As filed with the Securities and Exchange Commission on November 10, 2003
Registration No. 333-106690
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
Amendment No. 1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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GSI TECHNOLOGIES USA INC.
(Name of issuer in its charter)
DELAWARE 7319 65-0902449
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification Number)
400, ST-JACQUES WEST IRVING ROTHSTEIN, ESQ.
SUITE 500 LAW OFFICES OF IRVING ROTHSTEIN
MONTREAL H2Y 1S1 QUEBEC 292 MADISON AVENUE
(514) 282-9292 CANADA NEW YORK, NEW YORK 10017
(Address and telephone number (212) 685-7600
of registrant's principal executive (Name, address and telephone
offices and principal place of business) number of agent for service)
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Copies to:
IRVING ROTHSTEIN, ESQ.
Law offices of Irving Rothstein
292 Madison Avenue
New York, New York 10017
Telephone: (212) 685-7600
Approximate date of commencement of proposed sale to public: : From time to
time after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered registered Offering Price Per Aggregate Offering Registration Fee
Security(2) Price(2)
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Common Stock Class B, 30,575,572 $0.25 (3) $7,643,893
par value $0.001
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Common Stock Class B, 2,000,000 $0.05 (4) $100,000
par value $0.001 (1)
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Common Stock Class B, 2,500,000 $0.10 (4) $250,000
par value $0.001 (1)
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Common Stock Class B 1,000,000 $0.25 (4) $250,000
par value $0.001 (1)
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Common Stock Class B, 1,516,000 $1.00 (4) $1,516,000
par value $0.001 (1)
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Common Stock Class B, 2,000,000 $1.20 (4) $2,400,000
par value $0.001 (1)
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Total 39,591,572 $12,159,893 $1,118.71
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(1) Consists of shares of common stock issuable upon exercise of currently
exercisable warrants. Pursuant to Rule 416, this Registration Statement
also covers any additional shares of common stock which may be issuable by
virtue of the anti-dilution provisions in the warrants.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) There is no market for our shares and this price represents the price per
share paid by a non-affiliate through arms-length negotiation during a
recent private offering. This price per share is higher than the book value
and represents a more accurate value.
(4) Pursuant to Rule 457(g), this price is the exercise price per share.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION DATED, NOVEMBER 10, 2003
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GSI TECHNOLOGIES USA INC.
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39,591,572 shares of Class B common stock
This prospectus covers 39,591,572 shares of the Class B common stock,
par value $.001 per share, of GSI Technologies USA Inc. This figure includes
9,016,000 shares of common stock that we may issue in the future if currently
outstanding warrants are exercised. The common stock offered here will be sold
solely by the selling stockholders at a fixed public offering price or at
varying prices determined at the time of sale.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PLEASE READ THE
"RISK FACTORS" BEGINNING ON PAGE 2.
Our securities are listed for trading on the Pink Sheets under the
symbol GSITB.
_________________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Our principal executive offices are located at: 400 St. Jacques Street
West, Suite 500, Montreal Quebec H2Y 1S1 CANADA. Our telephone number is (514)
282-9292.
The date of the Prospectus is ________, 2003.
RISK FACTORS
You should carefully consider the following facts and other
information in this prospectus before deciding to invest in the shares.
RISKS RELATING TO OUR VIABILITY
SINCE WE HAVE ONLY A LIMITED OPERATING HISTORY, IT IS DIFFICULT FOR YOU TO
EVALUATE IF WE ARE A GOOD INVESTMENT.
We were first incorporated in July 1998, introducing our first
products in January 2000. Market success of our product line to date has been
limited and we were essentially inactive for approximately 12 months. As a
result, we have only a very limited operating history, and we face all of the
risks and uncertainties encountered by early-stage, technology companies. As a
result, an investment in our offering is quite speculative since we have no real
track record for you to evaluate our true value and future prospectus.
OUR INDEPENDENT AUDITOR HAS EXPRESSED CONCERN OVER OUR ABILITY TO REMAIN IN
BUSINESS AND IF WE GO OUT OF BUSINESS YOUR INVESTMENT WILL BE LOST.
In his report on our audited financial statements, our auditor has
stated that there is a substantial doubt as to whether we will be able to remain
in business for even the next twelve months. His concern is based upon our
continued losses. While the Company hopes to raise the funds necessary to
implement our business plan, if we fail and his concerns are proven accurate,
any investment in our securities will likely be lost.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE EVEN MORE LOSSES IN THE
FUTURE WHICH MAY CAUSE US TO BECOME INSOLVENT.
From our inception in July 1998 through July 31st, 2003, we incurred
an accumulated deficit of $7,017,167. We anticipate incurring further losses
until, at the earliest, we generate sufficient revenues to offset the
substantial up-front expenditures and operating costs associated with developing
and commercializing products utilizing our technology. There can be no assurance
that we will ever operate profitably.
WE NEED SUBSTANTIAL ADDITIONAL FINANCING OR WE WILL BE UNABLE TO COMPLETE OUR
BUSINESS PLAN AND THEN, OUR OPERATIONS WILL LIKELY CEASE OR BE SIGNIFICANTLY
CURTAILED.
Our capital requirements relating to the commercialization of our
technology have been, and will continue to be, significant. We are dependent on
the proceeds of future financing, and the conversion of certain debts to equity,
in order to continue in business and to develop and commercialize additional
proposed products. We anticipate requiring approximately $2,000,000 in
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additional financing in the next 12 months. There can be no assurance that we
will be able to raise the substantial additional capital resources necessary to
permit us to pursue our business plan. The Company has incurred approximately
$300,000 of debt in the recent past and is dependent on securing additional
funds to remain viable. Any inability to obtain additional financing will
require us to significantly curtail or cease operations.
THERE IS ONLY A LIMITED MARKET FOR OUR SECURITIES SO ANY PURCHASERS OF THE
SECURITIES OFFERED HEREBY MAY HAVE DIFFICULTY RESELLING THEM.
Our securities are traded on the OTC and there has been practically no
sales volume for the last year. No assurance can be given that a more active
market will develop. Accordingly, purchasers of the shares offered herein may
find their investment highly illiquid.
RISKS RELATING TO OUR TECHNOLOGY
WE HAVE NOT COMPLETED TESTING ALL THE COMPONENTS OF OUR TECHNOLOGY AND IF IT
DOES NOT WORK WE WILL HAVE NO BUSINESS.
There can be no assurance that problems will not develop in our new software
products which would have a material adverse effect on our business. Since we
have conducted only limited tests of our software and associated hardware
products, we are uncertain if it will perform all of the functions for which it
has been designed or prove to be sufficiently reliable in widespread commercial
use.
OUR INFRASTRUCTURE MAY NOT BE RELIABLE BECAUSE OF THIRD PARTY DISRUPTIONS AND IF
IT FAILS WE WILL LOSE CUSTOMERS WHICH WILL HAVE A NEGATIVE IMPACT ON OUR ABILITY
TO MAKE MONEY.
Our system infrastructure will be vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with our computer
systems. Computer viruses or problems caused by third parties could lead to
material interruptions, delays or cessation in service to our customers.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of consumers. Security and privacy concerns of consumers may limit our
ability to develop a significant customer base. If any of these concerns
eventuate, we will likely find it difficult to find and then retain customers
which will make it difficult to generate revenues.
RISKS RELATING TO OUR BUSINESS PLAN
OUR BUSINESS PLAN INVOLVES THE RELATIVELY NEW CONCEPT OF "DIGITAL MEDIA
LOGISTICS" INVOLVING ELECTRONIC AUTOMATED OUT-OF-HOME ADVERTISING AND
INFORMATION CONVEYANCE, AND IF OUR MARKETING STRATEGY IS UNSUCCESSFUL AND THE
MARKET DOES NOT EMBRACE OUR PRODUCTS WE WILL GO OUT OF BUSINESS.
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Our planned software solution which involves using "DIGITAL MEDIA
LOGISTICS", for reaching great numbers of "viewers per day" remains an unproven
business concept. Demand and market acceptance for a new method of advertising
and information content delivery is subject to a high level of uncertainty.
Achieving market acceptance for our newly developed software & hardware products
will require significant efforts and expenditures to create awareness and demand
by advertising agencies, multimedia groups, municipalities and large retailers.
The lack of success of our marketing strategy could result in the curtailing of
our operations
EVEN IF OUR BASIC TECHNOLOGY WORKS, WE MAY HAVE TO MODIFY IT TO MEET INDIVIDUAL
CUSTOMER DEMANDS.
To the extent that there is competition among our customers to have a
software solution differentiated from others, we may need to modify and adapt
our software to meet their demands. These modifications will take time and cost
money and may not function. Addressing this could delay our plans and cause us
to incur substantial additional costs.
WE HAVE ONLY LIMITED HUMAN RESOURCES TO IMPLEMENT THE PROJECTS WE MAY RECEIVE
AND IF WE ARE UNABLE TO SATISFACTORILY SERVICE OUR CUSTOMER'S PROJECTS, WE WILL
LOSE THEM AND THEIR REVENUES.
Our operations will depend upon the capacity and availability of
people to sell and implement our system infrastructure. We currently have only
limited human capacity and will be required to continually expand our staff to
accommodate significant sales to predominantly foreign customers. Development
and/or expansion of our staff will require substantial financial, operational
and managerial resources. There can be no assurance that we will be able to
meet potential demand on a timely basis or at a commercially reasonable cost.
Our failure to develop and/or expand our current staff of 6 adequately to
pursue sales opportunities and implement projects on a timely basis will cause
us to lose customers and therefore decrease our revenues.
Our shares are considered "Penny Stock" and due to regulatory rules applicable
to the public sale of penny stock shares, you may find it more difficult to
resale these shares.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and, if the broker dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control
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over the market, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally, those persons with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse), must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. Consequently, these requirements may have the effect of
reducing the level of trading activity, if any, in the secondary market for a
security that becomes subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, investors in this Offering
may find it more difficult to sell their shares.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors," "Management's Discussion and
Analysis," "Business" and elsewhere in this Prospectus are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions and other statements contained in this prospectus
that are not statements of historical fact. You can identify these statements
by words such as "may," "will," "should," "estimates," "plans," "expects,"
"believes," "intends" and similar expressions. We cannot guarantee future
results, levels of activity, performance or achievements. Our actual results
and the timing of certain events may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
discrepancy include those discussed in "Risk Factors" and elsewhere in this
prospectus. You are cautioned not to place undue reliance on any
forward-looking statements.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following selected financial data for the year ended October 31, 2002
and 2001 are derived from our audited financial statements included in this
prospectus.
The following selected financial data for the nine month period
ended July 31st, 2003 are derived from our unaudited interim financial
statements included in this prospectus.
The following data should be read in conjunction with our
financial statements.
STATEMENT OF OPERATIONS DATA
For the 9 months(Unaudited) For the year For the year
Ended 07/31/03 Ended 10/31/02 Ended 10/31/01
---------------------------- ---------------- ----------------
Net Revenues $ 15,000 $ 23,750 $ 229,793
Operating Loss $ (1,144,322) $ (497,637) $ (1,644,842)
Income Taxes $ 0 $ 0 $ 0
Net Loss $ (1,175,878) $ (1,667,839) $ (2,589,345)
Loss Per Share $ (0.04) $ (0.06) $ (0.12)
(Basic and Diluted)
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BALANCE SHEET DATA
October 31, 2002 July 31st, 2003 (Unaudited)
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Working Capital $ (845,546) $ (546,440)
Total Assets $ 251,913 $ 231,349
Total Liabilities $ 845,546 $ 629,654
Stockholders' Deficit $ (593,633) $ (398,304)
DESCRIPTION OF BUSINESS
DEVELOPMENT OF THE COMPANY
In July 1998 a group of investors, including Mr. J. Michel de
Montigny, purchased control of I.B.C. Corporation, a Delaware publicly traded
corporation. In October of 1999, the name of the Company 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). Other than the involvement of
Mr. de Montigny in both of GSI Canada and GSI Technologies USA as a control
shareholder, an executive officer and director, there is no legal relationship
between the two entities.
