UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended October 31, 2001.
[_] 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 65-0902449
-------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 McGill College Avenue, Suite 1310, Montreal, Quebec H3A 1G1 Canada
----------------------------------------------------------------------
(Address of principal executive offices)
(514) 940-5262
------------------------------------------------
(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[ ] No[ ]
As of September 14,2001, there were 21,076,636 shares of the issuer's $.001
par value common stock issued and outstanding
Transitional Business Disclosure Format (Check one): Yes [ ] No[X]
1
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of October 31st 2001 3
Statements of Cash Flows for Three and Nine Months
and Since Inception To October 31st, 2001 and 2000 5
Notes to Financial Statements for the 9-17
Nine Months Ended October 31st, 2001.
Item 2. Management's Discussion and Analysis 18-25
PART II. OTHER INFORMATION 26
Item 1. Legal Proceedings
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
2
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
October 31, 2001 October 31, 2000
------------------ ------------------
ASSETS
------
Current Assets
Cash and cash equivalents $ 6 019 $ 4 404
Receivables, net (principally related party) 1 619 292 3 096 664
Other current assets - 918
------------------ ------------------
Total current assets 1 625 311 3 101 986
Property and equipment, net 36 248 40 568
Intangible assets, net 283 567 378 522
Other assets 19 908 61 104
------------------ ------------------
TOTAL ASSETS 1 965 034 3 582 180
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 733 080 531 319
Deferred Revenue 17 500
Notes Payable (principally related party) 68 273 2 822 720
Other current liabilities 176 321 56 385
------------------ ------------------
Total current liabilities 995 174 3 410 424
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized - -
5,000,000 shares; issued and outstanding none in 2001 and 2000
Common Stock, class B, $.001 par value; authorized 24 502 20 544
55,000,000 shares; issued and outstanding - 24,502,134 and
20,543,636 shares respectfully
Paid in Capital 5 118 419 1 748 131
Receivable from the sale of stock - (13 200)
Deficit accumulated during the development stage (4 173 450) (1 584 105)
Accumulated other comprehensive income 388 386
------------------ ------------------
Total Shareholder's Equity 969 859 171 756
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1 965 034 $ 3 582 180
================== ==================
3
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Period of
inception
Year Ended Year Ended July 06, 1998 to
October 31, 2001 October 31, 2000 October 31, 2001
------------------ ------------------ ------------------
Revenues $ 229 793 $ 596 409 $ 826 202
Cost of Sales 121 797 469 416 591 213
------------------ ------------------ ------------------
Gross Profit 107 997 126 993 234 990
Operating Expenses:
Marketing 92 298 209 739 302 037
Management and administrative fees 707 533 506 722 1 214 255
Salaries and related costs 229 770 99 825 329 595
Rent 250 904 114 313 365 217
Financing expense 15 000 30 342 174 132
Professional fees 91 992 42 044 212 352
Consulting 31 914 304 647 336 561
Depreciation 3 893 393 4 286
Amortization 95 382 95 062 191 745
Travel 46 361 9 529 55 890
Other selling, general and administrative 187 791 71 482 309 505
------------------ ------------------ ------------------
Total operating expenses 1 752 839 1 484 098 3 495 575
Loss before other income (expense) (1 644 842) (1 357 105) (3 260 586)
Other income (expense):
Interest income (principally related party) 317 275 76 760 394 035
Interest expense (principally related party) (111 596) (45 121) (156 717)
Loss on Affiliate Note Receivable (1 033 652)
Equity in net earnings (loss) of affiliates (25 000)
Foreign exchange gain (loss) (54 562)
Loss on disposal of assets (36 968)
------------------ ------------------ ------------------
Total other income (expense) (944 503) 31 639 (912 864)
------------------ ------------------ ------------------
Net Loss (2 589 345) (1 325 466) (4 173 450)
================== ================== ==================
Basic weighted average common shares outstanding 22 403 444 20 149 092
================== ==================
Basic Loss per common share $ (0,1156) $ (0,0658)
================== ==================
4
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Accumulated Accumulated
Common Class A Receivable Deficit during other Total
------------------------- Paid in from sale Development Comprehensive Shareholder's
Shares Amount Capital of stock Stage Income/(loss) Equity
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
- $ - $ - $ - $ - $ -
18 085 472 18 085 - - 18 085
500 000 500 - - 500
384 700 385 384 315 - 384 700
600 000 600 599 400 - 600 000
(325 221) (325 221)
18 000 18 17 982 - 18 000
20 200 20 20 180 - 20 200
(258 639) (258 639)
19 608 372 19 608 696 656 - (258 639) - 457 626
