ANNUAL REPORT FOR GSI TECHNOLOGIES USA INC.
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2001
Commission File No. 333-30474
GSI TECHNOLOGIES USA INC.
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(Name of small business issuer in its charter)
Delaware 65-0902449
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(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) Number)
2001 McGill College Avenue, Suite 1310
Montreal, Quebec H3A 1G1
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (514)-940-5262
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Class B Common Stock (Par Value $.001 per share)
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (x) Yes ( ) No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part 1II of this Form 10-KSB or any
amendment to this Form 10-KSB. (X)
The Registrant's revenues for its most recent fiscal year were $596,409
The aggregate market value for the voting and non-voting common equity held by
non-affiliates on October 31, 2001 was approximately $11,645,885. Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding common stock of the Company have been excluded because
such persons may be deemed to be affiliates.
The total number of shares of Class B Common Stock outstanding on October
31,2001 was 21,076,636.
1
PART I
The Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual results could
differ materially from those expressed or forecasted in any such forward-looking
statements as a result of a number of factors which are not within the
Registrant's control.
ITEM 1. Description of Business
(a) Organization
GSI Technologies USA Inc. ("GSI") is a Delaware corporation, originally
established in July 1998 as I.B.C. Corporation. Following a change of control
to the current principal shareholders and the creation of a new business plan,
we acquired an exclusive worldwide license from GSI Technologies ("GSI Canada")
relating to a unique technology in the field of electronic commercial
advertising. The license includes proprietary software, hardware, and
broadcasting systems enabling users to transmit and receive full-motion video,
graphics, along with compressed or uncompressed audio on any kind of display
units, whether mobile or static, indoor or outdoor. The technology offers users
remote control through telephone lines, LANs, the internet, wireless systems,
cell phones, global systems for mobile telecommunications, or GSMs, fiber optics
and short waves. GSI also acquired broadcasting server technology from GSI
Canada.
GSI participates in the information technology industry, specializing in
broadcasting 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 they are
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.
Based upon our knowledge of the industry, we believe the potential market
for which GSI intends to sell its products is large with opportunities for
growth. The advertising industry, for example, is always looking for new ways
to reach consumers. Having acquired our license from GSI Canada, we believe we
are now able to respond to their needs as well as those of other industries.
Whereas traditional media groups such as television, radio, and newspapers used
to specialize in their respective activities, as reflected below, our research
shows that there is a clear pattern of them utilizing newly developed electronic
media in order to maintain and extend their reaching power.
Historical background
A predecessor entity called Groupe Solcom was founded in 1995 by a group of
individuals experienced in the advertising and retail industries. The primary
goal of the Montreal-based R&D firm was to find ways of channeling commercial
messages to a wider range of viewers in a structured and targeted method via
electronic remotely-controlled screens. Originally serving the casino and
stadium industries, Groupe Solcom soon identified diverse locations across North
America in which to successfully install, manage and remotely control automated
display systems. From 1996 through September 1998, Group Solcom controlled and
operated large electronic signs in Vancouver, Edmonton, Toronto, Montreal, Las
Vegas, and Mississippi.
With the rapid evolution of electronic sign capabilities via full video
broadcast signals, media companies were beginning to seek new ways of
transferring images and information from remote stations to signs in a
compressed and secure environment. Effectively using the Internet was the
logical solution. In order to respond expeditiously to market trends and to
concentrate all its resources in the completion of a fully integrated
software-hardware package, Group Solcom next applied for advantageous
governmental grants available in the area of multimedia R&D. As a result, in
2
September 1998, GSI Canada was incorporated in order to qualify for and
receive a CDTI Cite du Multimedia research license. Cite du Multimedia is a
major provincial government-sponsored project in Montreal designed to bring
together in the same location companies working in the information and
communications technology field. The government subsidy is an exclusive
twelve-year program of incentives that includes a subsidy of up to 40% of the
salaries of research & development personnel (within individual limits), up to
40% subsidy of the capital cost for specialized R & D equipment, as well as
other Federal tax credits and exemptions. From 1998 to 2000, in accordance with
its strategic plan of vertical integration, GSI Canada made three acquisitions.
Vertical integration has facilitated and accelerated the process of providing a
complete turnkey solution to its target market, the media operators. These
acquisitions included Lexton Group, Hi Tech Neon and ITS Services Inter-Teck.
In June 1999, with a view to financing the enterprise and eventually going
public, the owners of GSI Canada founded GSI Technologies USA Inc, a Delaware
incorporated company. GSI is headquartered in Orlando, Florida. By August
1999, the preliminary testing of the basic server system and software package
were completed, and in October 1999, GSI Canada granted GSI an exclusive master
license to market and commercialize its technology. In October 1999, we
successfully completed a private placement of $1,000,000 under SEC Rule 504. On
February 15, 2000, we filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission. On August 3, 2000, we filed Form 8A to
become a reporting company, and on September 13, 2000, began trading on the NASD
over-the-counter bulletin board under the symbol GSITB.
Since February 2000 to date, the GSI raised funds in the amount of
$4,572,263 million via a series of small private placements, through the
exercise of warrants by existing shareholders, and through shareholder advances
and advances from a commercial bank.
The technology
The basic technological advance achieved by GSI Canada and available to us
by way of the master licensing agreement is the successful integration of
various hardware components and specialty software for the transmission of
broadcast signals in real time. Using our GSI Multimedia Pack software which is
described below, we have the unique capability to broadcast from a central
server to full video screens in remote locations anywhere in the world. The
system is capable of updating pinpoint information virtually in real time by way
of video compressing systems and other fully automated software systems.
By utilizing our products and services, media and advertisers will have an
improved way of reaching consumers right in their daily out-of-home environment,
especially in suburban shopping malls and the downtown cores where thousands of
people circulate daily as pedestrians, as motorists or as they use public
transportation going to and from work or to shop.
Hardware
To achieve its sales goals, GSI is commercializing products such as
Citycolumn, Digicolumn, E-Column, and Skycolumn. These products can all be
marketed directly by GSI to end-users or via sub-licensing agreements with media
operators which are described below.
GSI's objective is to offer the possibility of what we call GSITV.COM, The
Total Vision Network, linking large numbers of installations of our products in
various locations. Animated advertising displays and information of public
interest can be efficiently and economically managed from strategically placed
servers in central locations. The content broadcast on the network will be
continuously updated. For optimal exposure, the content will consist of a three
minute loop divided into eighteen segments of ten seconds each. Besides
advertising, these segments will include messages of public interest issued by
our newsroom, drawing on the technical support of our control room. For
example, six of the segments can be dedicated to local advertising while the
other twelve are made available for regional or national advertising and the
messages of public interest. The involvement of radio and television networks
is being sought for this part of the network's offering.
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(b) Products
Software
GSI's software is the cornerstone of its broadcasting solution, providing a
modern, economic alternative to static advertising media and an improved means
of attracting the attention of pedestrians and motorists in high-traffic
locations. This broadcast-enabling software, coupled with integrated hardware
solutions, clearly distinguishes the Company from traditional static content
providers. The GSI Multimedia Pack which enables virtually real time
broadcasting consists of three sub-packs, each with its own applications,
enabling users to schedule and send content to any number of display units and
then to play it. The key advantage is that it enables intensive, pinpoint
advertising campaigns and efficient changes to the content. Through this
software the Company is able to effectively monitor and transmit
up-to-the-minute news and commercials directly to each screen location.
Demographic criteria such as average age, population size, gender, language, and
nationality can be programmed for each screen. Consequently, GSI is able to
provide its advertisers or strategic partners with a complete advertising
campaign package. All together, the GSI Multimedia Pack consists of five
applications. Innovative applications include: database graphical user
interface (GUI), schedule manager, billing manager, file transfer manager and
the multimedia player. The broadcasting servers are currently located in
Montreal at GSI's principal business office. A broadcasting hub will be built
in the Cite du Multimedia in Old Montreal.
