacted in and exposed to the Canadian dollar and changes in the
currency exchange rate. We do not use derivative financial
instruments to manage exchange rate risk. Realized gains and losses
resulting from the settlement of accounts in the foreign currency are recorded
to operating income during the period incurred with changes due to conversion of
the financial statements of our Canadian subsidiary into US dollars recorded to
shareholder’s equity. During the year ended October 31, 2010 and
2009, the Company realized losses of $252,790 and $240,483, respectively related
to the settlement of accounts in foreign currency primarily as a result of the
strengthening Canadian dollar relative to other
currencies. Management does not currently intend to initiate a
hedging program.
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 year
ended October 31, 2010. However, there can be no assurance our
business will not be affected by inflation in the future.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information required by this Item is submitted as a separate section of this
Form 10-K. See REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS, Page
34.
22
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There
were no reportable events of the type described in Item 304(a)(1)(iv) of
Regulation S-B.
ITEM
9A. CONTROLS AND PROCEDURES
Management Evaluation of
Disclosure Controls and Procedures
As of
October 31, 2010, under the direction of the Chief Executive Officer and Chief
Financial Officer, the Company evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rule 13a —
15(e) under the Securities Exchange Act of 1934, as amended. Based on
the evaluation of these controls and procedures required by paragraph (b) of
Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been
found to be effective.
The
Company maintains a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by us in our reports filed under the
securities Exchange Act, is recorded, processed, summarized, and reported within
the time periods specified by the SEC’s rules and forms. Disclosure
controls are also designed with the objective of ensuring that this information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Management’s Report on
Internal Control Over Financial Reporting
Management
conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting as of October 31, 2010. In making this
assessment, management used the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission, or COSO. The COSO framework summarizes
each of the components of a company’s internal control system, including
(i) the control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and
(v) monitoring. In management’s assessment of the effectiveness
of internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded
as of the end of the fiscal year covered by this Annual Report on Form 10-K that
our internal control over financial reporting has been effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this prospectus.
23
Changes in Internal
Controls
Management
of the Company has evaluated, with the participation of the Chief Executive
Officer of the Company, any change in the Company’s internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the fiscal year ended October 31,
2010. There was no change in the Company’s internal control over
financial reporting identified in that evaluation that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting, other than what has been reported above.
Limitations on the
Effectiveness of Controls and Other Matters
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Internal control over financial reporting
is designed 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. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further,
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. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls may be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.
The
design of any system of controls also is based in part upon 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; over time, a control may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
ITEM
9B. OTHER INFORMATION
Not
applicable.
24
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
In
Compliance With Section 16(a) Of The Exchange Act As of October 31, 2009, our
executive officers, directors and key employees, their positions and their ages
are as follows:
DIRECTORS
AND EXECUTIVE OFFICERS
Name
|
Age
|
Position
|
||
Todd
M. Pitcher
|
42
|
Chairman
of the Board
|
||
Sandro
Natale
|
41
|
CEO,
President and Director
|
||
Jean
Perrotti
|
48
|
CFO
and Principal Accounting Officer
|
||
Paul
Gulyas
|
54
|
Director
|
||
George
Vesnaver
|
53
|
Director
|
||
Ronald
A. Fon
|
43
|
Director
|
EXECUTIVE
OFFICERS AND DIRECTORS
TODD M. PITCHER has been
Chairman of the Board of our company since completion of the merger transaction
with Superclick Networks, Inc. in October 2003. In addition, Mr.
Pitcher served as Chief Financial Officer and Principal Accounting Officer for
the period of April 2005 through the year ended October 31, 2005. Mr.
Pitcher is currently Managing Partner of Aspire Clean Tech Communications, an
alternative energy advisory and corporate communications firm. Mr. Pitcher has
several years experience in the investment banking, business consulting and
equity research, serving as Director of Equity Research at Equity Securities in
Golden Valley, Minnesota, and several other regional investment banking firms.
Mr. Pitcher has B.A. in Philosophy from the University of California at Berkeley
and has attended graduate school at the University of California at Santa
Barbara and Claremont Graduate School.
SANDRO NATALE was officially
appointed President and CEO November 16, 2006. Previously, he has
been VP of Business Development of our company since completion of the merger
transaction with Superclick Networks, Inc. in October 2003. Prior to the merger,
Mr. Natale served as VP of Business Development of Superclick Networks, Inc.
Prior to Superclick, Mr. Natale founded ITS Service Inter-Tek, a computer
networking company that was later acquired by GSI Technologies. Mr. Natale has
18 years experience in the technology and system integration business. Prior to
joining the Superclick Networks Team in 2001, Mr. Natale was President and of
founder of I.T.S services a successful IT services integrator which was later
sold to GSI Technologies. Mr. Natale served as V.P. of sales and marketing where
he assumed increasing responsibilities in various organizational units,
including, revenue planning, regulation, marketing, sales operations and
information systems. Mr. Natale holds a computer science degree from Dawson
College.
25
JEAN PERROTTI – Mr. Perrotti
has been CFO and Principal Accounting Officer for our Company since November
2005. Mr Perrotti was most recently a senior consultant providing CFO assistance
to a variety of industries including SOX consulting services. Before managing a
successful consulting career, he held various senior financial roles including
CFO of Normex Telecom Inc / Cygnal Technologies Inc a leading Canadian provider
of network communication solutions. Prior to joining Cygnal, Mr. Perrotti held
Controllership positions with a food ingredient manufacturer and a fashion belt
manufacturer. Mr. Perrotti began his career as a financial auditor with a public
accounting firm situated in Montreal. Mr. Perrotti holds a Bachelor Degree of
Commerce from Concordia University, is a member of the Order of Certified
General Accountants of Canada, a member of the Association of Certified Design
Accountants, an accredited member of the Guild of Industrial, Commercial and
Institutional Accountants, a member of the European Accounting Association and
an affiliate member of the Association of International
Accountants.
GEORGE VESNAVER – Mr. Vesnaver
has been a Director of our company since August, 2004. Mr. Vesnaver is currently
Vice-President of Sales and a Partner of Zinc Solutions based in Montreal where
he oversees innovative software development and infrastructure projects.
