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Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

x
Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
 
For The Quarterly Period Ended July 31, 2011.

¨
Transition Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
     
For The Transition Period From ______________To_________________

Commission File Number 333-31238
 
Superclick, Inc.

(Exact Name Of Registrant As Specified In Its Charter)
 
Washington
 
52-2219677
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
10222 St-Michel Blvd., Suite 300
Montreal, Quebec, H1H 5H1
(858) 518-1387 
(Address, Including Zip Code, And Telephone Number, Including
Area Code, Of Registrant's mailing address in Montreal, Canada)
 
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

The number of outstanding shares of the issuer's common stock, $0.0006 par value, as of September 7, 2011 was 45,959,870.
 
 
 

 

TABLE OF CONTENTS
 
 
Page
Part I – Financial Information
   
Item 1. Financial Statements
 
   
Consolidated Balance Sheets as of July 31, 2011 (Unaudited) and October 31, 2010 (Audited)
1
   
Consolidated Statements of Operations for the Three and Nine Months Ended July 31, 2011 and 2010 (Unaudited)
2
   
Consolidated Statement of Stockholders Equity for the Year  Ended October 31, 2010 and the Nine Months Ended  July 31, 2011 (Unaudited)
3
   
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended July 31, 2011 and 2010 (Unaudited)
4
   
Consolidated Statements of Cash Flows for the Three and Nine Months Ended July 31, 2011 and 2010 (Unaudited)
5
   
Notes To Consolidated Financial Statements (Unaudited)
6
   
Item 2. Management's Discussion and Analysis
19
   
Item 3. Quantitative and Qualitative Disclosures About Market
25
   
Item 4. Controls and Procedures
31
   
Part II – Other Information
   
Item 1.  Legal Proceedings
32
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
32
   
Item 3.  Defaults Upon Senior Securities
32
   
Item 4.  (Removed and Reserved)
32
   
Item 5.  Other Information
32
   
Item 6.  Exhibits and Reports on Form 8-K
32
   
Signatures
33
 
 
 

 

ITEM 1.  FINANCIAL STATEMENTS
 
SUPERCLICK, INC.
           
Consolidated Balance Sheets
           
   
July 31, 2011
   
October 31,
2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
CURRENT ASSETS
           
Cash
  $ 2,675,928     $ 2,092,809  
Accounts receivable, net (Notes A&B)
    2,203,209       1,835,377  
Taxes receivable (Note C)
    24,728       230,146  
Inventory (Note D)
    603,124       440,477  
Financing receivables (Note B)
    227,196       99,932  
Other current assets
    36,700       47,471  
TOTAL CURRENT ASSETS
    5,770,885       4,746,212  
Fixed assets, net (Note E)
    332,437       160,943  
Financing receivables (Note B)
    217,078       96,875  
TOTAL ASSETS
  $ 6,320,400     $ 5,004,030  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses (Note F)
  $ 1,231,646     $ 1,515,245  
Deferred revenue (Note G)
    1,144,615       876,236  
Deferred financing income (Note B)
    31,820       21,875  
TOTAL CURRENT LIABILITIES
    2,408,081       2,413,356  
                 
Deferred financing income (Note B)
    11,991       16,312  
TOTAL LIABILITIES
    2,420,072       2,429,668  
                 
Commitments (Note H)
    -       -  
                 
STOCKHOLDERS' EQUITY (Note I)
               
Common stock, par value $.0006, 175,000,000 shares authorized; issued and outstanding 45,959,870 and 45,662,251 at July 31, 2011 and October 31, 2010, respectively.
    28,117       27,939  
Additional paid-in capital
    6,155,601       6,140,779  
Accumulated deficit
    (2,788,638 )     (3,805,197 )
Accumulated other comprehensive income (loss)
               
(Cumulative translation adjustment)
    520,388       225,981  
Treasury Stock
    (15,140 )     (15,140 )
TOTAL STOCKHOLDERS' EQUITY
    3,900,328       2,574,362  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 6,320,400     $ 5,004,030  

SEE NOTES TO FINANCIAL STATEMENTS

 
1

 

SUPERCLICK, INC.
                       
Consolidated Statements of Operations (Unaudited)
                   
For the Three and Nine Months Ended July 31, 2011 and 2010
 
   
 
Three Months Ended
   
Nine Months Ended
 
   
 
July 31,
   
July 31,
 
   
 
2011
   
2010
   
2011
   
2010
 
Revenue
                       
Net Sales
  $ 1,704,316     $ 1,109,853     $ 4,444,523     $ 2,812,337  
Services
    1,290,149       1,035,718       3,677,586       3,115,593  
Net revenue
    2,994,465       2,145,571       8,122,109       5,927,930  
Cost of goods sold
    1,370,600       1,169,304       3,874,201       3,089,851  
Gross profit
    1,623,865       976,267       4,247,908       2,838,079  
                                 
