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EX-5.1 - LEGAL OPINION LETTER - GMS Capital Corp. | ex5-1.htm |
EX-23.2 - CONSENT OF ACCOUNTING FIRM - GMS Capital Corp. | ex23-2.htm |
As filed
with the Securities and Exchange Commission on ____________, 2009.
Registration
No. 333-162201
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
Amendment Number 3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
GMS CAPITAL
CORP.
(Exact name of registrant as
specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
7372
(Primary Standard Industrial
Classification Code Number)
26-1094541
(I.R.S. Employer Identification
Number)
3456
Melrose Ave
|
Montreal,
Quebec H4A 2S1 Canada
|
Tel:
(514) 287-0103
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Jill Arlene
Robbins
|
525 93
Street
|
Surfside,
FL 33154
|
TELEPHONE
NO.: (305) 531-1174
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies to:
George
Metrakos
3456
Melrose Ave
|
Montreal,
Quebec H4A 2S1 Canada
Tel:
(514) 287-0103
Fax:
(514) 938-6066
|
Approximate date of commencement of
proposed sale to the public: From time to time after the Registration
Statement has been declared effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
1
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
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 Act. (Check one);
o Large accelerated
filer
o Accelerated
filer
o Non-accelerated
filer
x Smaller reporting
company
CALCULATION
OF REGISTRATION FEE
Number
of
|
Proposed
|
Proposed
|
Amount
of
|
|||||||||||||
Title
of each Class of
|
shares
to be
|
maximum
offering
|
maximum
aggregate
|
registration
|
||||||||||||
Securities
to be Registered
|
registered
|
price
per unit (1)
|
offering
price
|
fee(1)
|
||||||||||||
Common
Shares
|
4,000,000
|
$
|
.20
|
$
|
800,000
|
$
|
44.64
|
|||||||||
At
March 15, 2010
|
||||||||||||||||
Total
|
$
|
44.64
|
*
|
* of
which $44.64 is already paid.
(1)
Estimated solely for the purpose of calculating the registration fee required by
Section 6(B) of the Securities Act and computed pursuant to Rule 457 under the
Securities Act.
No
exchange or over the counter market exists for our common stock. The most recent
price paid for our common stock in a private placement was $0.10 which closed on
October 1, 2007.
2
Proceeds
from the sale of the shares will be escrowed in a non-interest bearing account
until the minimum number of units are sold. If the minimum proceeds are not
received within 365 days from the date of effectiveness of this prospectus, all
escrowed funds will be promptly returned to subscribers without interest or
deduction.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION, DATED __________
GMS
CAPITAL CORP.
This
Prospectus relates to the offering by the Company of a Minimum/Maximum Offering:
250,000 / 4,000,000 shares of common stock.
Offering
Price: $0.20 per share
GMS
Capital Corp., a Florida corporation, offers for sale, on a self- underwritten
basis, a minimum of 250,000 shares and a maximum of 4,000,000 shares at a price
of $0.20 per share. Proceeds from the sale of the shares will be escrowed in a
non-interest bearing account until the minimum number of units are sold. If the
minimum proceeds are not received within 365 days from the date of effectiveness
of this prospectus, all escrowed funds will be promptly returned to subscribers
without interest or deduction. The escrow agent will be Gilles Poliquin,
Attorney. This offering may continue past 365 days only if the minimum number of
units has been sold. Otherwise this offering will end on the 365th day, unless,
in our sole discretion, the offering is extended an additional 365
days. The minimum number of shares purchased in a single investment
is 5,000 shares or $1,000. The Company reserves the right to accept
lesser amounts at their sole discretion.
Investing
in our securities involves risk, see "Risk Factors" page 11. Any investor who
cannot afford to sustain the total loss of their investment should not purchase
the securities offered herein. Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
3
BEFORE
INVESTING, YOU SHOULD CAREFULLY READ THIS PROSPECTUS AND, PARTICULARLY, THE RISK
FACTORS SECTION, BEGINNING ON PAGE 11 .
The
Company will receive proceeds in the amount of $800,000.00 assuming the sale of
all of the Common Stock of the Company registered hereunder.
Number
of
Shares
|
Price
to
Public
|
Underwriting
Discounts
and
Commissions
(1)
|
Proceeds
to
Company
(2)
|
||||||||||
Per
Share (Minimum Offering)
|
250,000
|
$
|
0.20
|
$
|
0.0
|
$
|
50,000
|
||||||
Per
Share (Maximum Offering)
|
4,000,000
|
$
|
0.20
|
$
|
0.0
|
$
|
800,000
|
(1) This
is our initial public offering. No public market currently exists for our
shares. We know of no market makers for our common stock. The shares will be
offered and sold by our officers and directors without any discounts or other
commissions.
(2)
Proceeds to us are shown before deducting offering expenses payable by us
estimated at $10,000 including legal and accounting fees and printing
costs.
The
Company attempted a similar offering on form S-1 which went effective on
November 19, 2008. The offer was later withdrawn by the Company on
September 22, 2009 as the Company was unable to raise the minimum offering
within the prescribed time limit of 180 days. The Company sites a
difficult financial market for new initial public offerings from the end of 2008
to the beginning of 2009 as the main reason why the minimum offering was not
achieved. The Company has re-filed its offering within this current
prospectus as it has sited certain tendencies for markets to react more
positively to initial public offerings of smaller filers. Likewise,
the Company has extended its offering period from 180 to 365 days in order to
ensure that adequate time exists for management to sell the minimum
offering. The Company has also reduced its minimum offering to
$50,000 from $100,000 in order to increase the probability of the minimum
offering being achieved.
The
Company's "promoters" or their "affiliates" and their transferees, within the
meaning of the Securities Act of 1933 ("Act"), are deemed to be "underwriters"
within the meaning of the Act. Any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
Act. The Company has not engaged any broker-dealer.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this Prospectus is ________, 2009.
4
TABLE
OF CONTENTS
PAGE
|
|
About
This Prospectus
|
6
|
Cautionary Note Regarding Forward Looking Statements and Other
Information Contained in this Prospectus
|
6
|
Prospectus Summary
|
6
|
The Offering
|
8
|
Summary Financial Data
|
8
|
Risk Factors
|
11
|
Plan of Distribution
|
21
|
Use of Proceeds
|
24
|
Penny Stock Rules / Section 15(G) Of The Exchange Act
|
27
|
Market For Common Equity And Related Stockholder Matters
|
27
|
Determination of Offering Price
|
28
|
Dividends
|
28
|
Dilution
|
29
|
Management's Discussion and Analysis of Financial Condition and Plan
of Operation
|
30
|
Description of Business
|
42
|
Description of Property
|
47
|
Legal Proceedings
|
47
|
Directors, Executive Officers and Control Persons
|
47
|
Executive Compensation
|
48
|
Security Ownership of Certain Beneficial Owners and
Management
|
50
|
Certain Relationships and Related Transactions
|
51
|
Description of Securities
|
52
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
53
|
Legal Matters
|
53
|
Experts
|
54
|
Where You Can Find More Information
|
55
|
Financial Statements
|
56
|
5
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information other than that contained in
this prospectus. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of its delivery or of
any sale of our Common Stock. This prospectus will be updated and, as updated,
will be made available for delivery to the extent required by the federal
securities laws.
No person
is authorized in connection with this prospectus to give any information or to
make any representations about us, the securities offered hereby or any matter
discussed in this prospectus, other than the information and representations
contained in this prospectus. If any other information or representation is
given or made, such information or representation may not be relied upon as
having been authorized by us. This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy the securities in any circumstance
under which the offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any distribution of securities in accordance with this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus. This prospectus will be updated and
updated prospectuses made available for delivery to the extent required by the
federal securities laws.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS
This
prospectus contains some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical or
current facts. Forward-looking statements involve risks and uncertainties.
Forward-looking statements include statements regarding, among other things, (a)
our projected sales, profitability, and cash flows, (b) our growth strategies,
(c) anticipated trends in our industries, (d) our future financing plans and (e)
our anticipated needs for working capital. They are generally identifiable by
use of the words "may," "will," "should," "anticipate," "estimate," "plans,"
“potential," "projects," "continuing," "ongoing," "expects," "management
believes," "we believe," "we intend" or the negative of these words or other
variations on these words or comparable terminology. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Plan of Operation" and "Business," as well as in this prospectus generally. In
particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of contingencies such
as legal proceedings, and financial results.
Any or
all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. You
should not place undue reliance on these forward-looking
statements.
Item
3. Summary Information and Risk Factors
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the "risk factors" section, the
financial statements and the notes to the financial statements. As used in this
prospectus, "we", "us", "our", "GMS", “Metratech Retail Systems Inc.”,
“Metratech” or "our company" refers to GMS Capital Corp., a Florida corporation,
formerly doing business as “Metratech Retail Systems Inc.”.
6
Business
Overview
GMS
Capital Corp. (the “Company" or "GMS") is a software sales and development
company providing retail inventory management software for use by suppliers to
“Big-Box” retailers. Inventory management software permits suppliers
to develop sales forecasts based on the sales of their products on retail store
shelves. “Big-Box” retailers are large, warehouse-style stores where
public consumers go to purchase their everyday products, such as clothing,
sporting goods and home renovation products . We sell our software and
professional services in Canada and the US.
About
Us
Our
principal executive offices are located at 3456 Melrose Ave., Montreal, Quebec
H4A2S1 Canada. The telephone number of our principal executive office is (514)
287-0103. The Company does not currently have an active Internet
website.
Our
common stock is not listed on any exchange or quoted on any similar quotation
service, and there is currently no public market for our common stock.
Management plans to apply to enable our common stock to be quoted on the OTC
Bulletin Board.
Corporate
History
GMS
Capital Corp. was incorporated in Canada on March 9, 2000 under the name
"Metratech Retail Systems Inc." for the development and sales of specialized
inventory management software. The Company re-incorporated itself in
the State of Florida on September 18, 2007 and was subsequently renamed "GMS
Capital Corp." in order to raise capital on the US public markets to realize its
objectives of investing in its development and marketing plans.
The
details of the merger and re-incorporation are as follows:
The
2,578,000 issued and outstanding shares of Metratech Retail Systems Inc. were
converted to 2,578,000 shares of GMS Capital Corp. Each shareholder
of the Company received one share of GMS Capital Corp. for every share of
Metratech Retail Systems Inc. The three directors of Metratech Retail
Systems Inc., George Metrakos, Marcel Côté and Spiro Krallis were replaced by
George Metrakos on the board of directors of the newly incorporated
company.
On
October 1, 2007, the Company issued an additional 2,537,400 shares at a price of
$0.10 per share in order to compensate shareholders and external consultants to
perform the consulting work necessary to complete the company's
prospectus.
GMS
decided to reincorporate itself under the laws of the State of Florida in order
to take advantage of opportunities available to public entities in the
US. The reincorporation saw existing shareholders receive the
equivalent number of shares in the Florida Corporation as they held in the
company prior to reincorporation. The reincorporation in no way has
changed the capital structure of the Company.
7
The Company has incurred a net loss of ($29,424) and ($63,276)
for the years ended December 31, 2009 and 2008 and has an accumulated deficit of
($484,289) as of December 31, 2009. The Company’s limited
customer base exposes them to significant risk of future revenues. As
a result, the Company’s auditors have raised significant doubt that the Company
can continue as a going concern unless it is capable of raising sufficient
capital in order to sustain its operations. The Company has sought to
raise capital through its initial public offering of its shares via this
offering. There can be no guarantee that the Company will succeed in
raising the sufficient capital via this current offering.
The
Offering
Issuer:
|
GMS
Capital Corp.
|
Common
Stock outstanding prior to offering
|
5,115,400
|
Common
Stock offered by us:
|
4,000,000
shares
|
Offering
Price:
|
$0.20
per share
|
Common
Stock outstanding after the offering:
|
9,115,400
|
The
number of shares of our common stock to be outstanding after this offering is
based on the number of shares outstanding as of March 15,
2010 . There are currently no options to purchase shares of
common stock outstanding as of March 15,
2010 and there are no additional shares of common stock available
for future issuance under our stock option plans and there are no outstanding
warrants to purchase additional shares of common stock.
Our
OTC Bulletin Board Trading Symbol
|
We
intend to apply to have our shares trade on the OTC Bulletin Board upon
completion of this registration. There can be no assurances that we be
listed on the OTC Bulletin Board
|
|
Risk
Factors
|
See
"Risk Factors" beginning on page 9 and other information included in this
prospectus for a discussion of factors you should consider before deciding
to invest in shares of our Common
Stock.
|
Summary
Financial Data
The
following table sets forth our summarized audited financial statements. The
statement of operations data for the years ended December 31, 2008 and 2009 and
the balance sheet data as of December 31, 2009, are derived from our audited
financial statements and related notes included in the back of this
prospectus.
The
results for any interim period are not necessarily indicative of the results
that may be expected for a full year. The results included below and elsewhere
in this prospectus are not necessarily indicative of our future performance. You
should read this information together with "Capitalization," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the
related notes included elsewhere in this prospectus.
8
GMS
CAPITAL CORP.
|
||||||||
BALANCE
SHEETS
|
||||||||
DECEMBER
31, 2009 AND 2008
|
||||||||
ASSETS
|
||||||||
(IN
US$)
|
||||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 354 | $ | 1,461 | ||||
Accounts
receivable, net
|
3,222 | 2,646 | ||||||
Other
current assets
|
759 | 1,053 | ||||||
Total
Current Assets
|
4,335 | 5,160 | ||||||
Fixed
assets, net of depreciation
|
3,717 | 10,371 | ||||||
TOTAL
ASSETS
|
$ | 8,052 | $ | 15,531 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
LIABILITIES
|
||||||||
Current
Liabilities:
|
||||||||
Advances
- Shareholders
|
$ | 41,678 | $ | 26,970 | ||||
Line
of credit
|
5,896 | 1,862 | ||||||
Due
to related companies
|
3,932 | 1,240 | ||||||
Total
Current Liabilities
|
51,506 | 30,072 | ||||||
Total
Liabilities
|
51,506 | 30,072 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Common
stock, $.001 Par Value; 125,000,000 shares
authorized
|
||||||||
and
5,115,400 shares issued and outstanding,
respectively
|
5,115 | 5,115 | ||||||
Additional
paid-in capital
|
461,425 | 461,425 | ||||||
Accumulated
deficit
|
(484,289 | ) | (454,865 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(25,704 | ) | (26,216 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(43,453 | ) | (14,541 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 8,052 | $ | 15,531 |
9
GMS
CAPITAL CORP.
|
||||||||
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||
IN
US$
|
||||||||
YEARS
ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
OPERATING
REVENUES
|
||||||||
Sales
|
$ | 28,149 | $ | 38,400 | ||||
COST
OF SALES
|
||||||||
Purchases
|
28,971 | 68,285 | ||||||
Total
Cost of Sales
|
28,971 | 68,285 | ||||||
GROSS
PROFIT (LOSS)
|
(822 | ) | (29,885 | ) | ||||
OPERATING
EXPENSES
|
||||||||
Selling,
general and administrative
|
20,290 | 28,076 | ||||||
Depreciation
|
7,972 | 10,757 | ||||||
Total
Operating Expenses
|
28,262 | 38,833 | ||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(29,084 | ) | (68,718 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
expense
|
(340 | ) | (2,367 | ) | ||||
Gain
on asset disposal
|
- | 7,809 | ||||||
Total
Other Income (Expense)
|
(340 | ) | 5,442 | |||||
|
||||||||
NET
LOSS BEFORE PROVISION
|
||||||||
FOR
INCOME TAXES
|
(29,424 | ) | (63,276 | ) | ||||
Provision
for Income Taxes
|
- | - | ||||||
NET
LOSS APPLICABLE
|
||||||||
TO
COMMON SHARES
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
NET
LOSS PER BASIC AND DILUTED SHARES
|
||||||||
BASIC
AND DILUTED
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||
SHARES
OUTSTANDING - BASIC AND DILUTED
|
5,115,400 | 5,115,400 | ||||||
COMPREHENSIVE
INCOME (LOSS)
|
||||||||
Net
loss
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
Other
comprehensive income (loss)
|
||||||||
Currency
translation adjustments
|
512 | 6,082 | ||||||
Comprehensive
income (loss)
|
$ | (28,912 | ) | $ | (57,194 | ) |
10
RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this prospectus before deciding to invest in our Common Stock.
If any of
the following risks, or any other risks not described below because they are
currently unknown to us or we currently deem such risks as immaterial, but they
later become material, actually occurs, it is likely that our business,
financial condition, and operating results could be seriously harmed. As a
result, the trading price of our Common Stock could decline and you could lose
part or all of your investment.
Risks
Related to our Business
Decreasing
market prices for our products and services due to increasing competition may
cause us to lower our prices to remain competitive, which could delay or prevent
our future profitability.
Currently,
our prices are lower than those of many of our competitors for comparable
software products and services. However, market prices for business analysis
software have decreased over the last few years, and we anticipate that prices
will continue to decrease. This information is based on the experience of the
Company's management working in the business analytics software
industry. Such competition or continued price decreases may require
us to lower our prices to remain competitive, may result in reduced revenue, a
loss of customers, or a decrease in customer growth and may delay or prevent our
future profitability. Since we have priced our products as an upfront commitment
to the customer of approximately $40,000, a decrease in more than 60% of this
price will render each of our installations to be at a loss, considering the
professional services costs required to spend for the installation and on-going
delivery of service to the customer. The value of your investment in
the common shares would therefore be affected due to the lack of profitability
in this scenario, and you could even lose your entire investment.
Business
Analysis Software may fail to gain acceptance among suppliers to major retailers
and hence the growth of the business will be limited, lowering the profitability
of the business.
If
business analysis software such as our inventory management solutions fail to
gain acceptance among suppliers to major retailers, our ability to grow our
business will be limited, which could affect the profitability of our business.
The market for business analysis and inventory management software has only in
the last 10 years begun to develop and is rapidly evolving. Most of our
potential customers are unaware of business analysis software available to them
and as a result employ a significant amount of people to perform their analysis
manually. Should these customers continue to choose to maintain this
spending practice, we will sell less of our software and services.
We currently generate most of our revenue from the sale of
professional services as we have not been able to increase significantly the
sales of our software. If our sales and marketing plan fail to
increase the number of customers using our software, our ability to grow our
business will be limited. As a result, the value of your investment in the
common shares would be affected, and you could even lose your entire
investment.
Our
software to date is not sufficiently developed or advanced in order to offer a
simple and efficient means of installing it within the customer’s
premises.
Customers
must therefore incur additional professional service fees in order to install
and utilize the software on their premises, increasing the cost of ownership to
the customer. As such, there remains a higher barrier to new customer
acquisition due to these higher costs versus our competition. The
result may be our inability to acquire enough customers, reducing our revenues
and hence our profitability. If such a scenario is not overcome, the
value of our common stock will fall and you could lose your entire
investment.
11
Our
software may have flaws which could result in a reduction of customer appeal and
hence reduce the profitability of our operations.
Flaws in
our technology and systems could cause our customers to commit errors in their
management of their inventory, resulting in lost sales opportunities for their
products on retail shelves or the overstock of items in
warehouses. These errors will result in reduced revenues and higher
costs to our customers and hence will greatly reduce the appeal of our software
and services. Such flaws will damage our reputation, cause us to lose
customers and limit our growth which could affect the profitability and
operations of our business. Such an effect would result in the value
of your investment in the common shares to be affected, and you could even lose
your entire investment.
Because
much of our potential success and value lies in our use of internally developed
software, if we fail to protect the software, it could affect the profitability
and operations of our business.
Our
ability to compete effectively is dependent in large part upon the maintenance
and continued development of internally developed software. To date, we have
relied on trade secret laws, as well as confidentiality procedures and licensing
arrangements, to establish and protect our rights to our software. We typically
enter into confidentiality or license agreements with our employees,
consultants, customers and vendors in an effort to control access to, and
distribution of, technology, software, documentation and other
information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use this software without
authorization.