Mr Vesnaver brings over 25 years experience in building IT businesses
that specialize in the delivery of IT Professional Services and Software based
solutions. Prior to Zinc Solutions, Mr. Vesnaver held numerous senior
positions at Hewlett Packard including Director of Sales for its Canadian
Software Business Unit as well as Director World Wide Sales for HP's Software
Automation business. Mr. Vesnaver holds a bachelor’s degree in electrical
engineering from Concordia University and an MBA in international business and
finance from McGill University.
PAUL GULYAS - Director. Mr.
Gulyas has been a director of the Company since 2004. He has more than 32 years
of diverse industrial experience in IT systems and products. He is currently
responsible for IBM's new data center networking business in Canada. Previously,
he was President of IOTA Information Management and is a founding partner of the
consulting firm
TACTexe
Inc. Mr. Gulyas has a BSc in Physics from McMaster University in Hamilton
Ontario.
RONALD A. FON - Director. Mr. Fon
has been a director for the Company since 2009. Mr. Fon is a founder and
principal of Optimus Asset Management Inc., a money management firm specializing
in early stage venture capital based in Montreal, Quebec. He has served as
Director of numerous investment funds and early stage companies. Mr. Fon holds a
B.A. (Honors) from McGill University in Montreal and has attended graduate
school at the University of Western Ontario in London, Ontario.
16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To our
knowledge, no officers, directors, beneficial owners of more than ten percent of
any class of our equity securities registered pursuant to section 12 of the
Exchange Act or any other person subject to Section 16 of the Exchange Act with
respect to us, failed to file on a timely basis reports required by Section
16(a) of the Exchange Act during the most recent fiscal year, which ended
October 31, 2010.
26
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth, for the last three fiscal years, the compensation
earned for services rendered in all capacities by our chief executive officer,
chief financial officer and the other highest-paid executive officers serving as
such at the end of 2010 whose compensation for that fiscal year was in excess of
$100,000. The individuals named in the table will be hereinafter referred to as
the "Named Officers." No other executive officer of Superclick, Inc. received
compensation in excess of $100,000 during fiscal year 2010.
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
||||||||||||||||||||||
Name and
Principle
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Other
Annual
Compensation
($)
|
Restricted
Stock
Award(s) ($)
|
Securities
Underlying
Options/SARs
(#)
|
LTIP
Payouts
($)
|
All Other
Compensation
($)
|
||||||||||||||||||||||
Sandro
|
2010
|
$ | 162,821 | $ | 89,552 | |||||||||||||||||||||||||
Natale,
CEO
|
2009
|
$ | 149,603 | $ | 139,350 | — | — | — | — | — | ||||||||||||||||||||
2008
|
$ | 178,786 | — | — | — | — | — | — | ||||||||||||||||||||||
Jean
Perrotti,
|
2010
|
$ | 144,213 | $ | 37,216 | |||||||||||||||||||||||||
CFO
|
2009
|
$ | 132,506 | $ | 34,195 | — | — | — | — | — | ||||||||||||||||||||
2008
|
$ | 117,692 | $ | 29,198 | — | — | — | — | — |
OPTIONS
AND STOCK APPRECIATION RIGHTS
During
the year ended October 31, 2010 no options or stock appreciation rights were
granted.
The
Company has recorded option compensation expense of $767,017 from inception
through October 31, 2010.
LONG
TERM INCENTIVE PLAN AWARDS
No
long-term incentive plan awards were made to any of our executive officers
during the last fiscal year.
COMPENSATION
OF DIRECTORS
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 (the "Stock
Incentive Plan"). The Stock Incentive Plan provides for the issuance
of Options, Restricted Stock, and/or Deferred Stock to an
Awardee. The total number of shares of Common Stock which may be
awarded under the Plan is 1,500,000. If any awarded shares are
forfeited, they become available for future issuance. An annual aggregate limit
of 300,000 shares (including Options, Restricted Stock, and Deferred Stock) is
set for any individual Director.
27
The Stock
Incentive Plan has a duration of ten years commencing on January 1,
2004. Awardees are defined as director to whom an award is
made. An eligible director is any person who on the date of grant is
a member of the Board of Directors of the Company and is not an employee of the
Company or of any Subsidiary. Stock Options are non-qualified
right-to-buy Options for the purchase of Common Stock of the
Company. The term of each Option shall be ten years from the Date of
Grant. The Option Price shall be the Fair Market Value of Superclick,
Inc. Common Stock on the date the Option is granted. Under no
circumstances shall any Option vest in less than one year from the date of
grant. Shares purchased upon exercise of an Option must be paid for
in full at the time of exercise either in cash or with currently owned
shares. Neither the Committee on Directors and Governance nor the
Board of Directors may re-price any Option that is less than the option exercise
price. Restricted Stock is Common Stock of the Company restricted as
to sale in such fashion as the Committee on Directors and Governance shall
determine. Prior to the lifting of the restrictions, the Awardee will
be entitled to receive dividends from and to vote the shares of Restricted
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.
During
the year ended October 31, 2010 no stock was awarded to our
directors.
From
inception through October 31, 2010, the Company has issued 2,569,772 shares to
our directors under this stock incentive plan.
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 effective April 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.
Options
Exercised In Last Fiscal Year And Fiscal Year-End Option Values
During
the year ended October 31, 2009 100,000 options were canceled. As of
October 31, 2009, the Company had 13,852,356 outstanding options all of which
were exercisable. The value to the company of the exercisable options
based on their actual strike prices is $1,040,553.
28
During
the year ended October 31, 2010, 1) 777,356 common stock options expired, 2) the
Company received $17,500 upon the exercise of options to acquire 350,000 shares
of common stock and 3) The Board of Directors approved the extension of the
expiration date of 12,725,000 options to October 31, 2012 and increased the
exercise price to $0.0504 from $0.05. As of October 31, 2010, the
Company had 12,725,000 outstanding options all of which were
exercisable. The value to the company of the exercisable options
based on their actual strike prices is $641,340.
