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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, 2014


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.)

 

 

 

9030 W Fort Island Trail

 Building 9

Crystal River, Florida 34429

(Address of principal executive offices) (Zip Code)

 

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

 

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 registrant’s second fiscal quarter, April 30, 2014, was approximately $5,417,859. (For the purpose of this report it has been assumed that the sole director of the registrant, as well as all stockholders holding 5% or more of the registrant's stock, are affiliates of the registrant).

 

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 21, 2015 was 27,243,414.













































ii




Table of Contents


Part I

1

Item 1. Business

1

Item 1A. Risk Factors

3

Item 2. Properties

3

Item 3. Legal Proceedings

3

Item 4. Mine Safety Disclosures

3

Part II

4

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

4

Item 6. Selected Financial Data

5

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

5

Item 7A. Quantitative and Qualitative Disclosure about Market Rick

12

Item 8. Financial Statements and Supplementary Data

12

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

12

Item 9A. Controls and Procedures

12

Item 9B. Other Information

13

Part III

14

Item 10. Directors, Executive Officers and Corporate Governance

14

Item 11. Executive Compensation

15

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

16

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

16

Item 14. Principal Accounting Fees and Services

17

Part IV

18

Item 15. Exhibits, Financial Statement Schedules

18

SIGNATURES

19




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.





















iii




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. On October 15, 2014, we formed a wholly-owned subsidiary in Spain, B-Scada Soluciones Industriales SL (“B-Scada Spain”) to provide improved sales, service and support to Europe, Latin America, the Middle East and Africa.

 

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 for numerous vertical markets. We have licensed or provided training and/or consulting services for such major companies as General Electric, Microsoft Corporation, Intel Corporation, Schlumberger Technology 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.


One new area B-Scada is looking at is IoT (Internet of Things). The main idea the Internet of Things is having devices connected to the Internet. SCADA systems deployed in the cloud or on hosted servers already provide much of what the Internet of Things requires. The software products we offer fit very well with this new growth industry. In 2015 we will be launching new marketing and product initiatives in this space using our existing technology.

 

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.




1




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.


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. 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.

 



2




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.

 

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 2014 three customers generated 41%, 17% and 11% of our revenues and in fiscal 2013 four customers generated 22%, 14%, 14% 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 nineteen full-time employees, which includes six programmer product developers, one graphic designer, three sales and marketing representatives, six quality assurance representatives, one General Manager/QS Manger, one Chief Financial Officer and one Chief Executive Officer.


Item 1A. Risk Factors

The information to be reported under this item is not required of smaller reporting companies.


Item 2. Properties

Description of Properties

 

Our executive offices and research and development facilities are located in Crystal River, Florida. We purchased a new office facility and incurred a mortgage in the amount of $127,500 for a 4,000 square foot office and research facility and terminated our month to month lease for the 2,000 square foot office.  This facility is sufficient for the expansion of employees hired in 2014 and our additional foreseeable needs. This purchase has reduced our monthly payments for commercial space and added an asset to our balance sheet.


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.





3




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 SCDA. 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

 

 

 

 

 

 

 

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

2014

 

 

 

 

 

 

First quarter ended January 31, 2014

 

 

.40

 

 

.35

Second quarter ended April 30, 2014

 

 

.39

 

 

.39

Third quarter ended July 31, 2014

 

 

.47

 

 

.47

Fourth quarter ended October 31, 2014

 

 

.435

 

 

.435


As of October 31, 2014, Olde Monmouth Stock Transfer confirmed there were 136 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, 2014 under any equity compensation plans, none of which has been approved by our stockholders.


Equity Compensation Plan Information

 

Plan category

 

Number of securities to be

 issued upon exercise of

outstanding options,

warrants and rights

 

Weighted-average

exercise price of

outstanding options,

 warrants and rights

 

Number of securities remaining

available for future issuance

under equity compensation plans

(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 72,756,586 shares.








4




Recent Sales of Unregistered Securities


Effective as of August 6, 2014, we entered into a Stock Purchase Agreement with Yorkmont Capital Partners, L.P. (“Yorkmont”) pursuant to which Yorkmont purchased 2,424,242 shares of our common stock for an aggregate purchase price of $800,000 ($0.33 per share). The 2,424,242 shares of the Company’s Common Stock issued to Yorkmont were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) afforded by Section 4(a)(2) of the Act based upon Yorkmont’s representations to the Company concerning its knowledge and experience in financial, tax and business matters, its ability to evaluate the risks and merits of an investment in such shares, its ability to bear the economic risk of the investment in the shares and that it was acquiring the shares for investment and not with a view to, or for resale in connection with any distribution of such shares. The Company further did not offer the shares by any form of general solicitation.


Item 6. Selected Financial Data.

The information to be reported under this item is not required of smaller reporting companies.


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, petro chemical, emissions monitoring, building 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.







5




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 which was released in January 2014.


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 .Net development and screen design services. We also offer training and graphic design services and produce 3D models of equipment and machinery for use in mimics.


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.


