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EX-31.2 - QUARTERLY REPORT - B-Scada, Inc.scda_ex312.htm
EX-32.1 - CERTIFICATION - B-Scada, Inc.scda_ex321.htm
EX-32.2 - CERTIFICATION - B-Scada, Inc.scda_ex322.htm
EX-31.1 - CERTIFICATION - B-Scada, Inc.scda_ex311.htm
EXCEL - IDEA: XBRL DOCUMENT - B-Scada, Inc.Financial_Report.xls


  
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

 

FORM 10-Q

    


 

[X]

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

 

For the quarterly period ended: April 30, 2015

 

  

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

 

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

Incorporation or organization)

 

 

  

 

 

9030 W Ft Island Tr.

Building 9

 

 

Crystal River, Florida

 

34429

(Address of principal executive offices)

 

(Zip Code)


Issuer's telephone number (352) 564-9610


______________

(Former name, former address and former fiscal year, if changed since last report)

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer

[  ]

 

  

Accelerated filer

[  ]

Non-accelerated filer

[  ]

 

  

Smaller reporting company

[X]

(Do not check if a smaller 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

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   

The number of shares of the issuer’s common equity outstanding as of June 08, 2015 was 27,243,414 shares of common stock, par value $.0001.   




 

B-SCADA, INC.

 

TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION

3

 

 

ITEM 1.  FINANCIAL STATEMENTS

3

 

 

CONSOLIDATED BALANCE SHEETS

3

 

 

AT APRIL 30, 2015 (UNAUDITED) AND OCTOBER 31, 2014

3

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]

4

 

 

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2015 AND 2014

4

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [UNAUDITED]

5

 

 

   FOR THE THREE AND SIX  MONTHS ENDED APRIL 30, 2015 AND 2014

5

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]

6

 

 

FOR THE SIX  MONTHS ENDED APRIL 30, 2015 AND 2014

6

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

7

 

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

17

 

 

ITEM 4.  CONTROLS AND PROCEDURES

27

 

 

PART II.  OTHER INFORMATION

29

 

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES

29

 

 

ITEM 4. MINE SAFETY DISCLOSURES

29

 

 

ITEM 6.  EXHIBITS

29

 

 

SIGNATURES

30



















2




PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


B-SCADA, INC.

CONSOLIDATED BALANCE SHEETS


 

 

April 30,

 

October 31,

 

 

2015

 

2014

 

 

(Unaudited)

 

 

Assets

 

 

 

 

Current Assets

 

 

 

 

  Cash and Cash Equivalents

 

$

1,342,886

 

$

1,144,915

  Accounts Receivable - Net

 

 

108,288

 

 

233,525

  Accrued Revenue

 

 

171,566

 

 

222,550

  Deferred Income Tax - Current

 

 

171,803

 

 

186,221

  IVA Tax Receivable - Net

 

 

28,408

 

 

--

  Prepaid Expenses and Other Current Assets

 

 

69,508

 

 

226,598

    Total Current Assets

 

 

1,892,459

 

 

2,013,809

 

 

 

 

 

 

 

Property and Equipment - Net

 

 

217,670

 

 

223,452

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

  Intangible Assets

 

 

114,735

 

 

114,735

  Deferred Income Tax

 

 

804,711

 

 

711,272

  Security Deposits

 

 

1,555

 

 

1,500

    Total Other Assets

 

 

921,001

 

 

827,507

 

 

 

 

 

 

 

Total Assets

 

$

3,031,130

 

$

3,064,768

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

  Accounts Payable and Accrued Liabilities

 

$

146,730

 

$

142,528

  Deferred Revenue

 

 

339,000

 

 

178,698

  Mortgage Payable - Current

 

 

16,476

 

 

16,066

    Total Current Liabilities

 

 

502,206

 

 

337,292

 

 

 

 

 

 

 

Long Term Liabilities

 

 

 

 

 

 

  Mortgage Payable

 

 

94,089

 

 

102,425

 

 

 

 

 

 

 

    Total Liabilities

 

 

596,295

 

 

439,717

 

 

 

 

 

 

 

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

 

 

 

 

 

 

    at April 30, 2015 and October 31, 2014, respectively

 

 

2,724

 

 

2,724

  Additional Paid in Capital

 

 

7,946,530

 

 

7,900,463

  Accumulated Other Comprehensive Loss

 

 

(23,098)

 

 

(5,215)

  Accumulated Deficit

 

 

(5,491,321)

 

 

(5,272,921)

    Total Stockholders’ Equity

 

 

2,434,835

 

 

2,625,051

 

 

 

 

 

 

 

    Total Liabilities and Stockholders’ Equity

 

$

3,031,130

 

$

3,064,768


See the accompanying notes to consolidated financial statements.



