Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - GBS Enterprises Incv319540_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - GBS Enterprises Incv319540_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - GBS Enterprises Incv319540_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - GBS Enterprises Incv319540_ex32-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: June 30, 2012

 

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

 

Commission file number: 000-53223

 

GBS ENTERPRISES INCORPORATED

(Exact name of registrant as specified in its charter)

 

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

 

585 Molly Lane

Woodstock, GA 30189

(Address of principal executive offices)

 

(404) 891-1711

Issuer’s telephone number

 

Securities registered under Section 12(b) of the Act:

Title of each class   Name of each exchange on which registered
None   N/A

Securities registered under Section 12(g) of the Act:

 

Common Stock, $0.001 par value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Yes ¨ No x

 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

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

 

Yes x No ¨

 

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

 

Yes x No ¨

 

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

 

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

 

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

 

Yes ¨ No x

 

APPLICABLE ONLY TO CORPORATE REGISTRANTS

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of August 20, 2012, there were 29,431,664 shares of common stock, par value $0.001 per share, of the Registrant issued and outstanding.

 

 
 

 

TABLE OF CONTENTS

 

     Page No:
  PART I - FINANCIAL INFORMATION  
Item 1. Consolidated Financial Statements 3
  Balance Sheet 3
  Statement of Operations 4
  Statement of Cash Flows 5
  Notes to the Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Item 3. Quantitative and Qualitative Disclosures About Market Risk 45
Item 4. Controls and Procedures 45
     
  PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 46
Item 1A. Risk Factors 46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46
Item 3. Defaults Upon Senior Securities 46
Item 4. [Removed and Reserved by the Securities and Exchange Commission] 46
Item 5. Other Information 46
Item 6. Exhibits 46
Signatures   48

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1.     Financial Statements

 

GBS Enterprises Incorporated

Interim Consolidated Financial Statements

June 30, 2012

(Unaudited)

 

GBS Enterprises Incorporated

Interim Consolidated Balance Sheets

June 30, 2012 and March 31, 2012

(Unaudited)

 

   June 30, 2012   March 31, 2012 
   $   $ 
Assets          
Current Assets          
Cash and cash equivalents - Note 5   1,357,487    1,502,977 
Accounts Receivable - Note 6   8,228,657    4,936,887 
Inventories - Note 2   121,880    236,712 
Prepaid expenses - Note 7   541,813    459,363 
Other receivables - Note 9   915,795    1,474,929 
Assets held for Sale - Note 8   -    24,107 
Total current assets   11,165,632    8,634,975 
           
Property, plant and equipment - Note 10   1,690,843    1,597,326 
Financial assets - Note 11   938,243    1,998,194 
Investment in related company, at equity - Note 4   265,438    244,219 
Prepaid expenses        - 
Deferred tax assets - Note 27   4,588,618    3,945,272 
Goodwill - Note 12   35,210,705    39,744,686 
Software - Note 13   14,195,605    14,039,149 
Other assets - Note 14   96,070    246,140 
Total non-current assets   56,985,522    61,814,986 
           
Total assets   68,151,154    70,449,961 
           
Liabilities and stockholders' equity          
Current liabilities          
Notes payable - Note 15   -    1,381,821 
Liabilities to banks - Note 16   11,270    19,651 
Accounts payables and accrued liabilities - Note 17   5,533,048    5,919,788 
Deferred income - Note 19   10,598,489    6,421,502 
Other liabilities - Note 18   3,157,050    4,237,071 
Due to related parties - Note 8   569,391    1,175,103 
Shares payable - Note 9        - 
Total current liabilities   19,869,247    19,154,936 
           
Liabilities to banks - Note 20   3,886,791    3,463,483 
Deferred tax liabilities - Note 27   1,169,549    1,196,472 
Retirement benefit obligation - Note 26   155,157    150,632 
Other liabilities - Note 21   117,713    2,906,238 
Total non-current liabilities   5,329,210    7,716,825 
           
Total liabilities   25,198,457    26,871,761 
           
Stockholders' equity          
Capital stock - Note 22          
Authorized:          
 75,000,000 common shares of $.001 par value each          
 25,000,000 peferred shares of $.001 par value each          
Issued and outstanding          
 29,462,000 shares of common stock          
 (28,211,664  shares at March 31, 2012)   29,462    28,212 
Additional paid in capital   49,391,148    47,902,913 
Accumulated deficit   (13,922,428)   (12,970,652)
Other comprehensive income   251,248    476,773 
           
    35,749,430    35,437,246 
Noncontrolling interest in subsidiaries   7,203,266    8,140,954 
           
Total stockholders' equity   42,952,697    43,578,200 
           
Total stockholders' equity and liabilities   68,151,154    70,449,961 

 

3
 

 

GBS Enterprises Incorporated

Interim Consolidated Statements of Operations

For the three months Ended June 30, 2012 and June 30, 2011

(Unaudited)

 

   For the three months 
   Ended June 30 
   2012   2011 
   $   $ 
           
Revenues          
Products   2,939,070    1,796,151 
Services   5,369,581    3,880,279 
    8,308,651    5,676,430 
Cost of goods sold          
Products   2,533,513    721,901 
Services   2,539,574    1,867,447 
    5,073,087    2,589,348 
Gross profit   3,235,563    3,087,082 
           
Operating expenses          
Selling expenses   4,455,119    3,663,474 
Administrative expenses   1,278,377    1,499,856 
General expenses   156,703    202,304 
    5,890,200    5,365,634 
           
Operating income   (2,654,637)   (2,278,553)
           
Other Income (expense)          
Other Income (expense)   76,619    (658,569)
Interest income   1,299    11,382 
Interest expense   (47,136)   (98,301)
    30,781    (745,488)
           
Income (loss) before income taxes   (2,623,856)   (3,024,040)
           
Income tax (income) expense   (659,341)   (1,036,877)
           
Net income (loss)   (1,964,515)   (1,987,163)
Net income (loss) attributable to non controlling interest   (1,012,739)   (172,271)
           
Net income (loss) attributable to stockholders   (951,776)   (1,814,893)
           
Other comprehensive income (loss)   150,474    814,568 
Other comprehensive income  (loss) attributable to non noncontrolling interest   75,051    406,469 
Other comprehensive income (loss) attributable to stockholders   75,423    408,099 
Net income (loss) and comprehensive income (loss) attributed to stockholders   (876,353)   (1,406,794)

 

4
 

 

GBS Enterprises Incorporated

Interim Consolidated Statements of Cash Flows

For the three months ended June 30, 2012 and June 30, 2011

(Unaudited)

 

   June 30, 2012   June 30, 2011 
   $   $ 
         
Cash flow from operating activties          
Net loss / net income   (1,964,515)   (1,814,893)
Adjustments          
Deferred income taxes   (616,488)   (1,051,345)
Depreciation and amortization   1,206,410    1,030,391 
Write-down of Goodwill and Intangibles          
Gains from equity investment   (21,219)   - 
Loss (Gain) on Sale of Assets   (89,979)   (172,271)
Changes in operating assets and liabilities        - 
Accounts receivable and other assets   (2,932,889)   1,705,817 
Other Assets   150,070    (4,915)
Inventories   114,832    - 
Accounts payable and other liabilities   1,170,667    2,270,840 
           
Net cash provided (used) by operating activities   (2,983,110)   1,963,624 
           
Cash flow from investing activties          
(Purchase) Sale of intangible assets   1,797,868    (847,721)
(Purchase) Sale of property, plant and equipment   (310,721)   (64,164)
(Purchase) Sale of Subsidiaries        (600,000)
Proceeds from Sale of Subsidiaries        - 
(Increase) Decrease in Financial assets   1,906,066    (1,246,776)
           
Net cash provided (used) in investing activities   3,393,214    (2,758,661)
           
Cash flow from financing activties          
Net borrowings - banks   (394,814)   (780,277)
Other borrowings   (1,622,371)   (340,735)
Capital paid-in   224,485    - 
Loans from related party   1,271,520    - 
           
Net cash provided (used) in financing activities   (521,180)   (1,121,012)
           
Effect of exchange rate changes on cash   (34,414)   191,125 
           
Net increase (decrease) in cash   (145,490)   (1,724,924)
Cash and cash equivalents - Beginning of the year   1,502,977    8,530,864 
           
Cash and cash equivalents - End of year   1,357,487    6,805,940 

 

5
 

 

Notes to the Interim Financial Statements

June 30, 2012

GBS Enterprises Incorporated

 

Note 1           INTERIM REPORTING

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, they include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s audited March 31, 2012 financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s March 31, 2012 financial statements.

