UNITED STATES,
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB / A
AMENDMENT 2
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(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2002
Commission File No. 333-30474
GSI TECHNOLOGIES USA INC.
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(Name of small business issuer in its charter)
Delaware 65-0902449
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(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
400, St-Jacques Street, Suite 500
Montreal, Quebec H2Y 1S1
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (514)-282-9292
Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act:
CLASS B COMMON STOCK (PAR VALUE $.001 PER SHARE)
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (x) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 1II of this Form 10-KSB or any
amendment to this
Form 10-KSB. (X)
The Registrant's revenues for its most recent fiscal year were $23,750.00.
The aggregate market value for the voting and non-voting common equity held by
non-affiliates on October 31, 2002 was approximately $15,668.00. Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding common stock of the Company have been excluded because
such persons may be deemed to be affiliates.
The total number of shares of Class B Common Stock outstanding on October 31,
2002 was 26,291,023.
PART I
This Amendment No. 2 on Form 10-KSB/A (this "Amendment") amends the
Company's Annual Report on Form 10-KSB for the year ended October 31, 2002,
originally filed on February 5th, 2003 (the "Original Filing"). This Amendment
is being filed to amend the financial statements and footnotes to address SEC
comments and to clean up other parts of the Original Filing. In addition, in
connection with the filing of this Amendment and pursuant to the rules of the
Securities and Exchange Commission, the Company is including with this Amendment
certain currently dated certifications.
Except as described above, no other changes have been made to the Original
Filing. This Amendment continues to speak as of the date of the Original Filing,
and the Company has not updated the disclosures contained herein to reflect any
events which occurred at a date subsequent to the filing of the Original Filing.
The Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual results could
differ materially from those expressed or forecasted in any such forward-looking
statements as a result of a number of factors, which are not within the
Registrant's control.
ITEM 1. DESCRIPTION OF BUSINESS
(a) Organization
GSI Technologies USA Inc. ("GSI") is a Delaware corporation, originally
established in July 1998 as I.B.C. Corporation. Following a change of control to
the current principal shareholders and the creation of a new business plan, we
acquired an exclusive worldwide license from GSI Technologies ("GSI Canada")
relating to a unique technology in the field of electronic commercial
advertising. The license includes proprietary software, hardware, and
broadcasting systems enabling users to transmit and receive full-motion video,
graphics, along with compressed or uncompressed audio on any kind of display
units, whether mobile or static, indoor or outdoor. The technology offers users
remote control through telephone lines, LANs, the internet, wireless systems,
cell phones, global systems for mobile telecommunications, or GSMs, fibbers
optics and short waves. GSI also acquired broadcasting server technology from
GSI Canada.
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 they are
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.
Based upon our knowledge of the industry, the potential market for which GSI
sells its products is large with opportunities for growth. The advertising
industry, for example, is always looking for new ways to reach consumers. Having
acquired our license from GSI Canada, we believe we are now able to respond to
their needs as well as those of other industries. Whereas traditional media
groups such as television, radio, and newspapers used to specialize in their
respective activities, as reflected below, our research shows that there is a
clear pattern of them utilizing newly developed electronic media in order to
maintain and extend their reaching power.
Historical background
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
successfully 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.
With the rapid evolution of electronic sign capabilities via full video
broadcast signals, media companies were beginning to seek new ways of
transferring images and information from remote stations to signs in a
compressed and secure environment. Effectively using the Internet was the
logical solution. In order to respond expeditiously to market trends and to
concentrate all its resources in the completion of a fully integrated
software-hardware package, Group Solcom next applied for advantageous
governmental grants available in the area of multimedia R&D. As a result, in
September 1998, GSI Canada was incorporated in order to qualify for and receive
a CDTI Cite du Multimedia research license. Cite du Multimedia is a major
provincial government-sponsored project in Montreal designed to bring together
in the same location companies working in the information and communications
technology field. The government subsidy is an exclusive twelve-year program of
incentives that includes a subsidy of up to 40% of the salaries of research &
development personnel (within individual limits), up to 40% subsidy of the
capital cost for specialized R & D equipment, as well as other Federal tax
credits and exemptions. From 1998 to 2000, in accordance with its strategic plan
of vertical integration, GSI Canada made three acquisitions. Vertical
integration has facilitated and accelerated the process of providing a complete
turnkey solution to its target market, the media operators. These acquisitions
included Lexton Group, Hi Tech Neon and ITS Services Inter-Teck.
In June 1999, with a view to financing the enterprise and eventually going
public, the owners of GSI Canada founded GSI Technologies USA Inc, a Delaware
incorporated company. By August 1999, the preliminary testing of the basic
server system and software package was completed, and in October 1999, GSI
Canada granted GSI an exclusive master license to market and commercialize its
technology. In October 1999, we successfully completed a private placement of
$1,000,000 under SEC Rule 504. On February 15, 2000, we filed a Registration
Statement on Form SB-2 with the Securities and Exchange Commission. On August 3,
2000, we filed Form 8A to become a reporting company, and on September 13, 2000,
began trading on the NASD over-the-counter bulletin board under the symbol
GSITB.
The Company's cash position and stock values have deteriorated significantly in
the past year, making it difficult to raise funds with which to continue
essential R&D and marketing activities. This is a reflection more of over all
market conditions in terms of market performance and the advertising industry.
The Company believes in its technology advantage, and value proposition, and
anticipates a turnaround in conditions in 2003.
Using cash on hand, we have continued operations in a reduced fashion, while
pursuing appropriate strategies to realize market success of our products. The
Company intends to pursue new sales opportunities aggressively, while
re-organizing to attract new investors. As of year-end, we have entered into
discussions which will reinforce our technology leadership, and lead to greater
market penetration.
The technology
The basic technological advance achieved by GSI Canada and available to us by
way of the master licensing agreement is the successful integration of various
hardware components and specialty software for the transmission of broadcast
signals in real time. Using our GSI Multimedia Pack software, which is described
below, we have the unique capability to broadcast from a central server to full
video screens in remote locations anywhere in the world. The system is capable
of updating pinpoint information virtually in real time by way of video
compressing systems and other fully automated software systems.
By utilizing our products and services, media and advertisers have an improved
way of reaching consumers right in their daily out-of-home environment,
especially in suburban shopping malls and the downtown cores where thousands of
people circulate daily as pedestrians, as motorists or as they use public
transportation going to and from work or to shop.
