UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB / A
AMENDMENT 2
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended April 30, 2003.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ________
COMMISSION FILE NUMBER: 0-31229
GSI TECHNOLOGIES USA INC.
(Exact name of small business issuer as specified in its charter)
Delaware 5-0902449
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 St Jacques West, Suite 500, Montreal, Quebec H2Y 1S1, Canada
----------------------------------------------------------------
(Address of principal executive offices)
(514) 282-9292
--------------
(Issuer's Telephone Number, including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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[X] No[ ]
As of June 12, 2003, there were 29,291,023 shares of the issuer's $.001 par
value common stock issued and outstanding
Transitional Small Business Disclosure Format (Check one): Yes [ ] No[X]
INDEX TO FORM 10-QSB
--------------------
FOR THE QUARTER ENDED APRIL 30, 2003
-----------------------------------------------------
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of April 30, 2003 3
Statement of Operations for the Six and Three Months ended April 30, 2003 and 2002 4
Statements of Cash Flows for the Six Months ended April 30, 2003 and 2002 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11-12
Item 6. Exhibits and Reports on Form 8-K 12
Certifications 13
Signature 14
Exhibit 99.1 15
GSI TECHNOLOGIES USA, INC.
BALANCE SHEET
AT APRIL 30, 2003
(UNAUDITED)
ASSETS
------
Current Assets
Cash $ 2,005
Receivables - net 44,538
Other current assets 2,428
------------
Total current assets 48,971
Property and equipment, net 147,792
Other assets 2,774
------------
TOTAL ASSETS 199,537
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 163,617
Accrued financing costs 67,100
Notes Payable 648,284
Investment proceeds liability 362,651
Other current liabilities 88,376
------------
Total current liabilities 1,330,028
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized -
5,000,000 shares; issued and outstanding none
Common Stock, class B, $.001 par value; authorized 29,291
55,000,000 shares; issued and outstanding - 29,291,023
Paid in Capital 5,367,388
Accumulated deficit (6,527,543)
Accumulated other comprehensive income
Foreign currency translation 373
------------
Total Shareholder's Equity (Deficit) (1,180,491)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 199,537
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement.
GSI TECHNOLOGIES USA INC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
Three Months Six Months
ended April 30, ended April 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 15,000 $ - $ 15,000 $ 23,750
Cost of Sales - - - 10,634
------------ ------------ ------------ ------------
Gross Profit 15,000 - 15,000 13,116
Operating Expenses:
Marketing 27,702 16,051 29,133 24,412
Salaries and related costs 13,859 - 25,060 38,996
Rent 15,585 13,703 24,585 51,426
Professional fees 33,251 2,457 42,886 9,029
Consulting 112,443 - 121,664 -
Software development 88,709 - 119,539 -
Depreciation 3,576 973 4,656 1,947
Amortization 25,278 23,845 49,017 47,691
Loss on licensing agreement write off 141,133 - 141,133 -
Other selling, general and administrative 89,413 19,271 121,115 47,375
------------ ------------ ------------ ------------
Total operating expenses 550,949 76,300 678,787 220,876
Loss before other income (expense) (535,949) (76,300) (663,787) (207,759)
Other income (expense):
Interest expense (principally related party) (13,159) (4,417) (22,467) (8,759)
Foreign exchange gain/(loss) (24,529) (15,960)
------------ ------------ ------------ ------------
Total other income (expense) (13,159) (28,946) (22,467) (24,719)
------------ ------------ ------------ ------------
Net Loss (549,108) (105,246) (686,254) (232,478)
============ ============ ============ ============
Basic weighted average common shares outstanding 28,673,045 20,788,768 27,462,294 20,689,767
============ ============ ============ ============
Basic and diluted Loss per common share $ (0.02) $ (0.01) $ (0.02) $ (0.01)
------------ ------------ ------------ ------------
Read the accompanying summary of significant accounting notes to Financial statements, which are an
integral part of this financial statement.
