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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 



FORM 10-K

 


Mark One


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2013

 

OR

 

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

 

Commission File Number: 333-150158

 

B-SCADA, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

94-3399360

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1255 N. Vantage Pt. Dr., Suite A

Crystal River, Florida 34429

 

 

(Address of principal executive offices) (Zip Code)

 

 

 

 

 

N/A

 

 

 (Former name or former address, if changed since last report.)

 

 

Registrant’s telephone number, including area code (352) 564-9610


Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act: None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes  [X] No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes  [X] No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes  [  ] No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes  [  ] No

 



1




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

[  ]  Large accelerated filer

[  ]  Accelerated filer

[  ]  Non-accelerated filer

[X]  Smaller reporting company

 

 

(Do not check if a small reporting company)

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes  [X] No

 

The aggregate market value of the common stock held by non-affiliates of the registrant, computed based upon prices at which it was last sold, as of the last business day of the registrants second fiscal quarter, April 30, 2013, was approximately $2,358,007.

 

According to the records of the registrant's registrar and transfer agent, the number of shares of the registrant's common stock outstanding as of January 16, 2014 was 24,586,672.



































2




Table of Contents

 

Part I

5

Item 1. Business

5

Item 1A. Risk Factors.

7

Item 1B. Unresolved Staff Comments.

7

Item 2. Properties

7

Item 3. Legal Proceedings

7

Item 4. Mine Safety Disclosures

7

Part II

8

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

8

Item 6. Selected Financial Data.

9

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

9

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

16

Item 8. Financial Statements and Supplementary Data

16

Item 9. Changes In, and Disagreements With, Accountants on Accounting and Financial Disclosure

16

Item 9A. Controls and Procedures

16

Item 9B. Other Information

17

Part III

18

Item 10. Directors, Executive Officers and Corporate Governance

18

Item 11. Executive Compensation

19

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

19

Item 13. Certain Relationships and Related Transactions, and Director Independence

20

Item 14. Principal Accounting Fees and Services

20

Part IV

21

Item 15. Exhibits, Financial Statement Schedules

21

SIGNATURES

22






3




NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report and the documents incorporated in it by reference contain forward-looking statements that involve known and unknown risks and uncertainties. Examples of forward-looking statements include: projections of capital expenditures, competitive pressures, revenues, growth prospects, product development, financial resources and other financial matters. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or the negative of such terms, or other comparable terminology.

 

Our ability to predict the results of our operations or the effects of various events on our operating results is inherently uncertain. Therefore, we caution you to consider carefully the matters described in this report, the documents incorporated by reference in this report, and other publicly available sources. These factors and many other factors beyond the control of our management could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by the forward-looking statements.









































4




Part I


Item 1. Business


B-Scada, Inc. (“we,’’ “B-Scada,” “us,” “our”) is in the business of developing software products for the visualization and monitoring of real time data in heavy industry. Our HMI (Human Machine Interface) software and SCADA (Supervisory Control and Data Acquisition) products are utilized in the petrochemical, electricity distribution, transportation, facilities management and manufacturing industries.  The technology that B-Scada has developed has been licensed to 10 other firms including four Fortune 500 companies. These licensing arrangements provide long term, recurring, royalty based revenue for B-Scada. The products developed by companies using B-Scada’s technology include industrial automation solutions, medical applications for use in hospitals, and line of business applications. Our products are marketed and sold globally and offered both directly and through a sales channel of system integrators and resellers.


B-Scada has developed its own industrial control and monitoring solutions. ‘Status Enterprise’ and ‘Status Machine Edition’ are powerful SCADA solutions capable of connecting to real time industrial data and displaying the information in real time to operators, maintenance personnel and supervisors.


HMI and SCADA systems are used for monitoring the HVAC (Heating Ventilation and Air Conditioning) systems in large commercial complexes. They are used in waste water treatment plants, with oil wells, hydro-electric plants, subway systems, pharmaceuticals and almost every manufacturing facility.


History


We were originally formed under the name Firefly Learning, Inc. on May 31, 2001. In October, 2005, pursuant to an exchange agreement, we acquired all of the issued and outstanding shares of capital stock of Mobiform, Ltd., a Canadian corporation, (“Mobiform Canada”) in exchange for shares of our Common Stock and changed our name to Mobiform Software, Inc.  After the acquisition, Mobiform Canada became our wholly-owned subsidiary.  Effective September 14, 2010, Mobiform Canada was dissolved.  On October 19, 2012, we changed our name to B-Scada, Inc.

 

Our technology team is comprised of seasoned veterans of software design and development who have extensive experience in designing, building and delivering world-class software solutions. We have licensed or provided training and/or consulting services for such major companies as General Electric, Microsoft Corporation, Intel Corporation, and Siemens AG.

 

Product Description


We develop and sell software designed for use by system integrators, industrial engineers, graphic designers and computer programmers. Our primary line of HMI software and SCADA products is a set of programs that allows users to generate “user interfaces.”  User interfaces include internet web sites and computer applications of all kinds, including computer models of simple and complex systems (for example, a functioning power plant, the flow of inventory of a large business, the genetic code of a species or individual, or a simple lever). Given the great and increasing pervasiveness of user interfaces in the world economy, the demand for products that allow for the simple and flexible creation of user interfaces is enormous.

 

Our products can be utilized by many vertical markets. We have already entered into agreements with companies to use our technology in the fields of industrial automation, medical software and energy monitoring.

 

Revenue Streams


B-Scada’s revenue is generated from two sources, (i) retail sales of our HMI and SCADA software products and (ii) licensing of our technology to other companies. Development, design, consulting services and support are part of all product sales.


Retail


B-Scada ‘Status’ allows designers to create a representation of their manufacturing processes. Once the graphic display is created, Status has web services that connect to data on the factory floor and provide information to the various meters, gauges and graphics on screen. Data flows two ways with Status; it can monitor data, and it allows the click of a button onscreen to start or stop a piece of equipment on the factory floor.




5




B-Scada has attracted a number of resellers and system integrators that are now promoting and using Status ’ in commercial settings. We are targeting potential customers to offer customized applications to meet their industry requirements.   Status is now being used to monitor the 4th largest subway system in the world in Seoul, South Korea. It is monitoring HVAC performance in pharmaceutical manufacturing facilities in China, and is used in various monitoring applications in numerous verticals in the United States.


Development of SCADA systems typically requires millions of dollars in development capital over several years. Larger firms cannot develop their own systems with the efficiency of smaller companies; a larger firm trying to develop such a system in house could easily spend $15 million or more.

 

Technology Licensing


In addition to selling our own software products, we also license the technology we have developed to other software companies. Long-term licenses to multinational automation software companies are a major part of our business.  The lead time for our engineers to work with theirs in developing successful integration of our software with their future products is fairly long-from nine months to two years - but the result is a multi-year high revenue license which provides substantial revenue to us for years to come.  We have a number of agreements in place and are currently in discussions with additional companies in the oil and gas, oil service, electric power generation and mining industries.


The products developed using B-Scada technology include industrial automation solutions, medical applications for use in hospitals, smart grid, HVAC and line of business applications. The relationships established through licensing are very strategic and may lead to acquisitions to prevent competitive companies from having the same strategic benefits.


Development Services and Support


B-Scada has been recognized as a leading edge software development firm. We are often asked to provide software development services, graphics design and consulting as part of the technology licensing agreements we sign with our customers.

 

Over the past five years we have put in place a set of core technologies that we can leverage to create a variety of software applications for different vertical markets. We have made some of these components available to other software companies as either retail software development components or as toolkits that can be used to embed our technology into their solutions. We have offered free downloads of our components and toolkits to prospective customers. With thousands of downloads of our products globally, we believe B-Scada is well on its way to achieving brand-name recognition.  We will continue in our efforts to generate incremental revenue by working with global industry leaders in selling consulting services and licensing our technology.

 

 By providing a limited amount of consulting services, B-Scada is able to identify potential software products and components that are needed by industry, and produce those products for market. These components will feed our technology base and the relationships developed from the consulting will provide potential sales channels and additional licensing and OEM agreements to us.


Market Information


Our immediate industry focus relates to the following verticals:


Enterprise Data Management, Petrochemical, Building Automation, Power Transmission and Distribution, Water and Wastewater, Manufacturing, Transportation and Logistics, and Emissions Monitoring.

