UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB / A
AMENDMENT 1
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 31, 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 65-0902449
------------------------------- ------------------------------------
(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[ ] No[ ]
As of September 22nd, 2003, there were 43,827,823 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 JULY 31, 2003
-----------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of July 31, 2003 3
Statement of Operations for the Three and Nine Months ended July 31, 2003 and 2002 4
Statements of Cash Flows for the Nine Months ended July 31, 2003 and 2002 5-6
Notes to Financial Statements 7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Certifications
Signature
Exhibit 99.1
2
GSI TECHNOLOGIES USA, INC.
BALANCE SHEET
AT JULY 31, 2003
(UNAUDITED)
ASSETS
------
Current Assets
Cash $ 707
Receivables - net 81,822
Other current assets 684
------------
Total current assets 83,214
Property and equipment, net 145,682
Other assets 2,453
------------
TOTAL ASSETS 231,349
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 187,637
Notes Payable (principally related party) 403,641
Other current liabilities 38,376
------------
Total current liabilities 629,654
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 43,828
55,000,000 shares; issued and outstanding - 43,827,823
Paid in Capital 6,573,903
Accumulated deficit (7,017,167)
Accumulated other comprehensive income
Foreign currency translation 1,133
------------
Total Shareholder's Equity (Deficit) (398,304)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 231,349
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement.
3
GSI TECHNOLOGIES USA INC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
Three months Nine months
ended July 31, Ended July 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ - $ - $ 15,000 $ 23,750
Cost of Sales - - - 10,634
------------ ------------ ------------ ------------
Gross Profit - - 15,000 13,116
Operating Expenses:
Marketing 12,984 - 42,117 24,412
Salaries and related costs - - 25,060 38,996
Rent 14,189 - 38,773 51,426
Professional fees 25,188 - 68,074 9,029
Consulting 162,737 - 284,400 -
Software development 204,787 - 324,326 -
Depreciation 4,257 973 8,913 2,920
Amortization 2,001 23,845 51,018 71,537
Loss on licensing agreement write off - - 141,133 -
Other selling, general and administrative 54,392 1,556 175,507 64,890
------------ ------------ ------------ ------------
Total operating expenses 480,534 26,374 1,159,322 263,210
Loss before other income (expense) (480,534) (26,374) (1,144,322) (250,093)
Other income (expense):
Interest expense (principally related party) (9,090) (8,863) (31,557) (17,622)
Total other income (expense) (9,090) (8,863) (31,557) (17,622)
------------ ------------ ------------ ------------
Net Loss (489,624) (35,237) (1,175,878) (267,715)
============ ============ ============ ============
Basic weighted average common shares outstanding 36,862,171 25,802,134 30,622,692 22,869,528
============ ============ ============ ============
Basic and diluted Loss per common share $ (0.01) $ (0.00) $ (0.04) $ (0.01)
============ ============ ============ ============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
4
GSI TECHNOLOGIES USA, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
Nine months
ended July 31,
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
$(1,175,878) $(267,715)
Net Income (Loss)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 59,931 74,457
Issuance of stock for contract settlement - 38,996
Issuance of stock for consulting services 20,000
Accrued Interest Expense - 12,179
Loss on licensing agreement write off 141,133 -
Changes in Operating assets and liabilities:
Receivables and other current assets (82,506) (4,871)
Other assets (2,453)
Accounts Payable and Accrued Liabilities 7,736 140,937
------------ ----------
Net cash provided by/(used in) operating activities (1,032,036) (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 (94,833) -
------------ ----------
Net cash provided by/(used in) investing activities (94,833) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable 383,055 -
Investment proceeds 481,377 -
Sales of common stock 263,144 -
------------ ----------
Net cash provided by/(used in) financing activities 1,127,576 -
------------ ----------
Net increase (decrease) in cash and cash equivalents 707 (6,019)
Cash and cash equivalents, beginning of period - 6,019
------------ ----------
Cash and cash equivalents, end of period $ 707 $ (0)
============ ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 1 million shares for default payment 50,000
5
penalty settlement
Issuance of 2 million shares for settlement of note 345,808
payable including accrued interest.
Issuance of 10.5 million shares for settlement of 625,000
investment liability
Issuance of 1,336,800 shares for settlement of 67,100
accrued financing cost
Purchase of 40% of LTS Networks, Inc. 500
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
6
GSI TECHNOLOGIES USA, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 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
July 31st, 2003
---------------
Property and Equipment:
Furniture and fixture $ 38,934
Computer and other equipment 45,168
Leasehold improvements 83,168
Less: Accum depreciation & amortization 21,588
---------------
Property and equipment, net $ 145,682
===============
7
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS (CONTINUED):
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)
July 31, 2003 balance $ -
Amortization expense for the nine 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 has been reflected as a loss in the current year interim financial
statements.
