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EX-32.2 - SUPERCLICK INCv171042_ex32-2.htm
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EX-31.1 - SUPERCLICK INCv171042_ex31-1.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
 
x
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended October 31, 2009 or
o
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] 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)
   

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 o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. o
 
The Registrant’s revenues for the year ended October 31, 2009 were $7,689,086.
 
The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant on December 24, 2009 (based on the closing sale price of US $0.12 per share of the Registrant's common stock, as reported on Over-The-Counter Bulletin Board on that date) was approximately U.S. $4,832,271. 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 December 24, 2009 was 45,312,251.

Transitional Small Business Disclosure Format (Check one): YES o NO x
 

 
TABLE OF CONTENTS

ITEM NUMBER AND CAPTION
 
PAGE
       
Forward-Looking Statements
 
1
       
PART I
   
       
Item 1
Business
 
1
Item 1A
Risk Factors
 
4
Item 2
Properties
 
10
Item 3
Legal Proceedings
 
10
Item 4
Submission of Matters to a Vote of Security Holders
 
10
       
PART II
   
       
Item 5
Market for Registrant’s Common Equity, Related Stockholder
   
 
Matters and Issuer purchases of Equity Securities
 
11
Item 6
Selected Financial
 
15
Item 7
Management's Discussion and Analysis of Financial Condition
   
 
and Results of Operations
 
15
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
 
22
Item 8
Financial Statements and Supplementary Data
 
22
Item 9
Changes in and Disagreements with Accountants on Accounting
   
 
and Financial Disclosure
 
22
Item 9A
Controls and Procedures
 
23
       
PART III
   
       
Item 10
Directors, Executive Officers and Corporate Governance
 
24
Item 11
Executive Compensation
 
26
Item 12
Security Ownership of Certain Beneficial Owners and Management
   
 
and Related Stockholder Matters
 
30
Item 13
Certain Relationships and Related Transactions,
   
 
and Director Independence
 
31
Item 14
Principal Accounting Fees and Services
 
31
       
PART IV
   
       
Item 15
Exhibits, financial Statement Schedules
 
32
 

 
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.

PART I

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 120,000 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 575 hotels throughout North America, Europe and the Caribbean.

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.

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.
 
2

 
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 50% 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

 
RISK FACTORS

Interested persons should carefully consider the risks described below in evaluating the Company. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our common stock would likely decline.

We may be subject to indemnification obligations to our customers related to patent infringement suits brought by separate vendors in our industry against some of our customers.
 
We have been made aware that several companies providing public Internet access have been named in a lawsuit brought by a party claiming patent infringement. We have not been named in this action, although some companies that have been named are our customers. We have provided indemnification in our service contracts to several of these customers. We believe that it is too early to determine whether we have any exposure, but we have retained and consulted legal counsel to maintain a vigilant and proactive posture. We are actively discussing with our counsel ways that we can limit our potential liability. We are not defendants to this suit, nor have we retained litigation counsel on the matter. We will continue to monitor the situation. If we are named in the suit, it will require us to incur legal expenses, which will have a negative impact on our profitability. This in turn, may have a negative impact on our stock price.

Risks Related To Our Business:

Our revenue and operating results may fluctuate significantly from quarter to quarter, and fluctuations in operating results could cause its stock price to decline.

Our revenue and operating results may vary significantly from quarter-to-quarter due to a number of factors.   In future quarters, operating results may be below the expectations of public market analysis or investors, and the price of its common stock may decline.   Factors that could cause quarterly fluctuations include:

§
the beginning and ending of significant contracts during a quarter;
§
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; and
 
4

 
§
because a significant portion of expenses are relatively fixed, a variation in the number of installations or the timing of the initiation or the completion of client contracts may cause significant variations in operating results from quarter-to-quarter and could result in losses.

Any inability to adequately retain or protect our employees, customer relationships and proprietary technology could harm our ability to compete.

Our future success and ability to compete depends in part upon our employees, customer relationships, proprietary technology and trademarks, which we attempt to protect with a combination of patent, copyright, trademark and trade secret claims, as well as with our confidentiality procedures and contractual provisions. These legal protections afford only limited protection and are time-consuming and expensive to obtain and/or maintain. Further, despite our efforts, we may be unable to prevent third parties from soliciting our employees or customers or infringing upon or misappropriating our intellectual property.

Our employees, customer relationships and intellectual property may not be adequate to provide us with a competitive advantage or to prevent competitors from entering the markets for our products and services. Additionally, our competitors could independently develop non-infringing technologies that are competitive with, and equivalent or superior to, our technology. Monitoring infringement and/or misappropriation of intellectual property can be difficult, and there is no guarantee that we would detect any infringement or misappropriation of our proprietary rights.
Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business operations. The departure of certain key personnel could harm the financial condition of the Company.

Sandro Natale, one of our founders and our current CEO, is intimately involved in our business and has day-to-day relationships with critical customers. Mr Natale is also critical to our product development.