3




B-SCADA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

[UNAUDITED]


 

For the Three Months Ended

 

For the Six Months Ended

 

April 30,

 

April 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

  Technology Licensing and Support

$

442,731

 

$

427,202

 

$

886,584

 

$

697,002

  Commercial Software

 

61,319

 

 

80,572

 

 

113,610

 

 

146,544

    Total Revenues

 

504,050

 

 

507,774

 

 

1,000,194

 

 

843,546

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

  Technology Licensing and Support

 

69,208

 

 

54,910

 

 

154,324

 

 

80,693

  Commercial Software

 

109,494

 

 

71,646

 

 

196,402

 

 

97,522

  Sales and Marketing

 

136,043

 

 

95,942

 

 

281,352

 

 

172,175

  Research and Development

 

24,474

 

 

21,782

 

 

50,603

 

 

80,597

  General and Administrative

 

242,178

 

 

109,519

 

 

604,548

 

 

235,987

  Depreciation and Amortization

 

4,308

 

 

2,822

 

 

8,650

 

 

4,080

    Total Operating Expenses

 

585,705

 

 

356,621

 

 

1,295,879

 

 

671,054

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

(81,655)

 

 

151,153

 

 

(295,685)

 

 

172,492

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

  Interest Income

 

600

 

 

364

 

 

1,228

 

 

514

  Interest Expense

 

(1,500)

 

 

(793)

 

 

(2,964)

 

 

(793)

    Total Other Income (Expenses) - Net

 

(900)

 

 

(429)

 

 

(1,736)

 

 

(279)

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

(82,555)

 

 

150,724

 

 

(297,421)

 

 

172,213

 

 

 

 

 

 

 

 

 

 

 

 

Benefit from Income Taxes

 

(12,703)

 

 

--

 

 

(79,021)

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

    Net Income (Loss)

$

(69,852)

 

$

150,724

 

$

(218,400)

 

$

172,213

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) Per Common Share

$

--

 

$

0.01

 

$

(0.01)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) Per Common Share

$

--

 

$

0.01

 

$

(0.01)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding

for Basic Earnings (Loss) Per Common Share

 

27,243,414

 

 

24,730,352

 

 

27,243,414

 

 

27,621,706

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Common Shares Outstanding

for Diluted Earnings (Loss) Per Common Share

 

27,243,414

 

 

24,730,352

 

 

27,243,414

 

 

27,621,706






















See the accompanying notes to consolidated financial statements.



4




B-SCADA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

[UNAUDITED]



 

For the Three Months Ended

 

For the Six Months Ended

 

April 30,

 

April 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

$

(69,852)

 

$

150,724

 

$

(218,400)

 

$

172,213

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

  Foreign Currency Translation Adjustment

 

(14,885)

 

 

--

 

 

(17,883)

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss)

$

(84,737)

 

$

150,724

 

$

(236,283)

 

$

172,213










































See the accompanying notes to consolidated financial statements.



5




B-SCADA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

[UNAUDITED]



 

For the Six Months Ended

 

April 30,

 

2015

 

2014

 

 

 

 

Operating Activities

 

 

 

  Net Income (Loss)

$

(218,400)

 

$

172,213

  Adjustments to Reconcile Net Income (Loss) to Net Cash

 

 

 

 

 

    Provided by Operating Activities:

 

 

 

 

 

      Depreciation and Amortization

 

8,650

 

 

4,080

      Deferred Revenue

 

160,302

 

 

441,642

      Deferred Income Tax Benefit

 

(79,021)

 

 

--

      Stock-Based Compensation

 

46,067

 

 

--

 

 

 

 

 

 

Changes in Assets and Liabilities:

 

 

 

 

 

  (Increase) Decrease in:

 

 

 

 

 

    Accounts Receivable

 

125,237

 

 

(91,132)

    Accrued Revenue

 

50,984

 

 

181,300

    IVA Tax Receivable-Net

 

(28,408)

 

 

--

    Prepaid Expenses and Other Current Assets

 

157,090

 

 

(2,043)

    Security Deposits

 

(55)

 

 

2,150

  Increase (Decrease) in:

 

 

 

 

 

    Accounts Payable and Accrued Liabilities

 

4,202

 

 

(70,465)

      Net Cash Provided by Operating Activities

 

226,648

 

 

637,745

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

  Acquisition of Property and Equipment

 

(2,868)

 

 

(82,720)

    Net Cash Used for Investing Activities

 

(2,868)

 

 

(82,720)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

  Payment of Mortgage Payable

 

(7,926)

 

 

(1,271)

    Net Cash Used for Financing Activities

 

(7,926)

 

 

(1,271)

 

 

 

 

 

 

Foreign Currency Translation Effect

 

(17,883)

 

 

--

 

 

 

 

 

 

Change in Cash and Cash Equivalents

 

197,971

 

 

553,754

 

 

 

 

 

 

Cash and Cash Equivalents - Beginning of Period

 

1,144,915

 

 

252,571

 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

$

1,342,886

 

$

806,325

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

  Cash paid during the period for:

 

 

 

 

 

    Interest

$

2,964

 

$

793

    Income Taxes

$

--

 

$

--

 

 

 

 

 

 

Non-Cash Investing and Financing Activity

  Acquisition of building with mortgage payable

$

--

 

$

127,500

 

 

 

 

 

 

Non-Cash Financing Activity

 

 

 

 

 

  Issuance of common stock for cashless warrant exercise

$

--

 

$

23



See the accompanying notes to consolidated financial statements.