Executives'
Compensation Policies
Compensation
of our executives is intended to attract, retain and award persons who are
essential to the corporate enterprise. The fundamental policy of our
executive compensation program is to offer competitive compensation to
executives that appropriately reward the individual executive's contribution to
corporate performance. The board of directors utilizes subjective
criteria for evaluation of individual performance and relies substantially on
our executives in doing so. The Board focuses on two primary
components of our executive compensation program, each of which is intended to
reflect individual and corporate performance: base salary and long-term
incentive compensation.
Executives'
base salaries are determined primarily by reference to compensation packages for
similarly situated executives of companies of similar size or in comparable
lines of business with whom we expect to compete for executive talent and with
reference to revenues, gross profits and other financial
criteria. The Board also assesses subjective qualitative factors to
discern a particular executive's relative value to the corporate enterprise in
establishing base salaries.
It is the
Board's philosophy that significant stock ownership by management creates a
powerful incentive for executives to build long-term shareholder
value. Accordingly, the board believes that an integral component of
executive compensation is the award of equity-based compensation, which is
intended to align executives' long-term interests with those of our
shareholders. The board believes that option grants should be
considered on an annual basis.
Employment
Agreements with Executive Officers
Superclick,
Inc. has executed employment agreements with its top two executive
officers. Below is a summary of the major terms of these employment
agreements.
EMPLOYMENT
AGREEMENTS
SANDRO
NATALE - Mr. Natale's employment with us is governed by an employment agreement
entered into between he and Superclick, Inc. The agreement provides for term of
employment that may be extended for additional one (1) year
periods. Mr. Natale was entitled to receive a base salary equal to
CDN $181,597 plus bonus
based on certain thresholds being met.
JEAN
PERROTTI Mr. Perrotti's employment with us is governed by an employment
agreement entered into between he and Superclick, Inc. The agreement provides
for term of employment that may be extended for additional one (1) year
periods. Mr. Perrotti was entitled to receive a base salary equal to
CDN $160,843 plus bonus
based on certain thresholds being met.
29
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of October 31, 2010, by (i) each person known by us to be
the beneficial ownership of more than 5 percent of the outstanding common stock,
(ii) each director, (iii) each executive officer, and (iv) all executive
officers and directors as a group. The number of shares beneficially
owned is determined under the rules promulgated by the SEC, and the information
is not necessarily indicative of beneficial ownership for any other
purpose. Under those rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60 days
of the date hereof, through the exercise or conversion of any stock option,
convertible security, warrant or other right. Including those shares
in the tables does not, however, constitute an admission that the named
stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in
the table has sole voting power and investment power (or shares that power with
that person's spouse) with respect to all shares of capital stock listed as
owned by that person or entity. Unless otherwise indicated, the
address of each of the following persons is 10222 St-Michel Blvd., Suite
300
Montreal,
Quebec, H1H 5H1.
Name
|
Shares Beneficially Owned
|
Percent of Class
|
||||||
Sandro
Natale (Canada)
|
6,589,430 | 13.38 | % | |||||
Jean
Perrotti (Canada)
|
2,400,000 | 4.99 | % | |||||
Todd
M. Pitcher
|
828,359 | 1.81 | % | |||||
George
Vesnaver (Canada)
|
574,882 | * | ||||||
Paul
Gulyas (Canada)
|
551,782 | * | ||||||
All
Officers and
|
||||||||
Directors
as a Group
|
10,944,453 | 18.74 | % |
(*) means
less than 1.0%
DIRECTOR
INDEPENDENCE
Mr.
Pitcher, Chairman of our company, provides consulting services to us in exchange
for monthly compensation of $5,000 plus related expenses. Mr. Pitcher
is also President of Aspire Clean Tech Communications who provides us with
business services support.
30
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(1)
|
Audit
Fees
|
The
aggregate fees billed for professional services rendered by Bedinger &
Company for the audit of the Registrant's annual financial statements and review
of the financial statements included in the Registrant's Forms 10-Q or services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for fiscal year 2009 were
$63,595. Additionally, Bedinger & Company has charged $5,000 for
tax preparation services for fiscal year 2010.
(2)
|
Audit
Committee Policies and Procedures
|
The
Registrant does not have an audit committee. The Board of Directors of the
Registrant approved all of the services rendered to the Registrant by Bedinger
& Company for fiscal years 2010.
(3)
|
Audit
Work Attributed to Persons Other than Bedinger & Company’s Full-time,
Permanent Employees.
|
Not
applicable.
ITEM
15. EXHIBITS LISTS AND REPORTS ON FORM 8-K.
The
following exhibits filed as part of this Form 10-K include both exhibits
submitted with this Report and those incorporated by reference to other
filings:
3.1
Articles of Incorporation of DDR Systems, Inc. (Incorporated by reference filed
with the Company's Form S-1 on February 28, 2000).
3.2
By-laws of DDR Systems, Inc. (Incorporated by reference filed with the Company's
Form S-1 on February 28, 2000).
3.3
Certificate of Amendment to the Articles of Incorporation of DDR Systems, Inc.,
as filed with the Secretary of State of the State of Washington on March 16,
2001. (Incorporated by reference filed with the Company's Form 8-K on April 5,
2001).
3.4
Certificate of Amendment to the Articles of Incorporation of Grand Prix Sports,
Inc., as filed with the Secretary of the State of Washington on September 12,
2003. (Incorporated by reference filed with the Company's Form 8-K on October
10, 2003.
3.5
Certificate of Amendment to the Articles of Incorporation of Superclick, Inc.,
as filed with the Secretary of the State of Washington on October 30,
2006.
10.1 2004
Incentive Stock Option Plan dated April 8, 2004 (Incorporated by reference filed
with the Company's Form 8-K on May 7, 2002 as Exhibit 4.1).
31
10.2
Completion of acquisition of Hotel Net (Incorporated by reference filed with the
Company’s Form 8-K/A on October 21, 2005).
10.3
Amendment to 2004 Stock Incentive Plan dated October 30, 2006 (Incorporated by
reference filed with the Company’s Form 8-K on November 13, 2006).
10.4
Retirement of employee stock options (Incorporated by reference filed with the
Company's Form 8-K on November 7, 2007).
13.1
Annual report to shareholders for the fiscal year ended October 31, 2009
(Incorporated by reference filed as form 10-K on January 13, 2010).