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 as well as providing for real-time business process management data to executive-level personnel. 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.




6





One new area B-Scada is looking at is IoT (Internet of Things). The software products we offer fit very well with this new growth industry. In 2015 we will be launching new marketing and product initiatives in this space using our existing technology.


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. Our IoT initiatives include offering hosted services through a SAAS (Software as a Service) model.


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 collectability 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.
















7





Comparison of the Fiscal Years Ended October 31, 2014 and 2013


 

For the years ended October 31,

 

2014

 

2013

 

 

 

% of

 

 

 

% of

 

Amounts

 

Revenues

 

Amounts

 

Revenues

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

  Technology licensing and support

$

1,803,622

 

89%

 

$

1,187,157

 

77%

  Commercial software

 

233,950

 

11%

 

 

360,375

 

23%

    Total revenues

 

2,037,572

 

100%

 

 

1,547,532

 

100%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

  Technology licensing and support

 

191,590

 

9%

 

 

140,987

 

9%

  Commercial software

 

245,674

 

12%

 

 

180,819

 

12%

  Sales and marketing

 

361,065

 

18%

 

 

238,372

 

15%

  Research and development

 

115,496

 

6%

 

 

85,037

 

6%

  General and administrative

 

570,567

 

28%

 

 

417,429

 

27%

  Depreciation expense

 

11,944

 

--%

 

 

5,040

 

--%

    Total operating expenses

 

1,496,336

 

73%

 

 

1,067,684

 

69%

 

 

 

 

 

 

 

 

 

 

Other (income) expenses

 

2,422

 

--

 

 

15,344

 

1%

Benefit from Income Taxes

 

(490,749)

 

(24)%

 

 

(406,744)

 

(26)%

 

 

 

 

 

 

 

 

 

 

Net Income

$

1,029,563

 

51%

 

$

871,248

 

56%

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.04

 

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.04

 

 

 

$

0.04

 

 


Revenues


Our revenues for the year ended October 31, 2014 amounted to $2,037,572 compared to fiscal 2013 revenues of $1,547,532, an increase of $490,040 (32%). In fiscal 2014, we had increases in technology licensing and support revenues of $616,465 which were offset by a decline in commercial software revenues of $126,425. This decline was expected. Demand for Microsoft Silverlight based products has decreased as Microsoft has announced that they will no longer be focusing on this technology as their main web strategy. Our Machine Edition product is Silverlight based and we have seen demand for this product drop. We are in the process of transitioning to Status Enterprise as our primary product focus. Status Enterprise was fully launched in the spring of 2014. With a nine month sales cycle, revenue from this product has just started to materialize. With the many pilot projects we have in place and growing interest in the system, commercial software sales are expected to increase in 2015.


We entered into two new long-term licensing agreements at the end of the first quarter of fiscal 2013.  In fiscal 2014, while we did not enter into new licensing agreements, we are in discussions with new and current customers.  Customer development services from existing licensees accounted for most of the increase in technology licensing and support revenues. Demand for these services looks to remain strong into the first half of 2015 at a minimum. We continue to implement our strategic goals to generate increased revenues from the sales of our products and services, which accounted for the balance of our revenue growth.  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. We expect that new product and services revenue from our IoT initiatives will begin to influence our revenue towards the end of 2015. Revenue from our offices in Spain will be minimal for 2015 as it is the first year of operations, but are still expected to contribute to our overall revenue for the year.








8




Operating Expenses


Technology licensing and support costs and commercial software costs consist primarily of payroll and related expenses. Technology licensing and support costs amounted to $191,590 in the year ended October 31, 2014 compared to $140,987 in the year ended October 31, 2013 an increase of $50,603 (36%). Commercial software costs amounted to $245,674 in the year ended October 31, 2014 compared to $180,819 in the year ended October 31, 2013 an increase of $64,855 (36%). These increased costs result from our adding personnel to service our new business as well as the anticipated business from the release of Status Enterprise in January 2014.


As a percentage of technology licensing and support revenues the related costs decreased to 11% in fiscal 2014 as compared to 12% of such revenues in fiscal 2013. Commercial software costs were 105% of commercial software revenues in fiscal 2014 compared to 50% in fiscal 2013. This was a result of our decrease in such revenues in fiscal 2014. Overall these costs represented 21% of revenues this period and 21% of fiscal 2013 revenues.


Sales and marketing costs have increased to $361,065 in the year ended October 31, 2014 from $238,372 in the year ended October 31, 2013, an increase of $122,693 (51%). Payroll and related costs increased to $204,617 from $150,580 and advertising and marketing increased to $100,472 from $61,460. As operations continue to improve we have increased our sales and marketing budget since we believe it is necessary to market our products and services in order to accomplish our plan for revenue growth.  


Research and development costs increased to $115,496 in the year ended October 31, 2014 from $85,037 in the year ended October 31, 2013, an increase of $30,459 (36%). Research and development payroll and related costs increase as we continuously work on new features for our products.