GSI TECHNOLOGIES USA, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
For the six months
ended April 31,
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(670,843) $(232,479)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 53,673 49,638
Issuance of stock for contract settlement - 38,996
Accrued Interest Expense - 8,759
Loss on licensing agreement write off 141,133 -
Changes in Operating assets and liabilities:
Receivables and other current assets (46,966) (4,871)
Other assets (2,774)
Accounts Payable and Accrued Liabilities 8,459 133,939
---------- ----------
Net cash provided by/(used in) operating activities (517,317) (6,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - -
Purchase of property and equipment (90,685) -
---------- ----------
Net cash provided by/(used in) investing activities (90,685) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable 290,980 -
Investment proceeds 219,028 -
Sales of common stock 100,000 -
---------- ----------
Net cash provided by/(used in) financing activities 610,008 -
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,005 (6,019)
Cash and cash equivalents, beginning of period - 6,019
---------- ----------
Cash and cash equivalents, end of period $ 2,005 $ (0)
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issaunce of 1 million shares for default payment 50,000
penalty settlement
Read the accompanying summary of significant accounting notes to Financial statements, which are an integral part
of this financial statement.
GSI TECHNOLOGIES USA, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of GSI
Technologies USA, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in GSI Technologies USA,
Inc.'s 10K-SB as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - NET EARNINGS (LOSS) PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
April 30, 2003
Property and Equipment:
Furniture and fixture $ 38,934
Computer and other equipment 45,168
Leasehold improvements 79,020
Less: Accum depreciation & amortization 15,330
Property and equipment, net $ 147,792
Intangible Assets:
License rights - $ 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 (333,646)
Loss on write down to realizable value $ 141,133
-----------------
April 30, 2003 balance $ -
=================
Amortization expense for the six month period 47,478
At April 30, 2003 the Company reviewed the carrying amount of license rights and
determined that the amount of $141,133 was considered to be totally
unrecoverable and exceeded its fair value by its book value. This
determinations was based on its book value exceeding the sum of the undiscounted
future cash flows expected to result from the assets use and disposition. The
entire capitalized net amount of $141,133 for the license rights was reflected
as a loss in the April 30, 2003 financial statements.
NOTE 4 - NOTE PAYABLE
On May 15, 2002 the Company signed a promissory note for $330,000. The term of
the note is for 60 days and the rate of interest is prime plus 2%. The Company
also agreed to issue 2 million shares of Class B Common Stock to the lender as
part of the transaction 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 October 31,
2002 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 in the
October 31, 2002 financial statements. 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. At January 31, 2003, the note had not been paid back and
accrued interest for the three month period ending January 31, 2003 of $5,362
has been reflected in the financial statements. This note including all
interest associated with it was $340,199 at January 31, 2003. On March 28,
2003, the Company issued 1 million shares in settlement of the default penalty.
At April 30, 2003, the note had not been paid back and accrued interest for the
six month period ending April 30, 2003 totaled $10,518.75. This note including
all interest associated with it was $345,356 at April 30, 2003.
On December 18, 2002, the Company signed a promissory note for $440,000 CAD,
approximately $290,980 USD with an unrelated party. The note bears interest of
11%. At January 31, 2003 interest of $3,946 has been accrued and reflected in
the financial statements. The balance of the note, including interest, at
January 31, 2003 is approximately $294,926 USD. At April 30, 2003 interest of
$11,948 has been accrued and reflected in the financial statements. The
balance of the note, including all interest associated with it was $302,928.
NOTE 5 - 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 options at an exercise price of $0.10 expiring January 31, 2010 and
2,000,000 warrants at an exercise price of $1.20 expiring on February 1, 2005.
At October 31, 2002, $143,623 had been advanced to the Company. During the
three month period ending January 31, 2003, additional advances totaling $98,155
had been received. During the three month period ending April 30, 2003,
additional advances totaling $58,222 had been received. At April 30, 2003, a
total of $300,000 had been advanced to the Company. At April 30, 2003 the
Company had not issued any shares to settle the investment proceeds liability.
In November 2002, the Company entered into an investment agreement whereby
an additional investment group will advance up to $125,000 from November 2002
through February 2003. In consideration for the proceeds, the Company will issue
on February 1, 2003, 2.5 million shares of Class B Common Stock, 2,000,000
options at an exercise price of $0.050 expiring January 31, 2010. During the
three month period ending January 31, 2003, no advances had been received.
During the three month period ending April 30, 2003 advances of $62,651 had been
received. At April 30, 2003 the Company had not issued any shares to settle the
investment proceeds liability.
In March 2003, the Company entered into an investment agreement whereby a third
investment group will advance up to $200,000 from March 2003 through April 2003.