Policing
unauthorized use of our software is difficult. The steps we take may not prevent
misappropriation of the software we rely on. In addition, effective protection
may be unavailable or limited in some jurisdictions outside the United States
and Canada. Litigation may be necessary in the future to enforce or protect our
rights, or to determine the validity and scope of the rights of others. That
litigation could cause us to incur substantial costs and divert resources away
from our daily business, which in turn could materially adversely affect our
business through decreasing profitability and negative corporate image to our
customers, causing a higher rate of customer defection. As a result, the value
of your investment in the common shares would be affected, and you could even
lose your entire investment.
We
cannot guarantee that our software technology and trade secrets will not be
stolen, decreasing our competitive advantage, resulting in lower profitability
due to decreased sales.
Our
Company has invested in the research and development of our software technology
which permits the calculation and estimated sales forecast of consumer product
inventory within a retail store. This technology has been developed by our
employees and consultants and is owned entirely by us. The
programming and configuration of our software technology together with the
computer hardware and software required for our services to function is
proprietary to our company. We rely on trade secrets and proprietary
know-how to protect this technology. We cannot assure you that our technology
will not be breached, that we will have adequate remedies for any breach, or
that our trade secrets and proprietary know-how will not otherwise become known
or be independently discovered by others. If such a breach were to occur, our
brand, reputation, and growth will be negatively impacted. As a result, we would
incur extra expense to acquire new customers to replace those which have been
acquired by the increased competitive presence, decreasing our profitability as
expenses would increase. As a result, the value of your investment in the common
shares would be affected, and you could even lose your entire
investment.
12
We
Do Not Currently Hold a Professional or Product Liability Insurance Policy
Required to Sufficiently Protect Us and We Remain Exposed To Potential Liability
Claims.
We do not
currently hold a professional or product liability insurance policy. We intend
to purchase a professional and product liability insurance policy from the
proceeds of this offering. Professional and product liability insurance coverage
is specifically tailored to the delivery of our software and professional
services to our customers. For example, a customer whose software is not
functional due to a service outage or has produced a mathematical result that is
incorrect due to a software flaw may sue us for damages related to the
customer's inability to properly anticipate the required inventory levels to
properly meet sales demand. Professional liability insurance exists to cover the
Company for any costs associated with the legal defense, or any penalties
awarded to the plaintiff in such cases where judgment could be rendered against
us in case of loss in court. Such penalties could be large monetary funds that a
judge could force us to pay in the event where damages have been awarded to the
plaintiff.
Our
business exposes us to potential professional liability which is prevalent in
the business analytics software industry. While we have adequate licensing
agreements which indicate that we cannot guarantee 100% accuracy, these
licensing agreements cannot guarantee that we will not be sued for damages. The
company currently has no specific professional or product liability insurance.
The company intends to purchase professional and product liability insurance
which will help to defray costs to the company for defense against damage
claims. The Company does not foresee any difficulties in obtaining such a
policy, as the company has already been approved and a quotation submitted for
such coverage by a Canadian Insurance Company. In this proposal, the Insurance
Company is aware of the geographical locations of our client base, which is
predominantly in Canada however includes a small amount in the US and
International. There can be no assurance that the coverage the commercial
general liability insurance policy provides will be adequate to satisfy all
claims that may arise. Regardless of merit or eventual outcome, such claims may
result in decreased demand for a product, injury to our reputation and loss of
revenues. Thus, a product liability claim may result in losses that could be
material, affecting the value of the common shares of the company, and you could
even lose your entire investment.
Our
limited operating history may not serve as an adequate basis to judge our future
prospects and results of operations.
Our
Company began its operations in 2000. Our limited operating history in the
industry may not provide a meaningful basis on which to evaluate our business.
We cannot assure you that we will maintain our profitability or that we will not
incur net losses in the future. We expect that our operating expenses will
increase as we expand. Any significant failure to realize anticipated revenue
growth could result in significant operating losses. We will continue to
encounter risks and difficulties frequently experienced by companies at a
similar stage of development, including our potential failure to:
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maintain
our proprietary technology;
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expand
our product offerings and maintain the high quality of our
products;
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manage
our expanding operations, including the integration of any future
acquisitions;
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obtain
sufficient working capital to support our expansion and to fill customers’
orders in time;
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maintain
adequate control of our expenses;
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13
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implement
our product development, marketing, sales, and acquisition strategies and
adapt and modify them as needed;
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anticipate
and adapt to changing conditions in the software industry markets in
which we operate as well as the impact of any changes in government
regulation, mergers and acquisitions involving our competitors,
technological developments and other significant competitive and market
dynamics.
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If we are
not successful in addressing any or all of these risks, our business may be
materially and adversely affected.
We
may encounter substantial competition in our business and our failure to compete
effectively may adversely affect our ability to generate revenue.
We
believe that existing and new competitors will continue to improve their
products and to introduce new products with competitive price and performance
characteristics. We expect that we will be required to continue to invest in
product development and productivity improvements to compete effectively in our
markets. Our competitors could develop a more efficient product or undertake
more aggressive and costly marketing campaigns than ours, which may adversely
affect our marketing strategies and could have a material adverse effect on our
business, results of operations and financial condition.
Our major
competitors may be better able than we to successfully endure downturns in our
industry. In periods of reduced demand for our products, we can either choose to
maintain market share by reducing our selling prices to meet competition or
maintain selling prices, which would likely sacrifice market share. Sales and
overall profitability would be reduced in either case. In addition, we cannot
assure you that additional competitors will not enter our existing markets, or
that we will be able to compete successfully against existing or new
competition.
We
may not be able to prevent others from unauthorized use of our software, which
could harm our business and competitive position.
Our
success depends, in part, on our ability to protect our proprietary
technologies. The process of seeking patent protection can be lengthy and
expensive and we cannot ensure you that our existing or future issued software
copyrights will be sufficient to provide us with meaningful protection or
commercial advantages.
We also
cannot assure you that our current or potential competitors do not have, and
will not obtain, patents that will prevent, limit or interfere with our ability
to make, use or sell our products in either the US or other
countries.
We
will require additional capital to fund our operations beyond the next 3 months
and, if it is not available, we will be forced to reduce our planned development
and marketing efforts, which will reduce our sales revenues.
14
We
believe that our existing working capital and cash available from operations
will enable us to meet our working capital requirements for the next 3 months.
From this point onwards, unless we experience an increase in revenues from the
current level, we will need additional capital. The development and marketing of
new products and the expansion of distribution channels and associated support
personnel requires a significant commitment of resources. In addition, if the
markets for our products develop more slowly than anticipated, or if we fail to
establish significant market share and achieve sufficient net revenues, we may
continue to consume significant amounts of capital. As a result, we could be
required to raise additional capital. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the issuance
of such securities could result in dilution of the shares held by existing
stockholders. If additional funds are raised through the issuance of debt
securities, such securities may provide the holders certain rights, preferences,
and privileges senior to those of common stockholders, and the terms of such
debt could impose restrictions on our operations. We cannot assure you that
additional capital, if required, will be available on acceptable terms, or at
all. If we are unable to obtain sufficient amounts of additional capital, we may
be required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition and operating
results.
We
may not have adequate internal accounting controls. While we have certain
internal procedures in our budgeting, forecasting and in the management and
allocation of funds, our internal controls may not be adequate.
We are
constantly striving to improve our internal accounting controls. We hope to
develop an adequate internal accounting control to budget, forecast, manage and
allocate our funds and account for them. There is no guarantee that such
improvements will be adequate or successful or that such improvements will be
carried out on a timely basis. If we do not have adequate internal accounting
controls, we may not be able to appropriately budget, forecast and manage our
funds, we may also be unable to prepare accurate accounts on a timely basis to
meet our continuing financial reporting obligations and we may not be able to
satisfy our obligations under US securities laws.
Failure
to achieve and maintain effective internal controls in accordance
with section 404 of the Sarbanes-Oxley act could have a material
adverse effect on our business and operating results.
It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.
If we
fail to comply in a timely manner with the requirements of Section 404 of the
Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common stock.
15
Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we are be
required to prepare assessments regarding internal controls over financial
reporting, furnish a report by our management on our internal control over
financial reporting. We have begun the process of documenting and testing our
internal control procedures in order to satisfy these requirements, which is
likely to result in increased general and administrative expenses and may shift
management time and attention from revenue-generating activities to compliance
activities. While our management is expending significant resources in an effort
to complete this important project, there can be no assurance that we will be
able to achieve our objective on a timely basis. There also can be no assurance
that our auditors will be able to issue an unqualified opinion on management's
assessment of the effectiveness of our internal control over financial
reporting. Failure to achieve and maintain an effective internal control
environment or complete our Section 404 certifications could have a material
adverse effect on our stock price.
In
addition, in connection with our on-going assessment of the effectiveness
of our internal control over financial reporting, we may discover
“material weaknesses” in our internal controls as defined in standards
established by the Public Company Accounting Oversight Board, or the PCAOB.
A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements
will not be prevented or detected. The PCAOB defines “significant
deficiency” as a deficiency that results in more than a remote likelihood
that a misstatement of the financial statements that is more than
inconsequential will not be prevented or detected.
In the
event that a material weakness is identified, we will employ
qualified personnel and adopt and implement policies and procedures to
address any material weaknesses that we identify. However, the process of
designing and implementing effective internal controls is a continuous
effort that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expend significant
resources to maintain a system of internal controls that is adequate to
satisfy our reporting obligations as a public company. We cannot assure you
that the measures we will take will remediate any material weaknesses that
we may identify or that we will implement and maintain adequate controls
over our financial process and reporting in the future.
Any
failure to complete our assessment of our internal control over
financial reporting, to remediate any material weaknesses that we may
identify or to implement new or improved controls, or difficulties
encountered in their implementation, could harm our operating results,
cause us to fail to meet our reporting obligations or result in material
misstatements in our financial statements. Any such failure could also
adversely affect the results of the periodic management evaluations of our
internal controls and, in the case of a failure to remediate any material
weaknesses that we may identify, would adversely affect the annual auditor
attestation reports regarding the effectiveness of our internal control over
financial reporting that are required under Section 404 of the
Sarbanes-Oxley Act. Inadequate internal controls could also cause investors
to lose confidence in our reported financial information, which could have
a negative effect on the trading price of our common stock.
Once
publicly trading, the application of the “penny stock” rules could adversely
affect the market price of our common shares and increase your transaction costs
to sell those shares. The securities and exchange commission has adopted rule
3a51-1 which establishes the definition of a “penny stock,” for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, rule 15g-9 require:
16
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that
a broker or dealer approve a person’s account for transactions in penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased
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In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject
to the “penny stock” rules. This may make it more difficult for investors
to dispose of our common stock and cause a decline in the market value of
our stock.
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The
market price for our common shares is particularly volatile given our status as
a relatively unknown company with a small and thinly traded public float,
limited operating history and lack of profits which could lead to wide
fluctuations in our share price. The price at which you purchase our common
shares may not be indicative of the price that will prevail in the trading
market. You may be unable to sell your common shares at or above your purchase
price, which may result in substantial losses to you.
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.
17
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.
Volatility
in our common share price may subject us to securities litigation, thereby
diverting our resources that may have a material effect on our profitability and
results of operations.
As
discussed in the preceding risk factor, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
We
will incur increased costs as a result of being a public company, which could
affect our profitability and operating results.
The
Sarbanes-Oxley Act of 2002 and the new rules subsequently implemented by the
Securities and Exchange Commission and the Public Company Accounting Oversight
Board have imposed various new requirements on public companies, including
requiring changes in corporate governance practices. We expect these rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We expect to spend between
$50,000 to $100,000 in legal and accounting expenses annually to comply with
Sarbanes-Oxley. These costs could affect profitability and our results of
operations.
We
do not have key man insurance on our Chairman and CEO, on whom we rely for the
management of our business.
We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Mr. George Metrakos, the
Company’s Chairman of the Board and CEO. The loss of the services of Mr. George
Metrakos for any reason, may have a material adverse effect on our business and
prospects. We cannot assure you that their services will continue to be
available to us, or that we will be able to find a suitable replacement for
either of them. We do not carry key man life insurance for any key
personnel.
18
We
may not be able to hire and retain qualified personnel to support our growth and
if we are unable to retain or hire such personnel in the future, our ability to
improve our products and implement our business objectives could be adversely
affected.
If one or
more of our senior executives or other key personnel are unable or unwilling to
continue in their present positions, we may not be able to replace them easily
or at all, and our business may be disrupted and our financial condition and
results of operations may be materially and adversely affected. Competition for
senior management and senior technology personnel is intense, the pool of
qualified candidates is very limited, and we may not be able to retain the
services of our senior executives or senior technology personnel, or attract and
retain high-quality senior executives or senior technology personnel in the
future. Considering our current cash position, we do not have
adequate cash resources to hire and retain key personel should our current
offering fail to raise adequate funding. Such failure could
materially and adversely affect our future growth and financial
condition.
We do not presently maintain product
liability insurance, and our property and equipment insurance does not cover the
full value of our property and equipment, which leaves us with exposure in the
event of loss or damage to our properties or claims filed against
us.
We
currently do not carry any product liability or other similar insurance. We
cannot assure you that we would not face liability in the event of the failure
of any of our products. Should our inventory management software
fail to correctly calculate estimated inventory levels recommended to meet a
specific sales forecast for example, and our customer produces or purchases a
large amount of inventory as a result, then we can face significant legal
expenses in resolving the situation with the customer. While our
service agreement absolves responsibility of the company due to errors and
omissions, we do not hold adequate insurance coverage for such liabilities and
hence will not have adequate financial resources to defend ourselves under any
lawsuits filed.
Risks
Related to Our Common Stock.
Future
sales of substantial amounts of common stock pursuant to Rule 144 under the
Securities Act of 1933 or otherwise by certain shareholders could have a
material adverse impact on the market price for the common stock at the time.
There are presently 5,115,400 outstanding shares of our common stock held by
shareholders which are deemed "restricted securities" as defined by Rule 144
under the Securities Act of which 4,569,900 are held by affiliates. Within these
affiliated shares, 2,578,000 are subject to the limitations placed on shares
that would be subject to the comments from Kenneth Worm to Richard Wolffe. Under
certain circumstances, these shares may be sold without registration pursuant to
the provisions of rule 144. Rule 144 permits, under certain
circumstances, the sale of restricted securities without any quantity
limitations by a person who is not an affiliate of ours and has satisfied a six
month holding period. Any sales of shares by shareholders pursuant to rule 144
may have a depressive effect on the price of our common stock.
To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future,
and we cannot assure an investor that funds will be legally available to pay
dividends or that even if the funds are available, that the dividends will be
paid.
19
There
is no public (trading) market for our common stock and there is no assurance
that the common stock will ever trade on a recognized exchange or dealers'
network; therefore, our investors may not be able to sell their
shares.
Our
common stock is not listed on any exchange or quoted on any similar quotation
service, and there is currently no public market for our common stock. We have
not taken any steps to enable our common stock to be quoted on the OTC Bulletin
Board, and can provide no assurance that our common stock will ever be quoted on
any quotation service or that any market for our common stock will ever develop.
As a result, stockholders may be unable to liquidate their investments, or may
encounter considerable delay in selling shares of our common stock. Likewise,
stockholders may be unable to sell their common shares at or above the purchase
price, which may result in substantial losses to stockholders. Stockholders must
note that the shares in this offering must be sold at a fixed price of $0.20
until the shares are listed on the OTC Bulletin Board. There can be no
assurances that we be listed on the OTC Bulletin Board.
Volatility
in our common share price may subject us to securities litigation, thereby
diverting our resources that may have a material effect on our profitability and
results of operations.
As
discussed in the preceding risk factor, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management's attention and
resources.
Investors
in our common stock will experience immediate and substantial dilution as a
percentage of their holdings.
The net
tangible book value of our common stock at December 31, 2009 was ($43,453 ) or (
$0.0085) per share based on 5,115,400 common shares outstanding at the time.
Compared to the currently outstanding shares of our stock, investors will
experience an immediate dilution of $0.118 per share if the totality of the
offering is sold.
Our
offering price is arbitrarily determined and is unrelated to any measure of
value, actual income or assets.
Our
offering price of $0.20 per share was arbitrarily determined by us based solely
upon an increase over the prices paid by earlier investors in our company. It is
not based upon an independent assessment of the value of our shares and should
not be considered as such.
We
are responsible for the indemnification of our officers and
directors.
Our
Bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred by
them in any litigation to which they become a party arising from their
association with or activities on our behalf. Consequently, we may be required
to expend substantial funds to satisfy these indemnity obligations.
20
We
have attempted a similar offering in the recent past, and the Company was not
successful in raising the minimum offering
On
November 19, 2008, the Company received their prospectus effectiveness on a
similar offering, however the Company was unable to sell the minimum offering
within the offering period and hence the prospectus was
withdrawn. Based on this experience, it is possible that this current
offering may not achieve its minimum requirements either, which will further
delay the Company’s capital raising requirements. A further delay in
raising capital may cause the Company, based on its history of negative
earnings, to be unable to continue as a going concern. While new
investors that may be involved in the current offering will have their funds
returned from the Escrow Agent, current investors could lose their entire
investment.
SHOULD
ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED.
Where
You Can Find More Information
We have
filed with the Commission a registration statement on Form S-1 under the 1933
Act with respect to the securities offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information set forth in the registration statement, as permitted by the rules
and regulations of the Commission. For further information with respect to us
and the securities offered by this prospectus, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document that we have filed as an exhibit to
the registration statement are qualified in their entirety by reference to the
to the exhibits for a complete statement of their terms and
conditions. The registration statement and other information may be
read and copied at the Commission’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
Plan
of Distribution
Currently
we plan to have our sole officer, Mr. George Metrakos , sell the common shares
on a self-underwritten basis. He will receive no discounts or commissions. He
will deliver prospectuses to these individuals and to others who they believe
might have interest in purchasing all or a part of this offering. We
do not plan to seek exemption from registration in any states.
We also
may retain licensed broker/dealers to assist us in the offer and sell of the
shares of our common stock in the future, if we deem such to be in our best
interest. At this time we do not have any commitments, agreements or
understandings with any broker/dealers. The maximum underwriting discounts and
commissions we are willing to pay to engage broker/dealers is 10%. In the event
we retain any broker/dealers to assist in the offer and sell of shares of our
common stock we will update this prospectus accordingly.
In order
to buy shares of our common stock you must complete and execute the subscription
agreement and return it to Gilles Poliquin, Escrow agent at 500 St-Martin Blvd,
Suite 500, Laval, Quebec, H7M 3Y2 Canada. Payment of the purchase price must be
made by check payable to the order of "GMS Capital.Corp. IN TRUST" The check may
be delivered directly to abovementioned address.
21
We have
the right to accept or reject subscriptions in whole or in part, for any reason
or for no reason. All monies from rejected subscriptions will be returned
immediately to the subscriber, without interest or deductions. Subscriptions for
securities will be accepted or rejected within 48 hours after we receive
them.
Our
officers will not register as a broker/dealer under Section 15 of the Securities
Exchange Act of 1934 (the "Exchange Act") in reliance upon Rule 3a4-1. Rule
3a4-1 sets forth those conditions under which a person associated with an issuer
may participate in the offering of the issuer's securities and not be deemed to
be a broker/dealer. The conditions are that:
1. The
person is not statutorily disqualified, as that term is defined in Section
3(a)(39) of the Act, at the time of his participation; and,
2. The
person is not at the time of their participation, an associated person of a
broker/dealer; and,
3. The
person meets the conditions of Paragraph (a)(4)(ii) of Rule 3a4-1 of the
Exchange Act, in that he (A) primarily performs, or is intended primarily to
perform at the end of the offering, substantial duties for or on behalf of the
issuer otherwise than in connection with transactions in securities; and (B) is
not a broker or dealer, or an associated person of a broker or dealer, within
the preceding twelve (12) months; and (C) do not participate in selling and
offering of securities for any issuer more than once every twelve (12) months
other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
Our
officers and directors are not statutorily disqualified, are not being
compensated, and are not associated with a broker/dealer. They are, and will
continue to be, our officers and directors at the end of the offering, and have
not been, during the last twelve months, and are currently not, broker/dealers
or associated with broker/dealers. They have not, nor will not, participate in
the sale of securities of any issuer more than once every twelve months. After
our registration statement is declared effective by the SEC we intend to
advertise, through tombstones, and hold investment meetings in various states
where the offering will be registered. We will not utilize the Internet to
advertise our offering. We will also distribute the prospectus to potential
investors at meetings and to our friends and relatives who are interested in us
and a possible investment in the offering.