 

Operating results for the three months ended June 30, 2012 are not necessarily indicative of the results that can be expected for the year ending March 31, 2013.

 

Note 2           COMPANY AND BACKROUND

 

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

 

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

 

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

 

Our software and services are designed to mainly serve organizations that have investments in IBM’s Lotus® Notes and Domino platform. The IBM Lotus® Notes and Domino platform is both a system for enterprise email as well as an application platform, meaning that it can be used as both an email system and an environment in which business applications can be deployed and used. This platform was originally brought to market by Lotus Development Corp. in 1989, and was subsequently acquired by IBM in 1995. According to IBM, there were 145 million licenses sold worldwide for Lotus Notes through 2008 (Source: “Global Businesses Choosing Lotus Software” IBM Press Release January 15, 2009).

 

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

 

6
 

 

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

 

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

 

General Corporate History

 

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

 

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

 

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

 

About Lotus Holdings, Ltd.

 

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

 

7
 

 

SPPEFs

 

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

 

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

 

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

 

Transactions following the acquisition

 

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

 

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

 

8
 

 

Reverse Merger

 

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

 

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

 

Additional Acquisition

 

On February 27, 2012, the Company acquired an additional 883,765 shares of common stock of GROUP to maintain its 50.1% ownership of GROUP. On February 27, 2012, an outstanding loan of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, thereby increasing GROUP’s outstanding common stock to 26,982,000 shares. As a result of the foregoing increase in the number of outstanding shares of GROUP common stock, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP. The Company purchased the 883,765 shares of GROUP common stock from GAVF LLC for an average purchase price of $0.70 per share, or approximately $619,000.

 

9
 

 

Acquisitions of Subsidiary Companies

 

Pavone AG

 

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

 

GroupWare, Inc.

 

Effective June 1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a Florida corporation (“GroupWare”). As consideration the Company paid $250,000 and issued 250,000 shares of its common stock. The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $ 694,617 in debt was $ 2,029,617. Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director, was appointed as the Chief Executive Officer and sole director of GroupWare. GroupWare is based in Lubeck, Germany with offices in St. Petersburg, Florida. GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. The Company believes that the acquisition strengthens the GBS Transformer offering, which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser. In addition, GroupWare provides a solution for applications that are ready to be retired. With the ePDF Server, GBS customers can convert the entire contents of IBM Lotus Notes and Domino applications to a permanent and secure archive in PDF or PDF/A format, while preserving their ability to be full-text searched and ensuring that the critical application data is accessible in the future, when needed. GBS will deliver the application archiving capabilities via its GroupLive cloud, making it possible for customers and partners to take advantage of elastic cloud computing resources to rapidly process the application contents without the need to dedicate hardware on-site for temporary or intermittent processing jobs.

 

10
 

 

IDC Global, Inc.

  

On July 25, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of IDC Global, Inc. (IDC”), a Delaware corporation with offices in Chicago, New York, London and other key cities. Pursuant to the acquisition agreement of July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and make a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction. The fair value of the common stock was determined to be $3.50 per share, representing the market value at the end of trading on the date of the agreement. The total value of the investment including debt assumption of $883,005 was $4,066,000. IDC is a privately held company that provides nationwide network and data center services. IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC has data centers in Chicago, New York and London and other key cities. IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing. The Company believes that the acquisition of IDC provides it with the infrastructure needed to provide a comprehensive end-to-end solution for all customers regardless of their platform, and that it will prove to be especially beneficial to IBM Lotus Domino and Notes customers who finally have the same options as other platforms.

 

SD Holdings, Ltd. 

 

On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings Ltd. (“SYN”), a Mauritius corporation and the shareholders of SYN owning 100% of issued and outstanding shares of SYN. SYN owns 100% of all issued and outstanding shares of Synaptris, Inc., a California corporation (“Synaptris”), and 100% of all issued and outstanding shares of Synaptris Decisions Private Limited, an India company (“Synaptris India”).

 

Pursuant to the acquisition agreement, the Company purchased one hundred percent (100%) of the issued and outstanding shares of SYN (“SYN Shares”) effective November 1, 2011 in consideration for $525,529 and agreed to issue 700,000 shares of common stock, subject to adjustment. Actual shares issued were 612,874. The fair value of the common stock was determined to be $2.05 per share, representing the market value at the end of trading on the date of the agreement.

 

Effective June 1, 2012, the Company sold Synaptris for a royalty fee of $380,400. In addition, a variable revenue based on future earnings of the IntelliVIEW product line has been agreed upon to be paid by the buyer to the Company.

 

11
 

 

On June 12, 2012, Synaptris India entered into a transfer agreement with GBS India Private Limited, a newly incorporated entity formed under the Indian Companies Act 1956 and wholly-owned by the Company (“GBS India”). This agreement, effective June 1, 2012 transferred contracts, accounts payable, accounts receivable, deferred revenue, other current assets and certain employees for operations in GBS India.

 

GBS India’s product portfolio improves corporate decision-making by providing real-time enterprise reporting, user defined dashboards, and comprehensive analytic capabilities for Lotus Notes / Domino and Java/.NET environments. 

With the integration of the GBS India’s product portfolio, we added another tier of Lotus Notes applications including reporting products, advanced dashboards, and email productivity solutions. Additionally, the acquisition included a comprehensive search engine specialized for use with email that is faster and easier to use than other products in the market.

 

In addition to product synergy and additional revenue streams, we expect to derive operational synergy from this acquisition.  GBS India’s presence in India is anticipated to accelerate our plan to expand our product development team particularly for our strategic offerings in India. 

 

Note 3           ACCOUNTING POLICIES

 

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

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Segment Reporting

 

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

 

12
 

 

Comprehensive Income (Loss)

 

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

 

Net Income per Common Share

 

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

 

Financial Instruments

 

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

 

13
 

 

Currency Risk

 

We use the US dollar as our reporting currency. The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro, the British pound and the Indian rupee. Accordingly, some assets and liabilities are incurred in those currency and we are subject to foreign currency risks. One of the Company’s subsidiary companies, Synaptris Decisions Private Limited, uses forward currency contracts, as a hedge against currency fluctuations between the US dollar and the Indian rupee.

 

Derivatives

 

The forward currency contracts are accounted for as fair value derivatives and are shown gross, with both asset and liability recorded at fair value. At period end the change in fair value is included in net income for the period.

 

Fair Value Measurements

 

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

 

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

 

Cash and cash equivalents

 

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

 

14
 

 

Inventories

 

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

 

Goodwill and other Intangible Assets

 

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

 

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

 

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

 

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

 

Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill and are reviewed once a year as to their recoverability in the form of an impairment test. If they are no longer recoverable, an unscheduled amortization expense entry is performed.

 

In addition, an impairment test, whereby the appraised fair value of the invested capital of the reporting unit, is compared with the carrying (book) value of its invested capital amount, including goodwill.

 

If the appraised value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. If the carrying amount of the reporting unit exceeds the appraised fair value, an impairment test based on use value is necessary in order to measure the amount of impairment loss, if any.

 

Use value is generally used in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The current plan prepared by the management serves as the basis for this policy. The planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are essentially determined based on the expected growth rates of the markets in question.

 

15
 

 

Property, Plant and Equipment

 

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

 

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

 

Impairment or Disposal of Long-Lived Assets

 

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. No impairment has been recognized in the accounts.

 

Revenue Recognition

 

Sources of Revenues:

 

License revenues

 

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

 

Software maintenance revenues

 

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

 

16
 

 

Professional services revenues

 

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

 

Foreign Currency Translation

 

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

 

Other Provisions

 

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

 

Deferred Taxes

 

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

 

17
 

 

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

 

Recent Accounting Pronouncements

 

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, to provide guidance on the presentation of comprehensive income. This guidance eliminated the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance is effective as of the beginning of a fiscal year that begins after December 15, 2011. Early adoption is permitted, but full retrospective application is required under both sets of accounting standards. The Company is currently evaluation which presentation alternative it will utilize.