In consideration for the proceeds, the Company will issue on June 1, 2003, 2
million shares of Class B Common Stock, 500,000 options at an exercise price of
$0.10 and 500,000 options at an exercise price of $0.25 expiring January 31,
2010. During the three month period ending April 30, 2003, no advances had been
received.
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.
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 had been accrued and reflected in the October 31, 2002 financial
statements.
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. During the three month period ending
January 31, 2003 no payments were made towards this debt. During the three
month period ending April 30, 2003 approximately $8,000 in payments were made
towards this debt. At April 30, 2003, the outstanding balance totaled
approximately $10,000.
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
believed this complaint to be 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 had been accrued and
reflected in the October 31, 2002 financial statements. The Company and these
individuals signed the settlement agreement related to this matter on February
27, 2003 and the company forwarded the required payment $13,000 to settle this
matter.
Consulting agreement
On May 27, 2002, the Company entered into a consulting agreement with a non
affiliated individual.
The agreement is for one year and the annual amount of the agreement is
approximately $100,000.
NOTE 6 - SOFTWARE DEVELOPMENT
The Company is currently developing software for resale to prospective clients.
The Company capitalizes cost of materials, consultants, interest, and payroll
and payroll-related costs for employees incurred in developing computer software
for resale once technological feasibility is attained. Currently, the Company
has contracted with consultants to develop the software. Technological
feasibility is established when the Company has completed all planning,
designing, coding, and testing activities that are necessary to establish that
the product can be produced to meet its design specifications including
functions, features, and technical performance requirements. Until
technological feasibility is established, all costs associated with the software
development are considered research and development expenditures and are charged
to development expense in the period incurred.
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 $686,254
(unaudited) for the six months ended April 30, 2003 and a loss of $6,527,543
(unaudited) since inception. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of $517,317 for
the six months ended April 30, 2003. 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 continues to aggressively pursue strategic
alliances which will bring a cash infusion, restructuring and forward looking
business plan.
NOTE 8 - RELATED PARTY TRANSACTIONS
Legal fees to Director's firm
During the six month period ending April 30, 2003, the Company has retained
legal services from a firm in which a director of the Company, Marc Cote, is a
partner. The Company incurred approximately $24,600 in legal fees from this
firm in the six month period ending April 30, 2003 .
NOTE 9 - INCOME TAXES
The provision for taxes on earnings for the six months ended April 30, 2003,
consist of:
2003 2002
Current
Federal $ - $ -
State - -
Foreign - -
Deferred
Federal $ - $ -
State - -
Foreign - -
At April 30, 2003, 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.
In March 2003 the Company issued 2 million shares in a private placement
for $100,000.
In March 2003 the Company issued 1 million shares to settle accrued default
payment penalties totaling $50,000.
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 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:
FAS 123 "Accounting for stock based compensation Six months ended Six months ended
Paragraph 47 (a) April 30, 2003 April 30, 2002
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) 33.00 45.00
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 lateststatement 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) 33.00 45.00
Six months ended Six months ended
April 30, 2003 April 30, 2002
Net Income after proforma effect (686,254) (232,478)
Earnings per share after proforma effect $ (0.01) $ 0.00
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------
Explanatary Note.
This Amendment No. 1 on Form 10-QSB/A (this "Amendment") amends the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended April
30, 2003, originally filed on June 18, 2003 (the "Original Filing"). This
Amendment is being filed to amend the financial statements and footnotes to
address SEC comments and to clean up parts of Part II 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.
FORWARD LOOKING STATEMENTS.
This report contains forward-looking statements that are based on the Company's
beliefs as well as assumptions made by and information currently available to
the Company. When used in this report, the words "believe," "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, international war and terrorism and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
OVERVIEW
GSI Technologies USA Inc. is an Information Technology Company that offers
products and solutions to the Out-of-Home Digital Signage Industry. The Company
has developed a proprietary, enterprise scale, Digital Signage Network
Management Software Suite. The Company is a Value Added Reseller for various
related hardware products that make up its end-to-end Digital Signage Solution.
The Company also offers various services related to the installation,
management, operation and maintenance of large Digital Signage Networks
worldwide.
Research firm iSupply/Stanford Resources sees the worldwide Digital Signage
market growing from just over $ 3 billion this year to about $ 5 billion in 2006
and about $ 7 billion in 2008. CAP Ventures Inc., a research firm that tracks
retail digital signage as a separate category, sees this niche growing still
faster, from North America revenue of $ 388 million this year to nearly $ 2
billion in 2006; an increase of more than 400 percent.
