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GPS INDUSTRIES, INC. - 10KSB/A - 20050726 - STOCKHOLDERS_EQUITY
GPS INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Class A Common Stock Class B Common Stock Additional Preferred Other
Number Number Paid-In Shares Comprehensive
of Shares Amount of Shares Amount Capital Income
-----------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2003 77,372,468 $ 77,372 100,000 $ 100 $ 19,220,976 - $ 722,295
Common stock issued for
compensation expense 14,272,030 14,272 - - 1,734,819 - -
Common stock issued for
deferred compensation 9,010,520 9,011 - - 892,041 - -
Common stock issued for
related party debt 2,831,631 2,832 - - 225,137 - -
Common stock issued for services 500,000 500 - - 140,047 - -
Common stock issued on conversion
of debt 38,776,206 38,776 - - 2,240,439 - -
Common stock issued for cash 1,410,000 1,410 - - 139,590 - -
Common stock issued for accounts payable 513,650 514 - - 30,597 - -
Common stock issued for interest 3,105,144 3,105 - - 149,938 - -
Common stock issued for finance costs 3,000,000 3,000 - - 327,000 - -
Warrants issued for bank letter of
credit - - - - 39,000 - -
Cancellation of Class B Stock - 100 (100,000) (100) - - -
Comprehensive Loss
Net income - - - - - - -
Deferred compensation expense - - - - - - -
Subscriptions receivable - - - - - - -
Total Comprehensive Loss - - - - - - -
----------- -------- --------- -------- ------------- --------- ---------
Balance December 31, 2003 150,791,649 150,892 - - 25,139,584 - 722,295
Common stock issued for
compensation expense 9,694,903 9,695 - - 1,147,345 - -
Common stock issued for settlement
of debt 21,084,981 21,085 - - 2,042,565 - -
Common stock issued for purchase
of patents 3,500,000 3,500 - - 276,500 - -
Common stock issued for services 400,000 400 - - 31,600 - -
Common stock issued on conversion
of debt 2,707,275 2,707 - - 240,948 - -
Common stock issued for cash 2,857,143 2,857 - - 197,143 - -
Common stock issued for investment
in subsidiary 9,000,000 9,000 - - 1,161,000 - -
Common stock issued for interest 307,331 307 - - 19,406 - -
Common stock issued for finance costs 4,678,571 4,679 - - 609,607 - -
Warrants issued for debt financing - - - - 598,490 - -
Preferred Shares issued for cash - - - - - 375,000 -
Comprehensive Loss - - - - - - -
Net loss - - - - - - -
Deferred compensation expense - - - - - - -
Subscriptions receivable - - - - - - -
Deferred financing costs - - - - - - -
Deemed dividend on preferred shares - - - - 189,208 - -
Total Comprehensive Loss - - - - - - -
----------- -------- --------- -------- ------------- --------- ---------
Balance December 31, 2004 205,021,853 $205,122 - $ - $ 31,653,396 $375,000 $722,295
=========== ======== ========= ======== ============= ========= =========
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Deferred Deferred Total
Compensation Financing Subscription Accumulated Stockholders'
Expense Costs Receivable Deficit Deficit
----------------------------------------------------------------------------------------------------------------
Balance January 1, 2003 - - - $ (31,633,248) $ (11,612,504)
Common stock issued for
compensation expense - - - - 1,749,091
Common stock issued for
deferred compensation - - - - 901,052
Common stock issued for
related party debt - - - - 227,969
Common stock issued for services - - - - 140,547
Common stock issued on conversion
of debt - - - - 2,279,215
Common stock issued for cash - - - - 141,000
Common stock issued for accounts
payable - - - - 31,111
Common stock issued for interest - - - - 153,043
Common stock issued for finance costs - - - - 330,000
Warrants issued for bank letter of credit - - - - 39,000
Cancellation of Class B Stock - - - - -
Comprehensive Loss
Net income - (3,910,975) (3,910,975)
Deferred compensation expense (901,050) - - - (901,050)
Subscriptions receivable - - (5,888) - (5,888)
------------
Total Comprehensive Loss - - - - (4,817,913)
--------- ----------- -------- -------------- ------------
Balance December 31, 2003 (901,050) - (5,888) (35,544,223) (10,438,389)
Common stock issued for compensation
expense - - - - 1,157,040
Common stock issued for settlement of
debt - - - - 2,063,650
Common stock issued for purchase of
patents - - - - 280,000
Common stock issued for services - - - - 32,000
Common stock issued on conversion
of debt - - - - 243,655
Common stock issued for cash - - - - 200,000
Common stock issued for investment
in subsidiary - - - - 1,170,000
Common stock issued for interest - - - - 19,713
Common stock issued for finance costs - - - - 614,286
Warrants issued for debt financing - - - - 598,490
Preferred Shares issued for cash - - - - 375,000
Comprehensive Loss
Net loss (9,148,893) (9,148,893)
Deferred compensation expense 225,261 225,261
Subscriptions receivable - 5,888 - 5,888
Deferred financing costs - (350,000) - - (350,000)
Deemed dividend on preferred shares - - 189,208
- -------------
Total Comprehensive Loss - - - - (9,078,536)
--------- ----------- -------- -------------- -------------
Balance December 31, 2004 (675,789) (350,000) - $ (44,693,116) $(12,763,091)
========= =========== ======== ============== =============
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GPS INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
----------------------------------------------
2004 2003
----------------------------------------------
Cash Flow From Operating Activities
Net loss from operations $ ( 8,959,685) $ ( 3,910,975)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 125,507 72,170
Amortization of deferred compensation 225,261 168,948
Impairment of Goodwill 3,750,000 -
Inventory impairment - 190,000
Gain on extinguishment of debt (2,074,293) ( 1,199,350)
Expenses paid by issuance of stock 1,383,530 2,156,607
Interest converted to stock 73,713 153,043
Finance charges converted to stock 134,286 330,000
Amortization of finance costs 26,000 -
Changes in operating assets and liabilities:
Inventories (856,575) ( 406,567)
Accounts Receivable (239,698) -
Prepaid expenses and deposits (97,719) ( 11,032)
Deferred implementation costs 100,688 ( 105,985)
Accounts payable and accrued liabilities (317,612) 428,310
Discontinued Accounts payable and accrued liabilities 1,139,586 -
Other liabilities 118,848 -
-------- -
Net Cash Used In Operating Activities ( 5,468,163) ( 2,134,831)
------------ ------------
Cash Flow From Investing Activities
Purchase of property and equipment ( 121,892) ( 70,400)
Purchase of patents ( 23,500) -
Investment in Optimal Golf ( 1,100,000) -
------------ -
Net Cash Flow Used In Investing Activities ( 1,245,392) ( 70,400)
------------ ---------
Cash Flow From Financing Activities
Common stock issued for cash 205,888 141,000
Convertible preferred stock issued for cash 375,000 -
Proceeds from loans and bank indebtedness 5,469,380 30,443
Repayments of bank loan (16,591) ( 27,382)
Borrowings under bank indebtedness 812,546 1,470,862
Repayments of loans from related parties (19,621) ( 60,723)
Borrowing on convertible loans 56,678 625,000
------- -------
Net Cash Flow From Financing Activities 6,883,280 2,179,200
---------- ---------
Effect Of Exchange Rate On Cash - ( 37,454)
--------- ---------
Net Increase (Decrease) In Cash 169,725 ( 63,485)
Cash, Beginning Of Period 3,367 66,852
------ ------
Cash, End Of Period $ 173,092 $ 3,367
============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ - $ -
============ =============
Cash paid for taxes $ - $ -
============ =============
Non-Cash Investing And Financing Activities
Common stock issued on conversion of convertible notes 243,655 2,279,215
Common stock issued to settle debt 2,063,650 227,969
Common stock issued for deferred compensation expenses - 901,052
Common stock issued for interest 19,713 -
Common stock issued for financing expenses 614,286 -
Warrants issued with debt 280,000 -
Common stock issued for investment in subsidiary 1,170,000 -
Common stock issued for expenses 32,000 -
Warrants issued in consideration of debt financing 404,000 -
Warrants issued for interest 54,000 -
Common stock issued in settlement of accounts payable - 31,111
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See notes to accompanying financial consolidated statements
F-5
GPS industries Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the years ended December 31, 2004 and 2003
1. NATURE OF OPERATIONS
GPS Industries Inc., (the "Company" or "GPSI") a Nevada corporation, is involved
in the development of golf course management technology. The Company has
developed hand-held and cart mounted Global Positioning System ("GPS") units. At
December 31, 2004, the Company had substantially all of its assets and
operations in Canada.
Infotech Golf Technology 2000 Inc,
The Company's wholly owned subsidiary, Inforetech Golf Technology 2000 Inc.
(IGT), which had participated with the Company in the development of its
technology, filed petition for relief under Chapter 7 of the federal bankruptcy
laws of the United States Bankruptcy Court on December 19, 2002 and ceased
operations. These financial statements reflect the operations of the Company and
of IGT up until the time it ceased operations and its assets and liabilities at
that time and have not been adjusted to reflect the bankruptcy filing.
All remaining unresolved liabilities of IGT are reflected as liabilities related
to discontinued operations. All resolution of liabilities related to IGT are
reflected as either a gain (loss) on extinguishment of debt - discontinued
operations.
ProShot Golf, Inc.
The Company acquired ProShot Golf Inc., ("ProShot") on January 12, 2001. ProShot
is a California based Company that manufactures, markets, leases and installs an
integrated GPS system that provides golfers with yardage readings and potential
shot options from any location on a golf course. The ProShot GPS system is
installed directly on golf carts.
On September 21, 2001, the Company received notices of defaults from a group of
Inforetech shareholders (the "Guarantors") in regard to a finance agreement
dated April 24, 2001. The Company, being unable to cure those defaults, along
with one of its directors signed an agreement with the Guarantors stating that
the Company would use its best efforts to assist in the foreclosure of ProShot's
assets by its bank, so that the Bank debt and ultimately the obligation of the
Guarantors, to the Bank, in respect of their guarantee of ProShot's Bank debt,
might be reduced.
During the fourth quarter of 2001, the Company discontinued all operations of
ProShot, accordingly all revenues, expenses and liabilities associated with
ProShot in 2001 has been classified as discontinued operations.
On May 31, 2002 ProShot filed a petition for relief under Chapter 7 of the
federal bankruptcy laws of the United States Bankruptcy Court.
All remaining unresolved liabilities of ProShot are reflected as liabilities
related to discontinued operations. All resolution of liabilities related to IGT
are reflected as either a gain (loss) on extinguishment of debt - discontinued
operations.
2. ACQUISITIONS
On November 19, 2004 the Company entered into a Stock Purchase Agreement with
the shareholders of Optimal Golf Solutions, Inc. ("Optimal") to acquire 100% of
the common shares of Optimal (the "Share Acquisition") for $5,250,000. The
Company gave $2,270,000 of cash and stock pursuant to the terms of the agreement
as shown below. The remaining amount due from the Company in the amount of
$2,980,000 was recorded as a liability on the Company's balance sheet.