General and administrative costs increased to $570,567 in the year ended October 31, 2014 from $417,429 in the year ended October 31, 2013, an increase of $153,138 (37%). The increase was primarily related to increases in payroll and related costs, which increased to $285,398 from $210,060, repairs and maintenance, which increased $20,501, and professional and consulting fees, which increased $35,787. The increases in payroll and professional and consulting fees result from increased costs to administer our business as it continues to grow and to properly maintain the financial records necessary for our periodic filings which are required as a public company. The increased repairs and maintenance costs, which should be non-recurring, relate primarily to the relocation to our new office facility in April 2014.  These relocation cost increases were offset by a related decrease in rent expense of $17,554.


Depreciation expense increased to $11,944 in the year ended October 31, 2014 from $5,040 in the year ended October 31, 2013 primarily due to the purchase of and improvements made to our new office facility.


Other Income and Expenses


Other income and expenses in the year ended October 31, 2014 consists of interest expense of $3,869 net of interest income of $1,447 and interest expense of $15,413 ($7,979 related party) net of interest income of $69 in the year October 31, 2013.


Interest expense decreased from $15,413 in the year ended October 31, 2013 to $3,869 in the year ended October 31, 2014.  We paid off both our promissory notes with our CEO ($164,173) and the convertible debenture ($50,000) during fiscal 2013.  In the year ended October 31, 2014, we incurred interest expense from the mortgage payable on our new office facility.  


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, 2014 and 2013, management determined that the Company would utilize its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize its deferred tax assets. As a result, management elected to reduce the Company's deferred tax asset valuation allowance by $490,749 and $406,744 as of October 31, 2014 and 2013, respectively.


Net Income


Net income in the year ended October 31, 2014 totaled $1,029,563 compared to net income of $871,248 in the year ended October 31, 2013, an increase of $158,315 (18%) as discussed above.





9




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.  


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 the 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).



10




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 10 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.


Liquidity and Capital Resources


We currently fund our operations through sales of our products and services and when necessary through sales of equity and debt securities.


At October 31, 2014 we had cash and cash equivalents of $1,144,915 compared to $252,571 at October 31, 2013. The increase of $892,344 is primarily attributable to cash generated from operations and a sale of our common stock reduced by acquisition costs of long-lived assets and the payoff of debt obligations.


Cash Flows


Net cash provided by operating activities amounted to $205,133 and $421,990 in the fiscal years ended October 31, 2014 and 2013, respectively. Net cash provided by operating activities decreased by $216,857 in 2014, primarily resulting from our advance of approximately $182,000 for services related to the establishment of our new office in Spain.


In fiscal 2014 and 2013, cash was used for investing activities for the acquisition of equipment in the amounts of $95,309 (2014) and $8,598 (2013), and intangible assets $3,256 (2014) and $41,479 (2013).


In fiscal 2014 financing activities, we received $800,000 in cash from the sale of 2,424,242 shares of our common stock at $0.33 per share and used $9,009 in cash for principal payments on the mortgage incurred from the purchase of our new office facility. In fiscal 2013 financing activities, cash was used for loan repayments to our CEO in the amount of $164,173 and to pay off our convertible debenture in the amount of $50,000.


We believe that our cash on hand at October 31, 2014 and our expected revenue 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. If needed, we also believe we can raise additional capital through debt and/or equity financings. There is no assurance that the income generated from these and future agreements will meet our working capital requirements, or that we will be able to sign significant agreements in the future. There is also no assurance that, when needed, we will be able to obtain additional capital in the amount or on terms acceptable to us.  


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, 2014 and 2013, based on its evaluation of the positive and negative evidence, management determined that the Company would utilize its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize its deferred tax assets. The positive evidence evaluated as of October 31, 2014 and 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 through 2014; (iii) our ability to maintain operating costs as we have grown revenues; (iv) the utilization of net operating loss carry forwards in the last four fiscal years. The negative evidence evaluated as of October 31, 2014 and 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 $490,749 and $406,744 as of October 31, 2014 and 2013, respectively.



11




Overall the valuation allowance decreased by approximately $680,000 and $462,000 in the years ended October 31, 2014 and 2013, respectively.


Contractual Obligations


The information to be reported under this item is not required of smaller reporting companies.


Off-Balance Sheet Arrangements


As of October 31, 2014, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.


Recent Accounting Pronouncements


In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  The amendments in the ASU will be applied using one of two retrospective methods. The effective date will be the first quarter of our fiscal year ended October 31, 2018. We have not determined the potential effects on our financial statements.


Management does not believe that any other 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

The information to be reported under this item is not required of smaller reporting companies.


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

None.


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.



12




Management has assessed the effectiveness of our internal control over financial reporting as of October 31, 2014.  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, 2014.  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, 2014.  Managements assessment identified the following material weaknesses:


·

As of October 31, 2014, there was a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles (GAAP) in the U.S. and financial reporting requirements of the Securities and Exchange Commission (the SEC).

·

As of October 31, 2014, 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, 2014, there was a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

·

As of October 31, 2014, 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.


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.