Hardware
To effectively demonstrate the power of its broadcasting capability and the
software that drives it, GSI has developed an array of actual and potential
hardware applications. Designed, assembled and integrated in various forms and
shapes suited for the precise out-of-home environment, GSI's know-how is
constituted in the products we are currently commercializing such as Citycolumn,
E-Column, Skycolumn, and Digicolumn, the latter two being the simplest of the
units using LED and plasma screens. Other variants are under development.
Customized user requirements can also be met. A key element of GSI's total
media solution and market development strategy, the display units typically
incorporate television screens, plasma screens, computer components and heating,
ventilation, and control systems that are purchased from various suppliers. The
design of the units truly differentiates the Company's solution from traditional
static billboards, attracting and retaining viewers for longer periods of time.
A brief description is found below of the different hardware alternatives
offered by GSI.
Citycolumn
Citycolumn is an interior display unit or kiosk consisting of three
television screens 36" wide. Full-size video, 3D animations and stereo sound
can be broadcast on these units and they can be remotely controlled and
reprogrammed via GSI's software from anywhere in the world. Adding a remote
control unit can also extend Citycolumn's capabilities by providing advertisers
with interactivity. The combination of video and computer digital displays
makes changing commercials almost instantaneous, allowing for short advertising
campaigns, special promotions, and the latest news headlines. In addition to
the animated display there are two backlit display panels 28" wide and 40" high.
Other features of the interactive kiosk include a tactile menu on a 15" tactile
screen, promotional windows for advertisers as well as directories and location
maps.
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Digicolumn
Part of the "high-tech" generation of communications products it has flat
plasma-screens, having the same features and programming capabilities as the
Company's Citycolumn unit. Plasma screens with a 50" diagonal width and only
3.5" deep, provide added image quality and purity of color. This screen can be
installed in virtually any indoor location, effectively rendering all wall-space
a potential advertising medium.
Skycolumn
Skycolumn is a giant outdoor screen, capable of transmitting video images
from a server located anywhere in the world. Potential installation sites
include airports, sport stadiums, and large expressways.
E-Column
E-column is an internet-enabled information kiosk that will provide
consumers with animated information on products and services, and facilitate
transactions such as express check out and event ticket purchases. Potential
installations sites include high traffic areas such as airports, hotels,
conference halls and large warehouse stores.
Novacolumn
In the category of what major advertisers call "urban furniture" or "street
furniture," Novacolumn, is designed for outdoor displays and meeting the
requirements of traditional advertisers. Via a single projector and providing a
field of view of from 5 to 300 feet, the main display side features a large
screen 36" wide by 42" high, the dimensions of a regular advertising poster.
The other two sides include space for static backlit posters. This kiosk can be
remotely controlled and reprogrammed via GSI's software. As with Citycolumn,
the combination of video and computer digital display makes changing commercials
almost instantaneous, allowing for short advertising campaigns, special
promotions, and the latest headlines. Adding a remote control unit can also
extend Novacolumn's capabilities, providing advertisers with interactive
applications. For instance, the Novacolumn can be made to control another
potential product offering, the interactive parking meter. Novacolumn's
specifications include sturdy, composite materials and each unit is molded in
sections. Providing climate control for installations in environments that will
periodically experience extreme weather conditions, including hot and/or cold,
Novacolumn is equipped with a CEMU or computerized environmental management
unit.
Servicolumn
Servicolumn is a customized, outdoor, self-contained unit that is designed
to be incorporated in the display portion of transit shelters. GSI's aim for
this unit is to replace the static backlit display in the offerings of other
manufacturers. 24" in depth, on one side will be a 36" X 48" display of
animated content and on the other side pedestrians and public transportation
users will have access to a 14" touch-screen, a smart card reader, and a
wireless phone providing informational content, transactional functions and
access to emergency or information phone numbers.
(c) Industry
Out-of-Home Advertising Industry
The out-of-home advertising industry encompasses media such as billboard
advertising, transit advertising, stadium signage, urban buildings, and other
distinctive forms of advertising that reach individuals outside of their
domestic residences. The industry constitutes all types of advertising and is
currently undergoing notable transformations. The key participants in the
industry are the large media operators who seek to optimize the number of people
exposed to advertising and enhance their rates of retention. The primary
opportunity in out-of-home advertising stems from the fact that large audiences
are available and can be reached by less expensive forms of media than radio,
and the press. Industry analysts expect traditional approaches to advertising
to give way to more creative solutions using new technologies. Many of the
limitations associated with traditional out-of-home advertising approaches will
disappear, yielding to multimedia-based approaches. Digital display product
systems will provide advertisers with a new forum by which they are able to more
profoundly impact their target audience. Thus the growth in deployment of
interactive electronic display products is expected to continue at an
accelerating rate.
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Industry Overview
According to the latest edition of Advertising Expenditure Forecasts
published by Zenith Media, global advertising expenditure is projected to have
increased by 8% to $332 billion in 2000. Spending in North America and Europe,
the two regions targeted by the Company, is estimated to have grown at 8% to
$233 billion, or approximately 70% of global spending.
From the same data source, spending in North America by advertising medium
in 2000 comprised:
Advertising $ Spent % of
Medium (Billions) Total
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Television 53.9 38.6
Newspapers 48.1 34.4
Radio 18.1 13.0
Magazines 16.8 12.0
Outdoor 2.6 1.9
Cinema 0.1 0.1
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Total 139.6 100.0
According to Zenith Media, advertising spending in North America and Europe
is projected to increase to $273 billion by 2003, a compound annual growth rate
of 5.5 %.
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. Broadcasters are not able to reach the same
number of in-home "viewers per day" as they used to. To maintain and increase
reach, it has become strategically imperative for the advertisers and
advertising agencies to seek other out-of-home possibilities. Mainly through
mergers and acquisitions, media companies are now increasingly able to offer
advertisers a variety of multimedia-based approaches. Clear Channel Corporation
is in the forefront.
GSI believes that significant potential exists in the indoor sector of the
market in particular. Unlike the outdoor sector which depends to a large extent
on the approval of municipal authorities for the use of public sites, the indoor
environment is inherently more hospitable, both from an environmental standpoint
and due to the private ownership characteristic. Media operators are actively
seeking to penetrate the indoor advertising market which is largely untapped and
still in an embryonic stage of development. Shopping centers and office
buildings offer excellent opportunities. Information about the shopping center
industry was obtained from Scope 1999 from the website www.icsc.org of the ICSC.
According to the National Research Bureau, there was a total of 43,600 shopping
centers in the United States in 1998, an increase of 1.7% from 1997. Retail
sales in shopping centers increased by 5.0% to $1,044.6 billion, representing
51% of total retail sales in the country, excluding auto dealer sales. In a
typical month, 189 million adults shop at shopping centers and 94% of the
population over 18 years of age. Similarly, in Canada, there were 4,298
shopping centers in Canada by the end of 1998, generating $94.2 billion in
retail sales.
Media operators generally negotiate with the owners of public and private
property sites suitable for advertising campaigns. Clear Channel
Communications, an American multinational, is the largest in the world,
operating over 550,000 display faces in 40 countries. It has erected over
700,000 out-of-home signs over a span of 28 years. Clear Channel's direct
competitor is JC Decaux, a French multinational with extensive U.S. operations,
which has deployed 160,000 backlit advertising panels and 205,000 units of urban
furniture worldwide. Outdoor Systems is also a major operator in the
out-of-home industry, having deployed its urban furniture products in 90 U.S.
metropolitan regions and 13 Canadian cities.
Through our research and from our direct contacts with these dominant media
operators, we have confirmed that they are actively seeking multimedia-based
approaches to complement and enhance their traditional urban furniture products
and to accelerate growth. In addition, national, regional, and local
advertisers are expected to be more and more interested in the unique benefits
offered by digital networks.