Costs and Expenses
                               
Selling, general & administrative
    916,656       612,477       2,523,244       1,979,954  
Research & development
    73,006       64,184       218,337       190,265  
Depreciation
    21,917       6,743       49,666       32,701  
Total costs and expenses
    1,011,579       683,404       2,791,247       2,202,920  
                                 
Income from operations
    612,286       292,863       1,456,661       635,159  
                                 
Other Income and (Expense)
                               
Interest income
    912       750       2,266       2,732  
Interest expense
    (370 )     (495 )     (882 )     (1,229 )
Total other income and (expense)
    542       255       1,384       1,503  
Net income before income taxes
    612,828       293,118       1,458,045       636,662  
Income taxes
    (206,321 )     (100,979 )     (441,486 )     (224,455 )
Net income
  $ 406,507     $ 192,139     $ 1,016,559     $ 412,207  
                                 
Net income per common share:
                               
Basic
  $ 0.01     $ 0.00     $ 0.02     $ 0.01  
Diluted
  $ 0.01     $ 0.00     $ 0.02     $ 0.01  
Weighted average common shares outstanding:
                               
Basic
    45,959,870       45,416,695       45,954,359       45,347,066  
Diluted
    58,387,251       58,524,751       58,381,740       58,524,751  
 
SEE NOTES TO FINANCIAL STATEMENTS

 
2

 
 
SUPERCLICK, INC.                            
 
Consolidated Statement of Stockholder's Equity                         
 
For the Nine months Ended July 31, 2011 (Unaudited) and the Year Ended Octoober 31, 2010              
 
   
                                               
   
                               
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, 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  
   
                                                               
Stock options exercised
    297,619     $ 178             $ 14,822                               15,000  
Foreign Currency Translation Adjustment
                                      294,407               294,407  
Net profit
                                    1,016,559                       1,016,559  
BALANCES April 30, 2011
    45,959,870     $ 28,117     $ -     $ 6,155,601     $ (2,788,638 )   $ 520,388     $ (15,140 )   $ 3,900,328  
 
SEE NOTES TO FINANCIAL STATEMENTS
 
 
3

 

SUPERCLICK, INC.            
 
Consolidated Statements of Comprehensive Income (Unaudited)      
 
For the Three and Nine Months Ended July 31, 2011 and 2010      
 
                         
   
 
Three Months Ended
   
Nine Months Ended
 
   
 
July 31,
   
July 31,
 
   
 
2011
   
2010
   
2011
   
2010
 
   
                       
Net income
  $ 406,507     $ 192,139     $ 1,016,559     $ 412,207  
 
                               
Other comprehensive income
                               
Foreign currency translation adjustment
    (12,023 )     (50,950 )     294,407       134,437  
   
                               
Net comprehensive income
  $ 394,484     $ 141,189     $ 1,310,966     $ 546,644  

SEE NOTES TO FINANCIAL STATEMENTS

 
4

 

SUPERCLICK, INC.          
 
Consolidated Statements of Cash Flows (Unaudited)          
 
For the Three and Nine Months Ended July 31, 2011 and 2010      
 
   
Three Months Ended
   
Nine Months Ended
 
   
July 31,
   
July 31,
 
   
2011
   
2010
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income
  $ 406,507     $ 192,139     $ 1,016,559     $ 412,207  
Adjustments to reconcile net income to net cash provided (used) by operating activities:
                               
Depreciation
    21,917       6,743       49,666       32,700  
CHANGES IN ASSETS AND LIABILITIES:
                               
Accounts receivable
    (148,483 )     (744,905 )     (85,093 )     (38,399 )
Financing receivables
    61,490       -       (383,720 )     -  
Other receivables
    -       (8,103 )     2,108       (8,695 )
Prepaid expenses
    90,801       26,575       13,574       (32,533 )
Inventory
    (8,602 )     (110,675 )     (129,786 )     (543,614 )
Accounts payable and accrued expenses
    57,244       166,015       (518,517 )     251,121  
Accrued payroll
    (30,850 )     (1,465 )     (7,073 )     (55,348 )
Income taxes payable and receivable
    198,367       (25,815 )     390,083       (432,616 )
Deferred revenue
    (201,795 )     98,479       205,927       79,326  
CASH PROVIDED BY OPERATING ACTIVITIES
    446,596       (401,012 )     553,728       (335,851 )
                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Acquisition of furniture and equipment
    (170,884 )     (24,546 )     (207,536 )     (47,508 )
CASH (USED) FOR INVESTING ACTIVITIES
    (170,884 )     (24,546 )     (207,536 )     (47,508 )
                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Stock options exercised
    -       10,000       15,000       10,000  
CASH (USED) FOR FINANCING ACTIVITIES
    -       10,000       15,000       10,000  
                                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (20,367 )     (64,527 )     221,928       160,001  
NET INCREASE (DECREASE) IN CASH
    255,345       (480,085 )     583,120       (213,358 )
CASH, beginning of period
    2,420,583       2,458,785       2,092,809       2,192,058  
CASH, end of period
  $ 2,675,928     $ 1,978,700     $ 2,675,928     $ 1,978,700  
                                 
Interest paid
  $ 370     $ -     $ 1,145     $ 734  
Taxes paid
  $ -     $ 114,067     $ -     $ 643,618  
                                 
Other non-cash investing and financing activities:
                               
None.
                               