6




B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(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 and hardware products for the visualization and monitoring of data in residential, commercial and heavy industries. 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 licenses portions of its technology for use in the products of smaller software firms and Fortune 500 companies. B-Scada also markets and sells a line of wireless sensors used for monitoring various information like temperature, pressure, voltage and water detection. The sensors are used in a variety of light commercial applications.


Our products are marketed and sold globally and offered through a sales channel of system integrators and resellers.


(2)  Summary of Significant Accounting Policies


Our other accounting policies are set forth in Note 2 to our audited consolidated financial statements included in our October 31, 2014 Form 10K.


Unaudited Interim Statements - The accompanying unaudited interim consolidated financial statements as of April 30, 2015, and for the six months ended April 30, 2015 and 2014 have been prepared in accordance with accounting principles generally accepted for interim financial statement presentation and in accordance with the instructions to Form 10-Q.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.  In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of April 30, 2015 and the consolidated results of operations for the three and six months ended April 30, 2015 and 2014 and cash flows for the six months ended April 30, 2015 and 2014.  The consolidated results of operations for the six months ended April 30, 2015 are not necessarily indicative of the results to be expected for the full year.


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.





7



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(2)  Summary of Significant Accounting Policies (Continued)


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 collectibility is probable.  Revenue from software maintenance contracts and Application Service Provider (“ASP”) services are recognized ratably over the lives of the contracts.  Revenue from professional services is recognized when the service is provided.


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


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.




8



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(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 April 30, 2015, we had approximately $544,000 and $236,000, respectively, in cash in two financial institutions in excess of the $250,000 FDIC insured limit. 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.  


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 April 30, 2015 and October 31, 2014, based on this assessment, management has not established an allowance for doubtful accounts. Management believes that accounts receivable credit risk exposure is limited.


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.


Subsequent Events - The Company evaluated subsequent events, which are events or transactions that occurred after April 30, 2015 through the date of the issuance of the accompanying consolidated financial statements.









9



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(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 consolidated 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 consolidated financial statements.


(4)  Property and Equipment


Property and equipment consists of the following:


 

April 30,

 

October 31,

 

Estimated

 

2015

 

2014

 

Useful Lives

 

[Unaudited]

 

 

 

 

 

 

 

 

 

 

Land

$

15,531

 

$

15,531

 

--

Building and Improvements

 

176,071

 

 

176,071

 

7 - 40 years

Computer Equipment

 

52,304

 

 

55,304

 

5 years

Office Furniture and Equipment

 

34,429

 

 

34,429

 

5 - 7 years

Software

 

39,099

 

 

37,593

 

3 years

Total

 

317,434

 

 

318,928

 

 

Less: Accumulated Depreciation

 

 

 

 

 

 

 

  and Amortization

 

 (99,764)

 

 

 (95,476)

 

 

 

$

217,670

 

$

223,452

 

 


(5)  Intangible Assets


The intangible assets consist of the following:


 

April 30,

 

October 31,

 

2015

 

2014

 

[Unaudited]

 

 

 

 

 

 

 

 

Domain Names

$

114,735

 

$

114,735






10



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(6)  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 April 30, 2015 and October 31, 2014 is $110,565 and $118,491, respectively.  


Future maturities of long-term debt as of April 30, 2015 are as follows:


Twelve Months Ended

 

April 30,

(Unaudited)

 

 

 

 

2016

$

16,476

2017

 

17,334

2018

 

18,179

2019

 

19,131

2020

 

20,109

Thereafter

 

19,336

 

 

 

 

$

110,565


(7)  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 April 30, 2015 and 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).


On February 11, 2015, we elected a new director to the Board of Directors.  Pursuant to the election, the director was granted a five year non-qualified option to purchase an aggregate of 250,000 shares of our common stock at an exercise price of $0.48 per share.  The option vests as follows:  83,333 shares immediately; 83,333 shares on February 11, 2016; 83,334 shares on February 11, 2017.  As defined in the agreement, the option has cashless exercise provisions and may terminate in earlier than 5 years. The fair value of the option, $105,298, was calculated using the Black-Scholes pricing model with the following assumptions: Dividend yield - 0%; Risk-free interest rate - 1.53%; Expected life - 5 years; Expected volatility - 123.54%. Stock-based compensation expense of $46,067 was recorded in the six months ended April 30, 2015.





11



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(7)  Stockholders’ Equity (Continued)


The following table summarizes the options transactions:


 

 

For the Six Months Ended

 

 

 

April 30, 2015

(Unaudited)

 

 

 

Shares

Weighted-

Average

Exercise Price

Weighted-

Average

Remaining

Contractual

Term

Aggregate

Intrinsic

Value

 

 

 

 

 

 

Outstanding at beginning

  of period

 

--

$ --

 

 

    Granted/Sold

 

250,000

$ 0.48

 

 

    Expired/Cancelled

 

--

--

 

 

    Forfeited

 

--

--

 

 

    Exercised

 

--

--

 

 

Outstanding at April 30, 2015

 

250,000

$ 0.48

4.79 Years

$ --

 

 

 

 

 

 

Exercisable at April 30, 2015

 

83,333

$ 0.48

4.79 Years

$ --


The weighted-average grant-date fair value of options granted during the six months ended April 30, 2015 was $0.42.  No options were exercised during the period.