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 and for GSI Technologies USA Inc.
to exclusive market the products and provide the services. To that extent, in
October 1999, GSI Technologies USA Inc. 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 multiple display screens
simultaneously and allows the operator to change the message virtually
instantaneously.
In 2000 and 2001, GSI Technologies USA Inc. made efforts to
commercially exploit the software and expertise to the Out-of- Home advertising
Industry with only minimal success.
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On April 18, 2001, Mr. de Montigny resigned from his position as
Chairman of the Board of Directors of GSI Technologies USA Inc. and Mr. Ren
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.
On September 7, 2001, Mr. de Montigny resigned from his position as
President and CEO of GSI Technologies USA Inc. for health reasons and the Board
of Directors nominated Mr. Ren Arbic as the new President and CEO of the
Company.
In the period from January 2001 to October of 2001, due to lack of
funds, GSI Technologies USA laid off all of its staff except for its
President/CEO.
In April 2002, GSI Canada and the Company executed an Addendum to the
Master License Agreement which granted the Company the right to sell and/or
issue licenses for the technology for 10 years. This addendum superseded the
Master License Agreement, thereby terminating all other obligations contained in
the Master License Agreement. More importantly the addendum grants the Company
the right to modify and further develop the source code at the Company's sole
discretion. Any such developments made by GSI Technologies USA Inc. would remain
the property of the GSI Technologies USA Inc.
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, notably in our leasing obligations.
A control block of the Company owned by Immobiliare, Gestion J.M.d.M
and Totalcom Inc., all controlled by Mr. J. Michel de Montigny, founder and
former CEO of the Company, 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 the Company.
In February 7, 2003, Mr. Ren Arbic resigned from his position as
President and Chief Executive Officer of the Corporation and in May 2003, he
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 Technologies USA
Inc., to join the Board of Directors as a Director and Chairman and in June
2003, The Board of Directors appointed Mr. Gilles Addison to the position of
President and Chief Executive Officer.
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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 manufactures on an as needed basis. The Kiosk products were
designed and built by GSI Canada. Our product offerings consisted of the
following items:
Software - Digital Signage Network Management Software (the MMP software
licensed from GSI Canada)
Hardware - Player PC
Servers and Server Racks
Displays (plasma, LCD, LED or plain TV set)
Network Hardware (switch, routers, cables)
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
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Graphic Conversion
Scheduling
Integration and Installation
Digital Signage Network Development
CURRENT PRODUCT & SERVICES
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.
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. Their 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.
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 was released on October 1st, 2003. The product is
being marketed under the name of Digital Media Logistics Suite, or DMLS.
In June 2003, we purchased a 40% equity interest in LTS Networks. 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 Order on an
as required basis at standard market rates.
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 offer different level of Network
Managed Services from simple hosting services to full network managed services.
These services will be provided from time to time through sub-contractual
agreement with LTS to be determine on a case by case basis, upon customers'
needs and specific requirements.
We will also, in some cases, offer some related hardware through our agreements
with Petters Group. as described in the MD &A section.
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
Displays
Our current services are:
Managed Services
Application Service Provider
Hosting
Network Management and Monitoring
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We also revised our pricing and licensing structure. We will now sell
and distribute our new software product on a per player software license basis.
This is a significant departure from our previous revenue model of territorial
licensing as we believe it better reflects the standard pricing and licensing
model for our industry, and therefore should make our solution more competitive.
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: Digital Media Logistics Suite (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.
Our Digital Media Logistics Suite offers a complete range of products
designed around the concept of providing network based distribution of digital
images for advertising and information on multiple digital display devices.
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 manage media content in all standard
formats for video files, including MPEG-2, MPEG-4, Flash and AVI.
DIGITAL MEDIA LOGISTICS SUITE (DMLS):
Digital Media Logistics Suite 3.0 is comprised of three major component
applications. They are Digital Media Server (DMS), Digital Media Administrator
(DMA) and Digital Media Player (DMP).
The GSI Digital Media Logistics Suite is a sophisticated, secure solution
for dynamic digital signage network management and display, offering dynamic
scheduling and content changes through its component applications. Designed to
be scalable, secure, extendable and flexible, Digital Media Logistics Suite is
platform independent and is designed to work with most modern Relational
Database Management Systems. Digital Media Logistics Suite supports most common
media file types (CODEC). The Suite is designed to operate on Windows, Linux and
other UNIX based systems. Digital Media Logistics Suite 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.
Digital Media Logistics Suite is designed to operate in most common
infrastructure environments that a company may be working with. GSI's Digital
Media Logistics Suite 3.0 is designed to handle commercial
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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
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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.
THE ADVERTISING 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 2000. 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
13
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 the Company, Mr. Michel de Montigny, to act as Product Manager and
Sales and Marketing Director. 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 the Company.
In addition, the Company has in the past undertaken pilot testing in
the field. We have acquired, over the past couple of years, 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 consisting 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 dealing with 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 GSI Digital Media Logistics Suite,
(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. We can not predict at this
time when we will be able to obtain patent protection for DMLS.
SALES AND MARKETING STRATEGY
Our low cost network management solution is designed to permit
operators to increase profits from existing advertising networks. The reduction
of up front costs as well as reduced operational costs that our solution
provides will allow for the development of previously un-exploited market
segments which have been overlooked due to previously high entry costs as well
as the conversion of existing static display networks into digital signage
networks.
We have identified 3 primary target markets for our sales and marketing efforts.
1) Out-of-Home Media Operators: Digital Networks involved with markets
------------------------------
such as subways and train stations, airports, billboards, bus
shelters, etc.
2) Public Information and Security Communications: 911 info, evacuation
-------------------------------------------------
plans, Amber Alert, public buildings, strategic high traffic areas,
governmental communications, etc.
14
3) Retail Outlet Operators: Large retail chains, department stores, gas
--------------------------
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 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.
- Installation Contractors: By developing a value added reseller
program through installation contractors, we can create
significant market exposure for our products while limiting
direct marketing cost.
- Digital Signage Hardware Manufacturers: Agreements with key
Digital Signage manufacturers will allow our Company to develop
horizontal business markets.
- Sales agents: Management intends to create an aggressive sales
agent program to attract highly qualified candidates worldwide.
- 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
financial statements and related notes which are included elsewhere in this
prospectus.
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
15
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
Research firm iSupply/Stanford Resources sees the worldwide
Out-of-Home Digital Signage market growing from just over $3 billion in 2003 to
approximately $5 billion in 2006 and about $7 billion in 2008. CAP Ventures
Inc., a research firm that tracks retail digital signage, a sub category of the
Out-of-Home Digital Signage market, as a separate category, sees this niche
growing still faster, from North America revenue of $388 million in 2003 to
nearly $2 billion in 2006; an increase of more than 400 percent.
We are particularly well positioned to exploit this growth as we
believe that we offer one of the only true commercial scale solutions in the
world. This belief is based on our customer's comments and feed back relating to
the proposed functionality of our product.
RESULTS FROM OPERATIONS
THREE AND NINE MONTHS ENDING JULY 31ST, 2003
During GSI's third quarter from May 1 ,2003 to July 31, 2003, GSI USA incurred a
loss of $489,624 versus a loss of $35,237 in the same period in 2002. The
increased loss was due to higher operating expenses, specifically consulting and
software development.
During GSI's nine month's from November 1, 2002 to July 31, 2003, GSI USA
incurred a loss of $1,175,878 versus a loss of $267,715 in the same period in
2002. The increased loss was due to higher operating expenses, specifically
consulting, software development and a loss on the Licensing Agreement writeoff.
REVENUES
Zero in revenue was recognized during the current year quarter, versus zero
for the same period in the prior year.
$15,000 in revenue was recognized during the current year nine month period
versus $23,750 for the same period in the prior year. This is related to
sub-licensing agreements realized over the respective terms.
OPERATING EXPENSES
During the three months ended July 31, 2003, GSI USA has incurred $480,534
in operating expenses versus 26,374 for the same period in 2002. The increase
was mainly attributable to marketing, software costs
16
and consulting.
During the nine months ended July 31, 2003, GSI USA has incurred $1,159,322 in
operating expenses versus 263,210 for the same period in 2002. The increase was
mainly attributable to marketing, software costs, consulting and the write off
of unamortized impaired licensing rights.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2003 GSI USA had $707 in cash. Cash used in operating
activities during the nine months ending July 31st, 2003 was 1,032,036, which
was mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Net Cash used in investing activities during the period was $94,833 for
property and equipment.
Net Cash provided from financing activities during the period was
1,127,576.
The result of all activities during the nine-month period ending January
31, 2002 was a net increase of $707 in our cash position.
FISCAL YEARS ENDED OCTOBER 31ST, 2002 AND 2001
RESULTS FROM OPERATIONS
During the fiscal year from November 1, 2001 to October 31, 2002, GSI USA
incurred a loss of $1,667,839 or $0.06 per share versus a loss of $2,589,345 or
$0.12 per share in the same period in the prior year. The loss for fiscal year
ended October 31st, 2002 can be attributed to limited revenue generated as well
as a 1.1 million loss on write off of an affiliate note receivable.
REVENUES
$23,750 in revenue was recognized during the fiscal year ended October 31st,
2002 versus $229,793 for the same period in the prior year. These 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 commercialization rights
for the territory of London, England, Nantes, France and a sub-license sold to
GSI Technologies ("GSI Canada") giving it commercialization rights for the
territory of Canada.
COST OF REVENUES AND DIRECT OPERATING COSTS
According to the master license agreement with GSI Canada, GSI USA owns 60% of
the price of any sub-license it sells to a new licensee. This amount is payable
to GSI Canada by the end of the calendar quarter in which the sub-license is
granted its sub-license. GSI USA has incurred $10,634 in direct operating cost
for the
17
fiscal year ended October 31st, 2002 versus $121,797 for the same period in the
prior year.
OPERATING EXPENSES
During the fiscal year ended October 31st, 2002, GSI USA has incurred $510,753
in operating expenses versus $1,752,839 for the same period in 2001. The
decrease is attributable primarily to a drastic cut back in operations for the
current year.
OTHER INCOME
During the fiscal year ending October 31st, 2002, $1,170,202 in other expenses
were realized compared to $944,503 of other expenses in the prior year. These
amounts are primarily attributable to the write offs of the Loss on Affiliate
note receivables and advances.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2002 GSI USA had zero cash as compared to $6,019 at October 31,
2001. Cash used in operating activities during the year ending October 31, 2002
was $252,545, which was mainly attributable to the net cash loss from operations
plus changes in net operating assets and liabilities.
Cash used by investing activities during the fiscal year ended October 31st,
2002 are comprised of purchases of property and equipment totaling $163,705.
Cash provided by investing activities during the prior year reflected repayment
of short-term loans to GSI Canada in the amount of $801,656.
Cash provided from financing activities during the fiscal year ended October
31st, 2002 $410,232 include the net effect of short-term borrowing through note
payables as well as proceeds from an investment group. Cash provided from
financing activities during the prior year of $519,469 reflects a private
placement as well as funding provided by issuance of Notes Payable.