We may not be able to afford additional staff to supplement these key personnel. Competition for highly skilled business, product development, technical and other personnel is intense, and there can be no assurance that we will be successful in recruiting new personnel or in retaining our existing personnel. A failure on our part to retain the services of key personnel could have a material adverse effect on our operating results and financial condition. We do not maintain key man life insurance on any of our employees.

A third party has asserted that we and our customers are infringing on its intellectual property. Whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business.
 
There is considerable patent and other intellectual property development activity in the networking field and public Internet access industry. Our success depends, in part, upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, own or claim to own intellectual property relating to our industry and may have substantially larger and broader patent portfolios than we do.  We expect that networking and public Internet access-related intellectual property, including ours, will be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products and breadth of services in different industry segments expands and overlaps.
 
5

 
We have been named in a complaint by a competitor alleging that we and our customers are infringing on certain of its patents.
 
We believe we have meritorious defenses to these allegations.  Our counsel has contacted counsel for the other party to discuss these allegations.  Responding to and defending against claims may cause us to incur significant expense and divert the time and efforts of our management and employees. Successful assertion of such claims could require that we pay substantial damages or ongoing royalty payments, prevent us from selling our products and services, damage our reputation, or require that we comply with other unfavorable terms, any of which could materially harm our business. In addition, we may decide to pay substantial settlement costs in connection with any claim or litigation, whether or not successfully asserted.
 
Litigation with respect to intellectual property rights in the networking and Internet access industries is not uncommon and can often involve patent holding companies who have little or no product revenue and against whom our own patents may provide little or no deterrence.  As our customers increasingly demand that we indemnify them broadly from all damages and losses resulting from intellectual property litigation against them, we may also be obligated to indemnify our customers or business partners in connection with any such litigation, which could further exhaust our resources. Furthermore, as a result of an intellectual property challenge, we may be required to enter into royalty, license or other agreements. We may not be able to obtain these agreements on terms acceptable to us or at all. We may have to incur substantial cost in re-designing our products and services to avoid infringement claims. In addition, disputes regarding our intellectual property rights may dissuade potential customers from purchasing such products and services. As such, third-party claims with respect to intellectual property may reduce sales of our products and services, and may have a material and adverse effect on our business.

The market in which we compete is intensely competitive and actions by competitors could render our services less competitive, causing revenue and income to decline.

The ability to compete depends on a number of factors outside of our control, including:

§
the prices at which others offer competitive systems, including aggressive price competition and discounting on individual contracts, which may become increasingly prevalent due to worsening economic conditions;
§
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;
§
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.
 
6

 
The uncertain environment in the lodging industry and the economy will continue to impact our financial results and growth.

The present economic slowdown and the uncertainty over its breadth, depth and duration have left it unclear whether the lodging industry’s growth environment during the past few years will continue. Many economists have reported that the U.S. economy is in a recession. Recent substantial increases in transportation fuel costs, increases in air and ground travel costs and decreases in airline capacity that could stem from higher fuel costs, could also reduce demand for our customers’ hotel rooms which could result in lower demand for our solutions. Accordingly, our financial results and growth could be harmed if the economic slowdown continues for a significant period or becomes worse, or it 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;
§
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.

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.
 
7

 
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.

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.
 
8

 
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, 2009, we had exercisable stock options outstanding to purchase 13,852,356 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, 2009, a total of 10,299,344 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 2 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

Subsequent to year end the Company was named as a defendant by Nomadix, Inc. in a complaint for patent infringement of certain U.S. patents.  The matter has just been brought forth and is early in its process and it is not possible to reasonably determine the outcome of this complaint. The Company has been monitoring this situation closely and believes it has meritorious defenses to the claims. Accordingly, it is not possible, to assess whether or not the Company needs to reserve for a potential settlement.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
 
10

 
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.

2008
 
Low
   
High
 
             
First Quarter
  $ .12     $ .19  
Second Quarter
  $ .09     $ .17  
Third Quarter
  $ .10     $ .20  
Fourth Quarter
  $ .08     $ .14  
 
2009
           
             
First Quarter
  $ .03     $ .13  
Second Quarter
  $ .08     $ .17  
Third Quarter
  $ .11     $ .18  
Fourth Quarter
  $ .09     $ .15  

On December 24, 2009, the closing price was $0.12 for our stock.

Holders

Excluding equity held through CEDE, there are approximately one thousand one hundred ninety-five (1,195) holders of record of common equity as of December 14, 2009

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. Its 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.  The Company has recorded compensation expense of $767,017 through October 31, 2006.

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.

The following table summarizes the Company's stock option activity for the year ended October 31, 2009:

   
2009
 
         
Weighted Average
 
   
Shares
   
Exercise Price
 
             
Outstanding at beginning of year
    13,952,356     $ 0.075  
Granted
    -       -  
Forfeited
    (100,000 )     0.050  
Exercised
    -       -  
Outstanding at end of year
    13,852,356       0.075  
                 
Options exerciseable at year end
    13,852,356          

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.

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 Debt Repayment

During the year ended October 31, 2008, the Company issued 1,996,585 shares of common stock, including 1,846,182 shares in exchange for $200,135 of debenture principle and 150,403 shares of in exchange for $16,342 of accrued interest related to our debentures.