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One clear trend in the out-of-home advertising industry is the
consolidation of media operators as they seek to strengthen their national
coverage and expand their network of installations. Leading industry players
such as Clear Channel, TDI, Outdoor Systems and JC Decaux are primarily driving
the trend of consolidation throughout the industry.
(d) Patents and trademarks
Intellectual property
GSI has acquired an exclusive worldwide license from GSI Canada, which has
proprietary rights on the software required to operate the system. These rights
are governed and protected by applicable commercial law. GSI intends to take
all reasonable and practicable steps to obtain patent and trademark protection,
when available, to protect its rights to the licensed technology. Our legal
advisors specializing in trademarks are in the process of filing trademark
applications for the following brand names used by the Company in the United
States and Canada: Citycolumn; Novacolumn; GSI Multimedia Pack; GSI
Technologies; GSITV.COM.
(e) Market Development
A key element of GSI's strategy is to establish relationships and alliances
to assist in marketing, selling, and deploying its electronic urban furniture.
We believe that strong global alliances are expected to achieve solid market
penetration and to package and bundle turnkey solutions for customers. We are
pursuing strategic alliances with the following companies:
Clear Channel International ("CCI"): Based in the UK, it is part of Clear
Channel Communications, one of the largest media companies in the world whose
key subsidiaries and divisions include: Adshel, More Group, and Eller Media.
The association with a major media operator such as Clear Channel further
strengthens GSI's attempt to gain more international exposure. We expect to
provide Adshel, whose research center is located in London, with access to GSI's
unique broadcasting technology and integrated advertising solution enabling
remotely controlled updates, more targeted content and digital quality that
encompasses interactive services to be provided on advertising display products.
A master software access agreement is currently under negotiation. Adshel is
Clear Channel's global urban furniture brand. Seeking to expand in the
electronic advertising domain, we believe we are the ideal solution provider.
According to the agreement being negotiated, GSI would provide CCI with
continuous access to its software and related hardware for each project
developed by CCI on an international basis. At this stage, however, no
guarantee can be made that a contract will be formalized or that we will receive
any revenues from this source.
Barco: Headquartered in Kuurne, Belgium, Barco operates six major lines of
business: Projection, Display Systems, Automation, Machine Vision, Graphics and
Communications. BARCO Projection Systems is an ISO 9001 registered world
leader, developing and manufacturing large screen projection systems for a broad
range of applications, entertainment, presentations, training, process control,
and simulation. GSI, Adshel, and Barco have collaborated in pilot projects in
Europe. Barco Daylight Display Systems USA and GSI Canada are currently
negotiating a strategic alliance to pursue opportunities in the Canadian outdoor
advertising market in which GSI Canada would become an exclusive distributor of
their products in Canada. At this stage, however, no guarantee can be made that
a contract will be formalized or that we will receive any revenues from this
source.
Successful pilot projects demonstrating the power of animated advertising
on attractive display products have already lead to contracts with leading
Canadian real estate operators such as Ivanhoe, SITQ, and Toulon. We believe
these three pilot projects should enable us to attract at least one of the
world's leading media operators and lead to the rapid expansion of the network.
Other pilot projects have been completed in Europe to demonstrate GSI's
technology. A significant breakthrough occurred in November when the Company
helped Adshel, a division of Clear Channel International, secure a contract from
the city of Nantes, the sixth largest city in France. Using GSI's technology
during the pilot project, Adshel was able to displace JC Decaux, winning a 170
million French franc deal to install 2,100 pieces of its own Adshel brand of
urban furniture, including 783 transit-shelters, 257 plasma display columns, and
60 sign faces each measuring 8 square meters in dimension. Adshel's new brand
of urban furniture will replace the existing, outdated furniture. Deployment
will be implemented from October 2001 to March 2002. The difference in Adshel's
favor was its ability, by utilizing GSI's technology, to present attractive new
information technology features and interactivity via a single server
transmitting video images to electronic screens, 12 plasma screens and 7 giant
LED screens. GSI's broadcasting technology provided the edge.
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(f) Customer Service and Technical Support
Our Technology Integration Group is responsible for providing these
services. At this stage of our development we access the personnel, technical
and equipment resources of GSI Canada and its subsidiaries in support of
existing installations.
(g) Research and Development
In september 2001 our engineers have issued version 2 of GSI software
interpreting service providing items with advertising contact broadcast. Our
engineers continue to enhance the capabilities of our software by developing
modular features to serve the advertising customers.
(h) Competition
The media industry is highly competitive. It encompasses broadcast and
cable television, the Internet, radio, magazines, newspapers, traditional
billboards and direct mail marketers. Operators compete in the out-of-home
environment in locations such as highways, shopping centers and malls, airports,
stadiums, movie theatres and supermarkets; as well as in transit shelters, and
in taxis, trains, buses and subways. The out-of-home advertising industry is
attracting numerous alternative media products, many of which will be direct
competitors. Although the existing major media operators such as Clear Channel,
JC Decaux, TDI and Outdoor Systems could become significant clients, they could
also decide to develop their interactive display products and become
competitors.
8
Other firms are currently placing electronic-type display products in
various locations such as retail outlets, elevators, airports and subways. Next
Generation Network (NGN) is emerging within the US market having installed over
6,500 electronic billboards in locations throughout the United States. NGN's
network infrastructure has attracted the attention of many industry analysts and
is considered the influential source driving change in the out-of-home
advertising sector. Other competitors include Fred Systems Ltd. of Waterloo,
Canada, New York-based Golden Screen Interactive Technologies and Montreal-based
Digital Advertising Network ("DAN"), Vert Intelligent Displays of Summerville,
Massachusetts, Clarity Visual Systems of Willsonville, Oregon and Pioneer
Electronic Corporation of Tokyo, Japan.
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messages.
(i) Human Resources
At October 31, 2001, GSI had 15 direct employees consisting of 1 executive,
7 R&D, 2 development, 2 administrators and 3 in sales and marketing.
(j) Funding Operations
At October 31, 2001 GSI USA had $6,019 in cash. Cash used in operating
activities during the year ending October 31, 2001 was $1,319,511, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash provided by investing activities during the yeas reflect additional
short-term loans to GSI Canada in the amount of $801,656.
Cash provided from financing activities during the year of $519,469
reflects a private placement as well as funding provided by issuance of Notes
payable.
In September 2000, GSI USA entered into formal loan arrangements with a
group of existing investors borrowing funds totalizing $2,822,599. 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. On May 3, 2001, the entire amount of
the notes including interest of $151,088 were converted into 2,307,900 of Class
B Common Shares.
ITEM 2. Description of Property
We own no real estate. Effective January 6, 2000, GSI entered into a new
lease with 2849-3930 Quebec Inc represented by SITQ Inc for a term of 4 years,
with an option to renew for an additional 5 years. The premises comprise 7,899
square feet of office space at 2001 McGill College Avenue, Suite 1310, Montreal,
(Quebec) H3A 1G1 and is the Company's principle place of business. The annual
minimum rental is $92,902.
Effective June 16, 2000, GSI also entered into a new lease with Suntrust
Center L.L.C. for a term of 5 years. The premises comprise 2,231 square feet
of office space at 200 South Orange Avenue, Suite 2150, Orlando, Florida, 32801
and is the Company's head office. The annual minimum rental is $55,775.
ITEM 3. Legal Proceedings
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.
On September 2001, we concluded a partial settlement with the Quebec
Securities for the release of promissory notes.
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.
On September 2001, we received a law suit from Mr. Alex Zervakos a former
employee of GSI USA. Our lawyer in Quebec is negotiating with the adverse party
in order to resolve this matter.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
(a) Market for Common Stock
Our Common Stock has traded in the over-the-counter market on the "OTC
Bulletin Board" since September 13, 2000 under the symbol GSITB. The quotations
below from www.OTCBB.com/Nasdaq Trading & Market Services represents the high
and low, closing bid and asked prices, by quarters, since that date. These do
not include retail markups, markdowns or commissions. Nor do they represent
actual transactions.
