As filed with the Securities and Exchange Commission on July 1st, 2003
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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GSI TECHNOLOGIES USA INC.
(Name of issuer in its charter)
DELAWARE 7319 65-0902449
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification Number)
400, ST-JACQUES WEST IRVING ROTHSTEIN, ESQ.
SUITE 500 LAW OFFICES OF IRVING ROTHSTEIN
MONTREAL H2Y 1S1 QUEBEC 292 MADISON AVENUE
(514) 282-9292 CANADA NEW YORK, NEW YORK 10017
(Address and telephone number (212) 685-7600
of registrant's principal executive (Name, address and telephone
offices and principal place of business) number of agent for service)
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Copies to:
IRVING ROTHSTEIN, ESQ.
Law offices of Irving Rothstein
292 Madison Avenue
New York, New York 10017
Telephone: (212) 685-7600
Approximate date of commencement of proposed sale to public: At the discretion
of the selling stockholders.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Security(2) Price(2) Registration Fee
Registered
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 29,467,008 $ 0.25 (3) $ 7,366,752
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 (1) 2,000,000 $ 0.05 (4) $ 100,000
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 (1) 2,500,000 $ 0.10 (4) $ 250,000
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 (1) 1,000,000 $ 0.25 (4) $ 250,000
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 (1) 516,000 $ 1.00 (4) $ 516,000
----------------------- ---------------- -------------------- -------------------- ----------------
Common Stock Class B,
par value $0.001 (1) 2,000,000 $ 1.20 (4) $ 2,400,000
----------------------- ---------------- -------------------- -------------------- ----------------
Total 37,483,008 $ 10,882,752 $ 1,001.22
(1) Consists of shares of common stock issuable upon exercise of currently
exercisable warrants. Pursuant to Rule 416, this Registration Statement
also covers any additional shares of common stock which may be issuable by
virtue of the anti-dilution provisions in the warrants.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Based upon the price of a recent private offering.
(4) Exercise price.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION DATED, JULY 1st, 2003
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GSI TECHNOLOGIES USA INC.
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37,483,008 shares of common stock
This prospectus covers 37,483,008 shares of the common stock, par
value $.001 per share, of GSI Technologies USA Inc. This figure includes
8,016,000 shares of common stock that we may issue in the future if currently
outstanding warrants are exercised. The common stock offered here will be sold
solely by the selling stockholders.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PLEASE READ THE
"RISK FACTORS" BEGINNING ON PAGE 2.
Our securities are currently traded on the OTC under the symbol GSITB.
_________________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Our principal executive offices are located at: 400 St. Jacques Street
West, Suite 500, Montreal Quebec H2Y 1S1 CANADA. Our telephone number is (514)
282-9292.
The date of the Prospectus is ________, 2003.
RISK FACTORS
You should carefully consider the following facts and other information in
this prospectus before deciding to invest in the shares.
RISKS RELATING TO OUR VIABILITY
SINCE WE HAVE A MIXED OPERATING HISTORY, IT IS DIFFICULT FOR YOU TO EVALUATE IF
WE ARE A GOOD INVESTMENT.
We were first incorporated in July 1998, introducing our first
products in January 2000. Market success of our product line to date has been
limited, however we continue significant Research and Development activities to
build new, market driven software products and expand into other business areas.
Accordingly, we have only a very limited operating history, and we face all of
the risks and uncertainties encountered by early-stage, technology companies.
Thus, our prospectus must be considered in light of the risks, expenses and
difficulties associated with a new and rapidly evolving market for digital
advertising technology. In sum, because of the youth and inherent risks of our
industry, predictions of our future performance are difficult.
OUR INDEPENDENT AUDITOR HAS EXPRESSED CONCERN OVER OUR ABILITY TO REMAIN IN
BUSINESS AND IF WE GO OUT OF BUSINESS YOUR INVESTMENT WILL BE LOST.
In his report on our audited financial statements, our auditor has
stated that there is a substantial doubt as to whether we will be able to remain
in business for even the next twelve months. His concern is based upon our
continued losses. While the Company does have specific plans to have the funds
necessary to implement our business plan, if his concerns are proven accurate,
any investment in our securities will likely be lost.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE EVEN MORE LOSSES IN THE
FUTURE WHICH MAY CAUSE US TO BECOME INSOLVENT.
From our inception in July 1998 through April 30, 2003, we incurred an
accumulated deficit of $6,397,045. We anticipate incurring significant losses
until, at the earliest, we generate sufficient revenues to offset the
substantial up-front expenditures and operating costs associated with developing
and commercializing products utilizing our technology. There can be no assurance
that we will ever operate profitably.
WE NEED SUBSTANTIAL ADDITIONAL FINANCING OR WE WILL BE UNABLE TO COMPLETE OUR
BUSINESS PLAN.
Our capital requirements relating to the commercialization of our
technology have been, and will continue to be, significant. We are dependent on
the proceeds of future financing, and the
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conversion of certain debts to equity, in order to continue in business and to
develop and commercialize additional proposed products. We anticipate requiring
approximately $1,000,000 in additional financing in the next 12 months. There
can be no assurance that we will be able to raise the substantial additional
capital resources necessary to permit us to pursue our business plan. The
Company has incurred approximately $300,000 of debt in the recent past and is
dependent on securing additional funds to remain viable. Any inability to obtain
additional financing will have a material adverse effect on us, such as
requiring us to significantly curtail or cease operations.
THERE IS ONLY A LIMITED MARKET FOR OUR SECURITIES SO ANY PURCHASERS OF THE
SECURITIES OFFERED HEREBY MAY HAVE DIFFICULTY RESELLING THEM.
Our securities are traded on the OTC and there has been practically no
sales volume for the last year. No assurance can be given that a more active
market will develop. Accordingly, purchasers of the shares offered herein may
find their investment highly illiquid.
RISKS RELATING TO OUR TECHNOLOGY
WE HAVE NOT COMPLETED TESTING ALL THE COMPONENTS OF OUR TECHNOLOGY AND IF IT
DOES NOT WORK WE WILL HAVE NO BUSINESS.
Although considerable time and financial resources were expended in the research
and development of our new version of our licensed technology, there can be no
assurance that problems will not develop which would have a material adverse
effect on our business. Since we have conducted only limited tests of our
software and associated hardware products, we are uncertain if it will perform
all of the functions for which it has been designed or prove to be sufficiently
reliable in widespread commercial use.
OUR INFRASTRUCTURE MAY NOT BE RELIABLE BECAUSE OF THIRD PARTY DISRUPTIONS AND IF
IT FAILS WE WILL LOSE CUSTOMERS.
Our system infrastructure will be vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with our computer
systems. Computer viruses or problems caused by third parties could lead to
material interruptions, delays or cessation in service to our customers.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of consumers. Security and privacy concerns of consumers may limit our
ability to develop a significant customer base.
RISKS RELATING TO OUR BUSINESS PLAN
OUR BUSINESS PLAN INVOLVES THE RELATIVELY NEW CONCEPT OF "DIGITAL MEDIA
LOGISTICS" INVOLVING ELECTRONIC AUTOMATED OUT-OF-HOME ADVERTISING AND
INFORMATION CONVEYANCE, AND IF OUR
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MARKETING STRATEGY IS UNSUCCESSFUL AND THE MARKET DOES NOT EMBRACE OUR PRODUCTS
WE WILL GO OUT OF BUSINESS.
Our planned software solutions for reaching great numbers of "viewers
per day" remains an unproven business concept. As is typical in the case of a
still-young business, demand and market acceptance for a new method of
advertising and information content delivery is subject to a high level of
uncertainty. Achieving market acceptance for our newly developed software &
hardware products will require significant efforts and expenditures to create
awareness and demand by advertising agencies, multimedia groups, municipalities
and large retailers. There can be no assurance that our marketing strategy will
result in successful product commercialization or that our efforts will result
in initial or continued market acceptance for our proposed services.
EVEN IF OUR BASIC TECHNOLOGY WORKS, WE WILL STILL HAVE TO MODIFY IT TO MEET
INDIVIDUAL CUSTOMER DEMANDS.
To the extent that there is competition among our customers to have a
software solution differentiated from others, we will need to continuously
modify and adapt our software to meet their demands. These modifications will
take time and cost money and may not function. Addressing this could delay our
plans and cause us to incur substantial additional costs.
WE HAVE LIMITED HUMAN RESOURCES TO IMPLEMENT THE PROJECTS WE MAY RECEIVE.
Our operations will depend upon the capacity and availability of
people to sell and implement our system infrastructure. We currently have only
limited human capacity and will be required to continually expand our staff to
accommodate significant sales to predominantly foreign customers. Development
and/or expansion of our staff will require substantial financial, operational
and managerial resources. There can be no assurance that we will be able to meet
potential demand on a timely basis or at a commercially reasonable cost. Our
failure to develop and/or expand our staff adequately to pursue sales
opportunities and implement projects on a timely basis would have a material
adverse effect on the Company.
THERE ARE OTHER FACTORS THAT COULD HAVE A NEGATIVE IMPACT ON THE MARKET PRICE OF
OUR STOCK.
While we have attempted to identify some of the risks you should
evaluate when making a decision to invest in our securities, we are not
prescient and it is impossible for us to identify in advance every possible
thing that could go wrong. Suffice it to say that an investment in our
securities is risky. You should also keep in mind that historically, a majority
of all new businesses fail. Also, in an effort to streamline this prospectus and
make it more reader-friendly, the staff of the SEC has required us to delete all
risk factors that are not unique to us. It is important that you realize that
there are other risk factors that are applicable to under-funded, startup
technology companies that are not listed here.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors," "Management's Discussion and
Analysis," "Business" and elsewhere in this Prospectus are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions and other statements contained in this prospectus
that are not statements of historical fact. You can identify these statements
by words such as "may," "will," "should," "estimates," "plans," "expects,"
"believes," "intends" and similar expressions. We cannot guarantee future
results, levels of activity, performance or achievements. Our actual results
and the timing of certain events may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
discrepancy include those discussed in "Risk Factors" and elsewhere in this
prospectus. You are cautioned not to place undue reliance on any
forward-looking statements.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following selected financial data for the year ended October 31,
2002 and 2001 and for the six month period ended April 30, 2003 is derived from
our audited financial statements included in this prospectus.
The following data should be read in conjunction with our financial
statements.
STATEMENT OF OPERATIONS DATA
For the 6 months(Unaudited) For the year For the year
Ended 04/30/03 Ended 10/31/02 Ended 10/31/01
Net Revenues $ 15,000 $ 23,750 $ 229,793
Operating Loss $ (670,843) $ (1,552,752) $ (2,589,345)
Income Taxes $ 0 $ 0 $ 0
Net Loss $ (670,843) $ (1,552,752) $ (2,589,345)
Loss Per Share
(Basic and Diluted) $ (0.02) $ (0.06) $ 0
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BALANCE SHEET DATA
October 31, 2002 April 30, 2003 (Unaudited)
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Working Capital $ 188,661 $ (1,052,083)
Total Assets $ 251,913 $ 127,428
Total Liabilities $ 707,696 $ 1,099,074
Stockholders' Deficit $ (455,783) $ ( 971,647)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and related notes which are included elsewhere in this
prospectus.
GSI Technologies USA Inc., (GSI) was created in 1998, as a sister
company to GSI Canada created in 1995, with goals of supplying complete turn-key
solutions to Out-of-Home advertising network operators. The company's offerings
went from digital signage network management software to installed screens,
displays or street furniture, interacting with targeted audiences. GSI was then
offering integration of network services but dealing with hardware suppliers for
integration of computers and screens (plasma, LCD, LED or plain TV set).
GSI participates in the information technology industry, specializing
in broadcasting solutions principally for media operators, advertisers and
others seeking to reach the greatest number of "viewers per day" at the street
level. Street level advertising is the strategic placement of signage so it is
readily visible to pedestrians and motorists. In addition to addressing
potential consumers in busy urban and suburban settings, public service messages
can also be conveyed using our technology.
The Company's initial years were primarily spent on extensive R&D,
building products that were expected to capitalize on the Internet and
multimedia boom and the increase of last-mile bandwidth. However, the great
promises of the technology and Internet golden age of the late 90's did not
materialize as foreseen. For GSI specifically, the techno bubble burst, the cost
and availability of bandwidth not improving fast enough, the economic down turn,
and the cost of plasma screens still considered too high, all contributed to the
near disappearance of the company.
Since then, we have been continuously involved in research and
development in an effort to innovate and deliver appropriate products to the
marketplace. Equally, the company has been present in the marketplace, building
a solid foundation of industry contacts both as potential partners and business
clients.
