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EX-32.2 - SUPERCLICK INCv210004_ex32-2.htm
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EX-31.1 - SUPERCLICK INCv210004_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 for the fiscal year ended October 31, 2010 or
¨
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.

Commission File No. 333-31238

SUPERCLICK, INC.
(Exact name of registrant as specified in its charter)

Washington
52-2219677
(State or other jurisdiction of
(I.R.S. Employer Identification Number)
incorporation or organization)
 

10222 St-Michel Blvd., Suite 300
Montreal, Quebec, H1H 5H1
(Address, Including Zip Code, Including Area Code, Of Registrant's mailing address in Montreal)

Registrant’s telephone number, including area code:
(514) 847-0333

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.0006 per share
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting
company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
 
The aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant on January 11, 2011 (based on the closing sale price of US $0.21 per share of the Registrant's common stock, as reported on Over-The-Counter Bulletin Board on that date) was approximately U.S. $7,353,238. Common stock held by each officer and director and by each person known to the Registrant to own 5% or more of the outstanding common stock has been excluded in that those persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
The number of shares of the Registrant's common stock outstanding on January 11, 2011 was 45,959,870.

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

 
 

 
 
TABLE OF CONTENTS

ITEM NUMBER AND CAPTION
 
PAGE
Forward-Looking Statements
 
1
       
PART I
       
Item 1
Business
 
1
Item 1A
Risk Factors
 
4
Item 1B
Unresolved Staff Comments
 
10
Item 2
Properties
 
10
Item 3
Legal Proceedings
 
10
Item 4
(Removed and Reserved)
 
11
       
PART II
       
Item 5
Market for Registrant’s Common Equity, Related Stockholder
   
 
Matters and Issuer purchases of Equity Securities
 
11
Item 6
Selected Financial Data
 
15
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
16
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
 
23
Item 9A
Controls and Procedures
 
23
Item 9B
Other Information
 
24
       
PART III
       
Item 10
Directors, Executive Officers and Corporate Governance
 
25
Item 11
Executive Compensation
 
27
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
 
30
Item 14
Principal Accounting Fees and Services
 
31
       
PART IV
       
Item 15
Exhibits, financial Statement Schedules
 
31
 
Signatures
  
33

 
 

 
 
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 125,000 rooms.

In order to manage existing operations we will rely on the working capital generated by the Company’s operations as well as to seek additional debt or equity financing. However, there can be no assurance that any such additional financing will be available on terms, in amounts, or at timing acceptable to us, if available at all.

BUSINESS

Superclick provides IP-based data management solutions via its SIMS™ (“Superclick Internet Management System”) supported by a 24/7/365 customer support center to the hospitality market. SIMS™ is Linux-based software, typically referred to as Visitor-Based Networking (VBN) software, which manages the provisioning, and administration of Internet access over private and local area networks (“LANS”).

We market and install SIMS™ as part of a turnkey hardware and software deployment for our customers and also provide guest service support through our 24/7/365 helpdesk. SIMS™ is typically deployed with hardware, which provides High Speed Internet Access (HSIA) via Ethernet, DSL, WiFi or in combination.  Our SIMS™ platform has been successfully deployed in approximately 550 hotels globally.

Our customers include the Fairmont Raffles Hotels, Four Seasons Hotels Limited, Commonwealth Hospitality Group, InterContinental Hotels Group, Mandarin Oriental Hospitality Group, Candlewood Suites, Staybridge Suites, Comfort Inn, Crowne Plaza, Doubletree, Fairfield Inn, Four Points by Sheraton, Hampton Inn & Suites, Hilton, Holiday Inn, Hampton Inn, JW Marriott, Novotel, Quality Suites, Radisson, Residence Inn, Sheraton, Westin and Wyndham.

Business Model

Our current business model is to provide our customers with a turnkey installation of a SIMS™-based HSIA system. Customers purchase the hardware, software and installation services outright, retaining control of how the service is marketed to guests and other users, as well as any associated revenue charged.  This component of our business model provides us with one-time revenue.

 
2

 

We also provide customers with 24/7/365 guest support services through toll-free access to our Montreal-based helpdesk.  This service carries a flat fee on a per-room, per-year basis.  As customers are added to our client-list, the customer support revenue grows accordingly.  This provides the Company with a second source of revenue, which is recurring.

In addition, we continue to develop a suite of “IP (Internet Protocol) services” with revenue generating applications that allow customers in select markets with the ability to leverage their Internet infrastructure to increase revenues and increase their potential return on investment.  We are able to create revenue sharing arrangements with hotels based on these applications, creating yet another potential revenue stream to its business model.

COMPETITION

Most of our business is awarded by hoteliers and property management companies through competitive procurements.  The Internet management services industry is highly competitive and many of our competitors are larger and have greater financial resources than we do.  We obtain much of our business on the basis of proposals to new and existing customers.  Competition usually centers on successful past performance, technical capability, management, and price.

We have many competitors that contend for the same customers.  They are competent, experienced and range in size from several hundred of thousands of dollars in annual revenue to several million of dollars in annual revenue.  Many of our competitors also have significantly greater resources than we do.  Approximately 54% of our revenue is based on one time installation type sales and we continue to look at ways to improve our recurring revenue model through service and customer support.  We have achieved a level of trust with each of our clients that is comfortable, but not secure.  We recognize that our niche areas are desirable to other professional service firms, and we continuously seek to improve within these niches rather than expanding to new areas.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We believe that our intellectual property is important to our success, and we try to protect it as described above and through the maintenance of trade secrets.  We feel that name brand recognition will make our products and services stand out and become the recognized name in our industry.   However, the steps we take to protect our intellectual property may be inadequate.  Unauthorized parties may try to disclose, obtain or use our proprietary information, which could harm our business.  Others may claim that we have violated their proprietary rights or infringed on their intellectual property.  Any such claims could subject us to significant liability for damages and invalidate our proprietary rights.  Any efforts to protect or defend our rights could be time-consuming and costly.  Other parties may also independently develop similar or competing technology.

 
3

 

ITEM 1A.  RISK FACTORS

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

Risks Related To Our Business:

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

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

§
the beginning and ending of significant contracts during a quarter;
§
the number, size and scope of the installation contracts;
§
maintenance contracts can create variations in revenue levels and may cause fluctuations in quarterly results;
§
fluctuations in demand for services resulting from budget cuts, project delays, cyclical downturns or similar events, including the recent economic downturn;
§
the possibility and subsequent duration of conflicts involving the United States military could cause delays in program operations related to our hospitality clients by reducing travel;
§
clients' decisions to divert resources to other projects, which may limit clients' resources that would otherwise be allocated to solutions that we provide;
§
recessionary pressures in the United States may reduce the level of travel for business and leisure, which may, in turn limit our clients’ resources that would otherwise be allocated to solutions that we provide;
§
reductions in the prices of services offered by competitors;
§
the level and timing of legal and other expenses (including settlement costs) associated with our ongoing litigation and potential indemnification obligations; and
§
because a significant portion of expenses are relatively fixed, a variation in the number of installations or the timing of the initiation or the completion of client contracts may cause significant variations in operating results from quarter-to-quarter and could result in losses.

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

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

 
4

 

Our employees, customer relationships and intellectual property may not be adequate to provide us with a competitive advantage or to prevent competitors from entering the markets for our products and services.  Additionally, our competitors could independently develop non-infringing technologies that are competitive with, and equivalent or superior to, our technology.  Monitoring infringement and/or misappropriation of intellectual property can be difficult, and there is no guarantee that we would detect any infringement or misappropriation of our proprietary rights.

Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business operations.  The departure of certain key personnel could harm the financial condition of the Company.

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

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

Nomadix, Inc. has asserted that we and our customers are infringing on its intellectual property. Whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business.

There is considerable patent and other intellectual property development activity in the networking field and public Internet access industry. Our success depends, in part, upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, own or claim to own intellectual property relating to our industry and may have substantially larger and broader patent portfolios than we do. We expect that networking and public Internet access-related intellectual property, including ours, will be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products and breadth of services in different industry segments expands and overlaps.

We have been named in a complaint by Nomadix, Inc. alleging that we and our customers are infringing on certain of its patents.  In addition, as discussed in the following risk factor, we could be named in a lawsuit brought by a party claiming patent infringement by several of our customers.

 
5

 

We believe we have meritorious defenses to these current and potential allegations. Responding to and defending against claims may cause us to incur significant expense and divert the time and efforts of our management and employees. Successful assertion of such claims could require that we pay substantial damages or ongoing royalty payments, prevent us from selling our products and services, damage our reputation, or require that we comply with other unfavorable terms, any of which could materially harm our business. We may also have to incur substantial cost in re-designing our products and services to avoid infringement claims. In addition, we may decide to pay substantial settlement costs in connection with any claim or litigation, whether or not successfully asserted.

Litigation with respect to intellectual property rights in the networking and Internet access industries is not uncommon and can often involve patent holding companies who have little or no product revenue and against whom our own patents may provide little or no deterrence. As our customers increasingly demand that we indemnify them broadly from all damages and losses resulting from intellectual property litigation against them, we may also be obligated to indemnify our customers or business partners in connection with any such litigation, which could further exhaust our resources. See the following risk factor.  In addition, disputes regarding our intellectual property rights may dissuade potential customers from purchasing such products and services. As such, third-party claims with respect to intellectual property may reduce sales of our products and services, and may have a material and adverse effect on our business.

We may be subject to indemnification obligations to our customers related to patent infringement suits brought against them.

Several companies providing public Internet access, including some of our customers, have been named in a lawsuit brought by a party claiming patent infringement. Because our service contracts with these customers generally require us to indemnify them for patent infringement claims and damages relating to their use of our intellectual property, and our ability to terminate our customer agreements to prevent future infringement is limited, we may be required to fund the ongoing litigation between our customers and that plaintiff, and pay damage awards relating thereto.  These or other future indemnification obligations could materially and adversely affect our business, results of operations and financial position.  In addition, if we are named in the lawsuit, it will require us to incur legal expenses, which will have a negative impact on our business, results of operations and financial position. This in turn, may have a negative impact on our stock price.