We intend
to sell our shares in the United States of America, and/or
offshore.
Because
it is possible that a significant number of shares could be sold at the same
time under this prospectus, these sales, or that possibility, may have a
depressive effect on the market price of our common stock.
Our
officers, directors, employees and affiliates may purchase shares offered under
this prospectus and will be allowed to purchase the requisite number of shares
required to meet the minimum shares sold during this offering:
- no
offers were made to our officers, directors, employees and affiliates prior to
the filling of the registration statement;
-
subsequent offers will be made only with the prospectus; and
- no
funds have or will be committed or paid by our officers, directors, employees
and affiliates prior to effectiveness of the registration
statement.
State Securities – Blue Sky
Laws
There is
no established public market for our common stock, and there can be no assurance
that any market will develop in the foreseeable future. Transfer of our common
stock may also be restricted under the securities or securities regulations laws
promulgated by various states and foreign jurisdictions, commonly referred to as
"Blue Sky" laws. Absent compliance with such individual state laws, our common
stock may not be traded in such jurisdictions. Because the securities registered
hereunder have not been registered for resale under the blue sky laws of any
state, the holders of such shares and persons who desire to purchase them in any
trading market that might develop in the future, should be aware that there may
be significant state blue-sky law restrictions upon the ability of investors to
sell the securities and of purchasers to purchase the securities. Accordingly,
investors may not be able to liquidate their investments and should be prepared
to hold the common stock for an indefinite period of time.
We will
consider applying for listing in Standard and Poor's Corporate Manual, which,
once published, will provide us with “manual” exemptions in approximately 33
states as indicated in CCH Blue Sky Law Desk Reference at Section 6301 entitled
“Standard Manuals Exemptions.”
Thirty-three
states have what is commonly referred to as a "manual exemption" for secondary
trading of securities such as those to be resold by selling stockholders under
this registration statement. In these states, so long as we obtain and maintain
a listing in Standard and Poor's Corporate Manual, secondary trading of our
common stock can occur without any filing, review or approval by state
regulatory authorities in these states. These states are: Alaska, Arizona,
Arkansas, Colorado, Connecticut, District of Columbia, Florida, Hawaii, Idaho,
Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi,
Missouri, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio,
Oklahoma, Oregon, Rhode Island, South Carolina, Texas, Utah, Washington, West
Virginia and Wyoming. We cannot secure this listing, and thus this
qualification, until after our registration statement is declared effective.
Once we secure this listing, secondary trading can occur in these states without
further action.
We
currently do not intend to and may not be able to qualify securities for resale
in other states which require shares to be qualified before they can be resold
by our shareholders.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the shares may not simultaneously engage in market making
activities with respect to our common stock for a period of two business days
prior to the commencement of such distribution.
22
Forward-Looking
Statements
This
prospectus includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. . Although we will amend this
registration statement to update the information as required by Section 10(a)(3)
of the Securities Act of 1933 or to disclose any fundamental change in the
information in the registration statement or additional or changed material
information on the plan of distribution you should not rely on these
forward-looking statements which apply only as of the date of this prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "intend,"
"estimate" and similar expressions to identify forward-looking statements. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding the growth of certain markets. You should
not place undue reliance on these forward-looking statements, which apply only
as of the date of this prospectus. Our actual results could differ materially
from those discussed in these forward-looking statements. Factors that could
contribute to these differences include those discussed in the preceding pages
and elsewhere in this prospectus.
This
prospectus contains certain forward-looking statements regarding management's
plans and objectives for future operations, including plans and objectives
relating to our planned marketing efforts and future economic performance. The
forward-looking statements and associated risks set forth in this prospectus
include or relate to:
(1) Our
ability to obtain a meaningful degree of consumer acceptance for our products
now and in the future,
(2) Our
ability to market our products on a global basis at competitive prices now and
in the future,
(3) Our
ability to maintain brand-name recognition for our products now and in the
future,
(4) Our
ability to maintain an effective distribution network,
(5) Our
success in forecasting demand for our products now and in the
future,
(6) Our
ability to maintain pricing and thereby maintain adequate profit margins,
and
(7) Our
ability to obtain and retain sufficient capital for future
operations.
23
Where you
can get additional information
We will
be subject to and will comply with the periodic reporting Requirements of
Section 12(g) of the Securities Exchange Act of 1934. We will furnish to our
shareholders an Annual Report on Form 10-K containing financial information
examined and reported upon by independent accountants, and it may also provide
unaudited quarterly or other interim reports such as Forms 10-Q or Form 8-K as
it deems appropriate. Our Registration Statement on Form S-1 with respect to the
Securities offered by this prospectus, which is a part of the Registration
Statement as well as our periodic reports may be inspected at the public
reference facilities of the U.S. securities and Exchange Commission, Judiciary
Plaza, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or from the
Commission's internet website, www.sec.gov and searching the EDGAR database for
GMS Capital Corp . Copies of such materials can be obtained from the
Commission's Washington, D.C. office at prescribed rates. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
We intend
to use the net proceeds from this offering primarily for working capital, to
reimburse some debt that the Company has taken on since inception and to fund
the expansion of our business, including funding marketing expenses and
operating losses. We intend to utilize the proceeds within 30 days of receipt of
the funds as per our plan of operations found in our "Management's Discussion
and Analysis and Plan of Operations" and our use of proceeds below.
The
following table demonstrates the use of proceeds based on the projected funds
raised from this offering. Different values are provided in the event that the
maximum amounts are not raised as a part of this offering.
The
foregoing categories indicate the allocation of funds for various purposes to be
used by the company. It is possible that all or a portion of the funds received
in this offering may not be utilized immediately, in which case the Company may
invest unused funds in short-term interest bearing, investment grade securities
until expenditure of such funds becomes necessary.
Minimum
offering
raised
($50,000)
|
$250,000
raised
|
$500,000
raised
|
Maximum
offering
raised
($800,000)
|
|||||||||||||
Repayment
of Debt to:
|
||||||||||||||||
Officers
and Shareholders
|
$
|
40,000
|
$
|
41,678
|
$
|
41,678
|
$
|
41,678
|
||||||||
Fees
associated to this offering
|
$
|
10,000
|
$
|
10,000
|
$
|
10,000
|
$
|
10,000
|
||||||||
Product
Development
|
$
|
—
|
$
|
25,000
|
$
|
100,000
|
$
|
200,000
|
||||||||
General
& Administration
|
—
|
$
|
50,000
|
$
|
50,000
|
$
|
150,000
|
|||||||||
Sales
& Marketing
|
$
|
-
|
$
|
85,000
|
$
|
200,000
|
$
|
300,000
|
||||||||
Additional
Working Capital
|
$
|
-
|
$
|
38,322
|
$
|
98,322
|
$
|
98,322
|
||||||||
TOTAL:
|
$
|
50,000
|
$
|
250,000
|
$
|
500,000
|
$
|
800,000
|
24
Except
for fixed costs, the amounts actually spent by us for any specific purpose may
vary and will depend on a number of factors. Non-fixed costs, such as
product development, sales and marketing, general and administrative costs may
vary based on including the progress of our commercialization and development
efforts, general business conditions and market reception to our services.
Accordingly, our management has broad discretion to allocate the net proceeds to
non-fixed costs.
An
example of changes to this spending allocation for non-fixed costs include
Management deciding to spend less of the allotment on product development and
more towards sales and marketing. These changes to spending
allocation in sales and marketing may occur due to seasonal variations in market
demand for our products and services relative to when the funds are
received.
Likewise,
a specific contingency exists such that an alternative use of proceeds may
occur. The specific contingency is related to our
technology. Should our competitors release to our markets a
technology which renders our own obsolete, than Management will redirect sales
and marketing costs towards increased new product development, which would
increase spending on hiring more people with skills related to our
industry. This will increase Product Development costs and General
and Administration and therefore change our use of proceeds as outlined in the
following table.
CONTINGENCY
USE OF PROCEEDS TABLE
Minimum
offering
raised
($50,000)
|
$250,000
raised
|
$500,000
raised
|
Maximum
offering
raised
($800,000)
|
|||||||||||||
Repayment
of Debt to:
|
||||||||||||||||
Officers
and Shareholders
|
$
|
40,000
|
$
|
41,678
|
$
|
41,678
|
$
|
41,678
|
||||||||
Fees
associated to this offering
|
$
|
10,000
|
$
|
10,000
|
$
|
10,000
|
$
|
10,000
|
||||||||
Product
Development
|
$
|
-
|
$
|
75,000
|
$
|
200,000
|
$
|
400,000
|
||||||||
General
& Administration
|
$
|
—
|
$
|
50,000
|
$
|
100,000
|
$
|
150,000
|
||||||||
Sales
& Marketing
|
$
|
—
|
$
|
15,000
|
$
|
50,000
|
$
|
100,000
|
||||||||
Additional
Working Capital
|
$
|
-
|
$
|
38,322
|
$
|
98,322
|
$
|
98,322
|
||||||||
TOTAL:
|
$
|
50,000
|
$
|
250,000
|
$
|
500,000
|
$
|
800,000
|
Pending
the uses described above, we intend to invest the net proceeds of this offering
in short-term, interest-bearing, investment-grade securities.
Repayment
of Debt to Officers and Shareholders:
The
Company will re-pay various amounts from related parties whom are either
officers or shareholders. The proceeds of the original debt were utilized for
cash flow and working capital purposes for the company to sustain its
operations. This debt was provided to The Company under the pretense that it
would be repaid when the Company’s cash flow permits and is therefore included
as a disbursement required once the minimum is raised. These amounts are not
interest bearing and are as follows:
25
As of
December 31, 2009 , the Company has $41,678 outstanding with officers and companies controlled
by the same officers.
The debt
was incurred through various disbursements throughout the last 36 months and was
considered short term in nature for working capital purposes.
Fees
associated with this offering
We
estimate that printing, accounting, legal and courier costs associated with this
prospectus will be $10,000, regardless of the amounts raised.
Product
Development
While our
products and services are currently able to be sold on the marketplace, we will
continuously invest in improving our technology to maintain our competitive
advantage in our market segments. The increase in funds raised as a result of
this offering will permit us to further invest in Research and Development to
further expand product base and target new market segments in the future.
Provided we raise at least $250,000, we will begin with a $20,000 investment in
Product Development and we propose to increase this as outlined in the table
above. Our product development expenditures are predominantly salaries of
skilled technicians, telecommunications engineers and computer
programmers.
General
and Administrative
We will
increase our management team with the hiring of a Director of Marketing should
we raise at least $250,000 in this offering. Should we be successful
in raising at least $500,000, we will also hire a Director of
Operations. And should we be successful in raising the full amount of
$800,000 in this offering, we will likewise hire a Director of
Finance. These new key positions are required in order to assist the
current management team to effectively manage growth. We estimate an average
salary of $50,000 per person, regardless of the amounts of money
raised.
Sales
& Marketing
To date,
our Sales & Marketing expenses have been limited to commission-based sales
costs and minimal marketing expenses. As a result, there is very little brand
awareness for our products and services. We believe a strategic marketing
campaign is necessary to achieve the customer base growth that we anticipate due
to significant investments in customer acquisition. The bulk of this investment
is due to costs related to promoting our brand through advertising in different
media, along with analysis of new market segments and product placement
strategies.
The main
market segment where we will invest in Sales & Marketing is that of the
Canadian small to medium sized manufacturer or importer of goods that are sold
through retail stores to the general public. These investments
include travel, participation in industry trade shows and print/on-line media
within industry publications and web sites.
26
Working
Capital
Working
Capital allocations set forth in the use of proceeds table above describe funds
that will be utilized for such items as payroll fees and professional fees
associated with SEC reporting requirements and financial and legal
compliance. Included in working Capital are professional and product
liability insurance Policies. This will be purchased as long as we
receive at least 250,000 of funding raised.
Market
for Common Equity and Related Stockholder Matters
At
present, our securities are not traded publicly. There is no assurance that a
trading market will develop, or, if developed, that it will be sustained. A
purchaser of shares may, therefore, find it difficult to resell the securities
offered herein should he or she desire to do so when eligible for public resale.
Furthermore, the shares are not marginable and it is unlikely that a lending
institution would accept our common stock as collateral for a loan. Pursuant to
this registration statement, we propose to publicly offer a minimum of 250,000
shares and a maximum of 4,000,000 shares.
Market
Information
There is
no public market for our securities at present. Our Common Stock is not
currently quoted on the OTC Bulletin Board.
At December 31, 2009 , there were 125,000,000 authorized
shares at $.001 par value with 5,115,400 shares of our Common Stock outstanding.
Our shares of Common Stock are held by 8 stockholders of record. The number
of record holders was determined from the records of our transfer agent and does
not include beneficial owners of Common Stock whose shares are held in the names
of various security brokers, dealers, and registered clearing
agencies.
Securities
Authorized for Issuance Under Equity Compensation Plans
None
Symbol
There is
no public market for our securities at present.
PENNY
STOCK RULES / SECTION 15(G) OF THE EXCHANGE ACT
Our
shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as
amended, and Rules 15g-1 through 15g-6 promulgated thereunder. They impose
additional sales practice requirements on broker/dealers who sell our securities
to persons other than established customers and accredited investors who are
generally institutions with assets in excess of $5,000,000, or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 jointly with their spouses.
27
Rule
15g-1 exempts a number of specific transactions from the scope of the penny
stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny
stocks unless the broker/dealer has first provided to the customer a
standardized disclosure document.
Rule
15g-3 provides that it is unlawful for a broker/dealer to engage in a penny
stock transaction unless the broker/dealer first discloses, and subsequently
confirms to the customer, current quotation prices or similar market information
concerning the penny stock in question.
Rule
15g-4 prohibits broker/dealers from completing penny stock transactions for a
customer unless the broker/dealer first discloses to the customer the amount of
compensation or other remuneration received as a result of the penny stock
transaction.
Rule
15g-5 requires that a broker/dealer executing a penny stock transaction, other
than one exempt under Rule 15g-1, disclose to its customer, at the time of, or
prior to, the transaction, information about the sales persons
compensation.
Rule
15g-6 requires broker/dealers selling penny stocks to provide their customers
with monthly account statements.
Rule
15g-9 requires broker/dealers to approve the transaction for the customer's
account; obtain a written agreement from the customer setting forth the identity
and quantity of the stock being purchased; obtain from the customer information
regarding his investment experience; make a determination that the investment is
suitable for the investor; deliver to the customer a written statement for the
basis for the suitability determination; notify the customer of his rights and
remedies in cases of fraud in penny stock transactions; and, contact the NASD's
toll free telephone number and the central number of the North American
Administrators Association for information on the disciplinary history of
broker/dealers and their associated persons.
The
application of the penny stock rules may affect your ability to resell your
shares due to broker-dealer reluctance to undertake the above described
regulatory burdens.
Item
5. Determination of Offering Price
There is
currently no over the counter trading of the Company's securities. The offering
price of our shares were arbitrarily determined by our management and was based
upon consideration of various factors including our history and prospects, the
background of our management and current conditions in the securities markets.
The price of our shares does not bear any relationship to our assets, book
value, net worth or other economic or recognized criteria of value. In no event
should the offering price of our shares be regarded as an indicator of any
future market price of our securities.
Dividends
We have
never paid a cash dividend on our common stock. The payment of dividends may be
made at the discretion of our board of directors and will depend upon, among
other things, our operations, capital requirements, and overall financial
condition.
28
We do not
anticipate paying cash dividends on our common shares in the foreseeable future.
We may not have enough funds to legally pay dividends. Even if funds are legally
available to pay dividends, we may nevertheless decide in our sole discretion
not to pay dividends.
Dilution
Effect
of Offering on Net Tangible Book Value Per Share
Our net
tangible book value as of December 31, 2009 was
approximately ( $43,453 ) or ( $0.0085 ) per share. Net tangible book value per share
represents our total tangible assets less our total liabilities, divided by the
aggregate number of shares of our common stock outstanding. After giving effect
to the sale of the 4,000,000 shares of our common stock in this offering, with
$10,000 printing, accounting, legal and courier costs associated with this
prospectus payable by us, our net tangible book value at December 31, 2009 would have been approximately $746,547 or $0.082 per share.
We have assumed a public offering price of $0.20 per share. This represents an
immediate increase in net tangible book value per share of $0.0735 to existing stockholders and an immediate dilution
of $0.118 per share to new investors. Dilution per
share represents the difference between the amount per share paid by the new
investors in this offering and the net tangible book value per share at December 31, 2009 , giving effect to this offering. The
following table illustrates this per share dilution to new
investors.
Assumed
public offering
|
||||
price
per share
|
$
|
0.200
|
||
Net
tangible book value
|
||||
per
share as of December 31, 2009
|
$
|
( 0.0085 )
|
||
Increase
in net tangible
|
||||
book
value per share
|
||||
attributable
to new
|
||||
investors
|
$
|
0.0735
|
||
Net
tangible book value
|
||||
per
share after this
|
||||
offering
|
$
|
0.082
|
||
Dilution
per share to new
|
||||
investors
|
$
|
0.118
|
As of March 15, 2010 there were no options and
warrants outstanding.
29
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion and analysis of the consolidated financial condition and
results of operations should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Actual results may differ materially from those anticipated in
these forward-looking statements.
Overview
Principal
products or services and their markets - ManageThePipe Inventory Management
Software
The
Company's software, known as "ManageThePipe", permits suppliers to major
retailers such as Wal-Mart to predict the amount of inventory required in the
near future in order to meet the sales demands for its products on retail store
shelves. The software collects data such as production schedules,
shipping schedules, historic sales and current retail store inventories in order
to calculate an estimate of future inventory requirements for each item that a
supplier sells through major retailers such as Wal-Mart Stores.
Our
Company has invested in the research and development of our inventory management
software which collects data and performs forecast calculations. Our technology
consists of proprietary software programming however, we have no specific legal
entitlement that does not permit someone else from utilizing the same base
software languages in order to produce similar inventory management software
offerings.
Base
software languages are the language building blocks used by programmers to
translate the desired logic sequences into a message that the computer can
understand and execute. An example of a logic sequence is “if the
user wishes to predict the future sales of their product based on historical
sales”, the software should calculate a forecast based on mathematical models
provided in its logic tables to calculate the forecasted values. The combination
and use of these building blocks is known as ‘software code”, and hence this
combination, created by the Company’s programmers, along with “off-the-shelf”
computer hardware (i.e. Equipment that is readily available by computer
companies such as servers) is collectively referred to as “our technology and
trade secrets”.
We
therefore cannot be certain that others will not gain access to our technology.
In order to protect this proprietary technology, we hold non-disclosure and
confidentiality agreements and understandings with our employees, consultants,
re-sellers, distributors, wholesalers and technology partners. We cannot
guarantee that our technology and trade secrets will not be stolen, challenged,
invalidated or circumvented. If any of these were to occur, we would suffer from
a decreased competitive advantage, resulting in lower profitability due to
decreased sales.
The
Company offers the following products and services to customers utilizing its
ManageThePipe inventory management software:
·
|
Installation
and configuration of the software within the customer's computer
network
|
30
·
|
Professional
and consulting services to assist the customer to optimize their inventory
to meet sales demands
|
||
·
|
Maintenance
services in order to assist the customer in ensuring daily importation of
data from various sources into the ManageThePipe
software
|
||
·
|
Software
subscription fees for the use of the software on the premises of the
customer.
|
Distribution
methods of the products or services
Direct
Sales.
We
solicit customers directly in order to purchase our products and services. Upon
acceptance of our offer, our customers sign a Service Agreement.
Sales
Through a Value-Added Reseller.
A
Value-Added Reseller typically re-sells our software in combination with other
software also offered by the Value-Added Reseller, providing a customized and
complete solution for the customer. Other software which is
compatible with the ManageThePipe software includes production planning
software, enterprise resource planning software and sales analysis
software.
In the
case of any sale, the Company enters into a services agreement with the
customer.