F-6
(i) Upon signing the purchase agreement the Company was required
to pay $100,000 and an additional $1,000,000 at closing.
(ii) The balance of $4,150,000 is to be paid in two tranches of
shares of common stock of the Company. Shares issued under
these tranches, can be liquidated by the shareholders of
Optimal over 360 trading days (after the effectiveness of a
registration statement referred to below) in accordance with
the terms of a Leakage Agreement; and an additional cash
payment, if required, depending on what amount Optimal
receives from the shares it sells into the market.
The first stock tranche (payment) is for 9,000,000 shares.
These shares were trading at $.13 on the date the agreement
was signed and valued at $1,170,000, accordingly. Under the
terms of the agreement the shares can be sold in accordance
with the Leakage Agreement over 180 trading days. Any funds
received from the sale of those shares in excess of $3,250,000
(i.e. $1,000,000 over the $2,250,000 target price for the
first share payment) will be deducted from the amount to be
paid with the second stock payment, targeted for the remaining
amount due of $1,900,000 (plus interest). The stock price has
not reached the target price of $.25 at any point from the
date of the acquisition and is trading at $.10 on at April 8,
2005, therefore the Company will have to issue additional
shares to cover the difference between the market price and
$.25 target price or cash. The second stock tranche (payment)
will be issued at a 15% discount to market price at the time
of issuance and can be sold into the market by Optimal over a
further 180 trading days. The Company has the right to pay out
any remaining balance plus interest owing at any time.
The Company will use its best efforts to file a Registration
Statement as required under the Stock Purchase Agreement to
make the stock payments required to the shareholders under
this Agreement. If the Registration Statement has not become
effective by June 30, 2005, GPSI must pay cash of $2,250,000
plus interest over eight monthly instalments of $250,000 each
starting June 1, 2005. In that case, the first stock payment
of shares would be returned to the Company. If the
Registration Statement has not become effective by September
30, 2005, then the Company must also pay cash to the
shareholders (in lieu of a second stock payment) of $1,900,000
plus interest in eight monthly payments of $237,500 commencing
on October 1, 2005.
Upon receipt of the first $727,000 of net proceeds from the
sale of shares issued to the shareholders for the second stock
payment, this amount will be forwarded to the Company's
attorney to be held in escrow for a period of 18 months from
closing to partially secure the shareholders indemnification
obligations to the Company under the Agreement
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
Aggregated purchase price $ 5,250,000
===========
Patents acquired $ 1,500,000
Goodwill $ 3,750,000
-----------
Net assets acquired $ 5,250,000
==========
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These patents acquired have a remaining useful life of seven years and
expire on November 11, 2011. The value attributed to these patents is
F-7
based on discounted future earnings that the Company expects to receive
from existing license agreement royalties with various customers over
the life of the patents.
Acquired goodwill is considered to have an indefinite life pursuant to
SFAS 142 and accordingly is not amortized but subject to periodic
impairment tests. Acquired patents are considered to have a finite life
pursuant to SFAS 142 to be amortized over the period the asset is
expected to contribute to the future cash flows. Due to a review of
impairment of acquired goodwill of Optimal, management decided to
record a 100% write down of the acquired goodwill as of December 31,
2004. Management believes this more accurately reflects the current
goodwill valuation. The impairment loss (allocated to goodwill)
recorded for the year ended December 31, 2004 was $3,750,000.
The table below summarizes the pro forma information of the results of
operations as though the business combination had been completed as of
January 1, 2003:
Twelve Months Ended
December 31,
2004 2003
------------ -----------
(unaudited) (unaudited)
Sales $2,601,397 $ 441,898
Cost of Goods 1,996,146 -
--------- ---------
Gross Profit 605,251 441,898
Operating Expenses 6,897,878 5,045,430
--------- ---------
Operating Loss (6,292,627) (4,603,532)
Other Income/(Expense) 700,210 (3,225,411)
--------- ---------
Net Loss $(5,592,417) $(7,828,943)
========= ==========
Net Loss per Share $ (0.03) $ (0.08)
========= ==========
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2. GOING CONCERN
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
carrying amounts of assets and liabilities presented in the consolidated
financial statements do not purport to represent the realizable or settlement
values. The Company has incurred significant losses and had a working capital
deficit at December 31, 2004. The successful commercialization of the Company's
technology is dependent on the Company's ability to successfully finance its
cash requirements through a combination of equity financings and payments from
potential strategic partners. The Company's independent registered public
accounting firm, in their report on the consolidated financial statements as of
and for the year ended December 31, 2004, have expressed substantial doubt about
the Company's ability to continue as a going concern.
The Company is attempting to restructure its debt obligations and raise new
capital. To the extent that the Company is unable to successfully restructure
its debt obligations and/or obtain the capital necessary to fund its future cash
requirements on a timely basis and under acceptable terms and conditions, the
Company will not have sufficient cash resources to maintain operations, and may
consider a formal or informal restructuring or reorganization.
F-8
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States. The significant accounting
policies used in the preparation of these financial statements are summarized
below.
The Company prepared the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Management periodically evaluates the estimates and judgments made.
Management bases its estimates and judgments on historical experience and on
various factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates as a result of different
assumptions or conditions.
The following critical accounting policies affect the more significant judgments
and estimates used in the preparation of the Company's consolidated financial
statements.
Revenue recognition
The Company recognizes revenue only when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collectibility is probable. When other significant obligations remain after
products are delivered, revenue is recognized only after such obligations are
fulfilled. Cost of Goods Sold represents the cost of physical equipment products
delivered to the customer and installed on the customer's site. The costs of
installing the equipment on the customer's site, such as labor and travel and
accommodation expenses, are recorded as Installation Costs. The cost of
developing the equipment and the software installed in the equipment on the
customer's site is recorded as an operating expense in the category
"Engineering, Research and Development", all such costs are expensed as they are
incurred.
Impairment of Long-Lived Assets
The Company's long-lived assets consist of property and equipment. In assessing
the impairment of property and equipment, the Company makes assumptions
regarding the estimated future cash flows and other factors to determine the
fair value of the respective assets. The Company did not record any impairment
charges at December 31, 2004. However, if these estimates or the related
assumptions change in the future, the Company may be required to record
impairment charges for these assets at such time.
Consolidation
The consolidated financial statements include the operations of GPS Industries
Inc. (formerly Inforetech Wireless Technology, Inc.) and its wholly-owned
subsidiaries (the "Company"), including Optimal Golf Solutions, Inc. which it
acquired on November 19, 2004. All significant intercompany transactions and
balances have been eliminated in consolidation.
Loss Per Share
Basic loss per share is based on net loss divided by the weighted average common
shares outstanding or deemed to be outstanding during the period. Diluted loss
per share assumes exercise of in-the-money stock options and warrants
outstanding into common stock at the beginning of the year or date of issuance,
unless they are anti-dilutive. A total of 18,829,806 potential shares were
excluded from the fully diluted calculation as they are anti-dilutive.
Net Loss Per Common Share - Basic loss per common share is calculated by
dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted loss per common share reflects the potential dilution
F-9
that would occur if dilutive stock options and warrants were exercised. These
potentially dilutive securities were not included in the calculation of loss per
share for the periods presented because the Company incurred a loss during such
periods and thus their effect would have been anti-dilutive. Accordingly, basic
and diluted loss per common share is the same for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts have been reclassified in 2003 to conform to the presentation in
2004.
Financial Instruments
The fair value of financial instruments approximates their carrying value except
as otherwise disclosed in the financial statements.
Foreign Currency Translation
Assets and liabilities of subsidiaries operating in foreign countries are
translated into U.S. dollars using both the exchange rate in effect at the
balance sheet date of historical rate, as applicable. Results of operations are
translated using the average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders equity (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical experience, our estimates of
the recoverability of amounts due us could be adversely affected. As of December
31, 2004 the allowance for doubtful accounts was $0.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the following estimated useful lives:
Office equipment and furnishings 3-5 years
Computer Software 3 years
Leasehold improvements Lease term
Tooling 3 years
Patents Patent life
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The Company leases certain of its office equipment under capital lease
agreements. The assets and liabilities under capital leases are recorded at the
lesser of the present value of aggregate future minimum lease payments or the
fair value of the assets under the lease. Assets under capital lease are
depreciated over the shorter of their estimated useful lives or the lease term.
F-10
Depreciation expense for the years ended December 31, 2004 and 2003 was $81,074
and $72,170 respectively.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with maturities
of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost or market, determined on an average
cost basis, and consist of raw material parts, work in process and finished
products ready to ship to customers.
Shipping and handling costs
The Company accounts for shipping and handling costs as a component of "Cost of
Sales".
Stock Based Compensation
Stock-Based Compensation - The Company periodically issues shares of common
stock for services rendered or for financing costs. Such shares are valued based
on the market price on the transaction date.
The Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated fair value of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The Company has
adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied.
Pro forma information regarding net income (loss) and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its stock options granted using the fair value method of SFAS No. 123. No
stock options were issued in the year ended December 31, 2004. The fair value
for options issued in the year ended December 31, 2003 was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 6%; no dividend yield;
volatility factor of the expected market price of the Company's common stock of
150%, and the expected lives of the options were estimated at approximately 4
years. The weighted average fair value of stock options granted for the years
ended December 31, 2004 and 2003 was $Nil and $122,976, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
F-11
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
2004 2003
------ ------
Net loss as reported $(9,148,893) $ ( 3,910,975)
Pro forma compensation expense - (122,976)
------------ --------------
Pro forma net loss $(9,148,893) $ ( 4,033,951)
============ ==============
Net loss per share:
Basic and diluted, as reported $ (0.05) $ (0.04)
Basic and diluted, pro forma $ (0.05) $ (0.04)
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Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect for the year in which
the differences are expected to reverse.
The Company records a valuation allowance to reduce its deferred tax assets
arising from net operating loss carryforwards to the amount that is more likely
than not to be realized. In the event the Company was to determine that it would
be able to realize its deferred tax assets in the future in excess of its
recorded amount, an adjustment to the deferred tax assets would be credited to
operations in the period such determination was made. Likewise, should the
Company determine that it would not be able to realize all or part of its
deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to operations in the period such determination was made.
Warranty Obligations
The Company generally provides the ultimate consumer a warranty with each
product and accrues warranty expense at the time of the sale based on the
Company's prior claims history. This history is limited with regard to the
Company as the current year end of December 2004, is the year the Company
commenced sale and distribution of their GPS product. The Company does not
believe that it is exposed to any significant risk in its cash investment.
Recent Accounting Pronouncements
- In November 2004, the Financial Accounting Standards Board issued (`the
FASB") issued Statement of Financial Accounting Standards No. 151
("SFAS No. 151"), "Inventory Costs, an amendment of ARB No. 43, Chapter
4." SFAS No. 151 clarifies that abnormal inventory costs such as costs
of idle facilities, excess freight and handling costs, and wasted
materials (spoilage) are required to be recognized as current period
costs. The provisions of SFAS No.151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Management
is currently evaluating the provisions of SFAS No. 151 and does not
expect the adoption will have a material impact on the Company's
financial position, results of operations or cash flows.