The market currently continues to present a mixed picture. The primary
issue has been the overall slow economic climate in our major market areas of
Canada, the USA and Europe. Budgets for digital media products have suffered
from the overall economic conditions as well as generally reduced IT spending
across the
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board. As such, we have assumed a cautious approach to develop a cost-effective
solution, and to exploit the areas of clearest opportunity. We see signs of
recovery in certain key market areas.
During the period of this downturn in purchasing in the marketplace,
we have continued our product development, with emphasis on developing and
launching an entirely new suite of products and services known as the GSI
Digital Media Logistics Suite (DMLS), Version 3.0. Development of the end
product is nearing completion, and our current focus is on finalizing
development activities. GSI's DMLS software enables users to accept, store,
inventory, deliver and organize the playing of digital content to all kinds of
digital display products such as, plasma screens, LCD screens, LED screens, TV
monitors, multi media projectors, etc.
At the same time, the Company re-evaluated its overall market approach
and decided to focus more heavily on developing and selling digital network
operations software rather than actually developing networks, installing and
managing physical hardware, and actually selling and managing the digital
content. With the re-focus of GSI in mid-2002, came a new philosophy and
re-positioning of the company's activities. GSI is returning to the core
expertise of its past, focusing on its original concept and vision, building the
software that will help users store, inventory, deliver and use visual digital
content on a variety of devices in a variety of applications. The Company now
has a much clearer product and sales vision.
Previously, we had operated under a master license acquired in October
1999 from our Canadian affiliate, (3529363 Canada Inc., also know as GSI
Canada). GSI Canada experienced severe financial difficulties, which resulted in
it being put under the supervision of a trustee in May 2001. We subsequently
notified the GSI Canada Trustee and principals that we believe they can no
longer realistically fulfill the terms and conditions of the Master License
Agreement and we therefore consider that agreement null and void. No response
has been received.
As a result of these events, the Company made a strategic decision to
undertake an entirely new proprietary solution development program using a third
party, LTS Networks. LTS Networks, a Montreal-based Corporation, is specialized
in Network Management and R&D software development. GSI has given LTS a mandate
to develop an entirely new family of digital distribution products from the
ground up. The Company has also purchased a 40% equity interest in LTS Networks.
GSI will now focus on conceiving, developing and selling the world's
most effective and user-friendly digital signage network management software
directly to network integrators, screen manufacturers and to Out-of-Home digital
network owners/operators. We believe that we now possess some of the most
advanced technology currently available in the field of electronic advertising
and interactive information display.
GSI, over the past couple of years, has acquired valuable field
experience in serving digital network operators through various pilot projects.
Therefore, we have revised technical specifications that will be well served to
meet our customers' current and evolving needs. On May 5, 2003, we released our
newly designed proprietary solution.
The Company will also, in some cases, offer Network Software Managed
Services, Integration Services and Hardware through various partnerships and
strategic alliances. GSI will no longer supply or
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manufacture street furniture. We will continue to leverage our market knowledge
to provide strategic consultant services for turnkey digital signage solutions.
Our GSI Digital Media Logistics Suite offers a complete range of
products designed around the concept of providing network centric dissemination
of digital images for advertising and information on multiple digital devices
that will address current market needs and attract significant commercial
interest.
Our business model has changed considerably based on our relationship
with Clear Channel International (CCI), a long-standing strategic partner and
customer. CCI is one of the world's largest Out-of-Home media and advertising
groups, with operations in over 60 countries around the globe. We have been
supporting two special projects in the cities of Bristol and Swindon in England
and the city of Nantes in France. Our working relationship with CCI has allowed
us to redesign a new digital signage software solution for enterprise scale
application.
In May 2003, GSI delivered to Clear Channel International its newly
released version of DMLS. Based on our working relationship, we have agreed to
design a specific content manager application in conjunction with CCI's
specifications. We have organized a working focus group, including LTS Networks'
R&D team, CCI's R&D Managers and GSI's Product team, to participate in weekly
revision meetings in order to refine the interface of our new module
application. At the end of June 2003, GSI is scheduled to deliver the content
manager application to CCI for the purpose of test application in the unique
"City of Nantes (France) pilot project", involving a variety of Digital Signage
products including LED screens, interactive bus shelter kiosks and Plasma
screens. After completing the market test of the content manager application, we
are scheduled to deliver our fully functional Digital Media Logistics Suite,
including specific Content Manager Application at the end of August 2003. CCI is
currently waiting for GSI's August release to roll out a comprehensive
development plan for Digital Signage implementation in many other countries.
We have totally revised our pricing and licensing structure. We will
now sell and distribute our software product on a per player software license
basis. Our comprehensive software package includes: Digital Media Logistics
Player, Digital Media Logistics Server and Digital Media Logisitics
Administrator.
In April 2003, GSI signed a special agreement with MCSI, a publicly
traded corporation specialized in Technology Integration, for the sale of 12,000
licenses to be utilized for customers such as Bank of America and Bed Bath &
Beyond, etc. We are currently developing, with the participation of LTS
Networks, a small form factor player at very low cost to respond to our
customers' special implementation needs. Our agreement is valid for a special
term of 24 months.
In July 2002, we completed a Letter of Intent with a California-based
corporation specializing in Internet market content. The Agreement calls for the
client to install a network of full motion video plasma screens in approximately
200 preferred locations in the United States. We have been informed that our
client has succeeded in securing over 100 locations and anticipates starting
installation in the Summer of 2003. We have negotiated a 10-year licensing
agreement starting when the Network begins its operations. Network management
and content production contracts are currently being negotiated.
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During May 2003, our sales management team has been negotiating a
common development agreement with Petters Group LLC, in regards to their new
suite of Digital Signage Products, branded under the name of Polaroid. GSI has
currently concluded sales of 42" Digital plasma screens for an approximate
quantity of 600 units, subject to financing approval of the customers.
We are currently negotiating a team co-marketing agreement with
Polaroid to offer a turnkey solution to large enterprise scale customers that
integrate the hardware and software products. We anticipate completing the
agreement by end of June 2003.
In May 2003, we initiated negotiations with Arcanes Technologies, a
France-based corporation to act as sales agent to distribute our new line of
products in France.
In May 2003, we received a Letter Of Intent from TSA, a France-based
corporation, specialized in Network Integration and Satellite Transmission to
act as Technology Integrators and service corporation for our European based
customers. We are currently negotiating contract agreements and anticipate
conclusion by the end of July 2003.
The marketing plan for our fiscal year ending October 2003 calls for
our management and sales team to concentrate on existing opportunities and
current contract negotiations.
The operating plan is ambitious and as noted in Risk Factors above,
contains an inherent risk in our ability to expand rapidly and address the needs
of diverse customers. This will be a key factor to our success and requires
funding for ongoing operations, primarily for continued liquidity and capital
resources, R&D activities, and sales and marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has, in the past year, paid considerable attention to
raising sufficient funds to cover these activities. As a result of our efforts,
we have attracted over $1,000,000 in debt and equity in private placements in
the past year.
From May 2002 through May 2003, the Company raised an aggregate of
$1,220,000.
These funds were utilized to reduce outstanding payables and to fund
the build-up of our operations, to support the roll-out of our DMLS product line
and continue our development plan. Ongoing software development costs are
approximately $50,000 per month.
To continue operating at the planned pace for the coming year, a total
of approximately $1,000,000 in further funding will be required beginning in
July 2003. Our current monthly expenses are approximately $80,000 including the
development cost. We expect our first revenues to be achieved in mid to late
2003 and are currently seeking additional funding through private placements.
Delays in funding would mean we would have to further delay R&D activities, and
continue to be under-resourced on the sales and marketing side while utilizing
limited management resources for continuing to seek funding either through an
infusion from current shareholders, through
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another private placement, or through longer term borrowings. We believe that
establishing operating lines of credit with commercial banks will depend on a
successful launch of commercial operations.
We also plan to grow our business by making strategic acquisitions.
While several potential opportunities have been identified, it is far too
premature to make a determination of the likelihood of the success of any
potential transaction. Given our current financial constraints, additional
funding would be required in order to help finance acquisitions and capitalize
on emerging opportunities.
We have also taken recent steps to strengthen the senior management
team, however taking a cautious approach on expansion of salaried positions. In
order to maintain flexibility and minimize overhead, the Company will outsource
to consultants and other professionals to provide the directly applicable skill
sets required for specific time periods, wherever possible and cost-effective. A
new President and Chief Executive Officer has been hired with a one-year
professional services agreement. We have engaged a Third Party to provide
specialized staff and personnel on a monthly invoicing basis. We continue to
seek a suitable corporate financial officer and are seeking additional sales and
account support people.
In September 2002, we moved our principal business office to 400,
St-Jacques West, Suite 500, in the City of Montreal. We have a rental agreement
with a monthly cost of $2,000.
As reflected in the financial statements as of April 30, 2003, we have
$2,103 cash on hand and the accumulated deficit to date during the development
phase is $6,397,045. This results mainly from operating expenses incurred by the
Company during its initial operating phase, expenses to develop the Company's
new line of product and expenses to maintain reporting compliance. We anticipate
incurring a further loss during the current fiscal year ending October 2003 of
approximately $650,000.
We believe that we will generate revenues in the immediate future,
however there can be no assurance that we will ever be able to obtain contracts
with a significant number of customers to generate meaningful revenues or
achieve profitable operations.
Inasmuch as we have spent the last year developing our own proprietary
software and had only insignificant revenues, any comparison of revenues and
expenses for previous periods, would be purely historical and provide no
meaningful information.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Statement of Financial Accounting Standards Board (SFAS) No. 141,
"Business Combinations," was issued by the Financial Accounting Standards Board
(FASB) in July 2001. This Statement establishes standards for accounting and
reporting for business combinations. This statement requires the purchase method
of accounting to be used for all business combinations, and prohibits the
pooling-of-interests method of accounting. This Statement is effective for all
business combinations initiated after June 30, 2001 and supercedes APB Opinion
No. 16, "Business Combinations" as well as Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 38, "Accounting for
Pre-acquisition Contingencies of Purchased Enterprises." The adoption of this
statement by the Company did not have a material impact on its financial
condition or results of operations.
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The Statement of Financial Accounting Standards Board (SFAS) No. 142,
"Goodwill and Other Intangible Assets," was issued by the Financial Accounting
Standards Board (FASB) in July 2001. This Statement addresses how intangible
assets that are acquired individually or with a group of other assets should be
accounted for in financial statements upon their acquisition. This statement
requires goodwill amortization to cease and for goodwill to be periodically
reviewed for impairment, for fiscal years beginning after October 31, 2001. SFAS
No. 142 supercedes APB Opinion No. 17, "Intangible Assets." The adoption of this
statement by the Company did not have a material impact on its financial
condition or results of operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 143,
"Accounting for Asset Retirement Obligation," was issued by the Financial
Accounting Standards Board (FASB) in August 2001. This Statement will require
companies to record a liability for asset retirement obligations in the period
in which they are incurred, which typically could be upon completion or shortly
thereafter. The FASB decided to limit the scope to legal obligation and the
liability will be recorded at fair value. This Statement is effective for fiscal
years beginning after June 15, 2002. The adoption of this statement by the
Company did not have a material impact on its financial condition or results of
operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," was issued by
the Financial Accounting Standards Board (FASB) in October 2001. This Statement
provides a single accounting model for long-lived assets to be disposed of and
replaces SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of." This Statement is effective for fiscal
years beginning after December 15, 2001. The adoption of this statement by the
Company did not have a material impact on its financial condition or results of
operations.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders. However, we will receive the exercise price
of the warrants if they are exercised. If all of the warrants are exercised, we
would receive an aggregate of $3,516,000. No assurance can be given that all, or
even any, of the warrants will be exercised.
Any proceed received from the exercise of the warrants will be added
to working capital. We have no definite plans for the use of any proceeds from
this offering and we have made no specific allocation as to the use of such
proceeds. The proceeds could be used for current administrative, marketing and
other expenses, the acquisition of business or repayment of debt. Any such
application of the proceeds of this offering will be at the discretion of our
board of directors.
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BUSINESS
GSI is a Delaware corporation, originally established in July 1998 as
I.B.C. Corporation. Following a change of control and the creation of a new
business plan, GSI became active in the Out-of-Home electronic advertising
market.
GSI Technologies USA Inc. operates within the overall Information
Technology (IT) field, offering software to manage efficient, dynamic and
pinpoint accurate communications networks. The information delivered can be
advertising messages targeted at consumers while out of their homes or messages
of more general interest like traffic and weather information.