We believe that we will generate revenues in the immediate future; however there
can be no assurance that we will ever be able to obtain contracts with a
significant number of customers to generate meaningful revenues or achieve
profitable operations.
We do not currently have any material commitments for any capital expenditures
nor do we anticipate incurring any such commitments in the foreseeable future.
As of July 31st, 2003, we had a negative working capital of $546,440.
Conceivably, this could hamper our ability to obtain loans. However, we do not
anticipate applying for any loans so we do not expect there to be any serious
ramifications at this time. In any event, once the DMLS software is completed
and can be carried on our financial statements as an asset, the problem will be
greatly alleviated. Also, once anticipated revenues begin coming in the fall,
we expect the problem to be moot entirely.
In his audit opinion for our 2002 financial statements, our auditor expressed a
substantial doubt about our
18
ability to continue as a going concern. We believe additional funding
requirements of $2 million are necessary to avoid a similar going concern
opinion in the future. Currently our monthly "burn rate" is approximately
$80,000 per month which includes R&D expenses of $40,000. We believe our
monthly "burn rate" will increase to approximately $160,000 per month. This
increased amount will include R&D expenses increasing to approximately $80,000
per month, marketing expenses of approximately $30,000 per month, salaries of
approximately $25,000 per month and general and administrative of approximately
$25,000 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 operating plan for the fiscal
year ending October 31, 2004 reflects the sale of 3000 software licenses at $590
each, beginning with the first sales of 500 licenses in January 2004. These
installations will generate revenue and cash flow to the company. 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.
We have, in the past year, paid considerable attention to raising
sufficient funds to cover these activities. From May 2002 through May 2003 we
raised almost $1,000,000 in new equity by private placement as detailed below in
Recent Sales of Unregistered Securities. We also converted $330,000 of old debt
to equity and we raised an additional $300,000 debt by way of a convertible
debenture.
These funds were utilized to reduce outstanding payables and to fund
the build-up of our operations as well as to support the roll-out of our DMLS
product line and continue our development plan.
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.
In May 2002, the Company negotiated a loan agreement as detailed in
Recent Sales of Unregistered Securities, allowing us to resolve most of the then
pending financial issues and 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 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 first 3 quarters of fiscal 2003 we spent $300,000 on Research and Development
as compared to nothing in all of fiscal 2002.
19
The market for our products 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, 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.
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. 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 currently have five Purchase Orders for five different projects for
a total of 686 DMP Software licenses and 650 Player PCs. This represents an
approximate sales dollar value of $1,050,000. As of October 31st, 2003, we have
delivered on approximately 20% of these orders and anticipate delivering the
balance on or before January 1st, 2004.
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 we now believe that SN no
longer intends to participate in the digital signage industry and therefore the
company expects no revenue from this agreement.
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.
The marketing plan for our fiscal year, ending October 2003, calls for
our management and sales team to concentrate on existing opportunities and
current contract negotiations.
20
The operating plan is ambitious and, as noted under the heading We
have limited human resources to implement the project we may receive in the Risk
Factors section of this document, contains an inherent risk in our ability to
expand rapidly and address the needs of diverse customers. This will be a key
factor to our success and requires funding for ongoing operations, primarily for
continued liquidity and capital resources, R&D activities, and sales and
marketing expenses.
EFFECT OF 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
Pre-acquisition 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 acquisition. 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.
21
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders. However, we will receive the exercise price
of the warrants if they are exercised. If all of the warrants are exercised, we
would receive an aggregate of $4,516,000. No assurance can be given that all,
or even any, of the warrants will be exercised.
Any proceed received from the exercise of the warrants will be added
to working capital. We have no definite plans for the use of any proceeds from
this offering and we have made no specific allocation as to the use of such
proceeds. The proceeds could be used for current administrative, marketing and
other expenses, the acquisition of business or repayment of debt. Any such
application of the proceeds of this offering will be at the discretion of our
board of directors.
22
EMPLOYEES
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. We currently have 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 Technologies USA
Inc., were provided by way of a Services agreement with our partially owned
affiliate LTS Networks Inc. As of November 1st, 2003 these five employees were
engaged directly by GSI Technologies in permanent full time positions. They
continue to perform the same duties as before. The Services contract with LTS
Networks for these employees 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.
DESCRIPTION OF PROPERTIES
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 2,500 square feet of leased office space in Montreal. The lease
expires on September 1, 2005 and provides for an annual rental of approximately
$24,000.
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.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 market. We have appointed a new market maker who expects to file a Form
211, so our securities can become relisted on the OTCBB. Until March 5, 2002, we
have provided the closing bid and ask prices and thereafter the closing sales
prices. These do not include retail markups, markdowns or commissions. Nor do
they represent actual transactions.
23
CLOSING BID CLOSING ASK
HIGH LOW HIGH LOW
Fiscal Year Ended October 31,2001
First Quarter 1.47 .31 1.69 .41
Second Quarter .53 .10 .66 .13
Third Quarter .35 .14 .55 .16
Fourth Quarter .19 .10 .30 .15
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
Second Quarter .45 .05
Third Quarter .05 .05
Fourth Quarter .001 .001
Current Fiscal Year
First Quarter .001 .001
Second Quarter .01 .001
Third Quarter .001 .001
Fourth Quarter .001 .001
EQUITY COMPENSATION PLAN INFORMATION
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 were cancelled without being exercised and the Board
terminated the plan on June 27, 2003.
MANAGEMENT
OFFICERS AND DIRECTORS
Our officers and directors are as follows:
Name Age Position
---- --- --------
Gilles Addison 63 President & CEO
24
Marie El-Ahmar Eid 40 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 Networks
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
25
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. The Executive
Advisory Board is composed of the following individuals:
- MR. GILLES ADDISON, President and CEO
- MRS. MARIE EL-AHMAR EID, Business Development and Investor Relations
Director
- MR. GLEN PEARSON, Operation Director
Mr. Pearson has over 15 years practical, broad-based,
entrepreneurial experience in a wide range of industries. His particular
interest and expertise is in start-up management. Mr. Pearson's career
includes several successful terms as a small business owner in
construction, manufacturing and specialty retail industries, including
innovation of product and process. His skills cover a broad range including
experience in general management, overseeing marketing, sales, production
and human resources. From 1996 till 1998, Mr. Pearson performed various
contracts in Business and Manufacturing process. In 1999, Mr. Pearson
joined Ideas and Associates, a start-up IT outsourcing company specializing
in application development for the Internet, as Vice-President of
Operations. In 2000 Mr. Pearson became President of Ideas and Associates
and refined the business and revenue models. Under his leadership the
company grew from 8 employees to 60 in under 18 months while remaining
profitable. In 2003, Mr. Pearson became the Chief Executive Officer of LTS
Networks.
- MR. MICHEL DE MONTIGNY, Product, Sales and Marketing Director
Mr. de Montigny founded GSI Technologies USA Inc. in 1998
and was its President and CEO until September 8, 2001 and Chairman of the
Board until April 2001. Mr. de Montigny left the Corporation in September
2001 for health reasons and continued convalescence through 2002. GSI
Technologies USA Inc. re-hired Mr. de Montigny in January 2003 as Product,
Sales and Marketing Director. Mr. de Montigny has over twenty five years of
hands-on and management experience in the advertising industry and over 10
years of experience in the technology market. In 1995 he founded Group
Solcom International which became GSI Canada. From 1990 to 1992, he was
president of Groupe Actuel Design, crafting the design concepts behind the
Bell Canada Boutiques, the Yves Rocher Boutiques and the Societe des
Alcools du Quebec Stores. From 1988 to 1990 he was president of Inter-Dec
College, a technical college in Montreal. Prior thereto, he was Director of
Operations and Director of Marketing in a variety of companies. As an
advertising and marketing consultant, he was the driving force behind some
of Montreal's most innovative advertising campaigns of the 1990's. A
consultant to companies such as Labatt, Budweiser, and Michelin, he was
also involved in projects creating an interactive bus shelter for
Budweiser, special effects for the film Mortal Kombat (Alliance Films), and
the inauguration campaign for a new Air Canada aircraft. Mr.
26
de Montigny received an MBA from the University of Quebec.
- MRS. PAOLA SALCEDO, Administration Director
Mrs. Salcedo graduated from University Externado de Colombia
in Finance and International Relations in 1998. From 1998 to 1999 she
worked for the Center of Research and Development for International
Cooperation in Bogota. In 1999 she immigrated to Canada. Between 1999 and
2002, she completed certifications in languages and economic studies at
Concordia University and Universit de Montr al. She speaks 4 languages
fluently. In 2002 she became a Canadian resident and was employed by GSI
Technologies USA Inc.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither our certificate of incorporation nor our by-laws currently provide
indemnification to our current officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law. Section 145 of the Delaware General
Corporation Law, as amended, authorizes the Company to indemnify any director or
officer under certain prescribed circumstances and subject to certain
limitations against costs and expenses, including attorney's fees actually and
reasonably incurred in connection with any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which a person is a party
by reason of being a director or officer of the Company if it is determined that
such person acted in accordance with the applicable standard of conduct set
forth in such statutory provisions. The Company may also purchase and maintain
insurance for the benefit of any director or officer which may cover claims for
which the Company could not indemnify such persons.
COMPENSATION OF DIRECTORS
Directors do not receive any compensation for their service as members
of the board of directors.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 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
------------------------------------ -------------- ----------
27
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
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 ($) Options
Ren Arbic, President & CEO 2003 (1) 26,500
2002 (2) 16,129
2001 (3) 0
(1) Mr. Arbic resigned in February 7, 2003. During fiscal year 2003, Mr. Arbic
earned approximately $26,500. This amount reflects three worked months.
28
(2) During fiscal year 2002, Mr. Arbic was paid $16,129 in salary. Mr. Arbic also
advanced, on behalf of the Company, $38,995.55 Cdn 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 22nd, 2001.
(3) Mr. Arbic was hired at the beginning of September 2001 and his salary were to
commence on November 2001.
In June 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 options exercisable at $0.10 per share,
at the end of the period covered by his agreement.
EMPLOYMENT AGREEMENTS
Mr. Addison entered into a one year professional services agreement
commencing June 11, 2003 as described immediately above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From November 01, 1999 through October 31, 2001, the Company advanced funds to
GSI Technologies (3529363 Canada Inc.), an affiliate of the Company in exchange
for promissory notes in order to continue to develop the concept of GSITV.com,
The Total Vision Network in Canada. The note has a term of one year, but has
been extended indefinitely bearing interest at prime plus 2%. At October 31,
2001, the outstanding balance due from GSI Technologies (3529363 Canada Inc.)
was $1,560,944 including interest and a write down of the receivable of
approximately $1,034,000 due to GSI Technologies (3529363 Canada Inc.) approval
from the Quebec Superior courts ratification of reorganization on October 9,
2001. 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.