HARDWARE
To achieve its sales goals, GSI is commercializing products such as Citycolumn,
Digicolumn, E-Column, and Skycolumn. These products can all be marketed directly
by GSI to end-users or via sub-licensing agreements with media operators which
are described below.
GSI's objective is to offer the possibility of what we call GSITV.COM, The Total
Vision Network, linking large numbers of installations of our products in
various locations. Animated advertising displays and information of public
interest can be efficiently and economically managed from strategically placed
servers in central locations. The content broadcast on the network will be
continuously updated. For optimal exposure, the content will consist of a
three-minute loop divided into eighteen segments of ten seconds each. Besides
advertising, these segments will include messages of public interest issued by
our newsroom, drawing on the technical support of our control room. For example,
six of the segments can be dedicated to local advertising while the other twelve
are made available for regional or national advertising and the messages of
public interest. The involvement of radio and television networks is being
sought for this part of the network's offering.
(b) Products
SOFTWARE
GSI's software is the cornerstone of its broadcasting solution, providing a
modern, economic alternative to static advertising media and an improved means
of attracting the attention of pedestrians and motorists in high-traffic
locations. This broadcast-enabling software, coupled with integrated hardware
solutions, clearly distinguishes the Company from traditional static content
providers. The GSI Multimedia Pack which enables virtually real time
broadcasting consists of three sub-packs, each with its own applications,
enabling users to schedule and send content to any number of display units and
then to play it. The key advantage is that it enables intensive, pinpoint
advertising campaigns and efficient changes to the content. Through this
software the Company is able to effectively monitor and transmit
up-to-the-minute news and commercials directly to each screen location.
Demographic criteria such as average age, population size, gender, language, and
nationality can be programmed for each screen. Consequently, GSI is able to
provide its advertisers or strategic partners with a complete advertising
campaign package. All together, the GSI Multimedia Pack consists of five
applications. Innovative applications include: database graphical user interface
(GUI), schedule manager, billing manager, file transfer manager and the
multimedia player.
HARDWARE
To effectively demonstrate the power of its broadcasting capability and the
software that drives it, GSI has developed an array of actual and potential
hardware applications. Designed, assembled and integrated in various forms and
shapes suited for the precise out-of-home environment, GSI's know-how is
constituted in the products we are currently commercializing such as Citycolumn,
E-Column, Skycolumn, and Digicolumn, the latter two being the simplest of the
units using LED and plasma screens. Other variants are under development.
Customized user requirements can also be met. A key element of GSI's total media
solution and market development strategy, the display units typically
incorporate television screens, plasma screens, computer components and heating,
ventilation, and control systems that are purchased from various suppliers. The
design of the units truly differentiates the Company's solution from traditional
static billboards, attracting and retaining viewers for longer periods of time.
A brief description is found below of the different hardware alternatives
offered by GSI.
CITYCOLUMN
Citycolumn is an interior display unit or kiosk consisting of three television
screens 36" wide. Full-size video, 3D animations and stereo sound can be
broadcast on these units and they can be remotely controlled and reprogrammed
via GSI's software from anywhere in the world. Adding a remote control unit can
also extend Citycolumn's capabilities by providing advertisers with
interactivity. The combination of video and
computer digital displays makes changing commercials almost instantaneous,
allowing for short advertising campaigns, special promotions, and the latest
news headlines. In addition to the animated display there are two backlit
display panels 28" wide and 40" high. Other features of the interactive kiosk
include a tactile menu on a 15" tactile screen, promotional windows for
advertisers as well as directories and location maps.
DIGICOLUMN
Part of the "high-tech" generation of communications products it has flat
plasma-screens, having the same features and programming capabilities as the
Company's Citycolumn unit. Plasma screens with a 50" diagonal width and only
3.5" deep, provide added image quality and purity of color. This screen can be
installed in virtually any indoor location, effectively rendering all wall-space
a potential advertising medium.
SKYCOLUMN
Skycolumn is a giant outdoor screen, capable of transmitting video images from a
server located anywhere in the world. Potential installation sites include
airports, sport stadiums, and large expressways.
E-COLUMN
E-column is an internet-enabled information kiosk that will provide consumers
with animated information on products and services, and facilitate transactions
such as express check out and event ticket purchases. Potential installations
sites include high traffic areas such as airports, hotels, conference halls and
large warehouse stores.
NOVACOLUMN
In the category of what major advertisers call "urban furniture" or "street
furniture," Novacolumn, is designed for outdoor displays and meeting the
requirements of traditional advertisers. Via a single projector and providing a
field of view of from 5 to 300 feet, the main display side features a large
screen 36" wide by 42" high, the dimensions of a regular advertising poster. The
other two sides include space for static backlit posters. This kiosk can be
remotely controlled and reprogrammed via GSI's software. As with Citycolumn, the
combination of video and computer digital display makes changing commercials
almost instantaneous, allowing for short advertising campaigns, special
promotions, and the latest headlines. Adding a remote control unit can also
extend Novacolumn's capabilities, providing advertisers with interactive
applications. For instance, the Novacolumn can be made to control another
potential product offering, the interactive parking meter. Novacolumn's
specifications include sturdy, composite materials and each unit is molded in
sections. Providing climate control for installations in environments that will
periodically experience extreme weather conditions, including hot and/or cold,
Novacolumn is equipped with a CEMU or computerized environmental management
unit.
SERVICOLUMN
Servicolumn is a customized, outdoor, self-contained unit that is designed to be
incorporated in the display portion of transit shelters. GSI's aim for this unit
is to replace the static backlit display in the offerings of other
manufacturers. 24" in depth, on one side will be a 36" X 48" display of animated
content and on the other side pedestrians and public transportation users will
have access to a 14" touch-screen, a smart card reader, and a wireless phone
providing informational content, transactional functions and access to emergency
or information phone numbers.
(c) Industry
OUT-OF-HOME ADVERTISING INDUSTRY
The out-of-home advertising industry encompasses media such as billboard
advertising, transit advertising,
stadium signage, urban buildings, and other distinctive forms of advertising
that reach individuals outside of their domestic residences. The industry
constitutes all types of advertising and is currently undergoing notable
transformations. The key participants in the industry are the large media
operators who seek to optimize the number of people exposed to advertising and
enhance their rates of retention. The primary opportunity in out-of-home
advertising stems from the fact that large audiences are available and can be
reached by less expensive forms of media than radio, and the press. Industry
analysts expect traditional approaches to advertising to give way to more
creative solutions using new technologies. Many of the limitations associated
with traditional out-of-home advertising approaches will disappear, yielding to
multimedia-based approaches. Digital display product systems will provide
advertisers with a new forum by which they are able to more profoundly impact
their target audience. Thus the growth in deployment of interactive electronic
display products is expected to continue at an accelerating rate.
