10-Q/A 1 v347763_10qa.htm FORM 10-Q/A

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2013

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-53223

 

GBS ENTERPRISES INCORPORATED

 (Exact name of registrant as specified in its charter)

 

Nevada   27-3755055
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    
     

585 Molly Lane

Woodstock, GA

  30189
(Address of principal executive offices)   (Zip Code)

 

 (404) 891-1711

(Registrant’s telephone number, including area code)

 

With a copy to:

Philip Magri, Esq.

The Magri Law Firm, PLLC

11 Broadway, Suite 615

New York, NY 10004

T: (646) 502-5900

F: (646) 826-9200

pmagri@magrilaw.com

www.MagriLaw.com

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x No ¨

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange ct. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨
   
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

Yes ¨ No x

 

APPLICABLE ONLY TO CORPORATE REGISTRANTS

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of August 15, 2013, there were 30,812,624 shares of common stock, par value $0.001 per share, of the Registrant issued and outstanding.

 

 
 

 

  TABLE OF CONTENTS  
     Page No:
  PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50
Item 3. Quantitative and Qualitative Disclosures About Market Risk 62
Item 4. Controls and Procedures 62
     
  PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 62
Item 1A. Risk Factors 62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 62
Item 3. Defaults Upon Senior Securities 63
Item 5. Other Information 63
Item 6. Exhibits 64
Signatures   65

  

2
 

 

EXPLANATORY NOTE

 

GBS Enterprises Incorporated, a Nevada corporation (the “Company”), is filing this Amendment No. 1 (this “Amendment No. 1”) to its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 (the “Form 10-Q”), originally filed with the Securities and Exchange Commission on June 13, 2013 (the “Original Filing Date”), for the following purposes:

 

  1. To restate the financial statements for the quarter ended March 31, 2013 due to an error in the calculation of weighted shares resulting in erroneous earnings per share (EPS).
  2. To reformat the Statement of Operations as the “Statement of Operations and Consolidated Income/Loss” in accordance with ASC 220-10-45-1A
  3. To add the disclosure required by ASC 250-10-50-7 and ASC 250-10-50-8 to Note 4 to the financial statements.
  4. To revise the warrant table included under Note 22 of the financial statements..
  5. To furnish the Interactive Data File with detailed note tagging as Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 provides the financial statements and related notes in the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).
  6.

Correction of Note 24.

 

This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way, except as stated above, disclosures made in the Form 10-Q. No other changes have been made to the Form 10-Q.

 

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Form 10-Q have been amended, restated and re-executed as of the date of this Amendment No. 1 and are included as Exhibits 31 and 32 hereto.

 

3
 

 

PART I - FINANCIAL INFORMATION

 

Item 1.          Financial Statements 

 

GBS Enterprises Incorporated

 

Interim Consolidated Financial Statements

 

March 31, 2013

 

(Unaudited)

 

4
 

 

GBS Enterprises Incorporated

Interim Consolidated Balance Sheets

March 31, 2013 (Unaudited and Restated) and December 31, 2012 (Audited and Restated)

 

   Restated   Restated 
   March 31,   December 31, 
   2013   2012 
   $   $ 
Assets          
Current Assets          
Cash and cash equivalents - Note 6   738,369    1,154,602 
Accounts Receivable - Note 7   3,205,807    4,143,448 
Prepaid expenses - Note 8   214,435    84,304 
Other  receivables current - Note 9   1,019,080    676,976 
Assets held for sale   0    384,862 
Total current assets   5,177,691    6,444,192 
           
Non-Current Assets          
Assets held for sale   0    1,846,645 
Property, plant and equipment - Note  10   317,771    332,839 
Other non-current receivables - Note 11   1,154    428,422 
Deferred tax assets   1,104,222    1,132,103 
Goodwill - Note 12   31,260,500    34,254,881 
Software - Note 13   10,947,781    12,207,031 
Other assets - Note 14   160,340    156,379 
Total non-current assets   43,791,768    50,358,300 
           
Total assets   48,969,459    56,802,492 
           
Liabilities and stockholders' equity          
Current liabilities          
Notes payable - Note 15   260,421    2,313,572 
Liabilities to banks - Note 16   9,293    6,774 
Accounts payables and accrued liabilities - Note 17   3,662,133    6,241,733 
Deferred income - Note 18   8,852,860    6,099,570 
Other short term liabilities - Note 19   800,740    860,032 
Due to related parties - Note 20   276,542    2,115,869 
Liabilities held for sale   0    589,634 
Total current liabilities   13,861,989    18,227,184 
           
Non - Current liabilities          
Liabilities to banks - Note 21   2,563,260    3,716,102 
Retirement benefit obligation   160,874    165,876 
Liabilities held for sale   0    159,898 
Total non-current liabilities   2,724,134    4,041,876 
           
Total liabilities   16,586,123    22,269,060 
           
Stockholders' equity          
Capital stock - Note 22          
Authorized:          
75,000,000 common shares of $.001 par value each          
25,000,000 preferred shares of $.001 par value each          
Issued and outstanding:          
30,812,624   shares of common stock          
(29,461,664  shares of common stock at December 31, 2012)   30,813    29,462 
Additional paid in capital   50,055,132    49,691,195 
Subscription Receivable   50,000    - 
Accumulated deficit   (20,308,707)   (18,974,582)
Other comprehensive income   112,249    442,841 
           
    29,939,487    31,188,916 
Noncontrolling interest in subsidiaries   2,443,849    3,344,516 
           
Total stockholders' equity   32,383,336    34,533,432 
           
Total stockholders' equity and liabilities   48,969,459    56,802,492 

 

Subsequent events - Note 26

 

5
 

 

GBS Enterprises Incorporated

Interim Consolidated Statements of Operations and Comprehensive Income/(Loss)

For the three months ended March 31, 2013 and March 31, 2012

(Unaudited and Restated) 

 

   Restated   Restated 
   March 31,   March 31, 
   2013   2012 
   $   $ 
         
Revenues - Note 23          
Products   4,373,010    5,593,365 
Services   851,369    1,358,684 
    5,224,379    6,952,049 
Cost of goods sold          
Products   857,275    1,916,624 
Services   2,244,423    2,256,550 
    3,101,698    4,173,174 
Gross profit   2,122,681    2,778,875 
           
Operating expenses          
Selling expenses   2,371,530    4,178,185 
Administrative expenses   1,500,042    1,473,647 
General expenses   229,147    227,372 
    4,100,719    5,879,204 
           
Operating income (loss)   (1,978,038)   (3,100,329)
           
Other Income (expense) - Note 25          
Other Income (expense)   173,479    14,501 
Interest income   341    1,299 
Interest expense   (177,036)   (49,409)
    (3,216)   (33,609)
           
Income (loss) before income taxes   (1,981,254)   (3,133,938)
           
Income tax (income) expense   (72,960)   (659,341)
           
Income (loss) before extraordinary items, discontinued operations   (1,908,294)   (2,474,597)
           
Discontinued operations - IDC    0    110,653 
Discontinued operations - SD Holdings   0    67,005 
           
Net income (loss) before extraordinary items   (1,908,294)   (2,296,939)
           
Extraordinary items (value adjustment on goodwill)   0    0 
           
Net income (loss)   (1,908,294)   (2,296,939)
           
Net Loss Attributable to noncontrolling Interest   (574,169)   (719,778)
Net income (loss) attributable to stockholders   (1,334,125)   (1,577,161)
           
Net earnings (loss) per share, basic and diluted  $(0.0447)  $(0.0578)
           
Weighted average number of common stock  outstanding, basic and diluted   29,816,782    27,267,449 
           
Statement of Comprehensive Income (Loss)          
           
Net Income (Loss)   (1,908,294)   (2,296,939)
Foreign currency Translation Adjustment   (659,864)   (255,818)
           
Comprehensive income (loss)   (2,568,158)   (2,552,757)
           
Less: Net Income (Loss) attributable to noncontrolling interest   (574,169)   (719,778)
Less: Other Comprehensive Income (Loss) attributable to noncontrolling interest   (329,272)   (127,653)
Total Comprehensive income (loss) attributed to stockholders   (1,664,717)   (1,705,326)

 

6
 

 

GBS Enterprises Incorporated

Interim Consolidated Statements of Operations

For the three months ended March 31, 2013 and March 31, 2012

(Unaudited and Restated)

 

   Restated   Restated 
   March 31, 2013   March 31, 2012 
   $   $ 
         
Cash flow from operating activties          
Net loss / net income   (1,908,294)   (2,296,939)
Adjustments          
Deferred income taxes   27,881    (670,268)
Depreciation and amortization   1,561,952    1,654,957 
Consulting expense   70,000    - 
Interest Expense   195,288    - 
Losses from equity investment   -    (17,701)
Loss on Sale of Assets   -      
Minority interest losses   (900,667)   (719,778)
Changes in operating assets and liabilities          
Accounts receivable and other assets   2,692,952    (2,622,458)
Retirement benefit obligation   (5,002)   (91,545)
Inventories   -    (114,832)
Accounts payable and other liabilities   (635,135)   2,586,263 
           