 
SEE NOTES TO FINANCIAL STATEMENTS

 
5

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The unaudited financial statements of Superclick, Inc. as of July 31, 2011 and for the three and nine month period ended July 31, 2011 and 2010 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting.  Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Superclick, Inc.'s Form 10-K for the year ended October 31, 2010.   In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included.   The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

Organization
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.
 
 
6

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization (Continued)
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.

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, Inc. and its wholly-owned subsidiary, Superclick Networks, Inc. which is 100% consolidated in the financial statements.  All material inter-company accounts and transactions have been eliminated.

Accounting estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

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.
 
 
7

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE A-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The Company depreciates its property and equipment on a declining balance method at the following rates as applied to net depreciable value:

Furniture and fixtures:
    20 %
Computer equipment and software:
    30 %
Leasehold improvements
    20 %
Fabrication equipment
    20 %

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

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

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

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

Advertising
The Company expenses all advertising as incurred.  For the three months ended July 31, 2011 and 2010, the Company incurred approximately $72,280 and $48,098, respectively in marketing and advertising expense.  For the nine months ended July 31, 2011 and 2010, the Company incurred approximately $102,052 and $83,860, respectively in marketing and advertising expense.
 
Research and development
Expenses related to present and future products are expensed as incurred.
 
 
8

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

The company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
 
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. We have no Level 1 instruments as of July 31, 2011.

Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities. We have no Level 2 instruments as of July 31, 2011.

Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. We have no Level 3 instruments as of July 31, 2011.

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.

 
9

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Income taxes (Continued)

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

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

Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Recent Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-14 Software (Topic 985) which provides guidance on revenue recognition.  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.  ASU No. 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early application permitted. The Company did not encounter any significant financial impact upon adoption.

In January 2010, the FASB issued ASU 2010-06 – Fair Value Measurements and Disclosures (Topic 820) —Improving Disclosures about Fair Value Measurements, which requires new disclosures and reasons for transfers of financial assets and liabilities between Levels 1 and 2.  ASU 2010-06 also clarifies that fair value measurement disclosures are required for each class of financial asset and liability, which may be a subset of a caption in the consolidated balance sheets, and those disclosures should include a discussion of inputs and valuation techniques.  It further clarifies that the reconciliation of Level 3 measurements should separately present purchases, sales, issuances, and settlements instead of netting these changes.  With respect to matters other than Level 3 measurements, ASU 2010-06 is effective for fiscal years and interim periods beginning on or after December 15, 2009.  New guidance related to Level 3 measurements is effective for fiscal years and interim periods beginning on or after December 15, 2010.

 
10

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements (Continued)
Adoption of ASU 2010-06 did not result in any significant financial impact on the Company upon adoption.

In February 2010, the FASB issued ASU No. 2010-09, which amends subsequent event disclosure requirements for SEC filers. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This ASU was effective upon issuance and adoption of this ASU did not result in a material impact to the Company’s financial statements.

In January 2010, the FASB issued ASU No. 2010-10 – Consolidation (Topic 810) that amends accounting and disclosure requirements for a decrease in ownership in a business under existing GAAP standards for consolidations. It also clarifies the types of businesses that are in the scope of these consolidations. As required by this guidance, we retroactively applied the amendments as of November 1, 2009, which did not have a material impact on our financial statements or footnote disclosures.

In December 2010, the FASB issued ASU No. 2010-29 – Business Combinations (Topic 805); disclosure of Supplementary Pro Forma Information for Business Combinations.  ASU No. 2010-29 requires a public entity that presents comparative financial statements to disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business.  The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted.  Adoption of this ASU did not have a material impact on our financial statements or footnote disclosures.

In May 2011, the FASB issued ASU 2011-04 – Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs, to converge fair value measurement and disclosure guidance in U.S. GAAP with the guidance in the International Accounting Standards Board’s concurrently issued IFRS 13, Fair Value Measurement.  The amendments in ASU 2011-04 do not modify the requirements for when fair value measurements apply; rather, they generally represent clarifications on how to measure and disclose fair value under ASC 820, Fair Value Measurement. For public entities, the amendments in the ASU are effective prospectively for interim and annual periods beginning after December 15, 2011.  Early adoption is not permitted.  The Company does not expect adoption of this ASU to have a material impact on our financial statements or footnote disclosures.

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.

 
11

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE A – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers.  At July 31, 2011, one customer accounted for 30% of accounts receivable.  At July 31, 2010, one customer accounted for 14% of accounts receivable.