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

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

§
the prices at which others offer competitive systems, including aggressive price competition and discounting on individual contracts, which may become increasingly prevalent due to worsening economic conditions;
§
the ability of competitors to undertake more extensive marketing campaigns;
§
the extent, if any, to which competitors develop proprietary offerings that improve their ability to compete;

 
6

 

§
the ability of our  customers to supply the solutions themselves; and
§
the extent of competitors' responsiveness to customer needs.

We may not be able to compete effectively on these or other factors.   If we are unable to compete effectively, market position, and therefore revenue and profitability, would decline.

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

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

International business exposes our company to various foreign requirements, which could interfere with business or operations and could result in increased expenses and declining profitability.

International operations create special risks, including:

§
statutory requirements, which may impair our ability to expatriate foreign profits to help fund domestic operations;
§
greater difficulties in managing and supplying turnkey installation at foreign locations;
§
cultural differences that adversely affect utilization;
§
unexpected changes in trading policies, legal and regulatory requirements, tariffs and other foreign taxes;
§
greater difficulties in enforcing agreements with clients and collecting accounts receivable;
§
the tax system of foreign countries, which may tax our foreign income at higher rates than in the United States and may subject foreign earnings to withholding requirements or tariffs, exchange controls or other restrictions;
§
legal requirements and regulations of various foreign countries, which may make compliance by us with such laws and regulations difficult and may make enforcement of our intellectual property rights more difficult; and
§
fluctuations in currency exchange rates, which may affect demand for our products and services and may adversely affect the profitability in United States dollars of services provided by us in foreign markets where payment for its products and services is made in the local currency; and general economic conditions in the foreign countries into which we sell, which could have an adverse impact on its earnings from operations in those countries.

 
7

 

If we and/or our product offerings fail to perform effectively, our reputation, and therefore our competitive position and financial performance, could be harmed.

Many of our new installation opportunities come from existing clients or from referrals by existing clients.  Therefore, growth is dependent on our reputation and on client satisfaction.   The failure to provide solutions or perform services that meet a client's expectations may damage our reputation and harm its ability to attract new business.   Damage to our reputation arising from client dissatisfaction could therefore harm financial performance.

The inability to protect intellectual property could harm our competitive position and financial performance.

Despite efforts to protect proprietary rights from unauthorized use or disclosure, parties, including former employees or consultants, may attempt to disclose, obtain or use our solutions or technologies.  The steps we have taken may not prevent misappropriation of solutions or technologies, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States.  Unauthorized disclosure of proprietary information could make our solutions and technologies available to others and harm our competitive position.

There are risks associated with our planned growth.

We have limited assets available to rely upon for adjusting to business variations and for growing new businesses.  Should we look for new funding to assist in the acquisition of other profitable businesses, it is uncertain whether such funds will be available.  If we are to grow and expand our operations, we will need to raise significant amounts of additional capital.  There can be no assurance that we will be successful in raising a sufficient amount of additional capital, or if we are successful, that we will be able to raise capital on reasonable terms.  If we do raise additional capital, our existing shareholders may incur substantial and immediate dilution.

The sales cycle for our products is lengthy and unpredictable.

The sales cycle between an initial customer contact and execution of a contract or license agreement with a customer, or purchase of our products, can vary widely.  Initially, we must educate our customers about the potential applications and benefits association with our products.  In addition, changes in our customers’ budgets, or the priority they assign to control network administration and development could also affect the sales cycle.

Due to our foreign client installations in Canada, the Caribbean and Europe, we are exposed to transaction adjustments with respect to foreign currency.

Our functional currency is the United States dollar.  However, our operating functional currency is the Canadian Dollar.  Under United States dollar functional currency, the financial statements of foreign subsidiaries are re-measured from the recording currency to the United States dollar.  The resulting re-measurement adjustment has been recorded as separate component of stockholder’s equity.  We believe that operating under United States dollar functional currency, combined with transacting business in countries with traditionally stable currencies mitigates the effect of any near-term foreign currency transaction adjustments on our financial position, results of operations and cash flows.

 
8

 

We have not engaged in foreign currency hedging transactions nor do we have any derivative financial instruments.  However, going forward, we will assess the need to enter into hedging transactions to limit its risk due to fluctuations in exchange rates.

Risks Relating To Our Common Stock:

There is a limited market for our common stock.

Our common stock is traded in the Over-the-Counter Bulletin Board market.  This may cause delays in the timing of transactions, reductions in the number and quality of securities analysts' reporting on us, and the extent of our coverage in the media.  Trading in our common stock has been sporadic, and at present, there is a limited market for it.  There can be no assurance that a stronger market will develop.  Even if such a market does develop, it may not be sustained.

Shareholders may suffer dilution upon the exercise of outstanding options.

As of October 31, 2010, we had exercisable stock options outstanding to purchase 12,725,000 shares of common stock.  To the extent such options are exercised there will be further dilution.  In addition, in the event that any future financing should be in the form of securities convertible into, or exchangeable for, equity securities, investors may experience additional dilution upon the conversion or exchange of such securities.
 
Future sales of our common stock by existing shareholders under Rule 144 could decrease the trading price of our common stock.

As of October 31, 2010, a total of 10,105,896 shares of our outstanding common stock were "restricted securities" and could be sold in the public markets only in compliance with Rule 144 adopted under the Securities Act of 1933 or other applicable exemptions from registration.  As of February 15, 2008, Rule 144 was amended to provide that a person who is not affiliated with the issuer, holding restricted securities for a period of six months may thereafter sell those securities, if the issuer is current with its reporting requirements.  Persons who are not affiliated with the issuer and who have held their restricted securities for at least one year are not subject to any limitations.  Possible or actual sales of our common stock by present shareholders under Rule 144 could have a depressive effect on the price of our common stock.

Our common stock is subject to "penny stock" rules.

Our common stock is classified as a penny stock by the Securities and Exchange Commission.  This classification severely and adversely affects the market liquidity for our common stock.  The Commission has adopted Rule 15g-9, which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.  In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.  The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, sets forth (i) the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.  Disclosure also has to be made about the risks of investing in penny stocks in public offerings and secondary trading and about the commissions payable to the broker-dealer and registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 
9

 
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2.  PROPERTIES
 
Our research and development activities and administrative offices are located in Montreal, Quebec, Canada.  Superclick, Inc. does not own any real property. The following information presents certain information about our leased properties:

   
Approximate
 
Date Current
     
Location
 
Square Feet
 
Expires
 
Monthly Rent
 
               
10222 St-Michel Boulevard
 
5,900 sq. ft.
 
Sept. 30, 2014
  US$
4,695
 
Suite 300 Montreal, Quebec
             
CANADA H1H 5H1
  
 
  
 
  
   

ITEM 3.  LEGAL PROCEEDINGS

On November 17, 2009 we were named as a defendant in Nomadix, Inc. v. Hewlett-Packard Company, et al., a lawsuit filed in the United States District Court for the Central District of California. Nomadix alleges that we infringe U.S. Patent Nos. 6,130,892, 7,088,727, 7,554,995, 6,636,894, 7,194,554, 6.868,399 and 7,689,716 by the use of our network gateway devices that connect computers and mobile devices to a network.  The lawsuit includes claims that relate to technology that is material to our products and services. In relation to its claims under each patent, Nomadix, Inc. seeks a compensatory damages and a permanent injunction against infringement by us, and a trebling of any damages based on an allegation of willful infringement.  We believe we have meritorious defenses to the claims and intend to defend ourselves vigorously.

 
10

 

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the OTC Bulletin Board under the symbol "SPCK.OB". The following table lists the high and low closing price for our common stock as quoted on the OTC Bulletin Board during each quarter within the last two fiscal years.

These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
 
Low
   
High
 
2009             
                 
First Quarter
  $ .03     $ .13  
Second Quarter
  $ .08     $ .17  
Third Quarter
  $ .11     $ .18  
Fourth Quarter
  $ .09     $ .15  
                 
2010
               
                 
First Quarter
  $ .11     $ .15  
Second Quarter
  $ .11     $ .14  
Third Quarter
  $ .11     $ .13  
Fourth Quarter
  $ .10     $ .17  

On January 7, 2011, the closing price was $0.21 for our stock.

Holders

Excluding equity held through CEDE, there are approximately one thousand one hundred ninety-five (1,125) holders of record of common equity as of January 7, 2011

Dividends

We have not declared any dividends on our common stock during the last three fiscal years and we do not expect to declare dividends in the foreseeable future since we intend to utilize our earnings, if any, to finance our future growth, including possible acquisitions.

Transfer Agent

The Transfer Agent and Registrar for our common stock is First American Stock Transfer.  Their address is 706 East Bell Road, Suite 202, Phoenix, AZ, 85022 and its telephone number at that location is 602-485-1346.

 
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Equity Compensation Plans

The 2004 Incentive Stock Option Plan

On April 8, 2004, the Board of Directors of the Company adopted the 2004 Incentive Stock Option Plan. This Plan is a plan for key Employees (including officers and employee directors) and Consultants of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.

The total number of shares of Stock set aside for Awards may be granted under the Plan is 2,000,000 shares. The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award The Plan was effective April 9, 2004 (the "Effective Date"), provided that within one year of the Effective Date, the Plan shall have been approved by at least a majority vote of stockholders.  No Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten years after the Effective Date.

During the year ended October 31, 2005, the Board of Directors authorized an increase in the shares allotted under the plan to 3,500,000 shares.

During the year ended October 31, 2006, the Board of Directors authorized an increase in the shares allotted under the Plan to 30,000,000 shares.  Also, during fiscal year 2006, 111,667 options were canceled due to employee terminations, 376,250 options that were out-of-the-money at $0.50 and $0.60 were exchanged for new options at $0.05 to purchase 15,523,750 shares and no options were exercised.  The balance of options outstanding at the end of the year was 16,732,148.  The Company granted 15,900,000 fully vested options to employees on October 30, 2006 and valued the options utilizing the Black Scholes Option Pricing Model with the following inputs: Risk-free interest rate 4.67%, Volatility 37% (here we used the standard deviation of closing share prices from November 1, 2002 through October 30, 2006, or 4 years), duration of 4 years, strike price of $.05, which yielded a per share fair market value of $.0179.   The Company recognized $285,078 of compensation expense related to the 15,900,000 grants and $83,551 for previously granted options bringing the total recognized option related compensation expense for the fiscal year ended October 31, 2006 to $368,629.