 

Industrial Automation and Control Systems


Our team had experience with Rockwell Automation and as such we have experience in SCADA solutions for heavy industrial and commercial applications.  We released the new product in this vertical in January 2009 and have already licensed some of our technology to companies in this space.  

  

Raw Materials and Suppliers


Since our products are principally intellectual property, raw material sources and availability are not significant to us.  We will, however, be in competition with all other technology firms in attracting and retaining software engineering talent for Microsoft Windows developers, particularly those involved in .NET development. These resources are in extremely high demand and competition for these resources is significant.

 



6




Limited Customer Base


We have numerous customers using our products.  While all customers are important to our success, a few significant customers comprise the majority of our revenue.   In fiscal 2013 four customers generated 22%, 14%, 14% and 11% of our revenues and in fiscal 2012 three customers generated 33%, 20%, and 11% of our revenues. The loss of any of these customers could have a material effect on our business, financial condition and results of operations. While we endeavor to retain the customers we have and  seek to broaden our customer base, there is no assurance that we will succeed in doing so.


Protection of Intellectual Property


We own trademarks for our logos and product names. We will consider patent applications as they are warranted and our resources allow. Our future success and our ability to compete may greatly depend on our proprietary technology. We therefore rely on trade secret laws, together with non-disclosure agreements and licensing agreements to establish and protect whatever proprietary rights that we may have.

 

Government Approval and Regulation


Our products and services do not require government approval and are not regulated by the government.


Cost and Effects of Compliance with Environmental Laws


We do not have any material costs or involvement with compliance with environmental laws.


Employees


We have twelve full-time employees, which includes five programmer product developers, one graphic designer, three sales and marketing representatives, one quality assurance representative, one General Manager and our Chief Executive Officer. We are planning to expand, especially in sales and marketing, both through additional personnel and developing external distribution channels. We are discussing the possibility that one or more of our customers may become a distribution channel for our products.


Item 1A. Risk Factors.


Not applicable.


Item 1B. Unresolved Staff Comments.


Not applicable.


Item 2. Properties


Description of Properties

 

Our executive offices and research and development facilities are located in Crystal River, Florida. We rent a 2,000 square foot office and research facility at a variable monthly rent capped at $4,000. We occupy the facility based upon a month-to-month verbal lease.  This facility is sufficient for our current needs, but we may require bigger facilities as we carry out our business strategy.


Item 3. Legal Proceedings


The Company is not a party to, and its property is not the subject of, any pending legal proceedings.


Item 4. Mine Safety Disclosures


Not applicable.




7




Part II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


Market Information


Currently our Common Stock is quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol MOBS. The reported high and low sales prices for the common stock as reported on the OTCBB are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.


 

 

High

 

 

Low

 

2012

 

 

 

 

 

 

 

 

First quarter ended January 31, 2012

 

 

0.03

 

 

 

0.03

 

Second quarter ended April 30, 2012

 

 

0.14

 

 

 

0.05

 

Third quarter ended July 31, 2012

 

 

0.08

 

 

 

0.06

 

Fourth quarter ended October 31, 2012

 

 

0.10

 

 

 

0.05

 

2013

 

 

 

 

 

 

 

 

First quarter ended January 31, 2013

 

 

.06

 

 

 

.06

 

Second quarter ended April 30, 2013

 

 

.17

 

 

 

.17

 

Third quarter ended July 31, 2013

 

 

.25

 

 

 

.25

 

Fourth quarter ended October 31, 2013

 

 

.21

 

 

 

.21

 


As of October 31, 2013, Olde Monmouth Stock Transfer confirmed there were 161 holders of record owners of our common stock.


 Dividends and Dividend Policy

 

We have never paid dividends on our Common Stock and our present policy is to retain anticipated future earnings for use in our business.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth securities authorized for issuance as of October 31, 2013 under any equity compensation plans, none of which has been approved by our stockholders.


Equity Compensation Plan Information

 

  

 

Number of securities to

 

Weighted-average

 

Number of securities remaining

  

 

be issued upon exercise

 

exercise price of

 

available for future issuance

  

 

of outstanding options,

 

outstanding options,

 

under equity compensation plans

Plan category

 

warrants and rights

 

warrants and rights

 

(excluding securities reflected in column (a))

  

 

(a)

 

(b)

 

(c)


None


*There is no formal equity compensation plan, so there is no specific number of shares available for future issuance. Our authorized, but unissued and unreserved shares of Common Stock total 75,113,328 shares.





8




Recent Sales of Unregistered Securities


There were no issuances of stock in the 4th quarter of fiscal 2013.


Item 6. Selected Financial Data.


Not applicable.


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


The following discussion of our results of operations should be read together with our financial statements and the related notes, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involves unknown risks and uncertainties. Examples of forward-looking statements include: projections of capital expenditures, competitive pressures, revenues, growth prospects, product development, financial resources and other financial matters. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or the negative of such terms, or other comparable terminology. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Annual Report on Form 10-K.


Executive Summary


Since 2003, our experience in building and deploying HMI (Human Machine Interface) and SCADA (Supervisor Control and Data Acquisition) Systems has given us a unique perspective and insight into new data visualization possibilities with emerging technologies.


We specialize in the compelling visualization of real-time data. B-Scada has produced exceptional data visualization solutions for manufacturing, power and utilities, automation, and other fields of business making use of HMI and SCADA software products.


Our in-house expertise and experience has provided us the opportunity to partner with companies from various vertical markets, and assist them in developing custom solutions that meet their specific needs. Our goal is to help our clients transfer their real-time production and operational data into actionable information through graphically-compelling, functional, and intuitive user interfaces.


Overall Strategic Goals


Our goal is to become a leading supplier of HMI and SCADA systems to industry. Using some of the best talent in the industry, we build our monitoring systems in house and sell them into various vertical markets worldwide including building automation, petro chemical, transportation, electricity distribution and EPA emissions monitoring. Smaller firms and Fortune 500 companies have recognized the talent of our technical staff and the unique capabilities of our technology. This has given us the ability to license portions of our technology to other companies to use in their software systems.


Products and Services


Our technology team has extensive experience in software design and development and has designed, built and delivered, over the years, world-class software solutions for numerous vertical markets. In addition to software development, we also derive income from consulting services, graphic design and contract development that we offer hand in hand with our software solutions.


Product Description


‘Status Machine Edition’ was released in January 2009 as an industrial control and monitoring application for heavy industry and manufacturing. ‘Status Enterprise’ is a supervisory level version of Machine Edition and will be released in January of 2014.



9




The Status products fall into the category of a SCADA (Supervisory Control and Data Acquisition) or HMI (Human Machine Interface) software application.


The Status family of products are a powerful data visualization software package that allows the user to create highly graphical screens and connect the controls on the screens to real-time data. The screens can then be published and viewed by anyone within the company or from the web.


Status has built-in connectivity to real-time OPC (Open Process Control) data (including OPCUA (Unified Architecture)) and can very easily be extended to bind to other types of data. OPC data is primarily used in the manufacturing and process control industries. The market appeal for Status Machine Edition is its ability to connect to a variety of OPC servers and display real-time data from hundreds of data sources.


We have attracted a number of resellers and system integrators that are now promoting and using ‘Status Machine Edition’ in commercial settings. We believe that this will result in greater sales and distribution of our software through retail outlets and to original equipment manufacturers (“OEM”s). We are also targeting potential customers to offer customized applications to meet their industry requirements.   Status Machine Edition is now being used to monitor one of the largest subway systems in the world in Seoul, South Korea. Status monitors HVAC performance in pharmaceutical manufacturing facilities, electricity distribution, mining equipment and furniture manufacturing. Status is used in various monitoring applications in numerous verticals in the United States and around the world in numerous countries including Germany, Sweden, Taiwan, Kuwait, Malaysia, Chile, Canada, United Kingdom, Italy, Turkey, South Africa, Russia and France.


We are on target to release a significant addition to our SCADA software offering at the end of the year. Status Enterprise will provide greater scalability, data modeling and support for HTML 5 and mobile devices. We do not expect this product to start generating additional revenue until the end of 2014, as the sales cycles for SCADA products is often several months or more.


Consulting


In addition to sales of the Status products, we generate revenue by providing consulting services to companies that wish to extend and customize our technology. We provide development and design services. We also offer training and graphic design services and produce 3D models of equipment and machinery for use in mimics.


From initial consulting services and custom development, to embedding our Aurora software into their solution, we have the expertise and personnel to assist.  