Stocks Information
Closing November 1st 2000, $1.03125
Closing October 25th 2001, $.18
On March 1st, 2002, closing bid and asked prices of the Common Stock on the
OTC Bulletin Board were $0.22 and $0.14 per share, respectively.
(b) Recent Sales of Unregistered Securities
None
(c) Issuance of warrants
The following issuance of warrants was also authorized by the Board of
Directors during the year ending October 31, 2001 as detailed below:
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500,000 warrants with an exercise price of $1.10 to January 31, 2002 to the
president of GSI as per an employment contract entered into October 29, 1999.
50,000 warrants with an exercise price of $1.10 to January 31, 2002 to the
chief financial officer of GSI as per an employment contract entered into
October 29, 1999.
(d) Cancellation of Class A Shares
None
(e) Grant of stock options
On August 1, 2000 the Board of Directors approved a Long Term Incentive
Plan. Under the plan, stock options were approved for the directors, officers,
and certain key employees of GSI and its affiliates; as well as for certain
consultants to GSI. The initial design of the plan reflects the issuance of
"Nonqualified Stock Options." A maximum of 10% of the authorized capital of the
Corporation, being equivalent to a total of 5,500,000 Class B common shares, was
reserved and available for distribution pursuant to the terms of the plan.
Nonqualified Stock Options to purchase a total of up to 3,000,000 Class B common
shares of GSI at a price of $2.00 per share were to be granted to certain
employees and other eligible individuals, as determined by the Chief Executive
Officer. One-third will vest on December 18, 2000; a following one-third will
vest on December 18, 2001; the remaining one-third will vest on December 18,
2002. The stock options expire seven years from the date of the grant. Further
grants may be made periodically at an exercise price not less than the closing
price on the day prior to the date of the grant. On November 20, 2000, the
Board of Directors approved a re-granting of the options at an exercise price of
$1.25.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
This report contains forward-looking statements that are based on the
Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate," and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions, including without limitation, the overall
strength of the national securities markets, the Company's present financial
condition and the risks and uncertainties concerning the availability of
additional capital as and when required, technological changes, increased
competition, and general economic conditions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. The Company cautions potential investors not to place undue reliance
on any such forward-looking statements, all of which speak only as of the date
made.
Overview
GSI Technologies USA ( GSI USA) 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, GSI USA 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
GSI USA is still in the development phase after starting up in 1999.
During GSI's fourth quarter from August 1, 2001 to October 31, 2001, GSI USA
incurred a loss of $1,739,528 or $0.0776 per share versus a loss of $468,990 or
$0.0233 per share in the same period in 2000. The accumulated deficit to date
during the development phase increased to $4,173,450 or $0.1863 per
share.
Revenues
$48,750 in revenue was recognized during the quarter, versus $346,409 for
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 $826,202, primarily from product sales.
11
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 $27,977 in direct
operating cost for the quarter, versus $319,416 for the same quarter in the
prior year. Since inception, cost of sales is $591,213, including $261,227 in
royalties and $329,986 in product costs.
Operating expenses
During the three months ended October 31st, 2001, GSI USA has incurred
$327,193 in operating expenses versus $524,110 for the same period in 2000. The
increase is attributable primarily to an increase in rent charges and consulting
fees.
Since inception, operating expenses total $3,495,575. These costs are
primarily associated with the development of the company.
Other income
During the three months ending October 31st, 2001, $32,699 in interest was
earned mainly on the outstanding loan to GSI Canada, while $102,538 in interest
was brought into income due to the conversion of the Notes Payable. This amount
includes $80,705 for loans from shareholders and affiliated parties.
Since inception a total of $394,035 in interest has been earned.
Equity in the loss of our European affiliate was $25,000 for the period
versus nil for the same period of 2000. As explained further below.
Liquidity and capital resources
At October 31, 2001 GSI USA had $6,019 in cash. Cash used in operating
activities during the year ending October 31, 2001 was $1,319,511, which was
mainly attributable to the net cash loss from operations plus changes in net
operating assets and liabilities.
Cash provided by investing activities during the year reflect additional
short-term loans to GSI Canada in the amount of $801,656.
Cash provided from financing activities during the year of $519,469
reflects a private placement as well as funding provided by issuance of Notes
Payable.
In September 2000, GSI USA entered into formal loan arrangements with a
group of existing investors borrowing funds totaling $2,822,599. 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. On May 3, 2001, the entire amount of the notes
including interest of $151,088 were converted into 2,307,900 of Class B Common
Shares.
12
The result of all activities during the year ending October 31, 2001
was a net increase of $1,615 in our cash position.
From inception, net cash used in operations has been $2,324,995. A total of
$2,241,636 has been used in investing activities, while $4,572,263 has been
provided by financing activities, including $1,677,955 from sales of common
stock.
MANAGEMENT DISCUSSION AND ANALYSIS
Since the beginning of 2001, GSI USA has been refocusing our activities to
concentrate on our core business.
Through its affiliate, GSI Canada, last summer GSI USA installed,
successfully, 32 CityColumns as phase one of our pilot project for shopping
centers 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, GSI USA sold a license to Groupe Solcom for $1,000,000,
payable in 10 annual installments 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. Groupe Solcom has successfully completed other pilot projects.
During the last 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 Milan, Italy subway system. The operating system and
installations have been working find and provided the customers very satisfying
business. The next phase have been delayed to the next quarter due to hold
backs in the advertising industries after September 11th events.
Groupe Solcom has also completed a pilot project with the Societe Generale
Bank, installing a network of plasma-screen based DigiColumns.
Cash requirements of approximately $150,000 are anticipated during our next
fiscal quarter to January 31st 2002.
In the previous quarter, the board caped to 4 million funding to its
affiliate GSI Canada.
As of October 31st, GSI Canada had repaid the sum of $1,865,419. At end of
August, Groupe Solcom France repaid GSI USA the sum of $1,140,000 by replacing
GSI USA with line of credit to the Societe Generale as guarantor. At term of
the transaction, GSI USA reimbursement by affiliates was at $3,005,419. GSI USA
is pursuing its activities of seeking for additional funding to sustain long
term operation. We also, continue to negotiate with pin point investors and
business partners that express their interest in participating in GSI USA
capital structure. We believe we will be able to finalize agreements in
beginning of year 2002.
We have been confronted to the facts that after September 11th events, the
investment market was slowed down and projects and development were postponed to
beginning of year 2002.
13
We no have longer any line of credit or liabilities with the Societe
Generale.
Investment in affiliates
Our 25% share in Groupe Solcom International from SAS is reflected as an
investment in affiliates on the balance sheet. The value of this investment was
$25,000 at October 31st versus nil for 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, GSI USA has 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 is $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
Software, in response to the market test application on installations in
Montreal, Paris, and Milan. The R&D team has been working overtime in order to
deliver a full operational new version for September 17th 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.
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.
14
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, GSI USA sold licenses and operating systems to the More
Group UK, 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. GSI USA is serving the More Group in 2 cities,
Bristol and Swindon, in the first phase and will be operational in October 2001.
Activities in other cities in the UK are in the planning phase. GSI USA
anticipates that the ongoing association with Adshel will help 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. GSI
USA is, therefore, concentrating on selling license agreements with large, local
media operators. The networking feature of its concept and the variety of its
products enable 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 USA 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. 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 service providers.
Our business development has entered a crucial phase. By signing agreements
with Adshel in the outdoor/indoor out of home market, GSI USA needs to deploy
its studio and broadcast installations to support its massive market
penetration.
Canada
On August 15th, our affiliate was forced to restructure its operations by
closing down all of its divisions and maintaining strictly R&D personal and
development.
Our affiliate filed an intent engagement with its creditors at 0.60$/1.00$;
the proposition was accepted by the creditors.
GSI Canada will now concentrate on research & development. Only one
managing employee is maintained in position.
All of Canada sales are now assumed by GSI USA.
15
USA
The advertising industries in general did not escape from the economic slow
down in North America.