 

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities”, in an effort to improve comparability between US GAAP and International Financial Reporting Standards (“IFRS”) with regard to the presentation of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts or recognized assets and liabilities, offsetting amounts, and the net balance reflect4d in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. The adoption of this new guidance is not expected to have an impact on the Company’s financial statements.

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements

 

Off - Balance Sheet Arrangements

 

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

 

18
 

 

Principles of Consolidation and Reverse Acquisition

 

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

 

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

 

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

 

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

 

The purpose of the acquisition was to allow GROUP easier access to American financial markets. Goodwill recognized of $8,705,528 was recorded upon consolidation and was calculated as the value of the consideration given less the value of the asset received. The resulting goodwill represents the benefit to be gained by gaining entry into American financial markets.

 

19
 

 

Fiscal year-end reporting

 

As noted above, GROUP is a publicly traded company on the Frankfurt Stock Exchange. It has always reported on that exchange using a December 31 year-end reporting date. The Company’s other subsidiary companies, with the exception of SD Holdings, also have December 31 year-ends. GBSX and SD Holdings have March 31 year-ends. The consolidation of these entities for financial reporting purposes for the Company’s March 31 year-end has been performed without any adjustments for timing differences between these two reporting dates in accordance Regulation S-X Rule 3A-02 (the ‘93 day rule”). Intervening events which materially affect the financial position or results of operations have been recognized.

 

Note 4 SUBSIDIARY COMPANIES

 

The subsidiaries listed below were included in the basis of consolidation. At the year end of March 31, 2012, there were seventeen of these subsidiaries (KUSD = 1,000’s of US Dollars).

 

 

  Headquarters Stockholders' Equity Percentage of Profit Date
    as of Subscribed Capital of the of the
    06.30.12   consolidated quarter First Consolidation
    KUSD KUSD in % KUSD  
             
             
ebVOKUS Software GmbH Dresden 351 54 100.0% -58 1/11/2005
GROUP Business Software (UK) Ltd. Manchester -1,290 23 100.0% -28 12.31.2005
GROUP Business Software Corp. Woodstock -9,389 1 100.0% -1,623 12.31.2005
GROUP LIVE N.V. Den Haag -3,534 134 100.0% -2 12.31.2005
Permessa Corporation Waltham -5 0 100.0% 667 09.22.2010
Relavis Corporation Woodstock -834 2 100.0% -25 1/8/2007
GROUP Business Software AG Eisenach 20,810 36,107 50,1% -1,025 6/1/2011
Pavone GmbH Boeblingen -197 47 100% -162 1/4/2011
Pavone Ltd. North Yorkshire -71 584 100% -4 1/4/2011
Groupware Inc. Woodstock -482 1 100% 0 1/6/2011
IDC Global, Inc. Chicago 2,429 0 100% 111 07.25.2011
             

 

20
 

 

Note 5            ASSOCIATED COMPANY

 

Due to the absence of domination/control, B.E.R.S. AD, Varna, Bulgaria was treated an associated company in the consolidated financial statements. GROUP Business Software AG's acquired B.E.R.S AD for 265 (KEUR). The investment, representing 50% of B.E.R.S. AD has been accounted for on the equity basis, with the Company’s proportionate share of income being recorded in the consolidated statement of operations with a corresponding adjustment to the asset carrying value. In the quarter ended June 30, 2012, the proportion share of the loss was 11 KUSD (March 31, 2012 year end: 35 KUSD.)

 

Associated Companies  Headquarters  Total Value   Debts   Sales Revenues   Annual Profit/Loss 
      Assets             
      06.30.12             
      KUSD   KUSD   KUSD   KUSD 
                    
B.E.R.S. AD  Varna   265    91    176    11 

 

Note 6            CASH AND CASH EQUIVALENTS

 

As of the financial statement date, the Company’s cash and cash equivalents totaled 1,358 KUSD (March 31, 2012 year end: 1,503 KUSD). Included in that amount are cash equivalents of 20 KUSD (March 31, 2012 year end: 12 KUSD).

 

Note 7            ACCOUNTS RECEIVABLE

 

As of the financial statement date, Accounts Receivable were 8,229 KUSD (March 31, 2012 year end: 4,937 KUSD). Receivables are generally measured at their nominal value and taking into account all foreseeable risks. Probable default risks are handled with specific allowances for bad debts. With regard to the trade receivables which are neither impaired nor delinquent, there are no indications as of the financial statement date that the debtors will not meet their payment obligations. The residual term of the receivables is less than one year with the exception of deposits provided as security presented under Other Financial Assets.

 

Note 8            PREPAID EXPENSES

 

Prepaid expenses in the amount of 542 KUSD were primarily recorded for prepaid rent and advance on technological collaboration events ( March 31, 2012 year end: 460 KUSD).

 

Note 9             OTHER RECEIVABLES - CURRENT

 

Other Receivables as of the financial statement date were 916 KUSD (March 31, 2012 year end: 1,475 KUSD). The largest individual item under other receivables represents security deposits (486 KUSD). Also included herein are receivable from the sale of GEDYS IntraWare GmbH (240 KUSD), Tax assets (163 KUSD) and Other (27 KUSD).

 

21
 

 

Note 10             PROPERTY PLANT AND EQUIPMENT

 

Fixed assets are measured at cost less scheduled straight-line depreciation.

 

Depreciation of the computer hardware listed as office equipment is distributed over a period of three to five years. The depreciation period for other office equipment is three to ten years. Office furnishings are depreciated over a period of eight to ten years. Leasehold Improvements are depreciated up to 40 years.

 

Property, Plant and Equipment
kUSD
  Development of the cost   Development of accumulated depreciation   Balance 
             
Updated 03.31.2010   4,538    4,262    276 
Additions   164    120      
Disposals   292    226      
Currency differences   84    40      
Reclassifications   0    0      
Updated 03.31.2011   4,494    4,196    298 
Additions   4,302    3,018      
Disposals   58    72      
Currency differences   273    273      
Reclassifications   0    0      
Updated 03.31.2012   9,011    7,414    1,597 
Additions   228    124      
Disposals   208    208      
Currency differences   118    110      
Reclassifications   240    222      
Updated 06.30.2012   8,909    7,218    1,691 

  

Note 11             LONG TERM FINANCIAL ASSETS

 

The major components of the Financial Assets include the following:

 

   KUSD   KUSD 
   6/30/2012   3/31/2012 
Receivable from sale of GEDYS IntraWare GmbH          
Balance outstanding, payable in monthly installments of $ 20,006, bearing interest at prime plus .25%, not be greater than 2% per annum   780    777 
Current portion, included in other current receivables   240    233 
    540    544 
Intercompany Loan Values during the quarter   393    1,449 
other long term receivables   6    5 
Balance   939    1,998 

 

22
 

 

Note 12             GOODWILL

 

Goodwill arises from the following business acquisitions:

 

Affiliated Company  Date of the First Consolidation  Goodwill YE 2012 in kUSD   Goodwill Q1 2012/2013 in kUSD 
GROUP Business Software AG  01/06/11   20,813.0    18,492.2 
GROUP Business Software Corp.  12.31.05   2,177.5    2,177.5 
GROUP LIVE N.V.  12.31.05   0.0    0.0 
GROUP Business Software Ltd  12.31.05   2,765.1    2,765.1 
ebVOKUS Software GmbH  10/01/05   443.6    443.6 
Relavis Corporation  08/01/07   0.0    0.0 
Permessa  09.22.10   2,387.4    2,387.4 
Pavone AG  04/01/11   4,956.4    4,956.4 
Groupware Inc.  06/01/11   994.1    994.1 
IDC  07.25.11   2,994.4    2,994.4 
SD Holding  09.27.11   2,213.1      
       39,744.7    35,210.7 

 

During the period ended June 30, 2012, the Company sold SD Holdings, Ltd and reduced the goodwill associated with this subsidiary. A reduction in goodwill was also necessary for GROUP Business Software AG. To stay with the same level of ownership, the Company bought out of the debt to equity swap of Group Business Software AG in additional shares. This had the effect of negative Goodwill.