The GSI Digital Media Logistics Suite is a sophisticated, secure
solution for dynamic digital signage network management and display, offering
dynamic scheduling and content changes through powerful components. Designed to
be scalable, secure, extendable and flexible, Digital Media Logistics Suite is
platform independent and supports multiple database products as well as most
media. Operating on Windows or Linux based systems, Digital Media Logistics
Suite 3.0 can manage a large multi-display network all over the world from
either a single or multiple control centers, via TCP/IP over DSL, Cable,
Satellite, POTS, or any gateway, resulting in complete freedom of operation. No
matter what infrastructure environment a company works with, GSI's Digital Media
Logistics Suite 3.0 can handle its Out-of-Home advertising and communications
requirements.
Based upon our knowledge of the industry, we believe the potential
market for our products has significant opportunities for growth. The
advertising industry, for example, is currently challenged and is looking for
new ways to reach consumers more effectively. Having built an effective suite of
products, and having undergone significant field testing, we believe we are now
able to respond to their needs as well as those of other industries.
HISTORICAL BACKGROUND
Since 1995, Mr. J. Michel de Montigny, the founder of the Company, has
been dedicated to fulfilling his vision of bringing television and advertising
to the street level. A predecessor entity called Groupe Solcom was founded in
1995 by a group of individuals experienced in the out of home advertising and
retail industries. The primary goal of the Montreal-based R&D firm was to find
ways of channeling commercial messages to a wider range of viewers in a
structured and targeted method via electronic remotely controlled screens.
Originally serving the casino and stadium industries, Groupe Solcom
soon identified diverse locations across North America in which to install,
manage and remotely control automated display systems. From 1996 through
September 1998, Group Solcom controlled and operated large electronic signs in
Vancouver, Edmonton, Toronto and Montreal.
In September 2001, Mr. de Montigny resigned for his position as CEO of
GSI Technologies USA Inc. for health reasons and the Board of Directors of the
Corporation nominated Mr. Ren Arbic as the new President, CEO and Chairman of
the Board of the Corporation.
12
After experiencing the effects of a severe market downturn, triggered
by the unfortunate September 11th events, the Company reduced operations to
absolute minimal requirements to continue R&D work and pursue business with
Clear Channel International. From March 2002, to November 2002, GSI negotiated
several reductions in fixed expenses, notably in its leasing obligations.
A control block of the Corporation owned by Immobiliare, Gestion
J.M.d.M and Totalcom Inc., all controlled by Mr. Michel de Montigny, founder and
former CEO of the Corporation, was sold to a Canadian holding corporation.
In February 7, 2003, Mr. Ren Arbic resigned from his position as
President and Chief Executive Officer of the Corporation.
In May 2003, Mr. Ren Arbic resigned from his position as Chairman of
the Board of GSI Technologies USA Inc.
In May 2003, the Board of Directors appointed Mr. Craig Perry, who is
currently General Manager of InMetal and a shareholder of GSI, to join the Board
of Directors as a Director and Chairman.
In June 2003, The Board of Directors appointed Mr. Gilles Addison to
the position of President and Chief Executive Officer.
THE TECHNOLOGY
We have conceived a robust enterprise scale solution for the Digital
Signage industry enabling operators to manage large or small networks of digital
signage from a remote location with full capability to control each independent
site or screen with pinpoint specifications. Our Network products are built to
operate on many platforms and can adapt to available communication, whether it
is Satellite, Cable, or DSL. Our systems manage media content in all standard
formats for video files, including MPEG-2, MPEG-4, Flash and AVI.
- DIGITAL MEDIA LOGISTICS SUITE 3.0 (DMLS):
Operating on Windows or Linux based systems, Digital Media Logistics Suite
3.0 can manage a large multi-player network all over the world from either a
single or multiple control centers, via TCP/IP over DSL, Cable, Satellite, POTS,
or any gateway, resulting in complete freedom of operation. No matter what
infrastructure environment you are working from, GSI's Digital Media Logistics
Suite 3.0 can handle all your Out-of-Home advertising and communications
requirements.
- GSI DIGITAL MEDIA ADMINISTRATOR (DMA) 3.0
GSI's secure and simple administration tool allows users to easily manage
clients and campaigns for advertisements, infomercials, infotainment and other
creative displays. Users can import their media display statistics into
whichever analysis tool they choose (Business Objects, MicroStrategy, Cognos,
Excel reports, etc.)
13
and study the effectiveness of their digital signage campaign.
- GSI DIGITAL MEDIA PLAYER (DMP) 3.0
GSI's DMP displays scheduled media content to single or multiple display
devices.
- GSI DIGITAL MEDIA SERVER (DMS) 3.0
GSI's DMS brokers media and play schedules to single or multiple players
either standalone or across any network.
- HARDWARE
GSI will provide hardware solution as part of its offering through
partnerships and strategic alliances.
COMPETITION
The markets that we are entering are competitive. Some of our
competitors have certain advantages including substantially greater financial,
technical and marketing resources; greater name recognition; and more
established relationships in the industry and may utilize these advantages to
expand their product offerings more quickly, adapt to new or emerging
technologies and changes in customer requirements more quickly, and devote
greater resources to the marketing and sale of their products.
The market for digital signage management software has existed for a
few years now but still remains somewhat small with few large-scale deployments.
Poised to take off substantially in the late 90's and early 2000's, it suffered
a setback with the technology bubble burst and the reduction in technology
investment.
As such, we perceive this to still be an emerging market with various
offerings from the companies involved in the field. We estimate the number of
direct competitors at around thirty (30) companies, most of them located in
North America. However, several of them are to be considered as integrators,
pulling in software and hardware solutions to meet the deployment requirements,
rather than software suppliers, as GSI Technologies USA is now re-positioning
itself.
In the field of software developer/supplier, our marketing research
has identified only a few companies involved solely or mainly with the
development of a vertical market Digital Network Management Solution.
Barriers to entry in this field are not based on the capacity of a
group of software designers to develop effective software but rather on the
knowledge of the market's needs. Our strength resides in our long experience in
the advertising field and the relationships built over the years with industry
players. Based on this knowledge and comments from the industry, GSI is capable
of developing a precise and efficient solution to meet the needs of the digital
signage network operators. Our new software version is the outcome of years of
real field experience.
14
The markets for our proposed products are characterized by rapidly
changing technology and evolving industry standards. Accordingly, our ability to
compete will depend upon our ability to continually enhance and improve our
software and our display products. There can be no assurance that we will be
able to compete successfully, that competitors will not develop technologies or
products that render our products obsolete or less marketable or that we will be
able to successfully enhance our products or develop new products.
We are currently taking action to obtain copyright protection for our
proprietary software.
Our main competitors are SCALA, FRED, Advanced Digital Signage (ADS),
Bluepoint Technologies, Digital eMedia and Navori.
THE ADVERTISING MARKET
As noted, GSI is a player in the information technology industry,
offering solutions principally for advertisers and others seeking to reach the
greatest number of "viewers per day". We have identified the potential market
for our products in terms of territory and the principal media groups.
Globalization is the dominant trend. Once branded in their domestic markets,
companies are seeking opportunities to penetrate elsewhere, particularly in
non-traditional, non-exploited markets such as Russia, Eastern Europe, Africa,
and South America. In our view, expansion in the traditional North American and
European sites that offer a high volume of "viewers per day" will occur by way
of replacing existing static panel advertising with Network delivered multimedia
products.
While television's relative position has been maintained, advances in
technology now enable the consumer to select from more than 500 television
channels at home. Many of these are specialized channels and pay television that
do not broadcast advertising. As a result, TV broadcasters cannot pretend to
reach the same number of in-home "viewers per day" as they used to. Since
in-home advertising does not offer the same "viewers per day" reach, it has
become strategically imperative for advertisers and advertising agencies to seek
other Out-of-Home possibilities.
Even if GSI is not selling directly to advertisers and ad placement
agencies, an understanding of the industry and its overall direction has been an
essential component of our marketing strategy.
Although new as a software-only supplier, GSI Technologies USA has
been active in the field of digital signage since 1998. In addition to being a
software developer, GSI was also involved initially in network integration and
hardware supplies (full outdoor displays, also called street or urban
furniture). Its founders' knowledge of the advertising and broadcasting markets
goes back a few more years. Consequently, even without hard quantitative data
concerning the actual market, our qualitative assessment is based on a good
knowledge of the market. The quantitative aspect of our marketing research is
just being revived. The coming months will allow us to support our analysis with
additional information.
Market research in regards to advertising spending by category will
take place in the coming months. However, GSI possesses valuable information
since we still have strong links with some of the world leaders in the industry
of Out-of-Home advertising and street furniture.
15
Our software is not intended to be a mass-marketed product. Instead,
we intend to become strategic partner and/or OEM software supplier to network
operators, owners and/or integrators. We are already in advanced discussions to
that effect with Clear Channel International, MCSi and some hardware (screen)
manufacturers (Sony, Polaroid, LG). In addition to providing serious sales
prospects, these discussions also provide us with comments from the industry and
a clear understanding of the latest requirements of the digital signage field.
We believe that securing these contracts and partnerships will allow GSI to
re-enter the market and to establish itself as a dominant supplier to the
industry.
The major global media companies are Viacom, Clear Channel
Communications, JC Decaux, TDI, and Outdoor Systems. Doing business on five
continents, the largest is Clear Channel, a development partner of GSI.
A diversified media company with two business segments, broadcasting
and Out-of-Home advertising, Clear Channel (www.clearchannel.com) is a key
--------------------
focus. It currently operates in 66 countries. It has 1,225 radio and 39
television stations in the United States and has equity interests in over 240
radio stations internationally. It also operates over 776,000 display faces.
With consolidated sales approaching $8.5 billion in 2002, their subsidiaries
include Adshel, a leading world brand in street furniture, More Group, a leading
outdoor advertising company in Europe and Asia, and the Eller Media Company
which is based in San Antonio, Texas and is the oldest outdoor advertising
company in the world.
JC Decaux, operating in 43 countries and over 3000 cities, in 2002
achieved a turnover of EUR 1.578 billion. JC Decaux (www.jcdecaux.com) is the
----------------
largest marketer of the street furniture in the world, including bus shelters,
newsstands and public information panels, and is also number one worldwide in
airport advertising . Their most important acquisition is Avenir Publicity
Group, a $2 billion transaction in July 1999. Their inventory of installations
includes 290,000 street furniture panels in 37 countries, 192,000 billboards
panels in 28 countries and 145,000 panels in 147 airports and 150 rail transit
systems in 19 countries.
Viacom (www.viacom.com) is the number one player in the world of
--------------
advertisers. With preeminent positions in broadcast and cable television, radio,
outdoor advertising and online, it is the largest Out-of-Home media company in
North America with bulletin, poster, mall and transit advertising display faces
in 90 metropolitan markets in the United States, 14 metropolitan markets in
Canada, and 45 of the largest metropolitan markets in Mexico.
The Out-of-Home Media Group, Canada's largest outdoor advertising
company currently claiming a 47% market share and the Pattison Group, the
world's largest custom electric sign company, are parts of the Pattison Sign
Group, (www.jimpattison.com) one of Canada's largest diversified companies.
-------------------
16
KEY SUCCESS FACTORS
EXPERIENCE
GSI has an available pool of knowledge and experience regarding the
rapidly evolving market. We have retained the services of the founder of the
Company, Mr. Jean Michel de Montigny, on a consultant basis, to act as our
product visionary and support the development of a new breed of response to
industry needs.
In addition, the Company has been undertaking pilot testing in the
field since inception of the Company's activities. Extensive experience has been
gained in dealing with various electronic sign manufacturers and companies
involved in controlling interactivity such as Dacktronics, Saco, Smartvision,
Adtronics, A.D.E., Sony, among others.
INTELLECTUAL PROPERTY
We have developed an entirely new product as a result of extensive R&D
activities in the past 6 months, the GSI Digital Media Logistics Suite, V3.0.
(DMLS). We own the exclusive rights to sell and further develop DMLS. These
rights are governed and protected by applicable commercial law. We intend to
take all reasonable and practicable steps to obtain patent and trademark
protection, when available and deemed beneficial to protect our rights to the
licensed technology.
EFFECTIVE MARKETING
GSI Technologies USA Inc. is in the business of developing and selling an
enterprise scale Digital Signage Network Management Hardware and Software
Solutions to the Out-of-Home and retail advertising industry.