During the year ended October 31, 2009, the Company did not issue any stock in repayment of debt.

Stock issued for Services

During the year ended October 31, 2008, the Company issued 384,122 shares of common stock in exchange for director services.  Of the 384,122 shares, 1) 141,656 shares were issued for services performed in fiscal year 2007 which expense of $19,832 was recognized in our fiscal year ending October 31, 2007, and; 2) 242,466 shares were issued for services valued at $34,645.  The Company has accrued $18,000 to common stock payable for director services performed.  We anticipate the issuance of common stock for these services during our first fiscal quarter of 2009.

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.

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.
 
 
14

 

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.

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.  No other warrant activity occurred during 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.

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.
 
 
15

 

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.

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.
 
 
16

 

Maintenance and support revenue is recognized ratably over the maintenance term.  First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. Estimated fair values of ongoing maintenance and support obligations are based on separate sales of renewals to other customers or upon renewal rates quoted in the contracts.  For such arrangements with multiple obligations, we allocate revenue to each component of the arrangement based on the estimated fair value of the undelivered elements.  Fair value of services, such as consulting or training, is based upon separate sales of these services.  At times, we may enter into multiple-customer contracts in which we allocate revenue based on the number of specified users at each customer, and recognizes revenue upon customer acceptance and satisfying the other applicable conditions of the above described accounting policy.

Accounts receivable

Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts.  Interest is not accrued on overdue accounts receivable.  We evaluate receivables outstanding greater than ninety days on a regular basis for potential reserve.

Inventories

Inventories are valued at the lower of cost or market.  Cost is determined on a first-in, first-out method or market.  Management performs periodic assessments to determine the existence of obsolete, slow moving and non-salable inventories, such as discontinued products, and records necessary provisions to reduce such inventories to net realizable value.

Income taxes

Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

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.
 
 
17

 

Foreign Currency Translation

The financial statements of our Canadian subsidiary are measured using the Canadian dollar as the functional currency.   Assets, liabilities and equity accounts of the company are translated at exchange rates as of the balance sheet date or historical acquisition date, depending on the nature of the account.   Revenues and expenses are translated at average rates of exchange in effect during the period.   The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity.   The financial statements are presented in United States of America dollars.

Results of Operations

Twelve Months Ended October 31, 2009 and 2008

Revenue

During the year ended October 31, 2009, revenue increased $926,219 or 13.7% to $7,689,086 compared to $6,762,867 for the year ended October 31, 2008.  The favorable sales variances were incurred in both revenue streams.  Compared to the previous year, net service revenue which includes installation revenue increased 4.4% to $3,924,024 and services revenue which includes guest support services increased 25.3% to $3,765,062. 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, 2009 increased by $629,130 or 18.8% to $3,973,858 compared to $3,344,728 for the year ended October 31, 2008.  Gross margin for the current year was 51.7% compared to 49.5% the previous year.  Gross profit outperformed sales growth as revenue increased 13.7% but the gross profit increased 18.8%. The Company continues to deploy and service new and existing installations in a manner that is both effective and efficient resulting in continued strength in margins.  All deployments are supervised by our own team of engineers, minimizing the need for outsourced services which has proven to be efficient.  The Company owns and operates its own call center, which is located in Montreal, hence retaining full control over margins.

Selling, General and Administrative

For the years ended October 31, 2009 and 2008, selling, general and administrative expenses were $1,868,656 and $1,258,848, respectively.  The $609,808 or 48.4% increase in SG&A was primarily due to losses resulting from a decrease in the value of the US dollar relative to the Canadian dollar ($518,349) and increases in other various costs.
 
 
18

 

Research and Development

For the years ended October 31, 2009 and 2008, research and development expense was $217,211 and $183,408, respectively.  The $33,803 or 18.4% year-over-year increase was mainly due to increases in human resources to further solidify our solutions.

Income from operations

Income from operations for the year ended October 31, 2009 was $1,845,665 or 24.0% of net revenue compared to $1,840,843 or 27.2% of net revenue for the year ended October 31, 2008, a $4,822 or 0.3% increase.

Other Income and Expense

Interest income for the years ended October 31, 2009 and 2008 was $584 and $12,323, respectively.

Interest expense for the years ended October 31, 2009 and 2008 was $31,689 and $162,623, respectively.  Interest expense represents interest incurred on the debenture and on a note payable to one of the former shareholders of Hotel Net LLC.  The decrease in interest expense is due to only one month of debenture interest in 2009 compared to 12 months in 2008.  All debt has been paid as of October 31, 2009.

During the years ended October 31, 2009 and 2008, the Company recognized a gain on the forgiveness of debt of $89,297 and $8,846, respectively.  $79,970 of the current year’s 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.

During the years ended October 31, 2009 and 2008, we recognized a derivative gain of $0 and $17,963, respectively, related to the warrants which were issued in connection with the convertible debentures.  The warrants were canceled when the debenture was paid in January 2009.

Total other income and expense for the year ended October 31, 2009 was income of $58,192 compared to expense of $123,491 the previous year.

