UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2003
Commission File No. 0-31229
GSI TECHNOLOGIES USA INC.
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(Name of small business issuer in its charter)
Delaware 65-0902449
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(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
400, St-Jacques Street, Suite 500
Montreal, Quebec H2Y 1S1
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (514)-282-9292
Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act:
CLASS B COMMON STOCK (PAR VALUE $.001 PER SHARE)
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (x) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 1II of this Form 10-KSB or any
amendment to this Form 10-KSB. (X)
The Registrant's revenues for its most recent fiscal year were $15,909.00.
The aggregate market value for the voting and non-voting common equity held by
non-affiliates can not be determined since there is no active trading market for
the Registrant's Common equity.
The total number of shares of Class B Common Stock outstanding as of January 12,
2004 was 45,625,823.
PART I
The Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual results could
differ materially from those expressed or forecasted in any such forward-looking
statements as a result of a number of factors, which are not within the
Registrant's control.
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF THE COMPANY
In July 1998 a group of investors, including a group of companies
controlled by Mr. J. Michel de Montigny, purchased control of I.B.C.
Corporation, a Delaware publicly traded corporation. In October of 1999, our
name was changed to GSI Technologies USA Inc.
Mr. J. Michel de Montigny was also the founder and controlling
shareholder of 3529363 Canada Inc. (GSI Canada). Mr. de Montigny was also an
executive officer and director of GSI Canada and GSI Technologies USA Inc. (GSI
USA).
GSI Canada had developed expertise and software relating to the
management of digital display devices used as an advertising medium to reach the
out-of-home market. The out-of-home advertising market refers to the attempt by
advertisers to have their messages seen by people in the public forum. For
example, electronic billboard messages on buildings or in sporting arenas and
electronic signs on the top of taxicabs or the sides of busses and on bus stops.
The idea is that inasmuch as most people spend much of their day out their
houses, the traditional format of reaching people in their homes through
television, radio and magazine ads limits the advertisers reach to the limited
time when people are in their homes and using these mediums. However,
out-of-home advertising is not so limited and their messages can be broadcast
constantly and are virtually unavoidable by people out on the street.
The original vision was for GSI Canada to undertake the R&D and
develop the software and related technologies such as e-commerce and interactive
solutions and for GSI USA to exclusively market the products and provide the
services such as managed services, integration and installation. To that
extent, in October 1999, GSI USA was granted an exclusive Master Licensing
Agreement, by GSI Canada, to market, sell and commercially exploit the knowledge
and the developed software owned by GSI Canada. The software allows the
advertising message to be broadcast to any number of display screens
simultaneously and allows the operator to change the message in near real time.
In 2000 and 2001, GSI USA made efforts to commercially exploit the
software and expertise to the Out-of- Home advertising Industry with only
minimal commercial success measured by the limited number of licenses sold
during this period of time.
On April 18, 2001, Mr. de Montigny resigned from his position as
Chairman of the Board of Directors of GSI USA and Mr. Rene Arbic was nominated
as the new Chairman.
In May 2001, GSI Canada was placed under bankruptcy protection and on
August 15, 2001, GSI Canada began to restructure its operations by closing down
all of its divisions and maintaining strictly R&D personal and development
staff. In February 2002, GSI Canada laid off the remainder of its R&D staff and
ceased its Research and Development activities. Thus, GSI USA lost access to
GSI
Canada's development and technical staff and knowledge base. However, GSI USA
gained control of the intellectual property previously licensed from GSI Canada
pursuant to the terms of the Master Licensing Agreement, as amended. As of
January 2004, GSI Canada had not yet emerged from bankruptcy.
On September 7, 2001, Mr. de Montigny resigned from his position as
President and CEO of GSI USA for health reasons and the Board of Directors
nominated Mr. Rene Arbic as the new President and CEO of GSI USA.
In the period from January 2001 to October of 2001, due to lack of
funds, GSI USA laid off its entire staff except for its President/CEO.
In April 2002, GSI Canada and GSI USA executed an Addendum to the
Master License Agreement which granted GSI USA the right to sell and/or issue
licenses for the use of MMP for 10 years. This addendum superseded all other
obligations contained in the Master License Agreement. More importantly, the
addendum granted GSI USA the right to modify and further develop the source code
at GSI USA's sole discretion. Any such developments made by GSI USA would
remain the property of the GSI USA.
Throughout 2002 and early 2003, we attempted to find financing to
rebuild our infrastructure and develop a new generation of products. These
attempts resulted in the acquisition of both debt and equity financing as
detailed below in the MD&A section under the sub caption "Liquidity and Capital
Resources". During this period, we were also able to negotiate several
reductions in fixed expenses. Most notably, we negotiated an early release of
our leasing obligations, where we stand to save approximately $700,000 over 3
years.
On February 7, 2003, Mr. Rene Arbic resigned from his position as our
President and Chief Executive Officer and on April 25, 2003, he resigned from
his position as Chairman of the Board.
On April 28, 2003, the Board of Directors appointed Mr. Craig Perry,
who is currently General Manager of InMetal and a shareholder of GSI USA, to the
Board of Directors. Mr. Perry was elected Chairman of the Board on May 20,
2003. On June 16, 2003, The Board of Directors appointed Mr. Gilles Addison to
the position of President and Chief Executive Officer.
On June 9, 2003, a control block of GSI USA owned by Immobiliare,
Gestion J.M.d.M and Totalcom Inc., all controlled by Mr. J. Michel de Montigny,
founder and former CEO of GSI USA, was sold in a private transaction to 4136306
Canada Inc., a Canadian Investment corporation. As a result, Mr. de Montigny
was no longer an officer, director or control shareholder of GSI USA.
OUR BUSINESS
We operate 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.
We offer 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.
INITIAL PRODUCT OFFERINGS
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 manufacturers on an as needed
basis. The Kiosk products were designed and built by GSI Canada. Our product
offerings consisted of the following items:
(1)Software Digital Signage Network Management Software (the MMP software
licensed from GSI Canada)
(2)Hardware Player PC
Servers and Server Racks
Displays (plasma, LCD, LED or plain TV set)
Network Hardware (switch, routers, cables etc.)
Kiosks Custom Manufacturing
INITIAL SERVICES
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. Our services offerings consisted of the following:
Managed Services
Application Service Provider
Hosting
Network Management and Monitoring
Graphic Conversion
Content Scheduling
Integration and Installation
Digital Signage Network Development
CURRENT PRODUCT & SERVICES
To address the changing market and technology landscape, in late 2002, we
initiated a comprehensive review of our position in the industry. During this
exercise we drew upon the collective experiences of 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.
As part of our comprehensive review, we decided to re-evaluate our core
product, the MMP software, to which we acquired certain rights under the Master
Licensing Agreement and its addendum with GSI Canada. We hired LTS Networks
Inc., a local networking and software development firm, to perform a technical
review of the software code. Their report recommended that we rework the
architecture of the product to take advantage of the latest development tools,
database tools and networking technologies 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.
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. Human
Interface Guidelines are a set of Graphical User Interface design policies
dictated by Microsoft that create a common application "feel", thereby reducing
the time required for a user to learn a new application. Data Warehousing is the
practice of keeping a copy of all transaction data. This transaction data is
specifically structured for querying and reporting.
We proceeded to implement this project and the resulting newly developed
proprietary software product was released on October 1, 2003. The product is
being marketed under the name of Digital Media Logistics Suite, or DMLS.
In June 2003, we signed an agreement to purchase a 40% equity interest in
LTS Networks for 500,000 shares. The closing of this purchase was contingent
upon GSI USA meeting certain conditions, most notably the obligation to deliver
registered shares. On January 9, 2004, we withdrew a registration statement
which was to register, among other things shares for the LTS purchase and
consequently, the shareholders of LTS, prior to closing, cancelled the
transaction, pursuant to clause 4(d) of the said agreement. Prior thereto, there
was no affiliation between us and LTS and the only relationship was that LTS
provided us with software development services through Purchase Orders on an as
required basis at standard market rates. As a result of the cancellation, this
continues to be our arrangement with LTS.
In early 2003, as a result of the re-evaluation of our core product, the
changing market and technology landscape as well as the review of our position
in the industry, 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 offer different levels of Network Managed
Services from simple hosting services to full network managed services. These
services will be provided from time to time by LTS Networks, through
sub-contractual agreement on a case by case basis, based upon each customer's
needs and specific requirements. We will also offer a purpose built commodity
PC that has been designed and tested for maximum performance at a low cost.
This product will be marketed as DML Messenger.
We will also, in some cases, offer some related hardware through our
agreement with Petters Group which 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.
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.
Our current product offerings are:
Software Digital Signage Network Management Software (DMLS is
proprietary to GSI Technologies USA Inc.)
Hardware Player PC (DML Messenger)
Displays
Our current services are:
Managed Services
Application Service Provider
Hosting
Network Management and Monitoring
Strategic consulting services
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. This will make our solution more competitive because
our clients will more readily be able to compare our products' cost and value to
those of our competitors.
THE TECHNOLOGY
Since 2000, the industry has been working to solve deployment and business
issues relating to the operation of large scale commercial digital signage
networks. These issues include advertising effectiveness monitoring, display
device reliability, cost and capability of player software and the lack of
appropriate software solutions.