On May 15, 2002 the Company signed a promissory note for $330,000 with Mr. Craig
Perry. Mr. Perry became a Director on April 28, 2003. The term of the note is
for 60 days and the rate of interest is prime plus 2%. The Company also agreed
to issue 2 million shares of Class B Common Stock to the lender as part of the
transaction as an origination fee which was valued at .05 per share totaling
$100,000. On June 20, 2002, a shareholder of the Company indirectly forwarded to
the lender 1,114,000 shares as collateral for this transaction on behalf of the
Company thereby assigning 55.7% ($55,700) of the origination fee liability from
the lender to the shareholder. On June 20, 2002, another shareholder of the
Company directly forwarded to the lender 886,000 shares as collateral for this
transaction on behalf of the Company
29
thereby assigning 44.3% (44,300) of the origination fee liability from the
lender to the shareholder. On June 21, 2002 the Company agreed to issue
1,114,000 shares to the shareholder who advanced his shares to the lender as
well as issuing an additional 222,800 for his assistance in this matter. The
222,800 were valued at .05 per share totaling $11,140 and reflected as interest
in the October 31, 2002 financial statements. At October 31, 2002, no shares had
been issued to the shareholder and the origination fee liability of $55,700 as
well as the additional $11,400 in accrued interest remained reflected as
liabilities in the October 31, 2002 financial statements . On June 21, 2002 the
Company and the other shareholder who forwarded 886,000 shares to the lender
agreed that he would not receive any shares from the Company for his assistance
in the matter. The Company reflected this as relieving the balance of the
accrued origination fee liability with an offset to Paid in Capital in the
amount of $44,300 in the October 31, 2002 financial statements. At October 31,
2002, the note had not been paid back and the accrued interest totaled $4,837.
As part of the agreement, the Company will issue an additional 1,000,000 shares
as a default penalty valued at .05 per share totaling $50,000. At October 31,
2002, the Company had not issued any shares related to default penalty. The
default penalty amounts have been accrued and reflected in the October 31, 2002
financial statements. At January 31, 2003, the note had not been paid back and
accrued interest for the three month period ending January 31, 2003 of $5,362
has been reflected in the financial statements. This note including all interest
associated with it was $340,199 at January 31, 2003. On March 28, 2003, the
Company issued 1 million shares in settlement of the default penalty. At April
30, 2003, the note had not been paid back and accrued interest for the six month
period ending April 30, 2003 totaled $10,519. This note including all interest
associated with it was $345,356 at April 30, 2003. In May 2003 the Company
received and 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.
During the course of fiscal year ending October 31st, 2002, the Company has
retained legal services from a firm in which a director of the Company, Marc
Cote, is a partner. The Company incurred $24,000 in legal fees from this firm
during that fiscal year. During the nine month period ending July 31, 2003, the
Company has retained legal services from a firm in which a director of the
Company, Marc Cote, is a partner. The Company incurred approximately $28,800 in
legal fees from this firm in the nine month period ending July 31, 2003.
On December 1st, 2002, we entered into a leasing agreement with our shareholder
Worldwide Business Consultants S.A. for our Montreal Office. The lease expires
on September 1, 2005 and provides for an annual rental of approximately $24,000.
We believe that the rental rate represents a fair rental value.
On June 11, 2003, we concluded 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 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.
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.
30
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Neither our by-laws nor our certificate of incorporation currently
provide indemnification to our officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law. A description of these provisions is
contained in Management - Indemnification of Directors and Officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons, pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable.
DESCRIPTION OF SECURITIES
AUTHORIZED AND OUTSTANDING STOCK
Our authorized capital stock consists of 55,000,000 shares of Class B
common stock, $.001 par value, and 5,000,000 shares of Class A common stock,
$1.00 par value. As of October 31st, 2003, there were 44,835,823 shares of Class
B common stock outstanding, which were held by approximately 286 stockholders of
record and no shares of Class A common stock were outstanding. Other than the
par value, there are no differences between Class A and Class B. At our next
shareholder's meeting we intend to recommend action to cancel the Class A stock.
This action, if approved, will not have any impact on the Class B stockholders.
COMMON STOCK
Subject to legal and contractual restrictions on payment of dividends,
the holders of common stock are entitled to receive such lawful dividends as may
be declared by the board of directors. In the event of our liquidation,
dissolution or winding up, the holders of shares of common stock are entitled to
receive all of our remaining assets available for distribution to stockholders
after satisfaction of all liabilities and preferences. Holders of our common
stock do not have any preemptive, conversion or redemption rights and there are
no sinking fund provisions applicable to our common stock. Record holders of our
common stock are entitled to vote at all meetings of stockholders and at those
meetings are entitled to cast one vote for each share of record that they own on
all matters on which stockholders may vote. Stockholders do not have cumulative
voting rights in the election of our directors. As a result, the holders of a
plurality of the outstanding shares can elect all of our directors, and the
holders of the remaining shares are not able to elect any of our directors. All
outstanding shares of common stock are fully paid and non-assessable, and all
shares of common stock to be offered and sold in this offering will be fully
paid and non-assessable.
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.
31
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is
Intercontinental Registry and Stock Transfer, located at 900 Buchanan blvd # 1,
Boulder City, Nevada 89005-2100.
DIVIDEND POLICY
Under Delaware law, dividends may only be paid out of legally
available funds as prescribed by Section 170 of the Delaware Corporate Code,
subject to the discretion of the board of directors. In addition, it is
currently our policy to retain internally generated funds to support future
expansion of our business. Accordingly, even if we do generate earnings, and
even if we are not prohibited from paying dividends, we do not currently intend
to declare or pay cash dividends on our common stock for the foreseeable future.
SHARES AVAILABLE FOR FUTURE SALE
On the date of this Prospectus, all 39,591,572 shares included in this
prospectus will generally be freely tradable without restriction imposed by, or
further registration under, the Securities Act. An additional 2,594,008 shares
of our common stock may be deemed "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Such shares may be
sold to the public, subject to volume restrictions, as described below.
Commencing at various dates, these shares may be sold to the public without any
volume limitations.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including one of our
affiliates, or persons whose shares are aggregated with affiliates, who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed 1% of the total number of outstanding shares of the same class. In
the event our shares are sold on an exchange or are reported on the automated
quotation system of a registered securities association, you could sell during
any three-month period the greater of such 1% amount or the average weekly
trading volume as reported for the four calendar weeks preceding the date on
which notice of your sale is filed with the SEC. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
one of our affiliates for at least the three months immediately preceding the
sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
Our shares of common stock are traded on the OTC. Pursuant to SEC
regulations, the OTC is not considered an "automated quotation system of a
registered securities association" and Rule 144 will only permit sales of up to
1% of the outstanding shares during any three month period.
PLAN OF DISTRIBUTION
The sale of the shares of common stock by the selling stockholders may
be effected by them from time to time in the over the counter market or in such
other public forum where our shares are publicly traded or listed for quotation.
These sales may be made in negotiated transactions through the timing of options
on the shares, or through a combination of such methods of sale, by selling the
shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of the shares for which such
broker-dealer may act as agent or to whom they sell as principal, or both. Any
such discounts and compensation will be negotiated between the selling
stockholders and their broker-dealer without the involvement of the Company.
32
on the shares, or through a combination of such methods of sale, at fixed
prices, which may be charged at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
selling stockholders may effect such transactions by selling the shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of the shares for which such broker-dealer may act as
agent or to whom they sell as principal, or both. The compensation as to a
particular broker-dealer may be in excess of customary compensation.
The selling stockholders and any broker-dealers who act in connection
with the sale of the shares hereunder may be deemed to be underwriters within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit on any sale of the shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act.
SELLING STOCKHOLDERS
We are registering
- Shares of common stock purchased by investors in private
placement offerings,
- The shares of common stock issued to the shareholders of LTS
Networks,
- 9,016,000 shares of common stock underlying currently outstanding
warrants.
Other than the costs of preparing this prospectus and a registration
fee to the SEC, we are not paying any costs relating to the sales by the selling
stockholders. Each of the selling stockholders, or their transferees, and
intermediaries to whom such securities may be sold may be deemed to be an
"underwriter" of the common stock offered in this prospectus, as that term is
defined under the Securities Act. Each of the selling stockholders, or their
transferees, may sell these shares from time to time for his own account in the
open market at the prevailing prices, or in individually negotiated transactions
at such prices as may be agreed upon. The net proceeds from the sale of these
shares by the selling stockholders will inure entirely to their benefit and not
to ours.
Except as indicated below, none of the selling stockholders has held
any position or office, or had any material relationship with us or any of our
predecessors or affiliates within the last three years, and after completion of
this offering will own the amount of our outstanding common stock listed
opposite their name. The shares reflected by each selling stockholder is based
upon information provided to us by our transfer agent and from other available
sources in October 2003.
These shares may be offered for sale from time to time in regular
brokerage transactions in the over-the-counter market, or, either directly or
through brokers or to dealers, or in private sales or negotiated transactions,
or otherwise, at prices related to the then prevailing market prices. Thus, they
may be required to deliver a current prospectus in connection with the offer or
sale of their shares. In the absence of a current prospectus, if required, these
shares may not be sold publicly without restriction unless held by a non-
33
affiliate for two years, or after one year subject to volume limitations and
satisfaction of other conditions. The selling stockholders are hereby advised
that Regulation M of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934 will be applicable to their sales of these
shares. These rules contain various prohibitions against trading by persons
interested in a distribution and against so-called "stabilization" activities.
The selling stockholders, or their transferees, might be deemed
to be "underwriters" within the meaning of Section 2(11) of the Act and any
profit on the resale of these shares as principal might be deemed to be
underwriting discounts and commissions under the Act. Any sale of these shares
by selling shareholders, or their transferees, through broker-dealers may cause
the broker-dealers to be considered as participating in a distribution and
subject to Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. If any such transaction were a "distribution" for purposes of
Regulation M, then such broker-dealers might be required to cease making a
market in our equity securities for either two or nine trading days prior to,
and until the completion of, such activity.
As described previously in Related Party Transactions, certain of the selling
security holders have a material relationship with the Company.
SHARES BENEFICIALLY OWNED
NAME OF SELLING SECURITY HOLDER BEFORE OFFERING OFFERING AFTER OFFERING
CRAIG PERRY (1) 5,000,000 5,000,000 0
WIEN GROUP INC. 200,000 200,000 0
SOGEPAR SA 6,000,000 6,000,000 0
WORLDWIDE BUSINESS CONSULTANTS S.A. 2,500,000 2,500,000 0
FIRST MERCANTILE INVESTMENTS, CORP. 2,000,000 2,000,000 0
4136306 CANADA INC. 8,034,724 8,034,724 0
INVESTISSEMENT C J - DUCH NE LT E 1,489,000 1,489,000 0
CECIL COLLINS 500,000 500,000 0
FRANK PAPPAS 100,000 100,000 0
CHRISTINE NAIRN 200,000 200,000 0
ALAN TRUESDALE 200,000 200,000 0
PAUL TATHAN 50,000 50,000 0
NIKOS SKLAVENITIS 37,500 37,500 0
GLENN H. JACOBSON LIVING TRUST, DATED SEPTEMBER 6, 2002 12,500 12,500 0
LA FERME M. J. FILLION INC. 3,000,000 3,000,000 0
R JEAN RIOPEL 11,250 11,250 0
GINETTE BARNAB 12,500 12,500 0
ST PHANE BOURQUE 6,250 6,250 0
STEVE LAROCHELLE 25,000 25,000 0
MICHEL LEFEBRE 25,000 25,000 0
DANIEL RIOPEL 11,250 11,250 0
L'AMI PAUL N. 18,750 18,750 0
GILLES VILLEMAIRE 25,000 25,000 0
MONIQUE LUSSIER 94,750 94,750 0
PAUL-ANDR LEPAGE 25,000 25,000 0
SIMON FRANCOEUR 12,500 12,500 0
RICHARD BOURQUE 12,500 12,500 0
JULIETTE BOURQUE 6,250 6,250 0
YVES BOULANGER 15,000 15,000 0
JEAN PIERRE CHRETIEN 11,250 11,250 0
LOUISE NADEAU 71,000 71,000 0
34
S BASTIEN LEDUC 25,000 25,000 0
LOUISE BEAUVOLSK 12,500 12,500 0
YVES TREMBLAY 25,000 25,000 0
GESTION JACQUES LAPLANTE 108,750 108,750 0
JOCELYNE LANGELIER 36,250 36,250 0
FRANCO SANTUCCI 1,284 1,284 0
ISRAEL MARTINEAU 33,000 33,000 0
ISABELLE MARQUES 58,500 58,500 0
MAGELLA BOUCHER 31,250 31,250 0
GILLES LEDUC 79,000 79,000 0
MARIE EL-AHMAR EID 12,764 12,764 0
ROBERT BAZINET 25,000 25,000 0
BRUNO GIROURARD 25,000 25,000 0
DENIS & MONIQUE GARI PY 25,000 25,000 0
DANIELLE DUBUC 50,000 50,000 0
RENALD RACINE 12,500 12,500 0
G RALD DESLANDES 83,500 83,500 0
JEAN-GUY PETIT 25,000 25,000 0
MONIQUE PETIT 25,000 25,000 0
PATRICE PETIT 25,000 25,000 0
LES ENTREPRISES GIROSEC INC. 54,800 54,800 0
ALAIN CHICOINE 18,750 18,750 0
DENIS RENAUD 75,750 75,750 0
WARRANTS BENEFICIALLY OWNED*
NAME OF WARRANT HOLDER BEFORE OFFERING OFFERING AFTER OFFERING
CRAIG PERRY (1) 1,016,000 1,016,000 0
SOGEPAR SA 4,000,000 4,000,000 0
WORLDWIDE BUSINESS CONSULTANTS S.A. 2,000,000 2,000,000 0
FIRST MERCANTILE INVESTMENTS, CORP. 1,000,000 1,000,000 0
La Ferme M.J. Fillion Inc. 1,000,000 1,000,000 0
* We are registering the shares underlying the warrants. References in the
chart to "warrants" before or after sale are all references to the underlying
shares. The list has been presented in two parts to distinguish between the
actual shares and the shares underlying the warrants. Each warrant is
exercisable into one share of Class B common stock at prices ranging from $0.05
to $1.20.