GSI Technologies USA Inc. is particularly well positioned to exploit this growth
as it offers one of the only true enterprise scale solutions in the world. The
technology is being field tested by Clear Channel International, which is the
largest player in the Industry.
RESULTS FROM OPERATIONS
Three and six months ending April 30, 2003 and 2002
During GSI's second quarter from February 1,2003 to April 30, 2003, GSI USA
incurred a loss of $549,108 versus a loss of $105,246 in the same period in
2002. The increased loss was due to higher operating expenses, specifically
consulting, software development and a loss on the Licensing Agreement writeoff.
During GSI's six month's from November 1, 2002 to April 30, 2003, GSI USA
incurred a loss of $686,254 versus a loss of $232,479 in the same period in
2002. The increased loss was due to higher operating expenses, specifically
consulting, software development and a loss on the Licensing Agreement writeoff.
REVENUES
$15,000 in revenue was recognized during the current year quarter, versus
zero for the same period in the prior year. This is related to sub-licensing
agreements realized over the respective terms.
$15,000 in revenue was recognized during the current year six month period
versus $23,750 for the same period in the prior year. This is related to
sub-licensing agreements realized over the respective terms.
OPERATING EXPENSES
During the three months ended April 30, 2003, GSI USA has incurred $550,949
in operating expenses versus 76,300 for the same period in 2002. The increase
was mainly attributable to software costs, consulting and the write off of
unamortized impaired licensing rights.
During the six months ended April 30, 2003, GSI USA has incurred $678,787 in
operating expenses versus 220,876 for the same period in 2002. The increase was
mainly attributable to software costs, consulting and the write off of
unamortized impaired licensing rights.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2003 GSI USA had $2,005 in cash. Cash used in operating
activities during the six months ending April 30, 2003 was 517,317, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash used by investing activities during the period reflects additional
short-term loans to GSI Canada in the amount of $90,685, which was for purchased
of business equipment
Net Cash provided from financing activities during the period was 610,008.
The result of all activities during the six-month period ending April 30,
2003 was a net increase of $2,005 in our cash position.
MANAGEMENT DISCUSSION AND ANALYSIS
GSI Technologies USA Inc. was created in 1998, as a sister company to
GSI Canada created in 1995, with goals of supplying complete turn-key solutions
to out-of-home advertising network operators. The company's offering went from
digital signage network management software to installed screen, displays or
street furniture, interacting with targeted audiences. GSI was then offering
integration of network services but dealing with hardware suppliers for
integration of computers and screens (plasma, LCD, LED or plain TV set).
GSI participates in the information technology industry, specializing
in broadcasting solutions principally for media operators, advertisers and
others seeking to reach the greatest number of "viewers per day" at the street
level. Street level advertising is the strategic placement of signage so 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.
The Company's initial years were primarily spent on extensive R&D,
building products that were expected to capitalize on the Internet and
multimedia boom and the increase of last-mile bandwidth. However, the great
promises of the technology and Internet golden age of the late 90's did not
materialize as foreseen. For GSI specifically, the techno bubble burst, the
cost and availability of bandwidth not improving fast enough, the economic down
turn, and the cost of plasma screens still considered too high, all contributed
to the near disappearance of the company.
Since then, we have been continuously involved in research and
development in an effort to innovate and deliver appropriate products to the
marketplace. Equally, the company has been present in the marketplace, building
a solid foundation of industry contacts both as potential partners and business
clients.
The market currently continues to present a mixed picture. The
primary issue has been the overall slow economic climate in our major market
areas of Canada, the USA and Europe. Budgets for digital media products have
suffered from the overall economic conditions as well as generally reduced IT
spending across the board. As such, we have assumed a cautious approach to
develop a cost-effective solution, and to exploit the areas of clearest
opportunity. We see signs of recovery in certain key market areas.
During the period of this downturn in purchasing in the marketplace,
we have continued our product development, with emphasis on developing and
launching an entirely new suite of products and services known as the GSI
Digital Media Logistics Suite (DMLS), Version 3.0. Development of the end
product is nearing completion, and our current focus is on finalizing
development activities. GSI's DMLS software enables users to accept, store,
inventory, deliver and organize the playing of digital content to all kinds of
digital display products such as, plasma screens, LCD screens, LED screens, TV
monitors, multi media projectors etc.