Status Machine Edition was designed from the ground up to be extensible. Numerous companies have written custom data sources or asked B-Scada to create custom data sources to provide their real time data into Status Machine Edition.


Technology Licensing  


In addition to selling our own software products, we also license the technology we have developed to other software companies. Long-term licenses to multinational software companies are a major part of our business.  The lead time for our engineers to work with theirs in developing successful integration of our software with their future products is fairly long - from nine months to two years - but the result is a multiyear high revenue license providing substantial income for us for years to come.  We have several such agreements in place with Fortune 500 companies, and numerous agreements with smaller firms.


The products developed using B-Scada’s technology include industrial automation solutions, medical applications for use in hospitals, smart grid, HVAC and line of business applications. The relationships established through licensing are very strategic and may lead to acquisitions to prevent competitive companies from having the same strategic benefits.




10




Growth Strategy


B-Scada software can collect vital information of what is happening with the system it is monitoring. This data can be very valuable for such activities as scheduling, predictive maintenance and manufacturing execution. Our growth strategy is to grow our software offerings beyond SCADA and provide a more complete and valuable offering to our customers. These additional software products may be developed in house as the company grows, or added through a business acquisition. Additional capital may be needed to finance such an acquisition, either through debt or equity public or private offerings. There is no assurance that we will be able to raise capital in an amount necessary to finance such acquisition or on acceptable terms.


Revenue Strategy


We are currently generating revenues by licensing portions of our technology to different software companies, technology they use in their software products. These are long term arrangements providing consistent annual revenue to B-Scada. We also sell our SCADA software products to system integrators and commercial customers for visually monitoring and archiving their industrial data. Often, we are asked to provide technical expertise in the form of software development, graphics design and consulting services along with the software we provide our customers.


We currently sell our products directly over the Internet from our website and through resellers to end users and system integrators.


Critical Accounting Policies and Estimates


Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Though we evaluate our estimates and assumptions on an ongoing basis, our actual results may differ from these estimates.


Certain of our accounting policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s subjective judgments are described below to facilitate a better understanding of our business activities. We base our judgments on our experience and assumptions that we believe are reasonable and applicable under the circumstances.


Revenue Recognition - Our revenues are recognized in accordance with FASB ASC Topic 985-605 “Revenue Recognition” for the software industry.  Revenue from the sale of software licenses is recognized when standardized software modules are delivered to and accepted by the customer, the license term has begun, the fee is fixed or determinable and collectibility is probable.  Revenue from software maintenance contracts and Application Service Provider (“ASP”) services are recognized ratably over the lives of the contracts.  Revenue from professional services is recognized when the service is provided.


We enter into revenue arrangements in which a customer may purchase a combination of software, maintenance and support, and professional services (multiple-element arrangements).  When vendor-specific objective evidence (“VSOE”) of fair value exists for all elements, we allocate revenue to each element based on the relative fair value of each of the elements.  VSOE of fair value is established by the price charged when that element is sold separately.  For maintenance and support, VSOE of fair value is established by renewal rates, when they are sold separately.  For arrangements where VSOE of fair value exists only for the undelivered elements, we defer the full fair value of the undelivered elements and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue, assuming all other criteria for revenue recognition have been met.


Results of Operations


The following tables set forth, for the periods indicated, certain items from the statements of operations along with a comparative analysis of ratios of costs and expenses to revenues.



11




Comparison of the Fiscal Years Ended October 31, 2013 and 2012


 

For the years ended October 31,

 

2013

 

2012

 

 

 

% of

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts

 

Revenues

 

Amounts

 

Revenues

 

 

 

 

 

 

 

 

Revenues

$1,547,532

 

100%

 

$

1,070,870

 

100%

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

  Compensation costs

$

767,483

 

50%

 

$

655,843

 

61%

  Consulting fees

$

14,982

 

1%

 

$

8,887

 

1%

  Advertising

$

61,460

 

4%

 

$

30,527

 

3%

  Professional fees

$

99,344

 

6%

 

$

96,864

 

9%

 

 

 

 

 

 

 

 

 

 

Interest and debt costs

$

15,413

 

1%

 

$

18,058

 

2%

Benefit from income taxes

$

(406,744)

 

(26%)

 

$

--

 

--%

 

 

 

 

 

 

 

 

 

 

Net Income

$

871,248

 

56%

 

$

152,373

 

14%

 

 

 

 

 

 

 

 

 

 

Net income per share -

 

 

 

 

 

 

 

 

 

Basic and diluted

$

0.04

 

 

 

$

0.01

 

 


Revenues


Our revenues for the year ended October 31, 2013 amounted to $1,547,532 compared to fiscal 2012 revenues of $1,070,870, an increase of approximately $477,000 (45%). During fiscal 2013, we had increases in developmental services revenues ($249,000), maintenance and support ($157,000) and technology licensing and sales ($157,000). This increase was offset by a decline in consulting revenue of $86,000.  We entered into two new long-term licensing agreements in fiscal 2013 which accounted for $67,000 of the increase in both technology licensing revenues and maintenance and support. We continue to implement our strategic goals to generate increased revenues from the sales of our products and services.  Service revenues include revenues from fees charged for the implementation of our software products and training of customers in the use of such products. We are currently selling our software over the internet and are marketing our products and services to companies which may want to license or joint venture some of our software applications.


Operating Expenses


Our operating expenses consist primarily of compensation costs, advertising and professional services.


Compensation costs consist of payroll and related expenses. Payroll expenses amounted to $767,483 in the year ended October 31, 2013 compared to $655,843 in the year ended October 31, 2012. Payroll expenses increased $111,640 (17%) as we needed to add employees to service our new business, but as a percentage of revenues decreased to 50% as compared to 61% of revenues in fiscal 2012 as we continue to manage our payroll costs as we implement our strategic plan.


Advertising costs have increased to $61,460 in the year ended October 31, 2013 from $30,527 in the year ended October 31, 2012, an increase of $30,933 (101%). As operations continue to improve we have increased our advertising budget since we believe it is necessary to market our products and services in order to accomplish our plan for revenue growth.  



12




Professional fees increased from $96,864 in the year ended October 31, 2012 to $99,344 in the year ended October 31, 2013, an increase of $2,480 (3%). The increase in our professional fees is primarily related to increased accounting costs to prepare our required filings as a public company.


Consulting fees increased from $8,887 in the year ended October 31, 2012 to $14,982 in the year ended October 31, 2013, but represent only approximately 1% of revenues.


Interest and Debt Costs


Interest expense decreased from $18,058 ($14,058 to a related party) in the year ended October 31, 2012 to $15,413 ($7,979 to a related party) in the year ended October 31, 2013. During fiscal 2013, we paid off both our promissory notes held by our CEO ($164,173) and a convertible debenture ($50,000).


Income Tax Benefit


Prior to the year ended October 31, 2013 the deferred tax asset arising from pre-tax losses had been fully reserved as we were not able to determine that it was more likely than not that we would be able to realize the tax benefits in the future. Based on our evaluation of the positive and negative evidence at October 31, 2013, management determined that the Company would utilize a portion of its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize a portion of its deferred tax assets. As a result, management elected to reduce the Company's deferred tax asset valuation allowance by $406,744 as of October 31, 2013 (see Note 9 to the Financial Statements).


Net Income


Net income in the year ended October 31, 2013 totaled $871,248 compared to net income of $152,373 in the year ended October 31, 2012, an increase of $718,875 (472%) as discussed above.


Comparison of the Fiscal Years Ended October 31, 2012 and 2011


For the years ended October 31,

 

2012

 

2011

 

 

 

% of

 

 

 

% of

 

Amounts

 

Revenues

 

Amounts

 

Revenues

 

 

 

 

 

 

 

 

Revenues

$

1,070,870

 

 100%

 

$

980,909

 

 100%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

  Compensation costs

$

655,843

 

 61%

 

$

631,552

 

 64%

  Consulting fees

$

8,887

 

 1%

 

$

41,589

 

 4%

  Advertising

$

30,527

 

 3%

 

$

32,286

 

 3%

  Professional fees

$

96,864

 

 9%

 

$

114,561

 

 12%

 

 

 

 

 

 

 

 

 

 

Interest and debt costs

$

18,058

 

 2%

 

$

14,520

 

 1%

 

 

 

 

 

 

 

 

 

 

Net Income

$

152,373

 

 14%

 

$

41,676

 

 4%

 

 

 

 

 

 

 

 

Net income per share -

 

 

 

 

Basic and diluted

$

0.01

 

 

 

$

--

 

 




13




Revenues


Our revenues for the year ended October 31, 2012 amounted to $1,070,870 compared to fiscal 2011 revenues of $980,909, an increase of approximately $90,000 (9%). During fiscal 2012, we had increases in consulting and developmental services revenues of $68,000 and $45,000, respectively.  This increase was offset by a slight decline in technology licensing revenue of $23,000.  We continue to implement our strategic goals to generate increased revenues from the sales of our products and services.  Service revenues include revenues from fees charged for the implementation of our software products and training of customers in the use of such products. We are currently selling our software over the internet and are marketing our products and services to companies which may want to license or joint venture some of our software applications.