Summary of non-vested options as of and for the six months ended April 30, 2015 is as follows:


 

 

 

 

Weighted-

 

 

 

 

Average

 

 

 

 

Grant-Date

Non-Vested Options

 

Shares

 

Fair Value

 

 

 

 

 

Non-vested at beginning of period

 

--

 

$

--

Granted

 

250,000

 

$

0.42

Vested

 

(83,333)

 

$

0.42

Forfeited

 

--

 

$

--

 

 

 

 

 

 

Non-vested at April 30, 2015 (Unaudited)

 

166,667

 

$

0.42










12



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(7)  Stockholders’ Equity (Continued)


The following table summarizes the warrants activity:


 

 

For the Six Months Ended

For the Year Ended

 

 

April 30, 2015

(Unaudited)

October 31, 2014

 

 

Shares

Weighted

Average

Exercise Price

Shares

Weighted

Average

Exercise Price

 

 

 

 

 

 

Outstanding at beginning

  of period

 

--

--

300,000

$ 0.09

    Granted/Sold

 

--

--

--

--

    Expired/Cancelled

 

--

--

--

--

    Forfeited

 

--

--

 (67,500)

$ 0.09

    Exercised

 

--

--

 (232,500)

$ 0.09

Outstanding at end of period

 

--

 

--

 


(8)  Income Taxes


Components of the provision (benefit) from income taxes are as follows:


 

For the Three Months Ended

 

For the Six Months Ended

 

April 30,

 

April 30,

 

2015

 

2014

 

2015

 

2014

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

  United States

$

--

 

$

41,194

 

$

--

 

$

48,745

  Foreign

 

--

 

 

--

 

 

--

 

 

--

    Total Current

 

--

 

 

41,194

 

 

--

 

 

48,745

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

  United States

 

1,584

 

 

(41,194)

 

 

(9,483)

 

 

(48,745)

  Foreign

 

(14,287)

 

 

--

 

 

(69,538)

 

 

--

    Total Deferred

 

(12,703)

 

 

(41,194)

 

 

(79,021)

 

 

(48,745)

 

 

 

 

 

 

 

 

 

 

 

 

    Total

$

(12,703)

 

$

--

 

$

(79,021)

 

$

--











13



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(8)  Income Taxes (Continued)


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


 

For the Six Months Ended

 

April 30,

 

2015

 

 

2014

 

(Unaudited)

 

 

(Unaudited)

United States Statutory Corporate

 

 

 

 

  Income Tax Rate

(34.00)%

 

 

34.00%

State Income Tax Rate Net of Federal

(3.63)%

 

 

3.63%

Foreign Income Tax Effect

11.06%

 

 

--%

Change in Valuation Allowance on

 

 

 

 

  Deferred Tax Assets

--%

 

 

(37.63)%

 

 

 

 

 

  Income Tax Provision (Benefit)

(26.57)%

 

 

--%


Pre-tax income (loss) consisted of the following:


 

For the Three Months Ended

 

For the Six Months Ended

 

April 30,

 

April 30,

 

2015

 

2014

 

2015

 

2014

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

United States

$

(34,933)

 

$

150,724

 

$

(65,672)

 

$

172,213

Foreign

 

(47,622)

 

 

--

 

 

(231,749)

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

    Total

$

(82,555)

 

$

150,724

 

$

(297,421)

 

$

172,213


The components of deferred tax assets (liabilities) at April 30, 2015 and October 31, 2014 are as follows:


 

April 30,

 

October 31,

 

2015

 

2014

 

(Unaudited)

 

 

Deferred Tax Assets - Current

 

 

 

  Net Operating Losses

$

151,789

 

$

175,356

  Accrued Vacation Pay

 

20,014

 

 

10,865

 

 

171,803

 

 

186,221

Deferred Tax Assets (Liabilities) - Long Term

 

 

 

 

 

  Net Operating Losses

$

809,604

 

$

715,403

   Property and Equipment

 

(4,893)

 

 

(4,131)

 

 

804,711

 

 

711,272

 

 

 

 

 

 

    Net Deferred Tax Asset

$

976,514

 

$

897,493





14



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(8)  Income Taxes (Continued)


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 2034.  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 consisted 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 consisted 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 $-0- and $680,000 in the six months ended April 30, 2015 and the year ended October 31, 2014, respectively.


(9)  Commitments and Contingencies


Leases


B-Scada Spain subleases office space in Spain from an entity related to the two principal employees in Spain. The lease is for a term of five years commencing November 1, 2014 with annual renewal options thereafter. Base rent is $1,216 (Euro 1,050) per month for the first fourteen months after which it increases to $1,459 (Euro 1,260) per month for the remainder of the term. There is an annual escalation based on the Spanish National General Index of Consumer Prices and we are responsible for the related costs, such as, taxes, utilities and maintenance. Rent expense amounted to $7,294 (Euro 6,300) for the six months ended April 30, 2015. Future lease commitments through the twelve months ended April 30 are as follows: 2016 - $15,559; 2017 - $17,504; 2018 - $17,504; 2019 - $17,504; 2020 - $8,752.

 

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 six months ended April 30, 2014 amounted to approximately $18,000.