Our new proprietary software: DMLS is designed to meet the Out-of-Home
industry's business and operational needs in digital advertising. The product's
development was based on the perceived needs of the industry following
discussions with potential users and the experience of our management.
DMLS 3.0 is comprised of three major component applications. They are
Digital Media Server (DMS), Digital Media Administrator (DMA) and Digital Media
Player (DMP). They are designed around the concept of providing network based
distribution of digital images for advertising and information on multiple
digital display devices.
Based on extensive integrated testing and current field deployment, we
believe that DMLS will provide a robust commercial solution for the Digital
Signage industry enabling operators to manage large or small networks of digital
signs from a remote location with full capability to control the content and the
play schedule for each independent site. Our products are built to operate on
many platforms and can adapt to any ICT infrastructure, such as Satellite,
Cable, or DSL. Our systems are designed to manage media content in all standard
formats for video files, including MPEG-2, MPEG-4, Flash and AVI.
DIGITAL MEDIA LOGISTICS SUITE (DMLS):
DMLS is a sophisticated, secure solution for dynamic digital signage
network management and display. DMLS offers dynamic scheduling and content
changes through its component applications. Designed to be scalable, secure,
extendable and flexible, DMLS is platform independent and is designed to work
with most modern databases such as Oracle or Microsoft SQL Server. DMLS
supports most common media file types (CODEC). The Suite is designed to operate
on Windows, Linux and other UNIX based systems. DMLS is designed to manage
large multi-display networks all over the world from either a single or multiple
control centers, via the Internet, resulting in complete freedom of operation.
DMLS is designed to operate in most common infrastructure environments that
a company may be working with and to handle commercial Out-of-Home advertising
and communications' requirements. The components applications of the suite are
as follows:
- GSI DIGITAL MEDIA ADMINISTRATOR (DMA)
DMA is a simple administration tool which allows users to easily
manage their clients and campaigns for advertisements, infomercials,
infotainment and other creative displays. Users can import their media
display statistics into whichever analysis tool they choose (Business
Objects, MicroStrategy, Cognos, Excel reports, etc.) and study the
effectiveness of their digital signage campaign.
- GSI DIGITAL MEDIA PLAYER (DMP)
DMP displays scheduled media content to single or multiple display
devices.
- GSI DIGITAL MEDIA SERVER (DMS)
DMS brokers media and play schedules to single or multiple players
either standalone or across any network.
COMPETITION
The advertising markets that we are entering are very competitive. Some of
our competitors have certain advantages including substantially greater
financial, technical and marketing resources; greater name recognition; and more
established relationships in the industry and may utilize these advantages to
expand their product offerings more quickly, adapt to new or emerging
technologies and changes in customer requirements more quickly, and devote
greater resources to the marketing and sale of their products.
The market for digital signage management software has existed for a few
years now but still remains somewhat small with few large-scale deployments that
we are aware off. Poised to take off substantially in the late 90's and early
2000's, it suffered a setback with the technology market downturn and the
reduction in technology investment.
As such, we perceive this to still be an emerging market with various
offerings from the companies involved in the field. We estimate the number of
direct competitors at around thirty (30) companies, most of them located in
North America. However, several of them are to be considered as integrators,
pulling in software and hardware solutions to meet their customers' deployment
requirements, rather than software suppliers. Under our old business model and
product/services offering, these companies would have been considered
competitors; however under our new business model and product/services offering
we consider them potential clients.
In the field of software developer/supplier, our in-house marketing
research has identified only a few companies involved solely or mainly with the
development of a vertical market Digital Network Management Solutions. These
companies are: SCALA, FRED, Advanced Digital Signage (ADS), Bluepoint
Technologies, Digital eMedia and Navori. We consider these companies to be our
direct competitors.
Barriers to entry in this field are not based solely on the capacity of a
group of software designers to develop effective software but rather on the
knowledge of the market's needs. Our strength resides in our 5 years experience
in the advertising field, gained by virtue of continuous contact with customers
in the industry, our management's experience and the relationships built over
the years with industry players. Based on this knowledge and comments from the
industry, we believe we are capable of designing a precise and efficient
solution to meet the needs of the operators of the digital signage network
industry.
The markets for our proposed products are characterized by rapidly changing
technology and evolving industry standards. Accordingly, our ability to compete
will depend upon our ability to continually enhance and improve our software and
our display products. There can be no assurance that we will be able to compete
successfully, that competitors will not develop technologies or products that
render our products obsolete or less marketable or that we will be able to
successfully enhance our products or develop new products.
GSI USA is positioned as the provider of one of the most cost-effective and
flexible solutions for Digital Signage Network deployment. Unlike most
competitors, our Digital Media Logistics Suite 3.1 (DMLS 3.1) product closely
follows the workflow of the media buying/advertising industry. The application
also enables clients to enter the market at a low cost, allowing them to
seamlessly migrate to more
expensive tools as they grow. (e.g., they can deploy on Linux and Postgres SQL
and later migrate to products like Oracle on Solaris).
GSI USA has competitively positioned itself to provide the market with a
"high-end" application for digital signage networks at a lower price point.
Its core product Digital Media Logistics Suite 3.1 is designed to be more
versatile, secure, scalable and compatible then other industry-related devices
or competing products on the market. This combination of top quality at a
competitive price was achieved due to the innovative approach to
enterprise-scale software engineering and the use of advanced development
techniques.
The unique competitive advantages of DMLS 3.1 are:
- It can be deployed on a number of platforms including Linux, Windows
and Unix, thus facilitating IT shops' learning curve and increasing
comfort levels;
- It was developed using Rapid Application Development methods, advanced
design patterns and architectural best practices, therefore it is
easily upgradeable to accommodate the latest market changes
- It can use most modern relational databases, once again making it easy
to deploy, as IT shops can pick any database they feel comfortable
with (which reduces deployment and training time/costs, increases
potential client base)
- It uses data warehousing standards, which makes its data minable,
adding a great value to the database
- It can be easily integrated into most media planning, billing and
accounting software, thereby further reducing costs and streamlining
the operation
- It integrates and aggregates existing media formats, no proprietary
formats or tools are required
THE DYNAMIC DIGITAL SIGNAGE (DDS) MARKET
Based upon our knowledge of the industry, we believe the potential market
for our products has significant opportunities for growth. The advertising
industry, for example, is currently challenged and is looking for new ways to
reach consumers more effectively.
While television's relative position has been maintained, advances in
technology now enable the consumer to select from more than 500 television
channels at home. Many of these are specialized channels and pay television
that do not broadcast advertising. As a result, TV does not reach the same
number of in-home "viewers per day" as they used to. Since in-home advertising
does not offer the same "viewers per day" reach, it has become strategically
imperative for advertisers and advertising agencies to seek other Out-of-Home
possibilities in order to reach more viewers everyday.
We have been active in the field of digital signage since 1999. In
addition to being a software developer, we were also involved initially in
network integration and hardware supplies (full outdoor displays, also called
street or urban furniture) and our founders' knowledge of the advertising and
broadcasting markets goes back a few more years. Consequently, even without
hard quantitative data concerning the actual market, our qualitative assessment
is based on a good knowledge of the market based upon many years of experience.
We also believe that the coming months will allow us to support our analysis
with additional quantitative information.
Market research in regards to advertising spending by category is expected
to be available by the end of 2003. However, we believe we possess valuable
information regarding these matters since we still have strong links with some
of the world leaders in the industry of Out-of-Home advertising.
EXPERIENCE
We have an available pool of knowledge and experience regarding the rapidly
evolving digital signage market. We have retained the services of the founder of
GSI USA, Mr. Michel de Montigny, to act as Product Manager and Sales and
Marketing Director. Mr. de Montigny has no written employment agreement with
GSI USA. Mr. de Montigny's personal knowledge and contacts that he has
developed over the years as well as his long experience in the marketing and
technology fields will give an immediate value to GSI USA.
In addition, GSI USA has in the past undertaken pilot testing in the field.
Between 1999 and 2001, we gained valuable field experience in serving digital
network operators through various pilot projects, such as providing managed
services for the operation of a network consisting of 12 large electronic lamp
board displays for Pattison Group, a Canadian Out-of-Home network operator, in
several Metropolitan centers in Canada, as well as a pilot network of 32 City
Columns which are informational kiosks containing one or more screens for
advertising purposes. This network consisted of a total of 96 screens located
in the common space of Ivanhoe Shopping Malls located in Quebec and Eastern
Ontario, Canada. These networks were managed by GSI from a central location in
Montreal. We have also provided software solutions to Clear Channel
International, one of the world's largest Out-of-Home network operators, for
various projects.
Extensive experience has also been gained in cooperating with other
participants in these projects which included various electronic sign
manufacturers and companies involved in controlling interactivity such as
Dacktronics, Saco, Smartvision, Adtronics, A.D.E. and Sony, among others.
INTELLECTUAL PROPERTY
We have developed an entirely new product as a result of R&D activities
over the past 9 months, the DMLS. We own all of the intellectual property and
sales rights to DMLS. These rights are governed and protected by applicable
copyright law. We intend to take all reasonable and practical steps, within our
means, to obtain patent and trademark protection for our Intellectual Property.