Operating Expenses


Our operating expenses consist primarily of compensation costs, advertising and professional services.


Compensation costs consist of payroll and related expenses. Payroll expenses amounted to $655,843 in the year ended October 31, 2012 compared to $631,552 in the year ended October 31, 2011. Payroll expenses increased $24,291 (4%), but are 61% of revenues compared to 64% of revenues in fiscal 2011 as we continue to manage our payroll costs as we implement our strategic plan.


Advertising costs have decreased to $30,527 in the year ended October 31, 2012 from $32,286 in the year ended October 31, 2011, a decrease of $1,759 (5%). As operations improved we have reinstated our advertising budget to prior levels since we believe it is necessary to market our products and services in order to accomplish our plan for revenue growth.


Professional fees decreased from $114,561 in the year ended October 31, 2011 to $96,864 in the year ended October 31, 2012, a decrease of $17,697 (15%). We reduced professional fees by internally performing certain functions which had previously been done by our professionals.


Consulting fees decreased from $40,130 in the year ended October 31, 2011 to $8,887 in the year ended October 31, 2012 and share based consulting fees decreased from $1,459 in the year ended October 31, 2011 to $0 in the year ended October 31, 2012 as certain consulting agreements entered into in fiscal 2011 were not renewed.


Interest and Debt Costs


Interest expense increased from $14,520 ($10,520 related party) in the year ended October 31, 2011 to $18,058 ($14,058 related party) in the year ended October 31, 2012. Interest expense is incurred on the promissory notes totaling $164,173 with our CEO and $50,000 in outstanding convertible debentures.


Income Taxes


We have no income tax provision since our prior pre-tax losses are utilized to offset current taxable income. The potential future tax benefits resulting from remaining pre-tax losses have been fully reserved as we are not able to determine if it is more likely than not that we will be able to realize the tax benefits in the future.


Net Income


Net income in the year ended October 31, 2012 totaled $152,373 compared to net income of $41,676 in the year ended October 31, 2011, an increase of $110,697 (266%) as discussed above.





14



Liquidity and Capital Resources


We fund our operations through sales of our products and services and debt and equity financings.


At October 31, 2013 we had cash and cash equivalents of $252,571 compared to $94,831 at October 31, 2012. The increase of $157,740 is primarily attributable to cash generated from operations reduced by acquisition costs of long-lived assets and the payoff of debt obligations.


Cash Flows


Net cash provided by operating activities amounted to $421,990 and $132,272 in the fiscal years ended October 31, 2013 and 2012, respectively. Net cash from operations increased as a result of cash generated from our licensing agreements and services revenues while we managed to maintain operating costs as discussed above while we implemented our overall strategic business plan.


In fiscal 2013 and 2012, cash was used for investing activities for the acquisition of property and equipment in the amount of $8,598 and $5,572, respectively. Additionally, in fiscal 2013 we acquired a domain name, Scada.com, for $41,479.


In fiscal 2013 and 2012, cash was used for financing activities for loan repayments to our CEO in the amounts of $164,173 and $45,827, respectively. Additionally, in fiscal 2013 we paid off a convertible debenture in the amount of $50,000.


We believe that our cash on hand at October 31, 2013 and our revenue commitments will be sufficient to fund our operations for at least the next 12 months. We have signed significant licensing agreements and continue to market our products and services in accordance with our strategic business plan.


Deferred Tax Asset Valuation Allowance


Accounting standards require that we assess whether a valuation allowance should be established against our deferred tax asset based on the consideration of all available evidence using a "more likely than not" standard. In making such judgments, we considered both positive and negative evidence as well as other factors which may impact future operating results. From our inception through October 31, 2012, we had established a full valuation allowance on our deferred tax asset because of a lack of sufficient positive evidence to support its realization.  At October 31, 2013, based on its evaluation of the positive and negative evidence, management determined that the Company would utilize a portion of its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize a portion of its deferred tax assets. The positive evidence evaluated as of October 31, 2013 consists of (i) our increased revenues, including the signing of several long term licensing agreements which run through fiscal 2019; (ii) our positive earnings, beginning in fiscal 2011 and increasing in each of fiscal 2012 and 2013; (iii) our ability to maintain operating costs as we have grown revenues; (iv) the utilization of net operating loss carry forwards in the last three fiscal years. The negative evidence evaluated as of October 31, 2013 consists of (i) our history of operating losses from inception through fiscal 2010; (ii) the possibility that a licensing agreement is cancelled or that non licensing revenues will decline; (iii) the possibility that our operating costs will increase. As a result, management elected to reduce the Company's deferred tax asset valuation allowance by $406,744 as of October 31, 2013.

 

Overall the valuation allowance decreased by approximately $462,000 and $699,000 in the years ended October 31, 2013 and 2012, respectively.


Contractual Obligations


Not Applicable


Off-Balance Sheet Arrangements


As of October 31, 2013, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.



15




Recent Accounting Pronouncements


Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying financial statements.


Item 7A. Quantitative and Qualitative Disclosure about Market Risk


Interest Rate Risk


Not Applicable


Item 8. Financial Statements and Supplementary Data


Our financial statements are contained in the pages beginning F-1, which appear at the end of this annual report.


Item 9. Changes In, and Disagreements With, Accountants on Accounting and Financial Disclosure


Not applicable.


Item 9A. Controls and Procedures


(a)

 Evaluation of disclosure controls and procedures


The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.


(b)

 Evaluation of internal control over financial reporting


Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Management has assessed the effectiveness of our internal control over financial reporting as of October 31, 2013.  In making this assessment, management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The objective of this assessment is to determine whether our internal control over financial reporting was effective as of October 31, 2013.  Based on our assessment utilizing the criteria issued by COSO, management has concluded that our internal control over financial reporting was not effective as of October 31, 2013.  Management’s assessment identified the following material weaknesses:


·

As of October 31, 2013, there were insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

·

As of October 31, 2013, there was a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

·

As of October 31, 2013, there were no independent directors and no independent audit committee.


We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.  We will address these concerns in time, taking into consideration the company's size and its available resources.



16




During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B. Other Information


None.



















































17




Part III


Item 10. Directors, Executive Officers and Corporate Governance


Management

 

The Company’s management and key employees are the following:

 

Name

 

Age

 

Position with Company

Allen Ronald DeSerranno

 

47

 

CEO, President, CFO, Director

Brian S Thornton

 

40

 

Vice President, Secretary

Joshua M. Weeks

 

33

 

CTO


The profiles of our officer and director and key employees are set forth below:

 

Ron DeSerranno

 

Mr. DeSerranno is a founder and CEO of Mobiform Canada, which was organized in March, 2003. Since B-Scada’s October, 2005 acquisition of Mobiform Canada, he has been Chief Executive Officer, President and a Director of B-Scada (formerly, Mobiform Software, Inc.). His software development career first began at the Space and Atmospheric Research Group, Physics Department, at the University of Western Ontario. He was a Microsoft Certified Trainer, author and consultant and has lectured in Stockholm, Manila, Dublin, London, New York and Toronto. From August, 1997 to November, 2000, he was a Senior Software Engineer for Rockwell Software, Inc. where he was the development lead for Rockwell’s flagship industrial automation product RSView, a world class Industrial Automation System. In 2002 he served as Vice President of Software Development for Motivus Software Ltd.  Mr. DeSerranno has been designing and developing world class software products for many years. Mr. DeSerranno graduated from the University of Western Ontario in Environmental Science and Fanshawe College of Applied Arts and Technology as a Certified Engineering Technologist.