F-12
In December 2004, the FASB finalized SFAS No. 123R "Share-Based
Payment" ("SFAS 123R"), amending SFAS No. 123, effective beginning the
Company's first quarter of fiscal 2006. SFAS 123R will require the
Company to expense stock options based on grant date fair value in its
financial statements. Further, adoption of SFAS No. 123R will require
additional accounting related to income tax effects and additional
disclosure regarding cash flow effects resulting from share-based
payments arrangements. The adoption of SFAS 123R will not effect the
Company's cash flows or financial position, but may have an adverse
impact on results of operations if options are granted in the future.
- In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment for APB Opinion No. 29". This
statement amends APB Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial
substance if future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS No.
153 are effective for the Company's year ended December 31, 2006.
Management is currently evaluating the impact of the adoption of SFAS
No. 153 on the Company's consolidated financial position, liquidity, or
results of operations.
5. PROPERTY AND EQUIPMENT
At December 31, 2004 property and equipment consisted of the following:
Office equipment $ 302,536
Computer software 77,708
Leasehold improvements 105,628
Tooling 28,297
------
514,169
Less: accumulated depreciation (399,544)
---------
$ 114,625
=========
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6. PATENTS
In June 2004, in addition to patents acquired with the Optimal
purchase, the Company acquired the patent for installation of GPS golf
systems in eleven European countries as well as Japan and Australia,
referred to as the "Pinranger" patent. The purchase price for these
patents was $20,000 in cash and the issuance of 3,500,000 shares of
common stock valued at $0.08 per share or $280,000, for a total cost of
$300,000. These patents are being amortized over approximately 8.5
years, the expected future life of these patents. In addition to the
above acquisition costs, the Company capitalized related legal and
acquisition fees of $3,500.
In addition to the above Pinranger patents, the Company has possession
of all of Optimal's patents, since the acquisition of Optimal in
November 2004
The following is a reconciliation of all patents owned as of December 31, 2004:
Patents $ 1,803,500
Less: accumulated depreciation (44,433)
-----------
$ 1,759,067
===========
|
F-13
Future amortization of patents is expected to be as follows:
Year Ended December 31,
2005 $ 249,992
2006 249,992
2007 249,992
2008 249,992
2009 249,992
Thereafter 509,107
-----------
$1,759,067
===========
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6. CAPITAL LEASES
The Company's subsidiary IGT leased certain equipment under capital lease
agreements that expire at various dates through January 2006. During 2002 IGT
defaulted on those leases and surrendered the equipment to the leasing Company.
The leasing Company took action in the Supreme Court of British Columbia for the
balances outstanding on the leases. No liability is expected to accrue to the
Company as a result of these actions, but the balance of the leases have been
shown as a current liability at December 31, 2004.
7. DEBT
The Company and its subsidiaries have significant debt liabilities. The
following table is a summary of debt at December 31, 2004.
Bank Indebtedness (a) $ 2,309,408
Bank Loan (h) 25,121
Short term loans (b) 1,663,332
Long term loan (f) 3,000,000
Discount on debt (f) (480,000)
---------
Sub-total: 2,520,000
---------
Convertible debt (c) 671,892
Note payable - related parties (g) 603,415
Promissory notes (d) 1,274,757
Loan to related party (e) 258,000
-----------
Total Debt 9,325,925
Less Current Portion (6,374,033)
-----------
Total Long-Term Debt $ 2,951,892
===========
|
F-14
(a) (i) Effective June 27, 2003, the Company obtained a one year bank
line of credit for $1,425,000 to fund its operations. As of
December 31, 2004, the Company has drawn $1,333,499 under this
line of credit. The line of credit bears interest at prime
plus 0.5%, which was 4.75% at December 31, 2004. This line
is repayable in full on demand and is secured by a one year
standby bank letter of credit for $1,500,000 that was provided
by a third party, Hansen Inc. As consideration for providing
the standby bank letter of credit, the Company issued to
Hansen Inc. a common stock purchase warrant to purchase
1,000,000 shares of the Company's common stock, exercisable
$0.10 per share (a 15% discount to the market price) for a
period of three years. The fair value of this common stock
purchase warrant, calculated pursuant to the Black-Scholes
option pricing model, was determined to be $52,000, which was
charged to operations over the twelve month period beginning
July 2003 and ending June 2004. Accordingly, $26,000 was
charged to operations as finance costs for the twelve months
ended December 30, 2004. This letter of credit was renewed in
June 2004, December 2004, and in March 2005 until December
2005. For the extension granted in December 2004, the Company
issued warrants to purchase 500,000 shares, with an exercise
price of $0.10 per share. These warrants have been valued at
$52,000, and have been accounted for as a deferred finance
cost, in the accompanying shareholders' deficit. The cost will
be amortized over three months, the approximate length of the
extension of the line of credit. None of the deferred costs
have been amortized as of December 31, 2004. The value of the
warrants was determined with use of the Black-Scholes pricing
model with the following factors: 3 year life, risk free rate
of return of approximately 3.25% and a volatility factor of
approximately 125%. In March 2005 a further extension of the
credit line an additional 1,000,000 warrants were provided to
Hansen Inc. for three years at an exercise price of $0.12 per
share. Management is currently determining the valuation of
these warrants for the extension of the line of credit.
(ii) Effective March 23, 2004, the Company entered into a
Reimbursement Agreement with Douglas J. Wood, Daniel S. Wood
and James Liken (the Secured Party) to have them secure a new
$1,000,000 line of credit to be used for manufacturing
purposes. The security provided was a Letter of Credit from
Citicorp North America Inc. The Company's bankers HSBC Bank
Canada provided the Company this new line of credit on April
29, 2004 based on the security provided. As of December 31,
2004 The Company has drawn $975,909 from this credit line. The
credit line has been renewed until October 31, 2005. This line
bears interest at prime plus 0.5%, which was 4.75% at December
31, 2004.
As consideration, for the security for this credit line, the
Secured Party is to receive 1.25% of the maximum amount
outstanding per month of this credit line. This consideration
is payable 50% in US$ and 50% in common shares of the Company,
issued at a 10% discount to market based on the seven day
average price prior to each quarter end. Additionally, the
Company agreed to issue warrants to purchase 666,667 shares of
the Company's common stock at US$0.15 per share. The Company
also granted the Secured Party a security interest in all the
Company's inventory. This letter of credit, along with its
related Reimbursement Agreement, has been renewed until
October 31, 2005. These warrants have been valued at $72,000,
and have been accounted for as a deferred financial cost, in
the accompanying shareholders' deficit. The cost is being
amortized over one year, the approximate length of the line of
credit. A total of $54,000 of the deferred costs has been
amortized in the year ended December 31, 2004. The value of
the warrants was determined with use of the Black-Scholes
pricing model with the following factors: 3 year life, risk
free rate of return of approximately 1.9% and a volatility
factor of 200%.
F-15
(b) As at December 31, 2004 the Company has $1,663,332 owing on short term
notes from various employees and investors. These notes are payable on
demand, and bear interest at varying rates of 0% to 36% per annum.
These notes are unsecured.
(c) One convertible loan was outstanding as at December 31, 2004. Amount
due to The Shaar fund of $671,892.
The Shaar Fund:
Effective August 4, 2000, amended by agreement dated October 29, 2002
the Company entered into a securities purchase agreement with The Shaar
Fund Ltd., relating to the sale of $1,000,000 in principal amount of 8%
Convertible Debenture due November 2, 2007 and warrants to purchase up
to 100,000 shares of Common Stock. Interest of 6% accrues on this
debenture from September 12, 2000 and is payable quarterly commencing
September 30, 2000. The exercise price of the warrants is $6.25 and
they expire on September 12, 2005. The amending agreement also added
interest accrued as at the amendment date of $166,000 to principal.
As at December 31, 2004 the principal amount outstanding is $726,000
which is offset by unamortized debt discount of $42,624 and unamortized
finance costs of $11,484, giving a net balance of $671,892. The
principal is being repaid at $20,000 plus accrued interest per month.
At the time of issuance the proceeds raised of $1,000,000 have been
allocated to the debt ($634,649) and the warrants ($365,351) based on
their relative fair values at the date the loan was received. The fair
value of the warrant is considered to be a discount on the convertible
debenture, with a corresponding credit to additional paid in capital.
The debt discount is being amortized, on an effective basis, over the
five-year term of the debenture. During 2004 and 2003, $54,142 and
$73,068, respectively, of the discount was amortized and included in
financing costs, leaving an unamortized debt discount of $42,624. In
addition to the debt discount, the Company allocated a deferred
financing cost asset. During 2004 and 2003, $2,536 and $2,535,
respectively were amortized pertaining to this deferred finance cost,
leaving an unamortized balance of $11,484 as of December 31, 2004.
The debenture is convertible (plus related interest expense) into
Common Stock at the lesser of (i) $.32 or (ii) 75% of the average of
the three lowest closing bid prices of the Company's common shares for
the ten days immediately preceding the conversion date. These terms
give the holder an in the money conversion rate, the benefit of which
is limited to the proceeds allocated to the debt. Accordingly, a
beneficial conversion feature of $634,649 has been recognized as a
further discount on the convertible debenture liability with a
corresponding credit to additional paid in capital.
(d) This is a promissory note for $1,274,757, which was entered into by the
Company's discontinued, ProShot subsidiary in January 2001. The note
matured in January 2004, with accrued interest at 6% per annum,
accruing form October 1998. The Company has not accrued any interest on
this note since December 2001.
(e) The Company has a promissory note dated December 11, 1998 in the amount
of $258,000 due to a party related to ProShot. As these are part of
discontinued operations, the Company has not accrued ant interest
related to these notes in the years ended December 31, 2004 and 2003,
respectively.
(f) On December 3, 2004 GPS Industries, Inc. ("GPSI") entered into a Credit
Agreement with Great White Shark Enterprises, Inc. ("GWSE") for GWSE to
provide Term Loan of $3,000,000 to GPSI. These funds were received by
GPSI as follows: $1,000,000 on November 22, 2004 and the balance of
$2,000,000 on December 3, 2004. Collateral for the loan was a first
F-16
recorded priority security interest in (i) all of the shares of the
capital stock of Optimal Golf Solutions, Inc. ("Optimal") acquired by
GPSI pursuant to a Stock Purchase Agreement dated November 19, 2004
between GPSI and the former shareholders of Optimal, (ii) a second
security interest in the Optimal Patents behind the former Optimal
shareholders, in the event that GPSI does not fulfill their purchase
agreement of the Optimal and (iii) all rights of GPSI to the Pinranger
Patents acquired by GPSI pursuant to an Agreement dated July 2, 2004
between GPSI and Pinranger (Australia) Pty. Ltd. and PagiSat, LLC. The
Pinranger Patents are registered in 13 countries in Europe, Japan, and
Australia.