These steps will be taken when we can meet the expenses of such protection.
SALES AND MARKETING STRATEGY
Our low cost network management solution is designed to permit operators to
increase profits from existing advertising networks by converting them to
digital signage networks. Since advertisers realize increased value from the
greater message impact by using full-motion, full-color video instead of static
displays and since one screen can display many ads, network operators have the
potential to increase revenues and profits for each signage location.
Our analysis of our competitors' pricing as well as the fact that our
system uses low cost commodity hardware or "off the shelf" PCs rather than
expensive high end custom hardware, leads to reduced capital costs. This
reduction of up front costs as well as reduced operational costs, realized from
a reduced need for manpower to operate a network of screens across a wide
network, will allow for the development of previously un-exploited market
segments. For example a chain of retail stores that only requires a couple of
screens per location can now deploy a network nation wide with only one server
and manage the network from one location rather than having server hardware and
administration at each location. These markets have typically been overlooked
due to previously high entry costs which reduced the financial justification for
the conversion of existing static display networks into digital signage
networks. We believe the significantly reduced costs that our solution provides
for versus our competitors offering will reduce the efforts required to sell our
product to these markets.
We have identified 3 primary target markets for our sales and marketing efforts.
1) Out-of-Home Media Operators: Operators of Digital Networks in such
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locations as subways and train stations, airports, billboards, bus
shelters, etc.
2) Public Information and Security Communications: Government
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organizations who wish to broadcast information for 911 info,
evacuation plans, Amber Alerts, etc. in public buildings, strategic
high traffic areas, governmental facilities, etc.
3) Retail Outlet Operators: Large retail chains, department stores, gas
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stations, banks, restaurants, renovation centers, etc.
The commonality of the three target markets rests upon the high number
of eyeballs (number of viewers per day) and the ability for the networks'
operators to deliver informational and advertising content at key times of the
day to the benefit of the public.
Sales are expected to be accomplished through a combination of direct
sales, trade shows, road shows and general marketing efforts.
Our sales and marketing strategy is based on pursuing and developing
relationships with key players in the industry. In order to execute the
strategy as quickly and efficiently as possible, we intend to develop a network
of regional distributors worldwide by the end of 2004.
- Installation Contractors: We are developing a value added
reseller program for installation contractors. This program will
provide aggressive discounts to installation contractors as
incentive to offer our products, along with their products and
services, to their client base. The contractors are responsible
for all sales and marketing costs associated with the sale of our
products. This strategy will create significant market exposure
for our products while limiting direct sales and marketing cost.
- Digital Signage Hardware Manufacturers: Strategic alliances with
key Digital Signage manufacturers will allow our Company to
develop horizontal business markets. These manufacturers sell
their products to companies that are outside our core market.
These alliances will allow us to develop sales outside of our
core Digital Signage business.
- Sales agents: Management intends to create an aggressive sales
agent program to attract highly qualified independent sales
consultants.
- Out-of-Home network operators: The Out-of-Home advertising
industry is dominated by a handful of large network owner
operators. Our DMLS software solution has been designed to meet
their business needs. It is designed to operate networks
consisting of thousands of display units.
HUMAN RESOURCES
We have taken recent steps to strengthen the senior management team, and
have taken a cautious approach on expansion of salaried positions. In order to
maintain flexibility and minimize overhead, the Company previously outsourced to
consultants and other professionals to provide the directly applicable skill
sets required for specific time periods, wherever possible and cost-effective.
A new President and Chief Executive Officer, Mr. Gilles Addison, was hired with
a one-year professional services agreement. We continue to seek a suitable
corporate financial officer and are seeking additional sales and account support
people. As of October 31, 2003, the Company had 6 full time staff members. They
occupy positions as Operations, Sales and Marketing, Business and Investor
Relations, Administration and Reception. The President and CEO is part time
dedicating approximately one week a
month to GSI's business. All employees except the President and CEO, who is
directly employed by GSI USA, were provided by way of a Services agreement with
our then partially owned affiliate LTS Networks Inc. As of November 1st, 2003,
five employees were engaged directly by GSI Technologies in permanent full time
positions. The Services contract with LTS Networks was canceled effective
October 31st, 2003. Except for Mr. Addison, all employees are at-will employees
without any contract. None of the employees are members of a union. We believe
our relations with our employees are excellent.
ITEM 2. DESCRIPTION OF PROPERTY
In September 2002, we moved our principal business office to 400,
St-Jacques West, Suite 500, in the City of Montreal. Our facilities are located
in approximately 4,300 square feet of leased office space in Montreal. The
lease expires on September 1, 2005 and provides for an annual rental of
approximately $44,000.
On October 1st, 2002, the Company entered into a one year office lease for
1,600 square feet of office-warehouse space in Plattsburg for its USA Office in
New York with an annual rental of approximately $12,000. The lease expired on
September 30, 2003 and was not renewed.
ITEM 3. LEGAL PROCEEDINGS
During the course of 2002 and 2003, as described in greater details in the
financial notes, we settled all the legal issues except for one, Mr. Jacques
Biron, on which we have no development since our last filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market for Common Stock
Our common stock traded in the over-the-counter market on the "OTC Bulletin
Board" under the symbol GSITB from September 13, 2000 until March 2002, when it
was delisted for late filing of our annual report for the period ended October
31, 2001. The Company is now current with its filings and is trading on the OTC
Other market. Until March 5, 2002, we have provided the closing bid and ask
prices and thereafter the closing sales prices. These quotations reflect
inter-dealer prices, without retail markups, markdowns or commissions and may
not represent actual transactions.
CLOSING BID CLOSING ASK
HIGH LOW HIGH LOW
Fiscal Year Ended October 31,2002
First Quarter .40 .07 .51 .11
Feb. 1- March 5, 2002 .35 .09 .50 .20
CLOSING SALES
HIGH LOW
March 6- April 30, 2002 .45 .05
Third Quarter .05 .05
Fourth Quarter .001 .001
Fiscal Year Ended October 31, 2003
First Quarter .001 .001
Second Quarter .01 .001
Third Quarter .001 .001
Fourth Quarter .001 .001
(b) RECENT SALES OF UNREGISTERED SECURITIES
On May 6, 2002, GSI entered into an agreement with Wien Group, Inc. for
business consulting services valued at $20,000 which was paid by the delivery,
on June 19, 2003, of 200,000 shares valued at $0.10 per share.
In September 2002, Sogepar SA, a European investment corporation, agreed to
invest a total of $300,000 to be injected from September 2002 to February 2003.
The investment has been completed. On June 19, 2003, Sogepar SA received
6,000,000 shares at a price per share of $0.05 plus 2,000,000 warrants
exercisable at a price of $0.10 and 2,000,000 warrants exercisable at a price of
$1.20.
On October 18, 2002, La Ferme M.J. Fillion Inc. invested $100,000 in
consideration of 2,000,000 shares at a price of $0.05 per share. On September
12, 2003, La Ferme M.J. Fillion Inc. invested another amount of $250,000 in
consideration of 1,000,000 shares at a price per share of $0.25 and 1,000,000
warrants at a price of $1.00 per share.
In November 2002, Worldwide Business Consultants S.A., agreed to invest a
total of $125,000 to be injected from November 2002 to February 2003. The
investment has been completed. On June 19, 2003, Worldwide Business Consultants
SA received 2,500,000 shares at a price per share of $0.05 plus 2,000,000
warrants exercisable at $0.05.
In March 2003, First Mercantile Investments, Corp., agreed to invest a
total of $200,000 to be injected from March 2003 to April 2003. The investment
has been completed. On June 19, 2003, First Mercantile Investments, Corp.
received 2,000,000 shares at a price per share of $0.10 plus 500,000 warrants
exercisable at a price of $0.10 per share and 500,000 warrants exercisable at a
price of $0.25 per share.
On May 15, 2002, as described in greater details under Item 12, Mr. Craig
Perry advanced $330,000.00 to the Company. 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.
On June 11, 2003, we entered into a purchase agreement to acquire a 40%
stake in LTS Networks Inc., the developer of our software for 500,000 shares of
our common stock. On January 10, 2004, due to our inability to deliver free
trade shares to LTS, the shareholders of LTS cancelled the transaction prior to
closing pursuant to clause 4(d) of the said agreement.
On June 19, 2003, GSI issued 1,336,800 shares to 4136306 Canada Inc. for
conversion of outstanding promissory notes dated June 2002.
Except for the investment by Mr. Perry and the issuance to Wien Group,
which were exempt pursuant to Regulation D, Rule 506 as Mr. Perry is an
"accredited" investor and Wien Group is a
sophisticated investor, the other issuances were all made to "non-U.S. Persons"
who were offshore at the origination of the buy order and without any directed
selling efforts made in the US and were therefore exempt pursuant to Regulation
S.
(c) ISSUANCE OF WARRANTS
We currently have 9,016,000 warrants outstanding (excluding the 250,000
warrants to be issued to our CEO in June 2004), each of which entitles the
registered holder thereof to purchase, at any time until the close of business
on various dates ranging from February 1, 2005 until February 28, 2010, one
share of Class B common stock at prices ranging from $0.05 to $1.20. All of the
warrants contain provisions which protect the holders thereof against dilution
by increasing or decreasing the amount of Shares subject to the warrant as
necessary to protect the interests of the holder, generally, in the same
proportion as the increase or decrease in additional shares of Class B Common
Stock outstanding after such transaction, but all as determined by the Board of
Directors, in certain events, such as stock dividends, stock splits, mergers,
sale of substantially all of our assets, and for other extraordinary events as
determined by the Board.