Brian Thornton


Mr. Thornton has over 15 years of technical and management experience.  He holds a degree from Ocean County College in Computer Science and is a Certified Software Engineer.  Prior to joining B-Scada in February of 2008, Mr. Thornton served in key roles as Senior Software Engineer and Development Lead for Compro Technologies, Inc., where he designed and developed innovative telecom solutions for a global client base.  He has 10 years of experience in the development lifecycle within the telecommunications industry.  Mr. Thornton has also served as a Software Consultant for Thoroughbred Software, providing development assistance to a broad range of engineers and instructing courses in Business Basic and UNIX.

 

Joshua Weeks


Mr. Weeks has a Bachelor of Science degree in Computer Science from Western Carolina University.  Mr. Weeks has been with B-Scada since July of 2008.  He previously developed financial software with Metrostat Technologies of Sylba, NC.  He has also worked for America Online and Seventhman: a web, software, and business development firm. Mr. Weeks was integral in the development of CityTalent, a web-based remote staffing and project management platform, and was formerly a Sr. Programmer for the Board of County Commissioners of Citrus County, FL.


None of the foregoing persons have been involved in any proceedings specified in Item 401(f) of Regulation S-K in the last ten years


Indemnification of Directors and Officers

 

Our Certificate of Incorporation provides that the Company shall, to the fullest extent permitted by the law of the State of Delaware, indemnify any and all persons whom it shall have power to indemnify from and against any and all of the expenses, liabilities or other matters referred to in or covered by the applicable provisions of Delaware law, and the indemnification provided for will not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. We are required to indemnify each officer and director to the fullest extent permitted by law and to advance certain expenses incurred by such persons. Our Certificate of Incorporation and Delaware law provide limitations on the directors’ rights to indemnification in certain circumstances.



18




Code of Business Conduct and Ethics

 

We have adopted a Code of Business Conduct and Ethics, which was filed as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year ended October 31, 2009.


Item 11. Executive Compensation


The following table sets forth, for the fiscal years ended October 31, 2012 and October 31, 2013, all compensation paid, distributed or accrued, including salary and bonus amounts, for services rendered to us by our Principal Executive Officer and Principal Financial Officer, during the fiscal years ended October 31, 2012 and October 31, 2013. No other executive officer who was serving as an executive officer at October 31, 2013, had total compensation for fiscal 2013 exceeding $100,000:


Name and Principal Position

 

October 31

 

Salary ($)

 

 

Option Awards

 

 

Total

 

Allen Ronald DeSerranno

 

2012

 

 

150,000

 

 

 

0

 

 

$

150,000

 

Chief Executive Officer

 

2013

 

 

150,000

 

 

 

0

 

 

$

150,000

 


Director Compensation

 

We do not compensate our directors for serving on our Board of Directors, other than any compensation which a director may earn as an employee of the Company. We reimburse our directors for any travel related expenses incurred in performing their duties as directors.

 

Employment Agreements


Mr. DeSerranno is currently employed by the Company on a month to month basis at an annual salary of $150,000.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The following table sets forth the number of shares of Common Stock beneficially owned as of January 16, 2014 by (i) those persons or groups known to us who beneficially own more than 5% of our Common Stock; (ii) each director; (iii) each executive officer whose compensation exceeded $100,000 in the fiscal year ended October 31, 2013; and, (iv) all directors and executive officers as a group. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the SEC and by information provided by such persons directly to us. Except as indicated, the stockholders listed below possess sole voting and investment power with respect to their shares.


  

 

Number of

 

 

 

 

  

 

Shares of

 

 

Percentage of

 

  

 

Common Stock

 

 

Outstanding

 

  

 

Beneficially

 

 

Shares of

 

Name (1)

 

Owned(2)

 

 

Common Stock(3)

 

Allen Ronald DeSerranno(4)

 

 

9,616,142

 

 

 

39.11

%

Gary Fuhr

 

 

1,311,085

 

 

 

5.33

%

All officers and directors as a group

 

 

 

 

 

 

 

 

(One person)

 

 

9,616,142

 

 

 

39.11

%


(1) The address of Mr. DeSerranno is c/o B-Scada, Inc., 1255 N Vantage Pt. Dr., Suite A, Crystal River, Florida 34429. Mr. Fuhr, a former employee of the Company, has an address at 7204 Stride Avenue, Burnaby, BC V3N 1T9 Canada.

 

(2) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock relating to options currently exercisable or exercisable within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such securities, but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

 



19




(3) Based upon 24,586,672 shares of Common Stock outstanding plus in each case the shares which the person or group has a right to acquire within 60 days through the exercise of warrants.

 

(4) Mr. DeSerranno is our Chief Executive Officer, President, Chief Financial Officer and a Director. Includes 1,721,970 shares of Common Stock held by a corporation wholly-owned by Mr. DeSerranno and 211,187 shares of Common Stock held jointly with Mr. DeSerranno's wife, Honorata G. DeSerranno . Excludes 316,780 shares of Common Stock held directly by Mr. DeSerranno’s wife as to which he disclaims beneficial ownership.


Change in Control

 

We are unaware of any arrangement or understanding that may, at a subsequent date, result in a change of control of our Company.


Item 13. Certain Relationships and Related Transactions, and Director Independence


We paid $45,000 on each of February 5, 2013 and February 25, 2013 to our CEO in partial payment of promissory notes and accrued interest due him.  The payments included principal in the amount of $73,673and accrued interest of $16,327.  On September 11, 2013, we paid $105,721 to our CEO in full payment of the outstanding principal balances and accrued interest on the promissory notes then held by him.  The payment included principal in the amount of $90,500 and interest of $15,221.


Item 14. Principal Accounting Fees and Services


Meyler & Company, LLC served as our independent registered public accounting firm for the fiscal year ended October 31, 2012.   Cowan, Gunteski & Co., P.A. served as our independent registered public accounting firm for the fiscal year ended October 31, 2013. The following table shows the fees that were billed for the audit and other services provided by such firm for 2013 and 2012.


 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

Audit Fees - Cowan Gunteski

$

56,500

$

0

Audit Fees - Meyler & Co.

 

 

0

 

 

 

55,000

 

Tax Fees

 

 

0

 

 

 

0

 

All Other Fees

 

 

0

 

 

 

0

 

Total

 

$

56,500

 

 

$

55,000

 


Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

 

Audit-Related Fees - This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.

 

Tax Fees - This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

 

All Other Fees - This category consists of fees for other miscellaneous items.


Our Board of Directors acting as our Audit Committee preapproved each engagement of our independent registered public accounting firm.





20




Part IV


Item 15. Exhibits, Financial Statement Schedules


Number

Description

3.1

Certificate of Incorporation *

3.2

By-laws *

3.3

Certificate of Ownership and Merger. Incorporated by reference to Exhibit 99.1 to the Company’s Current Report  on Form 8-K filed October 19, 2012.

4.1

Form of Specimen Stock Certificate *

14.1

Code of Ethics**

31.1

Certification by the Principal Executive Officer and Principal Financial Officer of B-Scada, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))***

32.1

Certification by the Principal Executive Officer and Principal Financial Officer of B-Scada, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***

 

*  Incorporated by reference to the correspondingly numbered exhibit to the Company's Registration Statement on Form S-1 filed on April 9, 2008.

** Incorporated by reference to the correspondingly numbered exhibit to the Company’s Annual Report on Form 10-K filed on January 29, 2010

*** Filed herewith

































21



SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

B-SCADA, INC.

 

By:

/s/ Allen Ronald DeSerranno

 

Allen Ronald DeSerranno

Title:

 Chief Executive Officer and Chief Financial Officer

Date:

January 28, 2014

 

In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

By:

/s/ Allen Ronald DeSerranno

 

Allen Ronald DeSerranno

Title:

 Chief Executive Officer, Chief Financial Officer  and Sole Director

Date:

January 28, 2014


































22




Financial Statements

 

Index to Financial Statements


Report of Independent Registered Public Accounting Firm - Cowan Gunteski & Co., P.A.

F- 1

 

 

Report of Independent Registered Public Accounting Firm - Meyler & Co. LLC

F-2

 

 

 Balance Sheets

F-3

 

 

 Statements of Operations

F- 4

 

 

 Statement of Changes in Stockholders’ Equity (Deficiency)

F-5

 

 

 Statements of Cash Flows

F- 6

 

 

Notes to Financial Statements

F- 7





























23







Report of Independent Registered Public Accounting Firm  


To the Board of Directors and

  Stockholders of

B-Scada, Inc.