We decided to restructure our US operations and closed down our offices in
Orlando.
We moved our American operations to Miami. In order to save operations
costs, we decided to focus on united States and Canada markets.
More so, we are mainly concentrating on sales of licenses to advertising
partners and specific market applications such as :
1. Postal Service Kiosks
2. Virtual Banking Kiosks
3. Advertising Kiosks
By putting together partnerships ventures :
1. GSI Broadcast Software
2. Banking Authorities
3. Advertising sales groups
4. information content media
5. Land lord for network deployment
By venturing partners' energies together we have created a new business model
offering multi services and revenues generating operating system. We are
pursuing our negotiations with major business partners.
Several potential sub-licenses buyers have been identified and will be
signed as soon as the Master License Agreement is completed.
By proceeding to this restructure we realize tremendous savings. We maintained
all our focus on sales. The savings will have a great impact on our next
quarter. We are confident to conclude important sales agreements in beginning
of year 2002.
We have postponed till further notice our developments in South America and
Mexico.
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 March 2002.
16
Working in conjunction with the Adshel's sales force, GSI USA 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.
In April 2001, Groupe Solcom International acquired 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 we named Icos.
Providence Technologique has completed an agreement with Bank of Bilbao
VIZCAYA, installing surveillance equipment for value of 100,000 EUROS.
Groupe Solcom France signed a formal contract with Rond Point/Minute pub
for city of Amiens, Lehaure, Chamberry, Rennes for a value of 200,000 EUROS.
Other agreements are in negotiation with le Stade de France for
installation of LED Screens.
The ServiColumns have retained a lot of attention in the tourism sector as
well as the shopping malls industries. A joint venture with the firm Multivisu
has been signed for usage of GSI Software in their projects in France.
Italy
In January 2001, Groupe Solcom acquired an Italian company, TREDWEB S.R.L.,
which specializes 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.
TREDWEB has signed an agreement with Yong and Rubican Milano for networking
services value of 150, 000 EURO.
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.
17
Implementation start up is anticipated for April 2002:
April 21, 2001, in tandem with HGV ADVERTISING srl: a company specializing
in the sale of advertising and 3D animation, GSI USA 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.
Implementation start up is anticipated before end of September 2001:
May 17 2001,with PIELLEFFE srl: an Italian company specialized in the
management of major projects in Italy. They also developed an 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 is 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.
On May 28th 2001, Groupe Solcom International has entered into formal
agreement with INFORMATICA E TELECOMUNICAZIONI after due diligence and further
negotiations decision was taken not to pursue this venture.
On August 27th, Groupe Solcom International completed an agreement with SINAGI
Corporation for implantation of 1 300 screens in Newspaper kiosk first phase 300
kiosks before end of year 2001, value of contract 3, 400,000 EURO, plus
broadcast contract for production of content for 10 years.
ITEM 7. Financial Statements
Attached is Appendix A containing the following information:
- Independent Auditor's Report
- Balance Sheets as of October 31,2001 and 2000
- Statements of Operations for the years ended October 31, 2001 and
2000.
- Statements of Stockholders' Equity (Deficiency) for the years ended
October 31, 2001 and 2000.
- Statements of Cash Flows for the years ended October 31, 2001 and
2000.
- Notes to Financial Statements
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act:
(a) Directors and Officers.
Our executive officers and directors are listed below. The term of each
director is for one year.
Name Office Age
------------------- ------------------------------------------ -----
Michel de Montigny Chief Executive Officer 43
President and Director
(from June 30, 1999 to September 18, 2001)
James A Hone Senior Vice President Administration 57
Chief Financial Officer
Secretary, and Director
(from June 30, 1999 to June 15, 2001)
Marc Cote Director 41
(Since October 23, 2000)
Michel Laplante Senior Vice-President 43
Advanced Research and
Technology Integration
(from October 23, 2000 to May 15, 2001)
18
J. Michel de Montigny
Mr. de Montigny has over twenty years of hands-on and management experience
in the fast-paced multimedia industry. In leading the Company, his primary focus
is on sales and marketing. Mr. de Montigny was director of operations and
director of marketing in a variety of companies before becoming president in
1988 of College Inter-Dec, a technical college in Montreal. As an advertising
and marketing consultant, he was the driving force behind 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. He was president of Groupe Actuel Design from 1990 to 1992, crafting
the design concepts behind the Bell Canada Teleboutiques, the Yves Rocher
boutiques and the Societe des Alcools du Quebec stores. He founded Solcom Group
in 1995, and GSI Technologies in 1998, in order to serve today's multimedia and
communications industries. In addition to his responsibilities as CEO, Mr. De
Montigny continues to directly oversee the sales and marketing function. Mr. De
Montigny completed his MBA at the University of Quebec.
James A. Hone
Mr. Hone oversees the Company's administrative and financial affairs. His
primary responsibility is directing the business planing and management process.
Mr. Hone has extensive financial management and administrative experience with
five major multinational companies in the automotive, aerospace, building
systems, forest products, and telecommunications industries. After 10 years with
Ford Motor Company, both in Toronto and Detroit, he was treasurer of Pratt &
Whitney Canada in Montreal until 1982. He then served as assistant
treasurer-international finance of United Technologies Corporation in Hartford,
Connecticut until 1988; as Vice President-Treasurer of Abitibi-Price in Toronto
and as Vice-President Finance of the Commercial Paper Group based in Quebec City
and New York City to 1994; and, most recently, as Vice President-Finance and
Administration of TMI Communications, a subsidiary of BCE Inc. in Ottawa. Mr.
Hone is a graduate of McGill University and York University in Commerce and
Business Administration in 1966 and 1969, respectively.
Marc Cote
A graduate in civil law from the University of Ottawa and a member of the
Quebec Bar since 1985, Mr. Cote is a senior partner in the Montreal law firm of
Labelle Bourdreault Cote. He currently specializes in the area of commercial
law.
Michel Laplante
Responsible for project management and the integration of new technology,
Mr. Laplante manages the Company's projects through the various stages:
conception, production, installation and maintenance. Mr. Laplante became
involved in the multimedia industry in its infancy. He served as an account
manager for Yamaha from 1985-91. During 1991-92 he was a consultant for
different firms such as Commodore Business Machines and Kawai. In 1992 he became
national sales manager for MDL Technologies, a Desktop Video equipment
distributor and integrator based in Montreal serving clients such as the
Department of National Defence and Fortune 500 companies. He has acquired
extensive experience in the field of television broadcasting and recording and
expertise in the area of training in high-tech environments. Before joining GSI
Canada in June 1999 as vice-president of research and development, Mr. Laplante
owned a consulting firm specialized in audio and video computer applications,
IT, networking, video compression and broadcasting. He has also served as a
Multimedia consultant to the multimedia division of CESAM, a large consortium
with representation from Bell Canada, CAE Electronics, Quebecor Multimedia,
Teleglobe, and the four universities in Montreal, amongst others.
Mr. Laplante is a graduate of the University of Montreal with a degree in music.
19
(b) Section 16(a) Beneficial Ownership Reporting Compliance.
Not applicable
ITEM 10. Executive Compensation
The following table shows for the fiscal year ended October 31, 2001,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and the three other most highly compensated executive officers who
earned more than $100,000 in the fiscal year ended October 31, 2001,
(collectively, the "Named Executive Officers"):
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Salary Bonus Securities
Name and Principal Position Year ($) ($) Underlying Options
--------------------------- ---- ---------- ---------- -------------------
Rene Arbic 2001 $112,000.00
Chief Executive Officer
Michel de Montigny 2001 $100,000.00
President & CEO
James Hone 2001 $ 60,000.00
Sr. Vice President
Administration CFO
Michel Laplante 2001 $ 72,000.00
Sr. Vice President
Advanced Research & Technology
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended October 31, 2001 to each of the Named Executive Officers:
Aggregated Fiscal Year-End Option Values
There were no option exercises by the Named Executive Officers during the
fiscal year ended October 31,2000. The following table sets forth information
with respect to the number and value of securities underlying unexercised
options held by the Named Executive Officers as of October 31, 2000:
20
------------------
(1) The options referenced above become exercisable over a 3-year period.