During the three months ended July 31, 2011, one customer accounted for 24% of sales.  During the three months ended July 31, 2010, one customer accounted for 20% of sales.  During the nine months ended July 31, 2011, one customer accounted for 22% of sales.  During the nine months ended July 31, 2010, no customer accounted for more than 10% of sales.

For the three months ended July 31, 2011 and 2010, approximately 31% and 34% of the Company's net sales were made to customers outside the United States.  For the nine months ended July 31, 2011 and 2010, approximately 30% and 37% of the Company's net sales were made to customers outside the United States.

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

NOTE B – ACCOUNTS RECEIVABLE

Accounts Receivable
The accounts receivable balance of $2,203,209 as of July 31, 2011 is reported net of an allowance for doubtful accounts of $22,817.

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

Sales Type Lease Receivable
In late fiscal 2010, the Company began offering long-term payment arrangements for certain installations. Pursuant to ASC 840-10-25-1(a) and ASC 840-10-25-43(a), the terms of the agreements described below 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.

On July 1, 2010, the Company entered into and installation and support agreement with a customer.  Under the three year Support Agreement commencing on August 10, 2010, the Company will provide 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 the Customer received guest internet access infrastructure including networking equipment.  The sale price of the installation was $216,092.

 
12

 

SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010


NOTE B – ACCOUNTS RECEIVABLE (Continued)

Sales Type Lease Receivable (Continued)
The Company received a $45,000 payment and agreed to finance the remaining principle amount of $171,092.

On July 14, 2010, the Company entered into an agreement with a customer whereby under the three year Agreement, the customer will receive 24x7x365 helpdesk support for hotel guests and staff and a wireless 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 the customer.   The sale price of the installed hardware was $456,588 and includes hardware and installation which was accounted for under the completed contract method.  During the three months ended January 31, 2011, the Company completed the hardware installations and recognized $456,588, of which $410,243 was recognized as revenue and $46,345 as deferred financing revenue and was based on an imputed interest rate of 7.5%.  The deferred financing revenue is being recognized over the 36 month term of the financing arrangement.

As of July 31, 2011 we have recorded $227,196 of current lease receivables and $217,078 of non-current lease receivables.  Additionally, related to the above agreements are the current and not-current unearned interest income (i.e. Deferred Financing Income) of $31,820 and $11,991, respectively, in the liability portion of our balance sheet.

During the three and nine months ended July 31, 2011, the Company recognized interest income related to the above sales-type leases of $11,506 and $39,399, respectively.

The future minimum lease payments to be received for each of the next five years is as follows:

Period
Ending
October 31,
 
Future Minimum Lease
Payments
   
Unearned Income
 
2011
  $ 59,049     $ 10,033  
2012
    217,782       26,325  
2013
    167,443       7,453  
2014
    -       -  
2015
    -       -  
Total
  $ 444,274     $ 43,811  
 
NOTE C – 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, our 2010 taxable income decreased resulting in a $230,146 receivable.

During the three and nine months ended July 31, 2011, the Company recorded a provision for income taxes of $206,321 and $441,486, respectively.  As of July 31, 2011, the company had an income tax payable of $201,956 (See Note F below).
 
 
13

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
NOTE C – TAXES RECEIVABLE (Continued)

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.
 
SNI pays and/or receives reimbursement of goods and services tax charged on the resale of goods and services transacted in Canada from both Federal and from the Provincial governments.  As of July 31, 2011 and October 31, 2010, the Company recognized a receivable of $24,728 and a payable of $26,663, respectively, for those sales taxes.

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 July 31, 2011 and October 31, 2010:
 
   
July 31,
   
October 31,
 
   
2011
   
2010
 
Computer equipment
  $ 639,736     $ 483,382  
Allowance for obsolete inventory
    (36,612 )     (42,905 )
Inventory, net
  $ 603,124     $ 440,477  
 
NOTE E – FIXED ASSETS

Property and equipment consisted of the following at July 31, 2011 and October 31, 2010:

   
July 31,
   
October 31,
 
   
2011
   
2010
 
Computer hardware
  $ 309,836     $ 290,068  
Furniture & fixtures
    334,675       153,395  
Computer software
    120,870       103,343  
Leasehold improvements
    66,993       34,474  
Fabrication mold and dye
    23,852       22,330  
      856,226       603,610  
Accumulated depreciation
    (523,789 )     (442,667 )
Fixed assets, net
  $ 332,437     $ 160,943  
 
Depreciation expense for the three months ended July 31, 2011 and 2010 was $21,917 and $6,743, respectively.  Depreciation expense for the nine months ended July 31, 2011 and 2010 was $49,666 and $32,701, respectively.