NOTE 4 - NOTES 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
8
NOTE 4 - NOTES PAYABLE (CONTINUED):
ending April 30, 2003 totaled $10,519. This note including all interest
associated with it was $345,356 at April 30, 2003. In May 2003 the Company
received an additional $163,144 in investment proceeds and issued 2 million
shares, 500,000 warrants exercisable at $0.25 and 516,000 warrants exercisable
at $1.00 for settlement of the additional proceeds of $163,144 as well as the
original principal amount of $330,000 and accrued interest of $15,808 totaling
$345,808.
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 approximately
$302,928 USD at April 30th 2003. At July 30, 2003 interest of $19,950 has been
accrued and reflected in the financial statements. The balance of the note,
including all interest associated with it was approximately $310,930 USD at July
31th 2003.
On June 19, 2003 the Company signed a promissory note for $100,000 USD with an
unrelated party. The note bears interest of prime plus 2 percent and the term
is one year. The Company has received $92,075 at July 31, 2003. At July 31,
2003, interest of $636 has been accrued and reflected in the financial
statements. The balance of the note, including interest at July 31, 2003 is
$92,711.
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. On June 19, 2003 the Company issued 6
million shares of Class B Common Stock, 2 million warrants exercisable
$0.10 and 2 million warrants exercisable at $1.20 to settle the investment
proceeds liability of $300,000.
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. From May 1, 2003 to
June 19, 2003 advances of $62,349 had been received. On June 19, 2003 the
Company issued 2.5 million shares of Class B Common Stock and 2 million
warrants to settle the investment proceeds liability of $125,000.
9
NOTE 5 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
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. From May 1, 2003 to June 19, 2003
advances of $20,000 had been received. On June 19, 2003 the Company issued
2 million shares of Class B Common Stock and 1 million warrants to settle
the investment proceeds liability of $200,000.
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. During the three month
period ending July 31, 2003, approximately $10,000 in payments were made
towards this debt and the balance at July 31, 2003 was zero.
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.
10
NOTE 5 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
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 $1,175,878
(unaudited) for the nine months ended July 31, 2003 and a loss of $7,017,167
(unaudited) since inception. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of $1,032,036 for
the nine months ended July 31, 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 nine month period ending July 31, 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 $28,800 in legal fees from this
firm in the nine month period ending July 31, 2003 .
11
NOTE 9 - INCOME TAXES
The provision for taxes on earnings for the nine months ended July 31, 2003,
consist of:
2003 2002
Current
Federal $ - $ -
State - -
Foreign - -
Deferred
Federal $ - $ -
State - -
Foreign - -
At July 31, 2003, the Company has a Federal tax net operating loss ("NOL")
carryforward of approximately $6,000,000, 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 of Class B common stock
in a private placement for $100,000.
In March 2003 the Company issued 1 million shares of Class B common stock
to settle accrued default payment penalties totaling $50,000.
In May 2003, the Company issued 2 million shares of Class B common stock to
settle a note payable in the amount of $345,808 which includes all accrued
interest and an additional receipt of proceeds in the amount of $163,144.
12
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED):
In June 2003, the Company issued 10.5 million shares of Class B common
stock to settle an investment proceeds liabilities of $625,000.
In June 2003, the Company issued 200,000 shares of Class B common stock for
consulting services.
In June 2003, the Company issued 1,336,800 shares of Class B common stock
for settlement of an accrued financing cost liability
In June 2003, the Company issued 500,000 shares of Class B common stock for
the purchase of 40% of LTS Networks.
NOTE 11 - WARRANTS AND OPTIONS
In May 2003, the Company issued 500,000 warrants exercisable at $0.25 and
516,000 warrants exercisable at $1.00 in connection to settle a note
payable in the amount of $345,808 which includes all accrued interest and
an additional receipt of proceeds in the amount of $163,144.
In June 2003, the Company issued 2 million warrants exercisable at $1.20,
500,000 warrants exercisable at $0.25, 2.5 million warrants exercisable at
$0.10 and 2 million warrants exercisable at $0.05 in connection to settle
an investment proceeds liabilities of $625,000.
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:
13
NOTE 11 - WARRANTS AND OPTIONS (CONTINUED)
Nine months ended Nine months ended
FAS 123 "Accounting for stock based compensation July 31, 2003 July 31, 2002
Paragraph 47 (a)
1.Beginning of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
2. End of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
3. End of year - exercisable
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
4. During the year - Granted
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
5. During the year - Exercised
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
6. During the year - Forfeited
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
i. number of options/warrants
ii. weighted average exercise price
Paragraph 47 (b) Weighted-average grant-date fair value of options
granted during the year:
1. Exceeds market price 0 0
Paragraph 47 (c) Equity instruments other than options/warrants none none
Paragraph 47(d) Description of the method and significant assumptions used during
the year to estimate the fair value of options:
(1)Weighted average risk-free interest rate 5.54% 5.54%
Weighted average expected life (in months) 30.00 42.00
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 0 0
employee compensation awards.