One-third will vest on December 18, 2000; a following one-third will vest on
December 18, 2001; the remaining one-third will vest on December 18, 2002. The
stock options expire seven years from the date of the grant.
(2) Based on options to purchase 3,000,000 shares granted to employees in the
fiscal year ended October 31, 2000, including the Named Executive Officers.
Aggregated Fiscal Year-End Option Values
There were no option exercises by the Named Executive Officers during the
fiscal year ended October 31,2000. The following table sets forth information
with respect to the number and value of securities underlying unexercised
options held by the Named Executive Officers as of October 31, 2000:
The Company has no arrangement for the remuneration of its directors. No
remuneration was paid to the directors during the year ended October 31, 2001.
On October 29, 1999, GSI entered into an employment agreement with J.
Michel de Montigny, our President. The term of his employment is for three years
and the salary for his first year of employment was fixed at $100,000,
commencing January 1, 2000. Mr. de Montigny also entered a non-competition and
confidentiality agreement with GSI for as long as he remains an employee and for
an additional year thereafter. In addition, Mr. de Montigny was granted warrants
to purchase an aggregate of 500,000 shares of GSI's Class B Common Stock at an
exercise price of $1.10 per share. On November 20, 2000, Mr. de Montigny was
granted an option to purchase an aggregate of 500,000 shares of GSI's Class B
Common Stock at an exercise price of $1.25 per share. The option will vest at
the rate of 33.33 percent on December 18 in each of the three years commencing
with the year 2000. The term of the option is for seven years.
21
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial stock
ownership of GSI's executive officers and directors, each person known by GSI to
own five percent or more of the outstanding shares of its Common Stock, as well
as all officers and directors as a group as of October 31, 2000.
* under 1%
---------------------
(1) Held by 3633730 Canada Inc. which is 100% owned by our President, Mr. J.
Michel de Montigny. Includes 260,954 shares underlying currently exercisable
warrants and which expire on January 31, 2002
(2) Held by 3633632 Canada Inc. which is 100% owned by our President, Mr. J.
Michel de Montigny. Includes 347,938 shares underlying exercisable warrants and
which expire January 31, 2002
(3) Held by Totalcom Inc. which is 100% owned by our President, Mr. J. Michel de
Montigny. Includes 34,794 shares underlying exercisable warrants and which
expire January 31, 2002
(4) Represents 500,000 shares underlying exercisable warrants held directly by
our President, Mr. de Montigny, and which expire January 31, 2002.
(5) Represents one-third of the 500,000 shares subject to an option granted to
Mr. de Montigny on October 2, 2000 which vest over a three year period which
begins December 18, 2000 and which expires seven years from the date granted.
(6) Represents 50,000 shares underlying exercisable warrants held by Mr. Hone
and which expire January 31, 2002.
(7) Represents one-third of the 300,000 shares subject to an option granted to
Mr. Hone on October 2, 2000. Vest over a three year period which begins December
18, 2000 and expires seven years from the date granted.
(8) Represents one-third of the 100,000 shares subject to an option granted to
Mr. Laplante, our Senior Vice-President Advance Research and Technology
Integration, on October 2, 2000. Vest over a three year period which begins
December 18, 2000 and expire seven years from the date granted.
22
ITEM 12. Certain Relationships and Related Transactions.
On January 10, 2000 we entered into a consulting contract with Mr. Yves
Lebel and 9035-2899 Quebec Inc., a shareholder of the company. Mr Lebel is a
Director, the Chief Financial Officer and Executive Vice President of GSI
Canada. The term of his contract is for one year and the remuneration was fixed
at $78,000, effective January 1, 2000. Mr. Lebel entered a non-competition and
confidentiality agreement with GSI for as long as he remains a consultant and
for an additional year thereafter. On November 20, 2000, Mr. Lebel was granted
an option to purchase an aggregate of 300,000 shares of the GSI's Class B Common
Stock at an exercise price of $1.25 per share. This option will vest at the rate
of 33.33 percent on December 18 of each of the three years commencing with the
year 2000. The term of the option is for seven years.
During the year ending October 31, 2000, we received advances from
shareholders, including affiliated parties, in the amount of $2,772,599. These
advances have enabled the company to continue to operate at its planned pace.
These funds were, in turn, advanced to GSI Canada, an affiliate of the company,
to further invest and develop the business.
From November 1, 1999 to October 31, 2000, we incurred a total of $ 334,989
in consulting fees and financing expenses from Maxima Capital, a shareholder of
the Company.
On June 02, 2000, GSI Canada placed an order with GSI for 35 Citycolumns
for a total of $584,000.
On November 20, 2000, the Board of Directors approved the acquisition of
GSI Canada subject to an independent valuation and fairness opinion and by way
of a share exchange for all 2,426,866 of the issued and outstanding Class A
shares of GSI Canada.
ITEM 13. Exhibits and Reports on Form 8-K
We did not file any reports on Form 8-K during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GSI TECHNOLOGIES USA INC.
Dated: March 4th, 2002 By: /s/Rene Arbic
---------------------------
Rene Arbic
Vice President
Dated: March 4th, 2002 By: /s/Dario Littera
-------------------------
Dario Littera
Director
Dated: March 4th, 2002 By: /s/Marc Cote
-------------------------
Marc Cote
Director
Dated : March 4th, 2002 By : /s/Julian Beardsley
-------------------------
Julian Beardsley
Chairman of the Board
23
APPENDIX A
GSI TECHNOLOGIES USA INC.
FINANCIAL STATEMENTS
INDEX
Independent Auditor's Report............................ F-1
Balance Sheet as of October 31, 2001 and 2000........... F-2
Statements of Operations for the years ended
October 31, 2001 and 2000................................ F-3
Statements of Stockholders' Equity (Deficiency)
For the years ended October 31, 2001 and 2000............ F-4 to F-5
Statements of Cash Flows for the year ended
October 31, 2001 and 2000................................ F-6
Notes to Financial Statements............................ F-8
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.
We have audited the accompanying balance sheet of GSI Technologies USA Inc. (a
company in the development stage) as of October 31, 2001 and 2000 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. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GSI Technologies USA Inc. at
October 31, 2001, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 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 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Mark Cohen
----------------
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
March 7, 2002
F-1
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
October 31, 2001 October 31, 2000
------------------ ------------------
ASSETS
------
Current Assets
Cash and cash equivalents $ 6 019 $ 4 404
Receivables, net (principally related party) 1 619 292 3 096 664
Other current assets - 918
------------------ ------------------
Total current assets 1 625 311 3 101 986
Property and equipment, net 36 248 40 568
Intangible assets, net 283 567 378 522
Other assets 19 908 61 104
------------------ ------------------
TOTAL ASSETS 1 965 034 3 582 180
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 733 080 531 319
Deferred Revenue 17 500
Notes Payable (principally related party) 68 273 2 822 720
Other current liabilities 176 321 56 385
------------------ ------------------
Total current liabilities 995 174 3 410 424
Stockholder's Equity
Common Stock, class A, $1.00 par value; authorized - -
5,000,000 shares; issued and outstanding none in 2001 and 2000
Common Stock, class B, $.001 par value; authorized 24 502 20 544
55,000,000 shares; issued and outstanding - 24,502,134 and
20,543,636 shares respectfully
Paid in Capital 5 118 419 1 748 131
Receivable from the sale of stock - (13 200)
Deficit accumulated during the development stage (4 173 450) (1 584 105)
Accumulated other comprehensive income 388 386
------------------ ------------------
Total Shareholder's Equity 969 859 171 756
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1 965 034 $ 3 582 180
================== ==================
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement.