 
14

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
NOTE F – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at July 31, 2011 and October 31, 2010:
 
   
July 31,
   
October 31,
 
   
2011
   
2010
 
Trade payables
  $ 417,436     $ 888,049  
Customer overpayments
    187,594       176,487  
Professional fees
    178,099       184,318  
Accrued wages payable
    246,562       239,728  
Income taxes payable
    201,955       -  
GST/QST tax payable
    -       26,663  
                 
    $ 1,231,646     $ 1,515,245  
 
As of July 31, 2011, accrued payroll included $22,056 and $28,651 due to the CEO and CFO, respectively.  As of October 31, 2010, accrued wages payable included $40,041 and $31,722 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 July 31, 2011, the deferred revenue balance of $1,144,615 consisted of $843,799 related to support and maintenance for multiple customers and $300,816 related to customer deposits for future hardware installations.
 
As of October 31, 2010, the deferred revenue balance of $876,236 consisted of $677,731 related to support and maintenance for multiple customers and $198,505 related to customer deposits for future hardware installations.

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 July 31, 2011, contractual obligations were as follows:
 
   
Rent
 
2011
    14,085  
2012
    56,340  
2013
    56,340  
2014
    51,645  
2015 and thereafter
    -  
    $ 178,410  

During the three months ended July 31, 2011 and 2010, the Company incurred $17,388 and $11,416, respectively, in rent expense.  During the nine months ended July 31, 2011 and 2010, the Company incurred $52,916 and $40,196, respectively, in rent expense.

The Company does not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier.
 
 
15

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
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 July 31, 2011.

Common Stock Options
During the nine months ended July 31, 2011, the Company received $15,000 upon the exercise of options to acquire 297,619 shares of common stock at the exercise price of $0.0504 per share.  No options were granted.  The Company has recorded compensation expense of $767,017 through July 31, 2011.

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.

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 nine months ended July 31, 2011, the Company received $15,000 upon the exercise of options to acquire 297,619 shares of common stock at the exercise price of $0.0504 per share.  No options were granted.

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.

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.  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 Black-Scholes Option Pricing Model fair value of $5,090 that would have been recorded by the Company had the original exercise price remained unchanged from $0.0500.
 
 
16

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
NOTE J – STOCK INCENTIVE PLANS (Continued)

The 2004 Incentive Stock Option Plan (Continued)
The following table summarizes the Company's stock option activity for the nine months ended July 31, 2011 and the year ended October 31, 2010:

   
July 31,
   
October 31,
 
   
2011
   
2010
 
         
Weighted
         
Weighted
 
         
Average
         
Average
 
   
Shares
   
Exercise Price
   
Shares
   
Exercise Price
 
                         
Outstanding at beginning of year
    12,725,000     $ 0.0504       13,852,356     $ 0.0504  
Granted
    -       -       -       -  
Forfeited
    -       -       (777,356 )     0.5000  
Exercised
    (297,619 )     0.0504       (350,000 )     0.0500  
Outstanding at end of year
    12,427,381     $ 0.0504       12,725,000     $ 0.0504  
Options exerciseable
    12,427,381               12,725,000          

The following table summarizes information about the Company's stock options outstanding at July 31, 2011:

     
Options Outstanding
   
Options Exercisable
 
     
Number
   
Weighted
   
Weighted
         
Weighted
 
Range of
   
Outstanding
   
Average
   
Average
         
Average
 
Exercise
   
At April 30,
   
Contractural
   
Exercise
   
Number
   
Exercise
 
Prices
   
2011
   
Life (years)
   
Price
   
Outstanding
   
Price
 
                                 
$ 0.0504       12,427,381       -     $ 0.0504       12,427,381     $ 0.0504  
                                          -  
Total
      12,427,381       -     $ 0.0504       12,427,381     $ 0.0504  

The Company measures the fair market value of stock options granted using the Black-Scholes Option Pricing Model on the date of grant and recognizes related compensation expense ratably over the options vesting period for all future grants.  The Company also estimates the amount of forfeitures or the amount of options that will be canceled in the future.  During the nine months ended July 31, 2011 and the years ended October 31, 2010 and 2009, the Company recognized no compensation expense.  The Company has recorded compensation expense of $767,017 through July 31, 2011.

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.

No awards under the Non-Employee Director's Stock Incentive Plan were granted or issued during the nine months ended July 31, 2011 or during the year ended October 31, 2010

From inception through July 31, 2011, the Company has issued 2,569,772 shares to our directors under this stock incentive plan.
 
 
17

 
 
SUPERCLICK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010

 
NOTE K – RELATED PARTY TRANSACTION
 
Mr. Pitcher, Chairman of the Company’s Board of Directors, provides consulting services to the Company in exchange for monthly compensation of $5,000 and related expenses.  During the three and nine months ended July 31, 2011, Mr. Pitcher received $9,410 and $52,945, respectively.  During the three and nine months ended July 31, 2010, Mr. Pitcher received $15,300 and $48,148, respectively.

Mr. Ronald A. Fon became a Director of the Company during February 2009.  Mr. Fon is also a principal with a firm that provides investor relations (IR) consulting services to the Company for monthly compensation of approximately $3,500.  During the three and nine months ended July 31, 2011 approximately $17,412 and $46,937, respectively was paid to the IR firm.  During the three and nine months ended July 31, 2010 approximately $14,228 and $45,998, respectively was paid to the IR firm.