(1) Our chairman.
LEGAL MATTERS
The following legal matters in connection with this offering are being
passed upon by Law Offices of Irving Rothstein, New York, New York:
* That the Company is a corporation duly authorized and validly
existing and in good standing under the laws of the State of
Delaware, with corporate power to conduct the business which it
conducts as described herein.
* The shares registered herein have been duly and validly
authorized and issued and are fully paid and non-assessable
shares of common stock of the Company.
* The shares underlying the warrants will be duly and validly
issued, fully paid and non-assessable shares of the common stock
of the Company when issued in accordance with their terms.
EXPERTS
35
Our audited financial statements as of October 31, 2002 and for the
fiscal year then ended are included in this prospectus in reliance upon the
report of Mark Cohen C.P.A., an independent certified public accountant, and
upon the authority of said person as an expert in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended. This Act requires us to file quarterly,
annual and current reports, proxy statements and other information with the
Securities and Exchange Commission. We are obligated to deliver an annual
report to our stockholders along with our proxy materials.
Copies of the material we file may be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. at prescribed rates. The Public Reference Room can be reached
at 1-800-SEC-0330. The Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding us.
This material can be found at http://www.sec.gov.
36
MARK COHEN C.P.A.
1772 East Trafalgar Circle
Hollywood, Fl 33020
(954) 922 - 6042
--------------------------------------------------------------------------------
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, 2002 and 2001 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, 2002 and 2001, 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.
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
January 31, 2003
37
GSI TECHNOLOGIES USA INC.
BALANCE SHEET
October 31, 2002 October 31, 2001
------------------ ------------------
ASSETS
------
Current Assets
Cash and cash equivalents $ - $ 6,019
Note Receivable(related party) - 1,560,944
Other Receivables - 58,348
------------------ ------------------
Total current assets - 1,625,311
Property and equipment, net 63,302 36,248
Intangible assets, net 88,611 283,567
Other assets - 19,908
------------------ ------------------
TOTAL ASSETS 251,913 1,965,034
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 102,749 733,080
Deferred revenue - 17,500
Accrued financing costs 67,100
Accrued default penalty 50,000
Accrued legal settlement 20,750
Notes payable - short term 334,837 68,273
Investment proceeds liability 143,623 -
Other current liabilities 126,487 176,321
------------------ ------------------
Total current liabilities $ 845,546 995,174
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized - -
5,000,000 shares; issued and outstanding none in 2002 and 2001
Common Stock, class B, $.001 par value; authorized 26,291 24,502
55,000,000 shares; issued and outstanding - 26,291,023 and
24,502,134 shares respectfully
Paid in Capital 5,220,388 5,118,419
Accumulated deficit (5,841,289) (4,173,450)
Accumulated other comprehensive income
Foreign currency translation 977 388
------------------ ------------------
Total Shareholder's Equity (Deficit) (593,633) 969,859
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 251,913 $ 1,965,034
================== ==================
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
38
GSI TECHNOLOGIES USA INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31ST, 2002 AND 2001
Year Ended Year Ended
October 31, 2002 October 31, 2001
------------------ ------------------
Revenues $ 23,750 $ 229,793
Cost of Sales 10,634 121,797
------------------ ------------------
Gross Profit 13,116 107,997
Operating Expenses:
Marketing 17,950 92,298
Management and administrative fees 11,897 707,533
Salaries and related costs 66,025 229,770
Rent 71,334 250,904
Financing expense 182,774 15,000
Professional fees 42,920 91,992
Consulting 13,165 31,914
Depreciation 3,893 3,893
Amortization 96,231 95,382
Travel - 46,361
Other selling, general and
administrative 4,563 187,791
------------------ ------------------
Total operating expenses 510,753 1,752,839
Loss before other income (expense) (497,637) (1,644,842)
Other income (expense):
Interest income (principally related party) 317,275
Interest expense (principally related party) (33,859) (111,596)
Loss on Affiliate note receivable and advances (1,145,792) (1,033,652)
Equity in net earnings (loss) of affiliates - (25,000)
Foreign exchange gain (loss) 10,730 (54,562)
Loss on disposal of assets (1,280) (36,968)
------------------ ------------------
Total other income (expense) (1,170,202) (944,503)
------------------ ------------------
Net Loss (1,667,839) (2,589,345)
================== ==================
Basic weighted average common shares outstanding 26,175,802 22,403,444
================== ==================
Basic Loss per common share $ (0.06) $ (0.12)
================== ==================
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
39
GSI TECHNOLOGIES USA INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Class A Receivable
--------------- ---------------------- Paid in from sale
Shares Amount Shares Amount Capital of stock
------ ------- ----------- -------- ----------- ----------
Balance, October 31, 2000 - $ - 20,543,636 $20,544 $1,748,131 $ (13,200)
Dec 20, 2000 - sale of Class B through private placement 125,000 125 124,875
Dec 20, 2000 - cancellation of share subscription (12,000) (12) (13,188) 13,200
Dec 20, 2000 - cancellation warrant exercise (24,764) (25) (27,216)
February 13, 2001 - settlement of commission payable 25,000 25 4,975
Apr 02, 2001 - sale of Class B through private placement 400,000 400 99,600
Apr 02, 2001 - settlement of comission payable 20,000 20 4,980
May 03, 2001 - settlement of notes payable 2,307,900 2,308 2,971,379
August 13, 2001 - settlement of consulting fees 6,250 6 5,994
September 6, 2001 - settlement of advances from affiliate 1,111,112 1,111 198,889
Net loss - 12 months ended October 31, 2001
Foreign currency translation adjustment
------ ------- ----------- -------- ----------- ----------
Balance, October 31, 2001 - - 24,502,134 24,502 5,118,419 -
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
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
Net loss - 12 months ended October 31, 2002
Foreign currency translation adjustment
------ ------- ----------- -------- ----------- ----------
Balance, October 31, 2002 - $ - 26,291,023 $26,291 $5,220,388 $ -
====== ======= =========== ======== =========== ==========
Accumulated
Other Total
Accumulated Comprehensive Shareholder's
Deficit Income/(loss) Equity
------------ -------------- ------------
Balance, October 31, 2000 $(1,584,105) $ 386 $ 171,756
Dec 20, 2000 - sale of Class B through private placement 125,000
Dec 20, 2000 - cancellation of share subscription -
Dec 20, 2000 - cancellation warrant exercise (27,240)
February 13, 2001 - settlement of commission payable 5,000
Apr 02, 2001 - sale of Class B through private placement 100,000
Apr 02, 2001 - settlement of comission payable 5,000
May 03, 2001 - settlement of notes payable 2,973,687
August 13, 2001 - settlement of consulting fees 6,000
September 6, 2001 - settlement of advances from affiliate 200,000
Net loss - 12 months ended October 31, 2001 (2,589,345) (2,589,345)
Foreign currency translation adjustment 2 -
------------ -------------- ------------
Balance, October 31, 2001 (4,173,450) 388 969,859
Issuance of shares for consulting services 14,000
Issuance of shares for legal services 4,000
Issuance of shares for acquisition 266
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
Net loss - 12 months ended October 31, 2002 (1,667,839) (1,667,839)
Foreign currency translation adjustment 589 589
------------ --------------
Balance, October 31, 2002 $(5,841,289) $ 977 $ (593,633)
============ ============== ============
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
40
GSI TECHNOLOGIES USA INC.
STATEMENT OF CASH FLOWS
October 31, 2002 October 31, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,667,839) $ (2,589,345)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 100,124 99,276
Loss on write down of affiliate note receivable and advances 1,275,995 1,033,652
Issuance of stock for contract settlement - 11,000
Issuance of shares for consulting services 14,000 -
Issuance of shares for legal services 4,000
Issuance of stock in lieu of salaries 38,995 -
Accrued Interest Expense (principally related party) 4,837 107,530
Accrued Interest Income (principally related party) - (317,274)
Changes in Operating assets and liabilities:
Receivables and other current assets 58,348 (39,744)
Other assets 19,908 41,196
Accounts Payable and Accrued Liabilities (100,913) 334,198
------------------ ------------------
Net cash provided by/(used in) operating activities (252,545) (1,319,511)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - 801,656
Advances to affiliate - net (130,203)
Purchase of property and equipment (33,502) -
------------------ ------------------
Net cash provided by/(used in) investing activities (163,705) 801,656
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable, principally related parties - 118,391
Notes payable - affiliate - 203,318
Notes payable - third parties 266,609 -
Investment proceeds 143,623 -
Sales of common stock - 197,760
------------------ ------------------
Net cash provided by/(used in) financing activities 410,232 519,469
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (6,019) 1,615
Cash and cash equivalents, beginning of period 6,019 4,404
------------------ ------------------
Cash and cash equivalents, end of period $ 0 $ 6,019
================== ==================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares for settlement of note payables 3,173,687
Read the accompanying summary of significant accounting notes to financial
statements, which are an integral part of this financial statement.
41
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. The Company participates in the
Information Technology (IT) industry, specializing in broadcasting solutions
principally for advertisers and others seeking to reach the greatest number of
"viewers per day" as well as to achieve other commercial and public service
objectives. The basic advanced technology available to the company by way of a
Master Licensing agreement is the successful integration of various hardware
components and specialty software for the transmission of broadcast signals in
real time via the Internet to remote locations. Using its universal transcoder
system, the company has a unique capability in broadcasting from a central
server to full video screens in remote locations anywhere in the world. The
system is capable of updating pinpoint information minute by minute by way of
video compressing systems and other fully automated software systems.
GSI Technologies USA, Inc. prepares its financial statements in accordance
with generally accepted accounting principles. This basis of accounting
involves the application of accrual accounting; consequently, revenues and gains
are recognized when earned, and expenses and losses are recognized when
incurred. Financial statement items are recorded at historical cost and may not
necessarily represent current values.