Net cash provided (used) by operating activities   1,098,975    (2,292,301)
Net cash provided (used) by discontinued   -    177,658 
           
Cash flow from investing activties          
Sale of intangible assets   (2,756,006)   (931,427)
Purchase of property, plant and equipment   (31,639)   (358,704)
Write-down goodwill and intangibles   2,994,381    - 
Proceeds from Sale of Subsidiaries   3,577,195    - 
Increase in Financial assets   (427,267)   1,548,234 
           
Net cash provided (used) in investing activities   3,356,663    258,103 
           
Cash flow from financing activties          
Net borrowings - banks   (1,150,322)   414,915 
Other borrowings   (2,053,151)   (1,381,821)
Forgiveness of Debt   10,659    - 
Capital paid-in   150,000    576,942 
Loans from related party   (1,839,327)   379,968 
           
Net cash provided (used) in financing activities   (4,882,141)   (9,996)
           
Effect of exchange rate changes on cash   10,270    (34,414)
           
Net increase (decrease) in cash   (416,233)   (1,900,950)
Cash and cash equivalents - Beginning of the quarter   1,154,602    3,142,308 
           
Cash and cash equivalents - End of Quarter   738,369    1,241,358 

 

7
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 1COMPANY AND BACKROUND

 

GBS Enterprises Incorporated, a Nevada corporation, through its subsidiaries, is a global provider of technology solutions for businesses and government agencies. We focus on developing and delivering solutions that help our customers to gain value and reduce cost in the development, deployment and management of the applications used in the course of conducting their business (“business applications”). We do this by building software and providing services that aid in:

 

£Information Technology (“IT”) systems analysis, planning and management;
£Automating business processes;
£Optimizing system and application performance;
£Ensuring the security and compliance of systems, applications and processes; and
£Migrating and integrating systems, applications and processes.

 

Our customers include corporate and government IT departments, solutions integrators (“SIs”) and independent software vendors (“ISVs”). Our corporate customers are from a variety of industries, including insurance, financial services, pharmaceuticals, healthcare, manufacturing, logistics, and education. The install-base of our software products spans more than 5,000,000 users in 38 countries on four continents. We principally market and sell our products and services directly in the United States, Canada, United Kingdom, Germany, Austria, Switzerland, the Nordics and India; and indirectly through local distributors and resellers representing Australia, South America and regionally in Europe.

 

Our software and services are designed to mainly serve organizations that have investments in IBM’s Lotus® Notes and Domino platform. The IBM Lotus® Notes and Domino platform is both a system for enterprise email as well as an application platform, meaning that it can be used as both an email system and an environment in which business applications can be deployed and used. This platform was originally brought to market by Lotus Development Corp. in 1989, and was subsequently acquired by IBM in 1995. According to Radiate, in 2011, IBM Lotus Domino will have a worldwide installed base of 189 million mailboxes. Currently, the installed base for On-Premises IBM Lotus Domino mailboxes represents the majority of worldwide IBM Lotus Domino mailboxes, accounting for 87% of worldwide IBM Lotus Domino mailboxes. By 2015, this percentage is expected to decrease to 80%, as hosted email grows in popularity. (The Radiate Group Inc., April 2011, “IBM Lotus Notes/Domino Market Analysis, 2011-2015“)

 

8
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

We, through our subsidiaries, have executed our strategy to acquire companies, which have developed software and specialized services for the Lotus Notes and Domino market. This growth by acquisition strategy has resulted in less competition for our software products; a large concentration of highly skilled employees with unique expertise in the area of Lotus Notes and Domino; staff and physical offices on three continents providing greater access to a global market; significant market awareness and greater market share amongst organizations that use Lotus Notes and Domino; and a comprehensive portfolio of solutions specific to the needs and requirements of organizations which use Lotus Notes and Domino.

 

While our products and services remain in use and demand, over the last several years, the market itself has been undergoing a paradigm shift. New technologies, especially in the areas of Cloud Computing and Mobile applications, have grown in popularity due to the potential cost savings and operational efficiencies they can offer. As organizations make investments in these new technologies, they are faced with highly complex and costly projects to migrate (“migration”) or replace their existing systems that don’t operate in the cloud or on mobile devices (“modernization”) – this includes their existing email and business applications that run on Lotus Notes and Domino.

 

To that end, we have acquired and developed technologies that help organizations reduce the time, cost, resources and risks associated with these highly complex migration and modernization projects.

 

General Corporate History

 

We were incorporated in Nevada on March 20, 2007 as SWAV Enterprises Ltd. (“SWAV”). SWAV was an importer and wholesaler of Chinese manufactured goods.

 

On April 26, 2010, SWAV purchased certain technology assets of Lotus Holdings Ltd. (“Lotus”) in exchange for 2,265,240 shares of SWAV common stock. Also on April 26, 2010, Lotus (on behalf of the SPPEF Members as discussed below) purchased an aggregate of 11,984,770 of the outstanding shares of common stock from the selling shareholders of SWAV for an aggregate of $370,000. As a result of the two sets of transactions, Lotus owned an aggregate of 14,250,010 shares of common stock of SWAV, representing approximately 95.0% of the 15,000,000 shares of SWAV common stock outstanding on April 26, 2010.

 

9
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

On September 6, 2010, SWAV’s name was changed to GBS Enterprises Incorporated. On October 14, 2010, the Company’s trading symbol on the OTC Bulletin Board was changed from SWAV to GBSX.

 

About Lotus Holdings, Ltd.

 

Lotus is a holding company which was formed under the laws of Gibraltar for the purpose of financing merger and acquisition projects, specifically in the niche market of small or microcap companies listed on the Frankfurt Stock Exchange with complex shareholder structures and whose stock is trading below one Euro (€1.00) per share.

 

SPPEFs

 

Lotus typically finances its merger and acquisition projects through the use of Special Purpose Private Equity Funds (“SPPEFs”). Typically, SPPEFs are funded by a company’s major shareholders (the “Major Shareholders”) seeking to raise capital for projects and who fund at least 50% of the SPPEF, with the remaining portion being provided through the investment community and network of investors in Lotus. Each SPPEF is co-managed by a representative of the company’s Major Shareholders (the “Representative Secretary”) and an attorney appointed by Lotus (the “Lotus Representative”).

 

On February 25, 2010, a group of shareholders (the “GROUP Major Shareholders”) of GROUP Business Software AG, a German public company trading on the Frankfurt Stock Exchange under the symbol “INW” (“GROUP”), engaged Lotus to provide financial consulting and advisory services, on a non-exclusive basis, for the primary task of establishing a SPPEF. On March 12, 2010, the GROUP Major Shareholders and Lotus established and funded a SPPEF with $1,400,000, consisting of $1,000,000 from the GROUP Major Shareholders and $400,000 from a Lotus investor (collectively, the “SPPEF Members”).

 

In early April 2010, the SPPEF Members decided to acquire SWAV. As disclosed above, on April 26, 2010, Lotus, on behalf of the SPPEF Members, acquired an aggregate of 11,984,770 shares of SWAV common stock from the selling shareholders of SWAV for an aggregate purchase price of $370,000. The 11,984,770 shares of SWAV common stock represented approximately 79.9% of the 15,000,000 outstanding shares of SWAV common stock on April 26, 2010. Upon the consummation of the acquisition, the then executive officers and directors of SWAV resigned and Mr. Joerg Ott, the Chief Executive Officer of GROUP and a GROUP Major Shareholder, was appointed the Chief Executive Officer of SWAV and sole member of SWAV’s Board of Directors.

 

10
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Transactions following the acquisition

 

On November 1, 2010, the Company repurchased an aggregate of 3,043,985 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for the 3,043,985 shares of the Company’s common stock, the Company issued to Lotus a Secured Demand Note, dated November 1, 2010 (the “First Demand Note”), for the principal amount of $300,000 bearing interest at the rate of 5% per annum. The First Demand Note was repaid in September 2011.

 

Effective December 30, 2010, pursuant to securities purchase agreements between the Company and six GROUP Major Shareholders, the Company purchased an aggregate of 7,115,500 shares of GROUP common stock from the six GROUP Major Shareholders in consideration for an aggregate for 3,043,985 shares of the Company’s common stock (the “December Transaction”). As a result the Company owned approximately 28.2% of the outstanding common stock of GROUP.

 

Reverse Merger

 

After the December Transaction was completed, the additional GROUP Major Shareholders accepted the share swap offer from the Company and effectuated a reverse merger of GROUP and the Company. To effectuate the reverse merger, on January 5, 2011, the Company repurchased from Lotus an aggregate of 2,361,426 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for these 2,361,426 shares, the Company issued to Lotus a Secured Demand Note, dated January 5, 2011 (the “Second Demand Note”), for the principal amount of $200,000 bearing interest at the rate of 5% per annum. The Second Demand Note was repaid in November 2011.