13.2
Quarterly report to shareholders for quarter ended January 31, 2010
(Incorporated by reference filed as form 10-Q on March 16, 2010).
13.3
Quarterly report to shareholders for quarter ended April 30, 2010 (Incorporated
by reference filed as Form 10-Q on June 14, 2010).
13.3
Quarterly report to shareholders for quarter ended July 31, 2009 (Incorporated
by reference filed as Form 10-Q on September 13, 2010).
17.1
Resignation of Wendy Borow Johnson from the Company's board of directors
(Incorporated by reference filed with the Company’s 8-K on February 19,
2009).
17.2
Modification of outstanding stock options (Incorporated by reference filed with
the Company’s Form 8-K on November 3, 2010).
20.2
Annual financial update via press release (Incorporated by reference filed with
the Company’s Form 8-K on January 14, 2010).
20.3
Annual Shareholder Meeting presentation (Incorporated by reference filed with
the Company’s Form 8-K on June 4, 2010).
20.4
Quarterly financial update via press release (Incorporated by reference filed
with the Company’s Form 8-K on June 15, 2010).
20.5
Annual Shareholder Meeting presentation (Incorporated by reference filed with
the Company’s Form 8-K on June 15, 2010).
23.1
Consent of Independent Public Accountant, dated January 12, 2011.
31.1
Certification of Chief Executive Officer of Period Rerport pursuant to Rule 13a
-14a and Rule 15d-14(a).
31.2
Certification of Principal Financial Offier of Periodic Report pursuant to Rule
13a-14a and Rule 15d-14(a).
32.1
Certification pursuant to 18 U.S.C. Section 1350.
32.2
Certification pursuant to 18 U.S.C. Section 1350.
32
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date:
January 12, 2011
|
Superclick,
Inc.
|
|
By:
|
/s/ Sandro
Natale
|
|
Sandro
Natale
|
||
Chief
Executive Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE
TITLE DATE
|
||
/s/ Sandro Natale, January 12,
2011
|
||
Sandro
Natale, Chief Executive Officer
|
||
/s/ Jean Perrotti, January 12,
2011
|
||
Jean
Perrotti, Chief Financial Officer and Principle Accounting
Officer
|
BOARD OF
DIRECTORS
/s/ Todd M. Pitcher
|
Chairman
and Secretary
|
January
12, 2011
|
||
Todd
M. Pitcher
|
||||
/s/ Sandro Natale
|
Director
|
January
12, 2011
|
||
Sandro
Natale
|
||||
/s/ Paul Gulyas
|
Director
|
January
12, 2011
|
||
Paul
Gulyas
|
||||
/s/ George Vesnaver
|
Director
|
January
12, 2011
|
||
George
Vesnaver
|
|
|
33
SUPERCLICK,
INC.
REPORT ON AUDIT OF
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010
AND 2009
CONTENTS
PAGE
|
||
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
FINANCIAL
STATEMENTS
|
||
Consolidated
Balance Sheets
|
F-2
|
|
Consolidated
Statements of Operations
|
F-3
|
|
Consolidated
Statement of Stockholders’ Equity
|
F-4
|
|
Consolidated
Statements of Comprehensive Income
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
Notes
to the Financial Statements
|
|
F-7-24
|
34
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Superclick,
Inc.
We have
audited the accompanying consolidated balance sheet of Superclick, Inc. (the
“Company”), as of October 31, 2010 and 2009 and the related consolidated
statements of operations, stockholders’ equity, comprehensive income, and cash
flows for the years ended October 31, 2010 and October 31,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, based on our audits, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Superclick, Inc. as of October 31, 2010 and 2009 and the related consolidated
statements of operations, stockholders’ equity, comprehensive income, and cash
flows for the years ended October 31, 2010 and October 31, 2009, in conformity
with accounting principles generally accepted in the United States of
America.
/s/
Bedinger & Company
|
|
Certified
Public Accountants
|
|
Concord,
California
|
|
January
11, 2011
|
F-1
SUPERCLICK,
INC.
|
Consolidated Balance
Sheets
|
October
31,
|
October
31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 2,092,809 | $ | 2,192,058 | ||||
Accounts
receivable, net (Notes A&B)
|
1,835,377 | 1,481,814 | ||||||
Income
taxes receivable (Note C)
|
230,146 | - | ||||||
Inventory
(Note D)
|
440,477 | 73,276 | ||||||
Financing
receivables (Note B)
|
99,932 | - | ||||||
Other
current assets
|
47,471 | 36,777 | ||||||
TOTAL
CURRENT ASSETS
|
4,746,212 | 3,783,925 | ||||||
Fixed
assets, net (Note E)
|
160,943 | 126,989 | ||||||
Financing
receivables (Note B)
|
96,875 | - | ||||||
TOTAL
ASSETS
|
$ | 5,004,030 | $ | 3,910,914 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses (Note F)
|
$ | 1,515,245 | $ | 801,290 | ||||
Income
taxes payable (Note C)
|
- | 330,718 | ||||||
Deferred
revenue (Note G)
|
876,236 | 1,184,537 | ||||||
Deferred
financing income (Note B)
|
21,875 | - | ||||||
TOTAL
CURRENT LIABILITIES
|
2,413,356 | 2,316,545 | ||||||
Deferred
financing income (Note B)
|
16,312 | - | ||||||
TOTAL
LIABILITIES
|
2,429,668 | 2,316,545 | ||||||
Commitments
(Note H)
|
- | - | ||||||
STOCKHOLDERS'
EQUITY (Note I)
|
||||||||
Common
stock, par value $.0006, 175,000,000 shares
|
||||||||
authorized;
issued and outstanding 45,662,251 and
|
||||||||
45,312,251
at October 31, 2010 and 2009, respectively.
|
27,939 | 27,729 | ||||||
Additional
paid-in capital
|
6,140,779 | 6,123,489 | ||||||
Accumulated
deficit
|
(3,805,197 | ) | (4,595,719 | ) | ||||
Accumulated
other comprehensive income (loss)
|
||||||||
(Cumulative
translation adjustment)
|
225,981 | 54,010 | ||||||
Treasury
Stock
|
(15,140 | ) | (15,140 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
2,574,362 | 1,594,369 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 5,004,030 | $ | 3,910,914 |
SEE
NOTES TO FINANCIAL STATEMENTS
F-2
SUPERCLICK,
INC.
