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 JANUARY 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 St Jacques Street, Suite 500, Montreal, Quebec H2Y 1S1, Canada
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(Address of principal executive offices)
(514) 282-9292
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(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 February 28, 2003, there were 26,291,023 shares of the issuer's $.001 par
value common stock issued and outstanding
Transitional Small Business Disclosure Format (Check one): Yes [ ] No[X]
INDEX TO FORM 10-QSB
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For the Quarter Ended January 31st, 2003
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of January 31st, 2003 3
Statement of Operations for the Three
Months ended January 31, 2003 and 2002 4
Statements of Cash Flows for Three Months
Ended January 31st, 2003 and 2002 5
Notes to Financial Statements for the 6 - 7
three Months Ended January 31, 2003.
Item 2. Management's Discussion and Analysis 8-14
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
2
GSI TECHNOLOGIES USA, INC.
BALANCE SHEET
AT JANUARY 31st, 2003
(UNAUDITED)
ASSETS
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Current Assets
Cash and cash equivalents $ 194 329
Receivables, net 5 014
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Total current assets 199 343
Property and equipment, net 67 889
Intangible assets, net 164 872
Other assets 31 548
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TOTAL ASSETS 463 651
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 93 579
Notes Payable 186 377
Investment proceeds liability 625 785
Other current liabilities 138 356
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Total current liabilities 1 044 096
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 26 291
55,000,000 shares; issued and outstanding - 26,291,023
Paid in Capital 5 243 740
Deficit accumulated during the development stage (5 850 864)
Accumulated other comprehensive income 388
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Total Shareholder's Equity (580 445)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 463 651
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
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GSI TECHNOLOGIES USA INC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31st, 2003 AND 2002
(UNAUDITED)
Three months
ended January 31,
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2003 2002
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Revenues $ - $ 23 750
Cost of Sales - 10 634
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Gross Profit - 13 116
Operating Expenses:
Marketing 1 383 8 361
Salaries and related costs - 38 996
Rent 5 746 37 723
Professional fees 17 234 6 572
Consulting 43 842 -
Depreciation 1 080 973
Amortization 23 739 23 846
Other selling, general and administrative 19 769 28 104
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Total operating expenses 112 793 144 574
Loss before other income (expense) (112 793) (131 458)
Other income (expense):
Interest income (principally related party)
Interest expense (principally related party) (11 869) (4 342)
Foreign exchange gain/(loss) 8 569
Equity in net earnings (loss) of affiliates - -
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Total other income (expense) (11 869) 4 227
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Net Loss (124 662) (127 231)
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Basic weighted average common shares outstanding 26 291 023 25 461 917
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Basic and diluted Loss per common share $ (0,00) $ (0,00)
============ ============
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 THREE MONTHS ENDED JANAURY 31st, 2003 AND 2002
(UNAUDITED)
For the three months
ended January 31,
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2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (124 662) $ (127 231)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 24 819 24 819
Issuance of stock for contract settlement - 38 996
Accrued Interest Expense - 4 060
Changes in Operating assets and liabilities:
Receivables and other current assets (5 014) 26 593
Other assets (31 548)
Accounts Payable and Accrued Liabilities 2 699 35 979
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Net cash provided by/(used in) operating activities (133 706) 3 215
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - (8 270)
Purchase of property and equipment (5 667) -
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Net cash provided by/(used in) investing activities (5 667) (8 270)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable (148 460) -
Investment proceeds 482 162 -
Sales of common stock - -
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Net cash provided by/(used in) financing activities 333 702 -
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Effect of exchange rate changes on cash and cash eqivalents - -
Net increase (decrease) in cash and cash equivalents 194 329 (5 055)
Cash and cash equivalents, beginning of period - 6 019
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Cash and cash equivalents, end of period $ 194 329 $ 964
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
None
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GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Janurary 31st, 2003
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of GSI
Technologies USA, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in GSI Technologies USA,
Inc.'s 10-KSB as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - NET EARNINGS (LOSS) PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
NOTE 3 - 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
$124,662 for the three months ended January 31, 2003 (unaudited). As reported
on the statement of cash flows, the Company incurred negative cash flows from
operating activities of $133,706 for three months ended January 31, 2003
(unaudited). Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital for its planned activity. Additional
capital and/or borrowings will be necessary in order for the Company to continue
in existence until attaining and sustaining profitable operations. The Company
is aggressively pursuing strategic alliances, which will bring a cash infusion,
restructuring and forward looking business plan.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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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 (GSI USA) specializes in offering broadcasting solutions
principally for out home advertising, such as electronic billboards, interactive
advertising kiosks and any type of animated electronic screens with full video
capabilities. GSI USA's software enable users to transmit pin point animated
information contact as well as receive full motion video, graphics and audio
files. GSI's software and concept allows advertisers to reach more consumers on
a daily basis and permits its clients to measure the impact of their ads by
interacting with the consumer.
RESULTS FROM OPERATIONS
3 months ending January 31, 2003 and 2002
During GSI's first quarter from November 1st, 2002 to January 31st, 2003, GSI
USA incurred a loss of $124,662 versus a loss of $127,231 in the same period in
2001.
REVENUES
ZERO in revenue was recognized during the current year quarter, versus
$23,750 for the same period in the prior year. This is related to sub-licensing
agreements realized over the respective terms.
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-licensee is granted its sub-license. GSI USA has incurred ZERO in direct
operating cost for the current quarter, versus 10,634 for the same quarter in
the prior year.