 

Effective January 6, 2011, pursuant to securities purchase agreements between the Company and the remaining GROUP Major Shareholders, the Company purchased an aggregate of 5,525,735 shares of GROUP common stock from the remaining GROUP Major Shareholders in consideration for an aggregate of 2,361,426 shares of the Company’s common stock (the “January Transaction”). The 5,525,735 GROUP shares represented approximately 21.9% of the outstanding shares of common stock of GROUP. As a result of the December Transaction and January Transaction, the Company purchased an aggregate of 12,641,235 shares of GROUP from the GROUP Major Shareholders in consideration for an aggregate of 5,405,411 shares of the Company’s common stock, resulting in the Company owning approximately 50.1% of the outstanding common stock of GROUP and effectuating a reverse merger of the Company and GROUP whereby GROUP became the accounting acquirer.

 

11
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Additional Acquisition

 

On February 27, 2012, the Company acquired an additional 883,765 shares of common stock of GROUP from GAVF LLC for an average purchase price of $.070 per share, or approximately $619,000, after an outstanding loan of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, thereby increasing GROUP’s outstanding common stock to 26,982,000 shares. By acquiring the new shares, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP.

 

Acquisition/Dissolution of Subsidiary Companies

 

Pavone AG

 

Effective April 1, 2011, the Company acquired 100% of the outstanding common shares of Pavone AG, a German corporation, for $350,000 in cash and 1,000,000 shares of its common stock. The fair value of the common stock was determined to be $4.90 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $ 583,991 in debt was $5,843,991. Pavone’s extensive workflow software for Lotus Notes and Domino along with their large customer base is well suited to GBS Enterprises portfolio strategy. The acquisition of Pavone complements GBS's majority ownership in GROUP and the Company believes that it further strengthens their leading industry position on the IBM Lotus Platforms and expands their cloud computing technology offerings beyond the IBM Lotus market. Pavone currently has offices in Germany and the UK. They have over 2,500 customers and over 150,000 users worldwide.

 

GroupWare, Inc.

 

Effective June 1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a Florida corporation (“GroupWare”). As consideration the Company paid $250,000 and issued 250,000 shares of its common stock. The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $ 694,617 in debt was $ 2,029,617. Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director, was appointed as the Chief Executive Officer and sole director of GroupWare. GroupWare is based in Lubeck, Germany with offices in St. Petersburg, Florida. GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. The Company believes that the acquisition strengthens the GBS Modernizing/Migrating offering, which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser.

 

12
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

IDC Global, Inc.

 

On July 25, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of IDC Global, Inc., a Delaware corporation. Pursuant to the acquisition agreement, dated July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and made a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction. The fair value of the common stock was determined to be $3.70 per share, representing the market value at the end of trading on the date of the agreement. The total value of the investment, including $883,005 of debt assumption, was $4,066,000. IDC was a privately held company that provides nationwide network and data center services. IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC Global includes two Data Center facilities located in the downtown Chicago area and Colocation facilities in three other Data Centers in New York, London, England and Frankfurt, Germany. IDC provides internet infrastructure Services (IaaS) to the business community helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing. IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing.

 

Due to the Company’s perceived increase in the demand for Modernization, Mobility and Optimization offerings, the Company made a strategic decision in 2012 to focus on its core offerings in the IBM Notes and Domino market and to divest its non-core businesses, including IDC.

 

On February 1, 2013, GBS entered into a Stock Purchase Agreement, dated February 1, 2013 (the “Agreement”), with IDC Global, Inc., a Delaware corporation and a wholly-owned subsidiary of GBS (“IDC”), and Global Telecom & Technology Americas, Inc., a Virginia corporation (“GTT). Pursuant to the Stock Purchase Agreement, we sold 100% of the issued and outstanding capital stock of IDC to GTT for an aggregate purchase price of $4,600,000 (the “Purchase Price”), subject to certain holdback provisions amounting to $1.093 million as described more fully in the Stock Purchase Agreement. The Purchase Price is also subject to adjustment on a dollar-for-dollar basis for adjustments the Net Working Capital (defined as Current Assets minus Current Liabilities) of IDC by GTT within 90 days of closing.

 

13
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

SD Holdings, Ltd.

 

On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings, Ltd. (“SYN”), a Mauritius corporation, and the shareholders of SYN owning 100% of issued and outstanding shares of SYN. SYN owns 100% of all issued and outstanding shares of Synaptris, Inc., a California corporation (“Synaptris”), and 100% of all issued and outstanding shares of Synaptris Decisions Private Limited, a company formed in India (“Synaptris India”). Pursuant to the acquisition agreement, the Company purchased one hundred percent (100%) of the issued and outstanding shares of SYN (“SYN Shares”) effective November 1, 2011 in consideration for $525,529 and agreed to issue 700,000 shares of common stock, subject to adjustment. Actual shares issued were 612,874. The fair value of the common stock was determined to be $2.05 per share, representing the market value at the end of trading on the date of the agreement.

 

On April 1, 2012, the Company sold SYN, Synaptris and Synaptris India for $1,877,232 to Lotus Holding, Ltd. in an effort to restructure the Company’s multilevel subsidiary - structure derived from the historical mergers and acquisitions, and to reduce overhead and administrative costs.

 

GBS India Private Limited

 

Pursuant to an existing transfer agreement, effective July, 1, 2012, the Company entered into a purchase agreement with SYN for $1,877,232, which transferred all assets, including intellectual property rights, and liabilities of the IntelliPRINT and FewClix product lines, customer contracts and certain employees for operations in a new subsidiary, GBS India Private Limited, an incorporated entity formed under the Indian Companies Act 1956 (“GBS India”). A royalty fee in the amount of approximately $350,000 has been agreed upon for the benefit the Company. Additionally a profit based fee of up to $700,000 may be earned based on license and revenue recognized from the sold IntelliVIEW and IntelliVIEW NXT products.

 

On August 1, 2012, the Company acquired 100% of the outstanding shares of capital stock of GBS India. We anticipate GBS India’s presence in India to accelerate our plan to expand our product development team particularly for our strategic offerings in India.

 

14
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Pavone AG/Groupware AG

 

On July 6, 2012 and August 9, 2012 wholly-owned subsidiaries Pavone AG and Groupware AG, respectively, were merged into Pavone GmbH. The mergers were consummated solely for administrative purposes. Pavone GmbH is a wholly-owned subsidiary of the Company.

 

Pavone, Ltd.

 

The Company serves the UK market with GROUP’s subsidiary GBS, Ltd. Therefore, subsidiary Pavone, Ltd, as being a shell company, was dissolved on July 8, 2012.

 

EbVokus, GmbH.

 

On October 1, 2012, GROUP Business Software AG sold all of the software and operational  assets (constituting substantially all of the assets) of its wholly-owned subsidiary, ebVokus GmbH, along with the associated maintenance and project agreements to a non-affiliated third party for a purchase price of approximately $459,000, approximately $258,000 (200,000 Euros: 1 EUR = $1.29 USD on October 1, 2012) was paid at closing and the remaining $201,000 was paid on February 15, 2013 (150,000 Euro: 1EUR = $1.35 USD on February 15, 2013).

 

B.E.R.S. AD

 

On November 23, 2012 GROUP Business Software AG sold its entire participation (50%) in B.E.R.S AD for a total of 25,000 BGN.

 

Note 2INTERIM REPORTING

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, they include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s audited financial statements. All adjustments are of a normal recurring nature.

 

15
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that can be expected for the year ending December 31, 2013.

 

Note 3ACCOUNTING POLICIES

 

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, the more significant of which are as follows:

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles 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 disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Segment Reporting

 

The Financial Accounting Standards Board (“FASB”) authoritative guidance regarding segment reporting establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has determined that it operates in only one segment – the development and maintenance of computer software programs and support products.

 

Comprehensive Income (Loss)

 

The Company adopted the FASB Codification topic (“ASC”) 220, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income consists of net income and other gains and losses affecting stockholder's equity that are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Since inception, the Company’s other comprehensive income represents foreign currency translation adjustments and small net actuarial losses on pension plans.

 

16
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Net Income per Common Share

 

ASC 260, “Earnings per share”, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations. Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted net income (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive. Accordingly, although the diluted weighted average number of common stock outstanding is disclosed on the statements of operation, the calculated net loss per share is the same for both the basic and diluted as both are based on the basic weighted average of common stock outstanding. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share.