Status
of any publicly announced new product or service;
ManageThePipe
software was in a pre-commercialization phase with the deployment of the first
version of the software at a garment manufacturing facility in July of
2002. The software has since been deployed in numerous customer
facilities and is available for sale in its current state.
The
software installation, use and maintenance represent a first year investment of
$25,000 followed by yearly subscription fees of $12,000.
We were
reincorporated in the State of Florida "GMS CAPITAL CORP" in 2007. Prior to this
reincorporation, the Company was doing business as "Metratech Retail Systems
Inc.", a Canadian Corporation since 2000. Our revenues are derived
primarily from the collection of software subscription-based licensing revenues
and professional services to business customers.
31
Trends
in Our Industry and Business
A number
of trends in our industry and business have a significant effect on our results
of operations and are important to an understanding of our financial statements.
These trends include:
Decreasing Prices for Consumer
Goods. The prices for everyday consumer goods continually decrease
due to increased competition among major Retailers. As a result,
Retailers are continuously searching for innovative ways to reduce their costs
from their suppliers. This cost reduction pressure has resulted in an
increasing requirement for Retailers to rely on their suppliers to manage their
inventory so that the Retailers do not have to spend money and dedicate
resources to this important task.
Manufacturers and Importers are
Suppliers whose core competencies are not Retailer store shelf inventory
management. Suppliers are typically experts at shipping their goods
based on confirmed orders from Retailers. With the requirement for
Suppliers, imposed by their Retailers, to make decisions as to when, how much
and to which store that they should be shipping their goods, the Supplier is
forced to behave outside of their core competency. As a result, the
Supplier is looking for ways to alleviate this burden through the acquisition of
specific software designed to meet their inventory management
needs.
We
generate revenues from the installation of our ManageThePipe software on the
premises of our customers, along with the Professional services required to
install, train and support our customers on the use of the software. Our cost of
sales include our salaries, consultant fees, sales and marketing, product
development and administration required for us to deliver the software and
professional services.
We have
incurred gross losses during our first two years of operation (2000, 2001 and
2003) because the software was being developed and was not functioning and
therefore we were unable to generate enough revenues to sustain our product
development expenditures. During 2003, 2004 and 2005, we continued to
incur losses as our revenues were not sufficient to sustain our continued
product development and sales and marketing expenditures. In 2006 we
finally achieved profitability in our operations. In 2007, the
re-incorporation of the Company in the state of Florida in order to take the
company public for future access to capital resulted in the company returning to
a loss situation due to the high professional fees required for such a business
plan.
For our
12 month projection of financing needs, we conservatively estimate a constant
level of revenue which is consistent with what we've experienced over the
last 3 months. We consider this scenario in such a way that we do not
receive any of the proceeds of the offering outlined in this registration
statement. For the next 12 months, management, to the best of their ability and
based on current information (such information and circumstances subject to
change and a resulting reassessment of our cash needs) anticipates, our cash
needs to be the following:
32
Projected
Plan of Operations and 12 Month Cash Requirements:
Apr-10
|
May-10
|
Jun-10
|
Jul-10
|
Aug-10
|
Sep-10
|
Oct-10
|
Nov-10
|
Dec-10
|
Jan-11
|
Feb-11
|
Mar-11
|
|
OPERATING
REVENUES
|
||||||||||||
Sales
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
2,346
|
COST
OF SALES
|
||||||||||||
Purchases
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
Total
Cost of Sales
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
2,414
|
GROSS
PROFIT (LOSS)
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
- 69
|
OPERATING
EXPENSES
|
||||||||||||
Selling,
general and administrative
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
1,691
|
Depreciation
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
664
|
Total
Operating Expenses
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
2,355
|
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
- 2,424
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
Interest
expense
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
Total
Other Income (Expense)
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
28
|
|
||||||||||||
NET
LOSS BEFORE PROVISION
|
||||||||||||
FOR
INCOME TAXES
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
Provision
for Income Taxes
|
||||||||||||
NET
LOSS APPLICABLE
|
||||||||||||
TO
COMMON SHARES
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
- 2,452
|
The above
table demonstrates that due to the higher level of professional services
expenses required to maintain public filings, audit and legal expenses, our
current level of revenues is not sufficient to cover our cash
needs. As a result, we will cover our cash shortfalls through debt
financing with affiliated parties. In the event that we do not have a
significant increase in revenues and we do not raise sufficient capital in
the offering herein, management estimates we can only sustain our cash
requirements for 3 months. After three months, management will need
to consider alternate sources of financing, including but not limited to
additional debt financing, in order to sustain operations for subsequent
period. No agreements or arrangements have been made as of this date
for such financing.
33
Fiscal
Year End December 31, 2009 and December 31, 2008
The
Company recorded sales of $28,149 of which $7,853 was subscription revenue,
$8,451 was professional services and $11,845 was maintenance revenue for the
year ended December 31, 2009 as compared to $38,400 of which $12,262 was
subscription revenue, $6,074 was professional services revenue and $6,074 was
maintenance revenue for the year ended December 31, 2008.
The
Company's total expenses before interest and income taxes were $28,262 for the
year ended December 31, 2009 compared to $38,833 for the year ended December 31,
2008, primarily as a consequence of a decrease in professional services related
to the costs associated with the raising of capital through the US public market
system and the writing of the Company's offering prospectus. In
particular, there was a decrease in selling, general and administrative expenses
from $28,076 to $20,290 as the company reduced its expenditures in professional
services from the prior year. There was a decrease in depreciation from $10,757
to $7,972 related to no new acquisitions of equipment during the fiscal
year.
As a
result, the Company had a net income (loss) of ($29,424) for the year ended
December 31, 2009 compared to a net income (loss) of ($63,276) for the year
ended December 31, 2008. The principal reasons for company's net loss for the
year ended December 31, 2009 as compared to the prior period is that the
company’s revenues through the sales of its products and services have not
achieved the necessary level to cover the costs of professional services
required to maintain the company as a reporting entity.
Plan
of Operations and Need for Additional Financing
The
Company's plan of operations for 2010 is to build a subscriber base of suppliers
to major retailers who purchase software on a monthly subscription basis. Along
with the subscription revenues, the Company will also sell professional
services, maintenance and software fees to the same
customers.
Liquidity
and Capital Resources
For the
year ended December 31, 2009:
On the
Company's balance sheet as of December 31, 2009, the Company had assets
consisting of cash in the amount of $354, accounts receivable in the amount of
$3,222 and other current assets of $759. The Company has expended its cash in
furtherance of its business plan, including primarily expenditure of funds to
pay legal and accounting expenses, and to maintain service delivery to its
customers. Consequently, the Company's balance sheet as of December 31, 2009
reflects an accumulated deficit of ($484,289) and a stockholder’s equity of
($43,453).
The
Company used $21,123 of cash in operating activities in 2009 compared with a use
of $56,272 in 2008. This change was attributable in large part to an increase in
net income since the year prior.
34
The
Company was provided $1,284 in cash from investing activities in 2009 compared
to being provided $20,680 in 2008. This change was attributable to an
acquisition of fixed assets of $1,318 (computer equipment purchase) during 2009
as compared with a disposal of $11,695 (vehicle sale) fixed assets during the
year.
The
Company had net cash provided by financing activities of $13,980 in 2009
compared to being provided $18,563 in 2008. This change was primarily
attributable to the Company having repaid its long-term debt balance in
2008.
In
pursuing its business strategy, the Company will require additional cash for
operating and investing activities in order to increase its monthly
revenues. The Company’s current level of gross margin is not adequate
to cover all of the operating expenses for the business operating at the current
revenue levels. Management believes that The Company has enough cash
available to meet working capital requirements for the next 3
months. The Company estimates that it will require a total of $29,424 to cover its cash shortfall over the next 12 month
period. The Company will continue to borrow money from shareholders and related
parties to cover this cash shortfall, while looking to increase revenues of its
subscription services. The Company has sought to borrow money from
related parties in order to make cash expenditures that relate to the
registration process which began in April 2008. The Company records
advances from related party upon the receipt of funds from shareholders and
officers and will repay this loan when the Company has the free cash flow to do
so.
The
Company has undertaken a registration of shares on form S-1 for the sale of up
to 4,000,000 of its shares of common stock at $0.20 per share. The Company
anticipates proceeds of this offering to be approximately $40,000 should the
minimum be raised to as high as $790,000 should the maximum be raised, after the
payment of closing costs of approximately $10,000.
Other
than current requirements from our suppliers, and the maintenance of our current
level of operating expenses, the company does not have any commitments for
capital expenditures or other known or reasonably likely cash
requirements.
The
company has classified its related party loans on its Balance sheet as at December 31, 2009 of $41,678
as a current liability. These loans were issued as advances to the company to be
repaid when the company can raise adequate funds through the sale of equity. The
Company has outlined this debt repayment in its “Use of Proceeds” section of its
prospectus.
The
Company anticipates utilizing these proceeds to continue to pursue and carry out
its business plan, which includes marketing programs aimed at the promotion of
the Company's services, hiring additional staff to distribute and find
additional distribution channels, search for additional companies to bring under
the corporate umbrella and enhance the current services the Company is
providing, and compliance with Sarbanes - Oxley Section 404."
As shown
in the accompanying financial statements the Company has incurred a net loss of
( $29,424 ) and ( $63,276 )
for the years ended December 31, 2009 and
2008 and has an accumulated deficit of ( $484,289 ) as
of December 31, 2009 . The Company’s
limited customer base exposes them to significant risk of future
revenues. The Company has been searching for new distribution
channels to sell their software and services to provide additional revenues to
support their operations. There is no guarantee that the Company will
be able to raise additional capital or generate the increase in revenues
sought.
There can
be no assurance that management will be able to raise sufficient capital, under
terms satisfactory to the Company, if at all. Management believes
that the Company’s capital requirements will depend on many factors. These
factors include the increase in sales through its existing channel as well as
the Company’s ability to continue to expand its distribution
channels.
35
The
financial statements do not include any adjustments relating to the carrying
amounts of recorded assets or the carrying amounts and classification of
recorded liabilities that may be required should the Company be unable to
continue as a going concern.
Critical
Accounting Policies and Estimates
Management's
Discussion and Analysis of Financial Conditions and Results of Operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
When preparing our financial statements, we make estimates and judgments that
affect the reported amounts on our balance sheets and income statements, and our
related disclosure about contingent assets and liabilities. We continually
evaluate our estimates, including those related to revenue, allowance for
doubtful accounts, reserves for income taxes, and litigation. We base our
estimates on historical experience and on various other assumptions, which we
believe to be reasonable in order to form the basis for making judgments about
the carrying values of assets and liabilities that are not readily ascertained
from other sources. Actual results may deviate from these estimates if
alternative assumptions or condition are used.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted
Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Positions or Emerging
Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
Recent
Accounting Pronouncements
In
September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosure about fair value measurements.
This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Early adoption is encouraged. The adoption of
ASC 820 is not expected to have a material impact on the financial
statements.
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and
Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”)
which permits entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates. A business entity
is required to report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
This statement is expected to expand the use of fair value measurement. ASC
825-10 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal
years.
36
In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment.
ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Management is determining the impact that
the adoption of ASC 810-10-65 will have on the Company’s financial position,
results of operations or cash flows.
In
December 2007, the Company adopted ASC 805, Business Combinations (“ASC 805”).
ASC 805 retains the fundamental requirements that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately
from the business combination the direct costs, where previously these costs
were included in the total allocated cost of the acquisition. ASC 805
will require an entity to recognize the assets acquired, liabilities assumed,
and any non-controlling interest in the acquired at the acquisition date, at
their fair values as of that date.
ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted and the ASC is be
applied prospectively only. Upon adoption of this ASC, there would be
no impact to the Company’s results of operations and financial condition for
acquisitions previously completed. The adoption of ASC 805 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In March
2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging
Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an
entity’s derivative and hedging activities. These enhanced disclosures will
discuss: how and why an entity uses derivative instruments; how derivative
instruments and related hedged items are accounted for and its related
interpretations; and how derivative instruments and related hedged items affect
an entity’s financial position, financial performance, and cash flows. ASC 815
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company does not believe that ASC
815 will have an impact on their results of operations or financial
position.
Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC
855 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. It requires disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date –
that is, whether that date represents the date the financial statements were
issued or were available to be issued. This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented. Adoption of ASC
855 did not have a material impact on the Company’s results of operations or
financial condition.
37
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement
and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to
ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair
value measurement of liabilities. ASU 2009-05 provides clarification that in
circumstances in which a quoted market price in an active market for the
identical liability is not available, a reporting entity is required to measure
fair value using certain techniques. ASU 2009-05 also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence
of a restriction that prevents the transfer of a liability. ASU 2009-05 also
clarifies that both a quoted price in an active market for the identical
liability at the measurement date and the quoted price for the identical
liability when traded as an asset in an active market when no adjustments to the
quoted price of the asset are required for Level 1 fair value measurements.
Adoption of ASU 2009-05 did not have a material impact on the Company’s results
of operations or financial condition.
Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
Convertible
Instruments
The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature. Generally, embedded conversion features where the ability to
physical or net-share settle the conversion option is not within the control of
the Company are bifurcated and accounted for as a derivative financial
instrument. (See Derivative Financial Instruments below). Bifurcation of the
embedded derivative instrument requires allocation of the proceeds first to the
fair value of the embedded derivative instrument with the residual allocated to
the debt instrument. The resulting discount to the face value of the debt
instrument is amortized through periodic charges to interest expense using the
Effective Interest Method.
Derivative
Financial Instruments
The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow or market risks. However, certain other financial
instruments, such as warrants or options to acquire common stock and the
embedded conversion features of debt and preferred instruments that are indexed
to the Company's common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets;
·
|
Automobiles-
3 years
|
·
|
Computer
equipment - 3 years
|
·
|
Furniture
and fixtures - 5 years.
|
38
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized. Deduction is made for retirements resulting from renewals or
betterments.
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
Revenue
Recognition
The
Company generates revenue from the following primary sources: (1) licensing
software products; (2) providing customer technical support (referred to as
maintenance); and (3) providing professional services, such as consulting and
education.
The
Company recognizes revenue pursuant to the requirements of ASC 450-10 and ASC
985-605, “Software Revenue Recognition.” In accordance with the ASC’s, the
Company begins to recognize revenue from licensing and supporting its software
products when all of the following criteria are met: (1) the Company has
evidence of an arrangement with a customer; (2) the Company delivers the
products; (3) license agreement terms are deemed fixed or determinable and free
of contingencies or uncertainties that may alter the agreement such that it may
not be complete and final; and (4) collection is probable.
The
Company’s software licenses generally do not include acceptance provisions. An
acceptance provision allows a customer to test the software for a defined period
of time before committing to license the software. If a license agreement were
to include an acceptance provision, the Company would not record deferred
subscription value or recognize revenue until the earlier of the receipt of a
written customer acceptance or, if not notified by the customer to cancel the
license agreement, the expiration of the acceptance period.
Under the
Company’s business model, software license agreements frequently include
flexible contractual provisions that, among other things, allow customers to
receive unspecified future software products for no additional fee. These
agreements combine the right to use the software products with maintenance for
the term of the agreement. Under these agreements, once all four of the above
noted revenue recognition criteria are met, the Company is required to recognize
revenue ratably over the term of the license agreement.
Under the
Company’s business model, a relatively small percentage of the Company’s revenue
related to certain products is recognized on an up-front or perpetual basis once
all revenue recognition criteria are met in accordance with the ASC’s as
described above, and is reported in the “Software fees and other” line of the
statements of operations. License agreements pertaining to such products do not
include the right to receive unspecified future software products, and
maintenance is deferred and subsequently recognized over the term of the
maintenance period. In the event such license agreements are executed within
close proximity or in contemplation of other license agreements with the same
customer which are recognized on a subscription basis, the contracts may be
considered a single multi-element agreement, and as such all revenue is deferred
and recognized as “Subscription revenue” in the statements of
operations.
39
Maintenance
revenue is derived from two primary sources: (1) combined license and
maintenance agreements recorded under the prior business model; and (2)
stand-alone maintenance agreements.
Under the
prior business model, maintenance and license fees were generally combined into
a single license agreement. The maintenance portion was deferred and amortized
into revenue over the initial license agreement term. Certain of these license
agreements have not reached the end of their initial terms and, therefore,
continue to amortize. This amortization is recorded to the “Maintenance” line
item in the Statements of Operations. The deferred maintenance portion, which
was optional to the customer, was determined using its fair value based on
annual, fixed maintenance renewal rates stated in the agreement. For license
agreements entered into under the Company’s current business model, maintenance
and license fees continue to be combined; however, the maintenance is inclusive
for the entire term of the arrangement. The Company reports such combined fees
on the “Subscription revenue” line item in the Statements of
Operations.
The
Company also records stand-alone maintenance revenue earned from customers who
elect optional maintenance. Revenue from such renewals is recognized on the
“Maintenance” line item in the Statements of Operations over the term of the
renewal agreement.
The
“Deferred maintenance revenue” line item on the Company’s Balance Sheets
principally represents payments received in advance of maintenance services to
be rendered.
Revenue
from professional service arrangements is generally recognized as the services
are performed. Revenue from committed professional services arrangements that
are sold as part of a software transaction is deferred and recognized on a
ratable basis over the life of the related software transaction. If it is not
probable that a project will be completed or the payment will be received,
revenue is deferred until the uncertainty is removed.
Revenue
from sales to distributors, resellers, and value-added resellers (VARs)
commences when all four of the ASC revenue recognition criteria noted above are
met and when these entities sell the software product to their customers. This
is commonly referred to as the sell-through method. Revenue from the sale of
products to distributors, resellers and VARs under licenses that include the
right for the end-users to receive certain unspecified future software products
is recognized on a ratable basis.
Use
of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company
evaluates its estimates, including, but not limited to, those related to
investment tax credits, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
40
Comprehensive
Income
The
Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No.
130). ASC 220-10 requires the reporting of comprehensive income in addition to
net income from operations.
Research
and Development
The
Company occasionally incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable. The Company did not incur Research and
Development expenses during 2007, 2008 and 2009.
Stock-Based
Compensation
In 2006,
the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its
year ended December 31, 2008. The adoption of this principle had no effect on
the Company’s operations.
The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values. Stock-based compensation expense for
all awards granted after January 1, 2006 is based on the grant-date fair values.
The Company recognizes these compensation costs, net of an estimated forfeiture
rate, on a pro rata basis over the requisite service period of each vesting
tranche of each award. The Company considers voluntary termination behavior as
well as trends of actual option forfeitures when estimating the forfeiture
rate.
The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 505-50, “Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services”. The fair value of the option issued is used to
measure the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the
Company’s common stock on the date that the commitment for performance by the
counterparty has been reached or the counterparty’s performance is complete. The
fair value of the equity instrument is charged directly to compensation expense
and additional paid-in capital.
Segment
Information
The
Company follows the provisions of ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that companies
disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions.
41
BUSINESS
Overview
of the Business
Products
The
Company's software, known as "ManageThePipe", permits suppliers to major
retailers such as Wal-Mart to predict the amount of inventory required in the
near future in order to meet the sales demands for its products on retail store
shelves. The software collects data such as production schedules,
shipping schedules, historic sales and current retail store inventories in order
to calculate an estimate of future inventory requirements for each item that a
supplier sells through major retailers such as Wal-Mart Stores.
Our
Company has invested in the research and development of our inventory management
software which collects data and performs forecast calculations. Our technology
consists of proprietary software programming however, we have no specific legal
entitlement that does not permit someone else from utilizing the same base
software languages in order to produce similar inventory management software
offerings.
Base
software languages are the language building blocks used by programmers to
translate the desired logic sequences into a message that the computer can
understand and execute. An example of a logic sequence is “if the
user wishes to predict the future sales of their product based on historical
sales”, the software should calculate a forecast based on mathematical models
provided in its logic tables to calculate the forecasted values. The combination
and use of these building blocks is known as ‘software code”, and hence this
combination, created by the Company’s programmers, along with “off-the-shelf”
computer hardware (i.e. Equipment that is readily available by computer
companies such as servers) is collectively referred to as “our technology and
trade secrets”.
We
therefore cannot be certain that others will not gain access to our technology.
