UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended July 31, 2003.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ________
COMMISSION FILE NUMBER: 0-31229
GSI TECHNOLOGIES USA INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0902449
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 St Jacques West, Suite 500, Montreal, Quebec H2Y 1S1, Canada
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(Address of principal executive offices)
(514) 282-9292
--------------
(Issuer's Telephone Number, including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [X]
Yes[ ] No[ ]
As of September 22nd, 2003, there were 43,827,823 shares of the issuer's $.001
par value common stock issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No[X]
INDEX TO FORM 10-QSB
--------------------
FOR THE QUARTER ENDED JULY 31, 2003
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Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet as of July 31, 2003 3
Statement of Operations for the Three and Nine Months ended July 31, 2003 and 2002 4
Statements of Cash Flows for the Nine Months ended July 31, 2003 and 2002 5
Notes to Financial Statements for the Nine Months Ended July 31, 2003. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Certifications 12
Signature 13
Exhibit 99.1 14
2
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT JULY 31, 2003
(UNAUDITED)
ASSETS
------
Current Assets
Cash and cash equivalents $ 707
Receivables, net 103,913
------------
Total current assets 104,620
Property and equipment, net 77,618
Other assets 2,570
------------
TOTAL ASSETS 184,808
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses 241,959
Notes Payable 300,000
------------
Total current liabilities 541,959
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized -
5,000,000 shares; issued and outstanding none
Common Stock, class B, $.001 par value; authorized 43,828
55,000,000 shares; issued and outstanding - 43,827,823
Paid in Capital 6,547,021
Accumulated deficit (6,923,923)
Accumulated other comprehensive income (24,077)
------------
Total Shareholder's Equity (357,151)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 184,808
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement.
3
GSI TECHNOLOGIES USA INC
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
Three months Nine months
ended July 31, ended July 31,
------------------------------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ - $ - $ 15,000 $ 23,750
Cost of Sales - - - 10,634
------------ ------------ ------------ ------------
Gross Profit - - 15,000 13,116
Operating Expenses:
Marketing 78,359 - 111,662 24,412
Salaries and related costs - - - 38,996
Rent 31,104 - 61,491 51,426
Software costs 153,641 - 273,714
Professional fees 25,100 - 80,467 9,029
Consulting 112,087 - 224,505 -
Depreciation 2,011 973 6,034 2,920
Amortization 2,252 23,845 30,495 71,537
Loss on licensing agreement write off - - 164,872 -
Other selling, general and administrative 72,324 1,556 137,513 48,930
------------ ------------ ------------ ------------
Total operating expenses 476,878 26,374 1,090,754 247,250
Loss before other income (expense) (476,878) (26,374) (1,075,754) (234,133)
Other income (expense):
Interest income (principally related party)
Interest expense (principally related party) (50,000) (8,863) (121,968) (17,622)
Foreign exchange gain/(loss) - (15,960)
Equity in net earnings (loss) of affiliates - - - -
------------ ------------ ------------ ------------
Total other income (expense) (50,000) (8,863) (121,968) (33,582)
------------ ------------ ------------ ------------
Net Loss (526,878) (35,237) (1,197,721) (267,715)
============ ============ ============ ============
Basic weighted average common shares outstanding 35,317,110 25,802,134 30,102,012 22,869,528
============ ============ ============ ============
Basic and diluted Loss per common share $ (0.01) $ (0.00) $ (0.04) $ (0.01)
============ ============ ============ ============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
4
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
For the nine months
ended July 31,
------------------------
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,197,721) $(267,715)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 36,529 74,457
Issuance of stock for contract settlement 38,996
Issuance of stock for interest/penalty 100,000 -
Accrued Interest Expense 12,179
Loss on licensing agreement write off 164,872 -
Changes in Operating assets and liabilities:
Receivables and other current assets (103,913) (4,871)
Other assets (2,570)
Accounts Payable and Accrued Liabilities 165,737 140,937
------------ ----------
Net cash provided by/(used in) operating activities (837,065) (6,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - -
Purchase of property and equipment - -
------------ ----------
Net cash provided by/(used in) investing activities - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable - -
Investment proceeds 732,792 -
Sales of common stock 104,980 -
------------ ----------
Net cash provided by/(used in) financing activities 837,772 -
------------ ----------
Net increase (decrease) in cash and cash equivalents 707 (6,019)
Cash and cash equivalents, beginning of period - 6,019
------------ ----------
Cash and cash equivalents, end of period $ 707 $ (0)
============ ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
None
5
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 2003
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of GSI
Technologies USA, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in GSI Technologies USA,
Inc.'s 10K-SB as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - NET EARNINGS (LOSS) PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
NOTE 3 - IMPAIRMENT AND WRITE OFF OF LICENSING RIGHTS
The Company's only intangible asset, licensing rights, were reviewed for
impairment and determined to be impaired since the software and technology
behind the licensing rights would no longer be available due to financial
difficulties and constraints associated with the licensor. The unamortized
amount of $164,872 of licensing rights has been written off and reflected in the
statement of operations as a loss for the current year.