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) 30.00 42.00
Nine months ended Nine months ended
July 31, 2003 July 31, 2002
Net Income after proforma effect (1,175,878) (267,715)
Earnings per share after proforma effect $ (0.04) $ 0.00
14
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 July
31, 2003, originally filed on September 22, 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 nine months ending July 31, 2003 and 2002
During GSI's third quarter from May 1,2003 to July 31, 2003, GSI USA incurred a
loss of $489,624 versus a loss of $35,237 in the same period in 2002. The
increased loss was due to higher operating expenses, specifically consulting and
software development.
During GSI's nine month's from November 1, 2002 to July 31, 2003, GSI USA
incurred a loss of
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$1,175,878 versus a loss of $267,715 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
Zero in revenue was recognized during the current year quarter, versus zero
for the same period in the prior year.
$15,000 in revenue was recognized during the current year nine 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 July 31, 2003, GSI USA has incurred $480,534
in operating expenses versus 26,374 for the same period in 2002. The increase
was mainly attributable to marketing, software costs and consulting.
During the nine months ended July 31, 2003, GSI USA has incurred $1,159,322 in
operating expenses versus 263,210 for the same period in 2002. The increase was
mainly attributable to marketing, software costs, consulting and the write off
of unamortized impaired licensing rights.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2003 GSI USA had $707 in cash. Cash used in operating
activities during the six months ending April 30, 2003 was 1,032,036, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Net Cash used in investing activities during the period was $94,833 for
property and equipment.
Net Cash provided from financing activities during the period was
1,127,576.
The result of all activities during the nine-month period ending January
31, 2002 was a net increase of $707 in our cash position.
MANAGEMENT DISCUSSION
GSI Technologies USA Inc. was created in 1998, 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).
The Company operates within the overall Information and Communication
Technology (ICT) field, offering software, hardware and related services to
manage dynamic and efficient communications networks. The information delivered
can be advertising messages targeted to consumers while out of their homes or
messages of more general interest like traffic and weather information.
The Company offers solutions principally for media operators,
advertisers and others seeking to reach the greatest number of "viewers per day"
at the street level. Street level advertising is the strategic placement of
signage, so it is readily visible to pedestrians and motorists. In addition to
addressing potential consumers in busy urban and suburban settings, public
service messages can also be conveyed using our technology.
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To address the changing market and technology landscape, we initiated
a comprehensive review of our position in the industry. During this exercise we
drew upon the collective experiences of our own team as well as soliciting input
from various individuals we believed to be knowledgeable about the industry. We
concluded that in order to be in the forefront of the industry we would have to
narrow our business focus and develop an entirely new software package.
We initially began offering products and services for sale in 2000.
Our product offerings at that time included both software to manage a digital
signage network and related hardware such as installed screens, displays or
kiosks. In addition, we also owned and operated our own network of digital
signage kiosks. The software products were offered pursuant to a Master License
agreement with GSI Canada, the creator of the initial software, Multi Media
Pack, or in short as MMP. The hardware products were purchased for resale from
various brand name manufactures on an as needed basis. The Kiosk products were
designed and built by GSI Canada.
At that time we also offered value-added services such as the
integration of network services and the ability to deal with hardware suppliers
to integrate and install computers and screens (plasma, LCD, LED or plain TV
set). In other words, if a client came to us with an idea about something he
would like to do, we would problem solve the matter and design an integrated
solution, including managed services, which would allow the client to reach his
goal. In cases where clients did not need any of our software or hardware
products, we were still available to provide consulting services for operators
to develop digital signage networks
The Company has 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, in early 2003, we changed our Product and Services
Offering. Our main focus will now be to develop and sell a network based digital
signage management software solution. We will also, in some cases, offer Digital
Signage and Network Managed Services as well as related hardware. We will no
longer supply or manufacture kiosks or design/develop networks. We will
continue to leverage our market knowledge by providing strategic consulting
services for operators of digital signage networks.
As part of our comprehensive review, we decided to re-evaluate our
core product, the GSI Multi Media Pack acquired under the Master Licensing
Agreement with GSI Canada. We hired LTS Networks Inc. to perform a technical
review of the software code. The report recommended that we rework the
architecture of the product to take advantage of newer development tools and
database tools to ensure that the product would be up to date and as technically
advanced as possible. If undertaken, it was believed that our new product would
also be well positioned for growth and enhancement in the future. In June 2003,
we purchased a 40% equity interest in LTS Networks
As a result of their report, we hired LTS Networks to build for us a
next generation product, based on our design, to offer to the Out-of-Home
advertising industry. We solicited the assistance of Mr. de Montigny, to
leverage his past experience with the Advertising and Media industry to work
with LTS to design the functional requirements for the new software. It was
anticipated that the new software would differ from the previous product in
several key ways. The programming language would be different; the software
design and architecture would be different; and the new product would pay close
attention to standards, such as the Human Interface Guidelines and Data
Warehouse Standards. We proceeded to implement this project and the resulting
newly developed proprietary software product is expected to be released by the
end of September 2003 and will be known as Digital Media Logistics Suite, or
DMLS.