We have audited the accompanying balance sheet of B-Scada, Inc. as of October 31, 2013, and the related statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the year then ended.  B-Scada, Inc.’s  management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of B-Scada, Inc. as of October 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ Cowan, Gunteski & Co., P.A.


January 28, 2014

Tinton Falls, NJ







Reply to: 730 Hope Road | Tinton Falls  |  NJ 07724  |  Phone: 732.676.4100  |  Fax: 732.676.4101

40 Bey Lea Road, Suite A101 | Toms River  |  NJ 08753 |  Phone: 732.349.6880  |  Fax: 732.349.1949

Member of CPAmerica International

Auditors of SEC Registrants under the PCAOB

www.CowanGunteski.com



F-1




Meyler&Company LLC

One Arin Park

Phone: 732-671-2244

Certified Public Accountants

& Management Consultants

1715 Highway 35
Middletown, NJ 07748

 



Report of Independent Registered Public Accounting Firm  




To the Board of Directors and

  Stockholders of

B-Scada, Inc.


We have audited the accompanying balance sheet of B-Scada, Inc. as of October 31, 2012, and the related statements of operations,  changes in stockholders’ equity (deficiency) and cash flows for the year then ended.  B-Scada, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of B-Scada, Inc. as of October 31, 2012, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ Meyler & Company, LLC


January 18, 2013

Middletown, NJ














F-2




B-SCADA, INC.


BALANCE SHEETS


 

 

 October 31,

 

 

2013

 

2012

 

 

 

 

 

Assets

 

 

 

 

Current Assets

 

 

 

 

  Cash and Cash Equivalents

 

$

252,571

 

$

94,831

  Accounts Receivable - Net

 

 

119,618

 

 

104,965

  Accrued Revenue

 

 

198,150

 

 

148,750

  Deferred Income Tax - Current

 

 

71,560

 

 

--

  Prepaid Expenses and Other Current Assets

 

 

6,258

 

 

4,770

    Total Current Assets

 

 

648,157

 

 

353,316

 

 

 

 

 

 

 

Property and Equipment - Net

 

 

12,587

 

 

9,029

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

  Intangible Asset

 

 

111,479

 

 

--

  Deferred Income Tax

 

 

335,184

 

 

--

  Security Deposits

 

 

3,650

 

 

3,650

    Total Other Assets

 

 

450,313

 

 

3,650

 

 

 

 

 

 

 

    Total Assets

 

$

1,111,057

 

$

365,995

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficiency)

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

  Accounts Payable and Accrued Liabilities

 

$

201,855

 

$

163,777

  Deferred Revenue

 

 

108,499

 

 

58,590

  Convertible Notes Payable

 

 

--

 

 

50,000

  Notes Payable - Related Party

 

 

--

 

 

164,173

    Total Current Liabilities

 

 

310,354

 

 

436,540

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

--

 

 

--

 

 

 

 

 

 

 

Stockholders’ Equity (Deficiency)

 

 

 

 

 

 

  Preferred Stock, $0.0001 Par Value, 5,000,000 Shares

 

 

 

 

 

 

  Authorized and Unissued

 

 

--

 

 

--

  Common Stock, $0.0001 Par Value; 100,000,000 Shares

 

 

 

 

 

 

       Authorized; Shares Issued and Outstanding, 24,586,672 at

 

 

 

 

 

 

  October 31, 2013 and 2012

 

 

2,459

 

 

2,459

  Additional Paid in Capital

 

 

7,100,728

 

 

7,100,728

  Accumulated Deficit

 

 

(6,302,484)

 

 

(7,173,732)

    Total Stockholders’ Equity (Deficiency)

 

 

800,703

 

 

(70,545)

 

 

 

 

 

 

 

    Total Liabilities and Stockholders’ Equity (Deficiency)

 

$

1,111,057

 

$

365,995

 

 

 

 

 

 

 





See accompanying notes to financial statements.




F-3



B-SCADA, INC.


STATEMENTS OF OPERATIONS


 

For the Years Ended

 

October 31,

 

2013

 

2012

 

 

 

 

Revenue

$

1,547,532

 

$

1,070,870

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

  Payroll Expenses

 

767,483

 

 

655,843

  Professional Fees

 

99,344

 

 

96,864

  Advertising

 

61,460

 

 

30,527

  Depreciation and Amortization

 

5,040

 

 

12,085

  Consulting Fees

 

14,982

 

 

8,887

  Office

 

32,184

 

 

16,243

  Rent

 

35,502

 

 

34,652

  Telephone and Communication

 

7,729

 

 

7,795

  Other

 

43,960

 

 

37,543

    Total Operating Expenses

 

1,067,684

 

 

900,439

 

 

 

 

 

 

Operating Income

 

479,848

 

 

170,431

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

  Interest Income

 

69

 

 

--

  Interest Expense

 

(7,434)

 

 

(4,000)

  Interest Expense-Related Party

 

(7,979)

 

 

(14,058)

    Total Other Income  (Expenses) - Net

 

(15,344)

 

 

(18,058)

 

 

 

 

 

 

Income Before Income Taxes

 

464,504

 

 

152,373

 

 

 

 

 

 

Benefit from Income Taxes (Note 9)

 

(406,744)

 

 

--

 

 

 

 

 

 

Net Income

$

871,248

 

$

152,373

 

 

 

 

 

 

Basic Earnings Per Common Share

$

0.04

 

$

0.01

 

 

 

 

 

 

Diluted Earnings Per Common Share

$

0.04

 

$

0.01

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding -

 

 

 

 

 

  Basic Earnings Per Share

 

24,586,672

 

 

24,586,672

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding -

 

 

 

 

 

  Diluted Earnings Per Share

 

24,736,672

 

 

24,586,672








See accompanying notes to financial statements.




F-4



B-SCADA, INC.



STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)





 

 

 

Additional

 

 

 

 

 

Common Stock

 

Paid in

 

Accumulated

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

Balance - November 1, 2011

24,586,672

 

 $

 2,459

 

$

7,100,728

 

 $

 (7,326,105)

 

$

(222,918)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2012

--

 

 

--

 

 

 --

 

 

152,373

 

 

 152,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - October 31, 2012

24,586,672

 

 

 2,459

 

 

7,100,728

 

 

 (7,173,732)

 

 

(70,545)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2013

--

 

 

--

 

 

 --

 

 

871,248

 

 

 871,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - October 31, 2013

24,586,672

 

$

2,459

 

$

 7,100,728

 

$

(6,302,484)

 

$

 800,703
































See accompanying notes to financial statements.



F-5




B-SCADA, INC.


STATEMENTS OF CASH FLOWS


 

For the Years Ended

 

October 31,

 

2013

 

2012

Operating Activities

 

 

 

  Net Income

$

871,248

 

$

152,373

  Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

     Provided by Operating Activities:

 

 

 

 

 

      Depreciation and Amortization

 

5,040

 

 

12,085

      Deferred Revenue

 

49,909

 

 

(27,609)

      Deferred Income Tax Benefit

 

(406,744)

 

 

--

 

 

 

 

 

 

  Changes in Assets and Liabilities:

 

 

 

 

 

    (Increase) Decrease in:

 

 

 

 

 

      Accounts Receivable

 

(14,653)

 

 

(45,291)

      Accrued Revenue

 

(49,400)

 

 

25,600

      Prepaid Expenses and Other Current Assets

 

(1,488)

 

 

(2,935)

    Increase (Decrease) in:

 

 

 

 

 

      Accounts Payable and Accrued Liabilities

 

(31,922)

 

 

18,049

        Net Cash Provided by Operating Activities

 

421,990

 

 

132,272

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

  Acquisition of Intangible Asset

 

(41,479)

 

 

--

  Acquisition of Equipment

 

(8,598)

 

 

(5,572)

        Net Cash Used for Investing Activities

 

(50,077)

 

 

(5,572)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

  Payment of Note Payable-Related Party

 

(164,173)

 

 

(45,827)

  Payment of Convertible Note Payable

 

(50,000)

 

 

--

        Net Cash Used for Financing Activities

 

(214,173)

 

 

(45,827)

 

 

 

 

 

 

Change in Cash and Cash Equivalents

 

157,740

 

 

80,873

 

 

 

 

 

 

Cash and Cash Equivalents - Beginning of Year

 

94,831

 

 

13,958

 

 

 

 

 

 

Cash and Cash Equivalents - End of Year

$

252,571

 

$

94,831

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

  Cash paid during the year for:

 

 

 

 

 

    Interest

$

62,650

 

$

9,173

    Income Taxes

$

--

 

$

--

 

 

 

 

 

 

Non-cash investing activity:

 

 

 

 

 

    Acquisition of intangible asset with accounts payable

$

70,000

 

$

--







See accompanying notes to financial statements.