(d) CANCELLATION OF CLASS A SHARES
None
(e) GRANT OF STOCK OPTIONS
In August 2000, the Board authorized a Long Term Stock Option Incentive
Plan containing 5,500,000 shares to be issued at the Board's discretion to
officers, directors, employees and consultants. The plan was not submitted for
shareholder approval. None of the options were issued to management, all of the
options which were issued expired or were terminated without being exercised and
the Board terminated the plan on June 27, 2003.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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 Inc. is a Company that operates in the Information and
Communication Information Industry. The Company has developed a proprietary,
enterprise scale, Digital Signage Network Management Software Solution called
Digital Media Logistics Suite. The Company also offers various services related
to the management, operation and maintenance of large Digital Signage Networks
worldwide.
In October of 2003 GSI Technologies launched its flagship product, the Digital
Media Logistics Suite 3.1 (DMLS 3.1). DMLS 3.1 resolves the challenges facing
adopters of digital signage: price, security, compatibility and scalability. It
includes features that save considerable deployment, training and
maintenance costs, while allowing smooth control of networks of any size. The
application can easily integrate into related workflows, such as media buying,
billing, accounting, contact management, etc.
The three components of the Suite: the DML Administrator, the DML Server and the
DML Player are built to run on multiple platforms, (Windows, Linux and Unix),
thus giving operators maximum flexibility when deploying networks of digital
signs. The DMLS Player uses standard media formats, which enables operators to
source content from most graphic shops.
The application is built to deliver customized content to refined target
audiences at designated time slots, depending on regional or local interests,
demographics and buying patterns. It allows operators to create 'captive
audience networks', which are of great value to advertising agencies and media
buyers.
To further lower customer costs, GSI Technologies offers hosting and 'managed
services'. This option means that GSI Technologies can handle the customer's
back-end administration, as well as managing media files and ad scheduling, at a
low monthly fee. Using the 'managed services' alternative permits GSI clients
to focus on their core business: selling advertising space on their network.
RESULTS FROM OPERATIONS
During the fiscal year from November 1, 2002 to October 31, 2003, GSI USA
incurred a loss of $1,298,795 or $0.04 per share versus a loss of $1,716,473 or
$0.07 per share in the same period in the prior year. The current year loss
can be attributed to limited revenue generated due to the Company focusing its
resources on developing its new generation of products, as well as major costs
incurred for software development, consulting, loss for impairment of a
licensing agreement and other selling, general and administrative expenses. The
Company incurred approximately $435,000 in software development costs to produce
its new software. The loss on the licensing agreement, due to its impairment,
approximated $141,000 and was pursuant to a Master License agreement with GSI
Canada, the creator of the initial software, Multi Media Pack. The licensing
agreement was considered impaired since the Multi Media Pack was developed on
out of date platforms and was unsupportable.
REVENUES
$15,909 in revenue was recognized during the current fiscal year versus $23,750
for the same period in the prior year. Current year revenues were primarily for
services provided in maintaining and modifying the existing sub-licensed Multi
Media Pack software. Current year revenue did not include any revenue from
sub-licenses since the Company's initial software, Multi Media Pack, was
considered impaired since the Multi Media Pack was developed on out of date
platforms and was unsupportable. Prior year revenues are related to the sale
of products, as well as a sub-license sold to Groupe Solcom International France
S.A.S. ("Groupe Solcom") giving it licensing rights for the territory of London,
England, Nantes, France and a sub-license sold to GSI Technologies ("GSI
Canada") giving it licensing rights for the territory of Canada.
OPERATING EXPENSES
During the current fiscal year ended October 31st, 2003, GSI USA has incurred
$1,262,601 in operating expenses versus $559,386 for the same period in 2002.
The increase is attributable primarily to approximately $435,000 in software
development costs to produce the Company's network based digital signage
management software solution along with consulting fees increasing year over
year by approximately $179,000 and a write off on the licensing agreement, due
to its impairment, of approximately $141,000 pursuant to a Master License
agreement with GSI Canada, the creator of the initial software, Multi Media
Pack.
OTHER INCOME
During the current fiscal year ending October 31st, 2003, $41,432 in other
expenses were realized compared to $1,170,202 of other expenses in the prior
year. Current year amounts are entirely composed of related party interest on
notes payable. Prior year amounts are composed of related party interest on
notes payable along with at October 31, 2002, due to GSI Technologies (3529363
Canada Inc.) continued financial difficulties, the Company wrote off the
remaining balance of the receivable of $1,691,147 offset by a $545,355 payable
to a subsidiary wholly owned by GSI Technologies (3529363 Canada Inc.). The
loss realized in the prior year related to these items totaled $1,145,792.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2003 GSI USA had $13,349 in cash compared to zero at October 31,
2002. Cash used in operating activities during the year ending October 31, 2003
was $1,260,462, which was mainly attributable to the net cash loss from
operations of $1,014,475 plus changes in net operating assets and liabilities of
$245,986.
Cash used by investing activities during the current year are comprised of
purchases of property and equipment totaling $143,669. Cash used by investing
activities during the prior year totaled $163,705 and reflect additional
short-term loans to GSI Canada in the amount of $130,203 along with purchases of
property and equipment totaling $33,502.
Cash provided from financing activities during the current year of $1,417,479
include borrowing through note payables totaling $422,958and the sale of common
stock through totaling $994,521.
On December 18, 2002, the Company signed a 11% promissory note for approximately
$290,980 USD with an unrelated party.
On June 19, 2003 the Company signed a 1 year 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 $81,978 at October 31, 2003. On
October 23, 2003 the Company signed a 1 year promissory note for $50,000 USD
with Craig Perry,a shareholder and director of the Company. The note also bears
interest of prime plus 2 percent and the term is one year.
On September 10, 2002 the Company entered into an investment agreement whereby
an investment group would advance up to $300,000 from September 10, 2002 through
February 1, 2003. In consideration for the proceeds, the Company would 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. At April 30, 2003, a total of
$300,000 had been advanced to the Company. 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 would
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 April 30, 2003 advances of $62,651 had been received.
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.
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 would 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. From May 1, 2003 to June 19, 2003
advances of $200,000 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.
We do not believe the matters discussed above are indicative of future results
due to the fact that in the past the Company has been focusing its resources on
developing its new generation of products. We have just recently focused on
creation of sales and delivery of products. The Company has currently accepted
purchase orders and has delivered some product and anticipates delivering the
balance of the orders. Further to this, through the sale and delivery of the
Company's annual support fee and hosting and managed services subscriptions a
recurring revenue stream is being generated. These variables will allow the
Company to generate sales and cash from operations, which will, in turn, negate
future financing needs for the Company.
In his audit opinion for our 2002 financial statements, our auditor expressed a
substantial doubt about our ability to continue as a going concern. We believe
additional funding requirements of $1.5 million are necessary to avoid a similar
going concern opinion in the future. Currently our monthly "burn rate" is
approximately $95,000 per month which includes R&D expenses of $55,000. We
believe our monthly "burn rate" will increase to approximately $125,000 per
month. This increased amount will include R&D expenses increasing to
approximately $70,000 per month, marketing expenses of approximately $20,000 per
month, salaries of approximately $20,000 per month and general and
administrative of approximately $15,000 per month. We believe that we will be
able to survive for the next 12 months based upon our cash on hand, our ability
to raise funds and the commencement of revenue generation from our new software.
Our cash on hand at October 31, 2003 is approximately $14,800. The Company sold
145 licenses in first fiscal quarter of 2004. Our operating plan for the fiscal
year ending October 31, 2004 assumes the sale of 3000 software licenses at $590
each. These sales numbers from our operating plan do not reflect actual sales
but rather management's projections based on discussions with potential clients.
There is no guarantee that any of these sales will materialize. If these sales
do materialize then they will generate revenue and cash flow to the company. If
they do not materialize additional capital and/or borrowings may be necessary in
order for the Company to continue in existence until attaining and sustaining
profitable operations. The Company has available the option to seek additional
funds from current shareholders through borrowings or equity financing. None of
the shareholders are obligated to provide additional financing nor have any of
them committed to making any additional investment. Management has continued to
develop a strategic plan to develop a management team, maintain reporting
compliance and seek new markets for our core technology from which our current
product, Digital Media Logistics Suite, was derived.
DISCUSSION AND ANALYSIS
During the course of 2002, we took extraordinary measures to reduce our
costs in an effort to remain a viable business. For example, we terminated all
of our employees except for our President and CEO; we leased new offices and
reduced our monthly from $20,000 to $2,000; and we did not renew any employment
contracts and negotiated our way out of existing consulting contracts.
On May 15, 2002, the Company entered into a 60-day term loan agreement with
Mr. Craig Perry, allowing us to resolve most of the then pending financial
issues such as rent, consulting fees, suppliers' bills, payroll etc. and thus we
reduce our payables considerably by end of October 2002. In the same period of
time, we continued to investigate the possibility of transforming certain loans
and liabilities into equity, creating new partnerships and raising new capital.