The Term Loan may be repaid at any time prior to maturity without
premium or penalty, except that the total minimum interest to be paid
must be $300,000 irrespective of when the loan is repaid. During the
term of the loan, GPSI must pay interest of 10% per annum on a monthly
basis in cash or shares. If GWSE chooses to receive shares, the
interest rate will be adjusted to 15% for the period selected and the
shares will be priced at a 15% discount to market, using the average
daily close for the three trading days prior to the end of the monthly
period for which interest is due. The maturity date on this loan is
November 15, 2011, and accordingly the entire loan is classified as
long-term.
Repayment of the principal and interest due under the Credit Agreement
has been provided for by GPSI giving to GWSE (commencing December 4,
2004) all License Payments GPSI receives under all license agreements
between Optimal as licensor and its licensees. Once the Term Loan and
accrued interest is paid in full, for a period of two years from the
repayment date, GWSE will receive 20% of the License Payments and
thereafter 40% of the License Payments for the remaining life of the
Patents. Any Licensee Fees received in connection with enforcement of
the Optimal Patents will also be paid to GWSE in accordance with the
above-mentioned formula, except that GPSI must pay all legal costs to
enforce the Optimal Patents. Any Licensee Fees received from
infringement payments relating to the Pinranger Patents will be shared
on a 50/50 basis (net of legal costs) until the Term Loan and accrued
interest are fully repaid, after which GPSI will have no further
obligation to GWSE regarding the Pinranger Patents for any revenue they
generate, and GWSE will assign its interest in the Pinranger Patents
back to GPSI.
To the extent that, during any calendar year commencing January 1,
2005, the total annual License Payments received by GWSE do not total
$500,000, then the shortfall must be paid to GWSE in equal monthly
payments over the next calendar year, above any beyond the following
year's Minimum License Payment. The maturity date of the Term Loan is
November 15, 2011, the termination of the life of one of the key
Optimal Patents.
In addition to the above-mentioned interest and security provided for
the Term Loan, GWSE will also receive an equity bonus of 3,000,000
restricted Common Shares of GPSI and a three year Warrant to purchase
2,000,000 Common Shares of GPSI at an exercise price of $.15. These
warrants are exercisable immediately.
The Company has recorded a debt discount of $480,000 with regards to
the issuance of 3,000,000 shares of common stock. This discount will be
amortized over the life of the loan, or until such time as the
principal is paid off. As of December 31, 2004, none of the discount
has been amortized.
With regards to the warrants attached to the note, the Company has
recorded a deferred financial cost of $280,000, in the accompanying
shareholders' deficit. The cost is being amortized over the life of the
loan, or until such time as the principal is paid off. As of December
31, 2004, none of the costs associated with this deferred cost has been
amortized. These warrants were valued base upon a Black-Scholes
calculation, assuming a three year life, a risk free rate of return of
approximately 2.25% and a volatility of approximately 125%.
(g) Promissory notes payable to the president of the Company are unsecured,
repayable on demand and bear interest at 8% per annum. As of December
31, 2004 the balance of the note is $603,415. Interest of $79,685 has
been accrued on this note through December 31, 2004.
F-17
(h) The Company has a loan from a commercial bank for $27,668. As part of a
settlement agreement the bank agreed that no further interest will
accrue on this loan.
All of the above notes are classified as short term, payable within one year,
except for the convertible loan outstanding due to the Shaar Fund. (Debt (c))
and the loan from Great White Shark Enterprises, Inc. (Debt (f))
Principal repayable on Long term debt is:
2005 $ 240,000
2006 $ 240,000
2007 $ 191,892
Thereafter $ 2,520,000
---------------
Total $ 3,191,892
===============
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8. GAIN ON EXTINGUISHMENT OF DEBT
- In February 2001, the Company received a $1,185,000 loan bearing
interest at LIBOR plus 1% which was collateralized by certain
securities. The lender cannot be located at the date of this report,
and the Company believes this collateral has been realized. As a
result, the Company has written off this loan liability in the year
ended December 31, 2004. This write off amounted to $1,185,000, and has
been recorded in the Consolidated Statement of Operations as a gain on
extinguishment of debt.
- On May 10, 2004 the Company agreed to issue 6,336,883 shares of common
stock to Proshot Investors LLC and various other parties valued at
market value of $570,320 in settlement of debt guarantee liabilities of
$1,118,000, for a gain on extinguishment of debt of $547,680. Of the
shares issued in settlement, 1,873,651 are held in escrow and may be
used to satisfy a further recorded liability of the Company no later
than January, 2010. These shares were all issued in July, 2004. The
remaining liability represents a promissory note for $1,274,757 for
fees owed to Proshot's attorneys.
- During the year ended December 31, 2004 the Company wrote off trade
debts arising from discontinued operations amounting to $332,537. This
was based upon management's belief that these debt holders rights have
expired under the statutes of limitations in the various States in
which the debt holders reside.
- The Company also settled various other trade debts and loans payable in
the year by issue of common stock. These transactions resulted in a net
gain on extinguishment of debt amounting to $9,076.
9. STOCKHOLDERS' DEFICIT
Effective September 30, 2003, pursuant to a written consent of a majority of the
Company's stockholders, the Company amended its Articles of Incorporation to
change its name to GPS Industries Inc., to increase the authorized shares of
common stock from 100,000,000 shares to 250,000,000 shares, to authorize
25,000,000 shares of preferred stock, and to eliminate the dual classes of
common stock. The elimination of the dual classes of common stock has been
reflected in the Company's consolidated financial statements at December 31,
2003, and did not have any effect on the Company's consolidated results of
operations, financial position or cash flows.
F-18
A definitive proxy statement was filed with the SEC on March 21, 2005 to
increase the total number of authorized shares to 550,000,000 of which
500,000,000 will be common shares and 50,000,000 will be preferred shares. The
Company will hold a special meeting of shareholders on April 27, 2005 at 8:00 am
at their corporate offices in Surrey, B.C. to vote on the proposed increase of
authorized shares which will be used to raise additional equity capital for the
Company.
Details Of Shares Issued:
On January 7, 2003, the Company issued 250,000 shares of common stock
to a former employee of the Company, valued at market value of $10,000
as part of a severance package, which was charged to operations. This
employee is the son of the Company's Chief Executive Officer.
On January 29, 2003 the Company issued 1,903,363 shares to Augustine
Funds LP for principal and accrued interest of $45,000 and $8,770
respectively with respect to a $1,000,000 8% convertible debenture due
August, 2005
On February 1, 2003 and March 14, 2003, the Company issued 500,000
shares of common stock valued at $35,000 to a consultant for services
rendered.
On February 1, 2003, the Company issued 617,528 shares of common stock
to The Sharr Fund Ltd. for principal and accrued interest of $20,000
and $316, respectively, with respect to a $1,000,000 8% convertible
debenture due November 2, 2007. On March 1, 2003, the Company issued an
additional 600,294 shares of common stock to The Sharr Fund Ltd., for
principal and accrued interest of $20,000 and $1,315, respectively,
with respect to this convertible debenture. The debenture is
convertible (plus related accrued interest) into common stock at the
lesser of (i) $5.25 per share or (ii) 75% of the average of the three
lowest closing bid prices of the Company's common stock for the ten
days immediately preceding the conversion date.
On March 31, 2003, the Company issued 5,520,468 shares of common stock
to Augustine Funds, L.P. for principal and accrued interest of $127,000
and $26,193, respectively, with respect to a $1,000,000 8% convertible
debenture due August 4, 2005. The debenture is convertible (plus
related accrued interest) into common stock at the lesser of (i) $5.25
or (ii) 75% of the average closing bid price of the Company's common
stock for the five days immediately preceding the conversion date.
On April 15, 2003, the Company issued 3,100,000 shares of common stock
to various consultants for services rendered.
On April 22, 2003, the Company issued 446,914 shares of common stock to
The Sharr Fund Ltd. for principal and accrued interest of $20,000 and
$513, respectively, with respect to a $1,000,000 8% convertible
debenture due November 2, 2007.
On May 9, 2003, the Company issued 200,000 shares of common stock
valued at $38,000 for principal and accrued interest of $25,329 and
$12,671, respectively, for a partial payment on an $85,000 promissory
note obligation to La Jolla Investments.
On May 9, 2003, the Company issued 2,165,000 shares of common stock
valued at $411,350 to related parties for services rendered.
On June 24, 2003, the Company issued 422,459 shares of common stock to
the Shaar Fund Ltd. for principal and accrued interest of $40,000 and
$1,330, respectively, with respect to a $1,000,000 8% convertible
debenture due November 2, 2007.
F-19
During July 2003, the Company issued 6,000,000 shares of common stock
to Augustine Funds, L.P. for principal and accrued interest of $600,000
and $10,500, respectively, with respect to a $1,000,000 8% convertible
debenture due August 4, 2005.
On October 16, 2003 the Company issued 10,000,000 shares of common
stock in connection with a 57 month endorsement agreement. The shares
were valued at the market on date of issuance for $1,070,000.
Accordingly, this amount was recorded as deferred compensation and is
being amortized over the life of the agreement. The Company recognized
$168,950 in amortization expense for the year ended December 31, 2003.
On October 16, 2003 the Company issued 313,650 shares of common stock
valued at $ 12,546 to a former employee in settlement of a claim.
On December 1, 2003 the Company issued 200,000 shares of common stock
valued at $31,111 in partial settlement of accounts payable of $65,000.
On December 2, 2003 the Company issued 250,000 shares of common stock
valued at $25,000 to La Jolla for principal of $25,000 for a partial
payment on an $85,000 promissory note obligation to La Jolla
Investments.
On December 2, 2003 the Company issued 5,703,071 shares of common stock
valued at $399,215 in full payment of a convertible loan.
On December 2, 2003 the Company issued 100,000 shares of common stock
valued at $10,000 for services rendered.
On December 2, 2003 the Company issued 1,000,000 shares of common stock
valued at $100,000 to for advisory services.
On December 2, 2003 the Company issued 1,000,000 shares of common stock
valued at $100,000 for consulting services.
On December 2, 2003 the Company issued 17,000 shares of common stock
valued at $1,700 in full payment of a debt.
On December 2, 2003 the Company issued 155,500 shares of common stock
valued at $15,555 as a payment of interest on a short term loan.
On December 2, 2003 the Company issued 300,000 shares of common stock
valued at $30,000 as a signing bonus.
On December 2, 2003 the Company issued 2,068,000 shares of common stock
valued at $206,800 to related parties in lieu of the balance of a
severance settlement.
On December 2, 2003 the Company issued 500,000 shares of common stock
valued at $50,000 for services rendered.
On December 2, 2003 the Company issued 122,000 shares of common stock
valued at $18,300 to three former employees for salaries owed.
On December 2, 2003 the Company issued 3,445,131 shares of common stock
valued at $172,257 to a related party -in repayment of a long term debt
outstanding since 1999. The payment included interest accrued at the
rate of 5%, totalling $30,675
F-20
On December 2, 2003 the Company issued 2,802,567 shares of common stock
valued at $168,154 to Augustine Funds, L.P. for principal and accrued
interest of $148,000 and $20,154 respectively, with respect to a
$1,000,000 8% convertible debenture due August 4, 2005.