 

Note 13             SOFTWARE

 

Development costs

 

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

 

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

 

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

 

23
 

 

Concessions, Industrial Property Rights, Licenses

 

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

 

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

 

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

 

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

 

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

 

Concessions and licenses
kUSD
  Development of the cost   Development of accumulated depreciation   Balance 
             
Updated 03.31.2010   34,143    21,114    13,029 
Additions   7,862    3,916      
Disposals   1,656    1,021      
Currency differences   -9    -185      
Reclassifications   0    0      
Updated 03.31.2011   40,339    23,824    16,515 
Additions   3,524    8,650      
Disposals   3,945    3,588      
Currency differences   -929    -1,272      
Reclassifications   2,665    0      
Updated 03.31.2012   41,653    27,614    14,039 
Additions   1,088    1,070      
Disposals   25    5      
Currency differences   895    736      
Reclassifications   0    0      
Updated 06.30.2012   43,612    29,416    14,196 

 

24
 

 

Note 14             OTHER ASSETS

 

Re-insurance claims of 96 KUSD from life insurance (reinsurance of pension obligations) were recognized as actuarial reserves. Corresponding communications by the insurance companies form the basis for the valuation. Earnings from interest on the financial assets were recognized according to the cost of liabilities from pension obligations presented in the pension plan costs (March 31, 2012 year end: 246 KUSD).

 

Note 15             LIABILITIES TO BANKS - CURRENT

 

Short term liabilities to bank represent an operating line of credit, bearing interest at a 3.25% daily periodic rate with a credit limit of 100 KUSD (March 31, 2012 year end: 20 KUSD).

 

Note 16             ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Trade payables

 

As of the financial statement date, trade accounts payable amounted to 2,885 KUSD (March 31, 2012 year end: 2,235 KUSD). Trade payables are carried at their repayment amount and all have a residual term of up to one year.

 

Other Accrual

 

Other provisions are created in the amount necessary as of the financial statement date which is necessary, according to a reasonable commercial appraisal, in order to cover future payment obligations, perceivable risks as well as uncertain liabilities of the Company. The amounts deemed to be most likely in a careful assessment of the situation are accrued.

 

KUSD  Status               Currency   Status 
   03.31.12   Utilization   Dissolution   Increase   Differences   06.30.12 
                               
Tax provision   2    2    0    0    0    0 
Salary   942    572    24    236    16    597 
Vacation   439    -55    30    79    12    555 
Workers Compensation Insurance Association   27    -1    0    4    1    33 
Compensation Levy for Non-Employment of Severely Handicapped Persons   17    16    0    5    0    6 
Outstanding Invoices   1,000    691    60    593    22    864 
Annual Financial Statement Costs   310    147    0    64    3    229 
Other Provisions   818    654    0    57    6    227 
Warranties   60    0    0    0    2    61 
Provision for Legal Costs   71    0    0    0    2    73 
Total   3,685    2,026    114    1,039    64    2,648 

 

25
 

 

Provisions for salaries (597 KUSD; March 31, 2012 year end: 942 KUSD) include the provisions created for the variable salaries of the sales staff for the sales objectives reached in this business year.

 

Vacation provisions (555 KUSD; March 31, 2012 year end: 439 KUSD) include the obligations of GROUP’s companies to their employees for remaining vacation claims from the reporting period. The amount of the provision is based on the gross salary of the individual employee plus the employer contribution to social security and the unused vacation days as of the financial statement date.

 

For liabilities not yet settled, a provision totaling 864 KUSD (March 31, 2012 year end: 1,000 KUSD) was created.

 

Other Provisions of 227 KUSD (March 31, 2012 year end: 818 KUSD) included accruals for Board of Director compensation (32 KUSD).

 

Expenses for preparing the annual financial statements and the consolidated financial statements, for the auditing of the Company and consolidated financial statements were recognized at 229 KUSD (March 31, 2012 year end: 310 KUSD).

 

A provision for anticipated legal consulting was 73 KUSD was recorded (March 31, 2012 year end: 71 KUSD).

 

For warranty claims, a provision of 61 KUSD (March 31, 2012 year end: 60 KUSD) was created depending on income from services.

 

Note 17             OTHER SHORT TERM LIABILITIES

 

Other short-term liabilities are comprised of the following (March 31, 2012 year end 4,237 KUSD):

  

Other Short-Term Liabilities 06.30.12   3.31.12
  KUSD   KUSD
Purchase Assets L911 1,100   1,094
Purchase Assets Fastworks 0   0
Purchase Assets Permessa 750   1,900
Purchase Assets Salesplace 0   0
Tax Liabilities 847   724
Purchase Archiving Software 333   324
Other Liabilities 126   196
  3,157   4,237

 

Note 18             DEFERRED INCOME

 

Accruals for future periods leading to realization of sales after the financial statement date are reported under deferred income. The deferred income items listed as of the financial statement date in the amount of 10,498 KUSD (March 31, 2012 year end: 6,421 KUSD) mainly include maintenance income collected in advance for the period after the end of the fiscal year which primarily accumulated in the parent company. They are amortized on a straight-line basis over the respective contract terms.

 

26
 

 

Note 19            LIABILITIES TO BANKS – LONG TERM

 

Liabilities to banks as of the financial statement date was 3,887 KUSD (March 31, 2012 year end: previous year: 3,463 KUSD) represent bank obligations of GROUP AG with Baden-Württembergische Bank with a credit line totaling 4,000 KUSD (3,000 KEUR) and are collateralized by a silent blanket agreement for GROUP AG’s trade receivables. The term of the loan runs until June 30, 2014. The Company has curtailed the risk of changing interest rates existing with regard to liabilities to banks due to variable interest rate agreements by obtaining a fixed interest rate for half of its credit line. Accordingly, 2,000 KUSD (1,500 KEUR) is bearing interest at prime plus 1.5% and 2,000 KUSD (1,500 KEUR) is fixed at 3.5%

 

Note 20            OTHER LIABILITIES – LONG TERM

 

Other long-term liabilities include long-term capital leases at were 117 KUSD as of the financial statement date (March 31, 2012 year end: 2,906 KUSD).

  

Note 21            COMMON STOCK

 

Common stock belongs to the legally purchasing company according to the principles of a Reverse Acquisition and therefore, the common stock is that of GBS Enterprises Incorporated. The Company has authorized capital of 75,000,000 common shares and 25,000,000 preferred shares each with a par value of $001. No preferred shares have been issued. As at June 30, 2012, there were 28,907,496 shares of common stock issued. At the time of the Reverse Acquisition, there were 16,500,000 shares of common stock outstanding and, as the Reverse Acquisition was accounted for as a recapitalization applied retroactively, this balance is recorded as the balance outstanding since inception.

 

In April, 2011, the Company completed a private placement offering whereby it raised $7,555,000 gross proceeds through the sale of 6,044,000 units at $1.25 per unit. Each unit represented one share of common stock and one warrant. The warrant allows the holder to purchase one share of common stock of the Company from the date of the grant until the third anniversary of the date of the grant for a purchase price of $1.50 per share. The net proceeds of this offering were $6,839,327.25.

 

27
 

 

During the period ending June 30 2012, 30,000 warrants were exercised for gross proceeds of $44,485.

 

Other changes in common stock are disclosed in Note 29, Supplementary Cash Flow Disclosures.

 

Warrants and Options

 

The Company has issued warrants to outside consultants in payments for services provided as detailed in the following schedule. The warrants are issued as “cashless” warrants and all have a three-year term with the exception of the Ventana Capital Partners’ warrant which has a 30 month term. Each warrant is exercisable into one share of common stock. The warrants have been valued using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below. The valuation of the warrants issued in the year ending March 31, 2011 is for disclosure purposes only as the charge is related to the cost of issuing the shares and there is no impact to the financial statements. The warrants issued on April 1, 2011, whose value was determined to be $34,000, was included as compensation expense and credited to additional paid in capital in fiscal 2012. There are no stock options issued by the Company to employees or other parties.