At the same time, the Company re-evaluated its overall market approach
and decided to focus more heavily on developing and selling digital network
operations software rather than actually developing networks, installing and
managing physical hardware, and actually selling and managing the digital
content. With the re-focus of GSI in mid-2002, came a new philosophy and
re-positioning of the company's activities. GSI is returning to the core
expertise of its past, focusing on its original concept and vision, building the
software that will help users store, inventory, deliver and use visual digital
content on a variety of devices in a variety of applications. The Company now
has a much clearer product and sales vision.
As a result of such events, the Company made a strategic decision to
undertake an entirely new proprietary solution development program using a third
party, LTS Networks. LTS Networks, a Montreal-based Corporation, is specialized
in Network Management and R&D software development. GSI has given LTS a mandate
to develop an entirely new family of digital distribution products from the
ground up.
GSI will now focus on conceiving, developing and selling the world's
most effective and user-friendly digital signage network management software
directly to network integrators, screen manufacturers or to out-of-home digital
network owners/operators. We believe that we now possess some of the most
advanced technology currently available in the field of electronic advertising
and interactive information display.
GSI, over the past couple of years, has acquired valuable field
experience in serving digital network operators through various pilot projects.
Therefore, we have revised technical specifications that will be well served to
meet our customers' current and evolving needs. On May 5, 2003, we released our
newly designed proprietary solution.
The Company will also, in some cases, offer Network Software Managed
Services, Integration Services and Hardware through various partnerships and
strategic alliances. GSI will no longer
supply or manufacture street furniture. We will continue to leverage our market
knowledge to provide strategic consultant services for turnkey digital signage
solutions.
Our GSI Digital Media Logistics Suite offers a complete range of
products designed around the concept of providing specific digital images for
advertising and information on multiple digital devices that will address
current market needs and attract significant commercial interest.
We have totaly revised our pricing and licensing structure. We will
now sell and distribute our software product on a per player software license
basis. Our comprehensive software package includes: Digital Media Logistics
Player, Digital Media Logistics Server and Digital Media Logisitics
Administrator.
In April 2003, GSI signed a special agreement with MCSI, a publicly
traded corporation specialized in Technology Integration, for the sale of 12,000
licenses to be utilized for customers such as Bank of America and Bed Bath &
Beyond, etc. We are currently developing, with the participation of LTS
Networks, a small form factor player at very low cost to respond to our
customer's special implementation needs. Our agreement is valid for a special
term of 24 months.
In July 2002, we completed a Letter of Intent with a California-based
corporation specializing in Internet market content. The Agreement calls for
the client to install a network of full motion video plasma screens in
approximately 200 preferred locations in the United States. We have been
informed that our client has succeeded in securing over 100 locations. In July
2003, our client will start implementing the first phase for 35 locations and
will continue to build up the network till end of year 2003. We have negotiated
a 10-year licensing agreement starting when the Network begins its operations.
Network management and content production contracts are currently been
negotiated. There are no assurances that the Company will ever receive any
revenues based upon this transaction.
During the month of May 2003, our sales management team has been
negotiating a common development agreement with Petters Group LLC, in regards to
their new suite of Digital Signage Products, branded under the name of Polaroid.
GSI has currently concluded sales of 42" Digital plasma screens for an
approximate quantity of 600 units, subject to financing approval of the
customers.
We are currently negotiating a team co-marketing agreement with
Polaroid to offer a turnkey solution to large enterprise scale customers that
integrate the hardware and software products. We anticipate completing the
agreement by end of June 2003.
In May 2003, we initiated negotiations with Arcanes Technologies, a
France based corporation to act as sales agent to distribute our new line of
products in France.
In May 2003, we received a Letter Of Intent from TSA, a France based
corporation, specialized in Network Integration and Satellite Transmission to
act as Technology Integrators and service corporation for our European based
customers.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. During the three month period ending
January 31, 2003 no payments were made towards this debt. During the three
month period ending April 30, 2003 approximately $8,000 in payments were made
towards this debt. At April 30, 2003, the outstanding balance totaled
approximately $10,000.
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
believed this complaint to be 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 had been accrued and
reflected in the October 31, 2002 financial statements. The Company and these
individuals signed the settlement agreement related to this matter on February
27, 2003 and the company forwarded the required payment $13,000 to settle this
matter.