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
417 818 418 417 400 417 818
148 639 149 148 490 148 639
10 643 11 10 632 10 643
75 000 75 74 925 75 000
5
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
51 264 51 56 339 56 390
23 000 23 25 277 25 300
12 000 12 13 188 (13 200) -
126 900 127 228 293 228 420
70 000 70 76 930 77 000
(1 325 466) (1 325 466)
386 386
20 543 636 $20 544 $1 748 131 $ (13 200) $ (1 584 105) $ 386 $ 171 756
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
125 000 125 124 875 125 000
(12 000) (12) (13 188) 13 200 -
(24 764) (25) (27 216) (27 240)
25 000 25 4 975 5 000
400 000 400 99 600 100 000
20 000 20 4 980 5 000
2 307 900 2 308 2 971 379 2 973 687
6 250 6 5 994 6 000
1 111 112 1 111 198 889 200 000
(2 589 345) (2 589 345)
2 -
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
24 502 134 $24 502 $5 118 419 $ - $ (4 173 450) $ 388 $ 969 859
=============== ======== =========== ============ ================ =============== ===============
6
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Inception
(July 08, 1998)
through
October 31, October 31, October 31, October 31,
2001 2000 1999 2001
---------------- ------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (2 589 345) $ (1 325 466) $ (258 639) $ (4 173 450)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 99 276 95 455 1 301 196 032
Loss on write down of Affiliate Note Receivable 1 033 652 - - 1 033 652
Issuance of stock for contract settlement 11 000 - 500 11 500
Accrued Interest Expense (principally related party) 107 530 45 121 - 152 651
Accrued Interest Income (principally related party) (317 274) (76 752) - (394 026)
Changes in Operating assets and liabilities:
Receivables and other current assets (39 744) 72 381 (90 985) (58 348)
Other assets 41 196 (61 104) - (19 908)
Accounts Payable and Accrued Liabilities 334 198 415 514 177 190 926 902
---------------- ------------- ------------- --------------
Net cash provided by/(used in) operating activities (1 319 511) (834 851) (170 634) (2 324 995)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties 801 656 (3 002 226) - (2 200 570)
Purchase of property and equipment (41 066) - (41 066)
---------------- ------------- ------------- --------------
Net cash provided by/(used in) investing activities 801 656 (3 043 292) - (2 241 636)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable, principally related parties 118 391 2 492 932 79 667 2 690 990
Notes payable - affiliate 203 318 - - 203 318
Sales of common stock 197 760 1 039 210 440 985 1 677 955
---------------- ------------- ------------- --------------
Net cash provided by/(used in) financing activities 519 469 3 532 142 520 652 4 572 263
---------------- ------------- ------------- --------------
Effect of exchange rate changes on cash and cash eqivalents 386 - 386
---------------- ------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 1 615 (345 615) 350 019 6 019
Cash and cash equivalents, beginning of period 4 404 350 019 - -
---------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ 6 019 $ 4 404 $ 350 019 $ 6 019
================ ============= ============= ==============
7
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of note for payment of license rights 200 000 200 000
Issuance of shares for license rights 274 779 274 779
Issuance of shares for dividend to affiliate 325 221 325 221
Issuance of shares for settlement of note payables 3 173 687 3 173 687
8
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
October 31st 2001
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.
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 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
9
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
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
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 35 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.
10
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
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 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. 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.
11
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2001 October 31, 2000
------------------ ------------------
Receivables:
Note Receivable- GSI Technologies (3529363 Canada Inc.) $ 1,560,944 $ 3,058,950
Note Receivable - Group Solcom France - 20,028
Receivable - GSI Technologies (3529363 Canada Inc.) - 12,500
Due from Tax Authority 58,349 5,186
------------------ ------------------
1,619,292 3,096,664
================== ==================
Property and Equipment:
Furniture and fixture 38,934 38,934
Leasehold improvements 2,133 2,133
Less: Accum depreciation & amortization 4,819 499
------------------ ------------------
Property and equipment, net $ 36,248 $ 40,568
================== ==================
Intangible Assets:
License rights $ 474,779 $ 474,779
(Acquired from affiliate and recorded at
predecessor basis with the cost over such
basis recorded as a dividend to affiliate).