 

Black Scholes assumptions for warrants issued were as follows:

 

For the period ending June 30, 2012 -

 

Volatility - 77.1%

 

Risk free interest rate - 1.19%

 

Expected life - 3 years

 

Dividend rate - Nil

 

Summary of Warrants Issued:                   
Outside Consultants  Grant Size   Strike Price   Val. Date  Stock Value at Val. Date   Warrant Value at Val. Date 
Ventana Capital Partners   2,000,000   $4.00   10/1/2010  $0.03   $0.00 
Frank J. Rena   117,880   $1.50   3/14/2011  $0.91   $0.34 
Garwood Securities, LLC   117,880   $1.50   3/14/2011  $0.91   $0.34 
Jackson E. Spears   421,520   $1.50   3/14/2011  $0.91   $0.34 
William Gregozeski   50,000   $1.50   3/14/2011  $0.91   $0.34 
Frank J. Rena   3,000   $1.50   3/14/2011  $0.91   $0.34 
Garwood Securities, LLC   2,400   $1.50   3/14/2011  $0.91   $0.34 
Jackson E. Spears   9,600   $1.50   3/14/2011  $0.91   $0.34 
Ronald J. Everett   100,000   $1.50   4/1/2011  $0.91   $0.34 

 

28
 

 

Common Stock Warrants  Common   Valuation  Fair Value Per   Warrants 
Issued to Outside Consultants  Shares   Date  Warrant   Fair Value 
                
Common Stock Warrants issued on October 1, 2010   2,000,000   10/1/2010  $0.00   $0 
                   
Common Stock Warrants issued on March 14, 2011   707,280   3/14/2011  $0.34   $240,475 
                   
Common Stock Warrants Granted on March 24, 2011   15,000   3/24/2011  $0.34   $5,100 
                   
Common Stock Warrants Granted on April 1, 2011   100,000   4/1/2011  $0.34   $34,000 
                   
    Total Warrants' Fair Value               $279,575 

 

None of these warrants have been exercised.

 

As noted above, through a private placement, the Company issued 6,044,000 warrants which allowed the holder to purchase one share of common stock of the Company from the date of the grant until the third anniversary of the date of the grant for a purchase price of $1.50 per share. During the year 2,925,000 warrants were exercised, leaving a balance of 3,199,000 that expire in March, 2014. A recap of the warrants outstanding as at June 30, 2012 is as follows:

 

Number of        
Warrants   Exercise price   Expiration date
 2,000,000   $4.00   6/1/2013
 707,280   $1.50   3/14/2014
 15,000   $1.50   3/24/2014
 3,199,000   $1.50   3/31/2014
 100,000   $1.50   4/1/2014

 

The weighted average exercise price at March 31, 2012 was $2.32

 

The weighted average exercise price at June 30, 2012 was $

 

29
 

 

Note 22          REVENUE ALLOCATION

 

Gross revenue may be broken down by the following products for the three months ended June 30, 2012, June 30,2011 and the twelve months ended March 31, 2012 are as follows:

 

Sales Revenues 06.30.12   06.30.11   3.31.12
  KUSD   KUSD   KUSD
           
Licenses 1,189   1,092   5,327
Maintenance 2,654   2,655   11,851
Service 2,715   1,225   8,675
Third-Party Products 639   397   2,302
LND Third-Party Products 1,089   285   3,607
Others 22   23   181
           
  8,309   5,676   31,944

 

Revenues by geographic area for the three months ended June 30, 2012, June 30, 2011 and the twelve months ended March 31, 2012 are as follows:`

 

Sales Revenues 06.30.12   06.30.11   3.31.12
by geographic area KUSD   KUSD   KUSD
           
US 3,054   1,942   9,359
Germany 5,026   3,454   20,624
United Kingdom 229   280   1,110
Others 0   0   849
           
  8,309   5,676   31,944

 

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

 

Long-lived assets 06.30.12   06.30.11   3.31.12
by geographic area KUSD   KUSD   KUSD
           
           
US 1,407   103   1,284
Germany 280   241   292
United Kingdom 4   3   3
Others 0   0   19
           
  1,691   347   1,597

 

30
 

 

Note 23          OTHER INCOME/EXPENSE

 

Other income of 77 KUSD (March 31, 2012 year end: -647 KUSD) includes investments of associate companies of 11 KUSD and Other miscellaneous income.

 

Note 24           SUPPLEMENTAL CASH FLOW DISCLOSURES

 

The significant non-cash transactions for the period ending June 30, 2012 and year ended March 31, 2011 and March 31, 2012 were as follows:

 

a.On April 1, 2011, the Company acquired Pavone AG, for 350 KUSD, assumption of $583,991 debt and 1,000,000 shares of its common stock.
b.On June 1, 2011, the Company acquired GroupWare, Inc., for 250 KUSD, assumption of $694,617 debt and 250,000 shares of its common stock.
c.On July 25, 2011, the Company acquired IDC Global, Inc. for 750 KUSD, $ 883,005 assumption of debt, 25 (KUSD) reimbursement for accounting and legal fees, 35 KUSD signing bonuses and 880,000 shares of common stock.
d.On September 27, 2011, the Company acquired SD Holdings Ltd for $525,529 and issued 612,874 shares of Common Stock.
e.On February 27, 2012, an outstanding debt of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, increasing GROUP’s total outstanding common stock to 26,982,000 shares. As a result of the foregoing increase in the number of total outstanding shares of GROUP common stock, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP, by purchasing the 883,765 shares of GROUP common stock from GAVF LLC for an average purchase price of $0.70 per share.

 

Note          25 SUBSEQUENT EVENTS

 

The Company adheres to the 93 day rule with respect to its subsidiaries that have a year end of December 31.

 

The following events happened after March 31, 2012 but before June 30, 2012:

 

None

 

The following events happened after June 30, 2012:

 

Effective July 6, 2012 a merger was completed between Pavone Ag and Pavone GmbH.

 

Effective August 9, 2012 a merger was completed between Groupware AG and Pavone GmbH.

  

31
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Note Regarding Forward-Looking Statements

 

The following discussion and analysis should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in Quarterly Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Notice Regarding Forward-Looking Statements” and “Description of Business” sections in the Company’s 10-K for the fiscal year ended March 31, 2012. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” “predict,” and similar expressions to identify forward-looking statements. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this prospectus, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.

 

OVERVIEW

 

GBS Enterprises Incorporated, a Nevada corporation (the “Company,” “GBS,” “GBSX,” “we,” “us,” “our” or similar expressions), conducts its primary business through its 50.1% owned subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW. GROUP’s software and consulting business is focused on serving IBM’s Lotus Notes and Domino market. GROUP caters primarily to mid-market and enterprise-size organizations with over 3,500 customers in thirty-eight countries spanning four continents, representing more than 5,000,000 active users of its products. GROUP’s customers include Abbot, Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota. GROUP provides IBM Lotus Notes/Domino Application and Transformation technology, and related Cloud Computing technology. Headquartered in Eisenach, Germany the Company has offices throughout Europe and North America. The Company maintains a website at www.gbsx.us. GROUP maintains a website at www.gbs.com. The information contained in the Company’s and GROUP’s websites is not incorporated by reference herein.

 

The Company’s Common Stock is quoted on the OTC Bulletin Board under the ticker symbol, “GBSX.”

 

Products and Services

 

GBS has achieved significant growth by consolidating the fragmented Lotus Software market through the merger & acquisitions of companies with complementary product, technology or services offerings. Based on its organic growth and growth by acquisition GBS has continuously developed its software and service business to service and support GBS’s expanding Lotus customer base.

 

Historically, GROUP has achieved growth through acquisition by targeting attractive, yet underperforming companies with complimentary operations and leveraging GROUP’s expertise to successfully turnaround and integrate these targets.

Key success factors for this strategy are: enhanced portfolio, positioning GROUP as the ‘one-stop-shop’ for Lotus applications and services, expand customer support, fast code migration, and cloud enablement/XPages conversion of acquired applications.

Going forward, the Company will focus on potential acquisition targets in the following areas of software and services: Applications, Professional Services, Hosting/Outsourcing Services, Administration and IT services, and XPages expertise.

 

Messaging and Business Applications Software & Solutions

 

GBS Messaging and Business Application Software & Solutions product lines include software and advisory services for email and Instant Messaging (IM) Management, Security, Compliance, Archiving and Productivity, CRM Applications, Governance, Risk & Compliance (GRC) Management software, Workflow and Business Process Management software, ePDF Archiving & Document Management and e-Banking solutions.

