UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended April 30, 2001.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ________
COMMISSION FILE NUMBER: 0-31229
GSI TECHNOLOGIES USA INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 65-0902449
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 McGill College Avenue, Suite 1310, Montreal, Quebec H3A 1G1 Canada
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(Address of principal executive offices)
(514) 940-5262
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(Issuer's Telephone Number, including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [X]
Yes [ ] No
As of June 14,2001, there were 21,076,636 shares of the issuer's $.001 par
value common stock issued and outstanding.
Transitional Business Disclosure Format (Check one): Yes [ ] No[X]
1
INDEX TO FORM 10-QSB
--------------------
For the Quarter Ended April 30, 2001
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of April 30, 2001 3
Statement of Operations for the Three and Six Months
ended April 30, 2001 and 2000 4
Statements of Cash Flows for Three and Six Months
and Since Inception To April 30, 2001 and 2000 5
Notes to Financial Statements for the 6 - 8
Six Months Ended April 30, 2001.
Item 2. Management's Discussion and Analysis 9- 16
PART II. OTHER INFORMATION
17
Item 1. Legal Proceedings
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial statements
-----------------------------
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT APRIL 30, 2001
(UNAUDITED)
Assets
Current Assets
Cash and cash equivalents $17,548
Receivables, net (principally related party 4,025,340
Other current assets
-----------------
Total current assets 4,042,888
Property and equipment, net 36,917
Investment in affiliates 244,408
Intangible assets, net 331,045
Other assets 61,105
-----------------
Total assets 4,716,363
=================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 576,338
Defferred Revenue 102,500
Notes Payable (principally related party) 4,136,051
Other current liabilities 100,572
-----------------
Total current liabilities 4,915,461
Stockholder's Deficit
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 21,077
55,000,000 shares; issued and outstanding - 21,076,636
Paid in Capital 1,964,398
Deficit accumulated during the development stage (2,184,961)
Accumulated other comprehensive income 388
------------------
Total Shareholder's Equity (199,098)
Total liabilities and shareholder's equity $ 4,716,363
==================
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement
3
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2001 AND 2000
FROM INCEPTION (JULY 08, 1998 THROUGH APRIL 30, 2001
(UNAUDITED)
Period
Three months Six months of inception
ended April 30, ended April 30, July 06, 1998 to
---------------------------- --------------------------
2001 2000 2001 2000 April 30, 2001
------------- ------------- ------------ ------------ -------------
Revenues $ 126,043 $ - $ 132,293 $ - $ 728,702
Cost of Sales 60,343 - 64,093 - 533,509
------------- ------------- ------------ ------------ -------------
Gross Profit 65,700 - 68,200 - 195,193
Operating Expenses:
Marketing 41,143 - 69,838 15,949 279,577
Management and administrative fees 239,733 178,497 472,223 241,061 978,945
Salaries and related costs 61,982 108,794 208,619
Rent 9,853 24,130 24,636 36,560 138,949
Financing expense 10,000 10,000 169,132
Professional fees 10,255 10,697 21,751 18,970 142,112
Consulting 304,647
Depreciation 2,600 3,900 4,293
Amortization 23,879 23,739 47,688 47,478 144,051
Travel 29,001 11,986 37,761 17,909 47,290
Other selling, general and administrative 54,404 28,758 92,985 49,703 214,699
------------- ------------- ------------ ------------ -------------
Total operating expenses 482,850 277,807 889,577 427,630 2,632,315
Loss before other income (expense) (417,150) (277,807) (821,376) (427,630) (2,437,121)
Other income (expense):
Interest income (principally related party) 105,756 8,119 194,462 12,599 271,222
Interest expense (principally related party) (106,566) (193,349) (238,470)
Equity in net earnings (loss) of affiliates 42,550 219,408 219,408
------------- ------------- ------------ ------------ -------------
Total other income (expense) 41,740 8,119 220,521 12,599 252,160
------------- ------------- ------------ ------------ -------------
Net Loss (375,410) (269,688) (600,856) (415,031) (2,184,961)
============= ============= ============ ============ =============
Basic weighted average common shares outstanding 20,788,768 20,185,472 20,689,767 20,070,565
============= ============= ============ ============
Basic Loss per common share $ (0.0181) $ (0.0134) $ (0.0290) $ (0.0207)
============= ============= ============ ============
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement
4
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2001 AND 2000