NOTE L – LEGAL PROCEEDINGS

On November 17, 2009 the Company was named as a defendant by Nomadix, Inc. in a complaint for patent infringement of certain U.S. patents.  It is not possible to reasonably determine the outcome of this complaint. The Company has been monitoring the matter closely and has been in discussion directly with the Plaintiff to review the matter.  However, it is not possible to assess at this time whether or not the Company needs to reserve for a potential settlement.

NOTE M - SUBSEQUENT EVENTS

Pursuant to FASB Accounting Standards Codification 855, Subsequent Events, the Company evaluated subsequent events through the date the accompanying financial statements were completed on September 7, 2011, and noted there were no qualifying events.

 
18

 

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note About Forward-Looking Statements

Certain statements in Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (refer to Item 3). We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Overview

Management’s discussion and analysis is intended to help the reader understand the results of operations and financial condition of Superclick. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended October 31, 2010 and the Consolidated Financial Statements and accompanying notes (“Notes”) included in this Form 10-Q.

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

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

We continue to develop our product offering and IP management solutions, listening carefully to our customers to determine development paths that most directly meet their needs.

Significant Accounting Policies

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

 
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Revenue Recognition

The company recognizes revenue when it is realized or realizable and earned. The company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.  Delivery does not occur until products have been shipped or services have been provided to the client, risk of loss has transferred to the client, and either client acceptance has been obtained, client acceptance provisions have lapsed, or the company has objective evidence that the criteria specified in the client acceptance provisions have been satisfied.  The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

Multiple-Deliverable Arrangements

The company enters into revenue arrangements that may consist of multiple deliverables of its products and services based on the needs of its customers.  These arrangements may include any combination of hardware, services, software and/or financing.  For example, a customer may purchase equipment that includes software.  In addition, the arrangement may include post-contract support for the software and a contract for post-warranty maintenance service for the hardware.  These types of arrangements can also include financing provided by the company.  These arrangements consist of multiple deliverables, with the hardware and software delivered in one reporting period and the software support and hardware maintenance services delivered across multiple reporting periods.  To the extent that a deliverable in a multiple-deliverable arrangement is subject to specific guidance that deliverable is accounted for in accordance with such specific guidance.  For all other deliverables in multiple-deliverable arrangements, the guidance below is applied for separability and allocation. A multiple-deliverable arrangement is separated into more than one unit of accounting if the following criteria are met:

 
·
The delivered item(s) has value to the client on a stand-alone basis; and
 
 
·
If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the company.

If these criteria are not met, the arrangement is accounted for as one unit of accounting which would result in revenue being recognized ratably over the contract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered.  If these criteria are met for each element and there is a relative selling price for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. The revenue policies described below are then applied to each unit of accounting, as applicable.

Hardware/Software/Installation

The company’s primary solution results in a customer’s ability to offer high speed internet access (HSIA) and effectively manage their HSIA network infrastructure.  The components of the solution include hardware, software and an installation component.  The gateway server includes hardware and software which is sold as a unit and not sold separately.  In addition, the Company resells other internet connection equipment and performs installation that is required to provide a functioning end product.  The company provides manufacturers warranties for the hardware products that range from three months to one year.

 
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Revenue from hardware/software/Installation sales and sales-type leases is recognized when risk of loss has transferred to the client and there are no unfulfilled company obligations that affect the client’s final acceptance of the arrangement..

Maintenance

Maintenance, typically referred to as support revenue, is recognized ratably over the maintenance term. Support includes Guest and hotel staff support to the HSIA system.  First-year maintenance is sold with the related software license and renewed on an annual basis thereafter. Estimated fair values of ongoing support obligations are based on separate sales of renewals to customers quoted in the contracts.

Financing

Currently, the Company only has financing income and receivables attributable to sales-type leases.  Leases are accounted for in accordance with lease accounting standards.  Financing income is recognized on the accrual basis using the effective interest method.  Estimates of fair value are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. The company recently started offering leasing as an option for its customers and has no history of credit losses on financing receivables.  The company reviews all financing receivables considered at risk on a quarterly basis. The review primarily consists of an analysis based upon current information available about the client, such as financial statements, news reports, published credit ratings, current market-implied credit analysis, as well as the current economic environment, collateral net of repossession cost and prior collection history. For loans that are collateral dependent, impairment is measured using the fair value of the collateral when foreclosure is probable. Using this information, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve.

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.
 