13




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

 

48

 

CEO, President, Director

Brian S. Thornton

 

41

 

Corporate Vice President, Secretary

Joshua M. Weeks

 

34

 

CTO

Josephine A. Nemmers

 

52

 

CFO

Debra J. Gardner

 

56

 

Corporate Investor Relations Officer


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.


Josephine Nemmers


Ms. Nemmers has a Bachelor of Science degree in Business Management-Major in Accounting from University of Maryland, University College.  She holds an inactive CPA License with the state of Maryland.  Ms. Nemmers joined B-Scada in July of 2014.  She previously held the position of Controller with International Resources Group, Inc. (IRG), a government contractor that is a wholly owned subsidiary of Engility Corporation located in Alexandria, VA which was formally an L-3 Communications Company in New York, NY.  IRG was a privately held company until Dec. 2008.  Ms. Nemmers’ primary responsibilities for IRG during her tenure (Jan. 2000 - May 2014) were to direct the accounting department and prepare financial statements and financial forecasts.  She was an integral part of the management team for IRG adhering to the regulation, reporting, and compliance necessary for government contracting as well as a publically traded company.



14




Debra Gardner


Ms. Gardner has over 26 years of management experience with the last 21 years in the technology field.  Her experience with software began in July 1993 at Tupperware World Headquarters in Orlando, FL.  She was the implementation and training lead for worldwide and domestic purchasing on Tupperware’s company-wide transition to Oracle software.  In December 1996 Ms. Gardner began working for Oracle Corporation as a software applications instructor, advancing to the position of Senior Business Operations Manager for Oracle’s Streaming Media Group in 1999.  On August 22, 2002 she accepted a position with Technology Conservation Group, a global electronics recycler, and during her tenure (Aug. 2002 - May 2004) as their Business Manager led their expansion efforts into five countries in three years and implemented ISO (International Standardization Organization) policies and procedures based on best business practices.  Ms. Gardner joined B-Scada on May 24, 2014.  She has a variety of experience in contract negotiation, project management, personnel management and policy and procedure development.


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.


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, 2013 and October 31, 2014, all compensation paid, distributed or accrued, including salary and bonus amounts, for services rendered to us by our Principal Executive Officer during the fiscal years ended October 31, 2013 and October 31, 2014. No other executive officer who was serving as an executive officer at October 31, 2014, had total compensation for fiscal 2014 exceeding $100,000:


Name and Principal Position

 

Year Ended

October 31

 

Salary ($)

 

 

Option Awards

 

 

Total

 

Allen Ronald DeSerranno

 

2013

 

 

150,000

 

 

 

0

 

 

$

150,000

 

Chief Executive Officer

 

2014

 

 

160,000

 

 

 

0

 

 

$

160,000

 


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 $160,000.








15




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 21, 2015 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, 2014; 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 and Address

 

Owned(1)

 

 

Common Stock (2)

Allen Ronald DeSerranno(3)

 

 

9,616,142

 

 

 

35.26%

9030 W. Fort Island Trail, Bldg. 9

Crystal River, Florida 34429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lions Bay SW

 

 

1,721,970

 

 

 

6.30%

9030 W. Fort Island Trail, Bldg. 9

Crystal River, Florida 34429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yorkmont Capital Partners, L.P.

 

 

2,424,242

 

 

 

8.89%

2313 Lake Austin Blvd.

Suite 209

Austin, Texas 78703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All officers and directors as a group

 

 

 

 

 

 

 

(One person)

 

 

9,616,142

 

 

 

35.26%

 

(1) 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.

 

(2) Based upon 27,273,414 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.


(3) Mr. DeSerranno is our Chief Executive Officer, President 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

None.







16




Item 14. Principal Accounting Fees and Services

Cowan, Gunteski & Co., P.A. served as our independent registered public accounting firm for the fiscal years ended October 31, 2014 and 2013. The following table shows the fees that were billed for the audit and other services provided by such firm for 2014 and 2013.


 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

   Audit Fees

   $

56,500  

   $

   $

56,500  

Audit-Related Fees

 

 

0

 

 

 

0

 

Tax Fees

 

 

0

 

 

 

0

 

All Other Fees

 

 

0

 

 

 

0

 

Total

 

$

56,500

 

 

$

56,500

 


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.





























17




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 of B-Scada, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(Rule 13a-14(a) or Rule 15d-14(a))***

31.2

Certification by the 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 of B-Scada, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***

32.2

Certification by the 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 Report on Form 10-K   filed on January 29, 2010.


***Filed herewith.






























18




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

Date:

January 26, 2015


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 and Sole Director

Date:

January 26, 2015

 

 

 

 

By:

/s/ Josephine A. Nemmers

 

Josephine A. Nemmers

Title:

 Chief Financial Officer

Date:

January 26, 2015






























19



  

Financial Statements

 

Index to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm

F-1

 

 

Consolidated Balance Sheets

F-2

 

 

Consolidated Statements of Operations

F-3

 

 

Consolidated Statements of Comprehensive Income

F-4

 

 

Consolidated Statement of Changes in Stockholders’ Equity

F-5

 

 

Consolidated Statements of Cash Flows

F-6

 

 

Notes to Consolidated Financial Statements

F-7









































20





 

 



Report of Independent Registered Public Accounting Firm



To the Board of Directors and

  Stockholders of

B-Scada, Inc.