As a result, from May 2002 through May 2003, we raised almost $1,000,000 in new
equity by private placement. We also converted the above mentioned 60-day term
loan of $330,000 to equity and we raised an additional $300,000 debt by way of a
convertible debenture.
As described in greater detail above under Business, we made a strategic
decision to change the focus of our business and concentrate on the development
and then sale of our own proprietary digital signage software, DMLS. In the
current fiscal year we spent $435,000 on Research and Development as compared to
nothing in all of fiscal 2002. The focus of the Research and Development was to
resolve issues primarily in the area of the software's ability to scale, network
security, stability and robustness and workflow.
The market for our DMLS product continues to present a mixed picture. The
primary issue has been the overall slow economic climate in our major market
areas of Canada, the USA and Europe. Budgets for digital media products have
suffered from the overall economic conditions as well as generally reduced IT
spending across the board. As such, we have assumed a cautious approach to
develop a cost-effective solution, by concentrating on core functionality, and
to exploit the areas of clearest opportunity. From discussions with potential
clients and other players in the industry, we believe there are signs of
recovery in the advertising market as a whole and more specifically, the digital
signage market. We believe that this recovery will lead to increase
opportunities for the sale of our products and services which, if it eventuates,
should lead to increased revenues which in turn should improve our liquidity.
On April 14, 2003, we signed a special agreement with MCSi, a publicly
traded corporation specialized in Technology Integration, whereby we have
committed to supply to MCSi our DMLS software at a discounted price. In this
agreement, GSI guaranteed the discounted price based on 12,500 units. If the
total of licenses were to be above 12,500, the price per license would then be
subject to negotiation based on the regular market price charged by GSI. The
agreement is valid for a term of 24 months. MCSI has no obligation to purchase
any of the licenses.
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.
We have on hand Purchase Orders for 672 Licenses of our DMP Software at a
price of $590.00 each plus 15% per annum support fee. From November 2003 to
January 2004, 145 of these were converted to irrevocable contracts and were
delivered. There is no guarantee that the balance of these Purchase Orders will
be converted into irrevocable contracts and delivered.
We have on hand Purchase Orders for 672 Units of our DML Messenger at an
average price of $1,065.00 each. From November 2003 to January 2004, 45 of
these were converted to irrevocable contracts and were delivered. There is no
guarantee that the balance of these Purchase Orders will be converted into
irrevocable contracts and delivered.
We have on hand irrevocable contracts for 143 one-year subscriptions to our
Hosting and Managed Services Program at an average price of $65.00 per month
each.
On June 23, 2002, we completed an Agreement with SN Entertainment, a
company specialized in Internet market content. The agreement called for us to
install a network of full motion video plasma screens in approximately 200
preferred locations in the United States. However, based on a letter we
received from the President and CEO of SN Entertainment on June 2, 2003, SN no
longer intends to participate in the digital signage industry and therefore we
terminated the agreement and expect no revenue from this agreement. We do not
believe that this will have any impact on our operating plan or financial
condition because SN transferred the concept to a new corporation called ODBN
which has subsequently become a client of GSI.
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. The Company has been unable to conclude an Agreement with
Arcanes Technologies and no longer plans to pursue this opportunity.
In May 2003, we received a Letter Of Intent from TSA, a France-based
corporation, specialized in Network Integration and Satellite Transmission which
proposes that TSA act as the installation contractor and the service corporation
for our European based customers. The Company has been unable to conclude an
Agreement with TSA and no longer plans to pursue this opportunity.
The marketing plan for the current fiscal year was based primarily on our
management and sales team concentrating on existing opportunities and current
contract negotiations.
On July 1, 2003, we filed a registration statement on Form SB-2. This
registration statement was intended to register shares issued to LTS and certain
other shareholders. On January 9, 2004, pursuant to Rule 477(C) we withdrew the
SB-2. The reason we withdrew the registration statement is so that we can
explore the possibility of raising funds and because through the passage of time
many of the shares which were included in the SB-2 are now eligible for resale
pursuant to Rule 144 and as such the SB-2 is no longer necessary.
ITEM 7. FINANCIAL STATEMENTS
Attached is Appendix A containing the following information:
- Independent Auditor's Report
- Balance Sheets as of October 31st, 2003 and 2002
- Statements of Operations for the years ended October 31st, 2003 and 2002.
- Statements of Stockholders' Equity (Deficiency) for the years ended October
31st, 2003 and 2002.
- Statements of Cash Flows for the years ended October 31st, 2003 and 2002.
- Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT:
(a) Directors and Officers.
Our officers and directors are as follows:
Name Age Position
---- --- --------
Gilles Addison 63 President & CEO
Marie El-Ahmar Eid 41 Director, Secretary, Business
Development & Investor Relations
Director
Craig Perry 46 Director and Chairman
Marc Cote, LLB 42 Director
GILLES ADDISON
Mr. Addison is a senior executive with more than 30 years of experience in
marketing, financial management, administration and human resources for national
and international companies. From 1972 to 1979 he worked for the Citicorp
Leasing Canada LTD as a Corporate Lending Officer, promoting business with major
Canadian Corporations and Government agencies. In 1979 he became a Corporate
Manager for National Bank Corporate Leasing. From 1983 to 1994 he was the
President and CEO of
Fimacor International, a financial services company. From 1994 to present, he is
the Executive Vice-President of EXA Systems Inc., responsible for sales,
marketing and finance. He became President & CEO of the GSI on June 11, 2003.
MARIE EL-AHMAR EID
Mrs. Eid graduated from Lebanese University in Management of Network
Technologies in 1983. She occupied multiple functions at the National Bank of
Canada from 1993 to 1999. In 1999, she was hired by GSI Technologies USA Inc.
as an Executive Assistant to the CEO. In 2001, she was Human Resources Manager
and Business Development Manager. In 2003, she became Business Development and
Investor Relations Director. She became a Board Member on May 27, 2002.
CRAIG PERRY
In 1979, Mr. Perry received a Bachelor of Science in Mechanical Engineering
from the Massachusetts Institute of Technology. In 1982, he graduated from
University of California, Berkeley with a Masters degree of Business
Administration. Mr. Perry has been involved in inMetal (a 60 year-old family
business) since the early 1970's. He worked there in various capacities
throughout college and graduate school. In 1985, Mr. Perry assumed the role of
chief executive officer and has led the company ever since. InMetal is one of
New England's leading providers of precision sheet metal fabrication and
assembly services and currently employs 90 employees. Mr. Perry became a Board
Member on April 28, 2003.
MARC COTE
Mr. Cote graduated in civil law from the University of Ottawa and has been
a member of the Quebec Bar since 1985. Mr. Cote has been a senior partner in
the Montreal law firm of Labelle Boudreault Cote & Ass. since 1990. He
currently specializes in the area of commercial law. Mr. Cote became a Board
Member in October 2000.
EXECUTIVE ADVISORY BOARD
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 fields of activities. We believe
GSI will grow in a team environment and deliver positive results to the benefits
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 who will suit our needs. For further information about
the Executive Advisory Board members please refer to our last 10-Q for the
period ending July 31st 2003
(b) Section 16(a) Beneficial Ownership Reporting Compliance.
Based on a review of the Company's records it does not appear that Worldwide
Business Consultants SA, Sogepar SA, First Mercantile Investments Corp. or La
Ferme M.J. Fillion have filed a Form 3.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows for the last three fiscal years, compensation awarded
or paid to, or earned by, the Company's President and Chief Executive Officer.
Long Term
Annual Compensation Compensation Awards
Securities
Underlying
Name and Principal Position Year Salary ($) Bonus ($) Warrants
Gilles Addison, President & CEO 2003(1) 0 250,000
Rene Arbic, President & CEO 2003(2) 26,500
2002(3) 16,129
2001(4) 0
(1) On June 16, 2003, the Company hired Mr. Gilles Addison as President and CEO
with a one year professional services agreement. The agreement states that
Mr. Addison will be compensated by receiving 250,000 warrants exercisable
at $0.10 per share, at the end of the period covered by his agreement.
(2) Mr. Arbic resigned in February 7, 2003. During fiscal year 2003, Mr. Arbic
earned approximately $26,500. This amount reflects three worked months.
(3) During fiscal year 2002, Mr. Arbic was paid $16,129 in salary. Mr. Arbic
also advanced, on behalf of the Company, $38,995.55 to cover several
Company's expenses. Mr. Arbic agreed and received 400,000 shares in
settlement of the advances and these shares were issued on November 22,
2001.
(4) Mr. Arbic was hired at the beginning of September 2001 and his salary
commenced on November 2001.
OPTION GRANTS IN LAST FISCAL YEAR
None
AGGREGATED FISCAL YEAR-END OPTION VALUES
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2003, information regarding
the beneficial ownership of our Class B common stock based upon the most recent
information available to us for
- each person known by us to own beneficially more than five (5%)
percent of our outstanding common stock,
- each of our executive officers and directors, and
- all of our executive officers and directors as a group.
Each stockholder's address is c/o GSI Technologies USA Inc., 400, St-Jacques
West, Suite 500, Montreal, Quebec, CANADA, H2Y 1S1.