 

Financial Instruments

 

Financial instruments consist of cash and cash equivalents, accounts and other receivable, financial assets, notes payable, liabilities to banks, accounts payable, accrued liabilities and other liabilities, due to related parties and retirement benefit obligations. Financial assets and liabilities are measured upon first recognition and reviewed at the financial statement date. Changes in fair value are recognized through profit and loss. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

 

Currency Risk

 

We use the US dollar as our reporting currency. The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro, the British Pound, the Indian Rupee, and the Bulgarian Lev. Accordingly, some assets and liabilities are incurred in those currencies and we are subject to foreign currency risks.

 

Fair Value Measurements

 

The Company follows ASC 820, “Fair Value Measurements and Disclosures”, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. This new accounting standard establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurement and expands disclosures about fair value measurements required under other accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

 

17
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

The Company has adopted ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.

 

Cash and cash equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

 

Inventories

 

Pursuant to ASC 330 (Inventories), inventories held for sale are recognized under inventories. Inventories were measured at the lower of cost or market. Cost is determined on a first-in-first out basis, without any overhead component.

 

Goodwill and other Intangible Assets

 

Intangible assets predominately comprise goodwill, acquired software and capitalized software development services. Intangible assets acquired in exchange for payment are reflected at acquisition costs. If the development costs can be capitalized per ASC 985-20-25, these are reflected as ascribable personnel and overhead costs.

 

Company created software can be intended for sale to third parties or used by the Company itself. If the conditions for capitalization are not met, the expenses are recorded with their effect on profit in the year in which they were incurred.

 

The Company amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with ASC regulations. In addition, in special circumstances according to ASC 350-30, a recoverability test is performed and, if applicable, unscheduled amortization is considered.

 

The useful life of acquired software is between three and five years and three years for Company created software.

 

18
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill. Goodwill is reviewed once a year during an impairment test, whereby the appraised fair value of the invested capital of the reporting unit, is compared with the carrying (book) value of its invested capital amount (including goodwill.) Use value is generally applied in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The projected financial plan prepared by the management serves as the basis for this determination of use value and the planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are determined based on the expected growth rates of the markets in question.

 

If the carrying amount of the reporting unit exceeds the appraised fair value, the impairment based on use value measures the amount of loss, if any, and an unscheduled amortization expense is recorded. If the appraised value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.

 

Property, Plant and Equipment

 

Property, plant and equipment are valued at acquisition or manufacturing costs reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation for property, plant and equipment is based on useful lives of 3 to 10 years. Leasehold Improvements are depreciated up to 40 years.

 

If fixed assets are sold, retired or scrapped, the profit or loss arising from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.

 

Impairment or Disposal of Long-Lived Assets

 

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its’ expected cash flows or appraised value In this instance, the asset is considered to be impaired and is written down to fair value.

 

Revenue Recognition

 

Sources of Revenues:

 

19
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

License revenues

 

Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a perpetual basis. Pricing models have generally been based either upon the physical infrastructure, such as the number of physical desktop computers or servers, on which our software runs or on a per user basis. License revenues are recognized when the elements of revenue recognition for the licensed software are complete, generally upon electronic shipment of the software and the software key to provide full access to all functionalities for our customers. In general, our invoices reflect license, service and maintenance components. In the case of multi element contracts, the revenues allocated to the software license in most cases represent the residual amount of the contract after the fair value of the other elements has been determined. Certain products of our software offering are licensed on a subscription basis.

 

Software maintenance revenues

 

Software maintenance revenues are recognized ratably on a pro-rata basis over the range of the contract period. Our contract periods typically range from one to five years. Vendor-specific objective evidence (“VSOE”) of fair value for software maintenance services is established by the rates charged in stand-alone sales of software maintenance contracts or the stated renewal rate for software maintenance. Customers who are party to software maintenance agreements with us are entitled to receive support, product updates and upgrades on a when-and-if-available basis.

 

Professional services revenues

 

Professional services include pre-project consulting, software design, customization, project management, implementation and training. Professional services are not considered essential to the functionality of our products, as these services do not alter the product capabilities and may be performed by our customers or by other vendors. Professional services engagements performed for a fixed fee, for which we are able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours incurred and estimated hours of completion. Professional services engagements that are on a time and materials basis are recognized based on hours incurred. Revenues on all other professional services engagements are recognized upon completion. Our professional services may be sold with software products or on a stand-alone basis. Vendor Specific Objective Evidence (VSOE) of fair value for professional services is based upon the standard rates we charge for such services when sold separately.

 

20
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Foreign Currency Translation

 

The functional currency of the Company is US dollars. For financial reporting purposes, the financial statements of the subsidiary companies whose functional currency is other than US dollars were translated into US dollars using the current rate method. Assets and liabilities were translated at the exchange rates at the balance sheet dates, revenue and expenses were translated at the average exchange rates and stockholders’ equity was translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

 

Other Provisions

 

According to FASB ASC 450 “Contingencies”, provisions are made whenever there is a current obligation to third parties resulting from a past event which is likely in the future to lead to an outflow of resources and of which the amount can be reliably estimated. Provisions not already resulting in an outflow of resources in the following year are recognized at their discounted settlement amount on the financial statement date. The discount taken is based on market interest rates. The settlement amount also includes the expected cost increases. Provisions are not set off against contribution claims. If the amended estimate leads to a reduction of the obligatory amount, the provision is proportionally reversed and the earnings are recognized in other operating earnings.

 

Deferred Taxes

 

Income taxes are provided in accordance with FASB Codification topic 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carry forwards.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, that some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

 

Recent Accounting Pronouncements

 

In July 2012, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. With the objective of reducing the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-loved asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having the likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed beginning April 1, 2013. Adoption of this new standard is not expected to have significant impact to the Company’s financial statement.

 

21
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Off - Balance Sheet Arrangements

 

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

Principles of Consolidation and Reverse Acquisition

 

As previously disclosed, the Company has exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP. Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP becomes the accounting acquirer and is deemed to have retroactively adopted the capital structure of the Corporation. Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for periods presented prior to January 6, 2011. All costs associated with the reverse merger transaction were expensed as incurred. Those expenses totaled approximately $300,000 and were included in professional fees in administrative expenses.

 

The Company has based its financial reporting for the consolidation with GROUP in accordance with the FASB ASC 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree, for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities.

 

We have recorded the acquired assets and liabilities of Group Business Software Enterprises, Inc. on the acquisition date of January 6, 2011, at their fair value and the operations of Group Business Software Enterprises, Inc. have been included in the consolidated financial statements since the acquisition date.

 

The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.

 

22
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 4CHANGE IN ACCOUNTING POLICIES

 

Fiscal reporting

 

Effective September 19, 2012, the Company changed its fiscal year end from March 31 to December 31. Prior to this change, the company’s subsidiaries, with the exception of SD Holdings, had fiscal year ends of December 31 and in reporting its financial statements, the Company, through the use of Regulation S-X Rule 3A-02 (“the 93 day rule”), consolidated those subsidiaries without any adjustments for timing differences in the period ends. This application was in error. With the change in year end, the Company retroactively adjusted previously released financial statements to reflect this change beginning December 31, 2010. Accordingly, the financial statements for the year ended December 31, 2012 and 2011, include the accounts of all consolidated companies for the same twelve month period beginning January 1, 2012 and 2011 respectively. The Balance Sheets as at December 31, 2012 and December 31, 2011 have also been adjusted to include the accounts of all consolidated companies as of those dates.

 

In accordance with ASC 250, effects of this restatement to the respective statements are shown below:

 

   For the three months ended 
   Restated   Originally Filed     
   March 31, 2013   March 31, 2013   Difference 
   $   $   $ 
Assets            
Current Assets            
Cash and cash equivalents   738,369    738,369    0 
Accounts receivable   3,205,807    3,205,807    0 
Prepaid expenses   214,435    214,435    0 
Other receivables   1,019,080    1,019,080    0 
Total current assets   5,177,691    5,177,691    0 
                
Equity investments in related parties             0 
Property, plant and equipment   317,771    317,771    0 
other non-current receivables   1,154    1,154    0 
Deferred tax assets   1,104,222    1,104,222    0 
Goodwill   31,260,500    31,260,500    0 
Software   10,947,781    10,947,781    0 
Other assets   160,340    160,340    0 
Total non-current assets   43,791,768    43,791,768    0 
                
Total assets   48,969,459    48,969,459    0 
                
Liabilities and shareholders' equity               
Current liabilities               
Notes payable   260,421    260,421    0 
Liabilities to banks   9,293    9,293    0 
Accounts payable and accrued liabilities   3,662,133    3,662,133    0 
Other liabilities   800,740    800,740    0 
Deferred income   8,852,860    8,852,860    0 
Due to related parties   276,542    276,542    0 
Total current liabilities   13,861,989    13,861,989    0 
                
Liabilities to banks   2,563,260    2,563,260    0 
Deferred tax liabilities   0    0    0 
Retirement benefit obligation   160,874    160,874    0 
Other liabilities   0    0    0 
Total non-current liabilities   2,724,134    2,724,134    0 
                