During the year ended October 31, 2007, 490,000 options were exercised resulting in $24,500 to the company and the issuance of 490,000 shares of common stock.  An additional 230,000 options were exercised on October 31, 2007 resulting in $11,500 received with shares issued in four tranches of 57,500 per month subsequent to the fiscal year ended October 31, 2007. Also, during the year, the Company canceled 1,549,792 options (874,792 options due to employee terminations and 675,000 voluntary cancellations from upper management).

 
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During the year ended October 31, 2008, no options were canceled or granted.  740,000 shares of common stock were issued pursuant to option exercises, including 1) 230,000 shares issued pursuant to prior year option exercises, and; 2) 510,000 shares issued pursuant to options exercised during 2008 which resulted in $25,500 to the company.  No other option activity occurred.

During the year ended October 31, 2009, 100,000 options were canceled and none were granted or exercised.

During the year ended October 31, 2010, 1) 777,356 common stock options with a weighted average exercise price of $0.50 expired and 2) the Company received $17,500 upon the exercise of options to acquire 350,000 shares of common stock.  No options were granted.  The Company has recorded compensation expense of $767,017 through October 31, 2010.

On October 30, 2010, the Board of Directors approved the extension of the expiration date of options granted by the Company on October 30, 2006 to purchase 12,725,000 shares of the Company’s common stock.  Pursuant to the amended option agreements, the new expiration date for the options is October 31, 2012 and the exercise price of the options was adjusted to $0.0504 from the original exercise price of $0.05.  The exercise price was increased to $0.0504 from $0.0500 in order to fully capture the expense of $5,090 that would have been recorded by the Company had the original exercise price remained unchanged from $0.0500.

The following table summarizes the Company's stock option activity for the year ended October 31, 2010 and 2009:

   
2009
   
2010
 
         
Weighted
         
Weighted
 
         
Average
         
Average
 
   
Shares
   
Exercise Price
   
Shares
   
Exercise Price
 
                         
Outstanding at beginning of year
    13,952,356     $ 0.075       13,852,356     $ 0.075  
Granted
    -       -       -       -  
Forfeited
    (100,000 )     0.050       (777,356 )     0.500  
Exercised
    -       -       (350,000 )     0.050  
Outstanding at end of year
    13,852,356       0.075       12,725,000       0.050  
                                 
Options exerciseable at year end
    13,852,356               12,725,000          

2004 Superclick, Inc. Non-Employee Director's Stock Incentive Plan

On December 31, 2003, the Board of Directors of the Company adopted the 2004 Superclick, Inc.  Non-Employee Director's Stock Incentive Plan (the "Stock Incentive Plan").  The Stock Incentive Plan provides for the issuance of Options, Restricted Stock, and/or Deferred Stock to an Awardee.  The total number of shares of Common Stock which may be awarded under the Plan is 1,500,000.  If any awarded shares are forfeited, they become available for future issuance.  An annual aggregate limit of 300,000 shares (including Options, Restricted Stock, and Deferred Stock) is set for any individual Director.

 
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The Stock Incentive Plan has a duration of ten years commencing on January 1, 2004.  Awardees are defined as director to whom an award is made.  An eligible director is any person who on the date of grant is a member of the Board of Directors of the Company and is not an employee of the Company or of any Subsidiary.  Stock Options are non-qualified right-to-buy Options for the purchase of Common Stock of the Company.  The term of each Option shall be ten years from the Date of Grant.  The Option Price shall be the Fair Market Value of Superclick, Inc. Common Stock on the date the Option is granted.  Under no circumstances shall any Option vest in less than one year from the date of grant.  Shares purchased upon exercise of an Option must be paid for in full at the time of exercise either in cash or with currently owned shares.  Neither the Committee on Directors and Governance nor the Board of Directors may re-price any Option that is less than the option exercise price.  Restricted Stock is Common Stock of the Company restricted as to sale in such fashion as the Committee on Directors and Governance shall determine.  Prior to the lifting of the restrictions, the Awardee will be entitled to receive dividends from and to vote the shares of Restricted Stock.

During the year ended October 31, 2009, the Company issued 75,000 shares of common stock in exchange for director services.  The shares were issued for services performed in fiscal year 2008 which expense of $9,000 was recognized in our fiscal year ending October 31, 2008.

No awards under the Non-Employee Director's Stock Incentive Plan were granted or issued during the year ended October 31, 2010

From inception through October 31, 2010, the Company has issued 2,569,772 shares to our directors under this stock incentive plan.

Common Stock

Private Placement and Warrant Activity

In August of 2005, we issued $2,250,000 of convertible debentures with 965,997 warrants attached.  These warrants were canceled pursuant to a settlement agreement dated January 23, 2009 whereby the Company made a $726,079 settlement payment in full satisfaction of our outstanding debentures.

Stock issued for Services

During the year ended October 31, 2009, the Company issued 75,000 shares of common stock in exchange for director services.  The shares were issued for services performed in fiscal year 2008 which expense of $9,000 was recognized in our fiscal year ending October 31, 2008.  Also, the Company issued 300,000 irrevocable restricted shares of common stock in exchange for investor relations services valued at fair market value of $0.18 per share or $54,000.

No stock was issued for services during the year ended October 31, 2010.

 
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Stock Options

On October 30, 2006 the Board of Directors increased the employee stock option pool established by the employee stock option plan to 30,000,000 from 3,500,000.

During the year ended October 31, 2009, 100,000 options were canceled, and none were granted or exercised.

During the year ended October 31, 2010, 1) 777,356 common stock options expired, 2) the Company received $17,500 upon the exercise of options to acquire 350,000 shares of common stock and 3) The Board of Directors approved the extension of the expiration date of 12,725,000 options to October 31, 2012 and increased the exercise price to $0.0504 from $0.05.

On October 30, 2010, the Board of Directors approved the extension of the expiration date of options granted by the Company on October 30, 2006 to purchase 12,725,000 shares of the Company’s common stock.  Pursuant to the amended option agreements, the new expiration date for the options is October 31, 2012 and the exercise price of the options was adjusted to $0.0504 from the original exercise price of $0.05.  The exercise price was increased to $0.0504 from $0.0500 in order to fully capture the expense of $5,090 that would have been recorded by the Company had the original exercise price remained unchanged from $0.0500.

Warrants

At October 31, 2009 the Company had no warrants outstanding.  The 965,997 warrants related to the convertible debentures which entitled the holder thereof the right to purchase one common share for each warrant were canceled as a result of the debenture settlement on January 23, 2009.  No other warrant activity occurred during 2010 and 2009.

ITEM 6.  SELECTED FINANCIAL DATA

Smaller reporting companies:

A registrant that qualifies as a smaller reporting company, as defined by §229.10(f)(1), is not required to provide the information required by this Item.

 
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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain financial information and statements regarding our operations and financial prospects of a forward-looking nature. Although these statements accurately reflect management's current understanding and beliefs, we caution you that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to be made in this prospectus. For this purpose, any statements contained in this prospectus which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as, "may", "intend", "expect", "believe", "anticipate", "could", "estimate", "plan" or "continue" or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. There can be no assurance of any kind that such forward-looking information and statements will be reflective in any way of our actual future operations and/or financial results, and any of such information and statements should not be relied upon either in whole or in part in connection with any decision to invest in the shares.

The following discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto and the other information included in this Annual Report on Form 10-K.

Overview

We derive the majority of our revenue from the installation of our Superclick Internet Access Management System (SIMS™) and from revenue generated from our call center. Support fees are tied to the number of rooms serviced in a client’s property. Due to our reliance on installations, variations in revenue levels may cause fluctuations in quarterly results.   Factors such as a client's commitment to providing internet access to their guests, general economic and industry conditions and other issues could affect our revenue and earnings.

In addition to our North American operations, we have installations and contracts in Europe and the Caribbean.  With the exception of Canadian operations, the majority of transactions in other regions are denominated using the United States dollar.   However, some of our transactions are in Canadian dollars; therefore, we are exposed to currency fluctuation risks.

We continue to develop our product offering and IP management solutions, listening carefully to our customers to determine development paths that most directly meet their needs. Superclick emerged from the development stage during the fiscal year ended October 31, 2005.

 
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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the accompanying financial statements and related footnotes.  We base our estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors.  Actual results may differ from these estimates.  Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions.  In consultation with our Board of Directors, we have identified six accounting principles that we believe are key to an understanding of our financial statements.  These important accounting policies require management's most difficult, subjective judgments.

Revenue Recognition

Revenue from the sale of Internet high speed connection equipment and installation is recognized when the earning process is complete and the risk and rewards of ownership have transferred to the customer, which is considered to have occurred after the delivery and installation of the equipment to the customer.

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

The Company has agreed, on occasion, to sell equipment under lease.   The Company uses the Leases Topic of the FASB ASC 840, Leases, to evaluate whether an arrangement is a lease and the classification of the lease.  Arrangements not within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable.   A lease arrangement that transfers substantially all the benefits and risks incident to ownership of the equipment is classified as a sales-type lease; otherwise the lease is classified as an operating lease.  We currently have no operating leases.

For sales-type leases, the revenue allocated to the equipment is recognized when the lease term commences, which the Company deems to be when all of the following conditions have been met: (i) the equipment has been installed (ii)  receipt of the written customer acceptance certifying the completion of installation, provided collectability is reasonably assured.  The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future payments computed at the interest rate implicit in the lease.  The determination of the fair value of the leased equipment requires judgment and can impact the split between revenue and finance income over the lease term.

Finance income is recognized over the term of the lease or over the period of time specified in the sales arrangement, provided collectability is reasonably assured.

 
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Accounts receivable

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

Inventories

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

Income taxes

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

When accounting for Uncertainty in Income Taxes, first, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination.  If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements.  The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company underwent a change of control for income tax purposes on October 8, 2003 according to Section 381 of the Internal Revenue Code.  The Company's utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Foreign Currency Translation

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

 
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Results of Operations

Twelve Months Ended October 31, 2010 and 2009

Revenue

During the year ended October 31, 2010, revenue increased $1,404,122 or 18.3% to $9,093,208 compared to $7,689,086 for the year ended October 31, 2009.  The favorable sales variances were incurred in both revenue streams.  Compared to the previous year, net service revenue which includes installation revenue increased 26.0% to $4,942,469 from $3,924,024 in 2009 and services revenue which includes guest support services increased 10.2% to $4,150,739 from $3,765,062 in 2009. The Superclick solution continues to receive strong validation from new clients and existing clients.  Along with year over year increases in net sales, the Company was able to secure support contracts not only with new customers but successfully renew services with existing clients.