In order to protect this proprietary technology, we hold non-disclosure and
confidentiality agreements and understandings with our employees, consultants,
re-sellers, distributors, wholesalers and technology partners. We cannot
guarantee that our technology and trade secrets will not be stolen, challenged,
invalidated or circumvented. If any of these were to occur, we would suffer from
a decreased competitive advantage, resulting in lower profitability due to
decreased sales.
The
Company offers the following products and services to customers utilizing its
ManageThePipe inventory management software:
·
|
Installation
and configuration of the software within the customer's computer
network
|
||
·
|
Professional
and consulting services to assist the customer to optimize their inventory
to meet sales demands
|
||
·
|
Maintenance
services in order to assist the customer in ensuring daily importation of
data from various sources into the ManageThePipe
software
|
||
·
|
Software
subscription fees for the use of the software on the premises of the
customer.
|
42
Trends
in Our Industry and Business
A number
of trends in our industry and business have a significant effect on our results
of operations and are important to an understanding of our financial statements.
These trends include:
Decreasing Prices for Consumer
Goods. The prices for everyday consumer goods continually decrease
due to increased competition among major Retailers. As a result,
Retailers are continuously searching for innovative ways to reduce their costs
from their suppliers. This cost reduction pressure has resulted in an
increasing requirement for Retailers to rely on their suppliers to manage their
inventory so that the Retailers do not have to spend money and dedicate
resources to this important task.
Manufacturers and Importers are
Suppliers whose core competencies are not Retailer store shelf inventory
management. Suppliers are typically experts at shipping their goods
based on confirmed orders from Retailers. With the requirement for
Suppliers, imposed by their Retailers, to make decisions as to when, how much
and to which store that they should be shipping their goods, the Supplier is
forced to behave outside of their core competency. As a result, the
Supplier is looking for ways to alleviate this burden through the acquisition of
specific software designed to meet their inventory management
needs.
We
generate revenues from the installation of our ManageThePipe software on the
premises of our customers, along with the Professional services required to
install, train and support our customers on the use of the software. Our cost of
sales include our salaries, consultant fees, sales and marketing, product
development and administration required for us to deliver the software and
professional services.
Marketing and Distribution
methods of the products or services
To date,
our Sales & Marketing expenses have been limited to commission-based sales
costs and minimal marketing expenses. As a result, there is very little brand
awareness for our products and services. We believe a strategic marketing
campaign is necessary to achieve the customer base growth that we anticipate due
to significant investments in customer acquisition. The bulk of this investment
is due to costs related to promoting our brand through advertising in different
media, along with analysis of new market segments and product placement
strategies.
The main
market segment where we will invest in Sales & Marketing is that of the
Canadian small to medium sized manufacturer or importer of goods that are sold
through retail stores to the general public. These investments
include travel, participation in industry trade shows and print/on-line media
within industry publications and web sites.
Direct
Sales.
We
solicit customers directly in order to purchase our products and services. Upon
acceptance of our offer, our customers sign a Service Agreement.
43
Sales
Through a Value-Added Reseller.
A
Value-Added Reseller typically re-sells our software in combination with other
software also offered by the Value-Added Reseller, providing a customized and
complete solution for the customer. Other software which is
compatible with the ManageThePipe software includes production planning
software, enterprise resource planning software and sales analysis
software.
In the
case of any sale, the Company enters into a services agreement with the
customer.
Customers
We are
currently dependent on our current customer NTD Apparel Inc. (“NTD”), which
represents 100% of our Maintenance, Subscription and Professional Services
revenues. We have yet to formalize our agreements with them with the
signature of our Services Agreement. However, a verbal agreement
exists for the following delivery of products and services:
·
|
NTD
will pay Cdn$100 per hour for all custom development services delivered to
NTD by the Company as it pertains to NTD’s use of the Company’s
software
|
|
·
|
NTD
will pay Cdn$100 per hour for all maintenance services performed by the
Company on the Company’s software
|
·
|
NTD
will pay license fees of Cdn$2,000 per Retailer Module license to the
Company
|
Competition
There are
numerous software products existing on the market which provide solutions to the
challenges of inventory management on retailer store shelves on a daily
basis. They can be classified by the following
categories:
Larger, established software
companies for larger multinational companies:
The
following corporations involved in inventory management and are not a direct
competitors to The Company's software product, ManageThePipe: Demantra,
Viewlocity, Riverone, Verticalnet, Steelwedge and Evant. These
companies, present in a wide range of industry sectors, produce completely
integrated software involved from sourcing of raw materials, delivery,
manufacturing, packaging and all other elements of production (known as
"end-to-end" software) of goods sold to consumers. These complete
end-to-end software sell at a very high cost (+1M$), which require a high level
of integration. ManageThePipe is focused solely on smaller to medium
sized companies who are Suppliers of Major Retailers.
Enterprise Resource Planning
Software (ERP)
ERP
systems (ex. SAP, JD Edwards, Manugistics, Navision, etc.) are primarily
internally focused back-office systems, that is that they are involved in
monitoring the daily transactions of a business, from invoicing, to production
of packing slips and delivery confirmations. The result of such a
complex software is that it is cumbersome and has a long implementation cycle
inside the business. A long implementation cycle means that the
business implementing an ERP solution have to consider at least six months of
time to integrate the software , transfer the company's existing operations into
the new software and provide sufficient training to employees. Due to
this longer implementation time, these software are not competition to
ManageThePipe.
44
Direct Competition to
ManageThePipe:
The
following competitors sell to mid to large Suppliers of Major
Retailers:
Demand
Management Inc. (MO, USA) (www.demandsolutions.com) founded in
1985.
Thrive
Technologies (GA, USA) (www.thrivetech.com), founded in 2001.
Vendor
Managed Technologies (MI, USA) (www.vmtsoftware.com) Founded in
1998.
The
inventory management software industry is highly competitive, rapidly evolving
and subject to constant technological change and to intense marketing by
different providers of functionally similar services. Since there are few, if
any, substantial barriers to entry, we expect that new competitors are likely to
enter our markets. Most, if not all, of our competitors are significantly larger
and have substantially greater market presence and longer operating history as
well as greater financial, technical, operational, marketing, personnel and
other resources than we do.
Competitive
Advantages
Today,
Major Retailers such as Wal-Mart are relying on their suppliers to make
inventory replenishment decisions, that is deciding which stores should get
which products and at what quantity, in order to ensure that the retail shelves
remain adequately stocked to meet consumer demand. As a result,
Suppliers utilize inventory management software and forecasting software in
order to assist them to make a decision about how much product to manufacture or
import, how much to stock in their warehouse and how much to ship to each
store.
We
believe that we have the following competitive advantages:
(1)
Competitive Pricing
Our use
our proprietary software enables us to provide customers with competitive
pricing for their inventory management needs. Nonetheless, there can be no
assurance that we will be able to successfully compete with major software
suppliers in present and prospective markets. While there can be no assurances,
we believe that by offering competitive pricing we will be able to compete in
our present and prospective markets.
(2)
Advantages of Equipment and Technology
We rely
on our own internally-developed software to meet the needs of our customers. We
will need to continue to select, invest in and develop new and enhanced
technology to remain competitive. Our future success will also depend on our
operational and financial ability to develop information technology solutions
that keep pace with evolving industry standards and changing client demands. Our
business is highly dependent on our software systems, the temporary or permanent
loss of which could materially and adversely affect our business.
45
History
of Key Agreements
On July
10, 2000, founding shareholders entered into a term sheet for the partnership
agreement representing the ownership structure of Metratech Retail Systems
Inc. While a final partnership agreement was never executed, the Term
sheet is enforceable against the parties. The agreement outlined the
share structure to represent initial investments made by the founding
shareholders, along with roles and responsibilities of the President, Secretary
and CEO of the Corporation.
On April
1, 2000, the Company entered into a Non-Disclosure Agreement with MGA Concept, a
software development firm in Montreal, Canada which outlined the roles and
responsibilities of MGA Concept as it relates to their provision of software
programming services to the Company. MGA Concept went on to provide
all the consulting services required by the Company to develop, test and deploy
its software.
On
October 16, 2000, George Metrakos, acting on behalf of the Company, entered into
an agreement with Junior Active Designs Inc., a supplier to Retailer Wal-Mart
Stores, in order to learn and record all of the requirements set forth by
Wal-Mart Stores with respect to the management of inventory within their Retail
Stores. The Agreement outlined that all of the rights, title and
interest in any inventions, improvements, discoveries, processes, know-how and
trade secrets discovered by Mr. Metrakos as it pertained to any software
development at Junior Active Designs Inc. would be the property of George
Metrakos in order to utilize and transfer to Metratech Retail Systems Inc. for
its use in the development and marketing of its software.
Intellectual
Property
We do not
currently hold any patents, trademarks, licenses, franchises, concessions or
royalty agreements.
Costs of Environmental
Compliance
We did
not incur any costs in connection with the compliance with any federal, state,
or local environmental laws.
Employees
The
company does not have any full-time employees and has three part time
employees.
Research and
Development
The
Company occasionally incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable. The Company did not incur Research and
Development expenses during 2007, 2008 and 2009.
New Products under
Development
ManageThePipe
software was in a pre-commercialization phase with the deployment of the first
version of the software at a garment manufacturing facility in July of
2002. The software has since been deployed in numerous customer
facilities and is available for sale in its current state.
46
The
software installation, use and maintenance represent a first year investment of
$25,000 followed by yearly subscription fees of $12,000.
Government
Regulation
The
software industry is not a regulated industry.
PROPERTIES
Principal
Office
The
Company's executive offices are currently located at 3456 Melrose Ave, Montreal,
Quebec H4A2S1 Canada.
LEGAL
PROCEEDINGS.
During
the past five years, none of the following occurred with respect to a present or
former director or executive officer of the Company: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years prior
to that time; (2) any conviction in a criminal proceeding or being subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) being found by a court of competent jurisdiction (in a civil action), the
SEC or the commodities futures trading commission to have violated a federal or
state securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
We are not a party to any pending
material legal proceedings and are not aware of any threatened or contemplated
proceeding by any governmental authority against the
Company. Notwithstanding , from time to time, the Company is subject
to legal proceedings and claims in the ordinary course of business, including
employment-related and trade related claims.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth as of March 15,
2010 the names, positions and ages of our current executive officers and
directors. Our directors serve until the next annual meeting of
shareholders or until their successors are elected and qualify. Our
officers are elected by the board of directors and their terms of office are,
except to the extent governed by an employment contract, at the discretion of
the board of directors.
NAME
|
AGE
|
SERVED SINCE
|
POSITIONS WITH COMPANY
|
George
Metrakos
|
38
|
March,
2000
|
Chairman,
President, CEO, CFO
|
The
following is a brief description of the business experience of our executive
officers, director and significant employees:
47
GEORGE METRAKOS, Chairman of the
Board, CEO, CFO and President: Mr. Metrakos holds a Bachelor's
of Engineering from Concordia University (Montreal, Canada) and a Master's of
Business Administration (MBA) from the John Molson School of Business at
Concordia University. Mr. Metrakos has specialized in numerous successful
launches of new technologies for emerging marketplaces. He has worked with such
organizations as Philips B.V. (The Netherlands), Dow Chemical company (USA),
Hydro Quebec (Provincial Utility) and other entrepreneurial high-tech companies.
During his founding role in GMS Capital Corp., Mr. Metrakos was recognized as
entrepreneur of the year in an angel financing competition within the Montreal
business community awarded by the Montreal Chamber of Commerce youth wing. He
also currently holds the position of President, CEO, CFO and Chairman of a
public telecommunications company.
Employer's
Name
|
Beginning
and Ending
Dates
of Employment
|
Positions
Held
|
Brief
Description of
Employer's
Business
|
|||||
George
Metrakos
|
GMS
Capital Corp.
|
March
2000 to present
|
President,
CEO, CFO and Director
|
Inventory
Management Software
|
||||
Teliphone
Corp.
|
Sep
1, 2004 to present
|
President,
CEO, CFO and Director
|
Telecommunications
Company (Public)
|
|||||
United
American Corp.
|
Nov
8, 2005 to Feb 22, 2008
|
President,
CEO, CFO and Director
|
Holding
Company (Public)
|
Mr.
Metrakos’ full-time employment is with Teliphone Corp., where he spends an
estimated 40-50 hours weekly operating. Mr. Metrakos is part-time
with GMS and oversees the activities of two part-time employees during the
process of delivery of services to customers, as well as overseeing and working
on the process of SEC-required public filings and financial statement
production. Mr. Metrakos also acts as President of Metratech Business
Solutions Inc., a holding company that he owns. There are no daily
activities in this company other than quarterly and yearly review of its
financial statements for taxation purposes.
COMMITTEES
OF THE BOARD OF DIRECTORS
Our Board
of Directors has no committees.
Because
our Board of Directors consists of only one member, we do not have a standing
nominating, compensation or audit committee. Rather, our full Board
of Directors performs the functions of these committees. Also, we do
not have an audit committee financial expert on our board of directors as that
term is defined by Item 407(d)(5) of Regulation S-K
promulgated by the SEC. George Metrakos, our current director, is also an
executive officer of the Company and is therefore not independent.
DIRECTOR
AND OFFICER COMPENSATION
Compensation
of Directors
Our
directors are not compensated for their service as directors of the
Company.
48
Compensation
of Officers
The
following table sets forth the information, on an accrual basis, with respect to
the compensation of our executive officers for the three years ended December
31, 2009 , 2008 and 2007 :
SUMMARY
COMPENSATION TABLE
Name
and principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
awards
($)
|
Option
awards
($)
|
Nonequity
incentive
plan compensation
($)
|
Nonqualified
deferred compensation earnings
($)
|
All
other compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
George
Metrakos
|
2009
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
CEO,
CFO, President &
|
2008
|
$ | 13,575 | - | - | - | - | - | $ | 4,375 | $ | 17,950 | ||||||||||||||||||||||
Chairman
|
2007
|
$ | 17,140 | - | $ | 156,244 | - | - | - | $ | 8,750 | $ | 182,134 |
Employment
Agreements
George Metrakos, Chairman, CEO, CFO,
Principal Accounting Officer and President: George Metrakos is
currently compensated $240,000
annually. The actual amount paid is dependent on the available cash
resources in the company, and hence the full salary is not paid
nor accrued unless the cash exists to pay it. The Company does
not have an employment agreement with Mr. Metrakos.
OPTION AND WARRANT GRANTS IN LAST
FISCAL YEAR
We
currently do not have any warrants outstanding.
AGGREGATE
OPTION AND WARRANT EXERCISES IN THE LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION AND WARRANT VALUES
The
Company's Executive Officers own no options or warrants of the
Company.
49
Indemnification of Officers and
Directors
As
permitted by Florida law, our Articles of Incorporation provide that we will
indemnify our directors and officers against expenses and liabilities they incur
to defend, settle, or satisfy any civil or criminal action brought against them
on account of their being or having been Company directors or officers unless,
in any such action, they are adjudged to have acted with gross negligence or
willful misconduct.
Pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable.
Director
Independence
Mr.
Metrakos is not an independent director of the Company since he is also an
acting officer of the Company.
Family
Relationships
There are
no family relationships between any two or more of our directors or executive
officers. There is no arrangement or understanding between any of our directors
or executive officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, and there is no
arrangement, plan or understanding as to whether non-management shareholders
will exercise their voting rights to continue to elect the current board of
directors. There are also no arrangements, agreements or understandings to our
knowledge between non-management shareholders that may directly or indirectly
participate in or influence the management of our affairs.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of
the common stock as March 15, 2010 by (i) each
person, entity or group that is known by the Company to own beneficially more
than 5% of the any classes of outstanding Stock, (ii) each director of the
Company, (iii) each of our named Executive Officers as defined in Item 402(a)(2)
of Regulation S-B; and (iv) most highly compensated executive officers who
earned in excess of $100,000 for all services in all capacities (collectively,
the "Named Executive Officers") and (iv) all directors and executive officers of
the Company as a group.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. We believe
that each individual or entity named has sole investment and voting power with
respect to the securities indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise noted. Unless
otherwise stated, the address of each person is 3456 Melrose Ave., Montreal,
Quebec H4A2S1 Canada.
50
Name
|
Title
of
Class
|
Shares
Beneficially
Owned
(1)
|
Percent
Class
(1)
|
||||||
George
Metrakos (2)
|
Common
|
2,562,440 | 50.1 | % | |||||
Officers
and Directors
|
|||||||||
As
a Group (1 Person)
|
Common
|
2,562,440 | 50.1 | % | |||||
Marcel
Côté
|
Common
|
1,012,480 | 19.8 | % | |||||
Spiro
Krallis
|
Common
|
994,980 | 19.5 | % | |||||
Officers,
Directors and
|
|||||||||
Certain
Beneficial Owners
|
|||||||||
As
a group (3 persons)
|
Common
|
4,569,900 | 89.4 | % |
(1)
Applicable percentage of ownership is based on 5,115,400 shares of fully diluted
common stock effective March 15, 2010 . Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options that are
currently exercisable or exercisable within sixty days of March 15, 2010 are deemed to be beneficially owned by
the person holding such options for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2)
George Metrakos controls 2,562,440 shares of his stock through Metratech
Business Solutions Inc of which he is the beneficial owner.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Certain
Related Party Transactions Within The Past Two Years.
On
September 18, 2007, The Company, at the time doing business as "Metratech Retail
Systems Inc.", a Canadian Corporation was re-incorporated in the State of
Florida. There were no changes in share holdings as shareholders of
one share of the common voting stock of "Metratech Retail Systems Inc." received
one share of the common voting stock of The Company. The objective of
the re-incorporation was that shareholders felt that access to capital in the US
public markets would prove beneficial for management to realize its business
plan as outlined in this prospectus.
51
In
addition, there are approximately $41,678 of
non-interest bearing advances that were incurred from January 1, 2007 from
Officers or Shareholders or company's controlled by Officers and
Shareholders. These advances were provided for cash flow purposes for
the Company to sustain its operations. The breakdown of these
advances is as follows:
George
Metrakos, advanced $31,679
Marcel
Côté advanced $9,999
Metatech
Business Solutions Inc.*, $3,932
*Metratech
Business Solutions Inc. is an entity controlled by George Metrakos and hence is
considered as a Related Entity.
On
October 1, 2007, the Company issued stock for services to compensate George
Metrakos 1,562,440 shares to Metratech Business Solutions Inc., an entity
controlled by George Metrakos, our sole Director and sole Officer, holding the
positions of Chairman, CEO, CFO and President.
The
Company advanced $1,900 to Teliphone Inc. on September 5, 2008. This
advance was subsequently repaid on March 12, 2009. The Company
disclosed this as a related party advance in its notes to the financial
statements for the year ended December 31, 2008 since Teliphone Inc. is
considered a related party. George Metrakos, the Company’s President,
CEO, CFO and Chairman is also the President of Teliphone Inc., a private
Canadian company of which Mr. Metrakos owns a minority stake (5.9% at the time)
of Teliphone Inc.’s parent company, Teliphone Corp., a Public, Nevada Company
that trades its common stock on the Over-The-Counter Bulletin Board
Exchange.
Changes
in Control
We are
not aware of any arrangements, which may result in a change in control of the
Company.
Common
Stock
Our
authorized capital stock consists of 125,000,000 authorized shares of common
stock, $.001 par value, of which 5,115,400 shares were outstanding as of March 15, 2010 . The holders of our common stock (i) have
equal ratable rights to dividends from funds legally available therefore, when,
as and if declared by our Board of Directors; (ii) are entitled to share in all
of our assets available for distribution to holders of common stock upon
liquidation, dissolution or winding up of our affairs; (iii) do not have
preemptive, subscription or conversion rights and there are no redemption or
sinking fund provisions or rights; and (iv) are entitled to one non-cumulative
vote per share on all matters on which stockholders may vote.
We have
no authorized preferred stock and we have no stock option plan.
Warrants
We
currently do not have any warrants outstanding.