FROM INCEPTION (JULY 08, 1998) THROUGH APRIL 30, 2001
(UNAUDITED)
Inception
For the six months (July 08, 1998)
ended January 31, through
----------------------------------
2001 2000 April 30, 2001
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (600,856) $ (415,031) $ (2,184,960)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 51,588 47,478 148,344
Issuance of stock for contract settlement 5,000 - 5,500
Accrued Interest Expense 193,349 - 238,470
Accrued Interest Income (194,462) (12,599) (271,214)
Equity in net earnings (loss) of affiliates (219,048) - (219,048)
Changes in Operating assets and liabilities:
Receivables and other current assets (134,472) 70,868 (153,076)
Other assets - - (61,104)
Accounts Payable and Accrued Liabilities 189,630 (138,203) 782,334
------------- ------------- --------------
Net cash provided by/(used in) operating activities (709,271) (447,487) (1,714,755)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties (655,743) (163,401) (3,657,969)
Purchase of property and equipment (459) - (41,525)
------------- ------------- --------------
Net cash provided by/(used in) investing activities (656,202) (163,401) (3,699,494)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable, principally related parties 50,000 (279,667) 2,622,599
Short term borrowings 1,103,617 - 1,103,617
Sales of common stock 225,000 577,100 1,705,195
------------- ------------- --------------
Net cash provided by/(used in) financing activities 1,378,617 297,433 5,431,411
------------- ------------- --------------
Effect of exchange rate changes on cash and cash eqivalents - - 386
------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 13,144 (313,455) 17,548
Cash and cash equivalents, beginning of period 4,404 350,019 -
------------- ------------- --------------
Cash and cash equivalents, end of period $ 17,548 $ 36,564 $ 17,548
============= ============= ==============
Supplemental Schedule of noncash investing and financing activities:
Issuance of note for payment of license rights 200,000
Issuance of shares for license rights 274,779
Issuance of shares for dividend to affiliate 325,221
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement
5
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
APRIL 30, 2001
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 - 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.
NOTE 3 - 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.
6
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
APRIL 30, 2001
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company reported a net loss of
$600,556 for the six months ended April 30, 2001 (unaudited) as well as
reporting net losses of $2,184,961 from inception (July 08, 1998) to April 30,
2001 (unaudited). As reported on the statement of cash flows, the Company
incurred negative cash flows from operating activities of $709,271 for the six
months ended April 30, 2001 (unaudited) respectively and has reported deficient
cash flows from operating activities of $1,714,755 from inception (July 08,
1998) (unaudited). To date, these losses and cash flow deficiencies have been
financed principally through the sale of common stock ($1,705,195) and short
term borrowings (1,103,617). Continuation of the Company as a going concern is
dependent upon obtaining sufficient working capital for its planned activity and
the management of the Company has developed a strategy, which it believes will
accomplish this objective through additional equity funding, and long term
financing, which will enable the Company to operate for coming year.
NOTE 5 - Investment in Affiliates
The Company's investments in affiliates consists of a 25% interest of
Groupe Solcom, headquartered in France, which participates in the electronic
advertising and interactive information display. The Company accounts for its
25% interest in Group Solcom using the equity method. Condensed financial
information for investments in affiliiates accounted for under the equity method
of accounting are summarized below.
April 30, 2001 April 30, 2000
Current assets 2,759,077 0
Other assets 3,316,783 0
-------------- --------------
6,075,860 0
Current liabilities 2,202,148 0
Other liabilities 2,977,279
Shareholder's equity 896,433 0
-------------- --------------
6,075,860 0
Net Sales 2,803,386 0
Gross profit 2,156,356 0
Net income 877,634 0
7
GSI TECHNOLOGIES USA, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
APRIL 30, 2001
NOTE 6 - Line of Credit
The Company maintains a line of credit with a foreign financial institution
to meet short term working capital needs which allows the Company to borrow up
to $1,150,000 on an unsecured basis at the prime rate of interest (8.50 percent
at January 31, 2001) plus 2.50 percent. At April 30, 2001, the Company had
borrowed $1,103,617. This line of credit expires December 01, 2001.