OPERATING EXPENSES
During the three months ended January 31, 2003, GSI USA has incurred
$112,793 in operating expenses versus 144,574 for the same period in 2001. The
decrease was mainly attributable to lower rent due to relocation of our
corporate office
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2003 GSI USA had $194,329 in cash. Cash used in operating
activities during the three months ending January 31, 2003 was 133,706, which
was mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash used by investing activities during the period reflects additional
short-term loans to GSI Canada in the amount of $5,667, which was used for the
purchase of business equipment
Net Cash provided from financing activities during the period was 333,702.
The result of all activities during the three-month period ending January
31, 2002 was a net decrease of $194,329 in our cash position.
MANAGEMENT DISCUSSION AND ANALYSIS
GSI USA TECNOLOGY DIRECTIONS
The Company has terminated the previous relationship with our affiliate 3529-363
Canada Inc., 'GSI Canada', due to their inability to provide the technology and
services required pursuant to the terms of the Master Licensing Agreement. We
have legally informed the management of 3529-363 Canada Inc. through the trustee
of the following: Due to material breach of several clauses of the Master
Licensing Agreement dated October 1999 and the inability to provide services and
support as stipulated in the agreement, for more than one year, GSI Technologies
USA Inc. has decided to terminate the contract and relationship.
GSI Technologies USA Inc. has entered into relationship with LTS Networks, a
Corporation specialized in Network management and R&D software development.
The Corporation has given LTS a mandate to develop an entirely new family of
digital distribution products from the ground up. GSI USA over the past couple
of years has acquired experience in serving digital network operators through
various pilot projects, therefore we believe our specifications will serve our
customers more adequately. Furthermore, we currently anticipate offering the
first phase of our products by the beginning of May 2003.
We have received significant interest from potential customers as well as
building our relationship with a client, Clear Channel International. We
believe we have made great strides in restructuring the Company and we have
completed a large part of our rebuilding phase with the goal of offering our
customers and shareholders a corporation with value based upon its own
proprietary technology.
The markets' appetite for digital signage's solution has increased considerably
and many media operators are seeking to find a management solution that will
give them the best value for their investment.
Retail outlets and public facilities have begun to recognize the significance of
their potential of reaching large numbers of viewers on a daily basis. They are
beginning to realize that they can increase their own revenue base by offering
information content about their services as well as generating revenues through
recurring advertising revenues.
We believe our turn key solution has all the necessary tools to meet the new
emerging needs of the industry.
We have initiated and are pursuing discussions with potential partners for new
equity and strategic alliances. We anticipate results during the first half of
2003.
In July 2002, we completed a letter of Intent with a California based
corporation specializing in Internet market content. The agreement calls for
the client to install a network of full motion video plasma screens in
approximately 200 preferred locations in the United States. As of year-end, we
have been informed that our client has succeeded in sign up over 100 locations
and anticipates starting installation during March 2003. We have negotiated a
10 year licensing agreement starting when the Network begins its operations.
Network management and content production contract are currently been
negotiated.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 2002, a former Director and Officer along with another former employee
of the Company obtained a judgment against the Company in the amount of
$140,000.00 USD. The management of our corporation has successfully concluded an
out of court settlement for $20,000.00 CDN, approximately $13,400.00 USD. The
Company has obtained a signed settlement and release agreement from the
plaintiffs.
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
Late filing 10-K : On February 4th, 2002, we became delinquent because we were
late filing our annual 10-KSB report. On March 5th, 2002, we were temporarily
delisted from the OTCBB. On March 8th, 2002, we filed our 10-KSB report for the
period ending October 31, 2001. Since then, we have filed all of our reports on
time. We are currently responding to comments from the NASD pursuant to the
fling of our Form C2-11 in Fall 2002. We anticipate obtaining approval from
regulatory authorities shortly.
On May 2002, GSI entered into a loan agreement with private party for a sum of
$330,000.00 USD, at bearing interest of prime rate + 2%.
In Fall 2002, GSI completed a loan agreement with a private investment
corporation for a bridge loan of $300,000.00 USD, which could become an equity
investment by spring 2003, conditional to due diligence and approval of
regulatory authorities. These funds were utilized to resolve pending issues
with payables under governance of a law firm.
On December 2002, GSI entered into a loan agreement with private individual for
an amount of $320,000.00 USD which could be converted into equity, subject to
approval of regulatory authorities.
In end of December 2002, GSI entered into an agreement with LTS Networks to
eventually participate in the share capital structure of the corporation.
Subject to complete due diligence and standard accounting policies, we
anticipate closing by end of next quarter.
As of February 7, 2003 Mr. Ren Arbic resigned from his position as Chief
Executive Officer of GSI Technologies USA Inc. Our board directors is currently
evaluating candidates for his replacement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are contained in this 10-QSB:
None.
CERTIFICATION
I, Ren Arbic, hereby certifies that:
1. I have reviewed this quarterly report on Form 10-QSB of GSI
Technologies USA Inc.;
2. 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
3. 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.
4. I am responsible for establishing and maintaining disclosure controls
and procedures for the issuer and have:
(i) 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;
(ii) Evaluated the effectiveness of the issuer's disclosure controls
and procedures as of January 31, 2003; and
(iii) Presented in the report our conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. 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):
(i) 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
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's
internal controls; and
6. 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: March 24, 2003
/r/ Rene Arbic
---------------------------------
Rene Arbic, Chairman of the Board
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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: March 24, 2003 GSI TECHNOLOGIES USA INC.
By: /s/ Marie El-Ahmar Eid
--------------------------------
Marie El-Ahmar Eid
Secretary of the Board
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