Our turn key solution allows media content operators to effectively manage from
very small to very large networks of Digital Signage displays from diverse or
centralized locations to deliver pin-point content anywhere in the world.
Our comprehensive software package includes:
- Digital Media Player
- Digital Media Server
- Digital Media Administrator
GSI Technologies USA Inc. also provides professional services geared towards the
Digital Signage Network industry.
- Operational and Sales level training.
- Level One, Two and Three support
- Managed Services for Digital Signage Networks
- Customized Solution Development
17
Our low cost network management solutions and operational systems permit
operators to increase profits from existing advertising networks, as well as
allowing for the development of previously unexploited market segments.
GSI has identified 3 primary target markets for its sales and marketing efforts.
1) Out-of-Home Media Operators. Digital Networks involved with markets
-----------------------------
such as subways and train stations, airports, billboards, bus
shelters, etc.
2) Public Information and Security Communications. 911 info, evacuation
-------------------------------------------------
plans, Amber Alert, public buildings, strategic high traffic areas,
governmental communications, etc.
3) Retail Outlet Operators. Large retail chains, department stores, gas
------------------------
stations, banks, restaurants, renovation centers, etc.
In all three sectors of activity, the common factors are the eyeballs (number of
viewers per day) and content delivery at key times of the day to capture
privileged moments, where consumers are predisposed to react to messages
addressed to them.
Sales will be accomplished through a combination of executive sales, direct
sales, trade shows, road shows and general marketing efforts.
INDUSTRY
In the early 1980's, television went through a complete redefinition of its
traditional broadcast approach to consumers. The emergence of cable
distribution and satellite changed consumer habits by allowing for the delivery
of specialized content to targeted audiences. The advent of the 500 channel
universe made it difficult for advertisers to reach consumers at home. Consumers
were given the capability of selecting content even to the extent of choosing
advertising free, uninterrupted programming. As a result of the fragmentation
of television, In-Home advertising became less effective and thus the
Out-of-Home market became the primary media to reach consumers on a daily basis.
In the early 1990's, three major corporations horizontally integrated most of
the Out-of-Home market worldwide. These corporations are, in order of size for
Out-of-Home market: Clear Channel International, Viacom and J.C Decaux.
Clear Channel International, from the early 1990's to the year 2000, acquired
significant Out-of-Home companies worldwide, establishing their networks in more
than 60 countries, including the Asian market. This consolidation activity led
site owners such as government authorities, transport management authorities,
municipal government and mall owners, etc., to become aware of the eyeball value
of their sites. To maximize their site lease revenues, they opened the process
to tender seeking the most valuable profit sharing offer.
18
In 1999, to meet this market reality, GSI Technologies USA Inc. created a new
concept which was presented by Clear Channel International to the city of Nantes
(France) in response to a request for tender. The concept consists of offering
a site owner a revenue share based on the diffusion of mixed media including
Digital Signage.
Clear Channel International subsequently won the tender. This type of
deployment has become the industry standard for the integration of Digital
Signage into the Out-of-Home industry.
Since 2000, the industry has been working to solve deployment and business
issues. These include advertising effectiveness monitoring, display device
reliability, cost and capability of player software and the lack of large
network management capability.
GSI Technologies USA Inc. during this period, based on its relationship with
Clear Channel International, developed its Digital Media Logistics Suite of
products to meet the industry's business and operational needs.
SALES AND MARKETING STRATEGY
Sales will be accomplished through a combination of executive sales, direct
sales, trade shows and general marketing efforts.
Our marketing strategy is based on pursuing and developing
relationships with key players of the industry.
- Technology integrators: By creating a value added reseller program
through technology integrators, we create significant market exposure
for our products while limiting direct marketing cost.
- Digital Signage Hardware Manufacturers: Agreements with key Digital
Signage manufacturers will allow our corporation to develop horizontal
business markets.
- Sales agents: An aggressive sales agent program has been put together
by our management team, resulting in strong interest from highly
qualified candidates worldwide.
- Out-of-Home network operators: The Out-of-Home advertising industry is
dominated by a handful of large network owner operators. These include
Clear Channel International, Viacom and JC Decaux. Our software
solution can operate networks consisting of hundred of thousands of
display units and its technology has been adapted and customized to
meet their specific business needs. GSI Technologies USA Inc. has been
providing solutions to Clear Channel International, in various pilot
projects, in anticipation of their worldwide network deployment
beginning in the fall of 2003.
19
EMPLOYEES
GSI Technologies USA Inc. attempts, wherever possible, to use
professional services that are outsourced to contain costs and provide for
effective skill sets in management, sales, product development and other
administration areas. As such, we currently have 5 staff member. They occupy
positions as President and CEO, Sales and Marketing, Business and Investor
Relations, Administration, and Reception. All employees except the President and
CEO, who is directly employed by GSI Technologies USA Inc., are provided by way
of a Services agreement with it's partially owned affiliate LTS Networks Inc.
PROPERTIES
Our facilities are located in approximately 2,500 square feet of
leased office space in Montreal. The lease expires on September 1, 2005 and
provides for an annual rental of approximately $24,000.
On October 1, 2002, the Company entered into a one year office lease
for its USA Office in New York for 1,600 square feet with an annual rental of
approximately $12,000.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock traded in the over-the-counter market on the "OTC
Bulletin Board" under the symbol GSITB from September 13, 2000 until March 2002,
when it was delisted for late filing of our annual report for the period ended
October 31, 2001. The Company is now current with its filings and is trading on
the OTC market. We have appointed a new market maker who expects to file a Form
211, so our securities can become relisted on the OTCBB. Until March 5, 2002,
we have provided the closing bid and ask prices and thereafter the closing sales
prices. These do not include retail markups, markdowns or commissions. Nor
do they represent actual transactions.
CLOSING BID CLOSING ASK
HIGH LOW HIGH LOW
Fiscal Year Ended October 31,2001
First Quarter 1.47 .31 1.69 .41
Second Quarter .53 .10 .66 .13
Third Quarter .35 .14 .55 .16
Fourth Quarter .19 .10 .30 .15
Fiscal Year Ended October 31,2002
First Quarter .40 .07 .51 .11
Feb. 1- March 5, 2002 .35 .09 .50 .20
20
CLOSING SALES
HIGH LOW
Second Quarter .45 .05
Third Quarter .05 .05
Fourth Quarter .001 .001
Current Fiscal Year
First Quarter .01 .001
Second Quarter No sales No sales
EQUITY COMPENSATION PLAN INFORMATION
In August 2000, the Board authorized a Long Term Stock Option Incentive Plan
containing 5,500,000 shares to be issued at the Board's discretion to officers,
directors, employees and consultants. The plan was not submitted for
shareholder approval. None of the options were issued to management, all of the
options which were issued were canceled without being exercised and the Board
has decided to terminate the Plan.
MANAGEMENT
OFFICERS AND DIRECTORS
Our officers and directors are as follows:
Name Age Position
---- --- --------
Gilles Addison 63 President & CEO
Marie El-Ahmar Eid 40 Secretary of the Board and Business
Development & Investor Relations Director
Craig Perry 46 Chairman of the Board
Marc Cote, LLB 42 Director
GILLES ADDISON
Mr. Addison is a senior executive with more than 30 years of
experience in marketing, financial management, administration and human
resources for national and international companies. From 1972 to 1979 he worked
for the Citicorp Leasing Canada LTD as a Corporate Leading Officer, promoting
business with major Canadian Corporations and Government agencies. In 1979 he
became a Corporate Manager for National Bank Corporate Leasing. From 1983 to
1994 he was the President and CEO of Fimacor International, a financial services
company. In 1994, he became the Executive Vice-President of EXA Systems Inc.,
responsible for sales, marketing and finance. He became President & CEO of the
GSI on June 11, 2003.
21
MARIE EL-AHMAR EID
Mrs. Eid graduated from Lebanese University in Management of Networks
Technologies in 1983. She occupied multiple functions at the National Bank of
Canada from 1993 to 1999. In 1999, she was hired by GSI Technologies USA Inc.
as an Executive Assistant to the CEO. In 2001, she was Human Resources Manager
and Business Development Manager. In 2003, she became Business Development and
Investor Relations Director. She became a Board Member on May 27, 2002.
CRAIG PERRY
In 1979, Mr. Perry received a Bachelor of Science in Mechanical
Engineering from the Massachusetts Institute of Technology. In 1982, he
graduated from University of California, Berkeley with a Masters degree of
Business Administration. Mr. Perry has been involved in inMetal (a 60 year-old
family business) since the early 1970's. He worked there in various capacities
throughout college and graduate school. In 1985, Mr. Perry assumed the role of
chief executive officer and has led the company ever since. InMetal is one of
New England's leading providers of precision sheet metal fabrication and
assembly services and currently employs 90 employees. Mr. Perry became a Board
Member on April 28, 2003.
MARC COTE
Mr. Cote graduated in civil law from the University of Ottawa and has
been a member of the Quebec Bar since 1985. Mr. Cote is a senior partner in
the Montreal law firm of Labelle Boudreault Cote & Ass. He currently
specializes in the area of commercial law. Mr. Cote became a Board Member in
October 2000.
EXECUTIVE ADVISORY BOARD
In June 2003, GSI Board of Directors appointed an Executive Advisory
Board to manage and build the value of the Corporation on a day to day basis
with the input of experienced individuals in various fields of activities. We
believe GSI will grow in a team environment and deliver positive results to the
benefits of our shareholders. The Executive Advisory Board will report to the
Board of Directors through the CEO, Mr. Addison. GSI's management is seeking to
identify a Chief Financial Officer who will suit our needs. The Executive
Advisory Board is composed of the following individuals:
- MR. GILLES ADDISON, President and CEO
- MRS. MARIE EL-AHMAR EID, Business Development and Investor Relations
Director
- MR. GLEN PEARSON, Operation Director
Mr. Pearson has over 15 years practical, broad-based,
entrepreneurial experience in a wide range of industries. His particular
interest and expertise is in start-up management. Mr. Pearson's career includes
several successful terms as a small business owner in construction,
manufacturing and specialty retail industries, including innovation of product
and process. His skills cover a broad range
22
including experience in general management, overseeing marketing, sales,
production and human resources. In 1999, Mr. Pearson joined Ideas and
Associates, a start-up IT outsourcing company specializing in application
development for the Internet, as Vice-President of Operations. In 2000 Mr.
Pearson became President of Ideas and Associates and refined the business and
revenue models. Under his leadership the company grew from 8 employees to 60 in
under 18 months while remaining profitable.
- MR. MICHEL DE MONTIGNY, Product, Sales and Marketing Director
Mr. de Montigny founded GSI Technologies USA Inc. in 1998 and was
its President and CEO until September 8, 2001 and Chairman of the Board until
April 2001. Mr. de Montigny left the Corporation in 2001 for health reasons.
Management re-hired him in January 2003 as Product, Sales and Marketing
Director. Mr. de Montigny has over twenty five years of hands-on and management
experience in the advertising industry and over 10 years of experience in the
technology market. In 1995 he founded Solcom Group. From 1990 to 1992, he was
president of Groupe Actuel Design, crafting the design concepts behind the Bell
Canada Boutiques, the Yves Rocher Boutiques and the Societe des Alcools du
Quebec Stores. From 1988 to 1990 he was president of Inter-Dec College, a
technical college in Montreal. Prior thereto, he was Director of Operations and
Director of Marketing in a variety of companies. As an advertising and
marketing consultant, he was the driving force behind some of Montreal's most
innovative advertising campaigns of the 1990's. A consultant to companies such
as Labatt, Budweiser, and Michelin, he was also involved in projects creating an
interactive bus shelter for Budweiser, special effects for the film Mortal
Kombat (Alliance Films), and the inauguration campaign for a new Air Canada
aircraft. Mr. de Montigny received an MBA from the University of Quebec.
- MRS. PAOLA SALCEDO, Administration Director
Mrs. Salcedo graduated from University Externado de Colombia in
Finance and International Relations in 1998. From 1998 to 1999 she worked for
the Center of Research and Development for International Cooperation in Bogota.
In 1999 she immigrated to Canada. Between 1999 and 2002, she completed
certifications in languages and economic studies at Concordia University and
Universit de Montr al. She speaks 4 languages fluently. In 2002 she became a
Canadian resident and was employed by GSI Technologies USA Inc.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither our certificate of incorporation nor our by-laws currently provide
indemnification to our current officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law.