Transfer
Agent and Registrar
Interwest
Transfer Company, Inc. 1981 East Murray Holladay Road, Suite 100, Salt Lake
City, Utah 84117
52
Amendment of our
Bylaws
Our
bylaws may be adopted, amended or repealed by the affirmative vote of a majority
of our outstanding shares. Subject to applicable law, our bylaws also may be
adopted, amended or repealed by our board of directors
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
Change
in Independent Accountants
The
Company has engaged KBL, LLP, to serve as the independent registered public
accounting firm responsible for auditing the Company's financial
statements.
Except as
set forth in the immediately preceding paragraph, neither the Company nor anyone
on behalf of the Company consulted KBL, LLP during the two most recent fiscal
years and any subsequent interim period prior to engaging KBL, LLP, regarding
either: (i) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements, and either a written report was
provided to the Company or oral advice was provided that the Company concluded
was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) and
the related instructions of Item 304 of Regulation S-K) or reportable event (as
described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
We have
had no disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures with any of our
accountants for the year ended December 31, 2009, year ended December 31, 2008
or to the date herein.
During
the past five years, none of the following occurred with respect to a present or
former director or executive officer of the Company: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years prior
to that time; (2) any conviction in a criminal proceeding or being subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) being found by a court of competent jurisdiction (in a civil action), the
SEC or the commodities futures trading commission to have violated a federal or
state securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
We are
not a party to any pending material legal proceedings and are not aware of any
threatened or contemplated proceeding by any governmental authority against the
Company. Notwithstanding, from time to time, the Company is subject to legal
proceedings and claims in the ordinary course of business, including
employment-related and trade related claims.
53
EXPERTS
KBL, LLP,
independent certified public accountants, have audited our consolidated
financial statements at December 31, 2009 and
December 31, 2008 as set forth in their included report. We have included our
consolidated financial statements in the registration statement, in reliance on
their report giving their authority as an expert in accounting and
auditing.
Jill
Arlene Robbins, Attorney at Law, Miami, Florida will issue an opinion with
respect to the validity of the shares of common stock being offered
hereby.
INTEREST
OF NAMED EXPERTS AND COUNSEL
No
"expert" or "counsel" as defined by Item 509 of Regulation S-K promulgated
pursuant to the Securities Act, whose services were used in the preparation of
this Form S-1, was hired on a contingent basis or will receive a direct or
indirect interest in the Company, nor was any of them a promoter, underwriter,
voting trustee, director, officer or employee of the Company.
Both
Legal Counsel and Experts have no interest in this registration statement other
than normal legal and accounting fees.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Certificate of Incorporation and
Bylaws. Pursuant to our amended certificate of incorporation, our
board of directors may issue additional shares of common or preferred stock. Any
additional issuance of common stock could have the effect of impeding or
discouraging the acquisition of control of us by means of a merger, tender
offer, proxy contest or otherwise, including a transaction in which our
stockholders would receive a premium over the market price for their shares, and
thereby protects the continuity of our management. Specifically, if in the due
exercise of its fiduciary obligations, the boards of directors were to determine
that a takeover proposal was not in our best interest, shares could be issued by
the board of directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the
takeover by:
·
|
diluting
the voting or other rights of the proposed acquirer or insurgent
stockholder group;
|
||
·
|
putting
a substantial voting block in institutional or other hands that might
undertake to support the incumbent board of directors;
or
|
||
·
|
effecting
an acquisition that might complicate or preclude the takeover
decision.
|
No
pending material litigation or proceeding involving our directors, executive
officers, employees or other agents as to which indemnification is being sought
exists, and we are not aware of any pending or threatened material litigation
that may result in claims for indemnification by any of our directors or
executive officers.
54
The
Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances. The Company's
Articles of Incorporation provide that the Company shall indemnify directors and
executive officers to the fullest extent now or hereafter permitted by the
Florida Act. The indemnification provided by the Florida Act and the Company's
Articles of Incorporation is not exclusive of any other rights to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the circumstances which an officer or director may
be required to bear the economic burden of the foregoing liabilities and
expense. The Company may also purchase and maintain insurance for the benefit of
any director or officer that may cover claims for which we could not indemnify
such person.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed hereby in the
Securities Act and we will be governed by the final adjudication of such
issue.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the U.S. Securities and Exchange Commission, 100 F Street F Street,
NE, Washington, D.C. 20549, a registration statement on Form S-1 under the
Securities Act for the Common Stock offered by this prospectus. We have not
included in this prospectus all the information contained in the registration
statement and you should refer to the registration statement and its exhibits
for further information.
The
registration statement and other information may be read and copied at the SEC's
Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains a web site (HTTP://WWW.SEC.GOV.)
that contains the registration statements, reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC such as us.
You may
also read and copy any reports, statements or other information that we have
filed with the SEC at the addresses indicated above and you may also access them
electronically at the web site set forth above. These SEC filings are also
available to the public from commercial document retrieval
services.
The
Company does not make its filings available through its own internet
website. The Company will voluntarily provide free of charge an
electronic copy of all SEC filings. Persons interested in receiving
electronic copies can do so by requesting the information from George Metrakos
at 3456 Melrose Ave, Montreal, Quebec H4A 2S1 Canada.
55
FINANCIAL
STATEMENTS
The
Company’s audited financial statements for the year ended December 31, 2009 and 2008 ,
the notes thereto, together with the reports of the independent certified public
accounting firms thereon are presented beginning at page F-1.
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
INDEX
TO FINANCIAL STATEMENTS
Page | |
Report
of Independent Registered Public Accounting Firm
|
F-1 |
Balance
Sheets as of December 31, 2009 and 2008
|
F-2 |
Statements
of Operations and Comprehensive Income (Loss) For the Years Ended December
31, 2009 and 2008
|
F-3 |
Statement
of Changes in Stockholders’ Equity (Deficit) For the Years Ended December
31, 2009 and 2008
|
F-4 |
Statements
of Cash Flows For the Years Ended December 31, 2009 and
2008
|
F-5 |
Notes
to Financial Statements
|
F-6 |
56
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
GMS
Capital Corp.
Montreal,
Canada
We have
audited the accompanying balance sheets of GMS Capital Corp. (the “Company”) as
of December 31, 2009 and 2008 and the related statements of operations, changes
in stockholders’ equity (deficit), and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of GMS Capital Corp. as of December
31, 2009 and 2008, and the results of its statements of operations, changes in
stockholders’ equity (deficit), and cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained operating losses and capital
deficits that raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
KBL, LLP
New York,
NY
March 15,
2010
F-1
GMS
CAPITAL CORP.
|
||||||||
BALANCE
SHEETS
|
||||||||
DECEMBER
31, 2009 AND 2008
|
||||||||
ASSETS
|
||||||||
(IN
US$)
|
||||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 354 | $ | 1,461 | ||||
Accounts
receivable, net
|
3,222 | 2,646 | ||||||
Other
current assets
|
759 | 1,053 | ||||||
Total
Current Assets
|
4,335 | 5,160 | ||||||
Fixed
assets, net of depreciation
|
3,717 | 10,371 | ||||||
TOTAL
ASSETS
|
$ | 8,052 | $ | 15,531 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
LIABILITIES
|
||||||||
Current
Liabilities:
|
||||||||
Advances
- Shareholders
|
$ | 41,678 | $ | 26,970 | ||||
Line
of credit
|
5,896 | 1,862 | ||||||
Due
to related companies
|
3,932 | 1,240 | ||||||
Total
Current Liabilities
|
51,506 | 30,072 | ||||||
Total
Liabilities
|
51,506 | 30,072 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Common
stock, $.001 Par Value; 125,000,000 shares authorized
|
||||||||
and
5,115,400 shares issued and outstanding, respectively
|
5,115 | 5,115 | ||||||
Additional
paid-in capital
|
461,425 | 461,425 | ||||||
Accumulated
deficit
|
(484,289 | ) | (454,865 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(25,704 | ) | (26,216 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(43,453 | ) | (14,541 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 8,052 | $ | 15,531 |
The accompanying notes are
an integral part of the financial statements.
F-2
GMS
CAPITAL CORP.
|
||||||||
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||
IN
US$
|
||||||||
YEARS
ENDED DECEMBER 31,
|
||||||||
2009
|
2008
|
|||||||
OPERATING
REVENUES
|
||||||||
Sales
|
$ | 28,149 | $ | 38,400 | ||||
COST
OF SALES
|
||||||||
Purchases
|
28,971 | 68,285 | ||||||
Total
Cost of Sales
|
28,971 | 68,285 | ||||||
GROSS
PROFIT (LOSS)
|
(822 | ) | (29,885 | ) | ||||
OPERATING
EXPENSES
|
||||||||
Selling,
general and administrative
|
20,290 | 28,076 | ||||||
Depreciation
|
7,972 | 10,757 | ||||||
Total
Operating Expenses
|
28,262 | 38,833 | ||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(29,084 | ) | (68,718 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
expense
|
(340 | ) | (2,367 | ) | ||||
Gain
on asset disposal
|
- | 7,809 | ||||||
Total
Other Income (Expense)
|
(340 | ) | 5,442 | |||||
|
||||||||
NET
LOSS BEFORE PROVISION
|
||||||||
FOR
INCOME TAXES
|
(29,424 | ) | (63,276 | ) | ||||
Provision
for Income Taxes
|
- | - | ||||||
NET
LOSS APPLICABLE
|
||||||||
TO
COMMON SHARES
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
NET
LOSS PER BASIC AND DILUTED SHARES
|
||||||||
BASIC
AND DILUTED
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||
SHARES
OUTSTANDING - BASIC AND DILUTED
|
5,115,400 | 5,115,400 | ||||||
COMPREHENSIVE
INCOME (LOSS)
|
||||||||
Net
loss
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
Other
comprehensive income (loss)
|
||||||||
Currency
translation adjustments
|
512 | 6,082 | ||||||
Comprehensive
income (loss)
|
$ | (28,912 | ) | $ | (57,194 | ) |
The
accompanying notes are an integral part of the financial statements.
F-3
GMS
CAPITAL CORP.
|
||||||||||||||||||||||||
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||||||||||||||||||
IN
US$
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Accumulated
|
Comprehenisve
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Total
|
|||||||||||||||||||
Balance
December 31, 2007
|
5,115,400 | $ | 5,115 | $ | 461,425 | $ | (391,589 | ) | $ | (32,298 | ) | $ | 42,653 | |||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | (63,276 | ) | 6,082 | (57,194 | ) | ||||||||||||||||
Balance
December 31, 2008
|
5,115,400 | 5,115 | 461,425 | (454,865 | ) | (26,216 | ) | (14,541 | ) | |||||||||||||||
Net
loss for the year ended December 31, 2009
|
- | - | - | (29,424 | ) | 512 | (28,912 | ) | ||||||||||||||||
Balance
December 31, 2009
|
5,115,400 | $ | 5,115 | $ | 461,425 | $ | (484,289 | ) | $ | (25,704 | ) | $ | (43,453 | ) |
The
accompanying notes are an integral part of the financial statements.
F-4
GMS
CAPITAL CORP.
|
||||||||
STATEMENTS
OF CASH FLOWS
|
||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||
IN
US$
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
(used
in) operating activities:
|
||||||||
Depreciation
|
7,972 | 10,757 | ||||||
Gain
on sale of disposition of assets
|
- | (7,809 | ) | |||||
Changes
in assets and liabilities
|
||||||||
(Increase)
decrease in accounts receivable
|
(139 | ) | 11,195 | |||||
Increase
(decrease) in deferred revenue
|
- | (1,084 | ) | |||||
Increase
(decrease) in accounts payable and
|
||||||||
and
accrued expenses
|
468 | (6,055 | ) | |||||
Total
adjustments
|
8,301 | 7,004 | ||||||
Net
cash (used in) operating activities
|
(21,123 | ) | (56,272 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
(Acquisitions)
disposal of fixed assets
|
(1,318 | ) | 11,695 | |||||
(Increase)
Decrease in due to/from related parties
|
2,602 | 8,985 | ||||||
Net
cash provided by investing activities
|
1,284 | 20,680 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITES
|
||||||||
Repayments
of loan payable
|
- | (10,112 | ) | |||||
Proceeds
from line of credit, net of repayments
|
3,727 | 1,795 | ||||||
Proceeds
from officers, net of repayments
|
10,253 | 26,880 | ||||||
Net
cash provided by financing activities
|
13,980 | 18,563 | ||||||
Effect
of foreign currency
|
4,752 | 6,497 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(1,107 | ) | (10,532 | ) | ||||
CASH
AND CASH EQUIVALENTS - BEGINNING OF YEAR
|
1,461 | 11,993 | ||||||
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
$ | 354 | $ | 1,461 | ||||
CASH
PAID DURING THE PERIOD FOR:
|
||||||||
Interest
expense
|
$ | 340 | $ | 2,367 |
The
accompanying notes are an integral part of the financial statements.
F-5
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1- ORGANIZATION AND BASIS OF
PRESENTATION
GMS
Capital Corp. (the “Company” or “GMS”), a Florida Corporation, was founded on
March 9, 2000 originally doing business as Metratech Retail Systems Inc., a
Canadian Corporation up until the reincorporation as GMS Capital Corp. in the
State of Florida on September 18, 2007, in order to develop and market inventory
management software for suppliers to major retailers, which enable suppliers to
forecast consumer demand for their products and to optimize their production and
inventory accordingly.
The
Company's objective in the reincorporation in the state of Florida is to raise
capital through the issuance of stock on the public markets in the US once
achieving regulatory approval. This capital raised will be utilized
to further the promotion of The Company's flagship software product,
ManageThePipe, a specialized inventory management software for small to medium
sized businesses who sell their products via large chain Retail sales outlets
known as “big box chains”.
The
Company has grown primarily in the Provinces of Quebec and British Columbia,
Canada through the installation of its software via direct sales to
customers. While sales to date of the software have occurred via a
direct sales channel, the Company will look to add further distribution channels
to other sectors in the United States and Canada in the coming
year.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted
Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Positions or Emerging
Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
F-6
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1- ORGANIZATION AND BASIS OF
PRESENTATION (UNAUDITED)
Going
Concern
As shown
in the accompanying financial statements the Company has incurred a net loss of
($29,424) and ($63,276) for the years ended December 31, 2009 and 2008 and has
an accumulated deficit of ($484,289) as of December 31, 2009. The
Company’s limited customer base exposes them to significant risk of future
revenues. The Company has been searching for new distribution
channels to sell their software and services to provide additional revenues to
support their operations. There is no guarantee that the Company will
be able to raise additional capital or generate the increase in revenues
sought.
There can
be no assurance that management will be able to raise sufficient capital, under
terms satisfactory to the Company, if at all.
Management
believes that the Company’s capital requirements will depend on many factors.
These factors include the increase in sales through its existing channel as well
as the Company’s ability to continue to expand its distribution
channels.
The
financial statements do not include any adjustments relating to the carrying
amounts of recorded assets or the carrying amounts and classification of
recorded liabilities that may be required should the Company be unable to
continue as a going concern.
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of
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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company
evaluates its estimates, including, but not limited to, those related to
investment tax credits, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
Cash and Cash
Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
F-7
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
Comprehensive
Income
The
Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No.
130). ASC 220-10 requires the reporting of comprehensive income in addition to
net income from operations.
Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
The
carrying amounts reported in the balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. For
the notes payable, the carrying amount reported is based upon the incremental
borrowing rates otherwise available to the Company for similar
borrowings.
Currency
Translation
The
Company’s functional currency is the Canadian dollar, while the Company reports
its currency in the US dollar. The Company records these translation adjustments
as accumulated other comprehensive income (loss). Gains and losses from foreign
currency transactions are included in other income (expense) in the results of
operations. For the years ended December 31, 2009 and 2008, the Company had
translations gains (losses) of $512 and $6,082, respectively.
Research and
Development
The
Company occasionally incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable.
Revenue
Recognition
The
Company generates revenue from the following primary sources: (1) licensing
software products; (2) providing customer technical support (referred to as
maintenance); and (3) providing professional services, such as consulting
and education.
F-8
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
(Continued)
The
Company recognizes revenue pursuant to the requirements of ASC 450-10 and ASC
985-605, “Software Revenue Recognition.” In accordance with the ASC’s, the
Company begins to recognize revenue from licensing and supporting its software
products when all of the following criteria are met: (1) the Company has
evidence of an arrangement with a customer; (2) the Company delivers the
products; (3) license agreement terms are deemed fixed or determinable and free
of contingencies or uncertainties that may alter the agreement such that it may
not be complete and final; and (4) collection is probable.
The
Company’s software licenses generally do not include acceptance provisions. An
acceptance provision allows a customer to test the software for a defined period
of time before committing to license the software. If a license agreement were
to include an acceptance provision, the Company would not record deferred
subscription value or recognize revenue until the earlier of the receipt of a
written customer acceptance or, if not notified by the customer to cancel the
license agreement, the expiration of the acceptance period.
Under the
Company’s business model, software license agreements frequently include
flexible contractual provisions that, among other things, allow customers to
receive unspecified future software products for no additional fee. These
agreements combine the right to use the software products with maintenance for
the term of the agreement. Under these agreements, once all four of the above
noted revenue recognition criteria are met, the Company is required to recognize
revenue ratably over the term of the license agreement.
Under the
Company’s business model, a relatively small percentage of the Company’s revenue
related to certain products is recognized on an up-front or perpetual basis once
all revenue recognition criteria are met in accordance with the ASC’s as
described above, and is reported in the “Software fees and other” line of the
statements of operations. License agreements pertaining to such products do not
include the right to receive unspecified future software products, and
maintenance is deferred and subsequently recognized over the term of the
maintenance period. In the event such license agreements are executed within
close proximity or in contemplation of other license agreements with the same
customer which are recognized on a subscription basis, the contracts may be
considered a single multi-element agreement, and as such all revenue is deferred
and recognized as “Subscription revenue” in the statements of
operations.
Maintenance
revenue is derived from two primary sources: (1) combined license and
maintenance agreements recorded under the prior business model; and
(2) stand-alone maintenance agreements.
F-9
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
(Continued)
Under the
prior business model, maintenance and license fees were generally combined into
a single license agreement. The maintenance portion was deferred and amortized
into revenue over the initial license agreement term. Certain of these license
agreements have not reached the end of their initial terms and, therefore,
continue to amortize. This amortization is recorded to the “Maintenance” line
item in the Statements of Operations. The deferred maintenance portion, which
was optional to the customer, was determined using its fair value based on
annual, fixed maintenance renewal rates stated in the agreement. For license
agreements entered into under the Company’s current business model, maintenance
and license fees continue to be combined; however, the maintenance is inclusive
for the entire term of the arrangement. The Company reports such combined fees
on the “Subscription revenue” line item in the statements of
operations.
The
Company also records stand-alone maintenance revenue earned from customers who
elect optional maintenance. Revenue from such renewals is recognized on the
“Maintenance” line item in the statements of operations over the term of the
renewal agreement.
The
“Deferred maintenance revenue” line item on the Company’s balance sheets
principally represents payments received in advance of maintenance services to
be rendered.
Revenue
from professional service arrangements is generally recognized as the services
are performed. Revenue from committed professional services arrangements that
are sold as part of a software transaction is deferred and recognized on a
ratable basis over the life of the related software transaction. If it is not
probable that a project will be completed or the payment will be received,
revenue is deferred until the uncertainty is removed.
Revenue
from sales to distributors, resellers, and value-added resellers (VARs)
commences when all four of the ASC revenue recognition criteria noted above are
met and when these entities sell the software product to their customers. This
is commonly referred to as the sell-through method. Revenue from the sale of
products to distributors, resellers and VARs under licenses that include the
right for the end-users to receive certain unspecified future software products
is recognized on a ratable basis.
F-10
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts
Receivable
The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring
collateral.
Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances. The Company has an allowance for doubtful accounts of $0 at
December 31, 2009 and 2008, respectively.
Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
Advertising
Costs
The
Company expenses the costs associated with advertising as
incurred. Advertising expenses for the years ended December 31, 2009
and 2008 are included in general and administrative expenses in the statements
of operations.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets; automobiles
– 3 years, computer equipment – 3 years, furniture and fixtures – 5 years and
leasehold improvements- 5 years.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized. Deduction is made for retirements resulting from
renewals or betterments.