Accumulated amortization (191,212) (96,257)
------------------ ------------------
$ 283,567 $ 378,522
================== ==================
NOTE 4 - COMMITMENTS AND CONTIGENCIES
Office leases
On January 06, 2000 the Company entered into an office rent agreement with
2849-3930 Quebec Inc. for office space in Montreal, Quebec. This agreement
is for a term of 4 year starting January 01, 2000 with a 5 year renewal
option. The annual rent amount is $164,344.
On June 16, 2000 the Company entered into an office rent agreement with
Suntrust Center, L.L.C. for office space in Orlando, Florida. This
agreement is for a term of 5 years and 15 days starting June 16, 2000. The
annual rent amount is $59,910.
Guarantor agreement
On March 24, 2000, the Company agreed to act as a guarantor for GSI
Technologies (3529363 Canada Inc.), a shareholder of the Company and an
affiliate in an agreement with Admiralty Leasing Ltd. for office furniture.
The term is for 3 years. The annual amount is $20,400 CAD plus applicable
taxes.
12
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 4 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
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, 2001:
Year ending October 31:
2002 - $252,320
2003 - 247,189
2004 - 244,200
2005 - 73,111
2006 - - .
--------
816,820
========
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of$2,589,345
and $1,325,466 for the twelve months ended October 31, 2001 and 2000
respectively as well as reporting net losses of $4,173,450 from inception (July
08, 1998) to October 31, 2001. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of $1,319,511 and
$834,851 for twelve months ended October 31, 2001 and 2000 respectively and has
reported deficient cash flows from operating activities of $2,324,995 from
inception (July 08, 1998). To date, these losses and cash flow deficiencies
have been financed principally through the sale of common stock ($1,480,195).
Continuation of the Company as a going concern is dependent upon obtaining
sufficient working capital for its planned activity and the management of the
Company has developed a strategy, which it believes will accomplish this
objective through additional equity funding, and long term financing, which will
enable the Company to operate for the coming year.
NOTE 6 - RELATED PARTY TRANSACTIONS
Sub-license agreement:
On May 04, 2000, the Company entered into a sub-license agreement with GSI
Technologies (3529363 Canada Inc.), a shareholder of the Company and an
affiliate, whereby giving all commercial rights relating to the technology
in the territory of Canada to GSI Technologies (3529363 Canada Inc.). The
term of the sub-license agreement is 10 years with annual payments of
$25,000 US.
On March 6, 2001, the Company entered into a sub-license agreement with
Groupe Solcom International France S.A.S. whereby giving all commercial
rights relating to the technology in the territory of the European Union to
Groupe Solcom International France S.A.S. The Company has a 25% interest in
Groupe Solcom International France S.A.S. with the other 75% owned by GSI
Technologies (3529363 Canada Inc.), an affiliate of the Company. The term
of the sub-license agreement is 10 years with annual payments of $100,000
US.
13
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED):
Note receivable from stockholder:
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.
Note payable to affiliates
On September 07, 2000, the Company borrowed funds of $2,822,599 from
several affiliates and stockholders of the Company and issued promissory
notes having a term of one year bearing interest at prime plus 2%. The
notes are convertible at any time into common shares at the discretion of
the Company. On May 3, 2001, the entire amount of the notes including
interest of $151,088 were converted into 2,307,900 of Class B Common
Shares.
Marketing and Administrative Costs
From November 01, 1999 to October 31, 2001, the Company was charged
marketing and administrative costs incurred by GSI Technologies (3529363
Canada Inc.) on behalf of the Company.
Consulting Agreement:
On January 10, 2000, the Company entered into a consulting agreement with
Mr. Yves Lebel and 9035-2899 Quebec Inc., a shareholder of the company. Mr.
Lebel is a Director, Chief Financial Officer and Executive Vice President
of GSI Technologies (3529363 Canada Inc.). The term of the agreement is for
one year with an additional year renewal term at the end of the initial
year. The total amount of the agreement is $78,000 per year. Mr. Lebel also
entered into a non-competition and confidentiality agreement with the
Company for as long as he remains a consultant and for an additional year
thereafter.