Net Income

The net income before income taxes for the year ended October 31, 2009 was $1,903,857 or 24.8% of net revenue representing an improvement of $186,505 or 10.9% compared to $1,717,352 or 25.4% of net revenue during the year ended October 31, 2008.  The Company recorded $611,732 in income tax expense during the year ended October 31, 2009 compared to $157,175 in 2008.  As a result, net income for the year ended October 31, 2009 was $1,292,125 or 16.8% of revenue and $268,052 or 17.2% lower compared net income of $1,560,177, or 23.1% of revenue for 2008.
 
 
19

 

Net Income (Loss) Per Common Share

For the years ended October 31, 2009, the net income per common share basic was $0.03 and $0.02 fully diluted, compared to $0.04 basic and $0.02 fully diluted for the year ended October 31, 2008.  The basic and fully diluted weighted average shares for the current fiscal year end was 45,134,205 and 58,986,561, respectively.  The basic and fully diluted weighted average shares for the year ended October 31, 2008 was 43,795,492 and 74,879,672, respectively.

FINANCIAL CONDITION

From inception to October 31, 2009, we have incurred an accumulated deficit of $4,595,719.  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.  However, in the current year we have experienced organic growth resulting in a larger customer base.  Net revenue has grown 13.7% producing a net profit margin after taxes of 16.8%.

From inception through 2007, we financed our operations primarily through debt and equity financing.  However, during the past two fiscal years we have repaid all prior debts and financed our operations through operating earnings.  During the year ended October 31, 2009 we had a net increase in cash of $1,410,538.  Total cash resources as of October 31, 2009 was $2,192,058 compared with $781,520 at October 31, 2008.

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

The Company generates cash flow from operations. Net income for the year ended October 31, 2009 was $1,292,125 compared to $1,560,177 for the year ended October 31, 2008 and the operations provided $2,009,223 of cash compared to $771,728 for the year ended October 31, 2008.

During the year ended October 31, 2009 and 2008, the Company financed operations solely with cash generated through sales and the collection of its accounts receivable.

The Hotel Net LLC notes matured on January 1, 2007.  Four of the five notes were canceled and replaced with new notes that did not accrue interest and mature December 31, 2009.  The remaining note was renegotiated down in exchange for being paid off.  During 2009, the Company paid $203,317 in satisfaction of all Hotel Net note holders. All notes have been paid in full as at October 31, 2009.
 
 
20

 

During the year ended October 31, 2008, we issued 1,996,585 shares of Common Stock in exchange for $216,477 of debt principle and accrued interest of our convertible debentures.

During the year ended October 31, 2008, we issued 384,122 shares of Common Stock to our directors in exchange for services performed, including 1) 141,656 which was expensed in 2007 and payable at October 31, 2007 valued at $19,832, and; 2) 242,466 for 2008 services valued at $34,645.

On January 23, 2009, the Company made a $726,079 settlement payment in full satisfaction of all outstanding debentures.  This payment was in addition to other principle payments of $41,588 made during the quarter.  The holder of our debentures accepted 90% of the outstanding principle and interest in full satisfaction resulting in a gain to the Company of $79,970.

Our need to raise additional equity or debt financing and our ability to generate cash flow from operations will depend on its future performance and our ability to successfully implement business and growth strategies.  Our performance will also be affected by prevailing economic conditions.  Many of these factors are beyond our control.  If future cash flows and capital resources are insufficient to meet our commitments, we may be forced to reduce or delay activities and capital expenditures or obtain additional equity capital.  In the event that we are unable to do so, we may be left without sufficient liquidity.

Off-Balance Sheet Arrangements

At October 31, 2009 we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

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, 2009, our contractual obligations under this lease were as follows:

2010
  $ 56,340  
2011
    56,340  
2012
    56,340  
2013
    56,340  
2014 and thereafter
    51,645  
    $ 277,005  
 
 
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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 currency 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 are recorded to shareholder’s equity.  During the year ended October 31, 2009 and 2008, the Company realized a loss of $240,483 and a gain of $277,866, respectively or a net gain over the past two years of $37,383 related to the settlement of accounts in foreign currency.  Based on the historical realized gain, and favorable exchange rate trends, management does not 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, 2009.   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 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.

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.
 
 
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ITEM 9A
CONTROLS AND PROCEDURES

The term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a, et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, 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 and includes those policies and procedures that:

 
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

 
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and

 
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud.  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 inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the registrant have been detected.  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.
 
 
23

 

Evaluation of Disclosure and Controls and Procedures.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.  We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  The evaluation was undertaken in consultation with our accounting personnel.  Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are currently effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  As we develop new business or if we engage in an extraordinary transaction, we will review our disclosure controls and procedures and make sure that they remain adequate.

Changes in Internal Controls over Financial Reporting.  There were no changes in the internal controls over our financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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
 
41
 
Chairman of the Board
         
Sandro Natale
 
40
 
CEO, President and Director
         
Jean Perrotti
 
47
 
CFO and Principal Accounting Officer
         
Paul Gulyas
 
53
 
Director
         
George Vesnaver
 
52
 
Director
         
Ronald A. Fon
 
42
 
Director
 
 
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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.