We have audited the accompanying consolidated balance sheets of B-Scada, Inc. as of October 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended October 31, 2014.  B-Scada, Inc.’s management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of B-Scada, Inc. as of October 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2014, in conformity with accounting principles generally accepted in the United States of America.



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


January 26, 2015

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.CGteam.com






F-1




B-SCADA, INC.


CONSOLIDATED BALANCE SHEETS


 

 

 October 31,

 

 

2014

 

2013

Assets

 

 

 

 

Current Assets

 

 

 

 

  Cash and Cash Equivalents

 

$

1,144,915

 

$

252,571

  Accounts Receivable - Net

 

 

233,525

 

 

119,618

  Accrued Revenue

 

 

222,550

 

 

198,150

  Deferred Income Tax - Current

 

 

186,221

 

 

71,560

  Prepaid Expenses and Other Current Assets

 

 

226,598

 

 

6,258

    Total Current Assets

 

 

2,013,809

 

 

648,157

 

 

 

 

 

 

 

Property and Equipment - Net

 

 

223,452

 

 

12,587

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

  Intangible Assets

 

 

114,735

 

 

111,479

  Deferred Income Tax

 

 

711,272

 

 

335,184

  Security Deposits

 

 

1,500

 

 

3,650

    Total Other Assets

 

 

827,507

 

 

450,313

 

 

 

 

 

 

 

    Total Assets

 

$

3,064,768

 

$

1,111,057

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

  Accounts Payable and Accrued Liabilities

 

$

142,528

 

$

201,855

  Deferred Revenue

 

 

178,698

 

 

108,499

  Mortgage Payable - Current

 

 

16,066

 

 

--

    Total Current Liabilities

 

 

337,292

 

 

310,354

 

 

 

 

 

 

 

Long Term Liabilities

 

 

 

 

 

 

  Mortgage Payable

 

 

102,425

 

 

--

 

 

 

 

 

 

 

    Total Liabilities

 

 

439,717

 

 

310,354

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

--

 

 

--

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

  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, 27,243,414 and

 

 

 

 

 

 

    24,586,672 at October 31, 2014 and 2013, respectively

 

 

2,724

 

 

2,459

  Additional Paid in Capital

 

 

7,900,463

 

 

7,100,728

  Accumulated Other Comprehensive Loss

 

 

(5,215)

 

 

--

  Accumulated Deficit

 

 

(5,272,921)

 

 

(6,302,484)

    Total Stockholders’ Equity

 

 

2,625,051

 

 

800,703

 

 

 

 

 

 

 

    Total Liabilities and Stockholders’ Equity

 

$

3,064,768

 

$

1,111,057



See the accompanying notes to consolidated financial statements.





F-2




B-SCADA, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


 

For the Years Ended

 

October 31,

 

2014

 

2013

 

 

 

 

Revenue

 

 

 

  Technology Licensing and Support

$

1,803,622

 

$

1,187,157

  Commercial Software

 

233,950

 

 

360,375

    Total Revenues

 

2,037,572

 

 

1,547,532

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

  Technology Licensing and Support

 

191,590

 

 

140,987

  Commercial Software

 

245,674

 

 

180,819

  Sales and Marketing

 

361,065

 

 

238,372

  Research and Development

 

115,496

 

 

85,037

  General and Administrative

 

570,567

 

 

417,429

  Depreciation and Amortization

 

11,944

 

 

5,040

    Total Operating Expenses

 

1,496,336

 

 

1,067,684

 

 

 

 

 

 

Operating Income

 

541,236

 

 

479,848

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

  Interest Income

 

1,447

 

 

69

  Interest Expense

 

(3,869)

 

 

(7,434)

  Interest Expense-Related Party

 

--

 

 

(7,979)

    Total Other Income (Expenses) - Net

 

(2,422)

 

 

(15,344)

 

 

 

 

 

 

Income Before Income Taxes

 

538,814

 

 

464,504

 

 

 

 

 

 

Benefit from Income Taxes (Note 10)

 

(490,749)

 

 

(406,744)

 

 

 

 

 

 

Net Income

$

1,029,563

 

$

871,248

 

 

 

 

 

 

Basic Earnings Per Common Share

$

0.04

 

$

0.04

 

 

 

 

 

 

Diluted Earnings Per Common Share

$

0.04

 

$

0.04

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding -

 

 

 

 

 

  Basic Earnings Per Share

 

25,310,103

 

 

24,586,672

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding -

 

 

 

 

 

  Diluted Earnings Per Share

 

25,310,103

 

 

24,736,672









See the accompanying notes to consolidated financial statements.