NOTE 7 - INCOME TAXES
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for the period presented because it
has experienced operating losses since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding its
realizability.
14
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
NOTE 8 - INVESTMENT IN AFFILIATES
The Company's investments in affiliates consists of a 25% interest of Groupe
Solcom, headquartered in France, which participates in the electronic
advertising and interactive information display. The Company accounts for its
25% interest in Group Solcom using the equity method. Condensed financial
information for investments in affiliiates accounted for under the equity method
of accounting are summarized below.
October 31, 2001 October 31, 2000
Current assets 3,158,385 0
Other assets 1,171,956 0
----------------- ----------------
4,330,341 0
Current liabilities 4,302,065 0
Shareholder's Equity 28,276 0
----------------- ----------------
4,330,341 0
Net Sales 2,415,733 0
Gross profit 1,855,652 0
Net income (391,672) 0
NOTE 9 - 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.
NOTE 10 - WARRANTS AND OPTIONS
On August 01, 2000 the Company adopted a Long Term Incentive Plan whereby
directors, officers, certain key employees of the Company and its
affiliates as well as certain consultants to the Company would be granted
stock options. A maximum of 10% of the authorized Class B common shares
totaling 5,500,000 can be reserved and available for distribution pursuant
to the terms of the plan. On October 02, 2000, 925,000 options with an
exercise price of $1.25 had been issued to consultants and other non
employee affiliates for services rendered to the Company throughout the
year. The options vest one-third on December 18, 2000, one third on
December 18, 2001 and one third on December 18, 2002. The stock options
expire seven years from the date they were granted.
15
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
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:
Year ended Year ended
FAS 123 "Accounting for stock based compensation Oct. 31, 2001 Oct. 31, 2000
Paragraph 47 (a) --------------- --------------
1. Beginning of year - outstanding
i. number of options/warrants 1,475,000 0
ii. weighted average exercise price 1.19 0
2. End of year - outstanding
i. number of options/warrants 308,333 1,475,000
ii. weighted average exercise price 1.25 1.19
3. End of year - exercisable
i. number of options/warrants 308,333 550,000
ii. weighted average exercise price 1.25 1.10
4. During the year - Granted
i. number of options/warrants 0 1,475,000
ii. weighted average exercise price 0 1.19
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 661,667 0
ii. weighted average exercise price 1.25 0
7. During the year - Expired
i. number of options/warrants 550,000 0
ii. weighted average exercise price 1.10 0
Paragraph 47 (b) Weighted-average grant-date fair value of options granted
during the year:
1. Exceeds market price 0 0
Paragraph 47 (c) Equity instruments other than options/warrants none none
Paragraph 47(d) Description of the method and significant assumptions used
during the year to estimate the fair value of options:
1. Weighted average risk-free interest rate 5.54% 5.54%
2. Weighted average expected life (in months 71.00 61.00
3. Weighted average expected volatility 0.00% 0
4. Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized in income for 0 0
stock-based employee compensation awards.
Paragraph 47(f) The terms of significant modifications of none none
outstanding awards.
Paragraph 48 - Options outstanding at the date of the latest
statement of financial position presented:
1. (a) Range of exercise prices $ 1.10-$1.25 $ 1.10-$1.25
(b) Weighted-average exercise price 1.25 1.19
2. Weighted-average remaining contractual life (in months) 71.00 61.00
16
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Inception
Jul. 08, 1998
Year ended Year ended Through
Oct. 31, 2001 Oct. 31, 2000 Oct. 31, 2001
--------------- --------------- --------------
Net Income after proforma effect (2,589,345) (1,576,216) (4,424,200)
Earnings per share after proforma effect $ (0.1156) $ (0.0782)
17
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Item 2. Management's discussion and analysis
---------------------------------------------
Forward looking statements.
This report contains forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate," and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, 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 ( GSI USA) specializes in broadcasting solutions
principally for advertisers and others seeking to extend their reaching power
for their commercial and public service messages. Holder of a world-wide
license, GSI's proprietary software, hardware, and advanced broadcasting systems
respond to their needs. In providing access to its remote control broadcasting
capability, GSI USA enable users to transmit and receive full-motion video,
graphics, and audio on an array of attractive, durable and interactive indoor
and outdoor display products.