NOTE 4 - 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
$1,197,721 for the nine months ended July 31, 2003 (unaudited). As reported on
the statement of cash flows, the Company incurred negative cash flows from
operating activities of $837,065 for nine months ended July 31, 2003
(unaudited). Continuation of the Company as a going concern is dependent upon
obtaining sufficient working capital for its planned activity. Additional
capital and/or borrowings will be necessary in order for the Company to continue
in existence until attaining and sustaining profitable operations. The Company
is aggressively pursuing strategic alliances which will bring a cash infusion,
restructuring and forward looking business plan.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------
FORWARD LOOKING STATEMENTS.
This report contains forward-looking statements that are based on the Company's
beliefs as well as assumptions made by and information currently available to
the Company. When used in this report, the words "believe," "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, international war and terrorism and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
OVERVIEW
GSI Technologies USA Inc. is an Information Technology Company that offers
products and solutions to the Out-of-Home Digital Signage Industry. The Company
has developed a proprietary, enterprise scale, Digital Signage Network
Management Software Suite. The Company is a Value Added Reseller for various
related hardware products that make up its end-to-end Digital Signage Solution.
The Company also offers various services related to the installation,
management, operation and maintenance of large Digital Signage Networks
worldwide.
Research firm iSupply/Stanford Resources sees the worldwide Digital Signage
market growing from just over $ 3 billion this year to about $ 5 billion in 2006
and about $ 7 billion in 2008. CAP Ventures Inc., a research firm that tracks
retail digital signage as a separate category, sees this niche growing still
faster, from North America revenue of $ 388 million this year to nearly $ 2
billion in 2006; an increase of more than 400 percent.
GSI Technologies USA Inc. is particularly well positioned to exploit this growth
as it offers one of the only true enterprise scale solutions in the world. The
technology is being field tested by Clear Channel International, which is the
largest player in the Industry.
RESULTS FROM OPERATIONS
Three and nine months ending July 31, 2003 and 2002
During GSI's third quarter from May 1,2003 to July 31, 2003, GSI USA incurred a
loss of $526,878 versus a loss of $35,237 in the same period in 2002 due to the
increase of activities with respects to our new product.
During GSI's nine month's from November 1, 2002 to July 31, 2003, GSI USA
incurred a loss of $1,197,721 versus a loss of $267,715 in the same period in
2002, this too reflects the increase of activities with respects to our new
product.
REVENUES
Zero in revenue was recognized during the current year quarter, versus zero
for the same period in the prior year.
$15,000 in revenue was recognized during the current year nine month period
versus $23,750 for the same period in the prior year. This is related to
sub-licensing agreements realized over the respective terms.
7
OPERATING EXPENSES
During the three months ended July 31, 2003, GSI USA has incurred $476,878
in operating expenses versus 26,374 for the same period in 2002. The increase
was mainly attributable to marketing, software costs and consulting.
During the nine months ended July 31, 2003, GSI USA has incurred $1,090,754 in
operating expenses versus 247,250 for the same period in 2002. The increase was
mainly attributable to marketing, software costs, consulting and the write off
of unamortized impaired licensing rights.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2003 GSI USA had $707 in cash. Cash used in operating
activities during the nine months ending July 31, 2003 was $837,065, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Net Cash provided from financing activities during the period was $837,772.
The result of all activities during the nine-month period ending July 31,
2003 was a net increase of $707 in our cash position.
MANAGEMENT DISCUSSION
GSI Technologies USA Inc. was created in 1998, with goals of supplying
complete turn-key solutions to out-of-home advertising network operators. The
company's offering went from digital signage network management software to
installed screen, displays or street furniture, interacting with targeted
audiences. GSI was then offering integration of network services but dealing
with hardware suppliers for integration of computers and screens (plasma, LCD,
LED or plain TV set).