8
Item 2. Management's discussion and analysis
---------------------------------------------
Forward looking statements.
This report contains forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate," and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, and general economic conditions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. The Company cautions potential investors not to place undue reliance
on any such forward-looking statements, all of which speak only as of the date
made.
Overview
GSI specializes in broadcasting solutions principally for advertisers and
others seeking to extend their reaching power for their commercial and public
service messages. Holder of a world-wide license, GSI's proprietary software,
hardware, and advanced broadcasting systems respond to their needs. In providing
access to its remote control broadcasting capability, we enable users to
transmit and receive full-motion video, graphics, and audio on an array of
attractive, durable and interactive indoor and outdoor display products.
Results from operations
3 months ending April 30, 2001 and 2000
We are still in the development phase after starting up in 1999. During
GSI's second quarter from February 1, 2001 to April 30, 2001, we incurred a loss
of $375,410 or $0.0181 per share versus $269,688 or $0.0134 per share in the
same period in 2000. The accumulated deficit to date during the development
phase increased to $2,184,961 or $0.1779 per share.
Revenues
$126,043 in revenues were recognized during the quarter, versus nil in the
same period in the prior year. This is 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. Since
inception, revenue totals $728,702, primarily from product sales.
Cost of revenues and direct operating costs
According to the master license agreement with GSI Canada, we owe 60% of
the price of any sub-license we sell to a new licensee and this amount is
payable to GSI Canada by the end of the calendar quarter in which the
sub-license is granted. We have incurred $60,343 in direct operating cost for
the quarter, versus nil in the same quarter in the prior year. Since inception,
cost of sales is $533,509, including $59,250 in royalties and $474,259 in
product costs.
Operating expenses
During the three months ended April 30,2001, we incurred $482,850 in
operating expenses versus $277,807 in the same period in 2000, The increase is
attributable primarily to an increase in management fees and salary expense.
Since exception, operating expenses total $2,632,315 and these costs are
primarily associated with the development of the company.
9
Other income
During the three months ending April 30, 2001, $105,756 in interest was
earned mainly on the outstanding loan to GSI Canada, while $106,566 in interest
expense was incurred. This amount includes, $80,705 for loans from shareholders
and affiliated parties, $25,861 for interest and charges on the short term
credit facilities with our principal bank of which, $9,653 was accrued interest.
Since inception a total of $271,222 in interest has been earned while $
238,470 in expense has been incurred.
Equity in the net earnings of our European affiliate was $42,550 for the
period versus nil in the same period of 2000. This is discussed further below.
Liquidity and capital resources
At April 30, 2001 we had $17,548 in cash. Cash used in operating activities
during the six months ending april 30, 2001 was $709,271, which was mainly
attributable to the net cash loss from operations plus changes in net operating
assets and liabilities.
Cash used in investing activities during the period reflects additional
short term loans to GSI Canada in the amount of $655,743.
Cash provided from financing activities during the period was $225,000 and
includes a private placement in April 2001 in the amount of $100,000; as well
advances through April 30 of $1,103,617 in short-term bank credit were provided
by the Societe Generale, a leading bank in France.
In September, 2000, we entered into formal loan arrangements with a group
of existing investors. At Apri 30, 2001, the total amount of these obligations,
including interest, is $3,029,509. The promissory notes have a maturity date of
September 7, 2001, bear interest at the rate of prime plus two per cent and are
convertible at any time at the sole discretion of the Company into a certain
number of shares for each holder. If converted, interest on the notes is waived.
In the event of conversion, the total number of Class B common shares to be
issued from treasury would be 2,581,584.
The result of all activities during the six month period ending April 30,
2001 was a net increase of $13,144 in our cash position.
From inception, net cash used in operations has been $1,714,755. A total of
$3,699,494 has been used in investing activities, while $5,431,411 has been
provided by financing activities, including $1,705,195 from sales of common
stock.
Since the beginning of 2001, we have been refocusing our activities to
concentrate on our core business.