Gross Profit

Gross profit for the year ended October 31, 2010 increased by $102,024 or 2.6% to $4,075,882 compared to $3,973,858 for the year ended October 31, 2009.  Gross margin for the current year was 44.8% compared to 51.7% the previous year.  The unfavorable margin was due to increases in cost of sales to support the services revenue. The increases consisted mainly of human capital to strengthen both the call center and the network operating center expertise.  A higher skill level Call Center and NOC is required to adequately service our target market which includes some of the most prestigious brands in the industry. Accordingly, the support centers’ operated at a lower margin than the previous year.

Selling, General and Administrative

For the years ended October 31, 2010 and 2009, selling, general and administrative expenses were $2,584,065 and $1,868,656, respectively. The $715,409 or 38.3% increase in SG&A was primarily due to approximately $564,000 increase in sales and marketing expenses and $163,000 increase in general expenses.

The unfavorable sales and marketing variance was attributable to essentially two categories.  Namely, costs associated with the increase of human capital and the greater participation in industry conferences and other business development costs.  Human capital increases represented approximately 60% of the total variance.

The increase in general expenses was mainly due to increases in legal costs.

Research and Development

For the years ended October 31, 2010 and 2009, research and development expense was $284,226 and $217,211, respectively.  The $67,015 or 30.9% year-over-year increase was mainly due to increases in human resources to further solidify our solutions.

 
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Income from operations

Income from operations for the year ended October 31, 2010 was $1,162,632 or 12.8% of net revenue compared to $1,845,665 or 24.0% of net revenue for the year ended October 31, 2009; a $683,033 or 37.0% decrease.

Other Income and Expense

Total other income and expense for the year ended October 31, 2010 was income of $1,794 compared to income of $58,192 in 2009.

Interest income for the years ended October 31, 2010 and 2009 was $3,163 and $584, respectively.

Interest expense for the years ended October 31, 2009 and 2008 was $1,369 and $31,689, respectively.  The decrease in interest expense is primarily due to only one month of debenture interest in 2009 compared to nil in 2010.

During the years ended October 31, 2010 and 2009, the Company recognized a gain on the forgiveness of debt of $0 and $89,297, respectively.  $79,970 of the 2009 gain was the result of a negotiated decrease in repayment amount for the debenture in exchange for the settlement of the balance.  The remainder of the gain was due to a reduction in the amounts agreed to be paid on three Hotel Net notes in exchange for early settlement.

Net Income

The net income before income taxes for the year ended October 31, 2010 was $1,164,426 or 12.8% of net revenue compared to $1,903,857 or 24.8% of net revenue during the year ended October 31, 2009.  The Company recorded $373,904 in income tax expense during the year ended October 31, 2010 compared to $611,732 in 2009.  As a result, net income for the year ended October 31, 2010 was $790,522 or 8.7% of revenue and $501,603 or 38.8% lower compared net income of $1,292,125, or 16.8% of revenue for 2009.

Net Income (Loss) Per Common Share

For the years ended October 31, 2010, the net income per common share basic was $0.02 and $0.01 fully diluted, compared to $0.03 basic and $0.02 fully diluted for the year ended October 31, 2009.  The basic and fully diluted weighted average shares for the current fiscal year end was 45,424,991 and 58,149,991, respectively.  The basic and fully diluted weighted average shares for the year ended October 31, 2009 was 45,134,205 and 58,986,561, respectively.

FINANCIAL CONDITION

From inception to October 31, 2010, we have incurred an accumulated deficit of $3,805,197.  This loss has been incurred through a combination of professional fees and expenses supporting our plans to acquire synergistic businesses as well as past operating losses.  Beginning in 2007 we have experienced stabilization in our business and implemented efficiency initiatives that have resulted in a larger customer base and improved profitability.  This has allowed us to reduce our accumulated deficit by $4,497,678 from its high of $8,302,875 on January 31, 2007.

 
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From inception through 2005, we financed our operations primarily through debt and equity financing.  However, during the past five fiscal years all prior debts have been repaid and operations have been financed solely from operating earnings.  During the year ended October 31, 2010 we had a net decrease in cash of $99,249.  Total cash resources as of October 31, 2010 was $2,092,809 compared with $2,192,058 at October 31, 2009.

Our available working capital and capital requirements will depend upon numerous factors, including the deployment and sale of Internet access management solutions, the timing and cost of expanding into new markets, the cost of developing competitive technologies, changes in our existing collaborative and licensing relationships, the resources that we devote to developing new products and commercializing capabilities, the status of our competitors, our ability to establish collaborative arrangements with other organizations, and our ability to attract and retain key employees.


The Company's Liquidity Plan

During the years ended October 31, 2010 and 2009, the Company has financed operations solely with cash generated through sales and the collection of its accounts receivable.

Net income for the year ended October 31, 2010 was $790,522 compared to $1,292,125 for the year ended October 31, 2009.  During 2010 operations used $238,155 compared to providing $2,009,223 for the year ended October 31, 2009.

During 2009, the Company paid $203,317 in satisfaction of all note holders.  All notes have been paid in full as at October 31, 2009.

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

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

Off-Balance Sheet Arrangements

At October 31, 2010 we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

 
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Contractual Obligations

Operating lease obligations:  Operating lease obligations consist of office rental commitment for our offices in Montréal, Québec, Canada.   On October 1, 2009 we renewed a lease for office space in Montréal.  The lease extends through September 30, 2014 at a rate of $4,695 per month.

At October 31, 2010, our contractual obligations under this lease were as follows:

2011
    56,340  
2012
    56,340  
2013
    56,340  
2014
    51,645  
2015 and thereafter
    -  
    $ 220,665  

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency Exchange Rates

A majority of our revenue, expense, and capital purchasing activities are transacted in and exposed to the Canadian dollar and changes in the currency exchange rate.  We do not use derivative financial instruments to manage exchange rate risk.  Realized gains and losses resulting from the settlement of accounts in the foreign currency are recorded to operating income during the period incurred with changes due to conversion of the financial statements of our Canadian subsidiary into US dollars recorded to shareholder’s equity.  During the year ended October 31, 2010 and 2009, the Company realized losses of $252,790 and $240,483, respectively related to the settlement of accounts in foreign currency primarily as a result of the strengthening Canadian dollar relative to other currencies.  Management does not currently intend to initiate a hedging program.
 
Inflation

Although our operations are influenced by general economic conditions, we do not believe inflation had a material effect on the results of operations during the year ended October 31, 2010.   However, there can be no assurance our business will not be affected by inflation in the future.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is submitted as a separate section of this Form 10-K. See REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS, Page 34.

 
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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no reportable events of the type described in Item 304(a)(1)(iv) of Regulation S-B.

ITEM 9A.  CONTROLS AND PROCEDURES

Management Evaluation of Disclosure Controls and Procedures

As of October 31, 2010, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934, as amended.  Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be effective.

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms.  Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of October 31, 2010.  In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.  The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.  In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Annual Report on Form 10-K that our internal control over financial reporting has been effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this prospectus.

 
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Changes in Internal Controls

Management of the Company has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year ended October 31, 2010.  There was no change in the Company’s internal control over financial reporting identified in that evaluation that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, other than what has been reported above.

Limitations on the Effectiveness of Controls and Other Matters

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended).  Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B.  OTHER INFORMATION

Not applicable.

 
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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

In Compliance With Section 16(a) Of The Exchange Act As of October 31, 2009, our executive officers, directors and key employees, their positions and their ages are as follows:
 
DIRECTORS AND EXECUTIVE OFFICERS

Name
 
Age
 
Position
         
Todd M. Pitcher
 
42
 
Chairman of the Board
         
Sandro Natale
 
41
 
CEO, President and Director
         
Jean Perrotti
 
48
 
CFO and Principal Accounting Officer
         
Paul Gulyas
 
54
 
Director
         
George Vesnaver
 
53
 
Director
         
Ronald A. Fon
 
43
 
Director

EXECUTIVE OFFICERS AND DIRECTORS

TODD M. PITCHER has been Chairman of the Board of our company since completion of the merger transaction with Superclick Networks, Inc. in October 2003.  In addition, Mr. Pitcher served as Chief Financial Officer and Principal Accounting Officer for the period of April 2005 through the year ended October 31, 2005.  Mr. Pitcher is currently Managing Partner of Aspire Clean Tech Communications, an alternative energy advisory and corporate communications firm. Mr. Pitcher has several years experience in the investment banking, business consulting and equity research, serving as Director of Equity Research at Equity Securities in Golden Valley, Minnesota, and several other regional investment banking firms. Mr. Pitcher has B.A. in Philosophy from the University of California at Berkeley and has attended graduate school at the University of California at Santa Barbara and Claremont Graduate School.

SANDRO NATALE was officially appointed President and CEO November 16, 2006.  Previously, he has been VP of Business Development of our company since completion of the merger transaction with Superclick Networks, Inc. in October 2003. Prior to the merger, Mr. Natale served as VP of Business Development of Superclick Networks, Inc. Prior to Superclick, Mr. Natale founded ITS Service Inter-Tek, a computer networking company that was later acquired by GSI Technologies. Mr. Natale has 18 years experience in the technology and system integration business. Prior to joining the Superclick Networks Team in 2001, Mr. Natale was President and of founder of I.T.S services a successful IT services integrator which was later sold to GSI Technologies. Mr. Natale served as V.P. of sales and marketing where he assumed increasing responsibilities in various organizational units, including, revenue planning, regulation, marketing, sales operations and information systems. Mr. Natale holds a computer science degree from Dawson College.

 
25

 

JEAN PERROTTI – Mr. Perrotti has been CFO and Principal Accounting Officer for our Company since November 2005. Mr Perrotti was most recently a senior consultant providing CFO assistance to a variety of industries including SOX consulting services. Before managing a successful consulting career, he held various senior financial roles including CFO of Normex Telecom Inc / Cygnal Technologies Inc a leading Canadian provider of network communication solutions. Prior to joining Cygnal, Mr. Perrotti held Controllership positions with a food ingredient manufacturer and a fashion belt manufacturer. Mr. Perrotti began his career as a financial auditor with a public accounting firm situated in Montreal. Mr. Perrotti holds a Bachelor Degree of Commerce from Concordia University, is a member of the Order of Certified General Accountants of Canada, a member of the Association of Certified Design Accountants, an accredited member of the Guild of Industrial, Commercial and Institutional Accountants, a member of the European Accounting Association and an affiliate member of the Association of International Accountants.