F-2
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF INCOME
Period of
inception
Year Ended Year Ended July 06, 1998 to
October 31, 2001 October 31, 2000 October 31, 2001
------------------ ------------------ ------------------
Revenues $ 229 793 $ 596 409 $ 826 202
Cost of Sales 121 797 469 416 591 213
------------------ ------------------ ------------------
Gross Profit 107 997 126 993 234 990
Operating Expenses:
Marketing 92 298 209 739 302 037
Management and administrative fees 707 533 506 722 1 214 255
Salaries and related costs 229 770 99 825 329 595
Rent 250 904 114 313 365 217
Financing expense 15 000 30 342 174 132
Professional fees 91 992 42 044 212 352
Consulting 31 914 304 647 336 561
Depreciation 3 893 393 4 286
Amortization 95 382 95 062 191 745
Travel 46 361 9 529 55 890
Other selling, general and administrative 187 791 71 482 309 505
------------------ ------------------ ------------------
Total operating expenses 1 752 839 1 484 098 3 495 575
Loss before other income (expense) (1 644 842) (1 357 105) (3 260 586)
Other income (expense):
Interest income (principally related party) 317 275 76 760 394 035
Interest expense (principally related party) (111 596) (45 121) (156 717)
Loss on Affiliate Note Receivable (1 033 652)
Equity in net earnings (loss) of affiliates (25 000)
Foreign exchange gain (loss) (54 562)
Loss on disposal of assets (36 968)
------------------ ------------------ ------------------
Total other income (expense) (944 503) 31 639 (912 864)
------------------ ------------------ ------------------
Net Loss (2 589 345) (1 325 466) (4 173 450)
================== ================== ==================
Basic weighted average common shares outstanding 22 403 444 20 149 092
================== ==================
Basic Loss per common share $ (0,1156) $ (0,0658)
================== ==================
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement.
F-3
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Accumulated
Common Class A Receivable Deficit during other Total
------------------------- Paid in from sale Development Comprehensive Shareholder's
Shares Amount Capital of stock Stage Income/(loss) Equity
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
- $ - $ - $ - $ - $ -
18 085 472 18 085 - - 18 085
500 000 500 - - 500
384 700 385 384 315 - 384 700
600 000 600 599 400 - 600 000
(325 221) (325 221)
18 000 18 17 982 - 18 000
20 200 20 20 180 - 20 200
(258 639) (258 639)
19 608 372 19 608 696 656 - (258 639) - 457 626
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
417 818 418 417 400 417 818
148 639 149 148 490 148 639
10 643 11 10 632 10 643
75 000 75 74 925 75 000
F-4
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Accumulated
Common Class A Receivable Deficit during other Total
------------------------- Paid in from sale Development Comprehensive Shareholder's
Shares Amount Capital of stock Stage Income/(loss) Equity
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
51 264 51 56 339 56 390
23 000 23 25 277 25 300
12 000 12 13 188 (13 200) -
126 900 127 228 293 228 420
70 000 70 76 930 77 000
(1 325 466) (1 325 466)
386 386
20 543 636 $20 544 $1 748 131 $ (13 200) $ (1 584 105) $ 386 $ 171 756
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
125 000 125 124 875 125 000
(12 000) (12) (13 188) 13 200 -
(24 764) (25) (27 216) (27 240)
25 000 25 4 975 5 000
400 000 400 99 600 100 000
20 000 20 4 980 5 000
2 307 900 2 308 2 971 379 2 973 687
6 250 6 5 994 6 000
1 111 112 1 111 198 889 200 000
(2 589 345) (2 589 345)
2 -
--------------- -------- ----------- ------------ ---------------- --------------- ---------------
24 502 134 $24 502 $5 118 419 $ - $ (4 173 450) $ 388 $ 969 859
=============== ======== =========== ============ ================ =============== ===============
F-5
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
Inception
(July 08, 1998)
through
October 31, October 31, October 31, October 31,
2001 2000 1999 2001
---------------- ------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (2 589 345) $ (1 325 466) $ (258 639) $ (4 173 450)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 99 276 95 455 1 301 196 032
Loss on write down of Affiliate Note Receivable 1 033 652 - - 1 033 652
Issuance of stock for contract settlement 11 000 - 500 11 500
Accrued Interest Expense (principally related party) 107 530 45 121 - 152 651
Accrued Interest Income (principally related party) (317 274) (76 752) - (394 026)
Changes in Operating assets and liabilities:
Receivables and other current assets (39 744) 72 381 (90 985) (58 348)
Other assets 41 196 (61 104) - (19 908)
Accounts Payable and Accrued Liabilities 334 198 415 514 177 190 926 902
---------------- ------------- ------------- --------------
Net cash provided by/(used in) operating activities (1 319 511) (834 851) (170 634) (2 324 995)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by/(used in) investing activities
Loan Receivable, principally related parties 801 656 (3 002 226) - (2 200 570)
Purchase of property and equipment (41 066) - (41 066)
---------------- ------------- ------------- --------------
Net cash provided by/(used in) investing activities 801 656 (3 043 292) - (2 241 636)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Notes payable, principally related parties 118 391 2 492 932 79 667 2 690 990
Notes payable - affiliate 203 318 - - 203 318
Sales of common stock 197 760 1 039 210 440 985 1 677 955
---------------- ------------- ------------- --------------
Net cash provided by/(used in) financing activities 519 469 3 532 142 520 652 4 572 263
---------------- ------------- ------------- --------------
Effect of exchange rate changes on cash and cash eqivalents 386 - 386
---------------- ------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 1 615 (345 615) 350 019 6 019
Cash and cash equivalents, beginning of period 4 404 350 019 - -
---------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ 6 019 $ 4 404 $ 350 019 $ 6 019
================ ============= ============= ==============
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement
F-6
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of note for payment of license rights 200 000 200 000
Issuance of shares for license rights 274 779 274 779
Issuance of shares for dividend to affiliate 325 221 325 221
Issuance of shares for settlement of note payables 3 173 687 3 173 687
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement
F-7
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
October 31st 2001
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.
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
F-8
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
valuation techniques to the extent available in the circumstances.
Valuation techniques include the present value of estimated expected future
cash flows using a discount rate commensurate with the risk involved,
option-pricing models, matrix pricing and fundamental analysis.
Cash and cash equivalents:
The Company considers all highly liquid investments with original
maturities of ninety days or less to be cash and cash equivalents. Such
investments are valued at quoted market prices.
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
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 35 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.
F-9
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
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 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. 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.
F-10
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
October 31, 2001 October 31, 2000
------------------ ------------------
Receivables:
Note Receivable- GSI Technologies (3529363 Canada Inc.) $ 1,560,944 $ 3,058,950
Note Receivable - Group Solcom France - 20,028
Receivable - GSI Technologies (3529363 Canada Inc.) - 12,500
Due from Tax Authority 58,349 5,186
------------------ ------------------
1,619,292 3,096,664
================== ==================
Property and Equipment:
Furniture and fixture 38,934 38,934
Leasehold improvements 2,133 2,133
Less: Accum depreciation & amortization 4,819 499
------------------ ------------------
Property and equipment, net $ 36,248 $ 40,568
================== ==================
Intangible Assets:
License rights $ 474,779 $ 474,779
(Acquired from affiliate and recorded at
predecessor basis with the cost over such
basis recorded as a dividend to affiliate).
Accumulated amortization (191,212) (96,257)
------------------ ------------------
$ 283,567 $ 378,522
================== ==================
NOTE 4 - COMMITMENTS AND CONTIGENCIES
Office leases
On January 06, 2000 the Company entered into an office rent agreement with
2849-3930 Quebec Inc. for office space in Montreal, Quebec. This agreement
is for a term of 4 year starting January 01, 2000 with a 5 year renewal
option. The annual rent amount is $164,344.
On June 16, 2000 the Company entered into an office rent agreement with
Suntrust Center, L.L.C. for office space in Orlando, Florida. This
agreement is for a term of 5 years and 15 days starting June 16, 2000. The
annual rent amount is $59,910.