ITEM 2. CHANGES TO AUTHORIZED SHAREHOLDERS' CAPITAL
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On February 4th, 2002, we became delinquent because we were late
filing our annual 10-KSB report. On March 5th, 2002, we were temporarily
delisted from the OTCBB. On March 8th, 2002, we filed our 10-KSB report for the
period ending October 31, 2001. Since then, we have filed all of our reports on
time. We have appointed a new market maker who expects to file a form 2-11 by
end of June 2003, so our securities can become relisted on the OTCBB.
In May 2002, GSI entered into a loan agreement with a private party
for a sum of $330,000.00, bearing interest at prime rate + 2%. In March 2003,
GSI issued 1,000,000 shares as a penalty on this loan. In May 2003, GSI
authorize the issuance of 2,000,000 shares at a price per share of $0.25 plus
500,000 warrants exercisable at $0.25 and 516,000 warrants exercisable at $1.00
in consideration of the conversion of this loan plus a supplementary investment
of $165,000. The investor is Mr. Craig Perry who became a Director on April 28,
2003.
In September 2002, Sogepar SA, a European investment corporation,
agreed to invest a total of $300,000 to be injected from September 2002 to
February 2003. The investment has been completed. In June 2003, Sogepar SA
will receive 6,000,000 shares at a price per share of $0.05 plus 2,000,000
options exercisable at a price of $0.10 and 2,000,000 warrants exercisable at a
price of $1.20.
In November 2002, Worldwide Business Consultants S.A., agreed to invest a
total of $125,000 to
be injected from November 2002 to February 2003. The investment has been
completed. In June 2003, Worldwide Business Consultants SA will receive
2,500,000 shares at a price per share of $0.05 plus 2,000,000 options
exercisable at $0.05.
In December 2002, GSI entered into a loan agreement with a non-US
corporation for an amount of $320,000.00 which could be converted into equity,
subject to approval of regulatory authorities.
In March 2003, a non-US private investor invested $100,000.00 for 2 Million
shares at $0.05 per share.
In March 2003, First Mercantile Investments, Corp., agreed to invest a
total of $200,000 to be injected from March 2003 to April 2003. The investment
has been completed. In June 2003, First Mercantile Investments, Corp. will
receive 2,000,000 shares at a price of $0.10 per share plus 500,000 options
exercisable at $0.10 per share and 500,000 options exercisable at $0.25 per
share.
In June 2003, GSI entered into a purchase agreement to acquire 40% equity
of LTS Networks for 500,000 shares.
In June 2003, GSI will issue 1,336,800 shares to 4136306 Canada Inc. for
conversion of outstanding promissory notes dated June 2002.
MANAGEMENT
On February 7, 2003 Mr. Rene Arbic resigned from his position as Chief
Executive Officer of GSI Technologies USA Inc.
In May 2003, Mr. Rene Arbic resigned from his position as Chairman of the
Board of GSI Technologies USA Inc.
In May 2003, the Board of Directors appointed Mr. Craig Perry, who is
currently General Manager of InMetal and a shareholder of GSI, to join the Board
of Directors as a Director and Chairman.
In June 2003, the Board of Directors appointed Mr. Gilles Addison to the
position of President and Chief Executive Officer.
In June 2003, GSI Board of Directors appointed an Executive Advisory Board
to manage and build the value of the Corporation on a day to day basis with the
input of experienced individuals in various field of activities. We believe our
Corporation will grow in a team environment and deliver positive results to the
benefit of our shareholders. The Executive Advisory Board will report to the
Board of Directors through the CEO, Mr. Addison. GSI's management is seeking to
identify a Chief Financial Officer that will suit the needs of our Corporation.
The Executive Advisory Board is composed by the following individuals:
- Mr. Gilles Addison, President and CEO
- Mrs. Marie El-Ahmar Eid, Business Development and Investor Relations
Director
- Glen Pearson, Operations Director
- Michel de Montigny, Product, Sales and Marketing Director
- Paola Salcedo, Administration Director
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are contained in this 10-QSB:
99.1 Sarbans-Oxley Certifications.
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.
Dated: February 18, 2004 GSI TECHNOLOGIES USA INC.
By: /s/ Gilles Addison
---------------------------------------
Gilles Addison
President and CEO