GEORGE VESNAVER – Mr. Vesnaver has been a Director of our company since August, 2004. Mr. Vesnaver is currently Vice-President of Sales and a Partner of Zinc Solutions based in Montreal where he oversees innovative software development and infrastructure projects. Mr Vesnaver brings over 25 years experience in building IT businesses that specialize in the delivery of IT Professional Services and Software based solutions.   Prior to Zinc Solutions, Mr. Vesnaver held numerous senior positions at Hewlett Packard including Director of Sales for its Canadian Software Business Unit as well as Director World Wide Sales for HP's Software Automation business.  Mr. Vesnaver holds a bachelor’s degree in electrical engineering from Concordia University and an MBA in international business and finance from McGill University.

PAUL GULYAS - Director. Mr. Gulyas has been a director of the Company since 2004. He has more than 32 years of diverse industrial experience in IT systems and products. He is currently responsible for IBM's new data center networking business in Canada. Previously, he was President of IOTA Information Management and is a founding partner of the consulting firm
TACTexe Inc. Mr. Gulyas has a BSc in Physics from McMaster University in Hamilton Ontario.

RONALD A. FON - Director.  Mr. Fon has been a director for the Company since 2009.  Mr. Fon is a founder and principal of Optimus Asset Management Inc., a money management firm specializing in early stage venture capital based in Montreal, Quebec.  He has served as Director of numerous investment funds and early stage companies. Mr. Fon holds a B.A. (Honors) from McGill University in Montreal and has attended graduate school at the University of Western Ontario in London, Ontario.

16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To our knowledge, no officers, directors, beneficial owners of more than ten percent of any class of our equity securities registered pursuant to section 12 of the Exchange Act or any other person subject to Section 16 of the Exchange Act with respect to us, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year, which ended October 31, 2010.

 
26

 

ITEM 11.  EXECUTIVE COMPENSATION

The following table sets forth, for the last three fiscal years, the compensation earned for services rendered in all capacities by our chief executive officer, chief financial officer and the other highest-paid executive officers serving as such at the end of 2010 whose compensation for that fiscal year was in excess of $100,000. The individuals named in the table will be hereinafter referred to as the "Named Officers." No other executive officer of Superclick, Inc. received compensation in excess of $100,000 during fiscal year 2010.

(a)
 
(b)
 
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
   
(i)
 
Name and
Principle
Position
 
Year
 
Salary ($)
   
Bonus ($)
   
Other
Annual
Compensation
($)
   
Restricted
Stock
Award(s) ($)
   
Securities
Underlying
Options/SARs
(#)
   
LTIP
Payouts
($)
   
All Other
Compensation
($)
 
Sandro
 
2010
  $ 162,821     $ 89,552                                
Natale, CEO
 
2009
  $ 149,603     $ 139,350                                
   
2008
  $ 178,786                                      
Jean Perrotti,
 
2010
  $ 144,213     $ 37,216                                          
CFO
 
2009
  $ 132,506     $ 34,195                                
   
2008
  $ 117,692     $ 29,198                                

OPTIONS AND STOCK APPRECIATION RIGHTS

During the year ended October 31, 2010 no options or stock appreciation rights were granted.

The Company has recorded option compensation expense of $767,017 from inception through October 31, 2010.

LONG TERM INCENTIVE PLAN AWARDS

No long-term incentive plan awards were made to any of our executive officers during the last fiscal year.

COMPENSATION OF DIRECTORS

2004 Superclick, Inc. Non-Employee Director's Stock Incentive Plan

On December 31, 2003, the Board of Directors of the Company adopted the 2004 Superclick, Inc. Non-Employee Director's Stock Incentive Plan (the "Stock Incentive Plan").  The Stock Incentive Plan provides for the issuance of Options, Restricted Stock, and/or Deferred Stock to an Awardee.  The total number of shares of Common Stock which may be awarded under the Plan is 1,500,000.  If any awarded shares are forfeited, they become available for future issuance. An annual aggregate limit of 300,000 shares (including Options, Restricted Stock, and Deferred Stock) is set for any individual Director.

 
27

 

The Stock Incentive Plan has a duration of ten years commencing on January 1, 2004.  Awardees are defined as director to whom an award is made.  An eligible director is any person who on the date of grant is a member of the Board of Directors of the Company and is not an employee of the Company or of any Subsidiary.  Stock Options are non-qualified right-to-buy Options for the purchase of Common Stock of the Company.  The term of each Option shall be ten years from the Date of Grant.  The Option Price shall be the Fair Market Value of Superclick, Inc. Common Stock on the date the Option is granted.  Under no circumstances shall any Option vest in less than one year from the date of grant.  Shares purchased upon exercise of an Option must be paid for in full at the time of exercise either in cash or with currently owned shares.  Neither the Committee on Directors and Governance nor the Board of Directors may re-price any Option that is less than the option exercise price.  Restricted Stock is Common Stock of the Company restricted as to sale in such fashion as the Committee on Directors and Governance shall determine.  Prior to the lifting of the restrictions, the Awardee will be entitled to receive dividends from and to vote the shares of Restricted Stock.

During the year ended October 31, 2009, the Company issued 75,000 shares of common stock in exchange for director services.  The shares were issued for services performed in fiscal year 2008 which expense of $9,000 was recognized in our fiscal year ending October 31, 2008.

During the year ended October 31, 2010 no stock was awarded to our directors.

From inception through October 31, 2010, the Company has issued 2,569,772 shares to our directors under this stock incentive plan.

The 2004 Incentive Stock Option Plan

On April 8, 2004, the Board of Directors of the Company adopted the 2004 Incentive Stock Option Plan.  This Plan is a plan for key Employees (including officers and employee directors) and Consultants of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.

The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award The Plan was effective April 9, 2004 (the "Effective Date"), provided that within one year of the Effective Date, the Plan shall have been approved by at least a majority vote of stockholders.  No Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten years after the Effective Date.

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

During the year ended October 31, 2009 100,000 options were canceled.  As of October 31, 2009, the Company had 13,852,356 outstanding options all of which were exercisable.  The value to the company of the exercisable options based on their actual strike prices is $1,040,553.

 
28

 

During the year ended October 31, 2010, 1) 777,356 common stock options expired, 2) the Company received $17,500 upon the exercise of options to acquire 350,000 shares of common stock and 3) The Board of Directors approved the extension of the expiration date of 12,725,000 options to October 31, 2012 and increased the exercise price to $0.0504 from $0.05.  As of October 31, 2010, the Company had 12,725,000 outstanding options all of which were exercisable.  The value to the company of the exercisable options based on their actual strike prices is $641,340.

Executives' Compensation Policies

Compensation of our executives is intended to attract, retain and award persons who are essential to the corporate enterprise.  The fundamental policy of our executive compensation program is to offer competitive compensation to executives that appropriately reward the individual executive's contribution to corporate performance.  The board of directors utilizes subjective criteria for evaluation of individual performance and relies substantially on our executives in doing so.  The Board focuses on two primary components of our executive compensation program, each of which is intended to reflect individual and corporate performance: base salary and long-term incentive compensation.

Executives' base salaries are determined primarily by reference to compensation packages for similarly situated executives of companies of similar size or in comparable lines of business with whom we expect to compete for executive talent and with reference to revenues, gross profits and other financial criteria.  The Board also assesses subjective qualitative factors to discern a particular executive's relative value to the corporate enterprise in establishing base salaries.

It is the Board's philosophy that significant stock ownership by management creates a powerful incentive for executives to build long-term shareholder value.  Accordingly, the board believes that an integral component of executive compensation is the award of equity-based compensation, which is intended to align executives' long-term interests with those of our shareholders.  The board believes that option grants should be considered on an annual basis.

Employment Agreements with Executive Officers

Superclick, Inc. has executed employment agreements with its top two executive officers.  Below is a summary of the major terms of these employment agreements.

EMPLOYMENT AGREEMENTS

SANDRO NATALE - Mr. Natale's employment with us is governed by an employment agreement entered into between he and Superclick, Inc. The agreement provides for term of employment that may be extended for additional one (1) year periods.  Mr. Natale was entitled to receive a base salary equal to CDN $181,597 plus bonus based on certain thresholds being met.

JEAN PERROTTI Mr. Perrotti's employment with us is governed by an employment agreement entered into between he and Superclick, Inc. The agreement provides for term of employment that may be extended for additional one (1) year periods.  Mr. Perrotti was entitled to receive a base salary equal to CDN $160,843 plus bonus based on certain thresholds being met.

 
29

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership of our common stock as of October 31, 2010, by (i) each person known by us to be the beneficial ownership of more than 5 percent of the outstanding common stock, (ii) each director, (iii) each executive officer, and (iv) all executive officers and directors as a group.  The number of shares beneficially owned is determined under the rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose.  Under those rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of the date hereof, through the exercise or conversion of any stock option, convertible security, warrant or other right.  Including those shares in the tables does not, however, constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares.  Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person's spouse) with respect to all shares of capital stock listed as owned by that person or entity.  Unless otherwise indicated, the address of each of the following persons is 10222 St-Michel Blvd., Suite 300
Montreal, Quebec, H1H 5H1.

Name
 
Shares Beneficially Owned
   
Percent of Class
 
Sandro Natale (Canada)
    6,589,430       13.38 %
                 
Jean Perrotti (Canada)
    2,400,000       4.99 %
                 
Todd M. Pitcher
    828,359       1.81 %
                 
George Vesnaver (Canada)
    574,882       *  
                 
Paul Gulyas (Canada)
    551,782       *  
                 
All Officers and
               
Directors as a Group
    10,944,453       18.74 %

(*) means less than 1.0%

DIRECTOR INDEPENDENCE

Mr. Pitcher, Chairman of our company, provides consulting services to us in exchange for monthly compensation of $5,000 plus related expenses.  Mr. Pitcher is also President of Aspire Clean Tech Communications who provides us with business services support.