INDUSTRY OVERVIEW
According to the latest edition of Advertising Expenditure Forecasts published
by Zenith Media, global advertising expenditure is projected to have increased
by 8% to $332 billion in 2000. Spending in North America and Europe, the two
regions targeted by the Company, is estimated to have grown at 8% to $233
billion, or approximately 70% of global spending.
From the same data source, spending in North America by advertising medium in
2000 comprised:
Advertising $Spent % of
Medium (Billions) Total
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Television 53.9 38.6
Newspapers 48.1 34.4
Radio 18.1 13.0
Magazines 16.8 12.0
Outdoor 2.6 1.9
Cinema 0.1 0.1
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Total 139.6 100.0
According to Zenith Media, advertising spending in North America and Europe is
projected to increase to $273 billion by 2003, a compound annual growth rate of
5.5 %.
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. Broadcasters are not able to reach the same number of
in-home "viewers per day" as they used to. To maintain and increase reach, it
has become strategically imperative for the advertisers and advertising agencies
to seek other out-of-home possibilities. Mainly through mergers and
acquisitions, media companies are now increasingly able to offer advertisers a
variety of multimedia-based approaches. Clear Channel Corporation is in the
forefront.
GSI believes that significant potential exists in the indoor sector of the
market in particular. Unlike the outdoor sector, which depends to a large extent
on the approval of municipal authorities for the use of public sites, the indoor
environment is inherently more hospitable, both from an environmental standpoint
and due to the private ownership characteristic. Media operators are actively
seeking to penetrate the indoor advertising market which is largely untapped and
still in an embryonic stage of development. Shopping centers and office
buildings offer excellent opportunities. Information about the shopping center
industry was obtained from Scope 1999 from the website www.icsc.org of the ICSC.
According to the National Research Bureau, there were a total of 43,600 shopping
centers in the United States in 1998, an increase of
1.7% from 1997. Retail sales in shopping centers increased by 5.0% to $1,044.6
billion, representing 51% of total retail sales in the country, excluding auto
dealer sales. In a typical month, 189 million adults shop at shopping centers
and 94% of the population over 18 years of age. Similarly, in Canada, there were
4,298 shopping centers in Canada by the end of 1998, generating $94.2 billion in
retail sales.
Media operators generally negotiate with the owners of public and private
property sites suitable for advertising campaigns. Clear Channel Communications,
an American multinational, is the largest in the world, operating over 750,000
display faces in 40 countries. It has erected over 700,000 out-of-home signs
over a span of 28 years. Clear Channel's direct competitor is JC Decaux, a
French multinational with extensive U.S. operations, which has deployed 160,000
backlit advertising panels and 205,000 units of urban furniture worldwide.
Outdoor Systems is also a major operator in the out-of-home industry, having
deployed its urban furniture products in 90 U.S. metropolitan regions and 13
Canadian cities.
Through our research and from our direct contacts with these dominant media
operators, we have confirmed that they are actively seeking multimedia-based
approaches to complement and enhance their traditional urban furniture products
and to accelerate growth. In addition, national, regional, and local advertisers
are expected to be more and more interested in the unique benefits offered by
digital networks.
One clear trend in the out-of-home advertising industry is the consolidation of
media operators as they seek to strengthen their national coverage and expand
their network of installations. Leading industry players such as Clear Channel,
TDI, Outdoor Systems and JC Decaux are primarily driving the trend of
consolidation throughout the industry.
(d) Patents and trademarks
Intellectual property
GSI has acquired an exclusive worldwide license from GSI Canada, which has
proprietary rights on the software required to operate the system. These rights
are governed and protected by applicable commercial law. GSI intends to take all
reasonable and practicable steps to obtain patent and trademark protection, when
available, to protect its rights to the licensed technology. Our legal advisors
specializing in trademarks are in the process of filing trademark applications
for the following brand names used by the Company in the United States and
Canada: Citycolumn; Novacolumn; GSI Multimedia Pack; GSI Technologies;
GSITV.COM.
In April 2002, GSI Canada and the Company executed an Addendum to the Master
License Agreement which granted the Company the right to sell and/or issue
licenses for the technology for 10 years. This addendum superseded the Master
License Agreement, thereby terminating all other obligations contained in the
Master License Agreement. More importantly the addendum grants the Company the
right to modify and further develop the source code at the Company's sole
discretion. Any such developments made by GSI Technologies USA Inc. would
remain the property of the GSI Technologies USA Inc.
(e) Market Development
A key element of GSI's strategy is to establish relationships and alliances to
assist in marketing, selling, and deploying its electronic urban furniture. We
believe that strong global alliances are expected to achieve solid market
penetration and to package and bundle turnkey solutions for customers.
(f) Customer Service and Technical Support
At year end, we have initiated discussions with LTS Networks Inc. ("LTS"), a
Montreal-based provider of Linux-based technology solutions to serve our
customers and provide technical support to projects underway, and under
discussion.
LTS Networks is a Network Systems development company specializing in Low Total
Cost of Ownership (TCO) institutional network computing solutions. The company
designs and builds commodity networks , vertical market computing appliances and
client side software. LTS Networks leverages commodity computing hardware and
Open Source software to deliver robust, scalable low cost solutions.
(g) Research and Development
Our in works agreement with LTS Networks as of Year-End envisages a partnership
that will allow us to
work closely together on the new development of our software enhancement. LTS
Networks' engineering team will provide GSI with full analysis on our existing
platform and going forward needs.
(h) Competition
The media industry is highly competitive. It encompasses broadcast and cable
television, the Internet, radio, magazines, newspapers, traditional billboards
and direct mail marketers. Operators compete in the out-of-home environment in
locations such as highways, shopping centers and malls, airports, stadiums,
movie theaters and supermarkets; as well as in transit shelters, and in taxis,
trains, buses and subways. The out-of-home advertising industry is attracting
numerous alternative media products, many of which will be direct competitors.
Although the existing major media operators such as Clear Channel, JC Decaux,
TDI and Outdoor Systems could become significant clients, they could also decide
to develop their interactive display products and become competitors.