Through our affiliate, GSI Canada, last summer we successfully installed 32
CityColumns as phase one of our pilot project for shopping centres owned by the
Ivanhoe Group. Based on the results of this pilot project, we have refined our
concept and adjusted our marketing strategy and product development program.
Operating as the media operator, GSI Canada has been able to measure the impact
of our concept on advertising customers, advertising agencies, and target
consumers.
On March 6, 2001, we sold a license to Groupe Solcom for $1,000,000,
payable in 10 annual instalments of $100,000. Groupe Solcom is owned 75% by GSI
Canada and 25% by GSI. Other sales of licenses are planned in the European
Community. Other pilot projects have been successfully completed by Groupe
Solcom.
During the quarter, Groupe Solcom successfully completed the installation
of 80 projection systems for their client, the MCR Multimedia Group, which use
the GSI Multimedia Pack to broadcast animated advertising images in the Milano,
Italy subway system. The installations have been well received, and Groupe
Solcom is now proceeding with phase 2 of the project.
Groupe Solcom has also completed a pilot project with the Societe Generale
Bank, installing a network of plasma-screen based DigiColumns. An order for 50
DigiColumns has been received from the bank.
10
Cash requirements of approximately $400 000 are anticipated during our next
fiscal quarter to July 31, 2001, as spending to sustain operations is currently
running at $125 000 per month.
Lending to GSI Canada is now capped at $4.0 million, an increase of
$500,000 from the previously authorized level. A repayment program has been
developed. GSI Canada has commenced a restructuring program, abandoning its
activities in the computer business and disposing of or ceasing other non-core
activities. GSI Canada is also seeking a buyer of the Ivanhoe network as well as
other assets.
We continue to seek additional sources of funding to sustain operations for
the long-term. We have engaged a European investment firm to raise up to
$5,000,000 in capital. The Societe Generale, a major France Bank, is providing
short-term funding, pending the closing of long-term financing. $1,103,617 has
been drawn through April 30, 2001. The line of credit is available to December
1, 2001 and interest accrues at prime plus 2.5%.
Investment in affiliates
Our 25% share in Group Solcom is reflected as an investment in affiliates
on the balance sheet. The value of this investment was $ 244,408 at April 30
versus nil for the same period of 2000. The total revenue generated by Groupe
Solcom during the period was $ 2,803,386, a net increase of $2,803,386 versus
nil at the same period of 2000.
Product sales and distribution and provision of services
Under the master license acquired in October 1999, from our Canadian
affiliate, GSI Canada we have access to one of the most advanced technologies
currently available in the field of information broadcast and electronic
advertising and information interactive display. The term of the license is 5
years to October 26th, 2004 and is automatically renewable for another 5 years
at the sole discretion of GSI. The cost was $800,000, $200,000 paid in cash in
November 1999; the balance in $600,000 worth of GSI'S common shares.
GSI Canada's R&D department continues to enhance the GSI Multimedia Pack in
response to the market tests on installations in Montreal, Paris, and Milano.
Now working in our principal office facilities, they have completed the latest
version (1.4) of the GSI Multi-Media Pack, and will fully integrate its billing
manager module, by August 31st 2001.
Working in conjunction with GSI Canada's R & D department, our New Media
division, has fully integrated its E-Commerce Software in order to be able to
offer transactional capabilities via our products, further enhancing their
potential for acceptance in the fast-evolving market place.
11
The prototype phase has been completed and we are now marketing the
following products:
o Citycolumn: an indoor display unit indoor/advertising unit, with
interactive kiosk capability.
o Transacolumn: an indoor display advertising unit with transactional
e-column kiosks and ATM cash machine.
o Skycolumn: a large outdoor full video advertising LED screen.
o Projecolumn: an indoor advertising display unit which used a
projecting system.
o Digicolumn: a display kiosk using plasma screens.
Our objective is to ramp up revenues from sales of these products, as well
as revenues from broadcasting, production of content, technical support,
maintenance, and consulting contracts.