Guarantor agreement
On March 24, 2000, the Company agreed to act as a guarantor for GSI
Technologies (3529363 Canada Inc.), a shareholder of the Company and an
affiliate in an agreement with Admiralty Leasing Ltd. for office furniture.
The term is for 3 years. The annual amount is $20,400 CAD plus applicable
taxes.
F-11
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 4 - COMMITMENTS AND CONTIGENCIES (CONTINUED):
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, 2001:
Year ending October 31:
2002 - $252,320
2003 - 247,189
2004 - 244,200
2005 - 73,111
2006 - - .
--------
816,820
========
NOTE 5 - 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$2,589,345
and $1,325,466 for the twelve months ended October 31, 2001 and 2000
respectively as well as reporting net losses of $4,173,450 from inception (July
08, 1998) to October 31, 2001. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of $1,319,511 and
$834,851 for twelve months ended October 31, 2001 and 2000 respectively and has
reported deficient cash flows from operating activities of $2,324,995 from
inception (July 08, 1998). To date, these losses and cash flow deficiencies
have been financed principally through the sale of common stock ($1,480,195).
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 the coming year.
NOTE 6 - RELATED PARTY TRANSACTIONS
Sub-license agreement:
On May 04, 2000, the Company entered into a sub-license agreement with GSI
Technologies (3529363 Canada Inc.), a shareholder of the Company and an
affiliate, whereby giving all commercial rights relating to the technology
in the territory of Canada to GSI Technologies (3529363 Canada Inc.). The
term of the sub-license agreement is 10 years with annual payments of
$25,000 US.
On March 6, 2001, the Company entered into a sub-license agreement with
Groupe Solcom International France S.A.S. whereby giving all commercial
rights relating to the technology in the territory of the European Union to
Groupe Solcom International France S.A.S. The Company has a 25% interest in
Groupe Solcom International France S.A.S. with the other 75% owned by GSI
Technologies (3529363 Canada Inc.), an affiliate of the Company. The term
of the sub-license agreement is 10 years with annual payments of $100,000
US.
F-12
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED):
Note receivable from stockholder:
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.
Note payable to affiliates
On September 07, 2000, the Company borrowed funds of $2,822,599 from
several affiliates and stockholders of the Company and issued promissory
notes having a term of one year bearing interest at prime plus 2%. The
notes are convertible at any time into common shares at the discretion of
the Company. On May 3, 2001, the entire amount of the notes including
interest of $151,088 were converted into 2,307,900 of Class B Common
Shares.
Marketing and Administrative Costs
From November 01, 1999 to October 31, 2001, the Company was charged
marketing and administrative costs incurred by GSI Technologies (3529363
Canada Inc.) on behalf of the Company.
Consulting Agreement:
On January 10, 2000, the Company entered into a consulting agreement with
Mr. Yves Lebel and 9035-2899 Quebec Inc., a shareholder of the company. Mr.
Lebel is a Director, Chief Financial Officer and Executive Vice President
of GSI Technologies (3529363 Canada Inc.). The term of the agreement is for
one year with an additional year renewal term at the end of the initial
year. The total amount of the agreement is $78,000 per year. Mr. Lebel also
entered into a non-competition and confidentiality agreement with the
Company for as long as he remains a consultant and for an additional year
thereafter.
NOTE 7 - INCOME TAXES
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.
F-13
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
NOTE 8 - 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.
October 31, 2001 October 31, 2000
Current assets 3,158,385 0
Other assets 1,171,956 0
----------------- ----------------
4,330,341 0
Current liabilities 4,302,065 0
Shareholder's Equity 28,276 0
----------------- ----------------
4,330,341 0
Net Sales 2,415,733 0
Gross profit 1,855,652 0
Net income (391,672) 0
NOTE 9 - 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.
NOTE 10 - WARRANTS AND OPTIONS
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 for services rendered to the Company throughout the
year. 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.
F-14
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
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, 2001 Oct. 31, 2000
Paragraph 47 (a) --------------- --------------
1. Beginning of year - outstanding
i. number of options/warrants 1,475,000 0
ii. weighted average exercise price 1.19 0
2. End of year - outstanding
i. number of options/warrants 308,333 1,475,000
ii. weighted average exercise price 1.25 1.19
3. End of year - exercisable
i. number of options/warrants 308,333 550,000
ii. weighted average exercise price 1.25 1.10
4. During the year - Granted
i. number of options/warrants 0 1,475,000
ii. weighted average exercise price 0 1.19
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 661,667 0
ii. weighted average exercise price 1.25 0
7. During the year - Expired
i. number of options/warrants 550,000 0
ii. weighted average exercise price 1.10 0
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%
2. Weighted average expected life (in months 71.00 61.00
3. Weighted average expected volatility 0.00% 0
4. Weighted average expected dividends 0.00 0
Paragraph 47(e) Total compensation cost recognized in income for 0 0
stock-based employee compensation awards.
Paragraph 47(f) The terms of significant modifications of none none
outstanding awards.
Paragraph 48 - Options outstanding at the date of the latest
statement of financial position presented:
1. (a) Range of exercise prices $ 1.10-$1.25 $ 1.10-$1.25
(b) Weighted-average exercise price 1.25 1.19
2. Weighted-average remaining contractual life (in months) 71.00 61.00
F-15
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
Inception
Jul. 08, 1998
Year ended Year ended Through
Oct. 31, 2001 Oct. 31, 2000 Oct. 31, 2001
--------------- --------------- --------------
Net Income after proforma effect (2,589,345) (1,576,216) (4,424,200)
Earnings per share after proforma effect $ (0.1156) $ (0.0782)
F-16
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
PART II - OTHER INFORMATION
Item 1. Other information
----------------------------
Montreal, September 19, 2001 - Rene Arbic, chairman of the board of directors of
GSI Technologies USA Inc. ("GSI USA"), announced today that Groupe Solcom
International France S.A.S., will not proceed with the offer to acquire all of
the issued and outstanding shares of GSI USA and that the board of directors of
GSI USA approved the following resolutions:
WHEREAS on or around February 26, 2001, GSI USA had deposited a letter of intent
to acquire the share capital of Groupe Solcom International France S.A.S.
WHEREAS on or around May 16, 2001, Groupe Solcom International France S.A.S. had
deposited a letter of intent to acquire the share capital of GSI Canada (3529363
Canada Inc.) and GSI USA.
Pursuant to a feasibility study, due diligence, an evaluation of the current
status of the economic markets, the Board of directors of GSI USA decided not to
proceed with the above stated transactions. The board of directors of GSI USA
will advise of new intentions and plans shortly.
Board Statute
On September 8th, 2001, Mr. de Montigny resigned from its position for
health reason
On June 2001 Mr. James Hone retired and resigned from its position in GSI
On June 2001, Mr. Michel Laplante resigned from its position with GSI
On September 8th, 2001, Mr. Rene Arbic was nominated as President of GSI
and Chairman of the Board.
Mr. Rene Arbic was president of Bridgepoint International Inc. He is 47 years
old. On retiring in 1997 after 25 years career in operations and sales with Bell
Canada and Stentor, the former Canadian alliance of telecommunications carriers,
he lauched 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.
- Mr. Julian R. Beardsley have a vast experience in private banking and
presently held the position of Director in a large tax consulting
practice in United Kingdom. Mr. Beardsley will also serve as chairman
of the board for GSI since February 13th, 2002.
- Mr. Dario Litera is president of a large capital investment
corporation. He also, act as trustee for various financial firm and
government agencies, and he will also serve as a board member since
February 13th, 2002.
We are extremely pleased to have them as members in our board.
F-17
GSI TECHNOLOGIES USA INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001 AND 2000
(Audited)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: MARCH 4TH, 2002 GSI TECHNOLOGIES USA INC.
By: /s/ Rene Arbic
--------------------------------
Rene Arbic
Executive vice president
F-18