15



B-SCADA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]

APRIL 30, 2015


(9)  Commitments and Contingencies (Continued)


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 were completed in the first quarter of fiscal 2015 and at such time this amount was expensed.  Contingent upon continued employment,  the two individuals will each 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 US $175,000 (US $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 $49,000) and Euro 30,000 (approximately US $35,000), 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.


(10)  Subsequent Events


On May 1, 2015, B-Scada signed an agreement with an electronics manufacturing firm for the development of B-Scada sensors. The estimated cost per the terms of the agreement, which is expected to be completed by the end of fiscal 2015, is $250,000. B-Scada software will be able to work with B-Scada sensors as well as sensors and hardware from hundreds of other companies, allowing for the development of a sophisticated system aggregating data from many different hardware sources into custom solutions for commercial and industrial customers.


On June 2, 2015, B-Scada launched a line of sensors for commercial and residential use. The sensors are produced in the United States by a leading sensor manufacturer and will be branded as B-Scada sensors. These sensors will be part of our product portfolio including sensors developed explicitly for B-Scada.











16




ITEM 2. 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 consolidated 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 quarterly report on Form 10-Q.


Executive Summary

Since 2003, our experience in building and deploying HMI (Human Machine Interface), SCADA (Supervisor Control and Data Acquisition) and IoT (Internet of Things) 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 software and hardware 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 intuitive user interfaces and reports. We also archive data, provide workflow and basic analytics for making informed decisions.


Overall Strategic Goals

Our goal is to become a leading supplier of visualization 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 provide consulting services and license portions of our technology to other companies for 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 the sale of wireless sensors, consulting services, graphic design and contract development that we offer hand in hand with our software solutions.


Product Description

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



17




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 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 the Status product line 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 Machine Edition monitors building automation performance in pharmaceutical manufacturing facilities, electricity distribution, mining equipment and furniture manufacturing.


Status Enterprise is our management level management system released in January of 2014. Status Enterprise is a management-level HMI/SCADA System which allows customers to visualize their real time data and alarms, manage and organize their assets, integrate with other Enterprise systems, collaborate, analyze and archive data. Status Enterprise can bring together and organize plant floor data with other enterprise information allowing customers to improve the efficiency and quality of their operations by making better informed decisions.


Status Enterprise provides greater scalability, data modeling and support for HTML 5 and mobile devices.


While Status Enterprise has been deployed internally behind the firewall of corporate networks, it can also be installed on hosted servers on the web. This allows users to bring data into the system from many different devices located anywhere. The HTML 5 support allows the data to be visualized on almost any device. As such, Status Enterprise is a true IoT (Internet of Things) solution. Starting in February of 2015, B-Scada has begun to present Status Enterprise as an IoT platform known as VoT (Virtualization of Things). The intent of this platform is to open additional markets to B-Scada products, markets that may not be realized if our systems were marketed as SCADA only.


Through the various Internet of Things trade shows attended by B-Scada over the past several months a number of observations have become apparent. IoT customers are looking for complete solutions. This includes the monitoring software, hardware and consulting services for a turnkey system. In order to address this B-Scada has branded sensors from a leading sensor manufacturer, and has started the process of providing its own sensors to the IoT market.


B-Scada Systems are 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.


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 on our systems and graphic design services.





18



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 agreements with smaller firms.


The products developed using B-Scada’s technology include industrial automation solutions, medical applications, smart grid, building automation 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.


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 have started new marketing and product initiatives in this space using our existing technology. From various trade shows we have attended, it has become obvious that many potential IoT customers are looking for turnkey solutions and do not want to develop them themselves. We will be investigating offering additional products alongside our software, including sensors, and will be expanding our efforts to partner with other companies in the IoT space to help deliver more complete solutions to the market.


On May 1, 2015, B-Scada signed an agreement with an electronic manufacturing firm for the development of B-Scada sensors. From experience at various IoT (Internet of Things) tradeshows over the past several months that B-Scada has attended, it has become apparent that customers are looking for complete solutions instead of trying to piece together a solution from various vendors. While some sensor companies have software for viewing their sensor data, the software is very limited in its abilities and can only be used with data from that one company. B-Scada software will be able to work with B-Scada sensors as well as sensors and hardware from hundreds of other companies, allowing for the development of a sophisticated system aggregating data from many different hardware sources into custom solutions for commercial and industrial customers. The estimated cost per the terms of the agreement, which is expected to be completed by the end of fiscal 2015, is $250,000.

 

On June 2, 2015, B-Scada launched a line of sensors for commercial and residential use. The sensors are produced in the United States by a leading sensor manufacturer and will be branded as B-Scada sensors. These sensors will be part of our product portfolio including sensors developed explicitly for B-Scada.


B-Scada believes that there is huge growth opportunity for B-Scada in the IoT market. In order to capitalize on this growth B-Scada will need to produce a complete line of sensor products, more than the several currently being developed. In order to ensure we have product on hand for orders and to ensure we achieve the largest possible margins on the sale of the sensor hardware, manufacturing will need to be done in quantities that allow for the lowest possible per unit price. This would require B-Scada to hold a sizeable inventory of sensors. Marketing activities has been stepped up in 2015 and activity for the company has been brisk. With our current staffing levels we are finding it difficult to adequately support the number of pilot projects and evaluations we have for Status Enterprise. In addition, B-Scada currently has four companies that are evaluating Status Enterprise as a data visualization solution to be marketed and sold with their existing hardware and/or software products. There is some integration work required before these systems will be available on the market, but the opportunities look promising. In order to address all these concerns, we may need additional financing to adequately support this growth. Failing to do so may result in considerable lost opportunity.