The accompanying financial statements reflect GSI Technologies USA, Inc. is no
longer considered to be in the development stage. From inception (July 6, 1998)
through October 31, 2001, the Company was considered to be in the development
stage.
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.
42
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Cash and cash equivalents:
The Company considers all highly liquid investments with original
maturities of ninety days or less to be cash and cash equivalents. Such
investments are valued at quoted market prices.
Receivables:
The Company believes that the carrying amount of receivables at
October 31, 2001 approximates the fair value at such date.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives as follows when the property and equipment is
placed in service:
--------------------------------------------------------------------------------
Estimate Useful Life
(In Years)
Office Furniture and Equipment 10
--------------------------------------------------------------------------------
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.
License rights:
License rights are recorded at cost, less accumulated
amortization. Licenses are amortized to operations using the straight-line
method over the remaining term. The remaining term is 23 months for the current
and only license which the company has rights to.
Revenue Recognition
Revenue from sales of display units are recorded at the time the units are
delivered. Revenues from sub-licensing the master licensing agreement are
recognized over the term of the sub-licensing agreement.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provide guidance
for disclosures related to revenue recognition policies. Management
believes that GSI Technologies USA, Inc.'s revenue recognition practices
are in conformity with the guidelines of SAB 101.
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
43
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 Company does not expect the
adoption of this statement to have a material impact on its financial condition
or results of operations.
The Statement of Financial Accounting Standards Board (SFAS)
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was
issued by the Financial Accounting Standards Board (FASB) in October 2001. This
Statement provides a single accounting model for long-lived assets to be
disposed of and replaces SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This Statement is
effective for fiscal years beginning after December 15, 2001. The Company is
evaluating the effect of the adoption of this statement.
44
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2002 October 31, 2001
----------------- -----------------
Property and Equipment:
Furniture and fixture 38,934 38,934
Computer and other equipment 10,581 -
Leasehold improvements 22,921 2,133
Less: Accum depreciation &
amortization 9,134 4,819
----------------- -----------------
Property and equipment, net $ 63,302 $ 36,248
================= =================
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 (286,168) (191,212)
---------- ----------
$ 188,611 $ 283,567
========== ==========
Amortization expense for the period 94,,956 94,956
Estimated amortization expense for each of the
five succeeding years
Year ending October 31,
2002 94,956
2003 94,956 94,956
2004 93,655 93,655
---------- ----------
188,611 283,567
========== ==========
NOTE 4 - DEFERRED REVENUE
Deferred revenues consist primarily of payments received in advance of revenue
being earned under software sub-licensing contracts. Revenues from sub-licensing
the master licensing agreement are recognized over the term of the sub-licensing
agreement. Deferred revenues of $17,500 were reflected at October 31, 2001.
These amounts were realized as revenue in the following quarter (November 2001
through January 2002).
NOTE 5 - NOTE PAYABLE
On May 15, 2002 the Company signed a promissory note for $330,000. The term of
the note is for 60 days and the rate of interest is prime plus 2%. The Company
also agreed to issue 2 million shares of Class B Common Stock to the lender as
part of the transaction as an origination fee which was valued at .05 per share
totaling $100,000. On June 20, 2002, a shareholder of the Company indirectly
forwarded to the lender 1,114,000 shares as collateral for this transaction on
behalf of the Company thereby assigning 55.7% ($55,700) of the origination fee
liability from the lender to the shareholder. On June 20, 2002, another
shareholder of the Company directly forwarded to the lender 886,000 shares as
collateral for this transaction on behalf of the Company thereby assigning 44.3%
($44,300) of the origination fee liability from the lender to the shareholder.
On June 21, 2002 the Company agreed to issue 1,114,000 shares to the shareholder
who advanced his shares to the lender as well as issuing an additional 222,800
for his assistance in this matter. The 222,800 were valued at .05 per share
totaling $11,140 and reflected as interest in the financial statements. At
October 31, 2002, no shares had been issued to the shareholder and the
origination fee
45
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. At October 31, 2002, the note had not
been paid back and the accrued interest totaled $4,837. As part of the
agreement, the Company will issue an additional 1,000,000 shares as a default
penalty valued at .05 per share totaling $50,000. At October 31, 2002, the
Company had not issued any shares related to default penalty. The default
penalty amounts have been accrued and reflected in the October 31, 2002
financial statements.
NOTE 6 - 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 warrants
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.
Office leases
On September 1, 2002, the Company entered into a three year office lease for its
Monteal office with monthly payments approximately $2,000.
On October 1, 2002, the Company entered into a one year office lease for its
U.S. office with monthly payments approximately $1,000.
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, 2002:
Year ending October 31:
2003 - 35,000
2004 - 24,000
2005 - 20,000
2006 - -
2007 - -
-
$ 79,000
========
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 has been accrued and reflected in the October 31,
2002 financial statements.
On October 8, 2002, the Company entered into a final settlement and release
agreement with its landlord in its original downtown Montreal office
whereby the Company could cancel its lease with a one time payment of
approximately $44,000. This payment was made during October 2002.
The Company has been involved in litigation for unpaid business taxes with
the City of Montreal. The litigation has been settled in the amount of
approximately $23,000 of which approximately $5,000 has been paid by
October 31, 2002 and the remaining
46
$18,000 due to the City of Montreal has been reflected in accounts payable
at October 31, 2002.
In March 2002, a former Director, who was also an Officer in the Company,
along with another employee of the Company, filed a civil action against
the Company in the State of Florida alleging unpaid wages and expense
reimbursements totaling approximately $225,000. The Company has not
retained legal counsel but believes this complaint is without merit and is
in the process of negotiating a settlement and release agreement with these
two individuals in the amount of approximately $13,000. The Company has
received an oral confirmation to the $13,000 settlement and release
agreement. The $13,000 has been accrued and reflected in the October 31,
2002 financial statements.
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 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 $1,667,839
and $2,589,345 for the twelve months ended October 31, 2002 and 2001
respectively. As reported on the statement of cash flows, the Company incurred
negative cash flows from operating activities of $252,545 and $1,319,511 for
twelve months ended October 31, 2002 and 2001. 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 has a term of
one year, but has been extended indefinitely bearing interest at prime plus
2%. At October 31, 2001, the outstanding balance due from GSI Technologies
(3529363 Canada Inc.) was $1,560,944 including interest and a write down of
the receivable of approximately $1,034,000 due to GSI Technologies (3529363
Canada Inc.) approval from the Quebec Superior courts ratification of
reorganization on October 9, 2001. 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 $24,000 in legal fees from this firm
in the current year.
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.
47
NOTE 9- INCOME TAXES
The provision for taxes on earnings for the years ended October 31, consist of:
2002 2001
Current
Federal $ - $ -
State - -
Foreign - -
- -
Deferred
Federal - -
State - -
Foreign - -
- -
$ - $ -
----- -----
At October 31, 2002, the Company has a Federal tax net operating loss ("NOL")
carryforward of approximately $5,000,000, 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.
On November 19, 2001 the Company issued 600,000 shares to a consultant for
services amounting totaling $8,000.
On November 19, 2001 the Company issued 400,000 shares to its president in
settlement of payments made by the President to settle Company expenses on
behalf of the Company totaling $38,995 Cdn.
On November 19, 2001 the Company issued 200,000 shares to its director for
settlement of legal services performed totaling $4,000.
On November 19, 2001 the Company issued 266,000 shares for the purchase of
a company in Europe. The transaction was recorded at par value 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.
On July 3, 2002 the Company issued 200,000 shares to an organization in
settlement of consulting services totaling $4,000.
NOTE 11 - WARRANTS AND OPTIONS
48
On August 01, 2000 the Company adopted a Long Term Incentive Plan whereby
directors, officers, certain key employees of the Company and its affiliates as
well as certain consultants to the Company would be granted stock options. A
maximum of 10% of the authorized Class B common shares totaling 5,500,000 can be
reserved and available for distribution pursuant to the terms of the plan. On
October 02, 2000, 925,000 options with an exercise price of $1.25 had been
issued to consultants and other non employee affiliates who rendered services to
the Company throughout the year. The services were rendered in the fiscal year
ending October 31, 2000. The expense for such services were reflected in the
financial statements ended October 31, 2000. As an incentive to maintain a
relationship with these consultants and non employee affiliates, the Company
issued these options for anticipated future services. These future services
were not received. The options vest one-third on December 18, 2000, one third on
December 18, 2001 and one third on December 18, 2002. The stock options expire
seven years from the date they were granted.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principles Board No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The fair value of a
share of nonvested stock is measured at the market price of a share on the grant
date. The proforma effect to net income and earnings per share is reflected as
follows:
Year ended Year ended
FAS 123 "Accounting for stock based compensation Oct. 31, 2002 Oct. 31, 2001
--------------- ---------------
Paragraph 47 (a)
1.Beginning of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
2. End of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
3. End of year - exercisable
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
4. During the year - Granted
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
5. During the year - Exercised
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
6. During the year - Forfeited
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
i. number of options/warrants
ii. weighted average exercise price
Paragraph 47 (b) Weighted-average grant-date fair value of options granted
during the year:
1. Exceeds market price 0 0
Paragraph 47 (c) Equity instruments other than options/warrants none none
Paragraph 47(d) Description of the method and significant assumptions used
during the year to estimate the fair value of options:
(1)Weighted average risk-free interest rate 5.54% 5.54%
Weighted average expected life (in months) 39.00 51.00
49
Weighted average expected volatility 0.00% 0
Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized in income for stock- 0 0
based employee compensation awards.
Paragraph 47(f) The terms of significant modifications of outstanding none none
awards.
Paragraph 48 - Options outstanding at the date of the latest
statement of financial position presented:
1. (a) Range of exercise prices $ 1.10-$2.00 $ 1.10-$2.00
(b) Weighted-average exercise price 1.35 1.35
2. Weighted-average remaining contractual life (in months) 39.00 51.00
Year ended Year ended
Oct. 31, 2002 Oct. 31, 2001
--------------- ---------------
Net Income after proforma effect (1,667,839) (2,589,345)
Earnings per share after proforma effect $ (0.06) $ (0.12)
50
GSI TECHNOLOGIES USA, INC.
BALANCE SHEET
AT JULY 31, 2003
(UNAUDITED)
ASSETS
------
Current Assets
Cash $ 707
Receivables - net 81,822
Other current assets 684
------------
Total current assets 83,214
Property and equipment, net 145,682
Other assets 2,453
------------
TOTAL ASSETS 231,349
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 187,637
Notes Payable (principally related party) 403,641
Other current liabilities 38,376
------------
Total current liabilities 629,654
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized -
5,000,000 shares; issued and outstanding none
Common Stock, class B, $.001 par value; authorized 43,828
55,000,000 shares; issued and outstanding -
43,827,823
Paid in Capital 6,573,903
Accumulated deficit (7,017,167)
Accumulated other comprehensive income
Foreign currency translation 1,133
------------
Total Shareholder's Equity (Deficit) (398,304)
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 231,349
============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement.