On December 2, 2003 the Company issued 500,000 shares of common stock
valued at $50,000 to five members of the Company's Board of Advisors.
On December 2, 2003 the Company issued 7,161,285 shares of common stock
for conversion of $500,000 of debt owed to Whag.
On December 2, 2003 the Company issued 500,000 shares of common stock
valued at $50,000 for legal fees provided.
On December 2, 2003 the Company issued 1,500,000 shares of common stock
valued at $150,000 to the Company's Board of Directors.
On December 2, 2003 the Company issued 1,107,000 shares of common stock
valued at $106,433 to the Sharr fund. Fund Ltd. for principal and
accrued interest of $100,000 and $6,433 respectively, with respect to a
$1,000,000 8% convertible debenture due November 2, 2007.
On December 2, 2003 the Company issued 2,066,100 shares of common stock
valued at $103,305 for conversion of debt
On December 31, 2003 the Company issued 6,316,802 shares of common
stock valued at $538,261 to Whag, $500,000 principal and accrued
interest of $38,261.
On December 31, 2003 the Company issued 3,000,000 shares of common
stock valued at $300,000 to Vindemiolla. $200,000 of this amount
related to the cancellation of a royalty program and the remaining
$100,000 related to the release of patent rights held as security.
On December 31, 2003 the Company issued 1,410,000 shares of common
stock valued at $141,000 for cash.
On December 31, 2003 the Company issued 150,000 shares of common stock
valued at $15,000 for principal of $15,000 for a partial payment on an
$85,000 promissory note obligation to La Jolla Investments.
On January 9, 2004, the Company issued 53,000 shares of common stock
valued at market value of $7,685 for services rendered.
On January 22, 2004, the Company issued 100,000 shares of common stock
valued at market value of $16,000 for services rendered.
On January 22, 2004, the Company issued 1,000,000 shares of common
stock valued at market value of $160,000 to Blue & Gold Capital in
settlement of debt.
On March 2, 2004 the Company issued 100,000 shares of common stock
valued at market value of $13,000 as a signing bonus to an employee.
On March 2, 2004 the Company issued 518,333 shares of common stock
valued at market value of $67,383 to various consultants for services
rendered.
On March 2, 2004 the Company issued 250,000 shares of common stock to
Atechs corporation valued at market value of $31,250 in settlement of
debt, related to a discontinued operation.
On March 2, 2004, the Company issued 23,518 shares of common stock
valued at $2,940 as payment of interest on a short term loan.
F-21
On April 15, 2004, the Company issued 20,000 shares of common stock
valued at market value of $2,400 for services rendered
On May 10, 2004 the Company issued 6,336,883 shares of common stock to
Proshot Investors LLC and various other parties valued at market value
of $570,320 in settlement of debt guarantee liabilities of $1,118,000.
1,873,651 of these shares are held in escrow and may be used to satisfy
a further recorded liability of the Company no later than January 2010.
On May 15, 2004, the Company issued 1,957,143 shares of common stock
valued at market value of $156,571 for services rendered.
On May 15, 2004, the Company issued 714,286 shares of common stock
valued at market value of $57,143 to Blue & Gold Capital in settlement
of debt and as payment for services rendered.
On June 7, 2004 the Company issued 60,590 shares of common stock to La
Jolla Cove Investors valued at market value of $4,847 in full
settlement of the debt outstanding.
On June 29, 2004, the Company issued 3,500,000 shares of common stock
to several parties valued at market value of $280,000 as payment for
the acquisition of the Pinranger patents.
On July 6, 2004 the Company issued 1,750,000 shares of common stock to
Mr. Ross McKenzie valued at market value of $157,500 in full settlement
of a promissory note outstanding.
On July 12, 2004, the Company issued 350,000 shares of common stock
valued at market value of $28,000 for services rendered
On July 26, 2004 the Company issued 2,991,088 shares of common stock
valued at $269,198 to the Shaar fund. Fund Ltd. for principal and
accrued interest of $160,000 and $25,543 respectively, with respect to
a portion of the $1,000,000 8% convertible debenture due November 2,
2007. The difference of $83,655 was charged to a loss on extinguishment
of debt.
On July 22, 2004 the Company issued 473,222 shares of common stock to
the MWW Group valued at market value of $42,590 in partial settlement
of a debt outstanding for $73,261, the difference of $30,671 has been
recorded as a corresponding gain on extinguishment of debt.
On August 30, 2004 the Company issued 500,000 shares of common stock
valued at $40,000 to Augustine Funds, L.P. for debt with respect to a
$1,000,000 8% convertible debenture due August 4, 2005, that was
previously settled in 2003. This settlement in 2004 was an additional
amount of settlement claimed by the debenture holders.
On August 30, 2004, the Company issued 400,000 shares of common stock
valued at market value of $32,000 for services rendered.
On August 30, 2004 the Company issued 1,450,000 shares of common stock
valued at market value of $116,000 as signing bonuses.
On August 30, 2004 the Company issued 2,857,143 shares of common stock
for cash purchase of $200,000. In connection with this investment, a
total of 714,285 warrants at an exercise price of $0.10 per share were
attached. These warrants have a three year life from the date of
issuance.
On August 30, 2004, the Company issued 1,428,571 shares of common stock
valued at market value of $112,857 for financing services rendered.
On November 3, 2004 the Company issued 500,000 shares of common stock
valued at $50,000 for services rendered.
On November 3, 2004 the Company issued 8,000,000 shares of common stock
valued at market value of $800,000 as part payment for the acquisition
of Optimal.
F-22
On November 24, 2004, the Company issued 10,000,000 shares of common
stock valued at market value of $1,000,000 in full settlement of an
outstanding debt.
On December 2, 2004, the Company issued 1,500,000 shares of common
stock valued at market value of $240,000 to various consultants for
services rendered.
On December 2, 2004 the Company issued 500,000 shares of common stock
valued at market value of $80,000 as part payment for the acquisition
of Optimal.
On December 2, 2004 the Company issued 450,000 shares of common stock
valued at market value of $67,500 to various consultants for services
rendered.
On December 27, 2004 the Company issued 2,446,428 shares of common
stock valued at $342,500 for services rendered.
On December 30, 2004 the Company issued 500,000 shares of common stock
valued at $70,000 for services rendered
On August 3, 2004, the Company issued 250,000 shares of Series A 5%
Convertible Preferred Stock for $250,000. This stock is convertible
into 3,521,126 common shares, at a conversion rate of $0.071 per share.
In addition, attached to the issuance are 880,282 common stock purchase
warrants at an exercise price of $0.167 per share. In connection with
this offering the Company recognized a deemed dividend of $120,423, of
which $76,057 is attributed to the beneficial conversion feature, and
$44,366 is attributed to the value of the warrants which are
exercisable upon issuance. The value of the warrants was determined
with use of the Black-Scholes pricing model with the following factors:
3 year life, risk free rate of return of 4% and a volatility factor of
125%.
On October 27, 2004, the Company issued 125,000 shares of Series A 5%
Convertible Preferred Stock for $125,000. This stock is convertible
into 2,371,912 common shares, at a conversion rate of $0.0527 per
share. In addition, attached to the issuance are 592,978 common stock
purchase warrants at an exercise price of $0.124 per share. In
connection with this offering the Company recognized a deemed dividend
of $68,785, of which $45,422 is attributed to the beneficial conversion
feature, and $23,363 is attributed to the value of the warrants which
are exercisable upon issuance. The value of the warrants was determined
with use of the Black-Scholes pricing model with the following factors:
3 year life, risk free rate of return of 4% and a volatility factor of
125%.
All of the above securities were issued pursuant to an exemption from
the registration requirements of the Securities Act 1933, as amended,
pursuant to Section 4(2) thereof.
10. STOCK PURCHASE WARRANTS
During the year ended December 31, 2004, the Company issued the following
warrants:
During the year ended December 31, 2004, the Company issued 3,166,667
warrants associated with various debt issuances. (see Note 7)
During the year ended December 31, 2004, the Company issued warrants to
purchase 714,285 shares at $0.10 in connections with the sale of common
stock (see Note 9)
During the year ended December 31, 2004, the Company issued for
services warrants to purchase 3,950,000 shares of common stock at
prices ranging from $0.055 to $0.19 per. The Company has valued
1,750,000 of these warrants at $183,000, and has accounted for this as
F-23
an operating expense. The valuation was based upon a Black-Scholes
calculation, assuming a three year life, a risk free rate of return of
ranging from approximately 2 to 4% and a volatility ranging from
approximately 100% to 250%. The remaining 2,200,000 warrants, issued
for services, were issued at exercise prices ranging from $0.10 to
$0.19 per share, with a 120 day life. These remaining 2,200,000
warrants were valued at $11,490, and has accounted for this as an
operating expense. Theses warrants were valued based upon a
Black-Scholes calculation, assuming a 120 day life, a risk free rate of
return of approximately 4% and a volatility of approximately 100% to
250%. These 2,200,000 warrants have expired as of December 31, 2003.
During the year ended December 31, 2003, the Company issued the following
warrants:
During the year ended December 31, 2003, the Company issued a warrant
for the purchase of 1,000,000 shares at $0.10 per share. These warrants
are associated with debt issuances. (see Note 7)
A reconciliation of warrant activity is as follows:
Number of Weighted
shares average
issuable exercise Price
-------------- ---------------
Balance at January 1, 2003 5,735,714 $ 0.055
Granted 1,000,000 0.10
Exercised - -
Expired (1,885,714) (1.07)
-------------- ---------------
Balance at December 31, 2003 4,850,000
0.053
Granted 9,504,211 0.143
Exercised - -
Expired (2,200,000) (0.152)
-------------- ---------------
Balance at December 31, 2004 12,154,211 $ 2.059
============== ===============
The following table summarized warrants outstanding and exercisable as of December 31, 2004:
Number of Weighted-average
shares remaining Number of
underlying contractual shares
Exercise Price warrants life exercisable
-------------------- -------------- -------------- --------------
(in Years)
$6.20 - $6.28 3,850,000 1.29 3,850,000
$0.32 - $0.15 4,996,948 2.66 4,996,948
$0.124 - $0.055 3,307,263 2.23 3,307,263
-------------- -------------- --------------
12,154,211 1.34 12,154,211
|
11. STOCK OPTIONS
On July 15, 2002, the Company's Board of Directors passed a resolution (i)
amending the 2001 Stock Option Plan, as permitted under section 8 thereof, to
increase the maximum number of Shares that may be issued or transferred pursuant
to Options to 14,000,000 and (ii) adopting the 2002 Stock Compensation Plan,
which provides for the issue of up to 1,250,000 shares at $0.02 per share and
1,250,000 at $0.03.
F-24
On July 31, 2002, the Company's Board of Directors passed a resolution providing
for the issue of cashless options to 2 former executives of the Company to
acquire a total of 8,003,875 shares of the Company at a deemed price of $0.0075
in settlement of outstanding salaries. Options covered by this resolution were
issued on September 9, 2002 resulting in an administrative cost of $60,029. As
of December 31, 2002, 3,448,280 of these options had been exercised leaving a
balance outstanding of 4,555,595.