F-6




B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(1)  Nature of Business and Basis of Presentation


B-Scada, Inc, (“B-Scada”, the “Company”, “we” or “us”), a Delaware corporation, was originally formed under the name Firefly Learning, Inc. in May 2001. In October 2005, pursuant to an exchange agreement, we acquired all of the issued and outstanding shares of capital stock of Mobiform Software, Ltd. (“Mobiform Canada”), a Canadian corporation, in exchange for 14,299,593 shares of our common stock and changed our name to Mobiform Software, Inc.  Effective September 14, 2010, Mobiform Canada was dissolved.  On October 19, 2012, we changed our name to B-Scada, Inc.


B-Scada is in the business of developing software products for the visualization and monitoring of data in heavy industry. Our HMI (Human Machine Interface) software and SCADA (Supervisory Control and Data Acquisition) products are utilized in petro chemical, electricity distribution, transportation, facilities management and manufacturing industries. B-Scada also licenses portions of its technology for use in the products of smaller software firms and Fortune 500 companies. Our products are marketed and sold globally and offered through a sales channel of system integrators and resellers.


(2)  Summary of Significant Accounting Policies


Use of 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 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 - We consider all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents.


Revenue Recognition - Our revenues are recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 985-605 “Revenue Recognition” for the software industry.  Revenue from the sale of software licenses is recognized when standardized software modules are delivered to and accepted by the customer, the license term has begun, the fee is fixed or determinable and collectibility is probable.  Revenue from software maintenance contracts and Application Service Provider (“ASP”) services are recognized ratably over the lives of the contracts.  Revenue from professional services is recognized when the service is provided.


We enter into revenue arrangements in which a customer may purchase a combination of software, maintenance and support, and professional services (multiple-element arrangements).  When vendor-specific objective evidence (“VSOE”) of fair value exists for all elements, we allocate revenue to each element based on the relative fair value of each of the elements.  VSOE of fair value is established by the price charged when that element is sold separately.  For maintenance and support, VSOE of fair value is established by renewal rates, when they are sold separately.  For arrangements where VSOE of fair value exists only for the undelivered elements, we defer the full fair value of the undelivered elements and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue, assuming all other criteria for revenue recognition have been met.


Fair Value of Financial Instruments - FASB ASC Topic 825 “Financial Instruments”  requires the disclosure of fair values for all financial instruments, both on-and off-balance-sheet, for which it is practicable to estimate fair value. We estimate that there are no material variations between fair value and book value of our financial assets and liabilities as of October 31, 2013 and 2012.  We generally do not require collateral related to our financial instruments.











F-7



B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(2)  Summary of Significant Accounting Policies (Continued)


Concentration of Credit Risk - Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.


We maintain our cash and cash equivalents in accounts with major financial institutions in the United States in the form of demand deposits.  Deposits in these banks may exceed the amounts of FDIC insurance provided on such deposits.  No such amounts were at risk as of October 31, 2013 and 2012.


Concentrations of credit risk with respect to trade accounts receivable are limited.  We routinely assess the financial strength of customers and, based upon factors concerning credit risk, we establish an allowance for doubtful accounts.  As of October 31, 2013 and 2012, based on this assessment, management has not established an allowance for doubtful accounts. Management believes that accounts receivable credit risk exposure is limited.


Property and Equipment - Property and equipment are carried at cost less accumulated depreciation.  Depreciation and amortization is recorded on the straight-line method over three to seven years, which approximates the estimated useful lives of the assets.  Routine maintenance and repair costs are charged to expense as incurred and renewals and improvements that extend the useful life of the assets are capitalized.  Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from the respective accounts and any resulting gain or loss is reported in the statement of operations.


Intangible Asset - The intangible asset, a domain name, is recorded at acquisition cost and is considered an indefinite life intangible asset not subject to amortization.


Impairment of Long-Lived Assets - We review our long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the future use and disposal of the related assets or group of assets to their respective carrying amounts.  Impairment, if any, is measured as the excess of the carrying amount over the fair value based on market value (when available) or discounted expected cash flows of those assets, and is recorded in the period in which the determination is made.


Intangible assets not subject to amortization are tested annually for impairment and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. These tests were performed for the year ended October 31, 2013 and it was determined that the carrying value of the asset was not impaired.






















F-8



B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(2)  Summary of Significant Accounting Policies (Continued)


Equity-Based Compensation - We account for equity based compensation transactions with employees under the provisions of  FASB  ASC Topic No. 718, “Compensation, Stock Compensation” (“Topic No. 718”). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net earnings. The fair value of common stock issued for compensation is measured at the market price on date of grant. The fair value of our equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and we elected to use the straight-line method for awards granted after the adoption of Topic No. 718.


We account for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of (i) common stock issued for payments to non-employees is measured at the market price on the date of grant; (ii) equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if it is to pay cash for the goods or services instead of paying with or using the equity instrument.


Income Taxes - We account for income taxes under the provisions of FASB ASC Topic 740 “Income Taxes” (“Topic 740”) which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. At October 31, 2012, the entire deferred tax asset, which arises primarily from our net operating losses, had been fully reserved because management had determined that it was not "more likely than not" that the net operating loss carry forwards would be realized in the future. Based on its evaluation of the positive and negative evidence at October 31, 2013, management determined that the Company would utilize a portion of its net operating loss carryforwards in future periods and that it was "more likely than not" that it would utilize a portion of it's deferred tax assets. As a result, management elected to reduce the Company's deferrred tax asset valuation allowance by $406,744 as of October 31, 2013 (see Note 9).


We do not believe we have any uncertain tax positions deemed material as of October 31, 2013 and 2012. With few exceptions, we believe we are no longer subject to U.S. federal and state income tax examinations by tax authorities for tax periods prior to fiscal 2010. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.  As of October 31, 2013 and 2012, we had no accrued interest or penalties.  We  currently have no federal or state tax  examinations  in progress nor have we had  any  federal  or  state  tax  examinations  since our inception.  


Earnings Per Share  -  Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock.  












F-9



B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(2)  Summary of Significant Accounting Policies (Continued)


Advertising Expense - We expense advertising costs as incurred.  


Research and Development Costs - Research and development costs are expensed as incurred. There were no research and development costs in 2013 and 2012.


Subsequent Events - The Company evaluated subsequent events, which are events or transactions that occurred after October 31, 2013 through the date of the issuance of the accompanying financial statements.


(3)  New Authoritative Accounting Guidance


Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying financial statements.


(4)  Property and Equipment


Property and equipment consists of the following:


 

October 31,

 

Estimated

 

2013

 

2012

 

Useful Lives

 

 

 

 

 

 

Computer Equipment

$

46,265

 

$

41,523

 

5 years

Office Equipment

 

24,432

 

 

24,432

 

5-7 years

Software

 

25,422

 

 

21,566

 

3 years

Total

 

96,119

 

 

87,521

 

 

Less: Accumulated Depreciation

 

 

 

 

 

 

 

    and Amortization

 

(83,532)

 

 

(78,492)

 

 

 

$

12,587

 

$

9,029

 

 


(5)  Intangible Asset


The intangible asset consists of the following at October 31, 2013:


Domain name

$  111,479



(6)

Convertible Debt


On October 25, 2013, we paid $81,101 to our promissory convertible noteholder for full payment of promissory notes and accrued interest owed him. The payment included principal in the amount of $50,000 and accrued interest of $31,101.


At October 31, 2012, we had $50,000 of promissory convertible notes outstanding.  The notes were convertible into shares of our common stock at $0.50 per share at any time prior to maturity.  Interest on the notes at 8% per annum was payable at such time the notes were converted and/or at such time the notes were due and payable in cash and/or in shares of our common stock at the option of the noteholder.


Interest expense on convertible debt for the years ended October 31, 2013 and 2012 amounted to $7,434 and $4,000, respectively.






F-10




B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(7)  Stockholders’ Equity (Deficiency)


We are authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share and 5,000,000 shares of preferred stock, par value $0.0001 per share.  At October 31, 2013 there are 24,586,672 common shares issued and outstanding.  An additional 300,000 common shares are reserved for issuance as of October 31, 2013 for outstanding purchase warrants. There are no shares of preferred stock issued and outstanding.