23
COMPENSATION OF DIRECTORS
Directors do not receive any compensation for their service as members of
the board of directors.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 20, 2003, information regarding
the beneficial ownership of our common stock based upon the most recent
information available to us for
- each person known by us to own beneficially more than five (5%)
percent of our outstanding common stock,
- each of our executive officers and directors, and
- all of our executive officers and directors as a group.
Each stockholder's address is c/o GSI Technologies USA Inc., 400,
St-Jacques West, Suite 500, Montreal, Quebec, CANADA, H2Y 1S1.
Number of
Shares Owned
Name Beneficially % of Total
---- ------------ ----------
MARC COTE 200,000 *
MARIE EL-AHMAR EID 6,764 *
CRAIG PERRY 6,016,000 (1) 13.2
SOGEPAR SA 10,000,000 (2) 20.6
WORLDWIDE BUSINESS CONSULTANTS S.A. 4,500,000 (3) 9.7
FIRST MERCANTILE INVESTMENTS, CORP. 3,000,000 (4) 6.6
4136306 CANADA INC. 10,123,724 22.7
All Officers and Directors
as a Group (3 persons) 6,222,764 (1) 13.7
------------------
* less than 1%
(1) INCLUDES 1,016,000 CURRENTLY EXERCISABLE WARRANTS
(2) INCLUDES 4,000,000 CURRENTLY EXERCISABLE WARRANTS
(3) INCLUDES 2,000,000 CURRENTLY EXERCISABLE WARRANTS
(4) INCLUDES 1,000,000 CURRENTLY EXERCISABLE WARRANTS
24
EXECUTIVE COMPENSATION
During the fiscal year, November 1, 2001 to October 31, 2002, the
officers and directors of the corporation, considering the situation regarding
the company's cash flow availability, agreed to work without remuneration.
The objectives of the principals of the corporation were to
restructure, refocus and re-capitalize the corporation and resolve all pending
legal issues before allowing any benefits to individuals. Only necessary
expenses were authorized to officers of the corporation during the fiscal year
ending October 31, 2002.
In June 2003, the Company hired Mr. Gilles Addison as President and
CEO with a one year professional services agreement. Mr. Addison agreed to be
compensated by receiving 250,000 options at the end of the period covered by his
agreement exercisable at $0.10 per share.
EMPLOYMENT AGREEMENTS
Mr. Addison entered into a one year professional services agreement
commencing June 11, 2003 as described immediately above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 8, 2003, Mr. Perry converted his $330,000 payable note into
equity and invested a supplementary amount of $165,000 for the following
considerations: 2,000,000 shares at a price per share of $0.25 plus 500,000
warrants exercisable at $0.25 and 516,000 warrants exercisable at $1.00.
In June 2003, we entered into an agreement to purchase a 40% stake in
LTS Networks Inc., the developer of our software for 500,000 shares of our
common stock.
During the course of the year the Company retained legal services from a
firm in which a director of the Company, Marc Cote, is a partner. The Company
incurred $15,000 in legal fees from this firm during fiscal year 2002 and
approximately $22,000 during the current year.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Neither our by-laws nor our certificate of incorporation currently
provide indemnification to our officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law.
25
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons, pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable.
DESCRIPTION OF SECURITIES
AUTHORIZED AND OUTSTANDING STOCK
Our authorized capital stock consists of 55,000,000 shares of Class B
common stock, $.001 par value, and 5,000,000 shares of Class A common stock,
$1.00 par value. As of June 20, 2003, there were 44,627,823 shares of Class B
common stock outstanding, which were held by approximately 260 stockholders of
record and no shares of Class A common stock were outstanding.
COMMON STOCK
Subject to legal and contractual restrictions on payment of dividends,
the holders of common stock are entitled to receive such lawful dividends as may
be declared by the board of directors. In the event of our liquidation,
dissolution or winding up, the holders of shares of common stock are entitled to
receive all of our remaining assets available for distribution to stockholders
after satisfaction of all liabilities and preferences. Holders of our common
stock do not have any preemptive, conversion or redemption rights and there are
no sinking fund provisions applicable to our common stock. Record holders of our
common stock are entitled to vote at all meetings of stockholders and at those
meetings are entitled to cast one vote for each share of record that they own on
all matters on which stockholders may vote. Stockholders do not have cumulative
voting rights in the election of our directors. As a result, the holders of a
plurality of the outstanding shares can elect all of our directors, and the
holders of the remaining shares are not able to elect any of our directors. All
outstanding shares of common stock are fully paid and non-assessable, and all
shares of common stock to be offered and sold in this offering will be fully
paid and non-assessable.
WARRANTS
We currently have 8,016,000 warrants outstanding (excluding the
250,000 warrants to be issued to our CEO in June 2004), each of which entitles
the registered holder thereof to purchase, at any time until the close of
business on various dates ranging from February 1, 2005 until February 28, 2010,
one share of Class B common stock at prices ranging from $0.05 to $1.20. All of
the warrants contain provisions which protect the holders thereof against
dilution by adjustment of the exercise price and number of warrants, in certain
events, such as stock dividends, stock splits, mergers, sale of substantially
all of our assets, and for other extraordinary events as determined by the
Board.
26
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is
Intercontinental Registry and Stock Transfer, located at 900 Buchanan blvd # 1,
Boulder City, Nevada 89005-2100.
DIVIDEND POLICY
Under applicable law, dividends may only be paid out of legally
available funds as prescribed by a statute, subject to the discretion of the
board of directors. In addition, it is currently our policy to retain internally
generated funds to support future expansion of our business. Accordingly, even
if we do generate earnings, and even if we are not prohibited from paying
dividends, we do not currently intend to declare or pay cash dividends on our
common stock for the foreseeable future.
SHARES AVAILABLE FOR FUTURE SALE
On the date of this Prospectus, all 37,483,008 shares included in this
prospectus will generally be freely tradable without restriction imposed by, or
further registration under, the Securities Act. An additional 10,560,078 shares
of our common stock may be deemed "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Such shares may be
sold to the public, subject to volume restrictions, as described below.
Commencing at various dates, these shares may be sold to the public without any
volume limitations.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including one of our
affiliates, or persons whose shares are aggregated with affiliates, who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed 1% of the total number of outstanding shares of the same class. In
the event our shares are sold on an exchange or are reported on the automated
quotation system of a registered securities association, you could sell during
any three-month period the greater of such 1% amount or the average weekly
trading volume as reported for the four calendar weeks preceding the date on
which notice of your sale is filed with the SEC. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
one of our affiliates for at least the three months immediately preceding the
sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
Our shares of common stock are traded on the OTC. Pursuant to SEC
regulations, the OTC is not considered an "automated quotation system of a
registered securities association" and Rule 144 will only permit sales of up to
1% of the outstanding shares during any three month period.
PLAN OF DISTRIBUTION
The sale of the shares of common stock by the selling stockholders may
be effected by them from time to time in the over the counter market or in such
other public forum where our shares are publicly traded or listed for quotation.
These sales may be made in negotiated transactions through the timing of options
on the shares,
27
or through a combination of such methods of sale, at fixed prices, which may be
charged at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The selling stockholders
may effect such transactions by selling the shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of the shares for which such broker-dealer may act as agent or to whom they sell
as principal, or both. The compensation as to a particular broker-dealer may be
in excess of customary compensation.
The selling stockholders and any broker-dealers who act in connection
with the sale of the shares hereunder may be deemed to be underwriters within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit on any sale of the shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act.
SELLING STOCKHOLDERS
We are registering
- Shares of common stock purchased by investors over the last 12
months in private placement offerings,
- The shares of common stock issued to the shareholders of LTS
Networks,
- 8,016,000 shares of common stock underlying currently outstanding
warrants.
Other than the costs of preparing this prospectus and a registration
fee to the SEC, we are not paying any costs relating to the sales by the selling
stockholders. Each of the selling stockholders, or their transferees, and
intermediaries to whom such securities may be sold may be deemed to be an
"underwriter" of the common stock offered in this prospectus, as that term is
defined under the Securities Act. Each of the selling stockholders, or their
transferees, may sell these shares from time to time for his own account in the
open market at the prevailing prices, or in individually negotiated transactions
at such prices as may be agreed upon. The net proceeds from the sale of these
shares by the selling stockholders will inure entirely to their benefit and not
to ours.
Except as indicated below, none of the selling stockholders has held
any position or office, or had any material relationship with us or any of our
predecessors or affiliates within the last three years, and after completion of
this offering will own the amount of our outstanding common stock listed
opposite their name. The shares reflected by each selling stockholder is based
upon information provided to us by our transfer agent and from other available
sources in June 2003.
These shares may be offered for sale from time to time in regular
brokerage transactions in the over-the-counter market, or, either directly or
through brokers or to dealers, or in private sales or negotiated transactions,
or otherwise, at prices related to the then prevailing market prices. Thus, they
may be required to deliver a current prospectus in connection with the offer or
sale of their shares. In the absence of a current prospectus, if required, these
shares may not be sold publicly without restriction unless held by a
non-affiliate for two years, or after one year subject to volume limitations and
satisfaction of other conditions. The selling
28
stockholders are hereby advised that Regulation M of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934 will be
applicable to their sales of these shares. These rules contain various
prohibitions against trading by persons interested in a distribution and against
so-called "stabilization" activities.
The selling stockholders, or their transferees, might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Act and any profit on
the resale of these shares as principal might be deemed to be underwriting
discounts and commissions under the Act. Any sale of these shares by selling
shareholders, or their transferees, through broker-dealers may cause the
broker-dealers to be considered as participating in a distribution and subject
to Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. If any such transaction were a "distribution" for purposes of
Regulation M, then such broker-dealers might be required to cease making a
market in our equity securities for either two or nine trading days prior to,
and until the completion of, such activity.
SHARES BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER BEFORE OFFERING OFFERING AFTER OFFERING
CRAIG PERRY (1) 5,000,000 5,000,000 0
WIEN GROUP INC. 200,000 200,000 0
SOGEPAR SA 6,000,000 6,000,000 0
WORLDWIDE BUSINESS CONSULTANTS S.A. 2,500,000 2,500,000 0
FIRST MERCANTILE INVESTMENTS, CORP. 2,000,000 2,000,000 0
4136306 CANADA INC. 10,123,724 10,123,724 0
CHRISTINE NAIRN 200,000 200,000 0
ALAN TRUESDALE 200,000 200,000 0
PAUL TATHAM 50,000 50,000 0
NIKOS SKLAVENITIS 37,500 37,500 0
GLENN H. JACOBSON LIVING TRUST, DATED SEPTEMBER 6, 2002 12,500 12,500 0
LA FERME M. J. FILLION INC. 2,000,000 2,000,000 0
REJEAN RIOPEL 11,250 11,250 0
GINETTE BARNABE 12,500 12,500 0
STEPHANE BOURQUE 6,250 6,250 0
STEVE LAROCHELLE 25,000 25,000 0
MICHEL LEFEBRE 25,000 25,000 0
DANIEL RIOPEL 11,250 11,250 0
L'AMI PAUL N. 18,750 18,750 0
GILLES VILLEMAIRE 25,000 25,000 0
MONIQUE LUSSIER 58,500 58,500 0
MONIQUE LUSSIER 36,250 36,250 0
PAUL-ANDRE LEPAGE 25,000 25,000 0
SIMON FRANCOEUR 12,500 12,500 0
RICHARD BOURQUE 12,500 12,500 0
JULIETTE BOURQUE 6,250 6,250 0
YVES BOULANGER 15,000 15,000 0
JEAN PIERRE CHRETIEN 11,250 11,250 0
LOUISE NADEAU 58,500 58,500 0
LOUISE NADEAU 12,500 12,500 0
SEBASTIEN LEDUC 25,000 25,000 0
LOUISE BEAUVOLSK 12,500 12,500 0
YVES TREMBLAY 25,000 25,000 0
29
GESTION JACQUES LAPLANTE 108,750 108,750 0
JOCELYNE LANGELIER 36,250 36,250 0
JEAN JACQUES LAJOIE 72,500 72,500 0
FRANCO SANTUCCI 1,284 1,284 0
ISRAEL MARTINEAU 33,000 33,000 0
ISABELLE MARQUES 58,500 58,500 0
MAGELLA BOUCHER 31,250 31,250 0
PIERRE ST-AUBIN 277,000 277,000 0
GILLES LEDUC 79,000 79,000 0
WARRANTS BENEFICIALLY OWNED*
NAME OF WARRANT HOLDER BEFORE OFFERING OFFERING AFTER OFFERING
CRAIG PERRY (1) 1,016,000 1,016,000 0
SOGEPAR SA 4,000,000 4,000,000 0
WORLDWIDE BUSINESS CONSULTANTS SA 2,000,000 2,000,000 0
FIRST MERCANTILE INVESTMENTS, CORP. 1,000,000 1,000,000 0
* We are registering the shares underlying the warrants. References in the
chart to "warrants" before or after sale are all references to the underlying
shares. The list has been presented in two parts to distinguish between the
actual shares and the shares underlying the warrants. Each warrant is
exercisable into one share of Class B common stock at prices ranging from $0.05
to $1.20.