 
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Income taxes
 
Provisions for income taxes are based on taxes payable or refundable for the current period and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Income Taxes (formerly Statement No. 109, Accounting for Income Taxes).  In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 740.  FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized.  First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination.  If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements.  The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company underwent a change of control for income tax purposes on October 8, 2003 according to Section 381 of the Internal Revenue Code. The Company's utilization of U.S. Federal net operating losses will be limited in accordance to Section 381 rules.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Foreign Currency Translation

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

Results of Operations

THREE AND NINE MONTHS ENDED JULY 31, 2011 COMPARED TO THE THREE AND NINE MONTHS ENDED JULY 31, 2010

Revenue

Net Revenue for the three months ended July 31, 2011 increased $848,894 or 39.6% to $2,994,465 compared to $2,145,571 for the three months ended July 31, 2010. Net Revenue for the nine months ended July 31, 2011 increased $2,194,179 or 37.0% to $8,122,109 compared to $5,927,930 for the nine months ended July 31, 2010.

Net sales revenue which includes revenue generated from new business increased 53.6% to $1,704,316 from $1,109,853 for the quarter and 58.0% to $4,444,523 from $2,812,337 year to date. The increase was mainly due to the acquisition of new business generated by new brand relationships and the continued success of the company’s hardware refresh program where existing clients are upgrading their existing HSIA networks to meet brand standards.

Services revenue, which includes revenue generated from guest support services, grew 24.6% to $1,290,149 from $1,035,718 for the quarter and 18.0% to $3,677,586 from $3,115,593 year to date. The favorable variance was mainly due to successfully renewing support service contracts with existing clients, and securing services with higher level service level agreements with newly deployed clients.
 
 
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Gross Profit

Gross profit for the three months ended July 31, 2011 increased $647,598 or 66.3% to $1,623,865 compared to $976,267 for the three months ended July 31, 2010.  Gross profit for the nine months ended July 31, 2010 increased $1,409,829 or 49.7% to $4,247,908 compared to $2,838,079 for the nine months ended July 31, 2010.
Due to the quarter’s positive sales mix of new clients, the current quarter experienced both a favorable gross profit and gross margin compared to the previous year.  The positive quarter`s results also improved the year to date profit and margins.
Gross margin for the quarter was 54.2% compared to 45.5% for the previous year’s comparable period and 52.3% year to date compared to 47.9% last year.
 
Selling, General and Administrative

Selling, General and Administrative expenses (SG&A) for the three months ended July 31, 2011 and 2010 were $916,656 and $612,477, respectively.  For the nine months ended July 31, 2011 and 2010 (SG&A) were $2,523,244 and $1,979,954, respectively.
The quarter increase of $304,179 was mainly due to approximately $56,000 related to foreign exchange conversion, approximately $130,000 related to increase sales activities, approximately $70,000 related to increased professional services and $50,000 related to increased general operating expenses.
The year to date increase of $543,290 was mainly due to increased costs related to sales related activities of approximately $190,000, foreign exchange loss of approximately $125,000, approximately $94,000 due to increased professional fees, approximately $134,000 due to increased general operating expenses.
As a percentage of net revenue, SG&A was higher compared to the previous year for the quarter but lower year to date.  The quarter and year to date SG&A per sales compared to last year was 30.6% compared to 28.5% the previous year and 31.1% compared to 33.4% last year, respectively.

Research and Development

Research and development expenses for the three months ended July 31, 2011 and 2010 were $73,006 and $64,184, respectively. Research and development expenses for the nine months ended July 31, 2011 and 2010 were $218,337 and $190,265, respectively.  The increases were mainly due to the addition of human capital.

Income from operations

Income from operations which includes charges for depreciation for the three months ended July 31, 2011 increased 109.1% or $319,423 to $612,286 or 20.4% of net revenue compared to $292,863 or 13.6% of net revenue for the three months ended July 31, 2010.  Income from operations for the nine months ended July 31, 2011 increased 129.3% or $821,502 to $1,456,661 or 17.9% of net revenue compared to $635,159 or 10.7% of net revenue for the nine months ended July 31, 2010.

Other Income and Expense

The total other income and expense for the three months ended July 31, 2011 and 2010 was income of $542 and $255, respectively.  The total other income and expense for the nine months ended July 31, 2011 and 2010 was income of $1,384 and $1,503, respectively.
 
 
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Net Income

The net income before income taxes for the three months ended July 31, 2011 was $612,828 or 20.5% of net revenue compared to $293,118 or 13.7% of net revenue during the three months ended July 31, 2010.  The Company recorded $206,321 in income tax expense during the three months ended July 31, 2011 compared to $100,979 in 2010.  Third quarter 2011 net income increased $214,368 or 111.6% to $406,507 or 13.6% of net revenue compared to $192,139 or 9.0% of net revenue during the same period of 2010.
The net income before income taxes for the nine months ended July 31, 2011 increased 129.0% or $821,383 to $1,458,045 or 18.0% of net revenue compared to $636,662 or 10.7% of net revenue during the nine months ended July 31, 2010.  The Company recorded $441,486 in income tax expense during the nine months ended July 31, 2011 compared to $314,553 in 2010.  The nine month 2011 net income increased by $694,450 or 215.6% to $1,016,559 or 12.5% of net revenue compared to $322,109 or 5.4% of net revenue.