19



Revenue Strategy

B-Scada sensors will be sold to the market along with monitoring and basic analytics of the data using B-Scada technology. B-Scada will be able to bill for monthly monitoring in a SaaS (Software as a Service) licensing model. This opens up B-Scada to a much larger market than SCADA alone and provides additional revenue streams using technology already developed by B-Scada.


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 software 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.












20



Results of Operations


Comparison of the Three Months Ended April 30, 2015 and 2014


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


 

For the three months ended April 30,

 

2015

 

2014

 

(Unaudited)

 

(Unaudited)

 

 

 

% of

 

 

 

% of

 

Amounts

 

Revenues

 

Amounts

 

Revenues

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

  Technology licensing and support

$

442,731

 

88%

 

$

427,202

 

84%

  Commercial software

 

61,319

 

12%

 

 

80,572

 

16%

    Total revenues

$

504,050

 

100%

 

$

507,774

 

100%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

  Technology licensing and support

$

69,208

 

14%

 

$

54,910

 

11%

  Commercial software

$

109,494

 

22%

 

$

71,646

 

14%

  Sales and marketing

$

136,043

 

27%

 

$

95,942

 

19%

  Research and development

$

24,474

 

5%

 

$

21,782

 

4%

  General and administrative

$

242,178

 

48%

 

$

109,519

 

22%

 

 

 

 

 

 

 

 

 

 

Interest expense

$

1,500

 

--%

 

$

793

 

--%

Benefit from income taxes

$

(12,703)

 

(3)%

 

$

--

 

--%

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(69,852)

 

(14)%

 

$

150,724

 

30%

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

$

--

 

 

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

$

--

 

 

 

$

0.01

 

 


Revenues


Our revenues for the three months ended April 30, 2015 amounted to $504,050 compared to fiscal 2014 revenues of $507,774, a decrease of $3,724 (1%). The decline in consulting services from companies related to the oil and gas industry continue to have a negative impact on revenue. We do not expect this to change in the near future. Fortunately, these losses have been offset by revenue now coming in from our Spanish operations.


In fiscal 2015, we had increases in technology licensing revenues ($13,040) and development and support revenues ($2,489) of $15,529 which were offset by a decline in commercial software revenues of $19,253. While software revenues have not been impressive, the majority of the software revenues coming into the company are now from our Status Enterprise product. We have some pilot projects in progress, but many have not gone to completion as we had anticipated, but are still in play. These projects are primarily end user opportunities. One area that we have seen growth is in our OEM and partner relationships. B-Scada currently has four companies that are evaluating Status Enterprise as a data visualization solution to be marketed and sold with their existing hardware and/or software products. These relationships were primarily established through contacts acquired at the IoT tradeshows we have attended over the past few months. We will be using this information to focus our business development and marketing efforts appropriately.




21



Operating Expenses


Technology licensing and support costs and commercial software costs consist primarily of payroll and related expenses. Technology licensing and support payroll costs amounted to $44,080 ($11,434 Spain) in the three months ended April 30, 2015 compared to $54,910 in the three months ended April 30, 2014 a decrease of $10,830 (20%). Additionally, in fiscal 2015 we had costs for hardware of $24,728 ($23,644 Spain). Commercial software costs amounted to $109,494 in the three months ended April 30, 2015 compared to $71,646 in the three months ended April 30, 2014 an increase of $37,848 (53%). These increased costs result from our adding new personnel to service our new business. It is also due to us moving more of our operations to the cloud, including moving to a new accounting system, email and document storage.

 

As a percentage of technology licensing and support revenues the related costs increased to 16% in fiscal 2015 as compared to 13% of such revenues in fiscal 2014. This increase is a result of hardware sales which have low margins. Commercial software costs were 179% of commercial software revenues in fiscal 2015 compared to 89% in fiscal 2014. This was a result of the increased costs, as discussed above, and decrease in such revenues in fiscal 2015. Overall these costs represented 35% of revenues this period compared to 25% of fiscal 2014 revenues.


Sales and marketing costs have increased to $136,043 in the three months ended April 30, 2015 from $95,942 in the three months ended April 30, 2014, an increase of $40,101 (42%). Payroll and related costs increased to $72,354 ($10,411 Spain) from $68,150 and advertising, marketing and trade shows increased to $63,689 from $19,491. This was due to new marketing initiatives that were identified when we received proceeds from the investment into the company in the summer of 2014. We intend to increase our marketing activities and costs in 2015 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 $24,474 in the three months ended April 30, 2015 from $21,782 in the three months ended April 30, 2014, an increase of $2,692 (12%). Research and development, payroll and related costs will continue to increase as we continuously work on new features for our products.