F-3




B-SCADA, INC.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



 

For the Years Ended

 

October 31,

 

2014

 

2013

 

 

 

 

Net Income

$

1,029,563

 

$

871,248

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

  Foreign Currency Translation Adjustment

 

(5,215)

 

 

--

 

 

 

 

 

 

Comprehensive Income

$

1,024,348

 

$

871,248





































See the accompanying notes to consolidated financial statements.






F-4




B-SCADA, INC.


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY





 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

Common Stock

 

Paid in

 

Comprehensive

 

Accumulated

 

Stockholders’

 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

Equity

 

 


 


 


 


 


 

Balance - November 1, 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

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cashless exercise of warrant

232,500

 

 23

 

 (23)

 

 --

 

 --

 

 --

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock at $0.33 per share

2,424,242

 

 242

 

 799,758

 

 --

 

 --

 

 800,000

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

--

 

 --

 

 --

 

 (5,215)

 

 --

 

 (5,215)

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended

 

 

 

 

 

 

 

 

 

 

 

October 31, 2014

--

 

 --

 

 --

 

 --

 

 1,029,563

 

 1,029,563

 

 

 

 

 

 

 

 

 

 

 

 

Balance - October 31, 2014

27,243,414

$

 2,724

$

 7,900,463

$

 (5,215)

$

 (5,272,921)

$

 2,625,051












See the accompanying notes to consolidated financial statements.





F-5




B-SCADA, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


 

For the Years Ended

 

October 31,

 

2014

 

2013

Operating Activities

 

 

 

  Net Income

$

1,029,563

 

$

871,248

  Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

    Provided by Operating Activities:

 

 

 

 

 

      Depreciation and Amortization

 

11,944

 

 

5,040

      Deferred Revenue

 

70,199

 

 

49,909

      Deferred Income Tax Benefit

 

(490,749)

 

 

(406,744)

 

 

 

 

 

 

  Changes in Assets and Liabilities:

 

 

 

 

 

    (Increase) Decrease in:

 

 

 

 

 

      Accounts Receivable

 

(113,907)

 

 

(14,653)

      Accrued Revenue

 

(24,400)

 

 

(49,400)

      Prepaid Expenses and Other Current Assets

 

(220,340)

 

 

(1,488)

      Other Assets

 

2,150

 

 

--

    Increase (Decrease) in:

 

 

 

 

 

      Accounts Payable and Accrued Liabilities

 

(59,327)

 

 

(31,922)

         Net Cash Provided by Operating Activities

 

205,133

 

 

421,990

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

  Acquisition of Intangible Assets

 

(3,256)

 

 

(41,479)

  Acquisition of Equipment

 

(95,309)

 

 

(8,598)

        Net Cash Used for Investing Activities

 

(98,565)

 

 

(50,077)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

  Payment of Mortgage Payable

 

(9,009)

 

 

--

  Proceeds From Sale of Common Stock

 

800,000

 

 

--

  Payment of Note Payable-Related Party

 

--

 

 

(164,173)

  Payment of Convertible Note Payable

 

--

 

 

(50,000)

        Net Cash Provided by (Used for) Financing Activities

 

790,991

 

 

(214,173)

 

 

 

 

 

 

Foreign Currency Translation Effect

 

(5,215)

 

 

--

Change in Cash and Cash Equivalents

 

892,344

 

 

157,740

Cash and Cash Equivalents - Beginning of Year

 

252,571

 

 

94,831

Cash and Cash Equivalents - End of Year

$

1,144,915

 

$

252,571

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

  Cash paid during the year for:

 

 

 

 

 

    Interest

$

3,869

 

$

62,650

    Income Taxes

$

--

 

$

--

 

 

 

 

 

 

Non-Cash Investing Activities

 

 

 

 

 

  Acquisition of intangible asset with accounts payable

$

--

 

$

70,000

  Acquisition of building with mortgage payable

$

127,500

 

$

--

 

 

 

 

 

 

Non-Cash Financing Activities

 

 

 

 

 

  Issuance of common stock for cashless warrant exercise

$

23

 

$

--



See the accompanying notes to consolidated financial statements.




F-6




B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(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. On October 15, 2014, we formed a wholly-owned subsidiary in Spain, B-Scada Soluciones Industriales SL (“B-Scada Spain”) to provide improved sales, service and support to Europe, Latin America, the Middle East and Africa.


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.


Principles of Consolidation - The consolidated financial statements include the accounts of B-Scada, Inc. and its wholly-owned Spanish subsidiary, B-Scada Soluciones Industriales SL.  All material intercompany balances and transactions have been eliminated in consolidation.


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 collectability 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.


Reclassification - Certain fiscal 2013 amounts in the statement of operations have been reclassified to conform to fiscal 2014 presentation.


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, 2014 and 2013.  We generally do not require collateral related to our financial instruments.





F-7



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(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 form of demand deposits.  Deposits in these banks may exceed the amounts of  insurance provided on such deposits.  At October 31, 2014, we had approximately $350,000 and $250,000, respectively, in cash in two financial institutions in excess of the $250,000 FDIC insured limit.  No such amounts were at risk as of October 31, 2013.