51
GSI TECHNOLOGIES USA INC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
Three months Nine months
ended July 31, Ended July 31,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Revenues $ - $ - $ 15,000 $ 23,750
Cost of Sales - - - 10,634
-------------- -------------- -------------- --------------
Gross Profit - - 15,000 13,116
Operating Expenses:
Marketing 12,984 - 42,117 24,412
Salaries and related costs - - 25,060 38,996
Rent 14,189 - 38,773 51,426
Professional fees 25,188 - 68,074 9,029
Consulting 162,737 - 284,400 -
Software development 204,787 - 324,326 -
Depreciation 4,257 973 8,913 2,920
Amortization 2,001 23,845 51,018 71,537
Loss on licensing agreement write off - - 141,133 -
Other selling, general and administrative 54,392 1,556 175,507 64,890
-------------- -------------- -------------- --------------
Total operating expenses 480,534 26,374 1,159,322 263,210
Loss before other income (expense) (480,534) (26,374) (1,144,322) (250,093)
Other income (expense):
Interest expense (principally related party) (9,090) (8,863) (31,557) (17,622)
- - - -
-------------- -------------- -------------- --------------
Total other income (expense) (9,090) (8,863) (31,557) (17,622)
Net Loss (489,624) (35,237) (1,175,878) (267,715)
============== ============== ============== ==============
Basic weighted average common shares outstanding 36,862,171 25,802,134 30,622,692 22,869,528
============== ============== ============== ==============
Basic and diluted Loss per common share $ (0.01) $ (0.00) $ (0.04) $ (0.01)
============== ============== ============== ==============
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
52
GSI TECHNOLOGIES USA, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(UNAUDITED)
Nine months
ended July 31,
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,175,878) $(267,715)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 59,931 74,457
Issuance of stock for contract settlement - 38,996
Issuance of stock for consulting services 20,000
Accrued Interest Expense - 12,179
Loss on licensing agreement write off 141,133 -
Changes in Operating assets and liabilities:
Receivables and other current assets (82,506) (4,871)
Other assets (2,453)
Accounts Payable and Accrued Liabilities 7,736 140,937
------------ ----------
Net cash provided by/(used in) operating activities (1,032,036) (6,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties - -
Purchase of property and equipment (94,833) -
------------ ----------
Net cash provided by/(used in) investing activities (94,833) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable 383,055 -
Investment proceeds 481,377 -
Sales of common stock 263,144 -
------------ ----------
Net cash provided by/(used in) financing activities 1,127,576 -
------------ ----------
Net increase (decrease) in cash and cash equivalents 707 (6,019)
Cash and cash equivalents, beginning of period - 6,019
------------ ----------
Cash and cash equivalents, end of period $ 707 $ (0)
============ ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
53
Issuance 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
Purchase of 40% of LTS Networks, Inc. 500
Read the accompanying summary of significant accounting notes to Financial
statements, which are an integral part of this financial statement
54
GSI TECHNOLOGIES USA, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 2003
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of GSI
Technologies USA, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in GSI Technologies USA,
Inc.'s 10K-SB as filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - NET EARNINGS (LOSS) PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
July 31st, 2003
----------------
Property and Equipment:
Furniture and fixture $ 38,934
Computer and other equipment 45,168
Leasehold improvements 83,168
Less: Accum depreciation & amortization 21,58
Property and equipment, net $ 145,682
55
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS (CONTINUED):
Intangible Assets:
License rights - $ 474,779
(Gross amount of $800,000 acquired from
affiliate and recorded at predecessor basis
with the cost over such basis of $325,221
recorded as a dividend to affiliate).
Accumulated amortization (333,646)
Loss on write down to realizable value (141,133)
----------
July 31, 2003 balance $ -
==========
Amortization expense for the nine month period 47,478
At April 30, 2003 the Company reviewed the carrying amount of license
rights and determined that the amount of $141,133 was considered to be totally
unrecoverable and exceeded its fair value by its book value. This
determinations was based on its book value exceeding the sum of the undiscounted
future cash flows expected to result from the assets use and disposition. The
entire capitalized net amount of $141,133 for the license rights has been
reflected as a loss in the current year interim financial statements.
NOTE 4 - NOTES PAYABLE
On May 15, 2002 the Company signed a promissory note for $330,000. The term of
the note is for 60 days and the rate of interest is prime plus 2%. The Company
also agreed to issue 2 million shares of Class B Common Stock to the lender as
part of the transaction as an origination fee which was valued at .05 per share
totaling $100,000. On June 20, 2002, a shareholder of the Company indirectly
forwarded to the lender 1,114,000 shares as collateral for this transaction on
behalf of the Company thereby assigning 55.7% ($55,700) of the origination fee
liability from the lender to the shareholder. On June 20, 2002, another
shareholder of the Company directly forwarded to the lender 886,000 shares as
collateral for this transaction on behalf of the Company thereby assigning 44.3%
(44,300) of the origination fee liability from the lender to the shareholder.
On June 21, 2002 the Company agreed to issue 1,114,000 shares to the
shareholder who advanced his shares to the lender as well as issuing an
additional 222,800 for his assistance in this matter. The 222,800 were valued
at .05 per share totaling $11,140 and reflected as interest in the October 31,
2002 financial statements. At October 31, 2002, no shares had been issued to
the shareholder and the origination fee liability of $55,700 as well as the
additional $11,400 in accrued interest remained reflected as liabilities in the
October 31, 2002 financial statements . On June 21, 2002 the Company and the
other shareholder who forwarded 886,000 shares to the lender agreed that he
would not receive any shares from the Company for his assistance in the matter.
The Company reflected this as relieving the balance of the accrued origination
fee liability with an offset to Paid in Capital in the amount of $44,300 in the
October 31, 2002 financial statements. At October 31, 2002, the note had not
been paid back and the accrued interest totaled $4,837. As part of the
agreement, the Company will issue an additional 1,000,000 shares as a default
penalty valued at .05 per share totaling $50,000. At October 31, 2002, the
Company had not issued any shares related to default penalty. The default
penalty amounts have been accrued and reflected in the October 31, 2002
financial statements. At January 31, 2003, the note had not been paid back and
accrued interest for the three month period ending January 31, 2003 of $5,362
has been reflected in the financial statements. This note including all
interest associated with it was $340,199 at January 31, 2003. On March 28,
2003, the Company issued 1 million shares in settlement of the default
penalty. At April 30, 2003, the note had not been paid back and accrued
interest for the six month period
NOTE 4 - NOTES PAYABLE (CONTINUED):
Ending April 30, 2003 totaled $10,519. This note including all interest
associated with it was $345,356 at April 30, 2003. In May 2003 the Company
received an additional $163,144 in investment proceeds and issued 2 million
shares, 500,000 warrants exercisable at $0.25 and 516,000 warrants exercisable
at $1.00 for settlement of the additional proceeds of $163,144 as well as the
original principal amount of $330,000 and accrued interest of $15,808 totaling
$345,808.
56
On December 18, 2002, the Company signed a promissory note for $440,000 CAD,
approximately $290,980 USD with an unrelated party. The note bears interest of
11%. At January 31, 2003 interest of $3,946 has been accrued and reflected in
the financial statements. The balance of the note, including interest, at
January 31, 2003 is approximately $294,926 USD. At April 30, 2003 interest of
$11,948 has been accrued and reflected in the financial statements. The
balance of the note, including all interest associated with it was approximately
$302,928 USD at April 30th 2003. At July 30, 2003 interest of $19,950 has been
accrued and reflected in the financial statements. The balance of the note,
including all interest associated with it was approximately $310,930 USD at July
31th 2003.
On June 19, 2003 the Company signed a promissory note for $100,000 USD with an
unrelated party. The note bears interest of prime plus 2 percent and the term
is one year. The Company has received $92,075 at July 31, 2003. At July 31,
2003, interest of $636 has been accrued and reflected in the financial
statements. The balance of the note, including interest at July 31, 2003 is
$92,711.
NOTE 5 - COMMITMENTS AND CONTIGENCIES
Investment agreement
On September 10, 2002 the Company entered into an investment agreement
whereby an investment group will advance up to $300,000 from September 10,
2002 through February 1, 2003. In consideration for the proceeds, the
Company will issue on February 1, 2003, 6 million shares of Class B Common
Stock, 2,000,000 options at an exercise price of $0.10 expiring January 31,
2010 and 2,000,000 warrants at an exercise price of $1.20 expiring on
February 1, 2005. At October 31, 2002, $143,623 had been advanced to the
Company. During the three month period ending January 31, 2003, additional
advances totaling $98,155 had been received. During the three month period
ending April 30, 2003, additional advances totaling $58,222 had been
received. At April 30, 2003, a total of $300,000 had been advanced to the
Company. At April 30, 2003 the Company had not issued any shares to settle
the investment proceeds liability. On June 19, 2003 the Company issued 6
million shares of Class B Common Stock, 2 million warrants exercisable
$0.10 and 2 million warrants exercisable at $1.20 to settle the investment
proceeds liability of $300,000.
In November 2002, the Company entered into an investment agreement
whereby an additional investment group will advance up to $125,000 from
November 2002 through February 2003. In consideration for the proceeds, the
Company will issue on February 1, 2003, 2.5 million shares of Class B
Common Stock, 2,000,000 options at an exercise price of $0.050 expiring
January 31, 2010. During the three month period ending January 31, 2003, no
advances had been received. During the three month period ending April 30,
2003 advances of $62,651 had been received. At April 30, 2003 the Company
had not issued any shares to settle the investment proceeds liability. From
May 1, 2003 to June 19, 2003 advances of $62,349 had been received. On June
19, 2003 the Company issued 2.5 million shares of Class B Common Stock and
2 million warrants to settle the investment proceeds liability of $125,000.
NOTE 5 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
In March 2003, the Company entered into an investment agreement whereby a third
investment group will advance up to $200,000 from March 2003 through April
2003. In consideration for the proceeds, the Company will issue on June 1,
2003, 2 million shares of Class B Common Stock, 500,000 options at an
exercise price of $0.10 and 500,000 options at an exercise price of $0.25
expiring January 31, 2010. During the three month period ending April 30,
2003, no advances had been received. From May 1, 2003 to June 19, 2003
advances of $20,000 had been received. On June 19, 2003 the Company issued
2 million shares of Class B Common Stock and 1 million warrants to settle
the investment proceeds liability of $200,000.
Office leases
On September 1, 2002, the Company entered into a three year office lease
for its Monteal office with monthly payments approximately $2,000.
On October 1, 2002, the Company entered into a one year office lease for
its U.S. office with monthly payments approximately $1,000.
Legal Matters
57
We remain party to one proceeding initiated by another party in the
Superior Court of the Province of Quebec, District of Montreal. An amount
of $98,766 in Canadian dollars has been claimed for our alleged failure to
pay a commission and consequent damages relating to negotiations with GSI
Canada for an acquisition. Legal counsel advises that, in his opinion, the
case against the company is without merit.
On September 2001, we received a law suit from a former employee for unpaid
salaries. We concluded an out of court settlement, on November 22nd, 2002,
for the amount of approximately $7,750 US ($12,000 CAD) as final
settlement. The $7,750 had been accrued and reflected in the October 31,
2002 financial statements.
The Company has been involved in litigation for unpaid business taxes with
the City of Montreal. The litigation has been settled in the amount of
approximately $23,000 of which approximately $5,000 has been paid by
October 31, 2002 and the remaining $18,000 due to the City of Montreal has
been reflected in accounts payable at October 31, 2002. During the three
month period ending January 31, 2003 no payments were made towards this
debt. During the three month period ending April 30, 2003 approximately
$8,000 in payments were made towards this debt. At April 30, 2003, the
outstanding balance totaled approximately $10,000. During the three month
period ending July 31, 2003, approximately $10,000 in payments were made
towards this debt and the balance at July 31, 2003 was zero.