 
30

 

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(1)
Audit Fees

The aggregate fees billed for professional services rendered by Bedinger & Company for the audit of the Registrant's annual financial statements and review of the financial statements included in the Registrant's Forms 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year 2009 were $63,595.  Additionally, Bedinger & Company has charged $5,000 for tax preparation services for fiscal year 2010.

(2)
Audit Committee Policies and Procedures

The Registrant does not have an audit committee. The Board of Directors of the Registrant approved all of the services rendered to the Registrant by Bedinger & Company for fiscal years 2010.

(3)
Audit Work Attributed to Persons Other than Bedinger & Company’s Full-time, Permanent Employees.

Not applicable.

ITEM 15.  EXHIBITS LISTS AND REPORTS ON FORM 8-K.

The following exhibits filed as part of this Form 10-K include both exhibits submitted with this Report and those incorporated by reference to other filings:
 
3.1 Articles of Incorporation of DDR Systems, Inc. (Incorporated by reference filed with the Company's Form S-1 on February 28, 2000).
 
3.2 By-laws of DDR Systems, Inc. (Incorporated by reference filed with the Company's Form S-1 on February 28, 2000).
 
3.3 Certificate of Amendment to the Articles of Incorporation of DDR Systems, Inc., as filed with the Secretary of State of the State of Washington on March 16, 2001. (Incorporated by reference filed with the Company's Form 8-K on April 5, 2001).
 
3.4 Certificate of Amendment to the Articles of Incorporation of Grand Prix Sports, Inc., as filed with the Secretary of the State of Washington on September 12, 2003. (Incorporated by reference filed with the Company's Form 8-K on October 10, 2003.
 
3.5 Certificate of Amendment to the Articles of Incorporation of Superclick, Inc., as filed with the Secretary of the State of Washington on October 30, 2006.
 
10.1 2004 Incentive Stock Option Plan dated April 8, 2004 (Incorporated by reference filed with the Company's Form 8-K on May 7, 2002 as Exhibit 4.1).

 
31

 

10.2 Completion of acquisition of Hotel Net (Incorporated by reference filed with the Company’s Form 8-K/A on October 21, 2005).
 
10.3 Amendment to 2004 Stock Incentive Plan dated October 30, 2006 (Incorporated by reference filed with the Company’s Form 8-K on November 13, 2006).
 
10.4 Retirement of employee stock options (Incorporated by reference filed with the Company's Form 8-K on November 7, 2007).
 
13.1 Annual report to shareholders for the fiscal year ended October 31, 2009 (Incorporated by reference filed as form 10-K on January 13, 2010).
 
13.2 Quarterly report to shareholders for quarter ended January 31, 2010 (Incorporated by reference filed as form 10-Q on March 16, 2010).
 
13.3 Quarterly report to shareholders for quarter ended April 30, 2010 (Incorporated by reference filed as Form 10-Q on June 14, 2010).
 
13.3 Quarterly report to shareholders for quarter ended July 31, 2009 (Incorporated by reference filed as Form 10-Q on September 13, 2010).
 
17.1 Resignation of Wendy Borow Johnson from the Company's board of directors (Incorporated by reference filed with the Company’s 8-K on February 19, 2009).
 
17.2 Modification of outstanding stock options (Incorporated by reference filed with the Company’s Form 8-K on November 3, 2010).
 
20.2 Annual financial update via press release (Incorporated by reference filed with the Company’s Form 8-K on January 14, 2010).
 
20.3 Annual Shareholder Meeting presentation (Incorporated by reference filed with the Company’s Form 8-K on June 4, 2010).
 
20.4 Quarterly financial update via press release (Incorporated by reference filed with the Company’s Form 8-K on June 15, 2010).
 
20.5 Annual Shareholder Meeting presentation (Incorporated by reference filed with the Company’s Form 8-K on June 15, 2010).
 
23.1 Consent of Independent Public Accountant, dated January 12, 2011.
 
31.1 Certification of Chief Executive Officer of Period Rerport pursuant to Rule 13a -14a and Rule 15d-14(a).
 
31.2 Certification of Principal Financial Offier of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).
 
32.1 Certification pursuant to 18 U.S.C. Section 1350.
 
32.2 Certification pursuant to 18 U.S.C. Section 1350.

 
32

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:   January 12, 2011
Superclick, Inc.
     
 
By:
  /s/ Sandro Natale
 
Sandro Natale
 
Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
   
     
/s/ Sandro Natale, January 12, 2011
   
Sandro Natale, Chief Executive Officer
   
     
/s/ Jean Perrotti, January 12, 2011
 
Jean Perrotti, Chief Financial Officer and Principle Accounting Officer
 

BOARD OF DIRECTORS

/s/ Todd M. Pitcher
 
Chairman and Secretary
 
January 12, 2011
Todd M. Pitcher
       
         
/s/ Sandro Natale
 
Director
 
January 12, 2011
Sandro Natale
       
         
/s/ Paul Gulyas
 
Director
 
January 12, 2011
Paul Gulyas
       
         
/s/ George Vesnaver
 
Director
 
January 12, 2011
George Vesnaver
  
 
  
 

 
33

 

SUPERCLICK, INC.

REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED OCTOBER 31, 2010 AND 2009

CONTENTS
 
   
PAGE
     
Report of Independent Registered Public Accounting Firm
 
F-1
     
FINANCIAL STATEMENTS
   
     
Consolidated Balance Sheets
 
F-2
     
Consolidated Statements of Operations
 
F-3
     
Consolidated Statement of Stockholders’ Equity
 
F-4
     
Consolidated Statements of Comprehensive Income
 
F-5
     
Consolidated Statements of Cash Flows
 
F-6
     
Notes to the Financial Statements
  
F-7-24

 
34

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Superclick, Inc.

We have audited the accompanying consolidated balance sheet of Superclick, Inc. (the “Company”), as of October 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, comprehensive income, and cash flows for the years ended October 31, 2010 and October 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Superclick, Inc. as of October 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, comprehensive income, and cash flows for the years ended October 31, 2010 and October 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

 
/s/ Bedinger & Company
 
Certified Public Accountants
 
Concord, California
 
January 11, 2011

 
F-1

 

SUPERCLICK, INC.
Consolidated Balance Sheets
   
October 31,
   
October 31,
 
   
2010
   
2009
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 2,092,809     $ 2,192,058  
Accounts receivable, net (Notes A&B)
    1,835,377       1,481,814  
Income taxes receivable (Note C)
    230,146       -  
Inventory (Note D)
    440,477       73,276  
Financing receivables (Note B)
    99,932       -  
Other current assets
    47,471       36,777  
TOTAL CURRENT ASSETS
    4,746,212       3,783,925  
Fixed assets, net (Note E)
    160,943       126,989  
Financing receivables (Note B)
    96,875       -  
TOTAL ASSETS
  $ 5,004,030     $ 3,910,914  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses (Note F)
  $ 1,515,245     $ 801,290  
Income taxes payable (Note C)
    -       330,718  
Deferred revenue (Note G)
    876,236       1,184,537  
Deferred financing income (Note B)
    21,875       -  
TOTAL CURRENT LIABILITIES
    2,413,356       2,316,545  
                 
Deferred financing income (Note B)
    16,312       -  
TOTAL LIABILITIES
    2,429,668       2,316,545  
                 
Commitments (Note H)
    -       -  
                 
STOCKHOLDERS' EQUITY (Note I)
               
Common stock, par value $.0006, 175,000,000 shares
               
authorized; issued and outstanding 45,662,251 and
               
45,312,251 at October 31, 2010 and 2009, respectively.
    27,939       27,729  
Additional paid-in capital
    6,140,779       6,123,489  
Accumulated deficit
    (3,805,197 )     (4,595,719 )
Accumulated other comprehensive income (loss)
               
(Cumulative translation adjustment)
    225,981       54,010  
Treasury Stock
    (15,140 )     (15,140 )
TOTAL STOCKHOLDERS' EQUITY
    2,574,362       1,594,369  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 5,004,030     $ 3,910,914  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-2

 
 
SUPERCLICK, INC.
Consolidated Statements of Operations
For the Years Ended October 31, 2010 and 2009
   
Years Ended
 
   
October 31,
 
   
2010
   
2009
 
Revenue
           
Net Sales
  $ 4,942,469     $ 3,924,024  
Services
    4,150,739       3,765,062  
Net revenue
    9,093,208       7,689,086  
Cost of goods sold
    5,017,326       3,715,228  
Gross profit
    4,075,882       3,973,858  
                 
Costs and Expenses
               
Selling, general & administrative
    2,584,065       1,868,656  
Research & development
    284,226       217,211  
Depreciation
    44,959       42,326  
Total costs and expenses
    2,913,250       2,128,193  
                 
Income from operations
    1,162,632       1,845,665  
                 
Other Income and (Expense)
               
Interest income
    3,163       584  
Interest expense
    (1,369 )     (31,689 )
Gain on forgiveness of debt
    -       89,297  
                 
Total other income and (expense)
    1,794       58,192  
Net income before income taxes
    1,164,426       1,903,857  
Income taxes
    (373,904 )     (611,732 )
Net income
  $ 790,522     $ 1,292,125  
                 
Net income per common share:
               
Basic
  $ 0.02     $ 0.03  
Diluted
  $ 0.01     $ 0.02  
Weighted average common shares outstanding:
               
Basic
    45,424,991       45,134,205  
Diluted
    58,149,991       58,986,561  

SEE NOTES TO FINANCIAL STATEMENTS
 
F-3


SUPERCLICK, INC.
Consolidated Statement of Stockholder's Equity
For the Years Ended October 31, 2010 and 2009

                                 
Accumulated
             
   
Common Stock
   
Additional
         
Other
         
Total
 
   
Number of
               
Paid-in
   
Accumulated
   
Comprehensive
   
Treasury
   
Stockholders'
 
   
Shares
   
Amount
   
Payable
   
Capital
   
Deficit
   
Income (loss)
   
Stock
   
Equity
 
BALANCES October 31, 2008
    44,937,251     $ 27,504     $ 18,000     $ 6,060,714     $ (5,863,820 )   $ (212,989 )   $ (15,140 )   $ 14,269  
                                                                 
Shares issued during the period:
                                                               