In April 2001, we sold licenses and operating systems to More Group UK, a
part of the Adshel Group, a division of Clear Channel International. We are
currently installing our broadcasting facilities in London as previously
announced on March 5th, 2001. We will be serving the More Group in 2 cities,
Bristol and Swindon, in the first phase. Activities in other cities in the UK
are in the planning phase. We anticipate that our ongoing association with
Adshel will help us to identify the principal media operators in the various
countries in Europe, Asia, and the Americas and continue to ramp up our
commercial operations.
Our management team has refined our market penetration strategy. The
world's large media groups are only beginning to convert from conventional
static advertising to full video motion and interactive two-way systems. We are,
therefore, concentrating on selling license agreements with large, local media
operators. The networking feature of our concept and the variety of our products
enables us to customize state-of-the-art applications for reaching
consumers-"What do you want to say to your consumer today and where?"
As a pioneer in the advertising media industry, GSI is rapidly gaining
experience in the application of all aspects of our concept, ranging from the
design of the display products, to the software that drives them to the content
advertisers are seeking. Interest in our technology and networking concept is
growing, particularly from the suppliers of display equipment. Potential
partners have been identified in the fields of telecommunications, banking, ATM
services, and the Internet.
Our business development has entered a crucial phase. By signing agreements
with Adshel in the outdoor and indoor out of home market, we need to deploy our
studio and broadcast installations to support their massive market penetration.
12
Canada
The sale of a sub-license to our affiliate GSI Canada was completed in May
2000 for the territory of Canada. The sale of the license was $250 000 payable
in 10 annual instalments of $25 000 a year. Primarily in Quebec, GSI Canada has
assumed the role of media operator and acquired the right to install its
products on sites managed by 3 major property managers (Ivanhoe, SITQ, and
Tulon), and a large entertainment complex in Montreal operated by Canderel, a
leading Canadian property developer. Negotiations are proceeding with the
Government of Quebec for the deployment of our Citycolumn product throughout the
Province for government communication purposes. Our affiliate continues to seek
financing in order to complete the planned installations.
An agreement was signed with Barco in February 2001 for GSI Canada to
collaborate as a Value Added Reseller (VAR). Reflecting Barco's confidence in
our technology and deployment concept it calls for GSI to sell the equivalent of
$8 million worth of Barco display products annually.
USA
Through our office in Orlando, Florida, the parks and tourist centres are
our primary target. All levels of government have been contacted and strong
links established with Florida's "Entreprise Florida" program have been
established. Being under the US Department of Commerce umbrella was instrumental
in our being able to develop the Milan, Italy market opportunity.
In June 2001, we again participated in the "Entreprise Florida," which
organized a commercial mission at the Comdex Trade fair in Mexico.
13
GSI was very well received and the reaction to our technology positive.
The sale of a license agreement in Mexico is in progress, which we
anticipate closing by June 30th 2001. Part of our strategy consists in
installing a GSI broadcast studio in Mexico City in order to commercialize our
technology and products throughout South America. We plan to continue
participating on the "Entreprise Florida" Team, in July 2001, in the missions to
Argentina, Brazil, and Chile.
Europe
Significant opportunities are being identified in Europe. The appetite in
Europe for new technologies favors the development and installation of GSI's
hi-tech products and services. Through these opportunities and the progress of
our European affiliate, Groupe Solcom, we are responding to increasing customer
demand from, amongst others, the major participants in the out-of-home
advertising industry and retail stores. Considered the most hospitable
environments in Europe at this stage of our development, our focus is on France,
England, Italy, and Portugal.
After a successful presentation in August 2000 in the city of Nantes, with
our partners Adshel (Clear channel) the French division of Adshel won the tender
and announced the implementation of 7 LED screens, 150 Internet kiosks, and 10
multi-media columns for December 2001.
Working in conjunction with the Adshel sales force, GSI is planning to
install broadcast systems and a production Center. This project will become a
flagship concept for our partners that can be extended to other major cities
worldwide. We anticipate the sub-license agreement will be completed shortly.
GSI would also benefit from a production contract and fees from the maintenance
of the network. We have proposed a 10 year contract.
Groupe Solcom has completed its test project with Societe Generale to
deploy a network of plasma screens. Financing is being sought for the first
phase of the project to install 50 units.