On November 6, 2003, the Company's Board of Directors passed a resolution
amending the 2001 Stock Option Plan, as permitted under section 8 thereof, to
increase the maximum number of Shares that may be issued or transferred pursuant
to the Plan to 30,000,000. In the year ended December 31, 2003, the Company
granted to employees under this Plan 1,260,000 common share options. Of these
option granted in 2003, a total of 240,000 were cancelled in the year ended
December 31, 2004 upon termination of various employees.
In April 2003, the Company adopted the 2003 Stock Option Plan. A total of
4,000,000 shares may be issued under this Plan. As of December 31, 2004 no
options have been granted under this plan.
No options were issued to GPSI staff in the year ended December 31, 2004.
There were no options granted in the year ended December 31, 2004
Stock option activity under the stock option plan is as follows:
Weighted-
Number of Shares average
Issuable exercise
# price $
--------------------------- --------------------------- --------------
Balance December 31, 2002 5,655,595 $0.045
Granted 1,260,000 0.10
Exercised
--------------------------- ---------------------------- -----------
Balance December 31, 2003 6,915,595 0.055
Granted 0 0
Exercised 0 0
Expired (240,000) 0.10
-------------------------- ----------------------------- -----------
Balance December 31, 2004 6,675,595 $0.053
============================= ===========
|
The following table summarizes the outstanding and exercisable options as at
December 31, 2004
Exercise Number Weighted-average Number
prices outstanding remaining exercisable
$ # contractual life #
--------------- ------------------ -------------------- -------------
0.20 1,100,000 1.00 1,100,000
0.075 4,555,595 2.69 4,555,595
0.10 1,020,000 2.75 1,020,000
--------------- ------------------ -------------------- -----------
6,675,595 6,675,595
|
F-25
12. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office premises and certain of its office equipment under
operating leases with various expiration dates to 2006. Rent expense for the
years ended December 31, 2004 and December 31, 2003 was $111,983 and $58,299
respectively. This table shows future minimum lease commitments under the leases
at December 31, 2004
2005 $ 79,234
2006 6,610
-------
$ 85,844
=======
|
Legal Proceedings
The Company has been threatened with potential litigation for an amount of
approximately $155,000, which is included in accounts payable. The agreement is
that further negotiations will take place before any action is taken on this
balance.
The Company's wholly owned subsidiary, IGT is a defendant in a number of
lawsuits principally arising from vendor debt, which in the aggregate are not
material or accounted for on the books. Both IGT and ProShot have filed Chapter
7 petitions under the federal bankruptcy laws. The financial statements have not
been adjusted to reflect the bankruptcy filings.
13. INCOME TAXES
The Company is subject to United States Federal income taxes at an approximate
rate of 35% and is subject to Canadian federal and provincial combined tax rates
of approximately 36%. It is eligible for a credit against its US taxes of
amounts approximating its Canadian taxes.
The reconciliation of the provision (recovery) for income taxes before the
extraordinary loss, at the United States federal statutory rate compared to the
Company's income tax expense as reported is as follows:
2004 2003
---------- -----------
$ 000's $ 000's
---------- -----------
Expected (benefit) at U.S. statutory rates (3,147) (1,291)
Change in valuation allowance 1,834 668
Non-deductible expenses 1,313 623
---------- ----------
Income tax provision (benefit) - -
========== ==========
|
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized, a valuation allowance for those deferred tax assets for which it is
more likely than not that realization will not occur. Significant components of
the Company's deferred tax assets as of December 31 are as follows:
F-26
1 2004
----------
$ 000's
----------
Net operating loss carryforwards 9,030
Research expenditures for Canadian tax purposes 1,170
----------
Total deferred tax assets 10,200
10,200
----------
Net deferred tax assets -
==========
|
The Company has scientific research expenditures for Canadian income tax
purposes in the amount of $3,655,000 that may be applied to reduce taxable
income of future years for Canadian income tax purposes.
The Company has net operating losses for United States and Canadian income tax
purposes of approximately $25,800,000, which will expire in the year 2024.
Pursuant to Section 382 of the Internal Revenue Code, use of the Company's net
operating loss carryforwards may be limited if the Company experiences a
cumulative change in ownership of greater than 50% in a moving three-year
period. Ownership changes could impact the Company's ability to utilize net
operating losses and credit carryforwards remaining at the ownership change
date. The limitation will be determined by the fair market value of common stock
outstanding prior to the ownership change, multiplied by the applicable federal
rate.
F-27
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no changes and disagreements with accountants on accounting and
financial disclosure during the year.
ITEM 8a. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c). Based upon that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Company's periodic SEC
filings within the required time period.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all directors and
executive officers of the Company and the key management personnel as of
December 31, 2004. The Board of Directors of the Company is comprised of only
one class. The directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. There are no family
relationships between or among the directors, executive officers or persons
nominated or charged by the Company to become directors or executive officers.
Executive officers serve at the discretion of the Board of Directors, and are
appointed to serve until the first Board of Directors meeting following the
annual meeting of stockholders. Also provided herein are brief descriptions of
the business experience of each director, executive officer, and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
Executive Officers:
Robert C. Silzer, Sr. - Chairman, President, Chief Executive Officer and
Director
Robert Silzer has served as the Chief Executive Officer, President, Chairman and
Director since GPSI was formed in 1995. Prior to founding GPS Industries, Silzer
founded XGA, an online golf store and website company in 1993. He also founded
Advanced Gaming Technology, Inc. in 1992, an electronic gaming company, where he
served as Chief Executive Officer until 1998. From 1986 to 1992, Mr. Silzer
founded and grew the private company Supercart International where he patented
plastic shopping carts and took them to market. With over 30 years as an
entrepreneur in the technology and other markets, Mr. Silzer has developed
expertise in taking companies to market, growing start-up business, initial
public offerings, raising funds, operations, marketing and international
licensing.
George Dorin, Chief Financial Officer
George Dorin has served as the Chief Financial Officer since June 1, 2004 and
added the role of Corporate Secretary on June 14, 2004. From November, 2003 to
April, 2004 and from July, 1995 to January, 2000, Mr. Dorin served as a contract
Chief Financial Officer, Corporate Secretary, VP Finance, or VP Corporate
Development with 23 clients through his consulting business G.G. Dorin and
Associates, where he provided financial management, corporate finance, and
business planning services. These clients included technology companies and
several public companies. From February, 2000 to August, 2003, Mr. Dorin was
Chief Financial Officer and Corporate Secretary for NewspaperDirect, Inc., a
United States technology company with global operations. From January, 1992 to
January, 1995, Mr. Dorin was the Executive Director of Finance for Boston Pizza
International, Inc., a restaurant franchisor with more than 100 restaurants in
Canada, United States, and Asia. From 1990 to 1991, Mr. Dorin was Acting Manager
of Corporate Finance for British Columbia Hydro, Treasury Division. Dorin's
background also includes three years as a Manager with Price Waterhouse, a
public accounting and consulting firm and three and a half years with Ernst &
Whinney, now part of KPMG. He had also previously worked as an Assistant Manager
15
with the Royal Bank of Canada, as an Investment Advisor with Pemberton
Securities and as the Chief Accountant at Rogers Cable TV. Mr. Dorin is a
Chartered Accountant with an MSc(Econ) degree from the London School of
Economics in England and holds undergraduate degrees in both Accounting and
Science from the University Of British Columbia. He also holds a diploma Fellow
of the Canadian Securities Institute (FCSI).
Blake Ponuick, Vice President, Sales and Marketing
Blake Ponuick has served as Vice President of Sales and Marketing of GPSI since
September, 2003. Since 2001, Ponuick has served as Director of Mergence
Communications, Inc., an IP-telephony and wireless application service provider,
which he founded in 2001. In 1996, Ponuick founded GSN Global Services Network,
Inc., a unified communications application service provider, where he served as
President, Chief Executive Officer and Director until 2001. From 1993 to 1995,
Ponuick was Vice President of Marketing for International Investment Properties,
a real estate development, syndication and services company. Ponuick also served
on the board of several companies, including Galaxy Telecom, Techneos Systems,
and Technodesign Systems.
Alex Doaga, Vice President, Operations
Alex Doaga joined the Company in 1999 and has served as Vice President of
Operations since 2003. From 2001-2002, Doaga was Vice President, Engineering for
Synapse Global Development, a GPS wireless asset management company. From
1996-1999, Doaga was President and Chief Executive Officer of Westgate Digital
Corporation, a telecommunication voice, video and data services company. From
1991 to 1996, Doaga was President and Chief Executive Officer of the Net Group
of Companies, a cable TV and data communication systems group in Romania. Doaga
received his MSc. Degree in Automotive Engineering from the Bucharest
Polytechnic University in Romania.
Other Key Members Of The Management Team:
Don Adamson, Vice President of Golf Development
Don Adamson has served as Vice President of Golf Development with GPSI since
2003. In 1991, Adamson founded LeaderBoard Tournament Systems, tournament and
scoring system company, and served as President and Chief Executive Officer
until 2003. Previously, Adamson held several positions as Director of Golf,
General Manager and Head Professional at golf courses throughout British
Columbia. Adamson graduated with honours from the Canadian Professional Golf
Association National Education program and is a member of the Canadian
Professional Golf Association (CPGA) and sat on the board of directors of both
the British Columbia Professional Golf Association and the CPGA.
Bradley Allen, Vice President, European Operations
Bradley Allen has served as Vice President, European Operations since June, 2004
and Vice President, Australia since August, 2003. Allen previously set up
Australasian operations for the Company. From 2000 to 2003, Allen was a Director
with Satellite Golf Systems. From 1999 to 2000, Allen founded and served as
Director with Blue Sky Partners, a management consultancy firm. In 1993, Allen
founded Greenside Management, a fairways sporting events company. Previously,
Allen served in investigation and business analysis roles with the Australian
government and taxation offices. Allen received his MBA from the Queensland
University of Technology in 2000 and his BBA from the University of Canberra in
1996.
Julius Farkas, Director of Manufacturing
Julius Farkas has served as Director of Manufacturing since 1999. In 1996,
Farkas founded Synapse Ventures Corporation and was Director until 1999. From
1994 to 1996, Farkas was the Director, Quality Assurance for Scientific Atlanta
(Canada), Inc. From 1991 to 1994, Farkas was Manager, Operations for Weir-Jones
Engineering, Ltd. Previously, Farkas served as a Manager of Operations, Customer
Service and Engineering for corporations in Hungary, Canada and the United
Kingdom. Farkas is trained in Electronics Engineering and Communications
Electronics Technology from colleges in the United States and Canada.
Michael Martin, Corporate Controller
Michael Martin has served as the Corporate Controller of GPSI since April, 2004.