(1) Our chairman.
LEGAL MATTERS
Certain legal matters in connection with this offering are being
passed upon by Law Offices of Irving Rothstein, New York, New York.
EXPERTS
Our audited financial statements as of October 31, 2002 and for the
fiscal year then ended are included in this prospectus in reliance upon the
report of Mark Cohen C.P.A., an independent certified public accountant, and
upon the authority of said person as an expert in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended. This Act requires us to file reports, proxy
statements and other information with the Securities and Exchange Commission.
Copies of the reports, proxy statements and other information we file can be
inspected
30
at the Headquarters Office of the Securities and Exchange Commission located at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of its
regional offices.
Copies of the material we file may be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. at prescribed rates. The Public Reference Room can be reached
at (202) 942-8090. The Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding us.
This material can be found at http://www.sec.gov.
31
Mark Cohen C.P.A.
1772 East Trafalgar Circle
Hollywood, Fl 33020
(954) 922 - 6042
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GSI Technologies USA Inc.
We have audited the accompanying balance sheet of GSI Technologies USA Inc. as
of October 31, 2002 and 2001 and the related statements of operations,
shareholders' equity (deficiency) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GSI Technologies USA Inc. at
October 31, 2002 and 2001, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has experienced an operating loss that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Mark Cohen
----------------
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
January 31, 2003
F-1
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
October 31, 2002 October 31, 2001
------------------ ------------------
ASSETS
------
Current Assets
Cash and cash equivalents $ - $ 6,019
Receivables, net (principally related party) - 1,619,292
------------------ ------------------
Total current assets - 1,625,311
Property and equipment, net 63,302 36,248
Intangible assets, net 188,611 283,567
Other assets - 19,908
------------------ ------------------
TOTAL ASSETS 251,913 1,965,034
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 102,749 733,080
Deferred Revenue - 17,500
Notes Payable - short term 334,837 68,273
Investment proceeds liability 143,623 -
Other current liabilities 126,487 176,321
------------------ ------------------
Total current liabilities 707,696 995,174
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized - -
5,000,000 shares; issued and
outstanding none in 2002 and 2001
Common Stock, class B, $.001 par value; authorized 26,291 24,502
55,000,000 shares; issued and
outstanding - 26,291,023 and
24,502,134 shares respectfully
Paid in Capital 5,243,740 5,118,419
Deficit accumulated during the development
stage (5,726,201) (4,173,450)
Accumulated other comprehensive income 388 388
------------------ ------------------
Total Shareholder's Equity (455,783) 969,859
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 251,913 $ 1,965,034
================== ==================
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-2
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF INCOME
Year Ended Year Ended
October 31, 2002 October 31, 2001
------------------ ------------------
Revenues $ 23,750 $ 229,793
Cost of Sales 10,634 121,797
------------------ ------------------
Gross Profit 13,116 107,997
Operating Expenses:
Marketing 55,602 92,298
Management and administrative fees 11,897 707,533
Salaries and related costs 45,275 229,770
Rent 71,334 250,904
Financing expense 32,774 15,000
Professional fees 42,920 91,992
Consulting 13,165 31,914
Depreciation 3,893 3,893
Amortization 96,231 95,382
Travel - 46,361
Other selling, general and administrative 34,563 187,791
------------------ ------------------
Total operating expenses 407,655 1,752,839
Loss before other income (expense) (394,539) (1,644,842)
Other income (expense):
Interest income (principally related party) 317,275
Interest expense (principally related party) (22,459) (111,596)
Loss on Affiliate note receivable and advances (1,145,792) (1,033,652)
Equity in net earnings (loss) of affiliates - (25,000)
Foreign exchange gain (loss) 11,319 (54,562)
Loss on disposal of assets (1,280) (36,968)
------------------ ------------------
Total other income (expense) (1,158,213) (944,503)
------------------ ------------------
Net Loss (1,552,752) (2,589,345)
================== ==================
Basic weighted average common shares
outstanding 26,175,802 22,403,444
================== ==================
Basic Loss per common share $ (0.06) $ (0.12)
================== ==================
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-3
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Class A Receivable
--------------------------------------------- Paid in from sale
Shares Amount Shares Amount Capital of stock
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Balance, October 31, 2000 - - 20,543,636 20,544 1,748,131 (13,200)
Dec 20, 2000 - sale of Class B through private placement 125,000 125 124,875
Dec 20, 2000 - cancellation of share subscription (12,000) (12) (13,188) 13,200
Dec 20, 2000 - cancellation warrant exercise (24,764) (25) (27,216)
February 13, 2001 - settlement of commission payable 25,000 25 4,975
Apr 02, 2001 - sale of Class B through private placement 400,000 400 99,600
Apr 02, 2001 - settlement of comission payable 20,000 20 4,980
May 03, 2001 - settlement of notes payable 2,307,900 2,308 2,971,379
August 13, 2001 - settlement of consulting fees 6,250 6 5,994
September 6, 2001 - settlement of advances from
affiliate 1,111,112 1,111 198,889
Net loss - 12 months ended October 31, 2001
Foreign currency translation adjustment
-----------------------------------------------------------------------
Balance, October 31, 2001 - - 24,502,134 24,502 5,118,419 -
February 7, 2002 - settlement of liabilities 1,788,889 1,789 125,321
Net loss - 12 months ended October 31, 2002
-----------------------------------------------------------------------
Balance, October 31, 2002 - - 26,291,023 26,291 5,243,740 -
=======================================================================
Accumulated
other Total
Accumulated Comprehensive Shareholder's
Deficit Income/(loss) Equity
-------------------------------------------
-------------------------------------------
Balance, October 31, 2000 (1,584,105) 386 171,756
Dec 20, 2000 - sale of Class B through private placement 125,000
Dec 20, 2000 - cancellation of share subscription -
Dec 20, 2000 - cancellation warrant exercise (27,240)
February 13, 2001 - settlement of commission payable 5,000
Apr 02, 2001 - sale of Class B through private placement 100,000
Apr 02, 2001 - settlement of comission payable 5,000
May 03, 2001 - settlement of notes payable 2,973,687
August 13, 2001 - settlement of consulting fees 6,000
September 6, 2001 - settlement of advances from
affiliate 200,000
Net loss - 12 months ended October 31, 2001 (2,589,345) (2,589,345)
Foreign currency translation adjustment 2 -
Balance, October 31, 2001 (4,173,450) 388 969,859
-------------------------------------------
February 7, 2002 - settlement of liabilities 127,110
Net loss - 12 months ended October 31, 2002 (1,552,752) (1,552,752)
Balance, October 31, 2002 (5,726,201) 388 (455,783)
============== ============== ===========
F-4
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
October 31, 2002 October 31, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,552,752) $ (2,589,345)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 100,124 99,276
Loss on write down of affiliate note receivable and advances 1,145,792 1,033,652
Issuance of stock for contract settlement - 11,000
Issuance of stock in lieu of salaries 38,995 -
Accrued Interest Expense (principally related party) 4,837 107,530
Accrued Interest Income (principally related party) - (317,274)
Changes in Operating assets and liabilities:
Receivables and other current assets - (39,744)
Other assets 19,908 41,196
Accounts Payable and Accrued Liabilities (206,658) 334,198
------------------ ------------------
Net cash provided by/(used in) operating activities (449,754) (1,319,511)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - 801,656
Purchase of property and equipment 33,502 -
------------------ ------------------
Net cash provided by/(used in) investing activities 33,502 801,656
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable, principally related parties - 118,391
Notes payable - affiliate - 203,318
Notes payable - third parties 266,609 -
Investment proceeds 143,623 -
Sales of common stock - 197,760
------------------ ------------------
Net cash provided by/(used in) financing activities 410,232 519,469
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (6,019) 1,615
Cash and cash equivalents, beginning of period 6,019 4,404
------------------ ------------------
Cash and cash equivalents, end of period $ (0) $ 6,019
================== ==================
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of shares for settlement of note payables 3,173,687
Issuance of shares for settlement of liabilities 87,625
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement
F-5
GSI TECHNOLOGIES USA INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2002 AND 2001
(Audited)
October 31st 2002
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
GSI Technologies USA, Inc., formerly I.B.C. Corporation, was incorporated
in the State of Delaware on July 06, 1998. The Company participates in the
Information Technology (IT) industry, specializing in broadcasting solutions
principally for advertisers and others seeking to reach the greatest number of
"viewers per day" as well as to achieve other commercial and public service
objectives. The basic advanced technology available to the company by way of a
Master Licensing agreement is the successful integration of various hardware
components and specialty software for the transmission of broadcast signals in
real time via the Internet to remote locations. Using its universal transcoder
system, the company has a unique capability in broadcasting from a central
server to full video screens in remote locations anywhere in the world. The
system is capable of updating pinpoint information minute by minute by way of
video compressing systems and other fully automated software systems.
GSI Technologies USA, Inc. prepares its financial statements in accordance
with generally accepted accounting principles. This basis of accounting involves
the application of accrual accounting; consequently, revenues and gains are
recognized when earned, and expenses and losses are recognized when incurred.
Financial statement items are recorded at historical cost and may not
necessarily represent current values.
The accompanying financial statements reflect GSI Technologies USA, Inc. is no
longer considered to be in the development stage. From inception (July 6, 1998)
through October 31, 2001, the Company was considered to be in the development
stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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. Certain amounts included in the financial
statements are estimated based on currently available information and
management's judgment as to the outcome of future conditions and
circumstances. Changes in the status of certain facts or circumstances
could result in material changes to the estimates used in the preparation
of financial statements and actual results could differ from the estimates
and assumptions. Every effort is made to ensure the integrity of such
estimates.
Fair value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their fair values because of the immediate or short-term
maturity of these financial instruments.
Impairment of long-lived assets:
Long-lived assets held and used by the Company are reviewed for possible
impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of the assets to the future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. The fair value of an asset
is the amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. Quoted market prices in active markets are the best
F-6
evidence of fair value and shall be used as the basis for the measurement,
if available. If quoted market prices are not available, the estimate of
fair value shall be based on the best information available in the
circumstances. The estimate of fair value shall consider prices for similar
assets and the results of valuation techniques to the extent available in
the circumstances. Valuation techniques include the present value of
estimated expected future cash flows using a discount rate commensurate
with the risk involved, option-pricing models, matrix pricing and
fundamental analysis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Cash and cash equivalents:
The Company considers all highly liquid investments with original
maturities of ninety days or less to be cash and cash equivalents. Such
investments are valued at quoted market prices.
Receivables:
The Company believes that the carrying amount of receivables at October 31,
2001 approximates the fair value at such date.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives as follows when the property and equipment is placed in
service:
Estimate Useful Life (In Years)
Office Furniture and Equipment 10
Computer and Other Equipment 3
Leasehold Improvements 5
Repairs and maintenance are charged to operations as incurred, and
expenditures for significant improvements are capitalized. The cost of
property and equipment retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in
operations.
License rights:
License rights are recorded at cost, less accumulated amortization.
Licenses are amortized to operations using the straight-line method over
the remaining term. The remaining term is 23 months for the current and
only license which the company has rights to.
Revenue Recognition
Revenue from sales of display units are recorded at the time the units are
delivered. Revenues from sub-licensing the master licensing agreement are
recognized over the term of the sub-licensing agreement.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provide guidance
for disclosures related to revenue recognition policies. Management
believes that GSI Technologies USA, Inc.'s revenue recognition practices
are in conformity with the guidelines of SAB 101.