Total liabilities   16,586,123    16,586,123    0 
                
Shareholders' equity               
Capital Stock               
Authorized:               
75,000,000 common shares and               
25,000,000 preferred shares each with a               
par value of $.001               
Issued and outstanding               
30,812,624 common shares               
    30,813    30,813    0 
Additional paid in capital   50,055,132    50,055,132    0 
Subscription Receivable   50,000    50,000      
Accumulated deficit   (20,308,707)   (20,308,707)   0 
Other comprehensive income   112,249    112,249    0 
Total shareholders' equity   29,939,487    29,939,487    0 
                
Noncontrolling interest in subsidiaries   2,443,849    2,443,849    0 
                
Total equity and liabilities   48,969,459    48,969,459    0 

 

23
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

   For the three months ended 
   Restated   Originally Filed     
   March 31, 2013   March 31, 2013   Difference 
   $   $   $ 
Net sales   5,224,379    5,224,379    0 
Cost of goods sold   3,101,698    3,101,698    0 
Gross profit   2,122,681    2,122,681    0 
                
Operating expenses               
Selling expenses   2,371,530    2,371,530    0 
Administrative expenses   1,500,042    1,500,042    0 
General expenses   229,147    229,147    0 
    4,100,719    4,100,719    0 
                
Operating income   (1,978,038)   (1,978,038)   0 
                
Other Income (expense)               
Other Income (expense)   173,479    173,479    0 
Interest income   341    341    0 
Interest expense   (177,036)   (177,036)   0 
    (3,216)   (3,216)   0 
                
Income (loss) before income taxes   (1,981,254)   (1,981,254)   0 
                
Income tax (income) expense   (72,960)   (72,960)   0 
                
Net income (loss)   (1,908,294)   (1,908,294)   0 
                
Net income (loss) attributable to non controlling interest   (574,169)   (574,169)   0 
                
Net income (loss) attributable to shareholders   (1,334,125)   (1,334,125)   0 
                
Other comprehensive income (loss)   (659,864)   (659,864)   0 
                
Net income (loss) and comprehensive income (loss) attributed to shareholders   (1,664,717)   (1,664,717)   0 
                
Basic and diluted income (loss) per share   (0.0447)   (0.509)   .464
                
Weighted average number of shares outstanding   29,816,782    24,847,525    4,969,257 

 

24
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

   For the three months ended 
   Restated   Originally Filed     
   March 31, 2013   March 31, 2013   Difference 
   $   $   $ 
Cash flow from operating activities            
Net loss / net income   (1,908,294)   (1,908,294)   0 
Adjustments               
Deferred income taxes   27,881    27,881    0 
Depreciation and amortization   1,561,952    1,561,952    0 
Consulting Expense   70,000    70,000    0 
Interest Expense   195,288    195,288    0 
Minority interest losses   (900,667)   (900,667)   0 
Changes in operating assets and liabilities               
Accounts receivable and other assets   2,692,952    2,692,952    0 
Retirement benefit obligation   (5,002)   (5,002)   0 
Inventories   0    0      
Accounts payable and other liabilities   (635,135)   (635,135)   0 
Net cash provided by operating activities   1,098,975    1,098,975    0 
                
Cash flow from investing activities               
Purchase (sale) of intangible assets   (2,756,007)   (2,756,007)   0 
Purchase of property, plant and equipment   (31,639)   (31,639)   0 
Sale (Purchase) of subsidiaries   3,577,195    3,577,195    0 
Write-down goodwill and intangibles   2,994,381    2,994,381    0 
Purchase of financial assets   (427,267)   (427,267)   0 
Net cash used in investing activities   3,356,663    3,356,663    0 
                
Cash flow from financing activities               
Net borrowings - banks   (1,150,322)   (1,150,322)   0 
other borrowings   (2,053,151)   (2,053,151)   0 
Forgiveness of Debt   10,659    10,659      
Capital paid-in   150,000    150,000      
Loans from related parties   (1,839,327)   (1,839,327)     
Net cash used in financing activities   (4,882,141)   (4,882,141)   0 
                
Effect of exchange rate changes on cash   10,270    10,270    0 
                
Net increase in cash   (416,233)   (416,233)   0 
Cash and cash equivalents - Beginning of the period   1,154,602    1,154,602    0 
                
Cash and cash equivalents - End of period   738,369    738,369    0 

 

Explanation of Differences:

 

Weighted Average Shares/ Earnings per Share

 

The 3/31/13 financials were restated due to an error in the calculation of weighted shares resulting in erroneous earnings per share.

 

Note 5SUBSIDIARY COMPANIES 

 

The subsidiaries listed below were included in the basis of consolidation (KUSD = 1,000’s of US Dollars):

 

        Stockholders'
          Profit          
        Equity     Percentage of     of the         Date
        as of     Subscribed Capital     consolidated         of the
    Headquarters   03/31/13
KUSD
    KUSD     in %     quarter
KUSD
    Ownership   First
Consolidation
                                     
GROUP Business Software (UK) Ltd.   Manchester     (1,330 )     23       50.1 %     (77 )   I   12/31/2005
GROUP Business Software Corp.   Woodstock     (12,962 )     1       50.1 %     (634 )   I   12/31/2005
Permessa Corporation   Waltham     (5 )     0       50.1 %     0     I   9/22/2010
Relavis Corporation   Woodstock     (819 )     2       50.1 %     (10 )   I   1/8/2007
GROUP Business Software AG   Eisenach     12,516       36,107       50,1 %     (102 )   I   6/1/2011
Pavone GmbH   Boeblingen     (1,165 )     47       100 %     22     D   1/4/2011
Groupware Inc.   Woodstock     (482 )     1       100 %     0     D   1/6/2011
GBS India   Chennai     93       14       100. %     (9 )   D   9/30/2012

 

D - Direct Subsidiary

I - Indirect Subsidiary

Indirect Subsidiaries are owned 50.1% through GROUP Business Software AG

 

25
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 6CASH AND CASH EQUIVALENTS

 

As of the financial statement date, the Company’s cash and cash equivalents totaled 738 KUSD (December 31, 2012 restated year end: 1,155 KUSD). Included in that amount are cash equivalents of 3 KUSD (December 31, 2012 restated year end: 3 KUSD).

 

Note 7ACCOUNTS RECEIVABLE

 

As of the financial statement date, Accounts Receivable was 3,206 KUSD (December 31, 2012 restated year end: 4,143 KUSD). Receivables are generally measured at their nominal value and taking into account all foreseeable risks. Probable default risks are handled with specific allowances for bad debts. With regard to the trade receivables which are neither impaired nor delinquent, there are no indications as of the financial statement date that the debtors will not meet their payment obligations.

 

Note 8PREPAID EXPENSES

 

Prepaid expenses in the amount of 214 KUSD were primarily recorded for prepaid rent, insurance and advance on technological collaboration events (December 31, 2012 restated year end: 84 KUSD).

 

Note 9OTHER RECEIVABLES - CURRENT

 

Other Receivables as of the financial statement date were 1,019 KUSD (December 31, 2012 restated year end: 677 KUSD). The largest individual item under other receivables represents receivables from the sale of IDC Global (517 KUSD), a recoverable receivable from a previous insolvency (439 KUSD). Also included are tax assets (37 KUSD) and other prepaid costs (26 KUSD).

 

26
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 10PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are measured at cost less scheduled straight-line depreciation. Depreciation of the computer hardware listed as office equipment is distributed over a period of three to five years. The depreciation period for other office equipment is three to ten years. Office furnishings are depreciated over a period of eight to ten years. Leasehold Improvements are depreciated up to 40 years.