Prior to joining GPSI he was VP Finance of Axton Manufacturing Ltd in Vancouver,
BC from 2002 to 2003. From 1985 to 1987, from 1991 to 1993, and from 1996 to
2001 he provided contract consulting services to various companies in London,
16
England and in Vancouver, British Columbia. He was also CFO for Johnson
Enterprises Ltd. In Langley, B.C. from 1989 to 1991, Manager of Business
Investigations of Coopers & Lybrand in Langley, B.C. from 1987 to 1989 and
Controller for Galactic Resources Ltd. in Vancouver from 1983 to 1985. Before
moving into industry he was a Manager with Peat Marwick Mitchell in Vancouver
and Jamaica from 1977 to 1982 and articled with Viney Merretts, Chartered
Accountants in London, England from 1972 to 1977. Mr. Martin is a Chartered
Accountant and graduated with a B.A (Hons) from University College, London
University.
Board of Directors
Robert C. Silzer, Sr., Chairman & Director
See biography under Executive Officers
Bart Collins, Director
Bart Collins has served as a Director of GPSI since January 26, 2005. Collins
replaced Greg Norman as director on January 26, 2005. Greg Norman joined the
Board in 2003 and signed an Endorsement Agreement with GPSI through his company
Great White Shark Enterprises on April 1, 2003. It was amended on January 12,
2005 requiring that Greg Norman resign from the Board of Directors of GPSI
because of his limited time availability, but Mr. Norman now sits on GPSI's
Advisory Board. Collins is President of Great White Shark Enterprises, a
multi-national corporation founded by Greg Norman in 1993. Great White Shark
Enterprises is involved in the areas of golf course design, residential
development, turfgrass development, golf events, golf equipment, merchandising
and licensing. Having worked in some capacity with Norman since 1987, Collins
was retained on a full time basis by GWSE in 1995 as an International Vice
President based in Sydney, Australia, overseeing GWSE's interests in the
Asia-Pacific region. In 1997 Collins moved into his current position in Jupiter,
Florida. Prior to joining GWSE, he spent 12 years with the sports conglomerate
International Management Group which he joined in 1983 and became a Vice
President. At the age of 31 he established and managed IMG's operation in
Southeast Asia from their offices in Singapore. Greg Norman was one of IMG's
clients at the time and one of the athletes that Collins represented in
Australia. A native of Cleveland, Ohio, Mr. Collins graduated from Wittenberg
University in 1983.
Rick Horrow, Director
Rick Horrow has been a Director of the Company since February 19, 2003 and is
sports attorney and financier for a number of public and private sports
partnerships. Mr. Horrow is the founder and president of South Florida-based
Horrow Sports Ventures, a respected name in sports consultancy around the world,
is responsible for the development, implementation and modernization of many of
the 69 NFL, NBA, NHL, and Major League Baseball stadiums and arenas in North
America. As President of Horrow Sports Ventures, he negotiated the strategic
sale of a substantial equity position from his Company to Omnicom Group, Inc.
Rick Horrow has also been involved in the creation of the $228 million Kansas
International Speedway, the approval of a $250 million single-issue public
facility referendum in Oklahoma City, and he has testified before the Senate
Committee on the Judiciary on behalf of sports teams, owners, and developers.
Mr. Horrow consults with the PGA TOUR on public funding initiatives, serves as
Development Advisor for Great White Shark Enterprises, and has also been
involved with the Jack Nicklaus Golden Bear companies. He has participated in
facility development for the Ladies Professional Golf Association, and has
worked with the State of Virginia to design and implement a master plan for the
development of golf course real estate projects for the public sector. He served
as an expert commentator for Fox Sports Network, ESPN, Fox Sports Biz and is
currently the Sports Business Analyst for CNNfn, Fox Sports Radio, Sporting News
Radio, CBS Sportsline and USA Today / XM Satellite Radio. Mr. Horrow has also
been involved in major facility deals with the National Football League, Major
League Baseball, National Basketball Association, NASCAR, Major League Soccer,
the NASDAQ 100 tennis tournament and the United States Department of Commerce
Business Development Center.
Douglas J. Wood, Director
Douglas Wood has been a Director of the Company since February 26, 2003. He
began his career as a financial analyst, and later, senior financial analyst for
Rockwell as part of the Defense Electronic Operations department, based out of
Anaheim, California. He then moved on to Kennemetal, Inc., where he served as
Project Manager for International Operations, Manager of Defense Products
Operations, and Marketing Manager for Metallurgical Products. He went on to
17
become co-owner and president of Carrera Corporation, a provider of custom
injection moulding manufacturing services that he owned and operated for 13
years. After the successful sale of Carrera, Mr. Wood contributed to the
formation and establishment of Astro Instrumentation LLC, a leading provider of
cost-effective and complete manufacturing solutions for technology and high-end
corporate clients, such as Bayer, makers of Bayer Aspirin. Mr. Wood was
instrumental in signing an agreement with Inforetech during the winter of 2002
whereby Astro provided manufacturing and support services for GPSI.
Mr. Wood also sits on the Board of the Latrobe Foundation, the Westmoreland
Trust and the Board of Trustees of Seton Hall University. Mr. Wood holds a B.A.
in economics from Brown University and an M.B.A. in corporate finance and
accounting from Cornell.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended , requires the
Company's officers and directors, and persons who own more than ten per cent of
a class of the Company's securities , to file reports of ownership and changes
in ownership of common stock (Forms 3, 4, and 5) with the Securities and
Exchange Commission. Three of the Company's officers are late in filing Form 3,
namely George Dorin, CFO, Blake Poniuk, VP Sales & Marketing and Alex Doaga, VP
Operations.
Audit Committee
The Company formed an audit committee on January 26, 2005 consisting of Doug
Wood, Bart Collins and Rick Horrow. Mr. Wood was appointed Chairman of the audit
Committee and the Board of Directors have determined that Mr. Wood is an "audit
committee financial expert" as that term is defined in Item 401(e) of Regulation
S-B under the Exchange Act of 1934. At the present time, none of the members are
deemed to be independent.
Code of Ethics
The Company has adopted a business code of ethics for directors and officers and
has also developed an Insider Trading Policy which it has distributed to all
Directors and Officers.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth aggregate amounts of compensation paid or accrued
by GPSI to our Chief Executive Officer and the other three most highly
compensated executive officers (the "Named Executive Officers") whose annual
expected compensation exceeded $100,000 as of December 31, 2004. We have only
included annualized 2004 figures in effect as at December 31, 2004 as one of the
executive officers did not commence employment with the Company until June 1,
2004 and some others had their compensation revised in 2004. All amounts are in
Canadian dollars as these officers live in British Columbia, Canada and are paid
in Canadian dollars. Other annual compensation represents car allowance. Blake
Ponuick is paid as a contract consultant.
Annualized Long Term
Compensation
----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Stock Underlying Payout
Position ($) Compensation Awards Options/SARs Compensation
----------------------------------------------------------------------------------------------------------------------------
Robert C. Silzer, Sr., 2004 $ 260,723$ 10,000 $14,400-- -- -- --
Chairman, Chief Executive
Officer, and President
Alex Doaga, Vice
President Operations 2004 $ 140,000$ 1,000 -- -- -- --
George Dorin, Chief
Financial Officer &
Corporate Secretary 2004 $ 130,000$ 1,000 -- 300,000-- -- --
Blake Ponuick, Vice
President Sales &
Marketing 2004 $ 120,000$ 1,000 $4,800-- 300,000-- -- --
|
18
Aggregated Option Exercises and Fiscal Year End Option Values
The following table provides information regarding the number of shares
covered by both exercisable and unexercisable stock options as of March 31, 2005
and the values of "in-the-money" options, which values represent the positive
spread between the exercise price of any such option and either the actual or
estimated fair market value of the underlying security, as applicable.
None of the options were exercised during the fiscal year ended December 31,
2004
No. of Shares Value of
Shares Value Underlying Unexercised In-the
Acquired Realized Unexercised Options at Money Options At
on (9) Fiscal Year-End Fiscal Year-End
Name Exercise(#) Exercisable/Unexercisabl Exercisable/Unexercisable
---------------------------------------------------------------------------------------------------------------------------
Robert C. Silzer, Sr. 0 $ 0
Alex Doaga 700,000/0 $96,600 0
George Dorin 0 $ 0
Blake Ponuick 0 $ 0
0 $ 0
|
Employments and Severance Agreements
Robert C. Silzer, Sr., President & CEO currently does not have an employment
agreement with the Company. The current compensation agreed by the Board
provides for a base salary of $260,000 per annum ($134,983 in 2003), a car
allowance of $1,200 per month, an annual bonus grant, benefits, and stock
options, as determined and awarded by the Board from time to time in its sole
discretion. The Company paid a $10,000 bonus to Mr. Silzer in 2004 but did not
grant stock options to Mr. Silzer in 2004.
The Company entered into an employment agreement with Alex Doaga, the current
Vice President of Operations on September 1, 2002 for a five-year term, which
was renegotiated after December 31, 2003. The agreement called for an annual
salary of $80,000. This agreement was subsequently renegotiated and in 2004 Dr.
Doaga earned a base salary of $140,000 per year. In January, 2005 a commitment
was made to Doaga to increase this base salary to $151,000 per year effective
January 1, 2005, plus to provide an annual bonus of up to 25% of his base
salary, and stock options. This increase has not yet been implemented. Mr. Doaga
received a bonus of $1,000 in 2004.
The Company entered into a contract consulting agreement with George Dorin, our
Chief Financial Officer, on May 15, 2004 for a two month term, which was
converted into an employment arrangement effective June 1, 2004. His annual base
salary is $130,000. On August 31, 2004 Mr. Dorin was granted 300,000 restricted
common shares of the Company. He was granted a further 150,000 common shares on
January 1, 2005. In early January, 2005 a commitment was made to Mr. Dorin to
increase his annual compensation to $150,000 effective January 1, 2005. At that
time it was also agreed that he would receive an annual bonus of up to 25% of
his base salary, such bonus to be at the sole discretion of the CEO. Stock
Options for 700,000 common shares have also been agreed to be issued in 2005. Mr
Dorin does not currently have an employment agreement in effect with the Company
and his employment may continue upon the mutual agreement of the parties thereto
except the employment relationship will be on an "at will" basis. Mr. Dorin
received a bonus of $1,000 in 2004.
The Company entered into a contract consulting relationship with Blake Ponuick
in September, 2003 which called for an annualized consulting fee of $80,000
which was to be invoiced twice a month. In March, 2004 this monthly fee was
increased to $120,000 per annum and a car allowance was granted of $400 per
month. Effective January 1, 2005, Mr. Ponuick's annualized consulting fee
increased to $135,000 and a commitment was made to him to pay a commission of
one half of 1% of gross revenue earned by the Company. The Company has not put
the terms of this arrangement into a formal consulting agreement. Mr. Ponuick
receives employee benefits which include extended health, dental and life
19
insurance, as if he were an employee of the Company. He also received a bonus of
$1,000 in 2004. A Canada Revenue Agency payroll review could rule that Mr.
Ponuick is deemed to be an employee and GPSI could be liable to pay Employment
Insurance and Canada Pension Plan premiums for the deemed employer portion of
those contributions to the Government Of Canada. The Company could also be
subject to penalties and interest relating to these deemed employer
contributions not paid by the Company.