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, 2014 and 2013, 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 forty 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 Assets - The intangible assets, domain names, are recorded at acquisition cost and are considered indefinite life intangible assets 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, 2014 and it was determined that the carrying value of the asset was not impaired.


Foreign Currency Translation - We consider the U.S. dollar (“US$”) to be our functional currency.  B-Scada Spain considers the Euro (“Euro”) to be its functional currency.  Assets and liabilities are translated into US$ at the period end exchange rate.  Income and expense amounts are translated using the average rates during the period. Gains and losses resulting from translating foreign currency financial statements are included in accumulated other comprehensive income or loss, a separate component of stockholders’ equity.


Equity-Based Compensation - We account for equity based compensation transactions with employees under the 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.



F-8



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(2)  Summary of Significant Accounting Policies (continued)


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, 2014 and 2013, management determined that the Company would utilize its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize its deferred tax assets. As a result, management elected to reduce the Company's deferred tax asset valuation allowance by $490,749 and $406,744 as of October 31, 2014 and 2013, respectively (see Note 10).


We do not believe we have any uncertain tax positions deemed material as of October 31, 2014 and 2013. 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 2011. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.  As of October 31, 2014 and 2013, 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 a fiscal 2012 federal examination which resulted in no change.


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.


Advertising Expense - We expense advertising costs as incurred.  Advertising expense amounted to $100,472 and $61,460 for the years ending October 31, 2014 and 2013, respectively.  


Research and Development Costs - Research and development costs are expensed as incurred.


Subsequent Events - The Company evaluated subsequent events, which are events or transactions that occurred after October 31, 2014 through the date of the issuance of the accompanying consolidated financial statements.


(3)  New Authoritative Accounting Guidance


In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  The amendments in the ASU will be applied using one of two retrospective methods. The effective date will be the first quarter of our fiscal year ended October 31, 2018. We have not determined the potential effects on our financial statements.


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









F-9



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(4)  Property and Equipment


Property and equipment consists of the following:


 

October 31,

 

Estimated

 

2014

 

2013

 

Useful Lives

 

 

 

 

 

 

Land

$      15,531

 

$            --

 

--

Building and Improvements

176,071

 

--

 

7 - 40 years

Computer Equipment

55,304

 

46,265

 

5 years

Office Equipment

34,429

 

24,432

 

5 - 7 years

Software

37,593

 

25,422

 

3 years

Total

318,928

 

96,119

 

 

Less: Accumulated Depreciation

 

 

 

 

 

 and Amortization

 (95,476)

 

 (83,532)

 

 

 

$    223,452

 

$   12,587

 

 



(5)  Intangible Assets


The intangible assets consist of the following:


 

October 31,

 

2014

 

2013

 

 

 

 

Domain names

$  114,735

 

$  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 at 8% per annum owed him. The payment included principal in the amount of $50,000 and accrued interest of $31,101.


Interest expense on convertible debt for the year ended October 31, 2013 amounted to $7,434.


(7)  Mortgage Payable


In February 2014, we purchased a new office facility and incurred a mortgage in the amount of $127,500 payable to the seller of the property.  The balance is payable over 7 years in monthly payments of $1,802 which include interest at 5% per annum.  The outstanding mortgage balance at October 31, 2014 is $118,491.  


Future maturities of long-term debt as of October 31, 2014 are as follows:


Years Ended

 

October 31,

 

 

 

2015

$  16,066

2016

16,887

2017

17,751

2018

18,659

2019

19,614

Thereafter

29,514

 

 

 

$ 118,491




F-10



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014



(8)  Stockholders’ Equity


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, 2014 there are 27,243,414 common shares issued and outstanding.  There are no shares of preferred stock issued and outstanding.


On March 6, 2014, the holder of the warrant to purchase 300,000 shares of Company common stock elected to exercise the warrant through a cashless exercise, as defined in the warrant agreement.  At the time of exercise, the applicable market value of our common stock was $0.40 and as a result we issued 232,500 shares of Company common stock in full settlement of the warrant.


Effective as of August 6, 2014, we entered into a Stock Purchase Agreement with Yorkmont Capital Partners, L.P. (“Yorkmont”) pursuant to which Yorkmont purchased 2,424,242 shares of our common stock for an aggregate purchase price of $800,000 ($0.33 per share).


The following table summarizes warrant activity.