Net Income (Loss) Per Common Share

For the three months ended July 31, 2011, the net income per common share was $0.01 basic and $0.01 fully diluted compared to $0.00 basic and $0.00 diluted for the three months ended July 31, 2010.  The basic and fully diluted weighted average shares for the three months ended July 31, 2011 were 45,959,870 and 58,387,251, respectively.  The basic and fully diluted weighted average shares for the three months ended July 31, 2010 were 45,416,695 and 58,524,751, respectively.
For the nine months ended July 31, 2011, the net income per common share was $0.02 basic and $0.02 diluted compared to $0.01 basic and $0.01 diluted for the nine months ended July 31, 2010.  The basic and fully diluted weighted average shares for the three months ended July 31, 2011 were 45,954,359 and 58,381,740, respectively.  The basic and fully diluted weighted average shares for the nine months ended July 31, 2010 were 45,347,066 and 58,524,751, respectively.

Financial Condition

From inception to July 31, 2011, we have incurred an accumulated deficit of $2,788,638.  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. As a result we have experienced a net profit in the past eighteen consecutive quarters beginning with our second quarter ending April 30, 2007. This has allowed us to reduce our accumulated deficit by $5,514,237 from its high of $8,302,875 on January 31, 2007.

From inception through 2005, we financed our operations primarily through debt and equity financing.  However, during the past several fiscal years all prior debts have been repaid and operations have been financed solely from operating earnings.  During the three and nine months ended July 31, 2011 we had a net increase in cash of $255,345 and $583,120, respectively.  Total cash resources as of July 31, 2011 were $2,675,928 compared with $2,092,809 at October 31, 2010.

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.
 
 
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The Company's Liquidity Plan

During the nine months ended July 31, 2011 and 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 nine months ended July 31, 2011 and the year ended October 31, 2010 was $1,016,559 and $790,522, respectively.  During the nine months ended July 31, 2011 operations provided $553,728 compared to using $335,851 during the nine months ended July 31, 2010.

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 July 31, 2011 we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

Contractual Obligations

Operating lease obligations:  Operating lease obligations consist of office rental commitment for our offices in Montréal, Québec, Canada.   See NOTE H to our financial statements above.

Inflation

Although our operations are influenced by general economic conditions, we do not believe inflation had a material effect on the results of operations during the three months ended July 31, 2011.   However, there can be no assurance our business will not be affected by inflation in the future.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS

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

 
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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.

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.

 
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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.

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.
 
 
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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;
§
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;

 
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§
the tax system of foreign countries, which may tax our foreign income at higher rates than in the United States and may subject foreign earnings to withholding requirements or tariffs, exchange controls or other restrictions;
§
legal requirements and regulations of various foreign countries, which may make compliance by us with such laws and regulations difficult and may make enforcement of our intellectual property rights more difficult; and
§
fluctuations in currency exchange rates, which may affect demand for our products and services and may adversely affect the profitability in United States dollars of services provided by us in foreign markets where payment for its products and services is made in the local currency; and general economic conditions in the foreign countries into which we sell, which could have an adverse impact on its earnings from operations in those countries.

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

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

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.

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

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

Risks Relating To Our Common Stock:

There is a limited market for our common stock.

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

Shareholders may suffer dilution upon the exercise of outstanding options.

As of July 31, 2011, we had exercisable stock options outstanding to purchase 12,427,381 shares of common stock.  To the extent such options are exercised there will be further dilution.  In addition, in the event that any future financing should be in the form of securities convertible into, or exchangeable for, equity securities, investors may experience additional dilution upon the conversion or exchange of such securities.
 
Future sales of our common stock by existing shareholders under Rule 144 could decrease the trading price of our common stock.

As of July 31, 2011, a total of 9,148,568 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.

 
 
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Our common stock is subject to "penny stock" rules.
 
Our common stock is classified as a penny stock by the Securities and Exchange Commission.  This classification severely and adversely affects the market liquidity for our common stock.  The Commission has adopted Rule 15g-9, which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.  In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.  The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, sets forth (i) the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.  Disclosure also has to be made about the risks of investing in penny stocks in public offerings and secondary trading and about the commissions payable to the broker-dealer and registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
 
 
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PART II. OTHER INFORMATION

Item 1. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None

Item 3. Defaults Upon Senior Securities. None

Item 4. (Removed and Reserved)

Item 5. Other Information. None.

Item 6. Exhibits and Reports On Form 8-K.

(a)  Exhibits

31.1  Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934*

31.2  Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934*

32.1  Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*

32.2  Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350*

(b) Reports on Form 8-K

On March 15, 2011, the company filed form 8-K with the SEC announcing financial results and certain other information related to the first quarter ended January 31, 2011.

* Filed herewith.
 
 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: September 7, 2011
Superclick, Inc.
 
/s/ Sandro Natale
 
Name: Sandro Natale
 
Title: President & CEO
 
 
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