The Company operates within the overall Information and Communication
Technology (ICT) field, offering software, hardware and related services to
manage dynamic and efficient communications networks. The information delivered
can be advertising messages targeted to consumers while out of their homes or
messages of more general interest like traffic and weather information.
The Company offers solutions principally for media operators,
advertisers and others seeking to reach the greatest number of "viewers per day"
at the street level. Street level advertising is the strategic placement of
signage, so it is readily visible to pedestrians and motorists. In addition to
addressing potential consumers in busy urban and suburban settings, public
service messages can also be conveyed using our technology.
To address the changing market and technology landscape, we initiated
a comprehensive review of our position in the industry. During this exercise we
drew upon the collective experiences of our own team as well as soliciting input
from various individuals we believed to be knowledgeable about the industry. We
concluded that in order to be in the forefront of the industry we would have to
narrow our business focus and develop an entirely new software package.
We initially began offering products and services for sale in 2000.
Our product offerings at that time included both software to manage a digital
signage network and related hardware such as installed screens, displays or
kiosks. In addition, we also owned and operated our own network of digital
signage kiosks. The software products were offered pursuant to a Master License
agreement with GSI Canada, the creator of the initial software, Multi Media
Pack, or in short as MMP. The hardware products were purchased for resale from
various brand name manufactures on an as needed basis. The Kiosk products were
designed and built by GSI Canada.
8
At that time we also offered value-added services such as the
integration of network services and the ability to deal with hardware suppliers
to integrate and install computers and screens (plasma, LCD, LED or plain TV
set). In other words, if a client came to us with an idea about something he
would like to do, we would problem solve the matter and design an integrated
solution, including managed services, which would allow the client to reach his
goal. In cases where clients did not need any of our software or hardware
products, we were still available to provide consulting services for operators
to develop digital signage networks
The Company has re-evaluated its overall market approach and decided
to focus more heavily on developing and selling digital network operations
software rather than actually developing networks, installing and managing
physical hardware, and actually selling and managing the digital content. With
the re-focus of GSI in mid-2002, came a new philosophy and re-positioning of the
company's activities. GSI is returning to the core expertise of its past,
focusing on its original concept and vision, building the software that will
help users store, inventory, deliver and use visual digital content on a variety
of devices in a variety of applications. The Company now has a much clearer
product and sales vision.
As a result, in early 2003, we changed our Product and Services
Offering. Our main focus will now be to develop and sell a network based digital
signage management software solution. We will also, in some cases, offer Digital
Signage and Network Managed Services as well as related hardware. We will no
longer supply or manufacture kiosks or design/develop networks. We will continue
to leverage our market knowledge by providing strategic consulting services for
operators of digital signage networks.
As part of our comprehensive review, we decided to re-evaluate our
core product, the GSI Multi Media Pack acquired under the Master Licensing
Agreement with GSI Canada. We hired LTS Networks Inc. to perform a technical
review of the software code. The report recommended that we rework the
architecture of the product to take advantage of newer development tools and
database tools to ensure that the product would be up to date and as technically
advanced as possible. If undertaken, it was believed that our new product would
also be well positioned for growth and enhancement in the future. In June 2003,
we purchased a 40% equity interest in LTS Networks
As a result of their report, we hired LTS Networks to build for us a
next generation product, based on our design, to offer to the Out-of-Home
advertising industry. We solicited the assistance of Mr. de Montigny, to
leverage his past experience with the Advertising and Media industry to work
with LTS to design the functional requirements for the new software. It was
anticipated that the new software would differ from the previous product in
several key ways. The programming language would be different; the software
design and architecture would be different; and the new product would pay close
attention to standards, such as the Human Interface Guidelines and Data
Warehouse Standards. We proceeded to implement this project and the resulting
newly developed proprietary software product is expected to be released by the
end of September 2003 and will be known as Digital Media Logistics Suite, or
DMLS.
We also revised our pricing and licensing structure. We will now sell
and distribute our new software product on a per player software license basis.
This is a significant departure from our previous revenue model of territorial
licensing as we believe it better reflects the standard pricing and licensing
model for our industry, and therefore should make our solution more competitive.
In first 3 quarters of fiscal 2003 we spent $300,000 on Research and Development
as compared to nothing in all of fiscal 2002.
In April 2003, we signed a special agreement with MCSI, a publicly
traded corporation specialized in Technology Integration, whereby we have agreed
to sell to MCSI up to 12,000 licenses of our DMLS software at a discounted
price. The agreement is valid for a term of 24 months.