JEAN PERROTTI – CHIEF FINANCIAL OFFICER. 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.
 
 
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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, 2009.

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 2009 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 2009.

 
26

 

(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 Natale,
 
2009
  $ 149,603     $ 139,350                                
CEO
 
2008
  $ 178,786                                      
   
2007
  $ 150,259                         (900,000 )            
Jean Perrotti,
 
2009
  $ 132,506     $ 34,195                                          
CFO
 
2008
  $ 117,692     $ 29,198                                
   
2007
  $ 109,008     $ 27,252                   (600,000 )            

OPTIONS AND STOCK APPRECIATION RIGHTS

During the year ended October 31, 2009 no options or stock appreciation rights were granted.

The Company has recorded option compensation expense of $767,017 from inception through October 31, 2009.

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.

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.

 
27

 

During the year ended October 31, 2008, the Company issued 384,122 shares to directors for services rendered valued at $54,477 and accrued an additional $18,000.  Value for shares issued for services is based on fair market value of our stock on the date of issuance.  The following table shows director compensation earned during the year ended October 31, 2008:

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.

Name
 
Fees
earned or
paid in cash
   
Stock
awards
   
Option
awards
   
Non-equity
incentive plan
compensation
   
Nonqualified
deferred
compensation
earnings
   
All other
compensation
   
Total
 
                                           
Paul Gulyas
    13,080       3,000       -       -       -       249     $ 16,329  
George Vesnaver
    13,037       3,000       -       -       -       167     $ 16,204  
Todd Pitcher
    -       -       -       -       -       -     $ 0  
Ronald A. Fon
    7,352       -       -       -       -       348     $ 7,700  
Wendy Borow-Johnson
    -       3,000       -       -       -       -     $ 3,000  
Total
  $ 33,469     $ 9,000     $ 0     $ 0     $ 0     $ 764     $ 43,233  

From inception through October 31, 2009, 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.

 
28

 

Options Exercised In Last Fiscal Year And Fiscal Year-End Option Values

During the year ended October 31, 2008 510,000 options were exercised resulting in $25,500 to the company and the issuance of 510,000 shares of common stock.

As of October 31, 2008, the Company had 13,952,356 outstanding options all of which were exercisable.  The value to the company of the exercisable options based on their actual strike prices is $1,045,553.

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.

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.

 
29

 

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 $175,000 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 $155,000 plus bonus based on certain thresholds being met.

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, 2009, 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.

 
30

 

Name
 
Shares Beneficially Owned
   
Percent of Class
 
Sandro Natale (Canada)
    6,589,430       11.14 %
                 
Jean Perrotti (Canada)
    2,400,000       4.06 %
                 
Todd M. Pitcher
    828,359       1.40 %
                 
George Vesnaver (Canada)
    574,882       *  
                 
Paul Gulyas (Canada)
    551,782       *  
                 
Ronald A. Fon (Canada)
    100,000       *  
                 
All Officers and Directors as a Group
    11,044,453       18.67 %
                 
(*) means less than 1.0%
               

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND 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 Comprehensive Communications LLC who provides us with business services support.

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-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year 2009 were $62,990.  Additionally, Bedinger & Company has charged $5,000 for tax preparation services for fiscal year 2009.

(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 2009.

 
31

 

(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)

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, 2008 (Incorporated by reference filed as form 10KSB on January 20, 2009).

13.2 Quarterly report to shareholders for quarter ended January 31, 2009 (Incorporated by reference filed as form 10QSB on March 16, 2009).

 
32

 

13.3 Quarterly report to shareholders for quarter ended April 30, 2009 (Incorporated by reference filed as Form 10QSB on June 9, 2009).

13.3 Quarterly report to shareholders for quarter ended July 31, 2008 (Incorporated by reference filed as Form 10QSB on September 15, 2009).

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).

20.2 Annual financial update via conference call (Incorporated by reference filed with the Company’s Form 8-K on March 17, 2009).

20.3 Annual Shareholder Meeting presentation (Incorporated by reference filed with the Company’s Form 8-K on April 1, 2009).

20.4 Quarterly financial update via press release (Incorporated by reference filed with the Company’s Form 8-K on March 17, 2009).

20.5 Quarterly financial update via press release (Incorporated by reference filed with the Company’s Form 8-K on September 17, 2009).

20.6 Master Software License and Services Agreement with Hospitality Services Plus SA (Incorporated by reference filed with the Company’s 8-K on May 1, 2009). 

23.1 Consent of Independent Public Accountant, dated January 8, 2010

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.

 
33

 

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 8, 2010
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 8, 2010
Sandro Natale, Chief Executive Officer

/s/ Jean Perrotti, January 8, 2010
Jean Perrotti, Chief Financial Officer and Principle Accounting Officer

BOARD OF DIRECTORS

/s/ Todd M. Pitcher
 
Chairman and Secretary
 
January 8, 2010
Todd M. Pitcher
       
         
/s/ Sandro Natale
 
Director
 
January 8, 2010
Sandro Natale
       
         
/s/ Paul Gulyas
 
Director
 
January 8, 2010
Paul Gulyas
       
         
/s/ George Vesnaver
 
Director
 
January 8, 2010
George Vesnaver
  
 
  
 

 
34

 

SUPERCLICK, INC.

REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED OCTOBER 31, 2009 AND 2008

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 (Loss)
F-5
   
Consolidated Statements of Cash Flows
F-6
   
Notes to the Financial Statements
F-7-25

 
35

 

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, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for the years ended October 31, 2009 and October 31, 2008.  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, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for the years ended October 31, 2009 and October 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ Bedinger & Company
Certified Public Accountants
Concord, California
December 21, 2009

 
F-1

 

SUPERCLICK, INC.
           
Consolidated Balance Sheets
           
   
October 31,
   
October 31,
 
   
2009 
   
2008 
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 2,192,058     $ 781,520  
Accounts receivable, net (Notes A&B)
    1,481,814       2,142,205  
Tax refund receivable (Note N)
    5,279       48,269  
Deferred tax asset (Note N)
    -       78,556  
Inventory (Note C)
    73,276       330,298  
Prepaid expenses
    31,498       20,139  
TOTAL CURRENT ASSETS
    3,783,925       3,400,987  
Property and Equipment, net (Note D)
    126,989       153,397  
TOTAL ASSETS
  $ 3,910,914     $ 3,554,384  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses (Note E)
  $ 801,290     $ 764,646  
Income taxes payable (Note F)
    330,718       84,220  
Deferred revenue (Note G)
    1,184,537       1,643,665  
Loans payable
    -       12,626  
Notes payable (Note H)
    -       193,400  
Convertible debentures (Note l)
    -       841,558  
TOTAL CURRENT LIABILITIES
    2,316,545       3,540,115  
                 
TOTAL LIABILITIES
    2,316,545       3,540,115  
                 
Commitments (Note J)
    -       -  
                 
STOCKHOLDERS' EQUITY (Note K)
               
Common stock, par value $.0006, 175,000,000 shares authorized; issued and outstanding 45,312,251 and 44,937,251 at October 31, 2009 and 2008, respectively.
    27,729       27,504  
                 
Common stock payable
    -       18,000  
Additional paid-in capital
    6,123,489       6,060,714  
Accumulated deficit
    (4,595,719 )     (5,863,820 )
Accumulated other comprehensive income (loss)
(Cumulative translation adjustment)
    54,010       (212,989 )
Treasury Stock
    (15,140 )     (15,140 )
TOTAL STOCKHOLDERS' EQUITY
    1,594,369       14,269  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 3,910,914     $ 3,554,384  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-2

 

SUPERCLICK, INC.
           
Consolidated Statements of Operations
           
Years Ended October 31, 2009 and 2008
           
   
Year Ended
 
   
October 31,
 
   
2009
   
2008
 
Revenue
           
Net Sales
  $ 3,924,024     $ 3,756,874  
Services
    3,765,062       3,005,993  
Net revenue
    7,689,086       6,762,867  
Cost of goods sold
    3,715,228       3,418,139  
Gross profit
    3,973,858       3,344,728  
                 
Costs and Expenses
               
Selling, general & administrative
    1,868,656       1,258,848  
Research & development
    217,211       183,408  
Depreciation
    42,326       61,629  
Total costs and expenses
    2,128,193       1,503,885  
                 
Income from operations
    1,845,665       1,840,843  
                 
Other Income and (Expense)
               
Interest income
    584       12,323  
Interest expense
    (31,689 )     (162,623 )
Gain on forgiveness of debt
    89,297       8,846  
Derivative gain (loss)
    -       17,963  
Total other income (expense)
    58,192       (123,491 )
Net income before income taxes
    1,903,857       1,717,352  
Income taxes
    (611,732 )     (157,175 )
Net income
  $ 1,292,125     $ 1,560,177  
                 
Net income per common share:
               
Basic
  $ 0.03     $ 0.04  
Diluted
  $ 0.02     $ 0.02  
Weighted average common shares outstanding:
               
Basic
    45,134,205       43,795,492  
Diluted
    58,986,561       74,879,672  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-3

 

SUPERCLICK, INC.
Consolidated Statement of Stockholder's Equity
Years Ended October 31, 2009 and 2008
                           
Deficit
                   
                           
Accumulated
   
Accumulated
             
   
Common Stock
   
Additional
   
During the
   
Other
         
Total
 
   
Number of
               
Paid-in
   
Developmental
   
Comprehensive
   
Treasury
   
Stockholders'
 
   
Shares
   
Amount
   
Payable
   
Capital
   
Stage
   
Income (loss)
   
Stock
   
Equity
 
BALANCES October 31, 2007
    41,816,544     $ 25,631     $ 31,332     $ 5,754,632     $ (7,423,997 )   $ (31,902 )   $ (15,140 )   $ (1,659,444 )
                                                                 
Shares issued during the period:
                                                               
Shares issued for services
    384,122       230.00       (1,832 )     54,247                               52,645  
Shares issued for interest payable
    150,403       90.00               16,252                               16,342  
Shares issued for retirement of convertible debentures
    1,846,182       1,108.00               199,027                               200,135  
Stock options exercised
    740,000       445.00       (11,500 )     36,556                               25,501  
Stock subscriptions receivable
                                                            -  
Foreign Currency Translation Adjustment
                                            (181,087 )             (181,087 )
Net profit
                                    1,560,177                       1,560,177  
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  

SEE NOTES TO FINANCIAL STATEMENTS

F-4


SUPERCLICK, INC.
           