Results from operations
GSI USA is still in the development phase after starting up in 1999. During
GSI's fourth quarter from August 1, 2001 to October 31, 2001, GSI USA incurred a
loss of $1,739,528 or $0.0776 per share versus a loss of $468,990 or $0.0233 per
share in the same period in 2000. The accumulated deficit to date during the
development phase increased to $4,173,450 or $0.1863 per share.
Revenues
$48,750 in revenue was recognized during the quarter, versus $346,409 for
the same period in the prior year. This is 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.
Since inception, revenue totals $826,202, primarily from product sales.
18
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
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 $27,977 in direct
operating cost for the quarter, versus $319,416 for the same quarter in the
prior year. Since inception, cost of sales is $591,213, including $261,227 in
royalties and $329,986 in product costs.
Operating expenses
During the three months ended October 31st, 2001, GSI USA has incurred
$327,193 in operating expenses versus $524,110 for the same period in 2000. The
increase is attributable primarily to an increase in rent charges and consulting
fees.
Since inception, operating expenses total $3,495,575. These costs are
primarily associated with the development of the company.
Other income
During the three months ending October 31st, 2001, $32,699 in interest was
earned mainly on the outstanding loan to GSI Canada, while $102,538 in interest
was brought into income due to the conversion of the Notes Payable. This amount
includes $80,705 for loans from shareholders and affiliated parties.
Since inception a total of $394,035 in interest has been earned.
Equity in the loss of our European affiliate was $25,000 for the period
versus nil for the same period of 2000. As explained further below.
Liquidity and capital resources
At October 31, 2001 GSI USA had $6,019 in cash. Cash used in operating
activities during the year ending October 31, 2001 was $1,319,511, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash provided by investing activities during the year reflect additional
short-term loans to GSI Canada in the amount of $801,656.
Cash provided from financing activities during the year of $519,469
reflects a private placement as well as funding provided by issuance of Notes
Payable.
In September 2000, GSI USA entered into formal loan arrangements with a
group of existing investors borrowing funds totaling $2,822,599. The promissory
notes have a maturity date of September 7, 2001, bear interest at the rate of
prime plus two per cent and are convertible at any time at the sole discretion
of the Company into a certain number of shares for each holder. If converted,
interest on the notes is waived. On May 3, 2001, the entire amount of the notes
including interest of $151,088 were converted into 2,307,900 of Class B Common
Shares.
19
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
The result of all activities during the year ending October 31, 2001
was a net increase of $1,615 in our cash position.
From inception, net cash used in operations has been $2,324,995. A total of
$2,241,636 has been used in investing activities, while $4,572,263 has been
provided by financing activities, including $1,677,955 from sales of common
stock.
MANAGEMENT DISCUSSION AND ANALYSIS
Since the beginning of 2001, GSI USA has been refocusing our activities to
concentrate on our core business.
Through its affiliate, GSI Canada, last summer GSI USA installed,
successfully, 32 CityColumns as phase one of our pilot project for shopping
centers owned by the Ivanhoe Group. Based on the results of this pilot project,
we have refined our concept and adjusted our marketing strategy and product
development program. Operating as the media operator, GSI Canada has been able
to measure the impact of our concept on advertising customers, advertising
agencies, and target consumers.
On March 6, 2001, GSI USA sold a license to Groupe Solcom for $1,000,000,
payable in 10 annual installments of $100,000. Groupe Solcom is owned 75% by GSI
Canada and 25% by GSI. Other sales of licenses are planned in the European
Community. Groupe Solcom has successfully completed other pilot projects.
During the last quarter, Groupe Solcom successfully completed the
installation of 80 projection systems for their client, the MCR Multimedia
Group, which use the GSI Multimedia Pack to broadcast animated advertising
images in the Milan, Italy subway system. The operating system and installations
have been working find and provided the customers very satisfying business. The
next phase have been delayed to the next quarter due to hold backs in the
advertising industries after September 11th events.
Groupe Solcom has also completed a pilot project with the Societe Generale
Bank, installing a network of plasma-screen based DigiColumns.