 

 

For the Year Ended

For the Year Ended

 

 

October 31, 2014

October 31, 2013

 

 

Shares

Weighted

Average

Exercise Price

Shares

Weighted

Average

Exercise Price

 

 

 

 

 

 

Outstanding at beginning

 

 

 

 

 

  of period

 

300,000

$0.09

300,000

$0.09

  Granted/Sold

 

--

--

--

--

  Expired/Cancelled

 

--

--

--

--

  Forfeited

 

 (67,500)

$0.09

--

--

  Exercised

 

 (232,500)

$0.09

--

--

Outstanding at end of period

 

--

--

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


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












F-11



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(9)  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, 2014):


 

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



(10)  Income Taxes


Components of the benefit from income taxes are as follows:


 

For the Years Ended

 

October 31,

 

2014

 

2013

 

 

 

 

Current

 

 

 

  Federal

$

157,363

 

$

151,061

  State

 

26,937

 

 

25,858

    Total Current

 

184,300

 

 

176,919

 

 

 

 

 

 

Deferred

 

 

 

 

 

  Federal

$

(576,384)

 

$

(498,355)

  State

 

(98,665)

 

 

(85,308)

    Total Deferred

 

(675,049)

 

 

(583,663)

 

 

 

 

 

 

    Total

$

(490,749)

 

$

(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,

 

2014

 

2013

 

 

 

 

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

(128.71)%

 

(125.20)%

 

 

 

 

  Income Tax Provision (Benefit)

(91.08)%

 

(87.57)%






F-12



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2014


(10)  Income Taxes (continued)


The components of deferred tax assets (liabilities) at October 31, 2014 and 2013 are as follows:


 

2014

 

2013

 

 

 

 

Deferred Tax Assets - Current

 

 

 

  Net Operating Losses

$

175,356

 

$

71,560

  Accrued Vacation Pay

 

10,865

 

 

10,238

  Valuation Allowance

 

--

 

 

(10,238)

 

 

186,221

 

 

71,560

Deferred Tax Assets (Liabilities) - Long Term

 

 

 

 

 

  Net Operating Losses

$

715,403

 

$

1,003,522

  Property and Equipment

 

(4,131)

 

 

(954)

  Equity Instruments

 

--

 

 

2,214

  Valuation Allowance

 

--

 

 

(669,598)

 

 

711,272

 

 

335,184

 

 

 

 

 

 

    Net Deferred Tax Asset

$

897,493

 

$

406,744


Net operating loss carry forwards for tax purposes were approximately $2.4 million at October 31, 2014.  A substantial portion of these losses begin to expire in fiscal 2028; all losses expire in fiscal 2030.  Tax benefits of operating 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, 2014 and 2013, based on its evaluation of the positive and negative evidence, management determined that the Company would utilize its net operating loss carry forwards in future periods and that it was "more likely than not" that it would utilize its deferred tax assets. The positive evidence evaluated as of October 31, 2014 and 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 through 2014; (iii) our ability to maintain operating costs as we have grown revenues; (iv) the utilization of net operating loss carry forwards in the last four fiscal years. The negative evidence evaluated as of October 31, 2014 and 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 $490,749 and $406,744 as of October 31, 2014 and 2013, respectively.


Overall the valuation allowance decreased by approximately $680,000 and $462,000 in the years ended October 31, 2014 and 2013, respectively.


(11)  Related Party Transactions


On February 5, 2013, we paid $45,000 to our CEO for 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 for 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 for 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, the promissory note balance due our CEO and the related accrued interest were paid in full.


Interest expense in the amount of $7,979 has been accrued for these notes in the year ended October 31, 2013.




F-13




(12)  Commitments and Contingencies


Leases


We leased office space in Crystal River, Florida, on a month to month basis through April 30, 2014 when we relocated to the new office facility we purchased. The lease terms were 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, 2014 and 2013 amounted to approximately $18,000 and $35,000, respectively.


Significant Customers


In fiscal 2014, three customers generated 41%, 17% and 11% of our revenues. One such customer accounted for 87% of our accounts receivables and another such customer accounted for 100% of our accrued revenue at October 31, 2014.


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.


Compensation Agreements


In connection with the formation of B-Scada Spain, we entered into agreements with two individuals and a related entity in Spain to establish and maintain our Spanish office and for employment services. In October 2014, we made an advance payment of approximately $182,000 for services related to the establishment of our office in Spain. Such services included, among other necessary services, securing and setting up the office location, interviewing and hiring qualified personnel and translating technical documents, marketing materials, web site, etc. These services are expected to be completed in the first quarter of fiscal 2015 and at such time this amount will be expensed.  Contingent upon the continued employment of the two individuals each will be paid 12.5% (25% in total) of the annual net profit of B-Scada Spain, calculated at each fiscal year end, until a total of $175,000 ($350,000 in total) has been paid at which time payments will cease.  No payment was required to be made for the year ended October 31, 2014.


We also entered into employment agreements with the two individuals effective November 1, 2014. The agreements provide for annual salaries of Euro 42,615 (approximately US $54,000) and Euro 30,000 (approximately US $38,000), respectively, and commissions as defined in our sales commission policy, among other customary terms, such as, vacation pay and qualified expense reimbursements. The agreements are on an ongoing basis unless terminated by either us or the employee, as defined in the agreements. The agreements also provide that if the employee is terminated due to redundancy (layoff), in addition to being paid any unused vacation pay, the employee, if employed for at least one full year, will receive redundancy pay equal to 45 days for each year of employment, not to exceed 42 months of equivalent salary. Both the unused vacation pay and redundancy pay are payable at the employee’s then applicable base salary.





















F-14