 

GBS develops, sells and installs well known business process and management software suites based on Lotus Notes / Domino and IBM Portal technology, mainly for major international companies and medium-sized customers.

 

Through GBS’s comprehensive messaging software product lines and associated services, Lotus Notes, Microsoft Exchange or SMTP-based-email customers, as well as Lotus Sametime customers are able to provide their users with secure, efficient and centrally administered use of e-mail and IM while maintaining control over their compliance with current legal requirements and corporate guidelines.

 

32
 

 

Consulting Services

 

As a leader in the IBM Lotus Notes Software and Services business GBS provides consulting services to its customers. GBS develops, sells and orchestrates customer-specific Lotus Domino strategy and consulting services, such as CIO and IT department leader Strategic Advisory Services, Managed Services, Outsourcing, Administration, Assessments and Implementations, Performance Improvements, Custom Application Development, Governance and Security, Technical Support, and Training, as well as Email Migration Services.

 

Based on GBS’s unique concentration of industry talent and expertise, mainly in the areas inside and around IBM Lotus Notes/Domino, inside and around corporate messaging (IBM, Microsoft, SMTP) and inside and around IT environmental and application assessment, analysis and reporting, commercial and governmental customers, as well as SIs and channel partners are able to relay on the industry leading strategic and tactical advisory services for evaluating, planning, staffing and execution of any customer project. GBS Consulting Services’ global teams of consultants use modern project management techniques, proprietary methodologies and GBS accelerator technologies to complete client projects on time and with reduced risk.

 

We believe that our focus on recruiting and retaining top Lotus expertise, positions our team to offer leading-edge Lotus Notes / Domino subject matter knowledge to our customers. GBS consultants have an average of over 12 years’ experience each in Lotus Notes/Domino and its related products and are routinely asked to present at IBM Lotus events including Lotusphere, an annual conference hosted by IBM Lotus Software.

 

As a Premier IBM Business Partner - GBS is one of the few partners that can sell and support licenses for all five IBM software brands: Lotus, WebSphere, Rational, Tivoli, and DB2.

 

Cloud Computing

 

As IT departments face continuous budget reductions and constant pressure for higher performance and efficiency, CIOs are focusing on modern technologies to support their need for increased scalability, flexibility and lower costs. GBS has identified this demand as a strategic growth opportunity for the company and has placed a significant focus on expanding its Cloud Computing and Modernizing/Migrating technology offerings. The strategic opportunities are served by GBS with two distinct offerings:

 

   1) GROUP Live - Cloud Automation Platform / Cloud Platform-as-a-Service (PaaS) software and services. and

   2) Transformer - Lotus Notes modernization/migration services and technology accelerators

 

GBS Cloud Computing activities are focused on cloud automation solutions and therefore the Company has made key acquisitions and R&D investments to create an award winning Cloud Platform-as-a-Service offering. Under the GROUP Live banner, the GBS PaaS offering has been sold to a variety of enterprise customers, which use the PaaS software to host internal corporate clouds (Private cloud) and applications as-a-service to their various internal user groups. GROUP Live has also be sold and implemented by a number of Independent Software Vendors (ISVs), which are leveraging the platform to deliver their own Software-as-a-Service (SaaS) applications to their respective customer bases.

 

Both of these customer groups enjoy the comprehensive nature of this platform agnostic PaaS solution and its exceptional change management capabilities enabling resource flexibility, business agility, scalability and ease-of-use beyond that which is generally available in the market today.

 

GBS Lotus Application Modernization and Migration

 

GBS Lotus Application Modernization and Migration activities are focused on the IBM Lotus / Domino applications market and the offering spans from expert services and accelerator technologies to modernize, web enable and migrate Lotus applications; and thus ultimately take the Lotus applications from legacy to the future. The foundation of the Transformer Suite Software offering is GBS’s significant R&D investment in a set of methodologies and key technology accelerators to automate the conversion of traditional Notes based client-server applications, into the IBM XPages framework which enables Domino applications to be run and accessed via the Lotus client, a web browser or on a mobile device. The patent-pending software that underpins Transformer was developed by GBS with the assistance and guidance from IBM Corporation’s Software Group to ensure alignment with future releases of the IBM Lotus / Domino and XPages technology.

 

Revenue Model

 

GBS generates its revenue from the sale of software developed by us and third-parties and delivery of related services, including IT systems planning, administration, support, hosting, implementation and integration.

 

33
 

 

Strategy and Focus Areas

 

While our products and services remain in demand, we see a significant opportunity to achieve growth and secure our future with additional investments in our strategic portfolio. Based on current market demands for modern, Cloud-based and mobile-device capable business applications, we have acquired and developed a set of very unique technologies that help organizations to reduce the time, cost, resources and risks associated with modernizing or migrating their existing applications.

 

We generate revenue with our cloud automation platform from subscription and usage fees and related services, including support and strategic consulting services. The subscription period is typically based on a yearly or multi-year contract with our customers. Additionally, we generate revenue from consulting around utilizing our cloud platform services.

 

Another pillar of our strategic portfolio is a suite of tools and methodologies we have developed to rapidly convert Lotus Notes applications into web and mobile applications through automated conversion processes. This portfolio includes a set of powerful analysis tools known as Insights that identify all of the Lotus Notes applications within an organization and provide metrics about the uses and users of those applications. Because of the nature of Lotus Notes and Domino, the applications within a customer environment tend to be highly distributed and number in the thousands. For many organizations, this fact alone makes it extremely difficult to plan for projects that involve modernizing these applications for use in a browser and on mobile devices or migrating them to another platform. Our technologies help them to dramatic reduce the cost, risk, time and resources associated with these highly complex projects.

 

We generate revenue with our analysis tools by charging a fee for the use of our technology and for the associated cost of the services to produce a report and set of recommendations for the customer. Additional revenues come from consulting services that result from helping our customers to implement those recommendations. For use of our conversion tools, referred to as Transformer, we charge a flat fee for the conversion and additional hourly rates to perform additional supporting development or testing as needed.

 

We also believe there is significant revenue opportunity in licensing these tools to a network of global partners who also have existing presence and expertise in the Lotus Notes and Domino market. We have established partner agreements for the use of the analysis and conversion tools with partners in Australia, Brazil and directly with IBM through its IBM Software Services for Collaboration (“ISSC”) global service unit.

 

General Corporate History

 

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

 

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

 

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

 

About Lotus Holdings, Ltd.

 

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

 

SPPEFs

 

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

 

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

 

34
 

 

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

 

Transactions following the April 26, 2010 Acquisition

 

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

 

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

 

Reverse Merger

 

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

 

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

 

Additional Acquisitions

 

On February 27, 2012, the Company acquired an additional 883,765 shares of common stock of GROUP to maintain its 50.1% ownership of GROUP. On February 27, 2012, an outstanding loan of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, thereby increasing GROUP’s outstanding common stock to 26,982,000 shares. As a result of the foregoing increase in the number of outstanding shares of GROUP common stock, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP. The Company purchased the 883,765 shares of GROUP common stock from GAVF LLC for an average purchase price of $0.70 per share, or approximately $619,000.

 

Acquisitions of Subsidiary Companies

 

As previously reported, during the fiscal year ended March 31, 2012, the Company made four business acquisitions as described below:

 

Pavone AG

 

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

 

35
 

 

GroupWare, Inc.

 

Effective June 1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a Florida corporation (“GroupWare”). As consideration, the Company paid $250,000 and issued 250,000 shares of its common stock. The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the acquisition. The total value of the investment, including the assumption of $694,617, in debt was $2,029,617. Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director, was appointed as the Chief Executive Officer and sole director of GroupWare. GroupWare is based in Lubeck, Germany with offices in St. Petersburg, Florida. GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. The Company believes that the acquisition strengthens the GBS Transformer offering (as discussed below), which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser. In addition, GroupWare provides a solution for applications that are ready to be retired. With the ePDF Server, GBS customers can convert the entire contents of IBM Lotus Notes and Domino applications to a permanent and secure archive in PDF or PDF/A format, while preserving their ability to be full-text searched and ensuring that the critical application data is accessible in the future, when needed. GBS will deliver the application archiving capabilities via its GroupLive cloud, making it possible for customers and partners to take advantage of elastic cloud computing resources to rapidly process the application contents without the need to dedicate hardware on-site for temporary or intermittent processing jobs.