Cash requirements of approximately $150,000 are anticipated during our next
fiscal quarter to January 31st 2002.
In the previous quarter, the board caped to 4 million funding to its
affiliate GSI Canada.
As of October 31st, GSI Canada had repaid the sum of $1,865,419. At end of
August, Groupe Solcom France repaid GSI USA the sum of $1,140,000 by replacing
GSI USA with line of credit to the Societe Generale as guarantor. At term of the
transaction, GSI USA reimbursement by affiliates was at $3,005,419. GSI USA is
pursuing its activities of seeking for additional funding to sustain long term
operation. We also, continue to negotiate with pin point investors and business
partners that express their interest in participating in GSI USA capital
structure. We believe we will be able to finalize agreements in beginning of
year 2002.
We have been confronted to the facts that after September 11th events, the
investment market was slowed down and projects and development were postponed to
beginning of year 2002.
20
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
We no have longer any line of credit or liabilities with the Societe
Generale.
Investment in affiliates
Our 25% share in Groupe Solcom International from SAS is reflected as an
investment in affiliates on the balance sheet. The value of this investment was
$25,000 at October 31st versus nil for the same period of 2000.
Product sales and distribution and provision of services
Under the master license acquired in October 1999, from our Canadian
affiliate, GSI Canada, GSI USA has access to one of the most advanced
technologies currently available in the field of information broadcast and
electronic advertising and information interactive display. The term of the
license is 5 years to October 26th, 2004 and is automatically renewable for
another 5 years at the sole discretion of GSI. The cost is $800,000, $200,000
paid in cash in November 1999; the balance in $600,000 worth of GSI'S common
shares.
GSI Canada's R&D department continues to enhance the GSI Multimedia Pack
Software, in response to the market test application on installations in
Montreal, Paris, and Milan. The R&D team has been working overtime in order to
deliver a full operational new version for September 17th 2001.
Working in conjunction with GSI Canada's R & D department, our New Media
division, has fully integrated its E-Commerce Software in order to be able to
offer transactional capabilities via our products, further enhancing their
potential for acceptance in the fast-evolving market place.
The prototype phase has been completed and we are now marketing the
following products:
o Citycolumn: an indoor display unit indoor/advertising unit, with
interactive kiosk capability.
o Transacolumn: an indoor display advertising unit with transactional
e-column kiosks and ATM cash machine.
o Skycolumn: a large outdoor full video advertising LED screen.
o Projecolumn: an indoor advertising display unit which used
a projecting system.
o Digicolumn: a display kiosk using plasma screens.
21
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Our objective is to ramp up revenues from sales of these products, as well as
revenues from broadcasting, production of content, technical support,
maintenance, and consulting contracts.
In April 2001, GSI USA sold licenses and operating systems to the More
Group UK, part of the Adshel Group, a division of Clear Channel International.
We are currently installing our broadcasting facilities in London as previously
announced on March 5th, 2001. GSI USA is serving the More Group in 2 cities,
Bristol and Swindon, in the first phase and will be operational in October 2001.
Activities in other cities in the UK are in the planning phase. GSI USA
anticipates that the ongoing association with Adshel will help to identify the
principal media operators in the various countries in Europe, Asia, and the
Americas and continue to ramp up our commercial operations.
Our management team has refined our market penetration strategy. The
world's large media groups are only beginning to convert from conventional
static advertising to full video motion and interactive two-way systems. GSI USA
is, therefore, concentrating on selling license agreements with large, local
media operators. The networking feature of its concept and the variety of its
products enable us to customize state-of-the-art applications for reaching
consumers-"What do you want to say to your consumer today and where?"
As a pioneer in the advertising media industry, GSI USA is rapidly gaining
experience in the application of all aspects of our concept, ranging from the
design of the display products, to the software that drives them to the content
advertisers. Interest in our technology and networking concept is growing,
particularly from the suppliers of display equipment. Potential partners have
been identified in the fields of telecommunications, banking, ATM services, and
the Internet service providers.
Our business development has entered a crucial phase. By signing agreements
with Adshel in the outdoor/indoor out of home market, GSI USA needs to deploy
its studio and broadcast installations to support its massive market
penetration.
Canada
On August 15th, our affiliate was forced to restructure its operations by
closing down all of its divisions and maintaining strictly R&D personal and
development.