Consolidated Statements of Comprehensive Income
           
Years Ended October 31, 2009 and 2008
           
             
   
Year Ended
 
   
October 31,
 
   
2009
   
2008
 
             
Net earnings
  $ 1,292,125     $ 1,560,177  
                 
Other comprehensive income Foreign currency translation adjustment
    266,999       (181,087 )
                 
Net comprehensive income
  $ 1,559,124     $ 1,379,090  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-5

 

SUPERCLICK, INC.
           
Consolidated Statements of Cash Flows
           
Years Ended October 31, 2009 and 2008
           
   
Years Ended
 
   
October 31,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 1,292,125     $ 1,560,177  
Adjustments to reconcile net income to net cash provided (used) by operating activities:
               
Depreciation
    42,325       61,629  
Stock issued for services
    54,000       52,645  
Derivative gain on warrants issued with debentures
    -       (17,963 )
Stock issued for accrued interest
    -       16,342  
Gain on forgiveness of debt
    (89,297 )     -  
Deferred taxes
    17,461       (21,368 )
CHANGES IN ASSETS AND LIABILITIES:
               
Accounts receivable
    722,152       (1,689,390 )
Other receivables
    3,577       31,164  
Prepaid expenses
    (7,173 )     (1,954 )
Inventory
    287,225       (211,529 )
Accounts payable and accrued expenses
    (264,537 )     281,654  
Accrued payroll
    63,467       84,103  
Income taxes payable and receivable
    326,180       76,045  
Deferred revenue
    (438,282 )     550,173  
CASH PROVIDED BY OPERATING ACTIVITIES
    2,009,223       771,728  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of furniture and equipment
    -       (14,042 )
CASH (USED) FOR INVESTING ACTIVITIES
    -       (14,042 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayment of loans
    (203,317 )     (107,583 )
Repayment of convertible debenture
    (761,588 )     (479,953 )
Stock options exercised
    -       37,000  
CASH (USED) FOR FINANCING ACTIVITIES
    (964,905 )     (550,536 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    366,220       (215,221 )
NET INCREASE (DECREASE) IN CASH
    1,410,538       (8,071 )
CASH, beginning of period
    781,520       789,591  
CASH, end of period
  $ 2,192,058     $ 781,520  
                 
Interest paid
  $ 22,503     $ 123,498  
Taxes paid
  $ 137,622     $ 2,888  
                 
Other non-cash investing and financing activities:
               
Shares issued for services
  $ 54,000     $ 52,645  
Shares issued for accrued interest
  $ -     $ 16,342  
Shares issued for debt principle
  $ -     $ 200,135  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-6

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008


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, 2009 AND 2008 


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. and Hotel Net LLC, 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, 2009 AND 2008

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:

20%
Computer equipment and software:
30%
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, 2009 AND 2008

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Shipping and handling costs
The Company's policy is to classify shipping and handling costs as part of cost of goods sold in the statement of operations.

Advertising
The Company expenses all advertising as incurred.  For the years ended October 31, 2009 and 2008, the Company incurred approximately $38,125 and $72,441, respectively in marketing and 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.

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-10

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

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 July 1, 2009, the FASB officially launched the FASB ASC 105 - Generally Accepted Accounting Principles, which established the FASB Accounting Standards Codification (“the Codification”), as the single official source of authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission.  The Codification is designed to simplify U.S. GAAP into a single, topically ordered structure.  All guidance contained in the Codification carries an equal level of authority.  The Codification is effective for interim and annual periods ending after September 15, 2009.  Accordingly, the Company refers to the Codification in respect of the appropriate accounting standards throughout this document as “FASB ASC”.  Implementation of the Codification did not have any impact on the Company’s consolidated financial statements.

On June 30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01 (Topic 105) – Generally Accepted Accounting Principles – amendments based on – Statement of Financial Accounting Standards No. 168 –The FASB Accounting and Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.  Beginning with this Statement the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standard Updates.  This ASU includes FASB Statement No. 168 in its entirety.  While ASU’s will not be considered authoritative in their own right, they will serve to update the Codification, provide the bases for conclusions and changes in the Codification, and provide background information about the guidance.  The Codification modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative.  ASU No. 2009-01 is effective for financial statements issued for the interim and annual periods ending after September 15, 2009, and the Company does not expect any significant financial impact upon adoption.

 
F-11

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements (Continued)
In August 2009, the FASB issued ASU No. 2009-05 – Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.  This ASU clarifies the fair market value measurement of liabilities.  In circumstances where a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: a technique that uses quoted price of the identical or a similar liability or liabilities when traded as an asset or assets, or another valuation technique that is consistent with the principles of Topic 820 such as an income or market approach.  ASU No. 2009-05 was effective upon issuance and it did not result in any significant financial impact on the Company upon adoption.