General and administrative costs increased to $242,178 in the three months ended April 30, 2015 from $109,519 in the three months ended April 30, 2014, an increase of $132,659 (121%). The increase was primarily related to increases in payroll and related costs, which increased to $101,569 ($19,401 Spain) from $39,016, a result of increased administrative duties as our business continues to grow and a stock-based compensation expense of $46,067 was recorded in the second quarter. We have also seen increases in all aspects of costs related to our public filings and SEC requirements as professional fees have increased $21,315 in the second quarter.


Interest and Debt Costs


Interest expense increased to $1,500 in the three months ended April 30, 2015 from $793 in the three months ended April 30, 2014, an increase of $707 (89%).  Interest expense relates to the mortgage on our office building which was purchased in April 2014.  


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. In the three months ended April 30, 2015, we recorded a deferred income tax benefit of $12,703, $(1,584) related to US operations and $14,287 related to Spanish operations.  



22




Net Income (Loss)


Net loss in the three months ended April 30, 2015 totaled $69,852 ($33,335 Spain) compared to net income of $150,724 in the three months ended April 30, 2014, a decrease of $220,576 as discussed above.


Results of Operations


Comparison of the Six Months Ended April 30, 2015 and 2014


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


 

For the six months ended April 30,

 

2015

 

2014

 

(Unaudited)

 

(Unaudited)

 

 

 

% of

 

 

 

% of

 

Amounts

 

Revenues

 

Amounts

 

Revenues

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

  Technology licensing and support

$

886,584

 

89%

 

$

697,002

 

83%

  Commercial software

 

113,610

 

11%

 

 

146,544

 

17%

    Total revenues

$

1,000,194

 

100%

 

$

843,546

 

100%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

  Technology licensing and support

$

154,324

 

15%

 

$

80,693

 

10%

  Commercial software

$

196,402

 

20%

 

$

97,522

 

11%

  Sales and marketing

$

281,352

 

28%

 

$

172,175

 

20%

  Research and development

$

50,603

 

5%

 

$

80,597

 

10%

  General and administrative

$

604,548

 

60%

 

$

235,987

 

28%

 

 

 

 

 

 

 

 

 

 

Interest expense

$

2,964

 

--%

 

$

793

 

--%

Benefit from income taxes

$

(79,021)

 

(8)%

 

$

--

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(218,400)

 

(22)%

 

$

172,213

 

20%

 

 

 

 

 

 

 

 

 

 

Basic earnings per (loss)  common share

$

(0.01)

 

 

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per (loss) common share

$

(0.01)

 

 

 

$

0.01

 

 


Revenues


Our revenues for the six months ended April 30, 2015 amounted to $1,000,194 compared to fiscal 2014 revenues of $843,546, an increase of $156,648 (19%). In fiscal 2015, we had increases in technology licensing revenues ($39,282) and development and support revenues ($150,300) of $189,582 which were offset by a decline in commercial software revenues of $32,934. The decline in commercial software revenues 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.




23




We have completed the process of transitioning to Status Enterprise to be our primary product focus. Status Enterprise was fully launched in the spring of 2014. Revenue from this product started to materialize towards the end of 2014, but has not picked up steam as anticipated. We have many pilot projects in place and growing interest in the system, however the number of licenses purchased on each sale has been small. This is due to customers being cautious as this is a new platform. Many of the initial customers have indicated additional licenses will be required as their projects transition from pilot to production, so we expect an increase in the license sales in future quarters. Interest in the system, both from SCADA and IoT prospects, has been increasing due to our surge in marketing and tradeshow activities. We also have a sensor manufacture who is now piloting the sale of hardware and software bundles to their customers, including Status Enterprise as the visualization solution. We are confident that the system will be successful.


We entered into two new long-term licensing agreements at the end of the first quarter of fiscal 2013.  In fiscal 2015 and 2014, customer development services from these customers accounted for most of the increase in technology licensing and support revenues. Demand for these services has dropped off as one of the customers is a petrochemical company and is reducing expenditures. They have indicated the consulting service required of B-Scada will resume in the fall of 2015. 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. 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. In the six months ended April 30, 2015, Spain generated $62,333 in technology licensing and support revenues and $9,018 in commercial software revenues.


Operating Expenses


Technology licensing and support payroll and hardware costs amounted to $154,324 ($77,558 Spain) in the six months ended April 30, 2015 compared to $80,693 in the six months ended April 30, 2014 an increase of $73,631 (91%). Additionally, in fiscal 2015 we had costs for hardware of $61,253 ($58,013 Spain). Commercial software costs amounted to $196,402 in the six months ended April 30, 2015 compared to $97,522 in the six months ended April 30, 2014 an increase of $98,880 (101%). These increased costs result from our adding new personnel to service our new business. It is also due to us moving more of our operations to the cloud, including moving to a new accounting system, email and document storage.


As a percentage of technology licensing and support revenues the related costs increased to 17% in fiscal 2015 as compared to 12% of such revenues in fiscal 2014. This increase is a result of hardware sales which have low margins. Commercial software costs were 173% of commercial software revenues in fiscal 2015 compared to 67% in fiscal 2014. This was a result of the increased costs, as discussed above, and the decrease in such revenues in fiscal 2015. Overall these costs represented 35% of fiscal 2015 revenues compared to 21% of fiscal 2014 revenues.