In May 2003, we initiated negotiations with Arcanes Technologies, a
France-based corporation to act as sales agent to distribute our new line of
products in France. Negotiations are in preliminary stage and the Company can
not state when or whether an agreement will be reached.
In May 2003, we received a Letter Of Intent from TSA, a France-based
corporation, specialized in Network Integration and Satellite Transmission to
act as installation contractors and service corporation for our European based
customers. We are currently negotiating contract agreements and anticipate
conclusion by the end of 2003.
9
On May 15, 2002, Mr. Craig Perry advanced $330,000.00 to the Company.
In consideration to this loan the Guarantor (Michel de Montigny) transferred
2,000,000 shares to Mr. Perry. This note has a term of 60 days bearing interest
at prime rate plus 2% and a collateral / late payment penalty of 1,000,000
shares. On March 28, 2003 the Company issued 1,000,000 shares to Mr. Perry
representing the Collateral /late payment penalty on this note. On May 8, 2003,
Mr. Perry agreed to cancel his $351,000 payable note ($330,000 debt + 21,000
interest to date) and to invest a supplementary amount of $165,000 for the
following considerations: 2,000,000 shares at a price per share of $0.25 plus
500,000 warrants exercisable at $0.25 and 516,000 warrants exercisable at $1.00.
Mr. Craig Perry became a Director on April 28, 2003.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES TO AUTHORIZED SHAREHOLDERS' CAPITAL
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In August, 2003, we signed a one year renewable Sales Representative
agreement with Petters Group LLC. The agreement provides for us to act as a
non-exclusive sales representative in the United States, Canada and Mexico in
regards to their new suite of Digital Displays Products, branded under the name
of Polaroid.
We have currently concluded sales of an approximate quantity of 600
units including Polaroid 42" Digital plasma screens, compact computers and DMLS
software licenses. These sales have an approximate value of $2,700,000 and are
subject to financing approval of the customers. We expect to make an approximate
gross profit of $600,000 on these sales.
MANAGEMENT
In May 2003, Mr. Ren Arbic resigned from his position as Chairman of
the Board of GSI Technologies USA Inc.
In May 2003, the Board of Directors appointed Mr. Craig Perry, who is
currently General Manager of InMetal and a shareholder of GSI, to join the Board
of Directors as a Director and Chairman.
In June 2003, the Board of Directors appointed Mr. Gilles Addison to the
position of President and Chief Executive Officer. Mr. Addison's contract is
valid for one year period.
10
In June 2003, GSI Board of Directors appointed an Executive Advisory Board
to manage and build the value of the Corporation on a day to day basis with the
input of experienced individuals in various field of activities. We believe our
Corporation will grow in a team environment and deliver positive results to the
benefit of our shareholders. The Executive Advisory Board will report to the
Board of Directors through the CEO, Mr. Addison. GSI's management is seeking to
identify a Chief Financial Officer that will suit the needs of our Corporation.
The Executive Advisory Board is composed by the following individuals:
- Mr. Gilles Addison, President and CEO
- Mrs. Marie El-Ahmar Eid, Business Development and Investor
Relations Director
- Glen Pearson, Operations Director
- Michel de Montigny, Product, Sales and Marketing Director
- Paola Salcedo, Administration Director
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are contained in this 10-QSB:
99.1 Sarbans-Oxley Certifications.
11
CERTIFICATION
I, Gilles Addison, hereby certifie that:
I have reviewed this quarterly report on Form 10-QSB of GSI Technologies
USA Inc.;
Based on my knowledge, this report does not contain any untrue statement of
a material fact, or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report; and
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial position, results of operations, and cash flows
of the issuer as of, and for, the periods presented in this report.
I am responsible for establishing and maintaining disclosure controls and
procedures for the issuer and have:
Designed such disclosure controls and procedures to ensure that
material information relating to the issuer is made known to me,
particularly during the period in which the periodic reports are
being prepared;
Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of July 31, 2003; and
Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of
the Evaluation Date;
I have disclosed, based on my most recent evaluation, to the issuer's
auditors and the audit committee of the board of directors (or persons
fulfilling the equivalent function):
All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to
record, process, summarize and report financial data and have
identified for the issuer's auditors any material weaknesses in
internal controls; and
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal
controls; and
I have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: September 22nd, 2003
/s/ Gilles Addison
-----------------------------
Gilles Addison
President and CEO
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 22nd, 2003 GSI TECHNOLOGIES USA INC.
By: /s/ Gilles Addison
-----------------------------------------
Gilles Addison
President and CEO
13