In March 2002, a former Director, who was also an Officer in the Company,
along with another employee of the Company, filed a civil action against
the Company in the State of Florida alleging unpaid wages and expense
reimbursements totaling approximately $225,000. The Company has not
retained legal counsel but believed this complaint to be without merit and
is in the process of negotiating a settlement and release agreement with
these two individuals in the amount of approximately $13,000. The Company
has received an oral confirmation to the $13,000 settlement and release
agreement. The $13,000 had been accrued and reflected in the October 31,
2002 financial statements. The Company and these individuals signed the
settlement agreement related to this matter on February 27, 2003 and the
company forwarded the required payment $13,000 to settle this matter.
NOTE 5 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
Consulting agreement
On May 27, 2002, the Company entered into a consulting agreement with a non
affiliated individual.
The agreement is for one year and the annual amount of the agreement is
approximately $100,000.
NOTE 6 - SOFTWARE DEVELOPMENT
The Company is currently developing software for resale to prospective clients.
The Company capitalizes cost of materials, consultants, interest, and payroll
and payroll-related costs for employees incurred in developing computer software
for resale once technological feasibility is attained. Currently, the Company
has contracted with consultants to develop the software. Technological
feasibility is established when the Company has completed all planning,
designing, coding, and testing activities that are necessary to establish that
the product can be produced to meet its design specifications including
functions, features, and technical performance requirements. Until
technological feasibility is established, all costs associated with the software
development are considered research and development expenditures and are charged
to development expense in the period incurred.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of $1,175,878
(unaudited) for the nine months ended July 31, 2003 and a loss of $7,017,167
(unaudited) since inception. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of $1,032,036 for
the nine months ended July 31, 2003. Continuation of the Company as a going
concern is dependent upon obtaining sufficient working capital for its
planned activity. Additional capital and/or borrowings will be necessary in
order for the Company to continue in existence until attaining and sustaining
profitable operations. The Company continues to aggressively pursue strategic
alliances which will bring a cash infusion, restructuring and forward looking
business plan.
NOTE 8 - RELATED PARTY TRANSACTIONS
58
Legal fees to Director's firm
During the nine month period ending July 31, 2003, the Company has retained
legal services from a firm in which a director of the Company, Marc Cote, is a
partner. The Company incurred approximately $28,800 in legal fees from this
firm in the nine month period ending July 31, 2003.
NOTE 9 - INCOME TAXES
The provision for taxes on earnings for the nine months ended July 31, 2003,
consist of:
2003 2002
Current
Federal $ - $ -
State - -
Foreign - -
Deferred
Federal $ - $ -
State -
Foreign - -
At July 31, 2003, the Company has a Federal tax net operating loss ("NOL")
carryforward of approximately $6,000,000, which expires at various dates through
2015.
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for the period presented because it
has experienced operating losses since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding its
realizability.
NOTE 10 - SHAREHOLDERS' EQUITY
Common Stock
The Company has 5,000,000 shares of class A common stock which to date have
never been issued. Management has no intent of issuing any of these shares
and will be canceling these shares by filing an amendment to the articles
of incorporation with the State of Delaware.
The Company has 55,000,000 authorized shares of Class B common stock with a
par value of $.001.
Each share entitles the holder to one vote.
In March 2003 the Company issued 2 million shares of Class B common stock
in a private placement for $100,000.
In March 2003 the Company issued 1 million shares of Class B common stock
to settle accrued default payment penalties totaling $50,000.
In May 2003, the Company issued 2 million shares of Class B common stock to
settle a note payable in the amount of $345,808 which includes all accrued
interest and an additional receipt of proceeds in the amount of $163,144.
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED):
In June 2003, the Company issued 10.5 million shares of Class B common
stock to settle an investment proceeds liabilities of $625,000.
In June 2003, the Company issued 200,000 shares of Class B common stock for
consulting services.
59
In June 2003, the Company issued 1,336,800 shares of Class B common stock
for settlement of an accrued financing cost liability
In June 2003, the Company issued 500,000 shares of Class B common stock for
the purchase of 40% of LTS Networks.
NOTE 11 - WARRANTS AND OPTIONS
In May 2003, the Company issued 500,000 warrants exercisable at $0.25 and
516,000 warrants exercisable at $1.00 in connection to settle a note
payable in the amount of $345,808 which includes all accrued interest and
an additional receipt of proceeds in the amount of $163,144.
In June 2003, the Company issued 2 million warrants exercisable at $1.20,
500,000 warrants exercisable at $0.25, 2.5 million warrants exercisable at
$0.10 and 2 million warrants exercisable at $0.05 in connection to settle
an investment proceeds liabilities of $625,000.
On August 01, 2000 the Company adopted a Long Term Incentive Plan whereby
directors, officers, certain key employees of the Company and its
affiliates as well as certain consultants to the Company would be granted
stock options. A maximum of 10% of the authorized Class B common shares
totaling 5,500,000 can be reserved and available for distribution pursuant
to the terms of the plan. On On October 02, 2000, 925,000 options with an
exercise price of $1.25 had been issued to consultants and other non
employee affiliates who rendered services to the Company throughout the
year. The services were rendered in the fiscal year ending October 31,
2000. The expense for such services were reflected in the financial
statements ended October 31, 2000. As an incentive to maintain a
relationship with these consultants and non employee affiliates, the
Company issued these options for anticipated future services. These future
services were not received. The options vest one-third on December 18,
2000, one third on December 18, 2001 and one third on December 18, 2002.
The stock options expire seven years from the date they were granted.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". The Company has determined that it will continue
to account for employee stock-based compensation under Accounting
Principles Board No. 25 and elect the disclosure-only alternative under
SFAS No. 123. The fair value of a share of nonvested stock is measured at
the market price of a share on the grant date. The proforma effect to net
income and earnings per share is reflected as follows:
NOTE 11 - WARRANTS AND OPTIONS (CONTINUED)
Nine months ended Nine months ended
FAS 123 "Accounting for stock based compensation July 31, 2003 July 31, 2002
Paragraph 47 (a)
1.Beginning of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
2. End of year - outstanding
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
3. End of year - exercisable
i. number of options/warrants 308,333 308,333
ii. weighted average exercise price 1.35 1.35
4. During the year - Granted
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
5. During the year - Exercised
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
6. During the year - Forfeited
i. number of options/warrants 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
60
i. number of options/warrants
ii. weighted average exercise price
Paragraph 47 (b) Weighted-average grant-date fair
value of options granted during the year:
1. Exceeds market price 0 0
Paragraph 47 (c) Equity instruments other than none none
options/warrants
Paragraph 47(d) Description of the method and significant
assumptions used during the year to estimate the fair value
of options:
(1)Weighted average risk-free interest rate 5.54% 5.54%
Weighted average expected life (in months) 30.00 42.00
Weighted average expected volatility 0.00% 0
Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized in income for stock-based 0 0
employee compensation awards.
Paragraph 47(f) The terms of significant modifications of outstanding awards. none none
Paragraph 48 - Options outstanding at the date of the lateststatement of financial
position presented:
1. (a) Range of exercise prices $ 1.10-$2.00 $ 1.10-$2.00
(b) Weighted-average exercise price 1.35 1.35
2. Weighted-average remaining contractual life (in months) 30.00 42.00
Nine months ended Nine months ended
July 31, 2003 July 31, 2002
Net Income after proforma effect (1,175,878) (267,715)
Earnings per share after proforma effect $ (0.04) $ (0.01)
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YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
OTHER INFORMATION THAT WE REFER YOU TO. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH ANY OTHER INFORMATION THAT IS DIFFERENT .
YOU SHOULD NOTE THAT EVEN THOUGH YOU RECEIVED A COPY OF THIS 39,591,572 SHARES OF COMMON STOCK
PROSPECTUS, THERE MAY HAVE BEEN CHANGES IN OUR AFFAIRS SINCE THE DATE
OF THIS PROSPECTUS. YOU SHOULD BE AWARE OF OUR PUBLIC FILINGS WHERE
WE WILL MAKE PROMPT DISCLOSURE OF MATERIAL FACTS, BOTH FAVORABLE AND
UNFAVORABLE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED
TABLE OF CONTENTS Page
Risk Factors 2
Special Note Regarding Forward-Looking Statements 5
Summary Historical Financial Information 5 GSI TECHNOLOGIES USA INC.
Management Discussions and Analysis of Financial Condition and Results of Operations
Use of Proceeds 6
Business 11 PROSPECTUS
Management 12
Security Ownership of Certain Beneficial owners and Management 21
Executive Compensation
Certain Relationships and Related Transactions 24
Disclosure of Commission Position 25
on Indemnification for Securities Act Liability 25
Description of Securities
Plan of Distribution 25
Selling Stockholders 26
Legal Matters 27
Experts 28
Available Information 30 _____________ , 2003
Index to Financial Statements 30
30
62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
------------------------------------------------
The following statement sets forth the estimated expenses in
connection with the offering described in the Registration Statement, all of
which will be borne by the Registrant.
Securities and Exchange Commission Fee $ 1,003
-------------------------------------- -------
Accountants' Fees $ 500
-------------------------------------- -------
Legal Fees $20,000
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Printing and engraving $ 1,000
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Miscellaneous $ 497
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TOTAL 23,000
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
----------------------------------------------
Neither our By-Laws nor our Certificate of Incorporation currently
provide indemnification to our officers or directors. In an effort to continue
to attract and retain qualified individuals to serve as our directors and
officers, we intend to adopt provisions providing for the maximum
indemnification permitted by Delaware law.
ITEM 15. 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,
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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, 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.
On June 11, 2003, we concluded 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 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
------------------------------------------------
3.1 Certificate of Incorporation, as amended*
3.2 By-Laws*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Warrant Certificate**
5 Opinion of Law Offices of Irving Rothstein
10.1 (a) Leases Quebec premises**
10.1 (b) Leases US premises**
10.2 Employment Agreement with Gilles Addison**
10.3 LTS Share Purchase Agreement**
(a) Alan Truesdale
(b) Paul Tatham
(c) Nikos Sklavenitis
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(d) Christine Nairn
(e) Glenn H. Jacobson Living Trust
10.4 SN Entertainment Agreement**
10.5 Services Agreement with LTS**
10.6 Consulting Agreement with Wien**
10.7 Loan and Investment Agreement with Craig Perry**
10.8 Loan and Investment Agreement with La Ferme M.J. Fillion**
10.9 Special Agreement with MCSI
10.10 Sales Representative Agreement with Petters Group.
10.11 Master Licensing Agreement between GSI Canada & GSI Technologies
USA Inc.*
10.12 Addendum to the Licensing Agreement between GSI Canada &
GSI Technologies USA Inc.
23.1 Consent of Law Offices of Irving Rothstein
(included in the Opinion filed as Exhibit 5)
23.2 Consent of Mark Cohen, C.P.A.
_______________
* Incorporated by reference from Registration Statement
No. 333-30474
** Incorporated by reference from original filing on
July 1st, 2003
ITEM 17. UNDERTAKINGS.
------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
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(iv) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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SIGNATURES
In accordance with the requirements of the Securities Act, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement or amendment to be signed on its behalf by the undersigned, in the
City of Montreal on the 10th day of November, 2003.
GSI TECHNOLOGIES USA INC.
By: /s/ Gilles Addison
------------------------------------
Gilles Addison, President and CEO
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
--------- ----- ----
By:/s/ Gilles Addison
-----------------------
Gilles Addison President & CEO November 10, 2003
By:/s/ Marie El-Ahmar Eid
-----------------------
Marie El-Ahmar Eid Director & Secretary November 10, 2003
By:/s/ Craig Perry
-----------------------
Craig Perry Director & Chairman November 10, 2003
By:/s/ Marc Cote
-----------------------
Marc Cote Director November 10, 2003