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We also revised our pricing and licensing structure. We will now sell
and distribute our new software product on a per player software license basis.
This is a significant departure from our previous revenue model of territorial
licensing as we believe it better reflects the standard pricing and licensing
model for our industry, and therefore should make our solution more competitive.
In first 3 quarters of fiscal 2003 we spent $300,000 on Research and Development
as compared to nothing in all of fiscal 2002.
In April 2003, we signed a special agreement with MCSI, a publicly
traded corporation specialized in Technology Integration, whereby we have agreed
to sell to MCSI up to 12,000 licenses of our DMLS software at a discounted
price. The agreement is valid for a term of 24 months.
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. Negotiations are in preliminary stage and the Company can
not state when or whether an agreement will be reached.
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 installation contractors and service corporation for our European based
customers. We are currently negotiating contract agreements and anticipate
conclusion by the end of 2003.
On May 15, 2002, Mr. Craig Perry advanced $330,000.00 to the Company.
In consideration to this loan the Guarantor (Michel de Montigny) transferred
2,000,000 shares to Mr. Perry. This note has a term of 60 days bearing interest
at prime rate plus 2% and a collateral / late payment penalty of 1,000,000
shares. On March 28, 2003 the Company issued 1,000,000 shares to Mr. Perry
representing the Collateral /late payment penalty on this note. On May 8, 2003,
Mr. Perry agreed to cancel his $351,000 payable note ($330,000 debt + 21,000
interest to date) and to invest a supplementary amount of $165,000 for the
following considerations: 2,000,000 shares at a price per share of $0.25 plus
500,000 warrants exercisable at $0.25 and 516,000 warrants exercisable at $1.00.
Mr. Craig Perry became a Director on April 28, 2003.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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
In August, 2003, we signed a one year renewable Sales Representative
agreement with Petters Group LLC. The agreement provides for us to act as a
non-exclusive sales representative in the United States, Canada and Mexico in
regards to their new suite of Digital Displays Products, branded under the name
of Polaroid.
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We are currently negotiating the sale of approximately 600 units
including Polaroid 42" Digital plasma screens, compact computers and DMLS
software licenses. If concluded on the proposed terms we expect to make an
approximate gross profit in excess of $500,000 on these sales. No assurance
can be given that the negotiations will result in any sale or that we will
ultimately make any profit on this transaction.
In May 2003, the Company issued 2 million shares of Class B common stock to
settle a note payable in the amount of $345,808 which includes all accrued
interest and an additional receipt of proceeds in the amount of $163,144.
In June 2003, the Company issued 10.5 million shares of Class B common
stock to settle an investment proceeds liabilities of $625,000.
In June 2003, the Company issued 200,000 shares of Class B common stock for
consulting services.
In June 2003, the Company issued 1,336,800 shares of Class B common stock
for settlement of an accrued financing cost liability
In June 2003, the Company issued 500,000 shares of Class B common stock for
the purchase of 40% of LTS Networks.
MANAGEMENT
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. Mr. Addison's contract is
valid for one year period.
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.
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CERTIFICATION
I, Gilles Addison, hereby certifie that:
I have reviewed this amended quarterly report on Form 10-QSB of GSI
Technologies USA Inc.;
Based on my knowledge, this report does not contain any untrue statement of
a material fact, or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report; and
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial position, results of operations, and cash flows
of the issuer as of, and for, the periods presented in this report.
I am responsible for establishing and maintaining disclosure controls and
procedures for the issuer and have:
Designed such disclosure controls and procedures to ensure that
material information relating to the issuer is made known to me,
particularly during the period in which the periodic reports are
being prepared;
Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of July 31, 2003; and
Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of
the Evaluation Date;
I have disclosed, based on my most recent evaluation, to the issuer's
auditors and the audit committee of the board of directors (or persons
fulfilling the equivalent function):
All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to
record, process, summarize and report financial data and have
identified for the issuer's auditors any material weaknesses in
internal controls; and
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
I have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: October 23rd, 2003
By: /s/ Gilles Addison
------------------------
Gilles Addison
President and CEO
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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: October 23rd, 2003 GSI TECHNOLOGIES USA INC.
By: /s/ Gilles Addison
-----------------------------------------
Gilles Addison
President and CEO
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