 

Property, Plant and Equipment
kUSD
  Development
of the cost
   Development
of
accumulated
depreciation
   Balance 
             
Restated 12/31/2012   7,206.5    6,873.7    332.8 
Additions   23    14      
Disposals   (36)   (6)     
Currency differences   9    3      
Reclassifications   0    0      
Updated 03/31/2013   7,202.5    6,884.7    317.8 

 

Note 11OTHER RECEIVABLES NON-CURRENT

 

The major components of the Non-current Receivables include the following:

 

OTHER RECEIVABLES NON-CURRENT        
   KUSD   KUSD
Restated
 
   3/31/2013   12/31/2012 
Cooperative shares   1    1 
Intercompany Loan Values during the quarter   0    0 
Other long term receivables   0    427 
Balance   1    428 

 

27
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 12GOODWILL

 

Goodwill derives from the following business acquisitions:

 

March 31, 2013  Date of
first
Consolidation
  1/1/2013   Additions   Adjustments   Written off
as impaired
   3/31/2013 
GROUP Business Software AG  01/06/11   18,425.6    -    -    -    18,425.6 
GROUP Business Software (UK) Ltd.  12/31/05   2,765.1    -    -    -    2,765.1 
Permessa Corporation  09/22/11   2,387.4    -    -    -    2,387.4 
Pavone GmbH  01/04/11   5,950.5    -    -    -    5,950.5 
IDC Global Inc.  07/25/10   2,994.4    -    (2,994)   -    - 
GBS India  8/1/2012   1,731.9    -    -    -    1,731.9 
       34,254.9    -    (2,994.4)   -    31,260.5 

 

   Date of                    
  first              Written off     
December 31, 2012   Consolidation  1/1/2012     Additions    Adjustments    as impaired    12/31/2012 
GROUP Business Software AG  1/6/2011   20,194.4    618.6    (2,387.4)   -    18,425.6 
GROUP Business Software Corp  12/31/2005   2,177.5    -    -    2,177.5    - 
GROUP Business Software (UK) Ltd.  12/31/2005   2,765.1    -    -    -    2,765.1 
evVokus Software GmbH  10/1/2005   443.6    -    (443.60)   -    - 
Permessa Corporation  20110-09-22   2,387.4    -    -    -    2,387.4 
Pavone GmbH  1/4/2011   5,950.5    -    -    -    5,950.5 
IDC Global Inc.  7/25/2010   2,994.4    -    -    -    2,994.4 
SD Holdings  2011-09.27   2,213.1    -    (2,213.1)   -    - 
GBS India  8/1/2012   -    1,731.9    -    -    1,731.9 
       39,126.0    2,350.5    (5,044.1)   2,177.5    34,254.9 

 

Note 13SOFTWARE

 

Development costs

 

The costs of developing new software products and updating products already marketed by the Company are generally recognized as expenses in the period in which they arise. Provided they meet the conditions for capitalization as per FASB ASC 985-20-25, they are capitalized. Capitalized development costs can be attributed to the defined products. These products are technically realizable and there is a target market for them.

 

The development costs arising in the reporting period result from the personnel costs attributed to the development work as well as overhead costs, provided that these are related to the development work and do not represent general administrative costs. The ascribable overhead costs are directly recognized.

 

Capitalized development costs are generally amortized over a period of three years starting with the date of marketability of the new products or major releases.

 

28
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Concessions, Industrial Property Rights, Licenses

 

The intangible financial assets carried in this item are licenses acquired in exchange for payment.

 

These financial assets are measured at acquisition cost less scheduled straight-line amortization. The assets added in the scope of the cost price allocation of the business divisions acquired this year.

 

The useful life spans were based uniformly throughout the Company according to those used by the parent company. Scheduled amortization is performed over a period from three to ten years.

 

The useful life of the domain “gbs.com”, was estimated as unlimited. This is because no other legal, contractual or other factors exist which would limit its useful life. It is not systematically amortized, but rather annually. Should there exist signs indicating towards impairment it is tested for recoverability and, if necessary, written down to the amount which could be obtained for it if sold.

 

Amortization of concessions, industrial property and similar rights and assets, as well as licenses to such rights and assets are presented in the profit and loss statement under "Depreciation and Amortization."

 

Concessions and licenses
kUSD
  Development
of the cost
   Development
of
accumulated
depreciation
   Balance 
             
Restated 12/31/2012   33038.7    20,831.7    12,207.0 
Additions   120    98    22 
Disposals   (1,420)   122    (1,298)
Currency differences   143    126    17 
Reclassifications   0    0    0 
Updated 03/31/2013   31,881.7    21,177.7    10,948.0 

 

Note 14OTHER ASSETS

 

The balance of this account of 160 KUSD primarily includes rent and other security deposits (December 31, 2012 restated year end: 156 KUSD).

 

29
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 15NOTES PAYABLE

 

As described more fully in Note 22, a breakdown of the Notes Payable of $260,421 at March 31, 2013 (December 31, 2012 restated year end: $2,313,572) is as follows:

 

    Loan         Accrued        
        $     $     $  
    7/5/2012     250,000       10,421       260,421  
    10/26/2012     1,000,000       36,165       1,036,165  
    11/30/2012     500,000       8,493       508,493  
    11/30/2012     500,000       8,493       508,493  
                             
Balance at December 31, 2012         2,250,000       63,572       2,313,572  
                             
Accrued Interest converted into shares                 36,165          
Payments made through March 31, 2013         2,000,000       16,986       2,053,151  
                             
Balance at March 31, 2013         250,000       10,421       260,421  

 

Note 16LIABILITIES TO BANKS – CURRENT

 

Included in this account is an operating line of credit of 5 KUSD (December 31, 2012 year end: 5 KUSD) bearing interest at a 3.25% daily periodic rate with a credit limit of 100 KUSD. Also included are checks in transit as of the financial statement date (4 KUSD).

 

Note 17ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Trade payables

 

As of the financial statement date, trade accounts payable amounted to 1,677 KUSD (December 31, 2012 restated year end: 3,274 KUSD). Trade payables are carried at their repayment amount and all have a residual term of up to one year.

 

30
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Other Accrual

 

Other provisions are created as of the financial statement date in an amount necessary according to a reasonable commercial appraisal, to cover future payment obligations, perceivable risks and uncertain liabilities of the Company. Amounts deemed to be most likely to occur, in careful assessment, are accrued.

 

USD  Status               Currency   Status 
   12/31/2012   Utilization   Dissolution   Increase   Differences   3/31/2013 
                         
Tax provision   57    (57)   0    55    0    55 
Salary   861    (861)   24    434    16    426 
Vacation   315    (303)   30    258    12    253 
Workers Compensation Insurance Association   25    (21)   0    25    1    30 
Compensation Levy for Non-Employment of Severely Handicapped Persons   19    (16)   0    17    0    21 
Outstanding Invoices   1,059    (1,056)   60    489    22    454 
Annual Financial Statement Costs   128    (186)   0    180    4    126 
Other Provisions   446    (221)   0    118    6    349 
Warranties   96    (16)   0    6    41    127 
Gesture of Goodwill   0    0    0    0    0    0 
Provision for Legal Costs   73    (4)   0         5    74 
Severance   70    (70)   0    70    0    70 
Total   3,149    (2,811)   114    1654    107    1,985 

 

Provisions for salaries of 426 KUSD (December 31, 2012 restated year end: 861 KUSD) include the provisions created for the variable salaries of the sales staff for the sales objectives reached in this business period.

 

Vacation provisions of 253 KUSD (December 31, 2012 restated year end: 315 KUSD) include the obligations of GROUP’s companies to their employees for remaining vacation claims from the reporting period. The amount of the provision is calculated on the gross salary of the individual employee plus the employer contribution to social security/Medicare and based on the unused vacation days as of the financial statement date.

 

For liabilities not yet settled, a provision totaling 454 KUSD (December 31, 2012 restated year end: 1059 KUSD) was created.

 

Other Provisions of 349 KUSD (December 31, 2012 restated year end: 446 KUSD) include miscellaneous provisions.

 

Expenses for the audit of the Company and preparation of the annual consolidated financial statements were recognized at 126 KUSD (December 31, 2012 restated year end: 128 KUSD).

 

31
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

A provision for anticipated legal consulting of 74 KUSD was recorded (December 31, 2012 restated year end: 73 KUSD).

 

For warranty claims, a provision of 127 KUSD (December 31, 2012 restated year end: 96 KUSD) was created determined by service income.

 

Note18DEFERRED INCOME

 

Accruals for future periods leading to realization of sales after the financial statement date are reported under deferred income. The deferred income items listed as of the financial statement date in the amount of 8,853 KUSD (December 31, 2012 restated year end: 6,100 KUSD) primarily include maintenance income collected in advance for the period after the end of the financial statement date. They are amortized on a straight-line basis over their respective contract terms.

 

Note 19OTHER SHORT TERM LIABILITIES

 

Other short-term liabilities of 801 KUSD (December 31, 2012 restated year end: 860 KUSD) includes the following obligations and payments currently due:

 

Other Short-Term
Liabilities
  3/31/2013 
   KUSD 
Purchase Assets Permessa   538 
Tax Liabilities/Credits   (57)
Purchase Archiving Software   320 
Other Liabilities   0 
    801 

 

Note 20DUE TO RELATED PARTIES

 

Related parties basically refer to the Board of Directors, Supervisory Board, stockholders and associated companies.

 

32
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Business transactions between the companies and its subsidiaries which are also considered to be related companies were eliminated through the consolidation and are not reflected within these footnotes to the consolidated statements.

 

Remuneration of the management occupying key positions in the Corporation subject to disclosure includes the remuneration of the Board of Directors and that of the Supervisory Board.