Shares issued for services
    375,000       225.00       (18,000 )     62,775                               45,000  
Other
                                    (24,023 )                     (24,023 )
Foreign Currency Translation Adjustment
                                            266,999               266,999  
Net profit
                                    1,292,125                       1,292,125  
BALANCES October 31, 2009
    45,312,251     $ 27,729     $ -     $ 6,123,489     $ (4,595,719 )   $ 54,010     $ (15,140 )   $ 1,594,369  
                                                                 
Stock options exercised
    350,000     $ 210             $ 17,290                               17,500  
Foreign Currency Translation Adjustment
                                            171,971               171,971  
Net profit
                                    790,522                       790,522  
BALANCES October 31, 2010
    45,662,251     $ 27,939     $ -     $ 6,140,779     $ (3,805,197 )   $ 225,981     $ (15,140 )   $ 2,574,362  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-4

 

SUPERCLICK, INC.
Consolidated Statements of Comprehensive Income
For the Years Ended October 31, 2010 and 2009

   
Years Ended
 
   
October 31,
 
   
2010
   
2009
 
             
Net income
  $ 790,522     $ 1,292,125  
                 
Other comprehensive income
               
Foreign currency translation adjustment
    171,971       266,999  
                 
Net comprehensive income
  $ 962,493     $ 1,559,124  

SEE NOTES TO FINANCIAL STATEMENTS
 
 
F-5

 

SUPERCLICK, INC.
Consolidated Statements of Cash Flows
For the Years Ended October 31, 2010 and 2009

   
Years Ended
 
   
October 31,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 790,522     $ 1,292,125  
Adjustments to reconcile net income
               
to net cash provided (used) by operating activities:
               
Depreciation
    44,959       42,325  
Stock issued for services
    -       54,000  
Gain on forgiveness of debt
    -       (89,297 )
Deferred taxes
    -       17,461  
CHANGES IN ASSETS AND LIABILITIES:
               
Accounts receivable
    (417,596 )     722,152  
Other receivables
    (37,616 )     3,577  
Prepaid expenses
    (13,510 )     (7,173 )
Inventory
    (350,558 )     287,225  
Accounts payable and accrued expenses
    677,457       (264,537 )
Accrued payroll
    (49,303 )     63,467  
Income taxes payable and receivable
    (531,804 )     326,180  
Deferred revenue
    (350,706 )     (438,282 )
CASH PROVIDED BY OPERATING ACTIVITIES
    (238,155 )     2,009,223  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of furniture and equipment
    (70,427 )     -  
CASH (USED) FOR INVESTING ACTIVITIES
    (70,427 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayment of loans
    -       (203,317 )
Repayment of convertible debenture
    -       (761,588 )
Stock options exercised
    17,500       -  
CASH (USED) FOR FINANCING ACTIVITIES
    17,500       (964,905 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    191,833       366,220  
NET INCREASE (DECREASE) IN CASH
    (99,249 )     1,410,538  
CASH, beginning of period
    2,192,058       781,520  
CASH, end of period
  $ 2,092,809     $ 2,192,058  
                 
Interest paid
  $ 1,367     $ 22,503  
Taxes paid
  $ 474,600     $ 137,622  
                 
Other non-cash investing and financing activities:
               
Shares issued for services
  $ -     $ 54,000  

SEE NOTES TO FINANCIAL STATEMENTS

 
F-6

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization
 
In October, 2003, Superclick, Inc. (formerly Grand Prix Sports, Inc.) completed an acquisition of Superclick Networks, Inc.  The acquisition was accounted for as a recapitalization effected by a reverse merger, wherein Superclick Networks, Inc. is considered the acquirer for accounting and financial reporting purposes (collectively, Superclick Inc. and Superclick Networks Inc. are referred to hereinafter as the “Company”).  The pre-merger assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.  The accumulated deficit of Superclick Networks, Inc. has been brought forward, and common stock and additional paid-in-capital of the combined company have been retroactively restated to give effect to the exchange rates as set forth in the merger agreement.

Superclick Networks, Inc. was organized on August 24, 2000, in Montreal, Quebec, Canada.  For purposes of the financial reporting of our reverse merger acquisition, the date of inception is considered to be August 24, 2000.

The Company is in the business of providing and installing broadband high speed Internet connection equipment and IP (“Internet Protocol”) infrastructure management systems with 24x7x365 help desk support to hotels, multi dwelling units (“MDU’s”) and universities on a worldwide basis. Superclick, Inc. commercialized its initial Internet access management products in 2002.

On October 6, 2003 Superclick, Inc. amended its articles of incorporation by changing the name of the Company from Grand Prix Sports, Inc. to Superclick, Inc. to more accurately reflect the nature of its business after the recapitalization effected by the reverse merger.

Pursuant to a share purchase agreement dated October 7, 2003, Superclick, Inc. acquired 100% of the issued and outstanding shares of Superclick Networks, Inc. from its shareholders.  In consideration for acquiring all of Superclick Network’s shares Superclick, Inc. issued to its previous shareholders 14,025,800 shares of Superclick, Inc.’s common stock.  As a result of the acquisition, the former shareholders of Superclick Networks, Inc. held immediately after the acquisition 71.7% of the issued and outstanding shares of Superclick, Inc.’s common stock.  The remaining 28.3% were held by Superclick, Inc.’s (formerly Grand Prix Sports, Inc.) shareholders.

Concurrent with the reverse merger of Superclick, Inc. with Superclick Networks, Inc, the Company retroactively affected a 6 for 1 common stock split and retroactively assigned $0.0006 par value to common stock where no value had been previously stated.  All share and per share amounts shown in these financial statements reflect the stock split for all periods presented.

 
F-7

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization (Continued)
 
Pursuant to its reverse merger with Superclick Networks Inc., Superclick, Inc. changed its year-end to October 31 to coincide with the year-end of Superclick Networks, Inc.  The Company emerged from the development stage during 2005 as its principal operations had commenced and its national rollout had been completed. Accordingly, the Company revised the presentation of its Consolidated Statements of Operations to reflect that of a commercial enterprise.

Superclick Inc’s plan of business is committed to the commercialization activities of Superclick Network, Inc.’s products, with an emphasis on broadening its market penetration and building product and brand awareness amongst its target customer base in the hospitality market. Superclick, Inc. intends to grow its revenue through expanding its sales of Superclick Network Inc.’s products and call center support services such that it can reasonably support its operating expenses through cashflow.
 
Summary of Significant Accounting Principles

Principles of consolidation
The consolidated financial statements include the accounts of Superclick Networks, Inc. and its wholly-owned subsidiaries, Superclick, Inc. which are 100% consolidated in the financial statements.  All material inter-company accounts and transactions have been eliminated.

Accounting estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts receivable
Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.  The Company evaluates receivables on a regular basis for potential reserve.

 
F-8

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Property and equipment
Property and equipment are stated at cost.  Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed.  At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts.  Gains or losses from retirements or sales are credited or charged to income.

The Company depreciates its property and equipment on a declining balance method at the following rates as applied to net depreciable value:
 
Furniture and fixtures:
    20 %
Computer equipment and software:
    30 %
Leasehold improvements
    20 %
Fabrication equipment
    20 %

 
Long-lived assets
Accounting for the Impairment or Disposal of Long-Lived Assets requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may not be recovered.  The Company assesses recoverability of the carrying value of an asset by estimating the fair value of the asset.  If the fair value is less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value.  The Company has never recognized an impairment charge.

Revenue recognition policy
Revenue from the sale of Internet high speed connection equipment and installation is recognized when the earning process is complete and the risk and rewards of ownership have transferred to the customer, which is considered to have occurred after the delivery and installation of the equipment to the customer.
 
 
F-9

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Deferred revenue
Deferred revenue related to support and maintenance is recorded in a manner consistent with the Company’s revenue recognition policy.  The Company typically enters into one-year upgrade and maintenance contracts with its customers.  The upgrade and maintenance contracts are generally paid in advance.  The Company defers such payment and recognizes revenue ratably over the contract period.

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

Advertising
The Company expenses all advertising as incurred.  For the years ended October 31, 2010 and 2009, the Company incurred approximately $8,718 and $3,002, respectively, in advertising expense.

Earnings per common share
The Company reports both basic and diluted earnings (loss) per share.  Basic loss per share is calculated using the weighted average number of common shares outstanding in the period.  Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using the “treasury stock” method and convertible securities using the “if-converted” method.

Issuance of common stock
The issuance of common stock for other than cash is recorded by the Company at management’s estimate of the fair value of the assets acquired or services rendered.

Fair Value of Financial Instruments
The Company’s financial instruments include cash and accounts receivable. The carrying amount of these financial instruments has been estimated by management to approximate fair value.

“Disclosures about Fair Value of Financial Instruments,” requires disclosures of information regarding the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation.
 
 
F-10

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fair Value of Financial Instruments (Continued)
The company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of October 31, 2010.

Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of October 31, 2010.

Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of October 31, 2010.

Income taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on differences between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized.  In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition.  In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
 
 
F-11

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Income taxes (Continued) 
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.  Income tax provisions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.  Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

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

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

 
F-12

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Recent Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued ASU 2009-14—Software (Topic 985) which provides guidance on revenue recognition that will become effective for us beginning November 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have an impact on our financial statements.

Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers.  At October 31, 2010, no customer accounted for 10% or more of accounts receivable.  At October 31, 2009, two customers individually accounted for 53% (41% and 12%) of accounts receivable.

During the year ended October 31, 2010 and 2009, no customer accounted for more than 10% of sales.

For the years ended October 31, 2010 and 2009, approximately 42% and 34%, respectively of the Company's net sales were made to customers outside the United States.
 
 
F-13

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Concentrations of credit risk (Continued)
The Company has been dependent on third-party equipment manufacturers, distributors, dealers, and contractors for all of its supply of communications equipment.  For the years ended October 31, 2010 and 2009, the Company’s three largest suppliers accounted for approximately 64% (26%, 23% and 15%) and 83% (38%, 30% and 15%) of product and service purchases, respectively.  The Company is dependent on the ability of its suppliers to provide products and services on a timely basis and on favorable pricing terms.

The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company.

The Company has maintained balances in excess of federally insured limits from time to time during the fiscal year.  Management periodically reviews the adequacy and strength of the financial institutions and deems this to be an acceptable risk.