|
Consolidated
Statements of Operations
|
For the Years Ended October 31, 2010 and
2009
|
Years
Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
Revenue
|
||||||||
Net
Sales
|
$ | 4,942,469 | $ | 3,924,024 | ||||
Services
|
4,150,739 | 3,765,062 | ||||||
Net
revenue
|
9,093,208 | 7,689,086 | ||||||
Cost
of goods sold
|
5,017,326 | 3,715,228 | ||||||
Gross
profit
|
4,075,882 | 3,973,858 | ||||||
Costs and Expenses
|
||||||||
Selling,
general & administrative
|
2,584,065 | 1,868,656 | ||||||
Research
& development
|
284,226 | 217,211 | ||||||
Depreciation
|
44,959 | 42,326 | ||||||
Total
costs and expenses
|
2,913,250 | 2,128,193 | ||||||
Income
from operations
|
1,162,632 | 1,845,665 | ||||||
Other Income and (Expense)
|
||||||||
Interest
income
|
3,163 | 584 | ||||||
Interest
expense
|
(1,369 | ) | (31,689 | ) | ||||
Gain
on forgiveness of debt
|
- | 89,297 | ||||||
Total
other income and (expense)
|
1,794 | 58,192 | ||||||
Net
income before income taxes
|
1,164,426 | 1,903,857 | ||||||
Income
taxes
|
(373,904 | ) | (611,732 | ) | ||||
Net
income
|
$ | 790,522 | $ | 1,292,125 | ||||
Net
income per common share:
|
||||||||
Basic
|
$ | 0.02 | $ | 0.03 | ||||
Diluted
|
$ | 0.01 | $ | 0.02 | ||||
Weighted
average common shares outstanding:
|
||||||||
Basic
|
45,424,991 | 45,134,205 | ||||||
Diluted
|
58,149,991 | 58,986,561 |
SEE
NOTES TO FINANCIAL STATEMENTS
F-3
SUPERCLICK,
INC.
|
Consolidated
Statement of Stockholder's Equity
|
For
the Years Ended October 31, 2010 and
2009
|
Accumulated
|
||||||||||||||||||||||||||||||||
Common
Stock
|
Additional
|
Other
|
Total
|
|||||||||||||||||||||||||||||
Number
of
|
Paid-in
|
Accumulated
|
Comprehensive
|
Treasury
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Payable
|
Capital
|
Deficit
|
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
|
350,000 | $ | 210 | $ | 17,290 | 17,500 | ||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
171,971 | 171,971 | ||||||||||||||||||||||||||||||
Net
profit
|
790,522 | 790,522 | ||||||||||||||||||||||||||||||
BALANCES
October 31, 2010
|
45,662,251 | $ | 27,939 | $ | - | $ | 6,140,779 | $ | (3,805,197 | ) | $ | 225,981 | $ | (15,140 | ) | $ | 2,574,362 |
SEE
NOTES TO FINANCIAL STATEMENTS
F-4
SUPERCLICK,
INC.
|
Consolidated
Statements of Comprehensive Income
|
For
the Years Ended October 31, 2010 and
2009
|
Years Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
Net
income
|
$ | 790,522 | $ | 1,292,125 | ||||
Other
comprehensive income
|
||||||||
Foreign
currency translation adjustment
|
171,971 | 266,999 | ||||||
Net
comprehensive income
|
$ | 962,493 | $ | 1,559,124 |
SEE
NOTES TO FINANCIAL STATEMENTS
F-5
SUPERCLICK,
INC.
|
Consolidated
Statements of Cash Flows
|
For
the Years Ended October 31, 2010 and
2009
|
Years Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 790,522 | $ | 1,292,125 | ||||
Adjustments
to reconcile net income
|
||||||||
to net
cash provided (used) by operating activities:
|
||||||||
Depreciation
|
44,959 | 42,325 | ||||||
Stock
issued for services
|
- | 54,000 | ||||||
Gain
on forgiveness of debt
|
- | (89,297 | ) | |||||
Deferred
taxes
|
- | 17,461 | ||||||
CHANGES
IN ASSETS AND LIABILITIES:
|
||||||||
Accounts
receivable
|
(417,596 | ) | 722,152 | |||||
Other
receivables
|
(37,616 | ) | 3,577 | |||||
Prepaid
expenses
|
(13,510 | ) | (7,173 | ) | ||||
Inventory
|
(350,558 | ) | 287,225 | |||||
Accounts
payable and accrued expenses
|
677,457 | (264,537 | ) | |||||
Accrued
payroll
|
(49,303 | ) | 63,467 | |||||
Income
taxes payable and receivable
|
(531,804 | ) | 326,180 | |||||
Deferred
revenue
|
(350,706 | ) | (438,282 | ) | ||||
CASH
PROVIDED BY OPERATING ACTIVITIES
|
(238,155 | ) | 2,009,223 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition
of furniture and equipment
|
(70,427 | ) | - | |||||
CASH
(USED) FOR INVESTING ACTIVITIES
|
(70,427 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of loans
|
- | (203,317 | ) | |||||
Repayment
of convertible debenture
|
- | (761,588 | ) | |||||
Stock
options exercised
|
17,500 | - | ||||||
CASH
(USED) FOR FINANCING ACTIVITIES
|
17,500 | (964,905 | ) | |||||
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
191,833 | 366,220 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
(99,249 | ) | 1,410,538 | |||||
CASH,
beginning of period
|
2,192,058 | 781,520 | ||||||
CASH,
end of period
|
$ | 2,092,809 | $ | 2,192,058 | ||||
Interest
paid
|
$ | 1,367 | $ | 22,503 | ||||
Taxes
paid
|
$ | 474,600 | $ | 137,622 | ||||
Other
non-cash investing and financing activities:
|
||||||||
Shares
issued for services
|
$ | - | $ | 54,000 |
SEE
NOTES TO FINANCIAL STATEMENTS
F-6
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
In
October, 2003, Superclick, Inc. (formerly Grand Prix Sports, Inc.) completed an
acquisition of Superclick Networks, Inc. The acquisition was
accounted for as a recapitalization effected by a reverse merger, wherein
Superclick Networks, Inc. is considered the acquirer for accounting and
financial reporting purposes (collectively, Superclick Inc. and Superclick
Networks Inc. are referred to hereinafter as the “Company”). The
pre-merger assets and liabilities of the acquired entity have been brought
forward at their book value and no goodwill has been recognized. The
accumulated deficit of Superclick Networks, Inc. has been brought forward, and
common stock and additional paid-in-capital of the combined company have been
retroactively restated to give effect to the exchange rates as set forth in the
merger agreement.