 

      12/31/2012 
   3/31/2013
KUSD
   Restated
KUSD
 
Accounts payable and accruals          
Green Mind Ventures   0    72.0 
Vitamin-B Venture Gmbh   0    493.6 
Board of Directors fees and expenses   224.5    110.4 
Notes payable – see below   52.0    1,391.8 
Due to associated company   0    48.1 
    276.5    2,115.9 

 

   Date of
Loan
   Principal  

Interest

Accrued

   Total   Due
Date
 
       $   $   $     
Total   7/5/2012    50,000    2,084    52,084    1/5/2013 

 

33
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 21LIABILITIES TO BANKS – NON-CURRENT

 

Liabilities to banks as of the financial statement date was 2,563 KUSD (December 31, 2012 restated year end: 3,716 KUSD) represent bank obligations of GROUP AG with Baden-Württembergische Bank with a credit line totaling approx. 3,844 KUSD (3,000 KEUR) and are collateralized by a silent blanket agreement for GROUP AG’s trade receivables. The loan is provided with approx. 2,563 KUSD (2,000 KEUR) as an asset backed security and with 1,281 KUSD (1,000 KEUR) as a credit line backed up with the accounts receivables of GROUP AG. The term of the loan runs until June 30, 2014. The Company has curtailed the risk of changing interest rates existing with regard to liabilities to banks due to variable interest rate agreements by obtaining a fixed interest rate for half of its credit line. Accordingly, approx. 1,922 KUSD (1,500 KEUR) is bearing interest at prime plus 1.5% and approx. 1,922 KUSD (1,500 KEUR) is fixed at 3.5%

 

Note 22COMMON STOCK

 

The Company has authorized capital of 75,000,000 shares of common stock and 25,000,000 shares of “blank check” preferred stock, each with a par value of $0.001. No class of preferred stock has been designated or issued. As of March 31, 2013, there were shares 30,812,624 of common stock outstanding. At the time of the Reverse Merger of the Company by GROUP on January 6, 2011, there were 16,500,000 shares of common stock of the Company outstanding and, as the Reverse Merger was accounted for as a recapitalization and applied retroactively, this balance is recorded as the balance outstanding since inception.

 

Transactions occurring in 2011

 

·In March 2011, the Company consummated a private placement offering (the “Private Placement”) of an aggregate of 6,044,000 Units at a purchase price of $1.25 per Unit, for gross proceeds of $7,555,000.  Each Unit was comprised of one share of Common Stock and one three-year Warrant to purchase one share of Common Stock at an exercise price of $1.50 per share (“Private Placement Warrant”). The net proceeds of this offering were $6,878,950. As disclosed in Note 1, the Company issued 1,742,874 shares of common stock for the purchase of Pavone AG., GroupWare, Inc. and SD Holdings Ltd.

 

·In December, 2011, certain investors exercised their private purchase warrants at $1.50 per share and bought 2,020,000 shares of common stock for net proceeds of $3,024,970 after legal fees.

 

34
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Transactions occurring in 2012

 

·In March, 2012 another investor exercised their private purchase warrant and bought 5,000 shares of common stock for net proceeds of $7,500.

 

·Also in March, 2012, as a result of purchasing warrants at nominal value, wherein each warrant allowed the holder to purchase one common share at $0.50 for a period of three years, certain investors exercised those warrants and bought 900,000 shares of common stock for net proceeds of $450,000.

 

·On April 16, 2012, the Company sold 120,000 Units to Joerg Ott, the then Chief Executive Officer and Chairman of the Board of Directors of the Company, for a price of $1.50 per Unit, for a total purchase price of $180,000. Each Unit consisted of one share of Common Stock of the Company and one warrant to purchase one share of Common Stock of the Company from the date of issuance until the third anniversary date of the date of issuance for $1.50 per share. The Company sold the Units and underlying securities to Mr. Ott in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On April 28, 2012, $632,500 in notes payable were converted at $1.15 per unit into 550,000 units with each unit consisting of one common share of common stock and one warrant. Each warrant allows the holder to purchase one common share at $1.75 for a period of three years. The Company issued the Note pursuant to Section 4(2) under the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On April 30, 2012, $460,000 in notes payable to Lotus Holdings Ltd. (“Lotus Holdings”) were converted at $1.15 per unit into 400,000 units, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to purchase one common share at $1.75 for a period of three years. The Company issued the Lotus Note pursuant to Section 4(2) under the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·Also on April 30, 2012, $172,500 in debt to a company owned by Joerg Ott, the then Chief Executive Officer and Chairman of the Board of Directors of the Company, were converted at $1.15 per unit into 150,000 units, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to purchase one common share at $1.75 for a period of three years. The Company issued the debt pursuant to Section 4(2) under the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

35
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

·On May 10, 2012, the Company sold 30,000 Units to Markus R. Ernst, the Chief Financial Officer of the Company, for a purchase price of $1.50 per unit, for a total purchase price of $45,000. Each unit consists of one share of common stock of the Company and one warrant, allowing the holder to purchase one share of common stock of the Company from the date of issuance until the third anniversary date of the date of issuance for $1.50 per share. The Company sold the units and underlying securities to Mr. Ernst in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On May 15, 2012, the Company issued 150,000 unregistered shares of common stock to Kjell Jahn, the former selling stockholder of GroupWare, AG, a Florida corporation purchased by the Company in June 2011. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On July 5, 2012, the Company entered into a convertible promissory note agreement (the “Loan Agreement”) with Mohammad A. Shihadah, a member of the Board. Pursuant to the Loan Agreement, the Company issued a convertible promissory note, dated July 5, 2012 (the “Note”), to Mr. Shihadah for the principal amount of $50,000, bearing interest at a rate of 8% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note.

 

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised, Mr. Shihadah would receive a 3-year warrant to purchase shares at 50,000 shares of common stock at $1.00 per share.

 

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement Mr. Shihadah was issued a 3-year warrant to purchase shares at 50,000 shares of common stock at $1.00 per share.

 

·On July 5, 2012, the Company entered into a convertible promissory note agreement (the “Loan Agreement”) with K Group Ltd. Pursuant to the Loan Agreement, the Company issued a convertible promissory note, dated July 5, 2012 (the “Note”), to K Group Ltd. for the principal amount of $250,000, bearing interest at a rate of 8.5% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note.

 

36
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised, K Group Ltd. would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

 

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement K Group was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

 

·On July 5, 2012, the Company entered into a convertible promissory note agreement (the “Loan Agreement”) with Vitamin B Venture GmbH. Pursuant to the Loan Agreement, the Company issued a convertible promissory note, dated July 5, 2012 (the “Note”), to Vitamin B Venture GmbH for the principal amount of $252,500, bearing interest at a rate of 8.5% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note.

 

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised Vitamin B Venture GmbH would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

 

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement Vitamin B Venture GmbH was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

 

·On August 13, 2012, the Company entered into a note purchase and security agreement (the “Loan Agreement”) with John A. Moore, a member of the Board. Pursuant to the Loan Agreement, the Company issued a secured promissory note, dated October 26, 2012 (the “Note”), to Mr. Moore for the principal amount of $1,000,000, bearing interest at a rate of 20% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note, without any penalty for prepayment. To secure the obligations of the Company under the Note, the Company granted Mr. Moore a secured priority security interest in the Company’s Accounts Receivable and its subsidiaries located in the United States of America, as more fully described in the full text of the document.

 

37
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

In connection with the execution of the Loan Agreement, on October 26, 2012, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 100,000 shares of common stock at an exercise price of $0.35 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and the Lender and was exempt from registration under the Securities and Exchange Act of 1933, as amended, pursuant to Section 4(2) thereof.

 

In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Moore amended the Note pursuant to which Mr. Moore agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 450,960 shares of Common Stock to Mr. Moore. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On October 26, 2012, the Company entered into a note purchase and security agreement (the “Loan Agreement”) with Stephen D. Baksa, a member of the Board. Pursuant to the Loan Agreement, the Company issued a secured promissory note, dated October 26, 2012 (the “Note”), to Mr. Baksa for the principal amount of $1,000,000, bearing interest at a rate of 20% per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the Note, without any penalty for prepayment. To secure the obligations of the Company under the Note, the Company granted the Baksa a first priority security interest in all of the Company’s right, title and interest in and to the shares of IDC Global, Inc. then owned by the Company. The Note contains customary provisions upon an Event of Default, as more fully described in the full text of the document.

 

38
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

In connection with the execution of the Loan Agreement, on October 26, 2012, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 500,000 shares of common stock at an exercise price of $0.20 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and the Lender and was exempt from registration under the Securities and Exchange Act of 1933, as amended, pursuant to Section 4(2) thereof. On February 12, 2013, Mr. Baksa exercised the right to purchase 500,000 shares of common stock at the exercise price of $0.20.

 

In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Baksa amended the Note pursuant to which Mr. Baksa agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 200,000 shares of Common Stock to Mr. Baksa. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities

 

Transactions occurring in 2013

 

·As stated above, on February 12, 2013, and in connection with the above October 26, 2012 Loan Agreement the Company issued an aggregate of 500,000 restricted shares of Common Stock to Board Member, Stephen Baksa pursuant to exercise of a common stock purchase warrant issued on October 26, 2012 and exercisable for $0.20 per share. The Company issued the securities in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On February 12, 2013, the Company sold an aggregate of 250,000 restricted shares of Common Stock to an Accredited Investor (as that term is defined the Securities Act) pursuant to exercise of a common stock purchase warrant issued on November 30, 2012 and exercisable for $0.20 per share. The Company issues the securities in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

As of March 31, 2013, these shares had not yet been issued and remain as Subscriptions Receivable.