F-11
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived
Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
(Loss) Per Share of Common
Stock
Basic net
(loss) per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
F-12
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
(Loss) Per Share of Common
Stock (Continued)
The
following is a reconciliation of the computation for basic and diluted
EPS:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Net
(Loss)
|
$ | (29,424 | ) | $ | (63,276 | ) | ||
Weighted-average
common shares
|
||||||||
Outstanding
(Basic)
|
5,115,400 | 5,115,400 | ||||||
Weighted-average
common stock
|
||||||||
Equivalents
|
||||||||
Stock
options
|
- | - | ||||||
Warrants
|
- | - | ||||||
Weighted-average
common shares
|
||||||||
Outstanding
(Diluted)
|
5,115,400 | 5,115,400 |
The
Company has not issued options or warrants to purchase stock in these periods.
If there were options or warrants outstanding they would not be included in the
computation of diluted EPS because inclusion would have been
antidilutive.
Stock-Based
Compensation
In 2006,
the Company adopted the provisions of ASC 718-10 “Share Based Payments” for
its year ended December 31, 2008. The adoption of this principle had no effect
on the Company’s operations.
F-13
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Stock-Based
Compensation (Continued)
The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values. Stock-based compensation expense for
all awards granted after January 1, 2006 is based on the grant-date fair values.
The Company recognizes these compensation costs, net of an estimated forfeiture
rate, on a pro rata basis over the requisite service period of each vesting
tranche of each award. The Company considers voluntary termination behavior as
well as trends of actual option forfeitures when estimating the forfeiture
rate.
The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 505-50, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”. The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received. The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital.
Segment
Information
The
Company follows the provisions of ASC 280-10, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions.
F-14
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements
In
September 2006, ASC issued 820, Fair Value Measurements. ASC
820 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of ASC 820 is not expected to have a material impact on
the financial statements.
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. ASC 825-10 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment.
ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Management is determining the impact that
the adoption of ASC 810-10-65 will have on the Company’s financial position,
results of operations or cash flows.
In
December 2007, the Company adopted ASC 805, Business Combinations (“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately
from the business combination the direct costs, where previously these costs
were included in the total allocated cost of the acquisition. ASC 805
will require an entity to recognize the assets acquired, liabilities assumed,
and any non-controlling interest in the acquired at the acquisition date, at
their fair values as of that date.
F-15
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted and the ASC is to
be applied prospectively only. Upon adoption of this ASC, there would
be no impact to the Company’s results of operations and financial condition for
acquisitions previously completed. The adoption of ASC 805 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In March
2008, ASC issued ASC 815, Disclosures about Derivative
Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities. These
enhanced disclosures will discuss: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted
for and its related interpretations; and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. ASC 815 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company does
not believe that ASC 815 will have an impact on their results of operations or
financial position.
Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC
855”). ASC 855 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date – that is, whether that date represents the date the financial statements
were issued or were available to be issued. This disclosure should alert all
users of financial statements that an entity has not evaluated subsequent events
after that date in the set of financial statements being presented. Adoption of
ASC 855 did not have a material impact on the Company’s results of operations or
financial condition. The Company has evaluated subsequent events through March 15, 2010,
the date the financial statements were issued.
F-16
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted market price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using certain
techniques. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. ASU 2009-05 also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not
have a material impact on the Company’s results of operations or financial
condition.
In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements
(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in 2010. The
disclosures about the rollforward of information in Level 3 are required for the
Company with its first interim filing in 2011. The Company does not believe this
standard will impact their financial statements.
Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
F-17
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
3- FIXED
ASSETS
Fixed
assets as of December 31, 2009 and 2008 were as follows:
Estimated
Useful
|
December
31,
|
December 31,
|
||||||||||
Lives
(Years)
|
2009
|
2008
|
||||||||||
Computer
equipment
|
3 | $ | 1,318 | $ | 0 | |||||||
Office
equipment
|
5 | 1,422 | 1,624 | |||||||||
Leasehold
improvements
|
5 | 13,994 | 13,994 | |||||||||
TOTAL:
|
16,734 | 15,618 | ||||||||||
Less:
accumulated depreciation
|
13,017 | 5,246 | ||||||||||
Property
and equipment, net
|
$ | 3,717 | $ | 10,371 |
There was
$7,972 and $10,757 charged to operations for depreciation expense for the years
ended December 31, 2009 and 2008, respectively.
NOTE
4-
|
OPERATING LINE OF
CREDIT
|
On June
13, 2008, the Company established an operating line of credit of CDN$15,000 with
a bank through a credit card, with the full outstanding amount guaranteed by a
Director. The interest rate charged is a floating rate, bank prime
rate + 2%. As of December 31, 2009, the interest rate was 6.25% with
an outstanding balance of $5,896. The Company recorded interest expense of $340
and $2,367 for the years ended December 31, 2009 and 2008,
respectively.
NOTE
5- RELATED PARTY
LOANS
The
Company has entered into related party loans with an officer of the
Company. This loan is non-interest bearing and payable on
demand. The amounts owed as of December 31, 2009 and 2008 is $31,679
and $18,388, respectively.
The
Company has entered into related party loans with a company owned and controlled
by an officer of the Company. This loan is non-interest bearing and
payable on demand. The amounts owed as of December 31, 2009 and 2008
is $3,932 and $3,140, respectively.
The
Company has entered into related party loans with a shareholder of the
Company. This loan is non-interest bearing and payable on
demand. The amounts owed as of December 31, 2009 and 2008 is $9,999
and $8,582, respectively.
F-18
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
6- STOCKHOLDERS’ EQUITY
(DEFICIT)
Common
Stock
As of
December 31, 2009 and 2008, the Company has 125,000,000 shares of common stock
authorized with a par value of $0.01
As of
December 31, 2009 and 2008, the Company has 5,115,400 shares of common stock
issued and outstanding.
The
Company has not issued any shares in 2009 or 2008.
The
Company issued 2,537,400 shares for services during 2007 valued at
$253,740.
The
Company issued 2,578,000 shares in 2007 as replacement shares for the original
shares issued in Metratech Retail Systems, Inc. These shares were valued at
$212,800.
NOTE
7- PROVISION FOR INCOME
TAXES
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
At
December 31, 2009, deferred tax assets consist of the following:
Net
operating losses
|
$ | 164,658 | ||
Valuation
allowance
|
(164,658 | ) | ||
$ | - |
At
December 31, 2009, the Company had a net operating loss carryforward in the
amount of $484,289, available to offset future taxable income through
2029. The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods.
F-19
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
7- PROVISION FOR INCOME
TAXES (CONTINUED)
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the years ended December 31, 2009
and 2008 is summarized as follows:
2009
|
2008
|
|||||||
Federal
statutory rate
|
(34.0 | )% | (34.0 | )% | ||||
State
income taxes, net of federal benefits
|
3.3 | 3.3 | ||||||
Valuation
allowance
|
30.7 | 30.7 | ||||||
0 | % | 0 | % |
NOTE
8- FAIR VALUE
MEASUREMENTS
The
Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value,
provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements. ASC 820’s valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from
independent sources, while unobservable inputs reflect our market assumptions.
ASC 820 classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3
inputs: Instruments with primarily unobservable value drivers.
The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2009:
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Cash
equivalents
|
354 | - | - | 354 | ||||||||||||
Total
assets
|
354 | - | - | 354 |
F-20
GMS
CAPITAL CORP.
FINANCIAL
STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
9- CONCENTRATION OF CREDIT
RISK
On
December 31, 2009 and 2008, 100% of the Company’s accounts receivable was with
one customer.
For the
years ended December 31, 2009 and 2008, two and three customers represented 100%
of the total revenue for the Company. Each of these customers were considered
major customers. A major customer is a customer that represents at least 10% of
total revenue.
F-21
INDEX
TO FINANCIAL STATEMENTS
Page(s)
|
||
Report
of Independent Registered Public Accounting
Firm
|
F-19
|
|
Balance
Sheets as of December 31, 2008 and 2007
|
F-20
|
|
Statements
of Operations and Comprehensive Income (Loss)
|
||
For
the Years Ended December 31, 2008 and 2007
|
F-21
|
|
Statement
of Changes in Stockholders’ Equity (Deficit)
|
||
For
the Years Ended December 31, 2008 and 2007
|
F-22
|
|
Statements
of Cash Flows For the Years Ended
|
||
December
31, 2008 and 2007
|
F-23
|
|
Notes
to Financial Statements
|
F-24
|
F-22
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
GMS
Capital Corp.
Montreal,
Canada
We have
audited the accompanying balance sheets of GMS Capital Corp. (the “Company”) as
of December 31, 2008 and 2007 and the related statements of operations, changes
in stockholders’ equity (deficit), and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of GMS Capital Corp. as of December
31, 2008 and 2007, and the results of its statements of operations, changes in
stockholders’ equity (deficit), and cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained operating losses and capital
deficits that raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KBL,
LLP
|
|||
New
York, NY
|
|||
February
19, 2009
|
F-23
GMS
CAPITAL CORP.
|
||||||||
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS, INC.)
|
||||||||
BALANCE
SHEETS
|
||||||||
DECEMBER
31, 2008 AND 2007
|
||||||||
ASSETS
|
||||||||
(IN
US$)
|
||||||||
2008
|
2007
|
|||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,461 | $ | 11,993 | ||||
Accounts
receivable, net
|
2,646 | 15,971 | ||||||
Other
current assets
|
1,053 | - | ||||||
Due
from related companies
|
- | 9,373 | ||||||
Total
Current Assets
|
5,160 | 37,337 | ||||||
Fixed
assets, net of depreciation
|
10,371 | 25,102 | ||||||
TOTAL
ASSETS
|
$ | 15,531 | $ | 62,439 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
LIABILITIES
|
||||||||
Current
Liabilities:
|
||||||||
Advances
- Shareholders
|
$ | 26,970 | $ | 44 | ||||
Line
of credit
|
1,862 | 82 | ||||||
Due
to related companies
|
1,240 | - | ||||||
Loan
payable
|
- | 12,426 | ||||||
Deferred
revenue
|
- | 1,084 | ||||||
Accounts
payable and accrued expenses
|
- | 6,150 | ||||||
Total
Current Liabilities
|
30,072 | 19,786 | ||||||
Total
Liabilities
|
30,072 | 19,786 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Common
stock, $.001 Par Value; 125,000,000 shares
authorized
|
||||||||
and
5,115,400 shares issued and outstanding, respectively
|
5,115 | 5,115 | ||||||
Additional
paid-in capital
|
461,425 | 461,425 | ||||||
Accumulated
deficit
|
(454,865 | ) | (391,589 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(26,216 | ) | (32,298 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(14,541 | ) | 42,653 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 15,531 | $ | 62,439 |
The
accompanying notes are an integral part of the financial
statements.
F-24
GMS
CAPITAL CORP.
|
||||||||
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS, INC.)
|
||||||||
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
||||||||
IN
US$
|
||||||||
2008
|
2007
|
|||||||
OPERATING
REVENUES
|
||||||||
Sales
|
$ | 38,400 | $ | 73,104 | ||||
COST
OF SALES
|
||||||||
Purchases
|
68,285 | 10,441 | ||||||
Total
Cost of Sales
|
68,285 | 10,441 | ||||||
GROSS
PROFIT (LOSS)
|
(29,885 | ) | 62,663 | |||||
OPERATING
EXPENSES
|
||||||||
Selling,
general and administrative
|
28,076 | 280,056 | ||||||
Depreciation
|
10,757 | 12,656 | ||||||
Total
Operating Expenses
|
38,833 | 292,712 | ||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(68,718 | ) | (230,049 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
expense
|
(2,367 | ) | (3,265 | ) | ||||
Gain
on asset disposal
|
7,809 | - | ||||||
Total
Other Income (Expense)
|
5,442 | (3,265 | ) | |||||
NET
LOSS BEFORE PROVISION
|
||||||||
FOR
INCOME TAXES
|
(63,276 | ) | (233,314 | ) | ||||
Provision
for Income Taxes
|
- | - | ||||||
NET
LOSS APPLICABLE
|
||||||||
TO
COMMON SHARES
|
$ | (63,276 | ) | $ | (233,314 | ) | ||
NET
LOSS PER BASIC AND DILUTED SHARES
|
||||||||
BASIC
AND DILUTED
|
$ | (0.01 | ) | $ | (0.07 | ) | ||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||
SHARES
OUTSTANDING - BASIC AND DILUTED
|
5,115,400 | 3,212,350 | ||||||
COMPREHENSIVE
INCOME (LOSS)
|
||||||||
Net
loss
|
$ | (63,276 | ) | $ | (233,314 | ) | ||
Other
comprehensive income (loss)
|
||||||||
Currency
translation adjustments
|
6,082 | 8,040 | ||||||
Comprehensive
income (loss)
|
$ | (57,194 | ) | $ | (225,274 | ) |
The
accompanying notes are an integral part of the financial
statements.
F-25
GMS
CAPITAL CORP.
|
||||||||||||||||||||||||
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMES, INC.)
|
||||||||||||||||||||||||
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
||||||||||||||||||||||||
IN
US$
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Total
|
|||||||||||||||||||
Balance
December 31, 2006
|
2,578,000 | 2,578 | 210,222 | (158,275 | ) | (40,338 | ) | 14,187 | ||||||||||||||||
Shares
of stock issued for services
|
2,537,400 | 2,537 | 251,203 | - | - | 253,740 | ||||||||||||||||||
Net
loss for the year ended December 31, 2007
|
- | - | - | (233,314 | ) | 8,040 | (225,274 | ) | ||||||||||||||||
Balance
December 31, 2007
|
5,115,400 | 5,115 | 461,425 | (391,589 | ) | (32,298 | ) | 42,653 | ||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | (63,276 | ) | 6,082 | (57,194 | ) | ||||||||||||||||
Balance
December 31, 2008
|
5,115,400 | $ | 5,115 | $ | 461,425 | $ | (454,865 | ) | $ | (26,216 | ) | $ | (14,541 | ) |
The
accomanying notes are an integral part of the financial statements.
F-26
GMS
CAPITAL CORP.
|
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS, INC.)
|
STATEMENTS
OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007
|
IN
US$
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (63,276 | ) | $ | (233,314 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Depreciation
|
10,757 | 12,656 | ||||||
Shares
issued for services
|
- | 253,740 | ||||||
Gain
on sale of disposition of assets
|
(7,809 | ) | - | |||||
Changes
in assets and liabilities
|
||||||||
Decrease
in accounts receivable
|
11,195 | 10,302 | ||||||
Increase
(decrease) in deferred revenue
|
(1,084 | ) | 1,084 | |||||
(Decrease)
in accounts payable and
|
||||||||
and
accrued expenses
|
(6,055 | ) | (13,634 | ) | ||||
Total
adjustments
|
7,004 | 264,148 | ||||||
Net
cash provided by (used in) operating activities
|
(56,272 | ) | 30,834 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisitions
(disposal) of fixed assets
|
11,695 | (1,454 | ) | |||||
Decrease
in due to/from related parties
|
8,985 | 7,937 | ||||||
Net
cash provided by investing activities
|
20,680 | 6,483 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITES
|
||||||||
Repayments
of loan payable
|
(10,112 | ) | (6,779 | ) | ||||
Proceeds
from line of credit, net of repayments
|
1,795 | (23,561 | ) | |||||
Proceeds
from officers, net of repayments
|
26,880 | (11,424 | ) | |||||
Net
cash provided by (used in) financing activities
|
18,563 | (41,764 | ) | |||||
Effect
of foreign currency
|
6,497 | 7,132 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(10,532 | ) | 2,685 | |||||
CASH
AND CASH EQUIVALENTS - BEGINNING OF YEAR
|
11,993 | 9,308 | ||||||
CASH
AND CASH EQUIVALENTS - END OF YEAR
|
$ | 1,461 | $ | 11,993 | ||||
CASH
PAID DURING THE YEAR FOR:
|
||||||||
Interest
expense
|
$ | 2,367 | $ | 3,265 |
The
accompanying notes are an integral part of the financial
statements.
F-27
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1- ORGANIZATION AND BASIS OF
PRESENTATION
GMS
Capital Corp. (the “Company”), a Florida Corporation, was founded on March 9,
2000 originally doing business as Metratech Retail Systems Inc., a Canadian
Corporation up until the reincorporation as GMS Capital Corp. in the State of
Florida on September 18, 2007, in order to develop and market inventory
management software for suppliers to major retailers, which enable suppliers to
forecast consumer demand for their products and to optimize their production and
inventory accordingly.
The
Company's objective in the reincorporation in the state of Florida is to raise
capital through the issuance of stock on the public markets in the US once
achieving regulatory approval. This capital raised will be utilized
to further the promotion of The Company's flagship software product,
ManageThePipe, a specialized inventory management software for small to medium
sized businesses who sell their products via large chain retail sales outlets
known as “big box chains”.
Prior to
its reincorporation as GMS, the Company had grown primarily in the provinces of
Quebec and British Columbia, Canada through the installation of its software via
direct sales to customers. While sales to date of the software have
occurred via a direct sales channel, the Company will look to add further
distribution channels to other sectors in the United States and Canada in the
coming year.
Going
Concern
As shown
in the accompanying financial statements the Company has incurred a net loss of
$63,276 and $233,314 for the years ended December 31, 2008
and 2007, respectively, and has, an accumulated deficit of $454,865 and a
working capital deficiency of $24,912 as of December 31, 2008. This
financial performance, along with the Company’s limited customer base exposes
them to significant risk of future revenues. The Company has been
searching for new distribution channels to sell their software and services to
provide additional revenues to support their operations. There is no
guarantee that the Company will be able to raise additional capital or generate
the increase in revenues sought; however the Company has recently begun a
reincorporation process and has gone effective with a registration statement of
Form S-1 to raise additional capital under GMS Capital Corp.
Management
believes that the Company’s capital requirements will depend on many factors.
These factors include the increase in sales through its existing channel as well
as the Company’s ability to continue to expand its distribution
channels.
In the
near term, the Company will look to sell part or all of its complete offering as
outlined it its Prospectus. There can be no assurance that management will be
able to raise sufficient capital, under terms satisfactory to the Company, if at
all.
F-28
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1- ORGANIZATION AND BASIS OF
PRESENTATION (CONTINUED)
Going Concern
(Continued)
The
financial statements do not include any adjustments relating to the carrying
amounts of recorded assets or the carrying amounts and classification of
recorded liabilities that may be required should the Company be unable to
continue as a going concern.
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of
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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company
evaluates its estimates, including, but not limited to, those related to
investment tax credits, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
Cash and Cash
Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Comprehensive
Income
The
Company adopted Statement of Financial Accounting Standards No, 130, “Reporting
Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
F-29
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
The
carrying amounts reported in the balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. For
the notes payable, the carrying amount reported is based upon the incremental
borrowing rates otherwise available to the Company for similar borrowings. For
the convertible debentures, fair values were calculated at net present value
using the Company’s weighted average borrowing rate for debt instruments without
conversion features applied to total future cash flows of the
instruments.
Currency
Translation
The
Company’s functional currency is the Canadian dollar, while the Company reports
its currency in the US dollar. The Company records these translation adjustments
as accumulated other comprehensive income (loss). For the years ended December
31, 2008 and 2007, the Company had translations gains of $6,082 and $8,040,
respectively.
Research and
Development
The
Company occasionally incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable. The Company did not incur Research and
Development expenses during 2007 and 2008.
F-30
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
The
Company generates revenue from the following primary sources: (1) licensing
software products; (2) providing customer technical support (referred to as
maintenance); and (3) providing professional services, such as consulting
and education.
The
Company recognizes revenue pursuant to the requirements of Statement of Position
(SOP) 97-2, “Software Revenue Recognition,” issued by the American
Institute of Certified Public Accountants, as amended by SOP 98-9 “Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions.” In accordance with SOP 97-2, the Company begins to recognize
revenue from licensing and supporting its software products when all of the
following criteria are met: (1) the Company has evidence of an arrangement
with a customer; (2) the Company delivers the products; (3) license
agreement terms are deemed fixed or determinable and free of contingencies or
uncertainties that may alter the agreement such that it may not be complete and
final; and (4) collection is probable.