Number of
Shares Owned
Name Beneficially % of Total
---- -------------------------
Marie El-Ahmar Eid 12,764 *
Craig Perry 6,016,000 (1) 13.1
Sogepar SA 10,000,000 (2) 20.5
Worldwide Business Consultants S.A. 4,500,000 (3) 9.6
First Mercantile Investments, Corp. 3,000,000 (4) 6.5
4136306 Canada Inc. 8,034,724 17.9
La Ferme M.J. Fillion Inc. (4) 4,000,000 8.7
All Officers and Directors
as a Group (2 persons) 6,028,764 (1) 13.1
---------------
* less than 1%
(1) includes 1,016,000 currently exercisable warrants
(2) includes 4,000,000 currently exercisable warrants
(3) includes 2,000,000 currently exercisable warrants
(4) includes 1,000,000 currently exercisable warrants
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From November 01, 1999 through October 31, 2001, the Company advanced funds
to 3529363 Canada Inc. (GSI Canada) in exchange for a promissory note 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 Canada was $1,560,944 including interest
and a write down of the receivable of approximately $1,034,000 due to GSI
Canada approval from the Quebec Superior courts ratification of
reorganization on October 9, 2001. During the fiscal year ended October 31,
2002, the Company made additional advances on behalf of GSI Canada to its
bankruptcy trustee and CIBC, a financial institution in the amount of
$130,203. At October 31, 2002, due to GSI Canada continued financial
difficulties, the Company wrote off the remaining balance of the receivable
of $1,691,147 offset by a $545,355 payable to High Tech Neon, a subsidiary
wholly owned by GSI Canada. The loss realized in the current year related
to these items totaled $1,145,792.
On May 15, 2002 the Company signed a promissory note for $330,000. The term
of the note was for 60 days and the rate of interest was 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. Totalcom and 3633632 Canada
Inc., shareholders of the Company, forwarded to the lender 1,114,000 shares
for this transaction on behalf of the Company, since the Company wanted to
avoid further dilution, thereby assigning 55.7% ($55,700) of the
origination fee liability from the lender to Totalcom and 3633632 Canada
Inc. Another shareholder of the Company, 9035-2899 Quebec Inc. directly
forwarded to the lender 886,000 shares for this transaction on behalf of
the Company since the Company wanted to avoid further dilution 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 Totalcom and 3633632 Canada Inc. due to the fact that the Company
did not have the available funds to pay the origination fee liability in
cash as well as issuing an additional 222,800 for their assistance in this
matter which was agreed upon by the shareholders and the Company. The
arrangement was for the Totalcom and 3633632 Canada Inc to receive a 20%
premium on their original transferred number of shares. 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. On July 15, 2002 the note was in default and as part of the
agreement, the Company would issue an additional 1,000,000 shares to the
lender 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. On March 28, 2003, the Company
issued 1 million shares in settlement of the default penalty to the lender.
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 June 19, 2003 the
Company issued 1,336,800 shares to Totalcom and 3633632 Canada Inc to
settle the accrued origination fee liability and interest totaling $67,100.
During the course of the fiscal years ending October 31, 2003 and 2002, the
Company retained legal services from a firm in which a director of the
Company, Marc Cote, is a partner. The Company incurred approximately
$24,000 in legal fees from this firm during fiscal year 2002. The Company
incurred approximately $28,800 in legal fees from this firm for the fiscal
year 2003.
On December 1st, 2002, we entered into leasing agreements with our
shareholder Worldwide Business Consultants S.A. for our Montreal Office.
The leases expire on September 1, 2005 and provides for an annual rental of
approximately $44,000. We believe that the rental rate represents a fair
rental value.
On June 11, 2003, we entered into a purchase agreement to acquire a 40%
stake in LTS Networks Inc., the developer of our software, for 500,000
shares of our common stock. On January 10, 2004, due to our failure to
deliver free trade shares to LTS, , the shareholders of LTS, prior to
closing, cancelled the transaction, pursuant to clause 4(d) of the said
agreement
On June 27, 2003, the Company signed a one-year services agreement with LTS
Networks Inc. for providing specialized staff and personnel to GSI
technologies USA Inc. On September 30, 2003, GSI terminated this agreement
effective October 31st, 2003.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the period covered by this
report.
Ex.: 31.1 302 Certifications
Ex.: 31.2 302 Certifications
Ex.: 32.1 906 Certifications
Ex.: 32.2 906 Certifications
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities
and Exchange Commission. Such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management, including the Chief Executive Officer and
the Chief Financial Officer, recognizes that any set of controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives.
Within 90 days prior to the filing date of this annual report on Form
10-KSB, the Company has
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There were no significant changes in the Company's internal controls or in
other factors which could significantly affect the controls subsequent to the
date of their evaluation.
During the fiscal year covered by this report, the Company's auditor was
paid $13,200.00 for his services as auditor. The auditor did not provide any
other services or receive any other compensation from the Company.
APPENDIX A
GSI TECHNOLOGIES USA INC.
FINANCIAL STATEMENTS
INDEX
Independent Auditor's Report. . . . . . . . . . . . . . F-1
Balance Sheet as of October 31, 2003 and 2002 . . . . . F-2
Statements of Operations for the years ended
October 31, 2003 and 2002 . . . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity (Deficiency)
For the years ended October 31, 2003 and 2002 . . . . . F-4
Statements of Cash Flows for the year ended
October 31, 2003 and 2002 . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . F-6
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GSI Technologies USA Inc.
I have audited the accompanying balance sheets of GSI Technologies USA Inc. as
of October 31, 2003 and 2002 and the related statements of operations,
shareholders' equity (deficiency) and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a reasonable
basis for my opinion
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of GSI Technologies USA Inc. at
October 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has experienced an operating loss that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 7. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Mark Cohen C.P.A.
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
December 31, 2003
F-2
GSI TECHNOLOGIES USA INC.
BALANCE SHEET
October 31, 2003 October 31, 2002
------------------ ------------------
ASSETS
------
Current Assets
Cash and cash equivalents $ 13,349 $ -
Receivables 59,110 -
------------------ ------------------
Total current assets 72,460 -
Property and equipment, net 170,085 63,302
Intangible assets, net - 188,611
------------------ ------------------
TOTAL ASSETS 242,545 251,913
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 25,958 102,749
Accrued financing costs - 67,100
Accrued default penalty - 50,000
Accrued legal settlement - 20,750
Notes payable - related party 452,780 334,837
Investment proceeds liability - 143,623
Other current liabilities 32,000 126,487
------------------ ------------------
Total current liabilities 510,737 845,546
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized - -
5,000,000 shares; issued and outstanding none in 2003 and 2002
Common Stock, class B, $.001 par value; authorized 44,328 26,291
55,000,000 shares; issued and outstanding - 44,327,823 and
26,291,023 shares respectfully
Paid in Capital 6,881,037 5,269,022
Accumulated deficit (7,188,718) (5,889,923)
Accumulated other comprehensive income (loss)
Foreign currency translation (4,839) 977
------------------ ------------------
Total Stockholders' Equity (268,193) (593,633)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 242,545 $ 251,913
================== ==================
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-3
GSI TECHNOLOGIES USA INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31ST, 2003 AND 2002
Year Ended Year Ended
October 31, 2003 October 31, 2002
------------------ ------------------
Revenues $ 15,909 $ 23,750
Cost of Sales 10,672 10,634
------------------ ------------------
Gross Profit 5,237 13,116
Operating Expenses:
Marketing 57,247 17,950
Management and administrative fees - 11,897
Salaries and related costs 25,060 66,025
Rent 46,100 71,334
Financing expense - 182,774
Professional fees 79,529 42,920
Consulting 191,650 13,165
Software development 434,666 -
Depreciation 15,468 3,893
Amortization 68,897 96,231
Loss on licensing agreement write off 141,133 -
Loss on write off of impaired goodwill - 39,900
Directors fees 9,000 9,000
Other selling, general and administrative 193,852 4,297
------------------ ------------------
Total operating expenses 1,262,601 559,386
Loss before other income (expense) (1,257,364) (546,270)
Other income (expense):
Interest expense (related party) (41,432) (33,859)
Loss on Affiliate note receivable and advances - (1,145,792)
Foreign exchange gain (loss) - 10,730
Loss on disposal of assets - (1,280)
------------------ ------------------
Total other income (expense) (41,432) (1,170,202)
------------------ ------------------
Net Loss (1,298,795) (1,716,473)
================== ==================
Basic weighted average common shares outstanding 33,907,374 26,175,802
================== ==================
Basic and diluted Loss per common share $ (0.04) $ (0.07)
------------------ ------------------
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-4
GSI TECHNOLOGIES USA INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Class A Common Class B
--------------- ------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------- ---------- ------- ---------- ------------
Balance, October 31, 2001 - - 24,502,134 $24,502 $5,118,419 $(4,173,450)
Issuance of shares for consulting services 900,000 900 13,100
Issuance of shares for legal services 200,000 200 3,800
Issuance of shares for acquisition 266,000 266 39,634
Issance of shares in lieu of salaries 400,000 400 38,595
Issuance of shares for settlement of miscellaneous liabilities 22,889 23 2,174
Shareholders settlement of financing liability 44,300
Donated director fees 9,000
Net loss - 12 months ended October 31, 2002 (1,716,473)
Foreign currency translation adjustment
------ ------- ---------- ------- ---------- ------------
Balance, October 31, 2002 - - 26,291,023 26,291 5,269,022 (5,889,923)
Issuance of shares in private placement 2,000,000 2,000 98,000
Issuance of shares for settlement of accrued default 1,000,000 1,000 49,000
payment penalties
Issuance of shares for settlement of note payable 2,000,000 2,000 506,952
Issuance of shares for settlement of investment proceeds 10,500,000 10,500 614,500
liability
Issuance of shares for consulting services 200,000 200 19,800
Issuance of shares for settlement of accrued financing 1,336,800 1,337 65,763
cost liability
Issuance of shares in private placement 1,000,000 1,000 249,000
Donated director fees 9,000
Net loss - 12 months ended October 31, 2003 (1,298,795)
Foreign currency translation adjustment
------ ------- ---------- ------- ---------- ------------
Balance, October 31, 2003 - $ - 44,327,823 $44,328 $6,881,037 $(7,188,718)
====== ======= ========== ======= ========== ============
Accumulated
other Total
Comprehensive Shareholder's
Income/(loss) Equity
-------------- ------------
Balance, October 31, 2001 $ 388 $ 969,859
Issuance of shares for consulting services 14,000
Issuance of shares for legal services 4,000
Issuance of shares for acquisition 39,900
Issance of shares in lieu of salaries 38,995
Issuance of shares for settlement of miscellaneous liabilities 2,197
Shareholders settlement of financing liability 44,300
Donated director fees 9,000
Net loss - 12 months ended October 31, 2002 (1,716,473)
Foreign currency translation adjustment 589 589
-------------- ------------
Balance, October 31, 2002 977 (593,633)
Issuance of shares in private placement 100,000
Issuance of shares for settlement of accrued default 50,000
payment penalties
Issuance of shares for settlement of note payable 508,952
Issuance of shares for settlement of investment proceeds 625,000
liability -
Issuance of shares for consulting services 20,000
Issuance of shares for settlement of accrued financing 67,100
cost liability
Issuance of shares in private placement 250,000
Donated director fees 9,000
Net loss - 12 months ended October 31, 2003 (1,298,795)
Foreign currency translation adjustment (5,816) (5,816)
-------------- ------------
Balance, October 31, 2003 $ (4,839) $ (268,193)
============== ============
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-5
GSI TECHNOLOGIES USA INC.