Other significant opportunities are being pursued in France. In April 2001,
Groupe Solcom acquired a second entity, a French company, PROVIDENCE
TECHNOLOGIQUE. This company has developed a unique and futuristic touch screen,
which can be useful in public sites such as shopping Centers, museums,
administrative buildings, etc. This touch screen is managed by versatile and
friendly user software named Icos. Groupe Solcom is confident that this
integration of the new touch screen with the GSI MULTIMEDIA PACK will be highly
advantageous. The commercial representatives and the distributors of Groupe
Solcom will do the marketing of this product.
Italy
In January 2001, Groupe Solcom acquired an Italian company, TREDWEB S.R.L.,
which specialises in the creation of web sites and 3D animation. With this
acquisition, the company has successfully penetrated the Italian market and has
recruited experts in the field of animation. Supported by the GSI team, a
wide-ranging project is underway: the installation of multimedia projectors
using the GSI Multimedia Pack to broadcast animated advertising on the walls of
the Milan subway system. The team is now in Phase 2 of the project. TREDWEB SRL
also has contracts with major companies operating in Italy such as Young &
Rubicam, Dlu. BDDO. ALMADEDIA. Touring Club and other large accounts for a
turnover of US$750,000.
14
Groupe Solcom has also concluded or is in the process of concluding several
agreements in Italy with several major companies:
April 21, 2001, with SERENAM srl: This Italian company is doing business in
outdoor advertising, mainly in Milan and Rome. It manages both the advertising
site and the sale of advertising. The 3 year agreement is to provide SERENAM
with 35 LED screens (6mX3m) in the current year, as well as licenses for the GSI
MULTIMEDIA PACK and servers. SERENAM is forecasting orders of a minimum of 10
LED screens in the following years.
April 21, 2001, with HGV ADVERTISING srl: This Italian company specializes
in the sale of advertising and 3D animation. It has obtained several contracts
with supermarkets such as Conad Pianeta, Gabrielli Group, Conad Lazio, Auchan
Pescara and This D. Puglia for the implementation of a network of plasma screens
in supermarkets. Groupe Solcom has entered into a 6-year agreement for the
creation of a joint company named OMNIKEY. This company will realize the
implementation of the plasma screens network and the software to enable the
broadcasting in supermarkets. The partners plan to implement their network in
more than 650 supermarkets in the central area of Italy.
May 17 2001, with PIELLEFFE srl: This Italian company specializes in the
management of major projects in Italy. They also developed a impressive contact
network at the national level. This company is seeking a partnership with Groupe
Solcom for the creation of a joint company to be called W.A.Waiting Advertising.
The purpose of this company will be to present tenders for important projects
such as the installation of plasma screens for the Telebingos in Italy, for the
COOP, the airport of Rome, Bologna, Torino; as well as for the metros of Rome
and Naples.
May 28 2001, with INFORMATICA E TELECOMUNICAZIONI (I e T): This Italian
company manages and maintains data processing systems and networks in Italy.
They are also involved in the research and development of telecommunication
solutions. I e T intends to sign an agreement with Groupe Solcom for the
installation and the maintenance of the LED screens network and for plasma
screens, as well as for the maintenance of the servers for the network. I e T is
also interested in acquiring a license from PROVIDENCE TECHNOLOGIQUE to
manufacture touch screens in Italy. Research and development works could also be
carried out by I e T in their new installations in the suburbs of Rome. I e T is
the largest computer company in Italy.
Portugal
May 24, 2001, Groupe Solcom signed an agreement with COMPTA S.A. of Lisbon
for the creation of a new company, which will be 50% owned by Groupe Solcom and
50% by COMPTA S.A. The creation of this new company is planned to be completed
in June 2001. The partners have already started work on establishing a
Multimedia studio in Lisbon and the training of the sale representatives.
COMPTA, through its subsidiary, Spectacolor, is involved in the sale of
advertising for the rail trains and already operates dynamic outdoor
advertising. The Portugese market is growing rapidly. The COMPTA's group
includes many subsidiaries in the field of telecommunication, networking,
computer hardware, It also owns a investment company. The COMPTA's group is a
leader in Portugal. This agreement with this high-ranging partner is excellent
for Groupe Solcom's development prospects in Europe.