Accounting for Share-Based Compensation
 
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.  Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.  We use the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees.  In calculating this fair value, there are certain assumptions that we use consisting of the expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate.  The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense.

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

Research and development
Expenses related to present and future products are expensed as incurred.

 
F-14

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE B – ACCOUNTS RECEIVABLE

Accounts Receivable

The accounts receivable balance of $1,835,377 as of October 31, 2010 is reported net of an allowance for doubtful accounts of $32,215

The accounts receivable balance of $1,481,814 as of October 31, 2009 is reported net of an allowance for doubtful accounts of $44,806.

Sales Type Lease Receivable

On July 1, 2010, the Company and The Regent Singapore (“TRS”) with 439 rooms entered into an Installation Agreement and Support Agreement.  Under the three year Support Agreement commencing on August 10, 2010, TRS will receive 24x7x365 helpdesk support for hotel guests and staff.  In exchange the Company will receive a monthly room fee and annual license fee.  Under the Installation Agreement TRS received a guest internet access infrastructure including networking equipment.  The sale price of the installation was $216,092.  The Company received a $45,000 payment and agreed to finance the remaining $171,092.

On July 14, 2010, the Company and InterContinental Hotels Group Resources, Inc. (“IHG”) with approximately 12,700 rooms on 111 properties entered into a Master Services Agreement.  Under the three year Agreement, IHG will receive 24x7x365 helpdesk support for hotel guests and staff and a wireless overlay infrastructure.  In exchange, the Company will receive a monthly room fee. Contained in the single monthly room fee is revenue for ongoing support and financing on the installation hardware and labor.  At the end of the 36 month term, ownership of the hardware passes to IHG.   The sale price of the installed hardware is $457,200 and includes hardware and installation which is being accounted for under the completed contract method.  Costs associated with the installation portion of the contract are being capitalized.  The Company expects to complete the installations and recognize the installed hardware portion of revenue and capitalized costs in the first quarter ending January 31, 2011.

Pursuant to ASC 840-10-25-1(a) and ASC 840-10-25-43(a), the terms of the agreements above dictate that the hardware and installation portion of the agreements be treated as sales-type capital leases.  As a result, the Company has recognized a lease receivable and unearned interest income liability on the equipment and installation portion of the agreements.

As of October 31, 2010 we have recorded $99,932 of current and $96,875 of non-current lease receivables.  Related to the above agreements is the current and not-current unearned interest income of $21,875 and $16,312, respectively, in the liability portion of our balance sheet.

 
F-15

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE C – INCOME TAXES RECEIVABLE

As of October 31, 2010, $230,146 was accrued for income taxes receivable from the Canadian and Provincial taxing authorities.  During 2010, the Company recorded a provision for income taxes of $373,904 based on a combined Federal and Provincial tax rate of 31% and paid taxes of $474,600 based on the prior year’s taxable income.  However, the current year’s taxable income decreased resulting in a $230,146 receivable.

The Company updates the estimate of its annual effective tax rate at the end of each quarterly period.  The Company’s estimate takes into account estimations of annual pre-tax income, the geographic mix of pre-tax income and its interpretations of tax laws and the possible outcomes of current and future audits.

NOTE D - INVENTORY

Inventory is comprised of computer equipment and stated at the lower of cost or market, as determined using the first in, first out method.   The following table represents the major components of inventory at October 31, 2010 and 2009:
 
   
2010
   
2009
 
Computer equipment
  $ 483,382     $ 113,848  
Allowance for obsolete inventory
    (42,905 )     (40,572 )
Inventory, net
  $ 440,477     $ 73,276  
 
NOTE E - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at October 31, 2010 and 2009:
 
   
2010
   
2009
 
Computer hardware
  $ 290,068     $ 205,834  
Furniture & fixtures
    153,395       145,052  
Computer software
    103,343       97,722  
Leasehold improvements
    34,474       32,599  
Fabrication mold and dye
    22,330       21,116  
      603,610       502,323  
Accumulated depreciation
    (442,667 )     (375,334 )
Fixed assets, net
  $ 160,943     $ 126,989  
 
Depreciation expense for the years ended October 31, 2010 and 2009 was $44,959 and $42,325, respectively.

 
F-16

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE F – ACCOUNTS PAYABLE

Accounts payable and accrued expenses consisted of the following at October 31, 2010 and 2009:
 
   
October 31,
 
   
2010
   
2009
 
Trade payables
  $ 883,220     $ 333,826  
Customer overpayments
    176,487       164,980  
Professional fees
    184,318       25,762  
Accrued wages payable
    239,728       276,722  
GST/QST tax payable
    26,663       -  
    $ 1,510,416     $ 801,290  
 
As of October 31, 2010, accrued wages payable included $40,041 and $31,722 due to the CEO and CFO, respectively.  As of October 31, 2009, accrued wages payable included $101,184 and $56,612 due to the CEO and CFO, respectively.

NOTE G – DEFERRED REVENUE

Deferred revenue consists of funds received in advance of services being performed.  As of October 31, 2010, the deferred revenue balance of $876,236 consisted of 1) $677,731 related to support and maintenance for multiple customers; 2) $198,505 related to customer deposits for future hardware installations.

As of October 31, 2009, the deferred revenue balance of $1,184,537 consisted of 1) $914,739 related to support and maintenance for multiple customers; 2) $174,985 related to the sale of a master license agreement which commenced August 2007 and is being amortized over its term of thirty six (36) months; and 3) $94,813 related to customer deposits for future hardware installations.

Deferred revenue related to support and maintenance is recorded in a manner consistent with the Company’s revenue recognition policy.  The Company typically enters into one-year upgrade and maintenance contracts with its customers.  The upgrade and maintenance contracts are generally paid in advance.  The Company defers such payment and recognizes revenue ratably over the contract period.

 
F-17

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009
 
NOTE H - COMMITMENTS

On October 1, 2010 the Company renewed a lease for office space.  The lease extends through September 30, 2014 at a rate of $4,695 per month.  At October 31, 2010, contractual obligations were as follows:
   
Rent
 
2011
    56,340  
2012
    56,340  
2013
    56,340  
2014
    51,645  
2015 and thereafter
    -  
    $ 220,665  

During the years ended October 31, 2010 and 2009, the Company incurred $55,870 and $62,058, respectively, in rent expense.

The Company does not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier.

NOTE I - PREFERRED AND COMMON STOCK

Preferred Stock

The Company has authorized 20,000,000 shares of $.0001 par value preferred stock available for issuance. No preferred shares have been issued as of October 31, 2010.

Common Stock Issued for Services

No stock was issued for services in 2010.

During the year ended October 31, 2009, the Company issued 75,000 shares of common stock in exchange for director services.  The shares were issued for services performed in fiscal year 2008 which expense of $9,000 was recognized in our fiscal year ending October 31, 2008.  The balance of $9,000 expensed in 2008 was reversed as a credit to stock compensation expense during 2009.  During the year ended October 31, 2009, the Company issued 300,000 irrevocable restricted shares of common stock in exchange for investor relations services valued at fair market value of $0.18 per share or $54,000.

 
F-18

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009
 
NOTE I - PREFERRED AND COMMON STOCK (Continued)

Common Stock Options

During the year ended October 31, 2010, 1) 777,356 common stock options with a weighted average exercise price of $0.50 expired and 2) the Company received $17,500 upon the exercise of options to acquire 350,000 shares of common stock.  No options were granted.  The Company has recorded compensation expense of $767,017 through October 31, 2010.

During the year ended October 31, 2009, 100,000 options were canceled and none granted or exercised.

NOTE J – STOCK INCENTIVE PLANS

The 2004 Incentive Stock Option Plan

On April 8, 2004, the Board of Directors of the Company adopted the 2004 Incentive Stock Option Plan. This Plan is a plan for key Employees (including officers and employee directors) and Consultants of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.

The Company may issue each of the following under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award The Plan was effective April 9, 2004 (the "Effective Date"), provided that within one year of the Effective Date, the Plan shall have been approved by at least a majority vote of stockholders. No Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten years after the Effective Date.

During the year ended October 31, 2009, 100,000 options were canceled and none granted or exercised.

During the year ended October 31, 2010, 1) 777,356 common stock options with a weighted average exercise price of $0.50 expired and 2) the Company received $17,500 upon the exercise of options to acquire 350,000 shares of common stock and.  No options were granted.

 
F-19

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2010 AND 2009

NOTE J – STOCK INCENTIVE PLANS (Continued)

The 2004 Incentive Stock Option Plan (Continued)

On October 30, 2010, the Board of Directors approved the extension of the expiration date of options granted by the Company on October 30, 2006 to purchase 12,725,000 shares of the Company’s common stock, held by Sandro Natale, the Company’s Chief Executive Officer, Jean Perrotti, the Company’s Chief Financial Officer, Enrico Demarin, the Company’s director of technology and Cadilly Consultants, Ltd., an advisor to, and affiliate of, the Company.  Pursuant to the amended option agreements, the new expiration date for the options is October 31, 2012 and the exercise price of the options was adjusted to $0.0504 from the original exercise price of $0.05.  The exercise price was increased to $0.0504 from $0.0500 in order to fully capture the expense of $5,090 that would have been recorded by the Company had the original exercise price remained unchanged from $0.0500.  The company determined the new exercise price by subtracting the current fair value of the options from the fair value of the modified options.  The fair value of the 12,725,000 original and modified options was calculated using the Black-Scholes Option Pricing Model as of the date of extension using the following inputs: volatility; 1.7%, risk free interest rate; .375%, spot price; $0.16, time; 3 days for original options and 730 days for the modified options.  The fair value of the original options was $1,399,750 compared to the modified value of $1,404,840 resulting in an increase in the value of the modifications of $5,090 or $0.0004 per share.

The following table summarizes the Company's stock option activity for the year ended October 31, 2010 and 2009:

   
2009
   
2010
         
Weighted
         
Weighted
 
         
Average
         
Average
 
   
Shares
   
Exercise Price
   
Shares
   
Exercise Price
 
                         
Outstanding at beginning of year
    13,952,356     $ 0.0750       13,852,356     $ 0.0750  
Granted
    -       -       -       -  
Forfeited
    (100,000 )     0.0500       (777,356 )     0.5000  
Exercised
    -       -       (350,000 )     0.0500  
Outstanding at end of year
    13,852,356     $ 0.0750       12,725,000     $ 0.0504