 

39
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

·As stated above, on February 22, 2013 and in connection with the above August 13, 2012 Loan Agreement, the Company and Board Member, John Moore amended the Note pursuant to which Mr. Moore agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 450,960 shares of Common Stock to Mr. Moore. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·As stated above, on February 22, 2013, and in connection with the above October 26, 2012 Loan Agreement, the Company and Board Member Stephen Baksa amended the Note pursuant to which Mr. Baksa agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 200,000 shares of Common Stock to Mr. Baksa. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On March 20, 2013, the Company issued an aggregate of 450,950 restricted shares of Common Stock to Board Member, John Moore pursuant to a February 22, 2013 amendment to a Secured Promissory Note Agreement entered into on August 13, 2012 between the Company and the Board Member. The Company issued the securities in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On March 27, 2013, the Company issued an aggregate of 200,000 restricted shares of Common Stock to Board Member, Stephen Baksa pursuant to a February 22, 2013 amendment to a Secured Promissory Note Agreement entered into on October 26, 2012 between the Company and the Board Member. The Company issued the securities in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

·On March 27, 2013, the Company issued 200,000 restricted shares of Common Stock to a third party non-affiliated consultant in consideration for consulting services rendered by the consultant to the Company. The Company issued the securities in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

 

40
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Other changes in common stock are disclosed in Note 26, Supplementary Cash Flow Disclosures.

 

Options

 

The Company has not issued any options, so that none are outstanding as of March 31, 2013..

 

Warrants

 

The Company has issued warrants in four different manners. In each instance, the warrant allows the holder to purchase a common share within a three year period from issuance at a specific price per share. In the first instance, warrants have been issued as part of a private placement offering wherein the investor purchases a common share, and a warrant. The fair value of those warrants has been determined (and is shown below) by utilizing the residual method, whereby the current market value of the stock is deducted from the unit price and the remainder is allocated to the warrant. The valuation of the warrants issued is for disclosure purposes only and has no impact to the financial statements. A description of those warrants has been described above under common shares.

 

The second manner in which warrants are issues is in respect to financing by way of the issuance of notes payable or the conversion of debt into shares. In these instances, the fair value of the warrant has been determined using the effective interest rate method whereby the note is discounted when the interest rate is less than other similar notes and discount is allocated to the warrant and credited to additional paid in capital. The corresponding charge to discount is then amortized over the life of the note. Where there is no difference in interest terms, no value is attributable to the warrant.

 

The Company has also sold warrants at nominal value to certain investors. In this instance the fair value of the warrants has been determined using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below. The valuation of the warrants issued is for disclosure purposes only and has no impact to the financial statements.

 

Lastly, the Company has issued warrants to outside consultants in payments for services. The warrants are issued as “cashless” warrants and have been valued using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below.. The fair value of warrants issued for financing are determined for disclosure purposes as there is no impact to the financial statements. The fair value for other services, namely legal, and consulting have been recorded in the financial statements with a charge to the corresponding expense account and a credit to additional paid in capital.

 

41
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated 

 

Black Scholes assumptions for warrants issued were as follows:

 

For the period ending December 31, 2012 -     December 31, 2011
       
Volatility -  120.6 – 134.3%  77.1%
       
Risk free interest rate -  0.34% - 0.51%  1.19%
       
Expected life -  3 years  3 years
       
Dividend rate -  Nil  Nil

 

The following share purchase warrant transactions have not been disclosed elsewhere.

 

On April 1, 2011, the former CFO was issued 100,000 share purchase warrants, which gave him the option of purchasing 100,000 shares of common stock for a period of 3 years at a price of $1.50 per common share. The value of this issuance, using the Black Scholes pricing model was determined to $34,000 and this amount was recorded as a consulting expense.

 

In March, 2012, the Company issued an aggregate of 2,020,000 warrants to five “accredited investors” pursuant to Section 4(2) of the Securities Act. Each investor warrant is exercisable for the three-year period commencing from the date of issuance for $0.50 per share of Common Stock and has the same terms as the Private Placement Warrants. As noted above investors immediately exercised warrants and purchased 900,000 shares of common stock for $450,000.On March 27, 2012, the Company issued an aggregate of 250,000 warrants to 3 outside consultants pursuant to Section 4(2) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $1.10 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $270,208 and this amount was recorded as a professional expense.

 

42
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

In December, 2012, The Company issued 16,875 warrants to an outside consultant pursuant to Section 4(2) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $0.21 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $2,624 and this amount was recorded as a consulting expense.

 

   # of shares               Fair value           Balance 
   allowed to   Issue   Expiry   Strike   at           End of 
   purchase   Date   Date   Price   Issuance   Issued   Exercised   Period 
   #           $   $   #   #   # 
                                 
Opening - Jan 1, 2011   2,000,000    10/1/2010    6/1/2013    4.00    -    -    -    2,000,000 
Issued for financing services        3/11/2011    3/11/2014    1.50    -    707,280    -    707,280 
Issued for financing services        3/28/2011    3/28/2014    1.50    -    15,000    -    15,000 
Sold with share units        3/31/2011    3/31/2014    1.50    -    6,044,000    2,020,000    4,024,000 
Issued for consulting services        4/1/2011    4/1/2014    1.50    34,000(1)   100,000    -    100,000 
Closing - Dec 31, 2011                            6,866,280    2,020,000    6,846,280 
                                         
Opening - Jan 1, 2012   6,846,280                             5,000    6,841,280 
Amended   (2,000,000)   10/1/2010    6/1/2013    4.00    -    -    -    - 
Reissued   2,000,000    6/1/2012    6/1/2015    1.00    556,785    -    -    - 
Issued for legal services        3/31/2012    3/31/2012    1.10    270,208(2)   250,000    -    250,000 
Issued for nominal value        3/28/2012    3/28/2015    0.50    2,457,662    2,020,000    900,000    1,120,000 
Sold with share units        4/16/2012    4/16/2015    1.50    90,000    120,000    -    120,000 
Issued with debt conversion        4/28/2012    4/28/2015    1.75    -    550,000    -    550,000 
Issued with debt conversion        4/30/2012    4/30/2015    1.75    -    500,000    -    500,000 
Sold with share units        5/10/2012    5/10/2015    1.50    25,800    30,000    -    30,000 
Issued with debt        7/5/2012    7/5/2012    0.50    26,500    550,000    -    550,000 
Issued with debt        8/13/2012    8/13/2015    0.35    -    100,000    -    100,000 
Issued with debt        10/26/2012    10/29/2015    0.20    -    500,000    500,000    - 
Issued with debt        11/30/2012    11/30/2015    0.20    -    500,000    250,000    250,000 
Issued for consulting services        12/21/2012    12/21/2015    0.21    2,624(1)   16,875    -    16,875 
Closing - Dec 31, 2012                            5,136,875    1,655,000    10,328,155 
                                         
Opening - Jan 1, 2013   10,328,155                                  10,328,155 
Transfer (3/11/2011)   739,000    2/6/2013    3/11/2014    1.50    -    -    -    739,000 
Closing - Mar 31, 2013                            5,136,875    1,655,000    11,067,155 

 

(1) recorded as consulting expense

(2) recorded as legal expense

 

43
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 23REVENUE ALLOCATION

 

Gross revenue may be broken down by the following products for the three months ended March 31, 2013 are as follows:

 

Sales Revenues  3/31/2013 
   KUSD 
     
Licenses   871 
Maintenance   2,688 
Partner Contribution   0 
Service   851 
Third-Party Products   685 
LND Third-Party Products   129 
Others   0 
      
    5,224 

 

Revenues by geographical area for the three months ended March 31, 2013 are as follows:

 

Sales Revenues  3/31/2013 
by geographic area  KUSD 
     
US   1,027 
Germany   3,973 
United Kingdom   224 
Others   0 
      
    5,224 

 

44
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Long-lived assets by geographical area, which primarily include property plant and equipment, are as follows:

 

Long-lived assets  3/31/2013 
by geographic area  KUSD 
     
US   126 
Germany   188 
United Kingdom   4 
Others   0 
      
    318 

 

45
 

 

Notes to the Interim Financial Statements

March 31, 2013

GBS Enterprises Incorporated

Unaudited and Restated

 

Note 24OTHER INCOME/EXPENSE

 

At the financial statement date, Other expense was 3 KUSD (December 31, 2012 restated year end: Other Expense 33 KUSD).

 

Note 25SUPPLEMENTAL CASH FLOW