Our affiliate filed an intent engagement with its creditors at 0.60$/1.00$;
the proposition was accepted by the creditors.
GSI Canada will now concentrate on research & development. Only one
managing employee is maintained in position.
All of Canada sales are now assumed by GSI USA.
22
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
USA
The advertising industries in general did not escape from the economic slow
down in North America.
We decided to restructure our US operations and closed down our offices in
Orlando.
We moved our American operations in (Miami voir Rene). In order to save
operations costs, we decided to focus on united States and Canada markets.
More so, we are mainly concentrating on sales of licenses to advertising
partners and specific market applications such as :
1. Postal Service Kiosks
2. Virtual Banking Kiosks
3. Advertising Kiosks
By putting together partnerships ventures :
1. GSI Broadcast Software
2. Banking Authorities
3. Advertising sales groups
4. information content media
5. Land lord for network deployment
By venturing partners' energies together we have created a new business model
offering multi services and revenues generating operating system. We are
pursuing our negotiations with major business partners.
Several potential sub-licenses buyers have been identified and will be
signed as soon as the Master License Agreement is completed.
By proceeding to this restructure we realize tremendous savings. We maintained
all our focus on sales. The savings will have a great impact on our next
quarter. We are confident to conclude important sales agreements in beginning
of year 2002.
We have postponed till further notice our developments in South America and
Mexico.
Europe
Significant opportunities are being identified in Europe. The appetite in
Europe for new technologies favors the development and installation of GSI's
hi-tech products and services. Through these opportunities and the progress of
our European affiliate, Groupe Solcom, we are responding to increasing customer
demand from, amongst others, the major participants in the out-of-home
advertising industry and retail stores. Considered the most hospitable
environments in Europe at this stage of our development, our focus is on France,
England, Italy, and Portugal.
After a successful presentation in August 2000 in the city of Nantes, with
our partners Adshel (Clear Channel) the French division of Adshel won the tender
and announced the implementation of 7 LED screens, 150 Internet kiosks, and 10
multi-media columns for March 2002.
23
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Working in conjunction with the Adshel's sales force, GSI USA is planning
to install broadcast systems and a production Center. This project will become
a flagship concept for our partners that can be extended to other major cities
worldwide. We anticipate the sub-license agreement will be completed shortly.
GSI would also benefit from a production contract and fees from the maintenance
of the network. We have proposed a 10-year contract.
In April 2001, Groupe Solcom International acquired Providence
Technologique. This company has developed a unique and futuristic touch screen,
which can be useful in public sites such as shopping Centers, museums,
administrative buildings, etc. This touch screen is managed by versatile and
friendly user software we named Icos.
Providence Technologique has completed an agreement with Bank of Bilbao
VIZCAYA, installing surveillance equipment for value of 100,000 EUROS.
Groupe Solcom France signed a formal contract with Rond Point/Minute pub
for city of Amiens, Lehaure, Chamberry, Rennes for a value of 200,000 EUROS.
Other agreements are in negotiation with le Stade de France for
installation of LED Screens.
The ServiColumns have retained a lot of attention in the tourism sector as
well as the shopping malls industries. A joint venture with the firm Multivisu
has been signed for usage of GSI Software in their projects in France.
Italy
In January 2001, Groupe Solcom acquired an Italian company, TREDWEB S.R.L.,
which specializes in the creation of web sites and 3D animation. With this
acquisition, the company has successfully penetrated the Italian market and has
recruited experts in the field of animation. Supported by the GSI team, a
wide-ranging project is underway: the installation of multimedia projectors
using the GSI Multimedia Pack to broadcast animated advertising on the walls of
the Milan subway system. The team is now in Phase 2 of the project. TREDWEB SRL
also has contracts with major companies operating in Italy such as Young &
Rubicam, Dlu, BDDO, ALMADEDIA, Touring Club and other large accounts for a
turnover of US$750,000.
TREDWEB has signed an agreement with Yong and Rubican Milano for networking
services value of 150, 000 EURO.
Groupe Solcom has also concluded or is in the process of concluding several
agreements in Italy with several major companies:
April 21, 2001, with SERENAM srl: This Italian company is doing business in
outdoor advertising, mainly in Milan and Rome. It manages both the advertising
site and the sale of advertising. The 3-year agreement is to provide SERENAM
with 35 LED screens (6mX3m) in the current year, as well as licenses for the GSI
MULTIMEDIA PACK and servers. SERENAM is forecasting orders of a minimum of 10
LED screens in the following years.