Other firms are currently placing electronic-type display products in various
locations such as retail outlets, elevators, airports and subways. Next
Generation Network (NGN) is emerging within the US market having installed over
6,500 electronic billboards in locations throughout the United States. NGN's
network infrastructure has attracted the attention of many industry analysts and
is considered the influential source driving change in the out-of-home
advertising sector. Other competitors include Fred Systems Ltd. of Waterloo,
Canada, New York-based Golden Screen Interactive Technologies and Montreal-based
Digital Advertising Network ("DAN"), Vert Intelligent Displays of Summerville,
Massachusetts, Clarity Visual Systems of Willsonville, Oregon and Pioneer
Electronic Corporation of Tokyo, Japan.
(i) Human Resources
Throughout the year, the Company downsized so that by year end, The President
was the sole employee. During the year we hired consultants on an as-needed
basis.
The Company believes that with a new business approach, it can attract new
investor interest. Proceeds from which would be used to rebuild an executive
team capable of executing the business plan, and providing investor confidence.
The Company intends to be in a position to report such events in our 10-QSB
filing in March 2003.
ITEM 2. DESCRIPTION OF PROPERTY
We own no real estate. In January 6th, 2000, GSI USA entered into a co-sharing
leasing agreement with our affiliate GSI Canada with 2849-3930 Quebec Inc.
represented by SITQ Inc. for a term of 4 years. Due to our affiliate financial
difficulties and to the market crash with technologies corporations, we entered
during the year 2002, in negotiations with the land-lord (SITQ) to leave the
premises. Our monthly rent represented fees of approximately 20,000.00$ USD and
was previously hosting 70 people. On October 8, 2002, the Company entered into
a final settlement and release agreement with the SITQ whereby the Company could
cancel its lease with a one time payment of approximately $44,000. This payment
was made during October 2002.
In September 2002, we moved our Montreal business office to 400, St-Jacques
West, Suite 500, in the City of Montreal. 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 1st, 2002, the Company entered into a one year office lease for 1,600
square feet of office-warehouse space in Plattsburg for its USA Office in New
York with an annual rental of approximately $12,000.
ITEM 3. LEGAL PROCEEDINGS
(1) MR. JACQUES BIRON : We remain party to one proceeding initiated by
another party, Mr. Jacques Biron, against GSI Canada, GSI, our former President
in the Superior Court of the Province of Quebec, District of Montreal. An amount
of $98,766 in Canadian dollars has been claimed for our alleged failure to pay a
commission and consequent damages relating to negotiations with GSI Canada for
an acquisition. We have retained legal counsel in Montreal, Mr. Marc Cote of
Labelle, Boudrault, Cote & Associates, who advises that, in his opinion, Mr.
Biron's case against the company is without merit; that he has no right in law
to sue GSI Technologies USA Inc.
(2) MR. ALEX ZERVAKOS: On September 2001, we received a law suit from Mr.
Alex Zervakos a former employee of GSI USA. We concluded an out of court
settlement, on November 22nd, 2002, for the amount of $7,750 USD as final
settlement.
(3) CITY OF MONTREAL: 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 USD of which $5,000 USD has been paid by
October 31, 2002.
(4) SITQ, PREVIOUS LANDLORD: On October 8, 2002, the Company entered into
a final 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.
(5) CVMQ: On December 15, 2000, we signed an agreement with the Quebec
Securities Commission to conform to filing requirements for any sales of shares
to residents of the Province. Our former President also agreed that the sale of
any shares directly by himself or shares owned by companies in which he has an
interest would be in conformity with the filing requirements in the jurisdiction
of Quebec.
(6) FORMER DIRECTOR AND OFFICER: In March 2002, a former Director, who was
also an Officer in the Company, along with another employee of the Company,
filed a civil action against the Company in the State of Florida alleging unpaid
wages and expense reimbursements totaling approximately $225,000. The Company
has not retained legal counsel but believes this complaint is without merit and
is in the process of negotiating a settlement and release agreement with these
two individuals in the amount of approximately $13,000. The Company has received
an oral confirmation to the $13,000 settlement and release agreement. The
$13,000 has been accrued and reflected in the October 31, 2002 financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market for Common Stock
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. 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 31,2002
First Quarter .40 .07 .51 .11
Feb. 1- March 5, 2002 .35 .09 .50 .20
CLOSING BID
---------------------------
HIGH LOW
------- --------
Second Quarter .45 .05
Third Quarter .05 .05
Fourth Quarter .001 .001
(b) Recent Sales of Unregistered Securities
On November 19, 2001 the Company issued 600,000 shares to a consultant for
services totaling $8,000.
On November 19, 2001 the Company issued 400,000 shares to its president in
settlement of payments made by the President to settle Company expenses on
behalf of the Company totaling $38,995 Cdn.
On November 19, 2001 the Company issued 200,000 shares to its director for
settlement of legal services performed totaling $4,000.
On November 19, 2001 the Company issued 266,000 shares for the purchase of a
company in Europe. The transaction was recorded at par value since the European
company had no financial history or viable operation.
On December 19, 2001 the Company issued 100,000 shares to an organization in
settlement of consulting services totaling $2,000.
On July 3, 2002 the Company issued 200,000 shares to an organization in
settlement of consulting services totaling $4,000.
(c) Issuance of warrants
No warrants have been issued during fiscal year 2001-2002.
(d) Cancellation of Class A Shares
None
(e) Grant of stock options
On August 1, 2000 the Board of Directors approved a Long Term Incentive Plan.
Under the plan, stock options were approved for the directors, officers, and
certain key employees of GSI and its affiliates; as well as for certain
consultants to GSI. The initial design of the plan reflects the issuance of
"Nonqualified Stock Options." A maximum of 10% of the authorized capital of the
Corporation, being equivalent to a total of 5,500,000 Class B common shares, was
reserved and available for distribution pursuant to the terms of the plan.
Nonqualified Stock Options to purchase a total of up to 3,000,000 Class B common
shares of GSI at a price of $2.00 per share were to be granted to certain
employees and other eligible individuals, as determined by the Chief Executive
Officer. One-third will vest on December 18, 2000; a following one-
third will vest on December 18, 2001; the remaining one-third will vest on
December 18, 2002. The stock options expire seven years from the date of the
grant. Further grants may be made periodically at an exercise price not less
than the closing price on the day prior to the date of the grant. On November
20, 2000, the Board of Directors approved a re-granting of the options at an
exercisable price of $1.25. During the Corporation's restructuring phase, the
principals of the Corporation have decided to postpone any grants or options
until further notice. No grants or options have been issued during fiscal year
ending October 31st, 2002.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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, 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 specializes in offering broadcasting solutions principally
for out home advertising, such as electronic billboards, interactive advertising
kiosks and any type of animated electronic screens with full video capabilities.