STATEMENT OF CASH FLOWS
October 31, 2003 October 31, 2002
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,298,795) $ (1,716,473)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 84,365 100,124
Loss on write down of affiliate note receivable and advances - 1,275,995
Loss on write off of impaired goodwill - 39,900
Loss on licensing agreement write off 141,133 -
Donated director fees 9,000 9,000
Issuance of shares for consulting services 20,000 14,000
Issuance of shares for legal services - 4,000
Issuance of stock in lieu of salaries - 38,995
Accrued Interest Expense (related party) 29,822 4,837
Changes in Operating assets and liabilities:
Receivables and other current assets (59,110) 58,348
Other assets - 19,908
Accounts Payable and Accrued Liabilities (186,876) (101,179)
------------------ ------------------
Net cash provided by/(used in) operating activities (1,260,461) (252,545)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Advances to affiliate - net (130,203)
Purchase of property and equipment (143,669) (33,502)
------------------ ------------------
Net cash provided by/(used in) investing activities (143,669) (163,705)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable 422,958 266,609
Investment proceeds 481,377 143,623
Sales of common stock 513,144
------------------ ------------------
Net cash provided by/(used in) financing activities 1,417,479 410,232
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 13,349 (6,019)
Cash and cash equivalents, beginning of period - 6,019
------------------ ------------------
Cash and cash equivalents, end of period $ 13,349 $ 0
================== ==================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares for acquisition 39,900
Issuance of shares for settlement of miscellaneous liabilities 2,197
Issaunce of 1 million shares for default payment 50,000
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
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
F-6
GSI TECHNOLOGIES USA INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
GSI Technologies USA, Inc., formerly I.B.C. Corporation, was incorporated
in the State of Delaware on July 06, 1998. GSI Technologies USA Inc. is a
Company that operates in the Information and Communication Information Industry.
The Company has developed a proprietary, enterprise scale, Digital Signage
Network Management Software Solution called Digital Media Logistics Suite. The
Company also offers various services related to the management, operation and
maintenance of large Digital Signage Networks worldwide. In October of 2003 GSI
Technologies launched its flagship product, the Digital Media Logistics Suite
3.1 (DMLS 3.1). DMLS 3.1 resolves the challenges facing adopters of digital
signage: price, security, compatibility and scalability. It includes features
that save considerable deployment, training and maintenance costs, while
allowing smooth control of networks of any size. The application can easily
integrate into related workflows, such as media buying, billing, accounting,
contact management, etc.
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 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Receivables:
The Company believes that the carrying amount of receivables at October 31,
2003 approximates the fair value at such date.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives as follows when the property and equipment is placed in
service:
Estimate Useful Life
(In Years)
Office Furniture and Equipment 10
Computer and Other Equipment 3
Leasehold Improvements 5
Repairs and maintenance are charged to operations as incurred, and
expenditures for significant improvements are capitalized. The cost of
property and equipment retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in
operations.
Revenue Recognition
Revenue from sales of hardware are recorded at the time the units are
delivered. Revenues from sub- licensing are recognized over the term of the
licensing agreement. Revenues for services provided are recognized at the
time the service is provided.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provide guidance
for disclosures related to revenue recognition policies. Management
believes that GSI Technologies USA, Inc.'s revenue recognition practices
are in conformity with the guidelines of SAB 101.
Earnings (Loss) per share calculation:
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for
computing and presenting earnings per share. SFAS No. 128 requires the
Company to report both basic earnings (loss) per share, which is based on
the weighted-average number of common shares outstanding during the period,
and diluted earnings (loss) per share, which is based on the
weighted-average number of common shares outstanding plus all potential
dilutive common shares outstanding. Options and warrants are not considered
in calculating diluted earnings (loss) per share since considering such
items would have an anti-dilutive effect.
Foreign Currency Translation
Statement of operations amounts have been translated using the average
exchange rates in effect for each period. Gains and losses from foreign
exchange transactions have been included in the Statements of Operations.
Balance sheet amounts have been translated using exchange rates in effect
at the balance sheet dates and the translation adjustment has been included
in the foreign currency translation adjustment, as accumulated other
comprehensive income.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements:
The Statement of Financial Accounting Standards Board (SFAS) No. 141,
"Business Combinations," was issued by the Financial Accounting Standards
Board (FASB) in July 2001. This Statement establishes standards for
accounting and reporting for business combinations. This statement requires
the purchase method of accounting to be used for all business combinations,
and prohibits the pooling-of-interests method of accounting. This Statement
is effective for all business combinations initiated after June 30, 2001
and supercedes APB Opinion No. 16, "Business Combinations" as well as
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." The adoption of this statement by the Company did not have a
material impact on its financial condition or results of operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 142,
"Goodwill and Other Intangible Assets," was issued by the Financial
Accounting Standards Board (FASB) in July 2001. This Statement addresses
how intangible assets that are acquired individually or with a group of
other assets should be accounted for in financial statements upon their
acquisitiion. This statement requires goodwill amortization to cease and
for goodwill to be periodically reviewed for impairment, for fiscal years
beginning after October 31, 2001. SFAS No. 142 supercedes APB Opinion No.
17, "Intangible Assets." The adoption of this statement by the Company did
not have a material impact on its financial condition or results of
operations.
The Statement of Financial Accounting Standards Board (SFAS) No. 143,
"Accounting for Asset Retirement Obligation," was issued by the Financial
Accounting Standards Board (FASB) in August 2001. This Statement will
require companies to record a liability for asset retirement obligations in
the period in which they are incurred, which typically could be upon
completion or shortly thereafter. The FASB decided to limit the scope to
legal obligation and the liability will be recorded at fair value. This
Statement is effective for fiscal years beginning after June 15, 2002. The
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. 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
adoption of this statement by the Company did not have a material impact on
its financial condition or results of operations.
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2003 October 31, 2002
----------------- -----------------
Property and Equipment:
Furniture and fixture 38,934 38,934
Computer and other equipment 94,004 10,581
Leasehold improvements 83,168 22,921
Less: Accum depreciation & amortization 46,021 9,134
----------------- -----------------
Property and equipment, net $ 170,085 $ 63,302
================= =================
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS (CONTINUED):
Intangible Assets:
License rights- $ 474,779 $ 474,779
(Gross amount of $800,000 acquired from
affiliate and recorded at predecessor basis
with the cost over such basis of $325,221
recorded as a dividend to affiliate).