The
Company’s software licenses generally do not include acceptance provisions. An
acceptance provision allows a customer to test the software for a defined period
of time before committing to license the software. If a license agreement were
to include an acceptance provision, the Company would not record deferred
subscription value or recognize revenue until the earlier of the receipt of a
written customer acceptance or, if not notified by the customer to cancel the
license agreement, the expiration of the acceptance period.
Under the
Company’s business model, software license agreements frequently include
flexible contractual provisions that, among other things, allow customers to
receive unspecified future software products for no additional fee. These
agreements combine the right to use the software products with maintenance for
the term of the agreement. Under these agreements, once all four of the above
noted revenue recognition criteria are met, the Company is required to recognize
revenue ratably over the term of the license agreement.
F-31
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
(Continued)
Under the
Company’s business model, a relatively small percentage of the Company’s revenue
related to certain products is recognized on an up-front or perpetual basis once
all revenue recognition criteria are met in accordance with SOP 97-2 as
described above, and is reported in the “Software fees and other” line of the
Statements of Operations. License agreements pertaining to such products do not
include the right to receive unspecified future software products, and
maintenance is deferred and subsequently recognized over the term of the
maintenance period. In the event such license agreements are executed within
close proximity or in contemplation of other license agreements with the same
customer which are recognized on a subscription basis, the contracts may be
considered a single multi-element agreement, and as such all revenue is deferred
and recognized as “Subscription revenue” in the Statements of
Operations.
Maintenance
revenue is derived from two primary sources: (1) combined license and
maintenance agreements recorded under the prior business model; and
(2) stand-alone maintenance agreements.
Under the
prior business model, maintenance and license fees were generally combined into
a single license agreement. The maintenance portion was deferred and amortized
into revenue over the initial license agreement term. Certain of these license
agreements have not reached the end of their initial terms and, therefore,
continue to amortize. This amortization is recorded to the “Maintenance” line
item in the Statements of Operations. The deferred maintenance portion, which
was optional to the customer, was determined using its fair value based on
annual, fixed maintenance renewal rates stated in the agreement. For license
agreements entered into under the Company’s current business model, maintenance
and license fees continue to be combined; however, the maintenance is inclusive
for the entire term of the arrangement. The Company reports such combined fees
on the “Subscription revenue” line item in the Statements of
Operations.
The
Company also records stand-alone maintenance revenue earned from customers who
elect optional maintenance. Revenue from such renewals is recognized on the
“Maintenance” line item in the Statements of Operations over the term of the
renewal agreement.
The
“Deferred maintenance revenue” line item on the Company’s Balance Sheets
principally represents payments received in advance of maintenance services to
be rendered.
F-32
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
(Continued)
Revenue
from professional service arrangements is generally recognized as the services
are performed. Revenue from committed professional services arrangements that
are sold as part of a software transaction is deferred and recognized on a
ratable basis over the life of the related software transaction. If it is not
probable that a project will be completed or the payment will be received,
revenue is deferred until the uncertainty is removed.
Revenue
from sales to distributors, resellers, and value-added resellers (VARs)
commences when all four of the SOP 97-2 revenue recognition criteria noted above
are met and when these entities sell the software product to their customers.
This is commonly referred to as the sell-through method. Revenue from the sale
of products to distributors, resellers and VARs under licenses that include the
right for the end-users to receive certain unspecified future software products
is recognized on a ratable basis.
Accounts
Receivable
The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring
collateral.
Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances. The Company has an allowance for doubtful accounts of $0 at
December 31, 2008 and 2007.
Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of
accounting. Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
F-33
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Costs
The
Company expenses the costs associated with advertising as
incurred. Advertising expenses for the years ended December 31, 2008
and 2007 are included in general and administrative expenses in the statements
of operations.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets; automobiles
– 3 years, computer equipment – 3 years, furniture and fixtures – 5 years and
leasehold improvements- 5 years.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized. Deduction is made for retirements resulting from
renewals or betterments.
Impairment of Long-Lived
Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
Loss Per Share of Common
Stock
Basic net
loss per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
F-34
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Loss Per Share of Common
Stock (Continued)
The
following is a reconciliation of the computation for basic and diluted
EPS:
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Net
Loss
|
$ | (63,276 | ) | $ | (233,314 | ) | ||
Weighted-average
common shares
|
||||||||
Outstanding
(Basic)
|
5,115,400 | 3,212,350 | ||||||
Weighted-average
common stock
|
||||||||
Equivalents
|
||||||||
Stock
options
|
- | - | ||||||
Warrants
|
- | - | ||||||
Weighted-average
common shares
|
||||||||
Outstanding
(Diluted)
|
5,115,400 | 3,212,350 |
The
Company has not issued options or warrants to purchase stock in these periods.
If there were options or warrants outstanding they would not be included in the
computation of diluted EPS because inclusion would have been
antidilutive.
Stock-Based
Compensation
On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123R”). SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. The provisions of SFAS
123R, as amended, are effective for small business issuers beginning as of the
next fiscal year after December 15, 2005. The Company has adopted the
provisions of SFAS 123R for its year ended December 31, 2006. The adoption of
this principle had no effect on the Company’s operations.
F-35
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Stock-Based
Compensation (Continued)
On
January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based
Payment” (“FAS 123R”) which requires recognition of stock-based compensation
expense for all share-based payments based on fair value. Prior to January 1,
2006, the Company measured compensation expense for all of its share-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”) and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, “Accounting for
Stock-Based Compensation – Transition and Disclosure – an amendment of FASB
Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No.
123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to
its stock-based compensation.
The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values estimated in accordance with the
original provisions of FAS 123. Stock-based compensation expense for all awards
granted after January 1, 2006 is based on the grant-date fair values estimated
in accordance with the provisions of FAS 123R. The Company recognizes these
compensation costs, net of an estimated forfeiture rate, on a pro rata basis
over the requisite service period of each vesting tranche of each award. The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”. The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received. The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital.
Segment
Information
The
Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions.
F-36
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a material impact
on the financial statements.
In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited.
Management is determining the impact that the adoption of SFAS No. 160 will have
on the Company’s financial position, results of operations or cash
flows.
F-37
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In
December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS
141R”), which replaces FASB SFAS 141, Business
Combinations. This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control. SFAS
141R will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition. SFAS 141R will require an entity
to recognize the assets acquired, liabilities assumed, and any non-controlling
interest in the acquired at the acquisition date, at their fair values as of
that date. This compares to the cost allocation method previously
required by SFAS No. 141.
SFAS 141R
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, SFAS 141R will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This Statement will be effective for business
combinations completed on or after the first annual reporting period beginning
on or after December 15, 2008. Early adoption of this standard is not
permitted and the standards are to be applied prospectively
only. Upon adoption of this standard, there would be no impact to the
Company’s results of operations and financial condition for acquisitions
previously completed. The adoption of SFAS No. 141R is not expected
to have a material effect on the Company’s financial position, results of
operations or cash flows.
In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a
Simplified Method in Developing Expected Term of Share Options” (“SAB
110”). SAB 110 expenses the current view of the staff that it will accept a
company’s election to use the simplified method discussed in Staff Accounting
Bulletin No. 107, “Share Based
Payment”, (“SAB 107”), for estimating the expected term of “plain
vanilla” share options regardless of whether the company has sufficient
information to make more refined estimates. SAB 110 became effective for the
Company on January 1, 2008. The adoption of SAB 110 is not expected to have a
material impact on the Company’s financial position.
F-38
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”).
SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging
activities. These enhanced disclosures will discuss: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations; and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company does not believe that SFAS 161 will have an impact on
their results of operations or financial position.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162). SFAS 162 makes the hierarchy of generally
accepted accounting principles explicitly and directly applicable to preparers
of financial statements, a step that recognizes preparers’ responsibilities for
selecting the accounting principles for their financial statements. The
effective date for SFAS 162 is 60 days following the U.S. Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight
Board’s related amendments to remove the GAAP hierarchy from auditing standards,
where it has resided for some time. The adoption of SFAS 162 will not have an
impact on the Company’s results of operations or financial
position.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of SFAS No. 60” (SFAS 163). SFAS 163
prescribes accounting for insures of financial obligations, bringing consistency
to recognizing and recording premiums and to loss recognition. SFAS 163 also
requires expanded disclosures about financial guarantee insurance contracts.
Except for some disclosures, SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. The adoption of SFAS
163 will not have an impact on the Company’s results of operations or financial
position.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
F-39
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
3- FIXED
ASSETS
Fixed
assets as of December 31, 2008 and 2007 were as follows:
Estimated
Useful
|
December 31,
|
December
31,
|
||||||||||
Lives
(Years)
|
2008
|
2007
|
||||||||||
Equipment
|
5
|
$ | 1,624 | $ | 5,468 | |||||||
Vehicles
|
5
|
0 | 29,422 | |||||||||
Leasehold
improvements
|
5
|
13,994 | 28,638 | |||||||||
TOTAL:
|
15,618 | 63,528 | ||||||||||
Less:
accumulated depreciation
|
5,247 | 38,426 | ||||||||||
Property
and equipment, net
|
$ | 10,371 | $ | 25,102 |
There was
$10,757 and $12,656 charged to operations for depreciation expense for the years
ended December 31, 2008 and 2007, respectively.
The
Company disposed of its vehicle asset on June 10, 2008. The net book
value of the asset at that time, including depreciation to June 10, 2008 was
$3,543. The vehicle was sold for $11,412. As a result, the
Company realized a gain on disposition of assets of $7,809.
NOTE
4-
|
OPERATING LINE OF
CREDIT
|
On June
13, 2008, the Company established an operating line of credit of CDN$15,000 with
a bank through a credit card, with the full outstanding amount guaranteed by a
Director. The interest rate charged is a floating rate, bank prime
rate + 2%. As of December 31, 2008, the interest rate was 8.75% with
an outstanding balance of $1,862. The Company recorded interest expense of
$2,367 and $3,265 for the year ended December 31, 2008 and 2007,
respectively.
F-40
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
5-
|
LONG-TERM
LOAN
|
The
Company signed a five year loan agreement with BMW Financial Services in
November, 2004 for a total of $25,949 at an interest rate at the time of 6.97%
in order to purchase a vehicle. The Company was making 60 equal
payments from December, 2004 until December 2009. The Company paid the entire
balance due of this loan on June 10, 2008 with the proceeds of the sale of its
vehicle. As of December 31, 2008 and 2007, the outstanding balance
was $0 and $12,426, respectively. The Company recorded interest expense of $616
and $1,251 for the years ended December 31, 2008 and 2007,
respectively.
NOTE
6- RELATED PARTY
LOANS
The
Company has entered into related party loans with an officer of the
Company. This loan is non-interest bearing and payable on
demand. The amounts owed as of December 31, 2008 is
$18,388.
The
Company has entered into related party loans with a company owned and controlled
by an officer of the Company. This loan is non-interest bearing and
payable on demand. The amounts owed as of December 31, 2008 is
$3,140. In addition, the Company is owed $1,900 from a company that an officer
is also an officer of the related company.
The
Company has entered into related party loans with a shareholder of the
Company. This loan is non-interest bearing and payable on
demand. The amounts owed as of December 31, 2008 is
$8,582.
NOTE
7- STOCKHOLDERS’
DEFICIT
Common
Stock
As of
December 31, 2008, the Company has 100,000,000 shares of common stock authorized
with a par value of $0.01
As of
December 31, 2008, the Company has 5,115,400 shares of common stock issued and
outstanding.
The
Company did not issue any stock in 2008.
The
Company issued 2,537,400 shares for services during 2007 valued at
$253,740.
The
Company issued 2,578,000 shares in 2007 as replacement shares for the original
shares issued in Metratech Retail Systems, Inc. These shares were valued at
$212,800.
F-41
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
9- PROVISION FOR INCOME
TAXES
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
At
December 31, 2008, deferred tax assets consist of the
following:
Net
operating losses
|
$ | 154,654 | ||
Valuation
allowance
|
(154,654 | ) | ||
$ | - |
At
December 31, 2008, the Company had a net operating loss carryforward in the
amount of $454,865, available to offset future taxable income through
2028. The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods.
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the years ended December 31, 2008
and 2007 is summarized as follows:
2008
|
2007
|
|||||||
Federal
statutory rate
|
(34.0 | )% | (34.0 | )% | ||||
State
income taxes, net of federal benefits
|
3.3 | 3.3 | ||||||
Valuation
allowance
|
30.7 | 30.7 | ||||||
0 | % | 0 | % |
F-42
GMS
CAPITAL CORP.
(FORMERLY
DOING BUSINESS AS METRATECH RETAIL SYSTEMS INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
10- FAIR VALUE
MEASUREMENTS
On
January 1, 2008, the Company adopted SFAS 157. SFAS 157 defines fair value,
provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements. SFAS 157’s valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from
independent sources, while unobservable inputs reflect our market assumptions.
SFAS 157 classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3
inputs: Instruments with primarily unobservable value drivers.
The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2008:
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||
Cash
equivalents
|
1,461 | - | - | 1,461 | ||||||||
Total
assets
|
1,461 | - | - | 1,461 | ||||||||
|
||||||||||||
Line
of credit
|
1,240 | - | - | 1,240 | ||||||||
|
||||||||||||
Total
liabilities
|
1,240 | - | - | 1,240 |
F-43
PART
II:
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The
following table sets forth the estimated costs and expenses we will pay in
connection with this registration statement.
Amount
|
||||
SEC
registration fee
|
$
|
44.64
|
||
Printing,
Edgar filing and shipping expenses
|
$
|
500
|
||
Legal
fees and expenses
|
$
|
4,000
|
||
Accounting
fees and expenses
|
$
|
5,000
|
||
Transfer
and Miscellaneous expenses
|
$
|
455.36
|
||
Total
|
$
|
10,000
|
* All
expenses except SEC registration fee are estimated.
Item
14. Indemnification of Directors and Executive Officers.
The
Florida Business Corporation Act provides that a
person who is successful on the merits or otherwise in defense of an action
because of service as
an officer or director or
corporation, such person is entitled to
indemnification of expenses actually and
reasonably incurred in such defense. F.S. 607.0850(3)
Such act
also provides that the corporation may indemnify an officer or
director, advance expenses, if such person acted in good
faith and in a manner the person reasonably believed to be
in, or not opposed to, the best interests of
the corporation and, with respect to a
criminal action, had no reasonable cause to believe his
conduct was unlawful. F.S. 607.0850(1)(2).
A
court may order indemnification of
an officer or director if it
determines that such person is fairly and reasonably entitled to such
indemnification in view of all the relevant circumstances.
F.S.607.0850(9).
Article VIII
of our Amended and Restated Articles
of Incorporation authorizes us, among other
things, to indemnify our officers, directors, employees or agents
against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with
certain actions, suits or proceedings if they acted in good faith and in a
manner in which they reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, has no reasonable cause to believe their conduct was unlawful.
Article VII of our by-laws authorizes us to
indemnify our officers and directors to the
fullest extent authorized or permitted by the Florida Business Corporation
Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed hereby in the
Securities Act and we will be governed by the final adjudication of such
issue.
57
Item
15. Recent Sales of Unregistered Securities.
On
October 1, 2007, the Company issued the following restricted stock for services
related to the drafting of the Company's registration statement, such stock
valued at $0.10 per share. In all cases, the people and
companies listed below were issued stock for services related to the work
involved in completing the company's Registration Statement on Form
S-1:
Name
|
Address
|
#
of Shares of Common Stock
|
||
Metratech
Business Solutions Inc.
|
Montreal,
Canada
|
1,562,440
|
||
Marcel
Côté
|
Montreal,
Canada
|
412,480
|
||
Spiro
Krallis
|
Montreal,
Canada
|
412,480
|
||
Jim
Johnson
|
Montreal,
Canada
|
150,000
|
The
conversion of the shares of our common stock listed above were affected in
reliance on the exemptions for transfer of securities not involving a public
offering, as set forth in Regulation S promulgated under the Securities
Act. The parties were non-U.S. entities and acknowledged
the following: The parties are not a United States Person, nor are the parties
acquiring the shares directly or indirectly for the account or benefit of a
United States Person. For purposes of this response, “United States
Person” within the meaning of U.S. tax laws, means a citizen or resident of the
United States, any former U.S. citizen subject to Section 877 of the Internal
Revenue Code, any corporation, or partnership organized or existing under the
laws of the United States of America or any state, jurisdiction, territory or
possession thereof and any estate or trust the income of which is subject to
U.S. federal income tax irrespective of its source, and within the meaning of
U.S. securities laws, as defined in Rule 902(o) of Regulation S,
means:
(i) any
natural person resident in the United States; (ii) any partnership or
corporation organized or incorporated under the laws of the United States; (iii)
any estate of which any executor or administrator is a U.S. person; (iv) any
trust of which any trustee is a U.S. person; (v) any agency or branch of a
foreign entity located in the United States; (vi) any non-discretionary account
or similar account (other than an estate or trust) held by a dealer or other
fiduciary for the benefit or account of a U.S. person; (vii) any discretionary
account or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated, or (if an individual) resident in the
United States; and (viii) any partnership or corporation if organized under the
laws of any foreign jurisdiction, and formed by a U.S. person principally for
the purpose of investing in securities not registered under the Securities Act,
unless it is organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a)) who are not natural persons, estates or
trusts.
Item
16. Exhibits and Financial Statement Schedules.
Exhibit
Number
|
Description
|
|
3.1
|
Articles
of Incorporation
|
|
3.2
|
Bylaws
|
|
4.1
|
Specimen
Common Stock Certificate
|
|
5.1
*
|
Opinion
of Jill Arlene Robbins , Attorney at Law
|
|
10.1.
|
Term
Sheet of the Partnership Agreement, Metratech Retail Systems Inc., July
10, 2000
|
|
10.2.
|
Non-Disclosure
Agreement signed with MGA Concept, April 1, 2000
|
|
10.3.
|
Employment
and technology transfer agreement with Junior Active Designs, Inc.,
October 16, 2000
|
|
10.4.
|
Form
of Services Agreement
|
|
10.5.
**
|
GMS
Capital Corp., Poliquin Escrow Agreement
|
|
10.6.
|
GMS
Capital Corp, Metratech Retail Systems, Inc. Merger
Agreement
|
|
14.1
|
Code
of Ethics
|
|
23.1
*
|
Consent
of Jill Arlene Robbins , Attorney at Law (see 5.1
opinion)
|
|
23.2
*
|
Consent
of Independent Registered Public Accounting Firm
(KBL,LLP)
|
|
99.1
|
Form
of Subscription Agreement
|
* filed
herein. All other items filed previously on June 16, 2008.
** filed
previously on February 8, 2010
58
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in this registration
statement; and notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration Statement; and
(iii)
include any additional or changed material information on the plan of
distribution.
2. That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
offering.
4. That,
for determining our liability under the Securities Act to any purchaser in the
initial distribution of the securities, we undertake that in a primary offering
of our securities pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, we will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
(i) any
preliminary prospectus or prospectus that we file relating to the offering
required to be filed pursuant to Rule 424 (Section 230.424 of this
chapter);
(ii) any
free writing prospectus relating to the offering prepared by or on our behalf or
used or referred to by us;
(iii) the
portion of any other free writing prospectus relating to the offering containing
material information about us or our securities provided by or on behalf of us;
and
(iv) any
other communication that is an offer in the offering made by us to the
purchaser.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore,
unenforceable.
In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling person sin
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification is
against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue.
59
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Montreal, Quebec, Canada.
Dated:
March 15,
2010
GMS
CAPITAL CORP.
|
||||
/s/
George Metrakos
|
||||
George
Metrakos
Chief
Executive Officer and President
|
GMS
CAPITAL CORP.
|
||||
/s/
George Metrakos
|
||||
George
Metrakos
Principal
Financial and Accounting Officer
|
GMS
CAPITAL CORP.
|
||||
/s/
George Metrakos
|
||||
George
Metrakos
Director
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
/s/
George Metrakos
|
||||
George
Metrakos
Chief
Executive Officer and President
|
/s/
George Metrakos
|
||||
George
Metrakos
Principal
Financial and Accounting Officer
|
/s/
George Metrakos
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||||
George
Metrakos
Director
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60