GSI USA's software enable user to transmit pinpoint animated information contact
as well as receive full motion video, graphics and audio files. GSI's software
and concept allows advertisers to reach more consumer on a daily bases and
permits to measure impact of their ads by interacting with consumer.
RESULTS FROM OPERATIONS
During the fiscal year from November 1, 2001 to October 31, 2002, GSI USA
incurred a loss of $1,667,839 or $0.06 per share versus a loss of $2,589,345 or
$0.12 per share in the same period in the prior year. The current year loss
can be attributed to limited revenue generated as well as a 1.1 million loss on
write off of an affiliate note receivable.
REVENUES
$23,750 in revenue was recognized during the current fiscal year versus $229,793
for the same period in the prior year. These revenues are related to the sale of
products, as well as a sub-license sold to Groupe Solcom International France
S.A.S. ("Groupe Solcom") giving it commercialization rights for the territory of
London, England, Nantes, France and a sub-license sold to GSI Technologies ("GSI
Canada") giving it commercialization rights for the territory of Canada.
Cost of revenues and direct operating costs
According to the master license agreement with GSI Canada, GSI USA owns 60% of
the price of any sub-license it sells to a new licensee. This amount is payable
to GSI Canada by the end of the calendar quarter in which the sub-license is
granted its sub-license. GSI USA has incurred $10,634 in direct operating cost
for the current fiscals year versus $121,797 for the same period in the prior
year.
Operating expenses
During the current fiscal year ended October 31st, 2002, GSI USA has incurred
$510,753 in operating
expenses versus $1,752,839 for the same period in 2001. The decrease is
attributable primarily to a drastic cut back in operations for the current year.
Other income
During the current fiscal year ending October 31st, 2002, $1,170,202 in other
expenses were realized compared to $944,503 of other expenses in the prior year.
These amounts are primarily attributable to the write offs of the Loss on
Affiliate note receivables and advances.
Liquidity and capital resources
At October 31, 2002 GSI USA had zero cash as compared to $6,019 at October 31,
2001. Cash used in operating activities during the year ending October 31, 2002
was $252,545, 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 current year are comprised of
purchases of property and equipment totaling $163,705. Cash provided by
investing activities during the prior year reflected repayment of short-term
loans to GSI Canada in the amount of $801,656.
Cash provided from financing activities during the current year of $410,232
include the net effect of short-term borrowing through note payables as well as
proceeds from an investment group. Cash provided from financing activities
during the prior year of $519,469 reflects a private placement as well as
funding provided by issuance of Notes Payable.
MANAGEMENT DISCUSSION AND ANALYSIS
Since beginning of our operations we worked closely with an affiliate company,
"GSI Canada" (GSIC). The overall market strategy was that GSI Technologies USA
Inc. (GSIUS) developed business through its unique understanding of the
advertising industry, notably in providing custom, software, sales services and
products to customers for electronic, out of home, advertising media
applications and needs. We depended on GSIC as the technology developer, and in
our dealings with that company, acquired exclusive licensing rights agreement on
proprietary software technology.
As such, GSIUS has advanced funds to GSIC for the addition of significant
upgrades and additional intellectual property of GSIUS to that base software.
In this regard, we have in the past, from time to time, supported our
affiliate's development of technologies by advancing funds to enhance our
modular software applications and allow us to remain ahead of competition. In
addition, we had co-located certain of our activities with the affiliated
company to ensure proximity to the development team and shared some of these
costs (leases, communications, IT, etc.).
In the later part of 2001, GSIC was forced to file for receivership in Canada
due to extraordinary circumstances and a downturn in overall market conditions.
As such, in the period beginning November 2001 to Mid September 2002, GSIC had
to shut down most of its operations and was not able to repay advances to our
corporation or to provide us with necessary services.
During the course of 2002, GSIUS negotiated new agreements directly with
suppliers to reduce our costs, while remaining a viable, stand-alone business
having lost the services of GSIC. Significant downsizing at GSIUS accompanied
this event, in an effort to cut costs, re-consider our business plan, and
re-establish the Company's business foundation at time of turmoil in the
electronic advertising industry in our core markets of the USA and Europe. An
example of cost saving measures was to lease new offices facilities and move our
operations from a $20,000.00 monthly rent to $2,000. Further, we didn't renew
any employment contracts and negotiated our way out of consulting contracts to
bring our operations to minimize expenses.
At the end of fiscal year October 31st, 2002, we decided to take a right off on
our affiliate loan for an
approximate value of $1,145,792.00.
We have negotiated a loan agreement allowing us to resolve most of pending
financial issues and reduce our payables considerably by end of October 2002 and
anticipate completing our restructuring program by end of next quarter. We are
currently investigating the potential of transforming certain loans and
liabilities into equity partnerships and to seek into the possibility of raising
new capital in the Corporation.
Based on a solid foundation, the Company anticipates a rebuilding phase in early
Fiscal 2003. We have initiated discussions with both customers and new
suppliers to move forward with initial phase of upgrading and developing our
own proprietary technology, in order to reduce our dependence on third party
services and to build a long-term solution for the best interest of our
customers and corporation's shareholders.
Our past experience allowed us to design and tailor an application plan based on
pilot projects and market tests in real situation, with greater possibilities,
more efficiency, more durability and stability supported and combined with
upgrades of hardware and other software development available in the industry.
Although, our affiliate's situation affected our sales potential, we maintained
our 5-year relationship with a major customer based in the USA and one of the
world's largest out-of-home media corporation. In the later part of year 2002,
we have significantly moved forward to reach a new business agreement with that
company to tailor new software in order to support their needs of worldwide
development of electronic out-of-home media. At year end of Fiscal 2002, we
received a purchase order for the first phase for a value of $30,000.00 and
agreed with the Client's management team to negotiate through the course of year
2003 a longer term plan with more appropriate cost structure.
Their specifications are based on a 3 phase development plan, in which we
eagerly anticipate closure soon after year end 2002. While preliminary, that
agreement would call for the first beta version to be delivered by the end of
March 2003. The second phase will be initiated after testing of version I by
the Client's engineering team and GSI's R&D team.
In July 2002, we completed a Letter of Intent with a Californian based
Entertainment Company specialized 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. As of year-end, we
have been informed that our customer has succeeded in signing in over 100
locations and anticipates starting installation during the month of March 2003.