24
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Implementation start up is anticipated for April 2002:
April 21, 2001, in tandem with HGV ADVERTISING srl: a company specializing
in the sale of advertising and 3D animation, GSI USA has obtained several
contracts with supermarkets such as Conad Pianeta, Gabrielli Group, Conad Lazio,
Auchan Pescara and This D. Puglia for the implementation of a network of plasma
screens in supermarkets. Groupe Solcom has entered into a 6-year agreement for
the creation of a joint company named OMNIKEY. This company will realize the
implementation of the plasma screens network and the software to enable the
broadcasting in supermarkets. The partners plan to implement their network in
more than 650 supermarkets in the central area of Italy.
Implementation start up is anticipated before end of September 2001:
May 17 2001,with PIELLEFFE srl: an Italian company specialized in the
management of major projects in Italy. They also developed an impressive contact
network at the national level. This company is seeking a partnership with Groupe
Solcom for the creation of a joint company to be called W.A.Waiting Advertising.
The purpose of this company is to present tenders for important projects such as
the installation of plasma screens for the Telebingos in Italy, for the COOP,
the airport of Rome, Bologna, Torino; as well as for the metros of Rome and
Naples.
On May 28th 2001, Groupe Solcom International has entered into formal
agreement with INFORMATICA E TELECOMUNICAZIONI after due diligence and further
negotiations decision was taken not to pursue this venture.
On August 27th, Groupe Solcom International completed an agreement with SINAGI
Corporation for implantation of 1 300 screens in Newspaper kiosk first phase 300
kiosks before end of year 2001, value of contract 3, 400,000 EURO, plus
broadcast contract for production of content for 10 years.
25
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
PART II - OTHER INFORMATION
Item 1. Legal proceedings
--------------------------
Legal proceeding
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 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.
On September 2001, we concluded a partial settlement with the Quebec
Securities for the release of promissory notes.
We remain party to one proceeding initiated by another party, a Mr. Jacques
Biron, against GSI Canada, GSI, our President, and others 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.
On September 2001, we received a law suit from Mr. Alex Zervakos a former
employee of GSI USA. Our lawyer in Quebec is negotiating with the adverse party
for resolvment of approximately $10,000.
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.
26
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
Item 5. Other information
----------------------------
Montreal, September 19, 2001 - Rene Arbic, chairman of the board of directors of
GSI Technologies USA Inc. ("GSI USA"), announced today that Groupe Solcom
International France S.A.S., will not proceed with the offer to acquire all of
the issued and outstanding shares of GSI USA and that the board of directors of
GSI USA approved the following resolutions:
WHEREAS on or around February 26, 2001, GSI USA had deposited a letter of intent
to acquire the share capital of Groupe Solcom International France S.A.S.
WHEREAS on or around May 16, 2001, Groupe Solcom International France S.A.S. had
deposited a letter of intent to acquire the share capital of GSI Canada (3529363
Canada Inc.) and GSI USA.
Pursuant to a feasibility study, due diligence, an evaluation of the current
status of the economic markets, the Board of directors of GSI USA decided not to
proceed with the above stated transactions. The board of directors of GSI USA
will advise of new intentions and plans shortly.
In the month of September 2001, Mr. Michel de Montigny had to resign as a board
member for health conditions reasons.
On February 13th, 2002 2 other board members were nominated :
- Mr. Julian R. Beardsley have a vast experience in private banking and
presently held the position of Director in a large tax consulting
practice in United Kingdom. Mr. Beardsley will also serve as chairman
of the board for GSI.
- Mr. Dario Litera is president of a large capital investment
corporation. He also, act as trustee for various financial firm and
government agencies.
We are extremely pleased to have them as members in our board.
Item 6. Exhibits and reports on Form 8-K
-----------------------------------------------
The following exhibits are contained in this 10-QSB:
None.
27
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
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: MARCH 1ST, 2002 GSI TECHNOLOGIES USA INC.
By: /s/ Rene Arbic
--------------------------------
Rene Arbic
Chief Executive Officer
28