 

IDC Global, Inc.

 

On July 25, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of IDC Global, Inc., a Delaware corporation with offices in Chicago, New York, London and other key cities (“IDC”). Pursuant to the acquisition agreement, dated July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and make a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction. The fair value of the common stock was determined to be $3.50 per share, representing the market value at the end of trading on the date of the agreement. The total value of the investment, including $883,005 of debt assumption, was $4,066,000. IDC is a privately held company that provides nationwide network and data center services. IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC has data centers in Chicago, New York and London and other key cities. IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing. The Company believes that the acquisition of IDC provides it with the infrastructure needed to provide a comprehensive end-to-end solution for all customers regardless of their platform, and that it will prove to be especially beneficial to IBM Lotus Domino and Notes customers who finally have the same options as other platforms.

 

The assets and liabilities of the above companies represent their values as of March 31, 2012 and are included in these consolidated financial statements. This timing approach is allowed as per Regulation S-X Rule 3A-02.

 

SD Holdings, Ltd.

 

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

 

On April 1, 2012, the Company sold SYN, Synaptris and Synaptris India for $1,877,232 in a restructuring of its subsidiaries to simplify the multilevel structure derived from the historical mergers and acquisitions, and to reduce overhead and administrative costs.

 

On June 5, 2012, a newly incorporated entity, GBS India Private Limited (“GBS India”) was formed in India under the Indian Companies Act 1956 and is wholly-owned by the Company. GBS India’s presence in India is anticipated to accelerate our plan to expand our product development team particularly for our strategic offerings in India.

 

Pursuant to an existing transfer agreement, effective July, 1, 2012, the Company entered into a purchase agreement with SYN for $1,877,232, which transferred all assets, including intellectual property rights, and liabilities of the IntelliPRINT and FewClix product lines, customer contracts and certain employees for operations into GBS India.

 

36
 

 

In addition, a royalty fee in the amount of approximately $350,000 has been agreed upon for the benefit the Company. Additionally a profit based fee of up to $700,000 may be earned based on license and revenue recognized from the sold IntelliVIEW and IntelliVIEW NXT products.

 

SD Holdings, Ltd has a year end of March 31, 2012 and as such was included in the Company’s consolidated financial statements as of March 31, 2012. No valuations for this entity are included in this quarterly filing pursuant to the sales transaction on April 1, 2012.

 

Overview of Cloud Computing Technology and Industry Trends

 

Cloud computing is a general term for anything that involves delivering hosted services over the Internet. These services are broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).

 

IaaS providers have massive data centers that can handle the data run over the cloud, the largest of which is Amazon.com. IBM also participates in this business and hosts GROUP Live. PaaS providers offer the actual cloud platform that runs on the IaaS data centers and can deploy the applications (SaaS products). Some of the leading PaaS providers include Amazon Web Services, Microsoft Azure Services Platform, Google App Engine, and Rackspace Cloud, along with GBS’s CAP and GROUP Live products. SaaS delivers applications on the cloud, which simplify product licensing and maintenance. The SaaS market was first filled by a number of CRM (Customer Relationship Management), ERP (Enterprise Risk Management) and email applications but has spread into nearly all other types of software. Leading providers in this space include Salesforce.com, Google and Zoho as well as IBM’s Lotus Live suite.

 

Over the past five years, there has been a migration from on-premise hardware and software to cloud computing which allows companies to increase efficiency and reduce cost by paying for software and hardware use on a subscription basis. In this model, IT managers are able to rent server capacity on an as-needed basis from a third party, instead of managing a data center on-premise, and purchasing up-to-date licenses for software based on real-time, instead of purchasing bundles of licenses or software and upgrading when updates are released.

 

Competition

 

The competitive landscape in the enterprise data center market is intense and changing, and we expect there will be a new class of very large, well-financed, and aggressive competitors, each bringing its own new class of products to address this new market. We also expect to see acquisitions, further industry consolidation, and new alliances among companies as they seek to serve the enterprise data center market.

 

The Company is focused on developing a portfolio of Cloud Computing software technologies and Application Services to address the needs of ISV’s, Data Center providers, as well as commercial and government organizations. GBSX is pursuing a growth strategy based upon highly targeted mergers and acquisitions so as to build its portfolio of technologies, applications, and services.

 

Results of Operations

 

 Assets:

 

Total Assets decreased from $70,449,961 at March 31, 2012 to $68,151,154 at June 30, 2012. Total Assets consists of Total Current Assets and Total Non-Current Assets.

 

At June 30, 2012, our Total Current Assets were $11,165,632 as compared to $8,634,975 at March 31, 2012. Total Current Assets consist of: Cash and Cash Equivalents; Accounts Receivable; Inventories; Prepaid Expenses; Other Receivables and Assets held for Sale.

 

nCash and Cash Equivalents decreased from $1,502,977 at March 31, 2012 to $1,357,487 at June 30, 2012 as a result of our investments in the strategic technology areas such as application migration and modernization, cloud technology and the associated costs necessary to build and implement the go to market strategy.

 

nAccounts Receivable increased from $4,936,887 at March 31, 2012 to $8,228,657 at June 30, 2012 which includes a $1,877,232 receivable from the sale of SD Holdings, Ltd., as well as increased accounts receivables resulting from ordinary sales processes of approximately $1,500,000 in other subsidiaries.

 

nInventories decreased from $236,712 at March 31, 2012 to $121,880 at June 30, 2012 primarily from the sale of finished goods within Groupware AG.

 

nPrepaid Expenses increased from $459,363 at March 31, 2012 to $541,813 at June 30, 2012.

 

37
 

 

nOther Receivables decreased from $1,474,929 at March 31, 2012 to $915,795 at June 30, 2012. The decrease was primarily due to the collection of a previous warrant payment in escrow ($250,000) and a decrease in a receivable ( approximately $405,000) which was included in the sale of SD Holdings, Ltd. An increase in tax assets (approximately $163,000) and a receivable from a previous sale of a business unit (approximately $7000) as well as a decrease in deposits account and other (approximately $74,000) account for the remainder of the change in balance.

  

nAssets held for Sale decreased from $24,107 at March 31, 2012 to $0 at June 30, 2012 from the sale of Group Technologies GmbH for $49,256 on March 8, 2012.

 

At June 30, 2012, our Total Non-Current Assets were $56,985,522 as compared to $61,814,986 at March 31, 2012. Total Non-Current Assets consist of: Property (plant and equipment), Financial Assets, Investments in Related Company, Deferred Tax Assets, Goodwill, Software and Other Assets.

 

nNet Property (plant and equipment) increased from $1,597,326 at March 31, 2012 to $1,690,843 at June 30, 2012 due primarily to additional assets purchased within IDC Global, Inc. ( approximately $139,000), the sale of SD Holdings fixed assets (approximately $18,000) with the remainder being current depreciation charges.

 

nFinancial Assets decreased from $1,998,194 at March 31, 2012 to $938,243 at June 30, 2012, which includes a decrease in intercompany loans of approximately $1,050,000.

 

nInvestments in Related Company increased from $244,219 at March 31, 2012 to $265,438 at June 30, 2012.

 

nDeferred Tax Assets increased from $3,945,272 at March 31, 2012 to $4,588,618 at June 30, 2012 and consisted of Deferred Tax Assets derived from Financial Assets and Losses carried forward.

 

nGoodwill decreased from $39,744,686 at March 31, 2012 to $35,210,705 at June 30, 2012 and consisted of the goodwill associated with eight business entities. The decrease during the quarter resulted from the sale of SD Holdings with goodwill of $2,213,100. There was a reduction of $2,320,844 for negative goodwill described more completely in Note 12

 

nSoftware increased from $14,039,149 at March 31, 2012 to $14,195,605 at June 30, 2012, 2012 as a result of the quarterly calculation of capitalized development costs, product rights and license for our expert business software, legacy business software and strategic business software all in the developmental or improvement stage.

 

nOther Assets decreased from $246,140 at March 31, 2012 to $96,070 at June 30, 2012. This decrease was due to tax credits and other deposits divested with the sale of SD Holdings, Ltd.