We have negotiated a 10-year licensing agreement starting when the networks
begins operations, management of the network contract and content production
service agreement. There are no assurances that the Company will ever receive
any revenues based upon this transaction.
We have initiated discussions for strategic alliances and potential partnerships
with new equity partners and allied strategic partners and anticipate new
results at the outset of Fiscal 2003.
We strongly believe all these measures will help us re-establish our business
presence and build value for the benefit of our Corporation and shareholders.
ITEM 7. FINANCIAL STATEMENTS
Attached is Appendix A containing the following information:
- Independent Auditor's Report - Balance Sheets as of October 31st, 2002 and
2001 - Statements of Operations for the years ended October 31st, 2002 and 2001.
- Statements of Stockholders' Equity (Deficiency) for the years ended October
31st, 2002 and 2001.
- Statements of Cash Flows for the years ended October 31st, 2002 and 2001.
- Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT:
(a) Directors and Officers.
Our executive officers and directors are listed below. The term of each director
is for one year.
Name Office Age
------------------ --------------------------- ---------
Rene Arbic Chief Executive Officer 50
President and Director
(Since September 18, 2001)
Marc Cote Director 42
(Since October 23, 2000)
Marie El-Ahmar Eid Secretary of the board 40
(Since May 27, 2002)
RENE ARBIC
Mr. Arbic has served on multiple boards of technologies companies after retiring
from Bell Canada in 1996, where he occupied multiple functions as well in
technical positions than management. In 1997, he was cofounder of a
telecommunication consultant firm name Rave Communications. In 1997, he was
cofounder of a publicly traded company: Bridgepoint International. Bridgepoint
built and operated colocation central offices facilities in multiple cities in
North America. Mr. Arbic will bring a long experience in marketing and
management to GSI as a board member.
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 has been a senior partner in the
Montreal law firm of Labelle Boudreault Cote & Ass. Since 1990, He currently
specializes in the area of commercial law. Mr. Cote became a Board Member in
October 2000.
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.
(b) Section 16(a) Beneficial Ownership Reporting Compliance.
Not applicable
ITEM 10. EXECUTIVE COMPENSATION
The following table shows for the last three fiscal years, compensation awarded
or paid to, or earned by, the Company's President and Chief Executive Officer.
Long Term
Annual Compensation Compensation Awards
--------------------- ---------------------
Securities Underlying
Name and Principal Position Year Salary ($) Bonus ($) Options
--------------------------- --------- ---------- --------- ---------------------
Rene Arbic, President & CEO 2002(1) 16,129
2001(2) 0
(1) During fiscal year 2002, Mr. Arbic was paid $16,129 in salary. Mr. Arbic
also advanced, on behalf of the Company, $38,995.55 Cdn to cover several Company
expenses. Mr. Arbic agreed and received 400,000 shares in settlement of the
advances and these shares were issued on November 22nd, 2001.
(2) Mr. Arbic was hired at the beginning of September 2001 and his salary was to
commence in November 2001.
OPTION GRANTS IN LAST FISCAL YEAR
None
AGGREGATED FISCAL YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during the fiscal
year ended October 31,2002.
AGGREGATED FISCAL YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during the fiscal
year ended October 31,2001.
The Company has no arrangement for the remuneration of its directors. No
remuneration was paid to the directors during the year ended October 31, 2002.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 31, 2002, 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
--------------------------- -------------- ----------
RENE ARBIC 400,000 1.5
MARC COTE 200,000 *
MARIE EL-AHMAR EID 6,764 *
J.MICHEL DE MONTIGNY 10,123,724 (1) 38.5
CRAIG PERRY 2,000,000 7.6
All Officers and Directors
as a Group (3 persons) 606,764 2.3
---------------------
* less than 1%
(1) Held indirectly through the ownership of : 3633730 Canada Inc. (7,754,424
shares); 3633632 Canada Inc. (745,500 shares) ; and Totalcom Inc. (287,000
shares). Also includes an aggregate of 1,336,800 shares underlying a currently
convertible promissory notes held by several of these entities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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. During the fiscal year ended October 31, 2002, the Company made additional
advances on behalf of GSI Technologies (3529363 Canada Inc.) in the amount of
$130,203. At October 31, 2002, due to GSI Technologies (3529363 Canada Inc.)
continued financial difficulties, the Company wrote off the remaining balance of
the receivable of $1,691,147 offset by a $545,355 payable to a subsidiary wholly
owned by GSI Technologies (3529363 Canada Inc.). The loss realized in the
current year related to these items totaled $1,145,792.
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 $24,000 in legal fees from this firm in the current year.
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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the last quarter of the period
covered by this report.
APPENDIX A
GSI TECHNOLOGIES USA INC.
FINANCIAL STATEMENTS
INDEX
Independent Auditor's Report
Balance Sheet as of October 31, 2002 and 2001 . . . . . . . . . . . F-2
Statements of Operations for the years ended
October 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity (Deficiency)
For the years ended October 31, 2002 and 2001 . . . . . . . . . . . F-4
Statements of Cash Flows for the year ended
October 31, 2002 and 200. . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-6
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GSI Technologies USA Inc.
I have audited the accompanying balance sheets 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. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I 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. I believe that my audits provide a reasonable basis for
my opinion.
In my 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 years 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 7 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 7. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
January 31, 2003
F-1
GSI TECHNOLOGIES USA INC.