In September 2009, the FASB issued ASU No. 2009-12 – Fair Value Measurements and Disclosures (Topic 820) – Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent).  This ASU permits use of a practical expedient, with appropriate disclosures, when measuring the fair value of an alternative investment that does not have a readily determinable fair value.  ASU No. 2009-12 is effective for interim and annual periods ending after December 15, 2009, with early application permitted.  Since the Company does not currently have any such investments, it does not anticipate any impact on its financial statements upon adoption.

In May 2009, the FASB issued FASB ASC 855, “Subsequent Events.”  This Statement addresses accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  FASB ASC 855 requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, the date issued or date available to be issued.  The Company adopted this Statement in the third quarter of 2009.  As a result the date through which the Company has evaluated subsequent events and the basis for that date have been disclosed in NoteQ, Subsequent Events.

In April 2009, the FASB issued an update to FASB ASC 820, “Fair Value Measurements and Disclosures,” related to providing guidance on when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly.  The update clarifies the methodology to be used to determine fair value when there is no active market or where the price inputs being used represent distressed sales.  The update also reaffirms the objective of fair value measurement, as stated in FASB ASC 820, which is to reflect how much an asset would be sold in and orderly transaction, and the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive.  The Company adopted this Statement in the second quarter of 2009 without significant financial impact.

 
F-12

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements (Continued)
In April 2009, the FASB ASC 320, “Investments – Debt and Equity,” amends current other-than-temporary guidance for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to credit and noncredit components impaired debt securities that are not expected to be sold.  Also, the Statement increases disclosures for both debt and equity securities regarding expected cash flows, securities with unrealized losses, and credit losses.  The Company adopted this Statement in the second quarter of 2009 without significant impact to our financial statements.

In April 2009, the FASB issued an update to FASB ASC 825, “Financial Instruments,” to require interim disclosures about the fair value of financial instruments.”  This update enhances consistency in financial reporting by increasing the frequency of fair value disclosures of those assets and liabilities falling within the scope of FASB ASC 825. The Company adopted this update in the second quarter of 2009 without significant impact to the financial statements.

In April 2009, the FASB issued an update to FASB ASC 805, “Business Combinations,” that clarifies and amends FASB ASC 805, as it applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies.  This update addresses initial recognition and measurement issues, subsequent measurement and accounting, and disclosures regarding these assets and liabilities arising from contingencies in a business combination.  The Company adopted this Statement in the second quarter of 2009 without significant impact to the financial statements.

In November 2008, EITF issued new guidance under FASB ASC 350, “Intangibles – Goodwill and Other on accounting for defensive intangible assets.”  The new guidance applies to all acquired intangible assets in which the acquirer does not intend to actively use the asset but intends to hold (lock up) the asset to prevent its competitors from obtaining or using the asset (a defensive asset).  This guidance was adopted by the Company in November 2009 without impact to the financial statements.

In May 2008, the FASB issued an update to FASB ASC 470, “Debt,” with respect to accounting for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement.  This update applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB ASC 815, “Derivatives and Hedging.”  Additionally, this update specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost recognized in

 
F-13

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements (Continued)
subsequent periods. The update is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  The Company does not currently have any debt instruments for which this update would apply.  This update was adopted in November 2008 without significant financial impact.

In December 2007, the FASB issued an update to FASB ASC 805, “Business Combinations” which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009.  The Company adopted this SFAS in the first quarter of 2009.

In December 2007, the FASB issued an update to FASB ASC 810, “Consolidation,” which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners.  This update is effective for the Company as of January 1, 2009.  The Company adopted this update in November 2008 without significant impact on the consolidated financial position, results of operations, and disclosures.

Concentrations of credit risk

The Company performs ongoing credit evaluations of its customers.  For the year ended October 31, 2009, two customers individually accounted for 53% (41% and 12%) of accounts receivable.  For the year ended October 31, 2008, two customers individually accounted for 41% (22% and 19%) of accounts receivable.

During the year ended October 31, 2009, no customer accounted for more than 10% of sales.  During the year ended October 31, 2008, the Company’s largest customer accounted for 10% of sales.

For the year ended October 31, 2009 and 2008, approximately 34% and 31%, respectively of the Company's net sales were made to customers outside the United States.

 
F-14

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

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, 2009 and 2008, the Company’s three and two largest supplier(s) accounted for 83% (38%, 30% and 15%) and 63% (38% and 25%) 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-15

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008

NOTE B – ACCOUNTS RECEIVABLE

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.  The accounts receivable balance of $2,142,205 as of October 31, 2008 is reported net of an allowance for doubtful accounts of $55,974.

NOTE C - INVENTORY

Inventory is comprised of computer equipment and stated at the lower of cost or market, as determined using the first in, first out method.   The following table represents the major components of inventory at October 31, 2009 and 2008:

   
2009
   
2008
 
Computer equipment
  $ 113,848     $ 350,912  
Allowance for obsolete inventory
    (40,572 )     (20,614 )