Accumulated amortization (333,646) (286,168)
Loss on write down to realizable value (141,133) -
---------- -----------
$ - $ 188,611
========== ===========
Amortization expense for the period 47,478 94,956
Estimated amortization expense for each
of the five succeeding years
Year ending October 31,
2003 - 94,956
2004 - 93,655
---------- -----------
- 188,611
========== ===========
NOTE 4 - NOTES PAYABLE
On May 15, 2002 the Company signed a promissory note for $330,000. The term of
the note was for 60 days and the rate of interest was 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. Totalcom and Gestion JMDM, shareholders of the
Company, forwarded to the lender 1,114,000 shares for this transaction on behalf
of the Company, since the Company wanted to avoid further dilution, thereby
assigning 55.7% ($55,700) of the origination fee liability from the lender to
the . Totalcom and Gestion JMDM. Another shareholder of the Company, 9035-2899
Quebec Inc. directly forwarded to the lender 886,000 shares for this transaction
on behalf of the Company since the Company wanted to avoid further dilution
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 Totalcom and Gestion JMDM due to the fact that the Company
did not have the available funds to pay the oringation fee liability in cash as
well as issuing an additional 222,800 for their assistance in this matter which
was agreed upon by the shareholders and the Company. The arrangement was for
the Totalcom and Gestion JMDM to receive a 20% premium on their original
transferred number of shares. 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.
On July 15, 2002 the note was in default and as part of the agreement, the
Company would issue an additional 1,000,000 shares to the lender 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. On March 28, 2003, the Company issued 1 million shares in
settlement of the default penalty to the lender. 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 June 19, 2003 the Company issued 1,336,800 shares to Totalcom and
Gestion JMDM to settle the accrued origination fee liability and interest
totaling $67,100.
NOTE 4 - NOTES PAYABLE (CONTINUED):
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 October 31, 2003 interest of $27,952 has been accrued and reflected in
the financial statements. The balance of the note, including interest, at
October 31, 2003 is approximately $318,932 USD.
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 $81,978 at October 31, 2003. At October
31, 2003, interest of $1,796 has been accrued and reflected in the financial
statements. The balance of the note, including interest at October 31, 2003 is
$83,774.
On October 23, 2003 the Company signed a promissory note for $50,000 USD with a
shareholder, who is also a director of the Company. The note bears interest of
prime plus 2 percent and the term is one year. The Company had received $50,000
at October 31, 2003. At October 31, 2003, interest of $74 has been accrued and
reflected in the financial statements. The balance of the note, including
interest at October 31, 2003 is $50,074.
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. At April 30, 2003, a total of $300,000 had been advanced to the
Company. 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 April 30, 2003 advances of $62,651 had
been received. 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.
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. From May 1, 2003 to June 19, 2003 advances
of $200,000 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.
NOTE 5 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
Office leases
On September 1, 2002, the Company entered into a three year office lease
for its Montreal office with monthly payments approximately $3,700.
On October 1, 2002, the Company entered into a one year office lease for
its U.S. office with monthly payments approximately $1,000.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of October 31, 2003:
Year ending October 31:
2004 - 44,000
2005 - 37,000
2006 - -
2007 - -
2008 - -
--------
$ 77,000
========
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, bearing interest at approximately 15%. The
settlement called for monthly payments of approximately $2,500.
Approximately $5,000 has been paid by October 31, 2002 and the remaining
$18,000 due to the City of Montreal had been reflected in accounts payable
at October 31, 2002. During fiscal year 2003, the Company missed several
payment according to the schedule and on October 31, 2003 the balance
including interest due to the City of Montreal is approximately $4,500.
This amount has been reflected in accounts payable at October 31, 2003.
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 had not
retained legal counsel but believed this complaint to be without merit and
proceeded to negotiate a settlement and release agreement with these two
individuals in the amount of approximately $13,000. The Company had
received an oral confirmation to the $13,000 settlement and release
agreement by October 31, 2002. The $13,000 had been accrued and reflected
in the October 31, 2002 financial statements. The Company and these
individuals signed the settlement agreement related to this matter on
February 27, 2003 and the company forwarded the required payment $13,000 to
settle this matter.
Consulting agreement
On May 27, 2002, the Company entered into a consulting agreement with a non
affiliated individual.
The agreement is for one year and the annual amount of the agreement is
approximately $100,000.
NOTE 6 - SOFTWARE DEVELOPMENT
The Company is currently developing software for resale to prospective clients.
The Company capitalizes cost of materials, consultants, interest, and payroll
and payroll-related costs for employees incurred in developing computer software
for resale once technological feasibility is attained. Currently, the Company
has contracted with consultants to develop the software. Technological
feasibility is established when the Company has completed all planning,
designing, coding, and testing activities that are necessary to establish that
the product can be produced to meet its design specifications including
functions, features, and technical performance requirements. Until
technological feasibility is established, all costs associated with the software
development are considered research and development expenditures and are charged
to development expense in the period incurred.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of $1,298,795
and $1,716,473 for the twelve months ended October 31, 2003 and 2002
respectively. As reported on the statement of cash flows, the Company incurred
negative cash flows from operating activities of $1,260,462 and $252,545 for
twelve months ended October 31, 2003 and 2002. Continuation of the Company as a
going concern is dependent upon obtaining sufficient working capital for
its planned activity. Additional capital and/or borrowings will be necessary in
order for the Company to continue in existence until attaining and sustaining
profitable operations. The Company is aggressively pursuing strategic alliances
which will bring a cash infusion, restructuring and forward looking business
plan.
NOTE 8 - RELATED PARTY TRANSACTIONS
Loss on write off - Note receivable and advances to affiliate
From November 01, 1999 through October 31, 2001, the Company advanced funds
to GSI Technologies (3529363 Canada Inc.), an affiliate of the Company in
exchange for promissory notes in order to continue to develop the concept
of GSITV.com, The Total Vision Network in Canada. The note had a term of
one year, but has been extended indefinitely bearing interest at prime plus
2%. At October 31, 2001, the outstanding balance due from GSI Technologies
(3529363 Canada Inc.) was $1,560,944 including interest and a write down of
the receivable of approximately $1,034,000 due to GSI Technologies (3529363
Canada Inc.) approval from the Quebec Superior courts ratification of
reorganization on October 9, 2001. During the fiscal year ended October 31,
2002, the Company made additional advances on behalf of GSI Technologies
(3529363 Canada Inc.) in the amount of $130,203. At October 31, 2002, due
to GSI Technologies (3529363 Canada Inc.) continued financial difficulties,
the Company wrote off the remaining balance of the receivable of $1,691,147
offset by a $545,355 payable to a subsidiary wholly owned by GSI
Technologies (3529363 Canada Inc.). The loss realized in the current year
related to these items totaled $1,145,792.
Legal fees to Director's firm
During the course of the year the Company has retained legal services from
a firm in which a director of the Company, Marc Cote, is a partner. The
Company incurred $35,400 and $24,000 in legal fees from this firm for the
twelve months ended October 31, 2003 and 2002 respectively.
Promissory note to Shareholder
On March 6, 2002 the Company signed a promissory note with a shareholder in
which the shareholder advanced $20,000 to the Company during the year . At
October 31, 2002 the entire promissory amount of $20,000 had been paid back
to the shareholder.
NOTE 9 - INCOME TAXES
The provision for taxes on earnings for the years ended October 31, consist of:
2003 2002
Current
Federal $ - $ -
State - -
Foreign - -
- -
Deferred
Federal - -
State - -
Foreign - -
- -
$ - $ -
At October 31, 2003, the Company has a Federal tax net operating loss ("NOL")
carryforward of approximately $7,000,000, 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.
During fiscal year 2002 the Company issued 600,000 shares to a consultant
for services amounting totaling $8,000 which the Company believes was the
fair value of the shares at the time.
During fiscal year 2002 the Company issued 400,000 shares to its president
in settlement of unpaid salaries totaling $38,995 which the Company
believes was the fair value of the shares at the time.
During fiscal year 2002 the Company issued 200,000 shares to its director
for settlement of legal services performed totaling $4,000 which the
Company believes was the fair value of the shares at the time.
On November 19, 2001 the Company issued 266,000 shares for the purchase of
a company in Europe. The transaction was recorded at $39,900 which the
Company believes was the fair value of the shares at the time since the
European company had no financial history or viable operation.
On December 19, 2001 the Company issued 100,000 shares to an organization
in settlement of consulting services totaling $2,000 which the Company
believes was the fair value of the shares at the time.
On July 3, 2002 the Company issued 200,000 shares to an organization in
settlement of consulting services
totaling $4,000 which the Company believes was the fair value of the shares
at the time.
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED):
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.
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 Septmeber 2003, the Company issued 1 million shares of Class B common
stock in a private placement for $250,000.
PART II - OTHER INFORMATION
ITEM 1. OTHER INFORMATION
----------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GSI TECHNOLOGIES USA INC.
Dated: February 3, 2004
By: /s/ Gilles Addison
---------------------------------------
Gilles Addison
President and Chief Executive Officer
By: /s/ Craig Perry
---------------------------------------
Craig Perry
Director and Chairman
By: /s/ Marie El-Ahmar Eid
---------------------------------------
Marie El-Ahmar Eid
Director and Secretary
By: /s/ Marc Cote
---------------------------------------
Marc Cote
Director
______________________________________________________________________
EXHIBIT INDEX
Ex.: 31.1 302 Certifications
Ex.: 31.2 302 Certifications
Ex.: 32.1 906 Certifications
Ex.: 32.2 906 Certifications