BALANCE SHEET
October 31, October
2002 31, 2001
------------- ------------
ASSETS
------
Current Assets
Cash and cash equivalents $ - $ 6,019
Note Receivable(related party) - 1,560,944
Other Receivables - 58,348
------------- ------------
Total current assets - 1,625,311
Property and equipment, net 63,302 36,248
Intangible assets, net 88,611 283,567
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
Accrued financing costs 67,100
Accrued default penalty 50,000
Accrued legal settlement 20,750
Notes payable - short term 334,837 68,273
Investment proceeds liability 143,623 -
Other current liabilities 126,487 176,321
------------- ------------
Total current liabilities $ 845,546 995,174
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 5,220,388 5,118,419
Accumulated deficit (5,841,289) (4,173,450)
Accumulated other comprehensive income
Foreign currency translation 977 388
------------- ------------
Total Shareholder's Equity (Deficit) (593,633) 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.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31ST, 2002 AND 2001
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 17,950 92,298
Management and administrative fees 11,897 707,533
Salaries and related costs 66,025 229,770
Rent 71,334 250,904
Financing expense 182,774 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 4,563 187,791
------------------ ------------------
Total operating expenses 510,753 1,752,839
Loss before other income (expense) (497,637) (1,644,842)
Other income (expense):
Interest income (principally related party) 317,275
Interest expense (principally related party) (33,859) (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) 10,730 (54,562)
Loss on disposal of assets (1,280) (36,968)
Total other income (expense) (1,170,202) (944,503)
------------------ ------------------
Net Loss (1,667,839) (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.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Class A
------------------ Paid in
Shares Amount Shares Amount Capital
------ ---------- ----------- ------------ -----------
Balance, October 31, 2000 - $ - 20,543,636 $ 20,544 $1,748,131
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)
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
Issuance of shares for consulting services 900,000 900 13,100
Issuance of shares for legal services 200,000 200 3,800
Issuance of shares for acquisition 266,000 266
Issance of shares in lieu of salaries 400,000 400 38,595
Issuance of shares for settlement of miscellaneous liabilities 22,889 23 2,174
Shareholders settlement of financing liability 44,300
Net loss - 12 months ended October 31, 2002
Foreign currency translation adjustment
------ ---------- ----------- ------------ -----------
Balance, October 31, 2002 - $ - 26,291,023 $ 26,291 $5,220,388
====== ========== =========== ============ ===========
Receivable Total
from sale Accumulated Comprehensive Shareholder's
of stock Deficit Income/(loss) Equity
------------ ------------ -------------- ------------
Balance, October 31, 2000 $ (13,200) $(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 13,200 -
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)
Foreign currency translation adjustment 2 -
------------ ------------ -------------- ------------
Balance, October 31, 2001 - (4,173,450) 388 969,859
Issuance of shares for consulting services 14,000
Issuance of shares for legal services 4,000
Issuance of shares for acquisition 266
Issance of shares in lieu of salaries 38,995
Issuance of shares for settlement of miscellaneous liabilities
Shareholders settlement of financing liability 44,300
Net loss - 12 months ended October 31, 2002 (1,667,839) (1,667,839)
Foreign currency translation adjustment 589 589
------------ ------------ -------------- ------------
Balance, October 31, 2002 $ - $(5,841,289) $ 977 $ (593,633)
============ ============ ============== ============
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-4
GSI TECHNOLOGIES USA INC.
STATEMENT OF CASH FLOWS
October 31, October 31,
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,667,839) $ (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 1,275,995 1,033,652
Issuance of stock for contract settlement - 11,000
Issuance of shares for consulting services 14,000 -
Issuance of shares for legal services 4,000
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 58,348 (39,744)
Other assets 19,908 41,196
Accounts Payable and Accrued Liabilities (100,913) 334,198
------------- -------------
Net cash provided by/(used in) operating activities (252,545) (1,319,511)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - 801,656
Advances to affiliate - net (130,203)
Purchase of property and equipment (33,502) -
------------- -------------
Net cash provided by/(used in) investing activities (163,705) 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 NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares for settlement of note payables 3,173,687
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
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 evidence of fair value and shall be used as the basis for the
measurement, if available. If quoted market prices are not available, the
F-6
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 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.
Foreign Currency Translation
Statement of operations amounts have been translated using the average
exchange rates in effect for each period. Gains and losses from foreign exchange
transactions have been included in the Statements of Operations. Balance sheet
amounts have been translated using exchange rates in effect at the balance sheet
dates and the translation adjustment has been included in the foreign currency
translation adjustment, as accumulated other comprehensive income.
F-7
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 supercedes APB Opinion
No. 16, "Business Combinations" as well as Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 38, "Accounting for
Preacquisition 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 acquisitiion. 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 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.
F-8
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2002 October31, 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
Intangible Assets:
------------------
License rights - $ 474,779 $ 474,779
(Gross amount of $800,000 acquired from affiliate and
recorded at predecessor basis with the cost over such
basis of $325,221 recorded as a dividend to affiliate).
Accumulated amortization (286,168) (191,212)
------------------ -----------------
$ 188,611 $ 283,567
================== =================
Amortization expense for the period 94,,956 94,956
Estimated amortization expense for each of the five
succeeding years
Year ending October 31,
2002 94,956
2003 94,956 94,956
2004 93,655 93,655
------------------ -----------------
188,611 283,567
================== =================
NOTE 4 - DEFERRED REVENUE
Deferred revenues consist primarily of payments received in advance of
revenue being earned under software sub-licensing contracts. Revenues from
sub-licensing the master licensing agreement are recognized over the term of the
sub-licensing agreement. Deferred revenues of $17,500 were reflected at October
31, 2001. These amounts were realized as revenue in the following quarter
(November 2001 through January 2002).
NOTE 5 - 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 as an origination fee which was valued at .05
per share totaling $100,000. On June 20, 2002, a shareholder of the Company
indirectly forwarded to the lender 1,114,000 shares as collateral for this
transaction on behalf of the Company thereby assigning 55.7% ($55,700) of the
origination fee liability from the lender to the shareholder. On June 20, 2002,
another shareholder of the Company directly forwarded to the lender 886,000
shares as collateral for this transaction on behalf of the Company thereby
assigning 44.3% ($44,300) of the origination fee liability from the lender to
the shareholder. On June 21, 2002 the Company agreed to issue 1,114,000 shares
to the shareholder who advanced his shares to the lender as well as issuing an
additional 222,800 for his assistance in this matter. The 222,800 were valued at
..05 per share totaling $11,140 and reflected as interest in the financial
statements. At October 31, 2002, no shares had been issued to the shareholder
and the origination fee liability of $55,700 as well as the additional $11,400
in accrued interest remained reflected as liabilities in the October 31, 2002
financial statements. On June 21, 2002 the Company and the other shareholder who
forwarded 886,000 shares to the lender agreed that he would not receive any
shares from the Company for his assistance in the matter. The Company reflected
this as relieving the balance of the accrued origination fee liability with an
offset to Paid in Capital in the amount of $44,300. 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 valued at .05 per share totaling $50,000. At October 31, 2002,
the Company had not issued any shares related to default penalty. The default
penalty amounts have been accrued and reflected in the October 31, 2002
financial statements.
F-9
NOTE 6 - COMMITMENTS AND CONTIGENCIES
Investment agreement
On September 10, 2002 the Company entered into an investment agreement
whereby an investment group will advance 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
warrants 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 advanced to the Company.