Earnings (Loss) per share calculation:
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for
computing and presenting earnings per share. SFAS No. 128 requires the
Company to report both basic earnings (loss) per share, which is based on
F-7
the weighted-average number of common shares outstanding during the period,
and diluted earnings (loss) per share, which is based on the
weighted-average number of common shares outstanding plus all potential
dilutive common shares outstanding. Options and warrants are not considered
in calculating diluted earnings (loss) per share since considering such
items would have an anti-dilutive effect.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements:
The Statement of Financial Accounting Standards Board (SFAS) No. 141,
"Business Combinations," was issued by the Financial Accounting Standards
Board (FASB) in July 2001. This Statement establishes standards for
accounting and reporting for business combinations. This statement requires
the purchase method of accounting to be used for all business combinations,
and prohibits the pooling-of-interests method of accounting. This Statement
is effective for all business combinations initiated after June 30, 2001
and supersedes APB Opinion No. 16, "Business Combinations" as well as
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 38, "Accounting for Pre-acquisition Contingencies of
Purchased Enterprises." The adoption of this statement by the Company did
not have a material impact on its financial condition or results of
operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 142,
"Goodwill and Other Intangible Assets," was issued by the Financial
Accounting Standards Board (FASB) in July 2001. This Statement addresses
how intangible assets that are acquired individually or with a group of
other assets should be accounted for in financial statements upon their
acquisition. This statement requires goodwill amortization to cease and for
goodwill to be periodically reviewed for impairment, for fiscal years
beginning after October 31, 2001. SFAS No. 142 supersedes APB Opinion No.
17, "Intangible Assets." The adoption of this statement by the Company did
not have a material impact on its financial condition or results of
operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 143,
"Accounting for Asset Retirement Obligation," was issued by the Financial
Accounting Standards Board (FASB) in August 2001. This Statement will
require companies to record a liability for asset retirement obligations in
the period in which they are incurred, which typically could be upon
completion or shortly thereafter. The FASB decided to limit the scope to
legal obligation and the liability will be recorded at fair value. This
Statement is effective for fiscal years beginning after June 15, 2002. The
Company does not expect the adoption of this statement to have a material
impact on its financial condition or results of operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," was
issued by the Financial Accounting Standards Board (FASB) in October 2001.
This Statement provides a single accounting model for long-lived assets to
be disposed of and replaces SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This Statement
is effective for fiscal years beginning after December 15, 2001. The
Company is evaluating the effect of the adoption of this statement.
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2002 October 31, 2001
----------------- -----------------
Property and Equipment:
Furniture and fixture 38,934 38,934
Computer and other equipment 10,581 -
Leasehold improvements 22,921 2,133
Less: Accum depreciation & amortization 9,134 4,819
----------------- -----------------
Property and equipment, net $ 63,302 $ 36,248
================= =================
F-8
Intangible Assets:
License rights
(Acquired from affiliate and recorded at
predecessor basis with the cost over such
basis recorded as a dividend to affiliate).
Accumulated amortization (286,168) (191,212)
---------- ----------
$ 188,611 $ 283,567
=========== ==========
NOTE 4 - NOTE PAYABLE
On May 15, 2002 the Company signed a promissory note for $330,000. The term
of the note is for 60 days and the rate of interest is prime plus 2%. The
Company also agreed to issue 2 million shares of Class B Common Stock to
the lender as part of the transaction. At October 31, 2002, the note had
not been paid back and the accrued interest totaled $4,837. As part of the
agreement, the Company will issue an additional 1,000,000 shares as a
default penalty. At October 31, 2002, the Company had not issued any shares
related to this matter, but a shareholder of the Company has forwarded to
the lender 1,114,000 shares as collateral for this transaction on behalf of
the Company.
NOTE 5 - COMMITMENTS AND CONTIGENCIES
Investment agreement
On September 10, 2002 the Company entered into an investment agreement
whereby an investment group will lend up to $300,000 from September 10,
2002 through February 1, 2003. In consideration for the proceeds, the
Company will issue on February 1, 2003, 6 million shares of Class B Common
Stock, 2,000,000 options at an exercise price of $0.10 expiring January 31,
2010 and 2,000,000 warrants at an exercise price of $1.20 expiring on
February 1, 2005. At October 31, 2002, $143,623 had been invested in the
Company.
Office leases
On September 1, 2002, the Company entered into a three year office lease
for its Montreal office with monthly payments approximately $2,000.
On October 1, 2002, the Company entered into a one year office lease for
its U.S.A office with monthly payments approximately $1,000.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining non
cancelable lease terms in excess of one year as of October 31, 2002:
Year ending October 31:
2003 - 35,000
2004 - 24,000
2005 - 20,000
2006 - -
2007 - - .
---------
$ 79,000
=========
Legal Matters
On October 8, 2002, the Company entered into a settlement and release
agreement with its landlord in its original downtown Montreal office whereby the
Company could cancel its lease with a one time payment of approximately $44,000.
This payment was made during October 2002.
The Company has been involved in litigation for unpaid business taxes with
the City of Montreal. The litigation has been settled in the amount of
approximately $23,000 of which approximately $5,000 has been paid by October 31,
2002.
In March 2002, a former Director and Officer along with another employee of
the Company have filed a civil action against the Company in the State of
Florida alleging unpaid wages and expense reimbursements totaling approximately
F-9
$225,000. The Company has not retained legal counsel on this matter, but
believes this complaint is without merit.
Consulting agreement
On May 27, 2002, the Company entered into a consulting agreement with a non
affiliated individual. The agreement is for one year and the annual amount of
the agreement is approximately $100,000.00
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of $1,552,752
and $2,589,345 for the twelve months ended October 31, 2002 and 2001
respectively. As reported on the statement of cash flows, the Company incurred
negative cash flows from operating activities of $444,872 and $1,319,511 for
twelve months ended October 31, 2002 and 2001. Continuation of the Company as a
going concern is dependent upon obtaining sufficient working capital for
its planned activity. Additional capital and/or borrowings will be necessary in
order for the Company to continue in existence until attaining and sustaining
profitable operations. The Company is aggressively pursuing strategic alliances
which will bring a cash infusion, restructuring and forward looking business
plan.
NOTE 6 - RELATED PARTY TRANSACTIONS
Loss on write off - Note receivable and advances to affiliate
From November 01, 1999 through October 31, 2001, the Company advanced funds
to GSI Technologies (3529363 Canada Inc.), an affiliate of the Company in
exchange for promissory notes in order to continue to develop the concept
of GSITV.com, The Total Vision Network in Canada. The note has a term of
one year, but has been extended indefinitely bearing interest at prime plus
2%. At October 31, 2001, the outstanding balance due from GSI Technologies
(3529363 Canada Inc.) was $1,560,944 including interest and a write down of
the receivable of approximately $1,034,000 due to GSI Technologies (3529363
Canada Inc.) approval from the Quebec Superior courts ratification of
reorganization on October 9, 2001. At October 31, 2002, due to GSI
Technologies (3529363 Canada Inc.) continued financial difficulties, the
Company wrote off the remaining balance of the receivable along with
additional advances made during the year offset by a payable to a
subsidiary wholly owned by GSI Technologies (3529363 Canada Inc.). The loss
realized in the current year related to these items totaled approximately
$1,146,000.
Legal fees to Director's firm
During the course of the year the Company has retained legal services from
a firm in which a director of the Company, Marc Cote, is a partner. The Company
incurred $20,000 in legal fees from this firm in the current year.
Promissory note to Shareholder
On March 6, 2002 the Company signed a promissory note with a shareholder in
which the shareholder advanced $20,000 to the Company during the year. At
October 31, 2002 the entire promissory amount of $20,000 had been paid back to
the shareholder.
NOTE 7 - INCOME TAXES
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for the period presented because it
has experienced operating losses since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carry forwards, because of uncertainty regarding its
realizability.
NOTE 8 - SHAREHOLDERS' EQUITY
Common Stock
The Company has 5,000,000 shares of class A common stock which to date have
never been issued. Management has no intent of issuing any of these shares
and will be canceling these shares by filing an amendment to the articles
of incorporation with the State of Delaware.
F-10
NOTE 9 - WARRANTS AND OPTIONS
On August 01, 2000 the Company adopted a Long Term Incentive Plan whereby
directors, officers, certain key employees of the Company and its
affiliates as well as certain consultants to the Company would be granted
stock options. A maximum of 10% of the authorized Class B common shares
totaling 5,500,000 can be reserved and available for distribution pursuant
to the terms of the plan. On October 02, 2000, 925,000 options with an
exercise price of $1.25 had been issued to consultants and other non
employee affiliates for services rendered to the Company throughout the
year. The options vest one-third on December 18, 2000, one third on
December 18, 2001 and one third on December 18, 2002. The stock options
expire seven years from the date they were granted.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". The Company has determined that it will continue
to account for employee stock-based compensation under Accounting
Principles Board No. 25 and elect the disclosure-only alternative under
SFAS No. 123. The fair value of a share of non vested stock is measured at
the market price of a share on the grant date. The pro-forma effect to net
income and earnings per share is reflected as follows:
Year ended Year ended
FAS 123 "Accounting for stock based compensation Oct. 31, 2002 Oct. 31, 2001
------------- -------------
Paragraph 47 (a)
1.Beginning of year - outstanding
i.number of options/warrants 308,333 308,333
ii.weighted average exercise price 1.25 1.25
2.End of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price .25 1.25
3.End of year - exercisable
i. number of options/warrants 308,333 08,333
ii. weighted average exercise price 25 1.25
4.During the year - Granted
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
5.During the year - Exercised
i.number of options/warrants 0 0
ii.weighted average exercise price 0 0
6.During the year - Forfeited
number of options/warrants 0 0
weighted average exercise price 0 0
7.During the year - Expired
i.number of options/warrants 0 0
ii.weighted average exercise price 0 0
Paragraph 47 (b) Weighted-average grant-date fair value of options granted
during the year:
1.Exceeds market price 0 0
Paragraph 47 (c) Equity instruments other than options/warrants none none
F-11
NOTE 9 - WARRANTS AND OPTIONS (CONTINUED):
Paragraph 47(d) Description of the method and significant assumptions used
during the year to estimate the fair value of options:
(1)Weighted average risk-free interest rate 5.54% 5.54%
(2)Weighted average expected life (in months 39.00 51.00
(3)Weighted average expected volatility 0.00% 0
(4)Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized in income for 0 0
stock-based employee compensation awards.
Paragraph 47(f) The terms of significant modifications of none none
outstanding awards.
Paragraph 48 - Options outstanding at the date of the latest
statement of financial position presented:
1.(a) Range of exercise prices $1.10-$1.25 $1.10-$1.2
(b) Weighted-average exercise price 1.25 1.25
2. Weighted-average remaining contractual 39.00 51.00
life (in months)
Year ended Year ended
Oct. 31, 2002 Oct.31,2001
--------------- -------------
Net Income after pro-forma effect (1,552,752) (2,589,345)
Earnings per share after pro-forma effect $ (0.06) $ (0.12)
F-12
GSI TECHNOLOGIES USA, INC.
BALANCE SHEET
AT APRIL 30, 2003
(UNAUDITED)
ASSETS
------
Current Assets
Cash and cash equivalents $ 2,103
Receivables, net 42,447
Prepaid expenses 2,442
------------
Total current assets 46,991
Property and equipment, net 77,646
Other assets 2,791
------------
TOTAL ASSETS 127,428
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses 121,007
Notes Payable 330,000
Investment proceeds liability 648,068
------------
Total current liabilities 1,099,074
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized -
5,000,000 shares; issued and outstanding none
Common Stock, class B, $.001 par value; authorized 29,291
55,000,000 shares; issued and outstanding - 29,291,023
Paid in Capital 5,395,719
Deficit accumulated during the development stage (6,397,045)
Accumulated other comprehensive income 388
------------
Total Shareholder's Equity (971,647)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 127,428
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement.