The following table summarizes warrant and option activity.


 

 

For the Year Ended

For the Year Ended

 

 

October 31, 2013

October 31, 2012

 

 

Shares

Weighted Average

Exercise Price

Shares

Weighted Average

Exercise Price

 

 

 

 

 

 

Outstanding at beginning

 

 

 

 

 

  of period

 

               300,000

$0.09

           5,793,750

$1.17

     Granted/Sold

 

--

--

--

--

     Expired/Cancelled

 

--

--

(5,493,750)

$1.22

     Forfeited

 

--

--

--

--

     Exercised

 

--

--

--

--

Outstanding at end of period                                     

 

300,000

$0.09

300,000

$0.09


The following table summarizes information about stock warrants outstanding as of October 31, 2013:


 

Warrants

 

Outstanding

 

Exercisable

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

 

 

 

Remaining

Weighted

 

 

Weighted

 

 

Contractual

Average

 

 

Average

 

Number

Life

Exercise

 

Number

Exercise

Exercise Price

Outstanding

(in Years)

Price

 

Exercisable

Price

$0.09

300,000

1.25

$0.09

 

300,000

$0.09




















F-11




B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(7)  Stockholders’ Equity (Deficiency) (Continued)


The following table summarizes information about stock warrants outstanding as of October 31, 2012:


 

Warrants

 

Outstanding

 

Exercisable

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

 

 

 

Remaining

Weighted

 

 

Weighted

 

 

Contractual

Average

 

 

Average

 

Number

Life

Exercise

 

Number

Exercise

Exercise Price

Outstanding

(in Years)

Price

 

Exercisable

Price

$0.09

300,000

2.25

$0.09

 

 300,000

$0.09


At October 31, 2013 and 2012, the weighted-average exercise price of all warrants was $ $0.09 and $0.09, respectively, and the weighted-average remaining contractual life was 1.25 and 2.25 years, respectively.


(8)  Earnings Per Share


The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the year ended October 31, 2013 (there were no dilutive securities in year ended October 31, 2012):


 

Income

 

Shares

 

Per Share

 

(Numerator)

 

(Denominator)

 

Amount

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

Income Available to Common Stockholders

$

871,248

 

24,586,672

 

$

0.04

Effect of Dilutive Securities:

 

 

 

 

 

 

 

   Warrants

 

--

 

150,000

 

 

--

Diluted EPS:

 

 

 

 

 

 

 

Income Available to Common Stockholders

 

 

 

 

 

 

 

   Plus Assumed Exercises

$

871,248

 

24,736,672

 

$

0.04






















F-12




B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013




(9)  Income Taxes


Components of the benefit from income taxes are as follows



 

For the Years Ended

 

 

October 31,

 

 

2013

 

2012

 

 

 

 

 

 

Current

 

 

 

 

  Federal

$

151,061

 

$

49,458

 

  State

 

25,858

 

 

8,466

 

    Total Current

 

176,919

 

 

57,924

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

  Federal

$

(498,355)

 

$

(49,458)

 

  State

 

(85,308)

 

 

(8,466)

 

    Total Deferred                                 

 

(583,663)

 

 

(57,924)

 

 

 

 

 

 

 

 

    Total

$

(406,744)

 

$

--

 


The income tax expense (benefit) differs from the amount computed by applying the United States statutory corporate income tax rate as follows:


 

For the Years Ended

 

 

October 31,

 

 

2013

 

2012

 

 

 

 

 

 

United States Statutory Corporate

 

 

 

 

  Income Tax Rate

34.00%

 

34.00%

 

State income tax rate net of federal

3.63%

 

3.63%

 

Permanent Differences

--%

 

--%

 

Change in Valuation Allowance on

 

 

 

 

  Deferred Tax Assets

(125.20)%

 

(37.63)%

 

 

 

 

 

 

  Income Tax Provision (Benefit)

(87.57)%

 

--%

 
















F-13




B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(9)  Income Taxes (Continued)


The components of deferred tax assets (liabilities) at October 31, 2013 and 2012 are as follows:


 

2013

 

2012

 

 

 

 

Deferred Tax Assets - Current

 

 

 

  Net Operating Losses

$

71,560

 

$

--

  Accrued Vacation Pay

 

10,238

 

 

7,873

  Valuation Allowance

 

(10,238)

 

 

(7,873)

 

 

71,560

 

 

--

Deferred Tax Assets (Liabilities) - Long Term

 

 

 

 

 

  Net Operating Losses

$

1,003,522

 

$

1,133,906

  Property and Equipment

 

(954)

 

 

(1,612)

  Equity Instruments

 

2,214

 

 

2,000

  Valuation Allowance

 

(669,598)

 

 

(1,134,294)

 

 

335,184

 

 

--

 

 

 

 

 

 

    Net Deferred Tax Asset

$

406,744

 

$

--


Net operating loss carry forwards for tax purposes were approximately $2.9 million at October 31, 2013.  A substantial portion of these losses begin to expire in fiscal 2028; all losses expire in fiscal 2030.  Tax benefits of operations loss carry forwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carry forward period, and other circumstances.


From our inception through October 31, 2012, we had established a full valuation allowance on our deferred tax asset because of a lack of sufficient positive evidence to support its realization.  At October 31, 2013, based on its evaluation of the positive and negative evidence, management determined that the Company would utilize a portion of its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize a portion of its deferred tax assets. The positive evidence evaluated as of October 31, 2013 consists of (i) our increased revenues, including the signing of several long term licensing agreements which run through fiscal 2019; (ii) our positive earnings, beginning in fiscal 2011 and increasing in each of fiscal 2012 and 2013; (iii) our ability to maintain operating costs as we have grown revenues; (iv) the utilization of net operating loss carry forwards in the last three fiscal years. The negative evidence evaluated as of October 31, 2013 consists of (i) our history of operating losses from inception through fiscal 2010; (ii) the possibility that a licensing agreement is cancelled or that non licensing revenues will decline; (iii) the possibility that our operating costs will increase. As a result, management elected to reduce the Company's deferred tax asset valuation allowance by $406,744 as of October 31, 2013.

 

Overall the valuation allowance decreased by approximately $462,000 and $699,000 in the years ended October 31, 2013 and 2012, respectively.












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B-SCADA, INC.

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2013



(10)  Related Party Transactions


On January 25, 2012, we paid $45,000 to our Chief Executive Officer ("CEO") in partial payment of promissory notes and accrued interest owed him.  The payment included principal in the amount of $35,827 and accrued interest of $9,173.


On February 6, 2012, we paid $10,000 to our CEO in partial payment of promissory notes owed him.  The payment included principal in the amount of $10,000.


On February 5, 2013, we paid $45,000 to our CEO in partial payment of promissory notes and accrued interest owed him.  The payment included principal in the amount of $36,173 and accrued interest of $8,827.


On February 25, 2013, we paid $45,000 to our CEO in  partial payment of promissory notes and accrued interest owed him.  The payment included principal in the amount of $37,500 and accrued interest of $7,500.


On September 11, 2013, we paid $105,721 to our CEO in full payment of promissory notes and accrued interest owed him.  The payment included principal in the amount of $90,500 and accrued interest of $15,221.


As of October 31, 2013 and 2012, the promissory note balance due our CEO is $0 and $164,173, respectively, and the related accrued interest is $0 and $23,570, respectively.


Interest expense in the amount of $7,979 and $14,058 has been accrued for these notes in the years ended October 31, 2013 and 2012, respectively.


(11)  Commitments and Contingencies


Leases


We presently lease office space in Crystal River, Florida, on a month to month basis. The terms are a fixed monthly payment of $2,000 plus our share of certain allocated utilities (not to exceed $2,000 per month) as defined in the agreement. Rental expense, including allocated utilities, for the years ended October 31, 2013 and 2012 amounted to approximately $35,000 and $35,000, respectively.  


Significant Customers


In fiscal 2013, four customers generated 22%, 14%, 14% and 11% of our revenues.  Two such customers and one other accounted for 58%, 23% and 12% of our accounts receivable and one such customer accounted for 100% of our accrued revenue at October 31, 2013.


In fiscal 2012, three customers generated 33%, 20% and 11% of our revenues.  Two such customers and one other accounted for 59%, 17% and 14% of our accounts receivable and accrued revenue at October 31, 2012.














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