Superclick
Networks, Inc. was organized on August 24, 2000, in Montreal, Quebec,
Canada. For purposes of the financial reporting of our reverse merger
acquisition, the date of inception is considered to be August 24,
2000.
The
Company 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 to hotels, multi dwelling
units (“MDU’s”) and universities on a worldwide basis. Superclick, Inc.
commercialized its initial Internet access management products in
2002.
On
October 6, 2003 Superclick, Inc. amended its articles of incorporation by
changing the name of the Company from Grand Prix Sports, Inc. to Superclick,
Inc. to more accurately reflect the nature of its business after the
recapitalization effected by the reverse merger.
Pursuant
to a share purchase agreement dated October 7, 2003, Superclick, Inc. acquired
100% of the issued and outstanding shares of Superclick Networks, Inc. from its
shareholders. In consideration for acquiring all of Superclick
Network’s shares Superclick, Inc. issued to its previous shareholders 14,025,800
shares of Superclick, Inc.’s common stock. As a result of the
acquisition, the former shareholders of Superclick Networks, Inc. held
immediately after the acquisition 71.7% of the issued and outstanding shares of
Superclick, Inc.’s common stock. The remaining 28.3% were held by
Superclick, Inc.’s (formerly Grand Prix Sports, Inc.) shareholders.
Concurrent
with the reverse merger of Superclick, Inc. with Superclick Networks, Inc, the
Company retroactively affected a 6 for 1 common stock split and retroactively
assigned $0.0006 par value to common stock where no value had been previously
stated. All share and per share amounts shown in these financial
statements reflect the stock split for all periods presented.
F-7
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
(Continued)
Pursuant
to its reverse merger with Superclick Networks Inc., Superclick, Inc. changed
its year-end to October 31 to coincide with the year-end of Superclick Networks,
Inc. The Company emerged from the development stage during 2005 as
its principal operations had commenced and its national rollout had been
completed. Accordingly, the Company revised the presentation of its Consolidated
Statements of Operations to reflect that of a commercial
enterprise.
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 market. 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 cashflow.
Summary of Significant
Accounting Principles
Principles of
consolidation
The
consolidated financial statements include the accounts of Superclick Networks,
Inc. and its wholly-owned subsidiaries, Superclick, Inc. which are 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.
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.
F-8
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
F-9
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 years ended
October 31, 2010 and 2009, the Company incurred approximately $8,718 and $3,002,
respectively, in advertising expense.
Earnings per common
share
The
Company reports both basic and diluted earnings (loss) per
share. Basic loss per share is calculated using the weighted average
number of common shares outstanding in the period. Diluted loss 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.
F-10
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial
Instruments (Continued)
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 October 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
October 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 October 31, 2010.
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.
F-11
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes
(Continued)
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 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 the Company did not encounter any significant financial impact upon
adoption.
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.
F-12
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting
Pronouncements (Continued)
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, this ASU did not have any impact on our 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 an impact on our financial statements.
Concentrations of credit
risk
The
Company performs ongoing credit evaluations of its customers. At
October 31, 2010, no customer accounted for 10% or more of accounts
receivable. At October 31, 2009, two customers individually accounted
for 53% (41% and 12%) of accounts receivable.
During
the year ended October 31, 2010 and 2009, no customer accounted for more than
10% of sales.
For the
years ended October 31, 2010 and 2009, approximately 42% and 34%, respectively
of the Company's net sales were made to customers outside the United
States.
F-13
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE A – ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentrations of credit
risk (Continued)
The
Company has been dependent on third-party equipment manufacturers, distributors,
dealers, and contractors for all of its supply of communications
equipment. For the years ended October 31, 2010 and 2009, the
Company’s three largest suppliers accounted for approximately 64% (26%, 23% and
15%) and 83% (38%, 30% and 15%) of product and service purchases,
respectively. The Company is dependent on the ability of its
suppliers to provide products and services on a timely basis and on favorable
pricing terms.
The loss
of certain principal suppliers or a significant reduction in product
availability from principal suppliers could have a material adverse effect on
the Company.
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.
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.
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.
Research and
development
Expenses
related to present and future products are expensed as
incurred.
F-14
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE B – ACCOUNTS
RECEIVABLE
Accounts
Receivable
The
accounts receivable balance of $1,835,377 as of October 31, 2010 is reported net
of an allowance for doubtful accounts of $32,215
The
accounts receivable balance of $1,481,814 as of October 31, 2009 is reported net
of an allowance for doubtful accounts of $44,806.
Sales Type Lease
Receivable
On July
1, 2010, the Company and The Regent Singapore (“TRS”) with 439 rooms entered
into an Installation Agreement and Support Agreement. Under the three
year Support Agreement commencing on August 10, 2010, TRS will receive 24x7x365
helpdesk support for hotel guests and staff. In exchange the Company
will receive a monthly room fee and annual license fee. Under the
Installation Agreement TRS received a guest internet access infrastructure
including networking equipment. The sale price of the installation
was $216,092. The Company received a $45,000 payment and agreed to
finance the remaining $171,092.
On July
14, 2010, the Company and InterContinental Hotels Group Resources, Inc. (“IHG”)
with approximately 12,700 rooms on 111 properties entered into a Master Services
Agreement. Under the three year Agreement, IHG will receive 24x7x365
helpdesk support for hotel guests and staff and a wireless overlay
infrastructure. In exchange, the Company will receive a monthly room
fee. Contained in the single monthly room fee is revenue for ongoing support and
financing on the installation hardware and labor. At the end of the
36 month term, ownership of the hardware passes to IHG. The
sale price of the installed hardware is $457,200 and includes hardware and
installation which is being accounted for under the completed contract
method. Costs associated with the installation portion of the
contract are being capitalized. The Company expects to complete the
installations and recognize the installed hardware portion of revenue and
capitalized costs in the first quarter ending January 31, 2011.