3
GSI TECHNOLOGIES USA INC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
Three months Six months
ended April 30, ended April 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 15,000 $ - $ 15,000 $ 23,750
Cost of Sales - - - 10,634
------------ ------------ ------------ ------------
Gross Profit 15,000 - 15,000 13,116
Operating Expenses:
Marketing 31,920 16,051 33,303 24,412
Salaries and related costs - - - 38,996
Rent 24,642 13,703 30,388 51,426
Software costs 120,073 120,073
Professional fees 38,133 2,457 55,367 9,029
Consulting 68,576 - 112,418 -
Depreciation 2,942 973 4,022 1,947
Amortization 4,504 23,845 28,243 47,691
Loss on licensing agreement write off 164,872 - 164,872 -
Other selling, general and administrative 45,420 19,271 65,189 47,375
------------ ------------ ------------ ------------
Total operating expenses 501,082 76,300 613,876 220,876
Loss before other income (expense) (486,082) (76,300) (598,876) (207,759)
Other income (expense):
Interest income (principally related party)
Interest expense (principally related party) (60,099) (4,417) (71,968) (8,759)
Foreign exchange gain/(loss) (24,529) (15,960)
Equity in net earnings (loss) of affiliates - - - -
------------ ------------ ------------ ------------
Total other income (expense) (60,099) (28,946) (71,968) (24,719)
------------ ------------ ------------ ------------
Net Loss (546,181) (105,246) (670,843) (232,479)
============ ============ ============ ============
Basic weighted average common shares outstanding 28,673,045 20,788,768 27,462,294 20,689,767
============ ============ ============ ============
Basic and diluted Loss per common share $ (0.02) $ (0.01) $ (0.02) $ (0.01)
============ ============ ============ ============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
4
GSI TECHNOLOGIES USA, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
For the six months
ended April 30,
----------------------
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(670,843) $(232,479)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 32,265 49,638
Issuance of stock for contract settlement - 38,996
Issuance of stock for interest/penalty 50,000
Accrued Interest Expense - 8,759
Loss on licensing agreement write off 164,872 -
Changes in Operating assets and liabilities:
Receivables and other current assets (44,889) (4,871)
Other assets (2,791)
Accounts Payable and Accrued Liabilities (113,066) 133,939
---------- ----------
Net cash provided by/(used in) operating activities (584,451) (6,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - -
Purchase of property and equipment (22,871) -
---------- ----------
Net cash provided by/(used in) investing activities (22,871) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable - -
Investment proceeds 504,445 -
Sales of common stock 104,980 -
---------- ----------
Net cash provided by/(used in) financing activities 609,425 -
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,103 (6,019)
Cash and cash equivalents, beginning of period - 6,019
---------- ----------
Cash and cash equivalents, end of period $ 2,103 $ (0)
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
None
5
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 2003
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of GSI
Technologies USA, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in GSI Technologies USA,
Inc.'s 10-KSB as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - NET EARNINGS (LOSS) PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
NOTE 3 - IMPAIRMENT AND WRITE OFF OF LICENSING RIGHTS
The Company's only intangible asset, licensing rights, were reviewed for
impairment and determined to be impaired since the software and technology
behind the licensing rights would no longer be available due to financial
difficulties and constraints associated with the licensor. The unamortized
amount of $164,872 of licensing rights has been written off and reflected in the
statement of operations as a loss for the current period.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company reported a net loss of
$670,843 for the six months ended April 30, 2003 (unaudited). As reported on
the statement of cash flows, the Company incurred negative cash flows from
operating activities of $584,451 for the six months ended April 30, 2003
(unaudited). Continuation of the Company as a going concern is dependent
upon obtaining sufficient working capital for its planned activity.
Additional capital and/or borrowings will be necessary in order for the Company
to continue in existence until attaining and sustaining profitable operations.
The Company is aggressively pursuing strategic alliances which will bring a cash
infusion, restructuring and forward looking business plan.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
FORWARD LOOKING STATEMENTS.
This report contains forward-looking statements that are based on the Company's
beliefs as well as assumptions made by and information currently available to
the Company. When used in this report, the words "believe," "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, international war and terrorism and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
OVERVIEW
GSI Technologies USA Inc. is an Information Technology Company that offers
products and solutions to the Out-of-Home Digital Signage Industry. The Company
has developed a proprietary, enterprise scale, Digital Signage Network
Management Software Suite. The Company is a Value Added Reseller for various
related hardware products that make up its end-to-end Digital Signage Solution.
The Company also offers various services related to the installation,
management, operation and maintenance of large Digital Signage Networks
worldwide.
Research firm iSupply/Stanford Resources sees the worldwide Digital Signage
market growing from just over $ 3 billion this year to about $ 5 billion in 2006
and about $ 7 billion in 2008. CAP Ventures Inc., a research firm that tracks
retail digital signage as a separate category, sees this niche growing still
faster, from North America revenue of $ 388 million this year to nearly $ 2
billion in 2006; an increase of more than 400 percent.
GSI Technologies USA Inc. is particularly well positioned to exploit this growth
as it offers one of the only true enterprise scale solutions in the world. The
technology is being field tested by Clear Channel International, which is the
largest player in the Industry.
RESULTS FROM OPERATIONS
Three and six months ending April 30, 2003 and 2002
During GSI's second quarter from February 1, 2003 to April 30, 2003, GSI USA
incurred a loss of $546,181 versus a loss of $105,246 in the same period in
2002.
During GSI's six months from November 1, 2002 to April 30, 2003, GSI USA
incurred a loss of $670,843 versus a loss of $232,479 in the same period in
2002.
REVENUES
$15,000 in revenue was recognized during the current quarter, versus zero
for the same period in the prior year. This is related to sub-licensing
agreements realized over the respective terms.
$15,000 in revenue was recognized during the current six-month period
versus $23,750 for the same period in the prior year. This is related to
sub-licensing agreements realized over the respective terms.
7
OPERATING EXPENSES
During the three months ended April 30, 2003, GSI USA has incurred $501,082
in operating expenses versus 76,300 for the same period in 2002. The increase
was mainly attributable to software costs, consulting and the write off of
unamortized impaired licensing rights.
During the six months ended April 30, 2003, GSI USA has incurred $613,876
in operating expenses versus 220,876 for the same period in 2002. The increase
was mainly attributable to software costs, consulting and the write off of
unamortized impaired licensing rights.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2003 GSI USA had $2,103 in cash. Cash used in operating
activities during the six months ending April 30, 2003 was 584,451, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash used by investing activities during the period reflects an amount of
$22,871, which was for purchases of business equipment
Net Cash provided from financing activities during the period was 609,425.
The result of all activities during the six-month period ending April 30,
2003 was a net increase of $2,103 in our cash position.
8
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
OTHER INFORMATION THAT WE REFER YOU TO. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH ANY OTHER INFORMATION THAT IS DIFFERENT .
YOU SHOULD NOTE THAT EVEN THOUGH YOU RECEIVED A COPY OF THIS
PROSPECTUS, THERE MAY HAVE BEEN CHANGES IN OUR AFFAIRS SINCE THE DATE 37,483,008 SHARES OF COMMON STOCK
OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED
TABLE OF CONTENTS Page
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Special Note Regarding Forward-Looking Statements . . . . . . . . . 5
Summary Historical Financial Information . . . . . . . . . . . . . . 5
Management Discussions and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 GSI TECHNOLOGIES USA INC.
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 PROSPECTUS
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 25
Certain Relationships and Related Transactions . . . . . . . . . . . 25
Disclosure of Commission Position
on Indemnification for Securities Act Liability . . . . . . . . . 25
Description of Securities . . . . . . . . . . . . . . . . . . . . . 26
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . 27
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 28
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Available Information . . . . . . . . . . . . . . . . . . . . . . . 30
Index to Financial Statements . . . . . . . . . . . . . . . . . . . F- _____________ , 2003
32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
------------------------------------------------
The following statement sets forth the estimated expenses in
connection with the offering described in the Registration Statement, all of
which will be borne by the Registrant.
Securities and Exchange Commission Fee . . . . . $1,003
Accountants' Fees. . . . . . . . . . . . . . . . $500
Legal Fees . . . . . . . . . . . . . . . . . . . $20,000
Printing and engraving . . . . . . . . . . . . . $1,000
Miscellaneous. . . . . . . . . . . . . . . . . . $497
TOTAL 23,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
----------------------------------------------
Neither our By-Laws nor our Certificate of Incorporation currently
provide indemnification to our officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
-------------------------------------------
In May 2002, GSI entered into an agreement with Wien Group, Inc. for
business consulting services valued at $20,000 which was paid by the
delivery of 200,000 shares valued at $0.10 per share in June 2003.
In September 2002, Sogepar SA, a European investment corporation, agreed to
invest a total of $300,000 to be injected from September 2002 to February
2003. The investment has been completed. In June 2003, Sogepar SA received
6,000,000 shares at a price per share of $0.05 plus 2,000,000 warrants
exercisable at a price of $0.10 and 2,000,000 warrants exercisable at a
price of $1.20.
33
In November 2002, Worldwide Business Consultants S.A., agreed to invest a
total of $125,000 to be injected from November 2002 to February 2003. The
investment has been completed. In June 2003, Worldwide Business Consultants
SA received 2,500,000 shares at a price per share of $0.05 plus 2,000,000
warrants exercisable at $0.05.
In March 2003, A non US private investor invested $100,000.00 for 2 Million
shares at $0.05 per share.
In March 2003, First Mercantile Investments, Corp., agreed to invest a
total of $200,000 to be injected from March 2003 to April 2003. The
investment has been completed. In June 2003, First Mercantile Investments,
Corp. received 2,000,000 shares at a price per share of $0.10 plus 500,000
warrants exercisable at a price of $0.10 per share and 500,000 warrants
exercisable at a price of $0.25 per share.
In May 2002, GSI entered into a loan agreement with a private party for a
sum of $330,000.00, bearing interest at prime rate + 2%. In consideration
for this loan the Guarantor transferred 2,000,000 shares to the private
party. In March 2003, GSI issued 1,000,000 shares as a penalty on this
loan. In June 2003, we issued to this party 2,000,000 shares at a price per
share of $0.25 plus 500,000 warrants exercisable at $0.25 and 516,000
warrants exercisable at $1.00 in consideration of the conversion of this
loan plus a supplementary investment of $165,000. The investor is Mr. Craig
Perry who became a Director on April 28, 2003.
In June 2003, GSI entered into a purchase agreement to acquire 40% equity
of LTS Networks for 500,000 shares.
In June 2003, GSI issued 1,336,800 shares to 4136306 Canada Inc. for
conversion of outstanding promissory notes dated June 2002.
Except for the investment by Mr. Perry which was exempt pursuant to
Regulation D, Rule 506 as Mr. Perry is an "accredited" investor, the other
issuances were all made to "non-U.S. Persons" and were exempt pursuant to
Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
------------------------------------------------
3.1 Certificate of Incorporation, as amended*
3.2 By-Laws*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Warrant Certificate
5 Opinion of Law Offices of Irving Rothstein
10.1(a) Leases Quebec premises
10.1(b) Leases US premises
10.2 Employment Agreement with Gilles Addison
34
10.3 LTS Share Purchase Agreement
(a) Alan Truesdale
(b) Paul Tatham
(c) Nikos Sklavenitis
(d) Christine Nairn
(e) Glenn H. Jacobson Living Trust
10.4 SN Entertainment Agreement
10.5 Conract Labor Agreement with LTS
10.6 Consulting Agreement with Wien
10.7 Loan and Investment Agreement with Craig Perry
10.8 Loan and Investment Agreement with La Ferme M.J. Fillion
23.1 Consent of Law Offices of Irving Rothstein
(included in the Opinion filed as Exhibit 5)
23.2 Consent of Mark Cohen, C.P.A.
_______________
* Incorporated by reference from Registration Statement No.
333-30474
ITEM 17. UNDERTAKINGS.
------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(iv) Include any additional or changed material information on the plan
of distribution.
35
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
36
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has authorized this registration
statement or amendment to be signed on its behalf by the undersigned, in the
City of Montreal on the 30th day of June, 2003.
GSI TECHNOLOGIES USA INC.
By:/s/ Gilles Addison
----------------------
Gilles Addison, President and CEO
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
--------- ----- ----
By:/s/Gilles Addison
-----------------------
Gilles Addison President & CEO June 30, 2003
By:/s/Marie El-Ahmar Eid
-----------------------
Marie El-Ahmar Eid Secretary of the Board June 30, 2003
By:/s/Craig Perry
----------------------
Craig Perry Chairman of the Board June 30, 2003
By:/s/Marc Cote
-------------
Marc Cote Director June 30, 2003
37
EXHIBITS :
3.1 Certificate of Incorporation, as amended*
3.2 By-Laws*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Warrant Certificate
5 Opinion of Law Offices of Irving Rothstein
10.1(a) Leases Quebec premises
10.1(b) Leases US premises
10.2 Employment Agreement with Gilles Addison
10.3 LTS Share Purchase Agreement
(a) Alan Truesdale
(b) Paul Tatham
(c) Nikos Sklavenitis
(d) Christine Nairn
(e) Glenn H. Jacobson Living Trust
10.4 SN Entertainment Agreement
10.5 Conract Labor Agreement with LTS
10.6 Consulting Agreement with Wien
10.7 Loan and Investment Agreement with Craig Perry
10.8 Loan and Investment Agreement with La Ferme M.J. Fillion
23.1 Consent of Law Offices of Irving Rothstein
(included in the Opinion filed as Exhibit 5)
23.2 Consent of Mark Cohen, C.P.A.
_______________
* Incorporated by reference from Registration Statement No.
333-30474
38