On February 26th 2001, we announced our intent to acquire the remaining 75%
of Groupe Solcom that is owned by GSI Canada by way of cash and a share
exchange. This proposed transaction was conditional on the approval of our
shareholders and regulatory authorities, due diligence, and the obtaining of the
necessary financing. We were not able to raise the required financing.
On May 16 2001, GSI's Board received a formal offer from Groupe Solcom to
acquire all GSI's outstanding shares including stock options and warrants. We
anticipate that before June 30, 2001, the Board will receive the full tender
package, including a fairness opinion and a valuation package from external
auditors.
15
After receiving the required documentation, the Board will provide its
recommendations to GSI's shareholders. A majority vote of the company's
shareholders is required. Groupe Solcom also presented an offer to the
shareholders of GSI Canada.
The offer consists of the following:
- Six (6) shares for every outstanding common share (including all stock
options) of GSI Canada, a privately-held corporation;
- One (1) share of common stock for every two (2) outstanding shares of
GSI's Class B Common Stock (including all issued and outstanding
warrants and stock options);
Concurrently, Groupe Solcom, announced it intends to file a registration
statement with the US Securities and Exchange Commission (the `'SEC") and apply
to NASDAQ to have its shares quoted. This transaction is conditional on:
- Satisfactory due diligence by Groupe Solcom, GSI Canada, and GSI;
- Formal evaluations of Groupe Solcom, GSI Canada, and GSI;
- The approval of all regulatory authorities including the SEC and
Quebec Securities Commission;
- A fairness opinion;
- Approval by the Board of Directors of GSI Canada and GSI;
- Approval by GSI Canada's and GSI's shareholders representing a minimum
of 66.66% of the outstanding shares of GSI Canada and GSI.
The main objective is to unify the enterprise in order to offer global results
to all shareholders and stakeholders.
16
PART II - OTHER INFORMATION
Item 1. Legal proceedings
--------------------------
Legal proceeding
On December 15, 2000, we signed an agreement with the Quebec Securities
Commission to conform to filing requirements for any sales of shares to
residents of the Province. Our President also agreed that the sale of any shares
directly by himself or shares owned by companies in which he has an interest
would be in conformity with the filing requirements in the jurisdiction of
Quebec.
We remain party to one proceeding initiated by another party, a Mr. Jacques
Biron, against GSI Canada, GSI, our President, and others 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. We have retained legal counsel in Montreal, Mr. Marc Cote of
Labelle, Boudrault, Cote & Associates, who advises that, in his opinion, Mr.
Biron's case against the company is without merit; that he has no right in law
to sue GSI Technologies USA Inc.
Item 2. Changes to authorized shareholders' capital
---------------------------------------------------
None.
Item 3. Defaults upon senior securities
----------------------------------------
None.
Item 4. Submission of matters to vote of security holders
----------------------------------------------------------
None.
Item 5. Other information
--------------------------
On April 18, 2001, J. Michel de Montigny resigned as Chairman of the Board
of GSI, to allow him to concentrate on business development internationally. Mr.
de Montigny remains CEO and President of the Corporation, and member of the
Board.
The Board of directors nominated unanimously Mr. Rene Arbic as the new
Chairman. Mr. Arbic is President of Bridgepoint International Inc., joined the
Board of directors. He is 47. On retiring in 1997 after a 25-year career in
operations and sales with Bell Canada and Stentor, the former Canadian alliance
of telecommunications carriers, he launched a successful
telecommunications-consulting firm. He then co-founded Bridgepoint
International, a rapidly growing innovator in the field of shared networking
facilities, voice and date switching, and local technical support. Bridgepoint
Centers are currently in operation in Montreal, Toronto, Calgary and Vancouver
as well as in New York and Los Angeles. The Company is now listed on the Toronto
Stock Exchange and plans to expand in internationally.
Item 6. Exhibits and reports on Form 8-K
-----------------------------------------
The following exhibits are contained in this 10-QSB:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 14, 2001 GSI TECHNOLOGIES USA INC.
By: /s/ Michel de Montigny
--------------------------------
Michel de Montigny
Chief Executive Officer