Pursuant
to ASC 840-10-25-1(a) and ASC 840-10-25-43(a), the terms of the agreements above
dictate that the hardware and installation portion of the agreements be treated
as sales-type capital leases. As a result, the Company has recognized
a lease receivable and unearned interest income liability on the equipment and
installation portion of the agreements.
As of
October 31, 2010 we have recorded $99,932 of current and $96,875 of non-current
lease receivables. Related to the above agreements is the current and
not-current unearned interest income of $21,875 and $16,312, respectively, in
the liability portion of our balance sheet.
F-15
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE C – INCOME TAXES
RECEIVABLE
As of
October 31, 2010, $230,146 was accrued for income taxes receivable from the
Canadian and Provincial taxing authorities. During 2010, the Company
recorded a provision for income taxes of $373,904 based on a combined Federal
and Provincial tax rate of 31% and paid taxes of $474,600 based on the prior
year’s taxable income. However, the current year’s taxable income
decreased resulting in a $230,146 receivable.
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 D -
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 October 31, 2010 and
2009:
2010
|
2009
|
|||||||
Computer
equipment
|
$ | 483,382 | $ | 113,848 | ||||
Allowance
for obsolete inventory
|
(42,905 | ) | (40,572 | ) | ||||
Inventory,
net
|
$ | 440,477 | $ | 73,276 |
NOTE E - PROPERTY AND
EQUIPMENT
Property
and equipment consisted of the following at October 31, 2010 and
2009:
2010
|
2009
|
|||||||
Computer
hardware
|
$ | 290,068 | $ | 205,834 | ||||
Furniture
& fixtures
|
153,395 | 145,052 | ||||||
Computer
software
|
103,343 | 97,722 | ||||||
Leasehold
improvements
|
34,474 | 32,599 | ||||||
Fabrication
mold and dye
|
22,330 | 21,116 | ||||||
603,610 | 502,323 | |||||||
Accumulated
depreciation
|
(442,667 | ) | (375,334 | ) | ||||
Fixed
assets, net
|
$ | 160,943 | $ | 126,989 |
Depreciation
expense for the years ended October 31, 2010 and 2009 was $44,959 and $42,325,
respectively.
F-16
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS ENDED OCTOBER 31, 2010 AND
2009
|
NOTE F – ACCOUNTS
PAYABLE
Accounts
payable and accrued expenses consisted of the following at October 31, 2010 and
2009:
October 31,
|
||||||||
2010
|
2009
|
|||||||
Trade
payables
|
$ | 883,220 | $ | 333,826 | ||||
Customer
overpayments
|
176,487 | 164,980 | ||||||
Professional
fees
|
184,318 | 25,762 | ||||||
Accrued
wages payable
|
239,728 | 276,722 | ||||||
GST/QST
tax payable
|
26,663 | - | ||||||
$ | 1,510,416 | $ | 801,290 |
As of
October 31, 2010, accrued wages payable included $40,041 and $31,722 due to the
CEO and CFO, respectively. As of October 31, 2009, accrued wages
payable included $101,184 and $56,612 due to the CEO and CFO,
respectively.
NOTE G – DEFERRED
REVENUE
Deferred
revenue consists of funds received in advance of services being
performed. As of October 31, 2010, the deferred revenue balance of
$876,236 consisted of 1) $677,731 related to support and maintenance for
multiple customers; 2) $198,505 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.
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.
F-17
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE H -
COMMITMENTS
On
October 1, 2010 the Company renewed a lease for office space. The
lease extends through September 30, 2014 at a rate of $4,695 per
month. At October 31, 2010, contractual obligations were as
follows:
Rent
|
||||
2011
|
56,340 | |||
2012
|
56,340 | |||
2013
|
56,340 | |||
2014
|
51,645 | |||
2015
and thereafter
|
- | |||
$ | 220,665 |
During
the years ended October 31, 2010 and 2009, the Company incurred $55,870 and
$62,058, 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 I - PREFERRED AND
COMMON STOCK
Preferred
Stock
The
Company has authorized 20,000,000 shares of $.0001 par value preferred stock
available for issuance. No preferred
shares have been issued as of October 31, 2010.
Common Stock Issued for
Services
No stock
was issued for services in 2010.
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.
F-18
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE I - PREFERRED AND
COMMON STOCK (Continued)
Common Stock
Options
During
the year ended October 31, 2010, 1) 777,356 common stock options with a weighted
average exercise price of $0.50 expired and 2) the Company received $17,500 upon
the exercise of options to acquire 350,000 shares of common stock. No
options were granted. The Company has recorded compensation expense
of $767,017 through October 31, 2010.
During
the year ended October 31, 2009, 100,000 options were canceled and none granted
or exercised.
NOTE J – 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 effective April 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 year ended October 31, 2010, 1) 777,356 common stock options with a weighted
average exercise price of $0.50 expired and 2) the Company received $17,500 upon
the exercise of options to acquire 350,000 shares of common stock
and. No options were granted.
F-19
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE J – STOCK INCENTIVE
PLANS (Continued)
The 2004 Incentive Stock
Option Plan (Continued)
On
October 30, 2010, the Board of Directors approved the extension of the
expiration date of options granted by the Company on October 30, 2006 to
purchase 12,725,000 shares of the Company’s common stock, held by Sandro Natale,
the Company’s Chief Executive Officer, Jean Perrotti, the Company’s Chief
Financial Officer, Enrico Demarin, the Company’s director of technology and
Cadilly Consultants, Ltd., an advisor to, and affiliate of, the
Company. Pursuant to the amended option agreements, the new
expiration date for the options is October 31, 2012 and the exercise price of
the options was adjusted to $0.0504 from the original exercise price of
$0.05. The exercise price was increased to $0.0504 from $0.0500 in
order to fully capture the expense of $5,090 that would have been recorded by
the Company had the original exercise price remained unchanged from
$0.0500. The company determined the new exercise price by subtracting
the current fair value of the options from the fair value of the modified
options. The fair value of the 12,725,000 original and modified
options was calculated using the Black-Scholes Option Pricing Model as of the
date of extension using the following inputs: volatility; 1.7%, risk free
interest rate; .375%, spot price; $0.16, time; 3 days for original options and
730 days for the modified options. The fair value of the original
options was $1,399,750 compared to the modified value of $1,404,840 resulting in
an increase in the value of the modifications of $5,090 or $0.0004 per
share.