Office leases
On September 1, 2002, the Company entered into a three year office lease
for its Monteal office with monthly payments approximately $2,000. On October 1,
2002, the Company entered into a one year office lease for its U.S. 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 noncancelable 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
We remain party to one proceeding initiated by another party in the
Superior Court of the Province of Quebec, District of Montreal. An amount of
$98,766 in Canadian dollars has been claimed for our alleged failure to pay a
commission and consequent damages relating to negotiations with GSI Canada for
an acquisition. Legal counsel advises that, in his opinion, the case against the
company is without merit.
On September 2001, we received a law suit from a former employee for unpaid
salaries. We concluded an out of court settlement, on November 22nd, 2002, for
the amount of approximately $7,750 US ($12,000 CAD) as final settlement. The
$7,750 has been accrued and reflected in the October 31, 2002 financial
statements.
On October 8, 2002, the Company entered into a final 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 and the remaining $18,000 due to the City of Montreal has been reflected in
accounts payable at October 31, 2002.
In March 2002, a former Director, who was also an Officer in the Company,
along with another employee of the Company, filed a civil action against the
Company in the State of Florida alleging unpaid wages and expense reimbursements
totaling approximately $225,000. The Company has not retained legal counsel but
believes this complaint is without merit and is in the process of negotiating a
settlement and release agreement with these two individuals in the amount of
approximately $13,000. The Company has received an oral confirmation to the
$13,000 settlement and release agreement. The $13,000 has been accrued and
reflected in the October 31, 2002 financial statements.
Consulting agreement
On May 27, 2002, the Company entered into a consulting agreement with a non
affiliated individual.
F-10
The agreement is for one year and the annual amount of the agreement is
approximately $100,000.
NOTE 7 - 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
$1,667,839 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 $252,545 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 8 - 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. During the fiscal year ended October 31, 2002, the Company made additional
advances on behalf of GSI Technologies (3529363 Canada Inc.) in the amount of
$130,203. At October 31, 2002, due to GSI Technologies (3529363 Canada Inc.)
continued financial difficulties, the Company wrote off the remaining balance of
the receivable of $1,691,147 offset by a $545,355 payable to a subsidiary wholly
owned by GSI Technologies (3529363 Canada Inc.). The loss realized in the
current year related to these items totaled $1,145,792.
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 $24,000 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 9- INCOME TAXES
The provision for taxes on earnings for the years ended October 31, consist
of:
2002 2001
---------- -------
Current
Federal $ - $ -
State - -
Foreign - -
---------- -------
- -
Deferred
Federal - -
State - -
Foreign - -
---------- -------
- -
---------- -------
$ - $ -
========== =======
F-11
At October 31, 2002, the Company has a Federal tax net operating loss
("NOL") carryforward of approximately $5,000,000, which expires at various dates
through 2015.
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 carryforwards, because of uncertainty regarding
its realizability.
NOTE 10 - 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.
The Company has 55,000,000 authorized shares of Class B common stock with a
par value of $.001. Each share entitles the holder to one vote.
On November 19, 2001 the Company issued 600,000 shares to a consultant for
services amounting totaling $8,000.
On November 19, 2001 the Company issued 400,000 shares to its president in
settlement of payments made by the President to settle Company expenses on
behalf of the Company totaling $38,995 Cdn.
On November 19, 2001 the Company issued 200,000 shares to its director for
settlement of legal services performed totaling $4,000.
On November 19, 2001 the Company issued 266,000 shares for the purchase of
a company in Europe. The transaction was recorded at par value since the
European company had no financial history or viable operation.
On December 19, 2001 the Company issued 100,000 shares to an organization
in settlement of consulting services totaling $2,000.
On July 3, 2002 the Company issued 200,000 shares to an organization in
settlement of consulting services totaling $4,000.
NOTE 11 - 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 who rendered services to
the Company throughout the year. The services were rendered in the fiscal year
ending October 31, 2000. The expense for such services were reflected in the
financial statements ended October 31, 2000. As an incentive to maintain a
relationship with these consultants and non employee affiliates, the Company
issued these options for anticipated future services. These future services were
not received. 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 nonvested stock is measured at the market price of a share on the grant
date. The proforma effect to net income and earnings per share is reflected as
follows:
F-12
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 1.35 1.35
2. End of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
3. End of year - exercisable
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
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
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
i. number of options/warrants
ii. weighted average exercise price
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
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%
Weighted average expected life (in months) 39.00 51.00
Weighted average expected volatility 0.00% 0
Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized
in income for stock-based employee compensation awards. 0 0
Paragraph 47(f) The terms of significant modifications
of outstanding awards. none none
Paragraph 48 - Options outstanding at the date of the latest
statement of financial position presented:
1. (a) Range of exercise prices $ 1.10-$2.00 $1.10-$2.00
(b) Weighted-average exercise price 1.35 1.35
2. Weighted-average remaining contractual life (in months) 39.00 51.00
Year ended Year ended
Oct. 31, 2002 Oct. 31, 2001
--------------- ---------------
Net Income after proforma effect (1,667,839) (2,589,345)
Earnings per share after proforma effect $ (0.06) $ (0.12)
F-13
PART II - OTHER INFORMATION
ITEM 1. OTHER INFORMATION
-------------------------
On February the 4th, 2002, we became delinquent for late filing of our annual
report 10-KSB. On March 5th, 2002, we were temporarily delisted from the OTCBB.
On March the 8th, 2002, we filed our annual 10-KSB report for period ending
October 31st 2001. Since then, we have filed all of our reports on time.
In May 2002, GSI entered into a loan agreement with private party Mr. Craig
Perry for a sum of $330,000.00 USD, at bearing interest of prime rate +2%.
In Fall 2002, GSI completed a loan agreement with a private investment
corporation for a bridge loan of $300,000.00 USD, which could become an equity
investment by spring 2003, conditional to due diligence and approval of
regulatory authorities. These funds were utilized to resolve pending issues.
In December 2002, GSI entered into a loan agreement with private individual for
an amount of $320,000.00 USD which could be converted into stock.
We are currently negotiating other strategic partnerships and potential equity
investments in our Corporation based on new administration vision and business
plan possibilities.
F-14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GSI TECHNOLOGIES USA INC.
Dated: October 10, 2003
By: /s/ Gilles Addison
--------------------------------
Gilles Addison
President and Chief Executive Officer
By: /s/ Craig Perry
----------------------------------
Craig Perry
Director and Chairman
By : /s/ Marie El-Ahmar Eid
-----------------------------------------------
Marie El-Ahmar Eid
Director and Secretary
By : /s/ Marc Cote
-----------------------------------------
Marc Cote
Director