Director Compensation
Currently the Directors who are not employees of the Company do not receive any
compensation for attending Board meetings except that in 2003 each Board member
had been granted 500,000 restricted common shares valued at $50,000 to sit on
the Board. Mr. Horrow also receives $10,000 US per month for his consulting
services to the Company, which include his finders fee to bring Mr. Norman to
GPSI. Mr. Norman's company, Great White Shark Enterprises, received compensation
in 2004 in accordance with the Endorsement Agreement signed with the Company in
April, 2003. Mr. Norman was a Director during 2004 and resigned from the Board
on January 26, 2005 at which time Bart Collins joined the Board in his place. Mr
Silzer is currently compensated in his capacity as President & CEO of GPSI.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS, MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 14, 2005, certain information
regarding beneficial ownership of our common stock by (i) each person or entity
who is known by us to own beneficially more than 5% of the outstanding shares of
common stock, (ii) each of our directors, (iii) each of the Named Executive
Officers, and (iv) all directors and executive officers as a group. As of March
14, 2005, there were 207,552,851 shares of our common stock issued and
outstanding. In computing the number and percentage of shares beneficially owned
by a person, shares of common stock that a person has a right to acquire within
sixty (60) days of March 14, 2005, pursuant to options, warrants or other rights
are counted as outstanding, while these shares are not counted as outstanding
for computing the percentage ownership of any other person. Unless otherwise
indicated, the address for each shareholder listed in the following table is c/o
GPS Industries, Inc., Suite 214, 5500 152nd St., Surrey, British Columbia V3S
5J9. This table is based upon information supplied by directors, officers and
principal shareholders and reports filed with the Securities and Exchange
Commission.
Shares of Percentage
Common Stock of Total
Beneficially Common
Name and Address of Beneficial Owner Owned Stock (1)
-------------------------------------- ------------- -------------
5% Beneficial Owners
Greg Norman (1) 13,350,000 6.43%(1)
Directors and Officers
----------------------
Robert C. Silzer, Sr. 6,371,306 3.07%
Alex Doaga 1,260,000 .61%
George Dorin 450,000 .22%
Blake Ponuick 0 0%
Doug Wood 7,896,771 3.80%
Bart Collins 150,000 .07%
Rick Horrow 1,250,000 .60%
Total Directors and Officers
as a Group (7 persons) 17,378,077 8.37%
|
(1) 10,000,000 shares are held in the name of Greg Norman Irrevocable Trust
dated 12/11/2004 and 2,850,000 are held in the name of Gregory John
Norman Intangibles Trust pursuant to a credit agreement dated December
3, 2004.
20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This section describes the transactions we have engaged in with persons who
were directors, officers or affiliates at the time of the transaction, and
persons known by us to be the beneficial owners of 5% or more of our common
stock since January 1, 2004.
As of December 31, 2004, we owed $3,000,000 of principal indebtedness to Great
White Shark Enterprises, Inc. which is owned by Greg Norman.
As of December 31, 2004, we owed approximately $1,555,000 to Doug Wood and the
Wood Family Trust. Interest is payable at 8% per annum.
As of December 31, 2004 we owed $603,415 to Robert C. Silzer, Sr. (2003,
$623,036). Interest is payable at 8% per annum.
Promissory notes payable to officers and directors or companies controlled by
officers and directors of the Company are unsecured and repayable on demand.
As of December 31, 2004 the Company was obligated to Rick Horrow to pay his
Company Horrow Sports Ventures $10,000 per month as a consulting fee. $163,675
remained owing to Horrow Sports Ventures as at December 31, 2004 for these
consulting services. This consulting agreement will expire in July, 2005.
Stock Option Plan
The purpose of the plan is to provide additional incentives to those Directors,
Officers and key employees and Consultants of the Company and its subsidiaries
whose substantial contributions are essential to the continued growth and
success of the Company's business in order to strengthen their commitment to the
Company, to motivate them to faithfully and diligently perform their assigned
responsibilities and to attract and retain competent and dedicated individuals
whose efforts will result in long-term growth and profitability of the Company.
As of December 31, 2004 there were 1,020,000 options issued to employees at a
price of $0.10 outstanding. There were 1,260,000 options outstanding to
employees at December 31, 2003. The difference is the amount of options which
had been issued to employees and which expired in 2004 because they had left the
Company. No stock options were issued to employees, officers or directors in
2004.
Details of the Stock Option Plan are provided in Note 10 to the Financial
Statements. The Board has approved 30,000,000 shares to be made available for
the stock options.
Equity Compensation Plan
Details of equity which has been issued by the Company in lieu of compensation
to former employees, consultants, and other service providers have been included
in the Notes to the Financial Statements.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes the securities authorized for issuance as
of December 31, 2004 under the Company's 2001 Stock Option Plan and the
Company's 2003 Stock Option Plan, the number of shares of common stock issuable
upon the exercise of outstanding options, the weighted average exercise price of
such options and the number of additional shares of common stock still
authorized for issuance under such plans.
21
Number of Weighted-average Number of securities
securities to be exercise price remaining available or
issued upon of of future issuance under
exercise of outstanding equity compensation
outstanding options, plans
options, warrants and rights
Plan category and rights
---------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 6,675,595 $ .053 27,324,405
Equity compensation plans
not approved by security
holders $
---------------------------------------------------------------------------------------------------------------------------
Total 6,675,595 $ .053 27,324,405
========= ===========
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22
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K.
(a ) Exhibits
Exhibit Number Title
3.1 Articles of Incorporation as filed with the Nevada
Secretary of State on December 12, 1995 (1)
3.2 Certificate of Amendment to the Articles of
Incorporation as filed with the Nevada Secretary of
State on January 3, 2000 (2)
3.3 Certificate of Amendment to the Articles of
Incorporation as filed with the Nevada Secretary of
State on January 20, 2000 (2)
3.4 Bylaws (1)
10.1 Share Exchange and Finance Agreement dated as of
December 16, 1999 (2)
10.2 Security Purchase Agreement The Shaar Fund Ltd. (3)
10.3 Stock Purchase Agreement to Acquire Optimal Golf
Solutions, Inc. (4)
10.4 Credit Agreement With Great White Shark Enterprises,
Inc. (5)
10.5 Amendment to Endorsement Agreement Dated April 1, 2003
Relating To Greg Norman Resigning From The Board Of
Directors And Going On To The Advisory Board. (6)
21.1 Subsidiaries of Registrant. *
23.1 Consent of Independent Certified Public Accountants*
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002 *
31.2 Certification of the Chief Financial Officer pursuant
to Section 302 of the Sarbanes Oxley Act of 2002 *
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes Oxley Act of 2002 *
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(1) Incorporated by reference to the Exhibits to the Registration Statement on
Form 10-SB
(2) Incorporated by reference to the Exhibits to the Form 8-K filed on Jan 29,
2002
23
(3) Incorporated by reference to Registration Statement Form SB-2 filed on
October 4, 2000
(4) Incorporated by reference to the Form 8-K filed November 26, 2004
(5) Incorporated by reference to the Form 8-K filed December 8, 2004
(6) Incorporated by reference to the Form 8-K filed January 26, 2005
(7) Incorporated by reference to the Definitive Proxy Statement filed March 21,
2005
* Filed herewith.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees: The aggregate fees billed for the year ended December 31, 2004 for
professional services rendered by Sherb & Co. for the audit of our annual
financial statements and the review of financial statements for the Quarter
ended September 30, 2004, the Quarter ended June 30, 2004 the Quarter ended
March 31, 2004 was $50,500 as compared to $41,500 for the audit fees for the
year ended December 31, 2003.
Tax Fees: The aggregate fees billed for the year ended December 31,
2004 for professional services rendered by Sherb & Co. for tax compliance and
tax planning was approximately $20,000 as compared to $Nil for the year ended
December 31, 2003.
All Other Fees: The aggregate fees billed for the year ended December
31, 2004 for products and services provided by Sherb & Co. other than the
services reported above was $Nil as compared to $Nil for year ended December 31,
2003..
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee's, or the Board of Directors acting as the Audit
Committee, policy is to pre-approve all audit and permissible non-audit services
provided by our independent auditors. These services may include audit services,
audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services. The independent auditor and
management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditor in accordance with
this pre-approval
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GPS INDUSTRIES, INC.
By: /s/ Robert C. Silzer, Sr.
-------------------------------
Robert C. Silzer, Sr.
President, Chief Executive
Officer
Dated: July 26, 2005
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GPS INDUSTRIES, INC.
By: /s/ George G. Dorin
-------------------------------
George G. Dorin
Chief Financial Officer
Dated: July 26, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Robert C. Silzer, Sr. Dated: July 26, 2005
--------------------------
Robert C. Silzer, Sr.
President, Chief Executive Officer,
Chairman and Director
By: /s/ George G. Dorin Dated: July 26, 2005
--------------------------
George G. Dorin
Chief Financial Officer and
Corporate Secretary
By: /s/ Douglas Wood Dated: July 26, 2005
--------------------------
Douglas Wood
Director
By: /s/ Rick Horrow Dated: July 26, 2005
--------------------------
Rick Horrow
Director
By: /s/ Bart Collins Dated: July 26, 2005
--------------------------
Bart Collins
Director
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25
Exhibit 31.1
CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, Robert C. Silzer, certify that:
1. I have reviewed this annual report on Form 10-KSB of GPS Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such internal controls to ensure that material information
relating to the registrant and its subsidiaries (collectively, the "Company") is
made known to me by others within the Company, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls as
of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 26, 2005 /s/Robert C. Silzer
-------------------------------------
Robert C. Silzer
President and Chief Executive Officer
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Exhibit 31.2
CERTIFICATION
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002
I, George G. Dorin, certify that:
1. I have reviewed this annual report on Form 10-KSB of GPS Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such internal controls to ensure that material information
relating to the registrant and its subsidiaries (collectively, the "Company") is
made known to me by others within the Company, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls as
of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: July 26, 2005 /s/George G. Dorin
-------------------------------------
George G. Dorin
Chief Financial Officer
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Exhibit 32
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND TREASURER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-KSB of GPS Industries, Inc.
(the "Company") for the year ended December 31, 2004 (the "Report"), I, Robert
C. Silzer, hereby certify in my capacity as President and Chief Executive
Officer of the Company, pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge and belief:
1. The Report fully complies with the requirements of Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: July 26, 2005 By: /s/ Robert C. Silzer
-----------------------------------------
Name: Robert C. Silzer
Title: President and Chief Executive Officer
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In connection with the annual report on Form 10-KSB of GPS Industries, Inc.
(the "Company") for the year ended December 31, 2004 (the "Report"), I, George
Dorin, hereby certify in my capacity as Chief Financial Officer of the Company,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
1. The Report fully complies with the requirements of Section 13 (a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: April 15, 2005 By: /s/ George G. Dorin
-------------------------------------
Name: George G. Dorin
Title: Chief Financial Officer
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