Sales and marketing costs have increased to $281,352 in the six months ended April 30, 2015 from $172,175 in the six months ended April 30, 2014, an increase of $109,177 (63%). Payroll and related costs increased to $152,465 ($22,863 Spain) from $108,307 and advertising, marketing and trade shows increased to $102,550 from $41,461. 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.  





24




Research and development costs decreased to $50,603 in the six months ended April 30, 2015 from $80,597 in the six months ended April 30, 2014, a decrease of $29,994 (37%). While we continue our research and development, payroll and related costs decreased from fiscal 2014 because during that period we were working on the release of our new product, Status Enterprise, and new features.


General and administrative costs increased to $604,548 in the six months ended April 30, 2015 from $235,987 in the six months ended April 30, 2014, an increase of $368,561 (156%). The increase was primarily related to increases in payroll and related costs, which increased to $242,722 ($41,277 Spain) from $117,075, a result of increased administrative duties as our business continues to grow, and a one-time charge related to the establishment of our office in Spain of approximately $138,000. There were also increases in training expense and consulting fee for continued growth of the business of $32,000; as well as an increase in depreciation expense and office supplies for the office space of $9,000.  Also legal expense increased by $10,000 and a stock-based compensation expense of $46,067 was recorded in the six months ending April 30, 2015.


Interest and Debt Costs


Interest expense increased to $2,964 in the six months ended April 30, 2015 from $793 in the six months ended April 30, 2014, an increase of $2,171 (274%). Interest expense relates to the mortgage on our office building which was purchased in April 2014.  


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. In the six months ended April 30, 2015, we recorded a deferred income tax benefit of $79,021, of which $9,483 related to US operations and $69,538 related to Spanish operations.


Net Income (Loss)


Net loss in the six months ended April 30, 2015 totaled $218,400 ($162,211 Spain) compared to net income of $172,213 in the six months ended April 30, 2014, a decrease of $390,613 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 April 30, 2015, we had cash and cash equivalents of $1,342,886 compared to $1,144,915 at October 31, 2014. The increase of $197,971 is primarily attributable to cash generated from operations.







25




Cash Flows


Net cash provided by operating activities amounted to $226,648 and $637,745 in the six months ended April 30, 2015 and 2014, respectively. Net cash from operations decreased $411,097 primarily due to a $400,000 technology license payment received in May 2015 while in fiscal 2014 such payment was received in April. Operating cost increases in sales and marketing and general and administrative, including the cost of opening and operating our Spanish office (partly funded in October 2014), were offset by increases in revenues while we implemented our overall strategic business plan.


In fiscal 2015 and 2014, cash was used for investing activities for the acquisition of property and equipment in the amount of $2,868 and $82,720, respectively.  Additionally, in fiscal 2014, we purchased a new office facility and incurred a mortgage payable of $127,500.


In fiscal 2015 financing activities, we used $7,926 and $1,271, respectively in cash for principal payments on the mortgage incurred from the purchase of our new office facility.


We believe that our cash on hand at April 30, 2015 and our revenue commitments will be sufficient to fund our operations for at least the next 12 months. We have signed significant licensing agreements and continue to market our products and services in accordance with our strategic business plan. 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.


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 consisted 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 consisted 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.


Contractual Obligations


Not Applicable


Off-Balance Sheet Arrangements


As of April 30, 2015, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.





26




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 consolidated 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 consolidated financial statements.


Quantitative and Qualitative Disclosure about Market Risk


Interest Rate Risk


Not Applicable


ITEM 4.  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)  Management’s Assessment of Internal Control over Financial Reporting


Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15(f) and 15d15(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.








27




Management has assessed the effectiveness of our internal control over financial reporting as of April 30, 2015.  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 April 30, 2015.  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 April 30, 2015.  Management’s assessment identified the following material weaknesses:

·

As of April 30, 2015, 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 April 30, 2015, there was a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

·

As of April 30, 2015, 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.











 

28



PART II.  OTHER INFORMATION


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES

 

We did not issue any equity securities during the period covered by this report that were not registered under the Securities Act except as listed below.


On February 11, 2015, we elected a new director to the Board of Directors.  Pursuant to the election, the director was granted a five year non-qualified option to purchase an aggregate of 250,000 shares of our common stock at an exercise price of $0.48 per share.  The option vests as follows:  83,333 shares immediately; 83,333 shares on February 11, 2016; 83,334 shares on February 11, 2017.  As defined in the agreement, the option has cashless exercise provisions and may terminate in earlier than 5 years. The fair value of the option, $105,298, was calculated using the Black-Scholes pricing model.


ITEM 4.  MINE SAFETY DISCLOSURES


Not applicable


ITEM 6.    EXHIBITS

 

31.1

 

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)) (furnished herewith).

 

 

 

31.2

 

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)) (furnished herewith).

 

 

 

32.1

 

32.1 Certification by the Principal Executive Officer of B-Scada, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

32.2

 

Certification by the Principal Financial Officer of B-Scada, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 








29




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  

B-SCADA, INC.

  

  

  

Dated: June 08, 2015

By:

/s/  Allen Ronald DeSerranno

  

  

Allen Ronald DeSerranno

Chief Executive Officer

 

































30