The
following table summarizes the Company's stock option activity for the year
ended October 31, 2010 and 2009:
2009
|
2010
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Average
|
Average
|
|||||||||||||||
Shares
|
Exercise
Price
|
Shares
|
Exercise
Price
|
|||||||||||||
Outstanding
at beginning of year
|
13,952,356 | $ | 0.0750 | 13,852,356 | $ | 0.0750 | ||||||||||
Granted
|
- | - | - | - | ||||||||||||
Forfeited
|
(100,000 | ) | 0.0500 | (777,356 | ) | 0.5000 | ||||||||||
Exercised
|
- | - | (350,000 | ) | 0.0500 | |||||||||||
Outstanding
at end of year
|
13,852,356 | $ | 0.0750 | 12,725,000 | $ | 0.0504 | ||||||||||
Options
exerciseable at year end
|
13,852,356 | 12,725,000 |
F-20
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE J – STOCK INCENTIVE
PLANS (Continued)
The 2004 Incentive Stock
Option Plan (Continued)
The
following table summarizes information about the Company's stock options
outstanding at October 31, 2010:
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Number
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||
Range
of
|
Outstanding
|
Average
|
Average
|
Average
|
||||||||||||||||||
Exercise
|
At
October 31,
|
Contractural
|
Exercise
|
Number
|
Exercise
|
|||||||||||||||||
Prices
|
2010
|
Life
(years)
|
Price
|
Outstanding
|
Price
|
|||||||||||||||||
$ | 0.0504 | 12,725,000 | - | $ | 0.0504 | 12,725,000 | $ | 0.0504 | ||||||||||||||
Total
|
12,725,000 | - | $ | 0.0504 | 12,725,000 | $ | 0.0504 |
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
years ended October 31, 2010 and 2009, the Company recognized no compensation
expense. The Company has recorded compensation expense of $767,017
through October 31, 2010.
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 year ended October 31, 2010
From
inception through October 31, 2010, the Company has issued 2,569,772 shares to
our directors under this stock incentive plan.
F-21
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE K – NET OPERATING LOSS
CARRY FORWARD
US
Corporation
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
During
the year ended October 31, 2010, the U.S. based operation had a net loss of
approximately $57,000. A valuation allowance for the full amount of
the net deferred tax asset has been recorded because of uncertainties as to the
amount of taxable income that would be generated in future years. The
valuation allowance increased by approximately $22,800 for the year ended
October 31, 2010, assuming a tax rate of 40%.
United
States Corporation Income Taxes
|
|||||
Year of Loss (Income)
|
Amount
|
Expiration Date
|
|||
October
31, 2010
|
$ | 56,970 |
October
31, 2030
|
||
October
31, 2008
|
44,582 |
October
31, 2028
|
|||
October
31, 2006
|
781,183 |
October
31, 2026
|
|||
October
31, 2005
|
3,969,331 |
October
31, 2025
|
|||
October
31, 2004
|
898,697 |
October
31, 2024
|
|||
October
31, 2003
|
48,865 |
October
31, 2023
|
|||
$ | 5,799,628 |
During
the year ended October 31, 2009, the U.S. based operation had net income of
approximately $50,122. No tax was due as a result of the Company’s
net operating losses (NOL). The Company is maintaining a valuation
allowance for the full amount of the net deferred tax asset related to the NOL
because of uncertainties as to the amount of taxable income that will be
generated in future years. The valuation allowance decreased by
approximately $20,000 for the year ended October 31, 2009, assuming a tax rate
of 40%.
The
expiration dates for U.S. (NOL may be extendable under Section 381 of the U.S.
Internal Revenue Code.
Canadian
Subsidiary
During
the year ended October 31, 2010, Superclick Networks, Inc. (SNI) generated net
income for tax purposes of $1,391,875 CDN resulting in a provision for income
taxes of $429,265 or 30.8% combined tax rate.
F-22
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND 2009
|
NOTE K – NET OPERATING LOSS
CARRY FORWARD (Continued)
Canadian Subsidiary
(Continued)
During
the year ended October 31, 2009, Canadian operations generated net income for
tax purposes of $2,318,776 CDN resulting in a provision for income taxes of
$701,862 or 30.3% combined tax rate.
SNI
receives tax credits for research and development activities from Revenue Canada
and reimbursement of certain research and development activities from the
Province of Quebec. During the year ended October 31, 2010 the
Company assigned those tax credits against its income tax
liability.
SNI pays
and/or receives reimbursement of goods and services tax charged on the resale of
goods and services transacted in Canada from both Federal and from the
Provincial governments beyond the research and development tax credits described
above. As of October 31, 2010 and 2009, the Company recognized a
payable of $26,663 and a receivable of $5,279, respectively, for those sales
taxes.
NOTE L – 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 year ended October 31, 2010, Mr. Pitcher
received $65,637. During the year ended October 31, 2009, Mr. Pitcher
received $68,650.
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 year ended October 31, 2010
approximately $55,911 was paid to the IR firm. During the year ended
October 31, 2009 approximately $20,944 was paid to the IR firm.
NOTE M – 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. It is not
possible to reasonably determine the outcome of this complaint. The Company has
been monitoring the matter closely. Accordingly, it is not possible
to assess whether or not the Company needs to reserve for a potential
settlement.
F-23
SUPERCLICK,
INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
YEARS
ENDED OCTOBER 31, 2010 AND
2009
|
NOTE N – SUBSEQUENT
EVENTS
Pursuant
to FASB Accounting Standards Codification 855, Subsequent Events, Including ASC
855-10-S99-2, the Company evaluated subsequent events through January 11,
2011.
F-24