 

Liabilities:

 

Total Liabilities decreased from $26,871,761 at March 31, 2012 to $25,198,457 at June 30, 2012. Total Liabilities consists of Total Current Liabilities and Total Non-Current Liabilities.

 

At June 30, 2012, our Total Current Liabilities were $19,869,247 compared to $19,154,936 at March 31, 2012. Total Current Liabilities consist of Notes Payable, Liabilities to Banks, Accounts Payable and Accrued Liabilities, Deferred Income, Other Liabilities and Amounts Due to Related Parties.

 

nNotes Payable decreased from $1,381,821 at March 31, 2012 to $0 at June 30, 2012. $1,286 was converted into shares of GROUP AG with the balance being repaid in cash.

 

nLiabilities to Banks decreased from $19,651 at March 31, 2012 to $11,270 at June 30, 2012 on payments of a line of credit by a subsidiary.

 

nAccounts Payable and Accrued Liabilities decreased from $5,919,788 at March 31, 2012 to $5,533,048 at June 30, 2012. This includes trades payables, tax accruals and other accruals.

 

38
 

 

nDeferred Income increased from $6,421,502 at March 31, 2011 to $10,598,489 at June 30, 2012 encompassing maintenance income collected in advance after the close of the fiscal quarter. The increase relates to contracts for annual services which are billed to customers in the first quarter.

 

nOther Liabilities of $4,237,071 at March 31, 2012 decreased to $3,157,050 at June 30, 2012 primarily as a result of a $1,150,000 payment made to the shareholders of Permessa. Corporation. Additional payments reclassified to currently due on prior purchases of software (approximately $16,000), tax liabilities and other receivables (approximately $54,000) were increases within this account.

 

nAmounts Due to Related Parties decreased from $1,175,103 at March 31, 2012 to $569,391 at June 30, 2012 as explained in detail in Note 25 to the Consolidated Financial Statements.

 

At June 30, 2012, our Total Non-Current Liabilities were $5,329,210, compared to $7,716,825 at March 31, 2012. Total Non-Current Liabilities consist of Liabilities to Banks, Deferred Tax Liabilities, Retirement Benefit Obligation, and Other Liabilities.

 

nLiabilities to Banks increased from $3,463,483 at March 31, 2012 to $3,886,791 at June 30, 2012 and consisted of a long-term business line of credit due to the Baden-Württembergische Bank. The increase in notes payable is due to the funding of expenditures consistent with the advancement of our technology and overall business plan.

 

nDeferred Tax Liabilities decreased from $1,196,472 at March 31, 2012 to $1,169,549 at June 30, 2012 resulting from the deferred taxes associated with the capitalization of software expenses, the purchase price allocation of acquired assets, and the temporary adjustment of depreciation.

 

nRetirement Benefit Obligation increased from $150,632 at March 31, 2012 to $155,157 at June 30, 2012.

 

nOther Liabilities decreased from $2,906, 238 at March 31, 2012 to $117,713 at June 30, 2012 primarily as a result of the exercise of convertible debt to capital in GROUP AG shares ($2,266,075) and convertible debt to capital in Company shares ($632,500) and an increase in a capital lease (approximately $110,000).

 

Revenues

 

For the fiscal quarter ended June 30, 2012, our Net Sales increased to $8,308,651 from $5,676,430 for the fiscal quarter ended June 30, 2011. The Company generates nets sales from Licenses, Maintenance, Services, Third-Party Products and Others.

 

Product revenue increased from $1,796,151 to $2,939,070. An increase in Third Party Products primarily accounted for the increase (approximately $1,046,000) with an increase in revenue licenses also contributing (approximately $98,000).

 

The increase of Service revenue from $3,880,279 to $5,369,581 derived benefit from the service driven acquisitions of Pavone AG in April, 2011 (approximately $633,000) and IDC Global, Inc. in July, 2011 (approximately $1,357,000) with a decrease (approximately $501,000) from other subsidiaries.

 

Cost of Goods Sold

 

For the fiscal quarter ended June 30, 2012, our Cost of Goods Sold increased to $5,073,087 from $2,589,348 over the fiscal quarter ended June 30, 2011. Cost of Goods Sold consists of Cost for Services, Cost for Third-Party Products and Cost for Software Licenses.

 

Within Cost of Goods Sold was an increase of $1,811,612 for costs related to the products division of Revenue and an increase of $672,127 for the associated costs within the services division of Revenue. The increases were as follows in: salaried personnel (approximately $301,000), depreciation (approximately $165,000), rent (approximately $298,000), external services (approximately $95,000) and operating costs (approximately $391,000). These increases were primarily incurred with the addition of Pavone and IDC Global.

 

Operating Expenses

 

For the fiscal quarter ended June 30, 2012, our Operating Expenses increased to $5,890,200 from $5,365,634 over the fiscal quarter ended June 30, 2011. Operating Expenses consist of Selling Expenses, Administrative Expenses and General Expenses.

 

39
 

 

For the fiscal quarter ended June 30, 2012, our Selling Expenses increased to $4,455,119 from $3,663,474 for the fiscal quarter ended June 30, 2011. Selling Expenses consist of costs for the Sales, Marketing and Service units and has increased in relation to the additional companies acquired and in support of the overall increased sales generated. Build up and additional marketing expenses were incurred in anticipation of, and as part of, our go to market sales strategy for new technology. Approximately $861,000 of that increase resulted from new acquisitions of Pavone and IDC and the associated personnel, materials and sales operating costs offset with a reduction of approximately $69,000 in other subsidiaries.

 

For the fiscal quarter ended June 30, 2012, our Administrative Expenses decreased to $1,278,377 from $1,499,856 for the fiscal quarter ended June, 2011. Administrative Expenses consist of costs for the management and administration units. Most significant decreases included in these expenses accounting for approximately $211,000 include travel, external service and consultancy costs.

 

For the fiscal quarter ended June 30, 2012, our General Expenses decreased to $156,703 from $202,304 for the fiscal quarter ended June 30, 2011 in response to newly administered budgeting procedures and reduction in General personnel.

 

Other Income (Expense)

 

For the fiscal quarter ended June 30, 2012, Other Income of $30,781 was increased from Other Expense of $745,488 for fiscal quarter ended June 30, 2011. This includes income from investments of associate companies (approximately $11,000) and other income (approximately $65,000)

 

Income taxes (Expense)

 

As a result of the change in the majority ownership of GROUP Business Software in 2011 and based on the current legal situation, management has determined it is more likely than not that the tax losses carried forward for the fiscal year ended March 31, 2011 will not be available as a deduction to determine taxable income. Therefore, the deferred tax assets from the losses carried forward for GROUP Business Software AG in an amount of $3,691,000 were written off in the fiscal year ended March 31, 2011 and included in income tax expense.

 

For the quarter ended June 30, 2012 a statutory tax range from 23% to 34% has been applied resulting in an expected income tax recovery of $7,986,000. Reduced by price allocations from consolidation of $2,798,000, permanent differences of $1,061,000 and other items of $1,013,000 as detailed in Note 27. The total amount of income tax recovery has been $3,114,000.

 

Liquidity & Capital Resources

 

At June 30, 2012 we had $1,357,487 in cash and cash equivalents, compared to $1,502,977 at March 31, 2012.

 

In March 2011, the Company consummated a private placement offering of an aggregate of 6,044,000 Units at a purchase price of $1.25 per Unit, for gross proceeds of $7,555,000. Each Unit was comprised of one share of Common Stock and one three-year Warrant to purchase one share of Common Stock at an exercise price of $1.50 per share (“Private Placement Warrant”). The number of shares of Common Stock issuable upon the exercise of the Private Placement Investor Warrants and corresponding exercise prices are subject to adjustment in the event of a stock split, dividend, recapitalization, reclassification and otherwise. The Private Placement Warrants are only exercisable by the payment of cash. Pursuant to the terms of the Private Placement Warrants, the warrant holders are required to exercise their Private Placement Warrants in the event our Common Stock trades at an average of at least $3.00 per share for a period of not less than 20 consecutive trading days. Also, throughout the three year exercise period of the Private Placement Warrants, the Company has the right to redeem the Warrants for $0.05 per share.

 

In March 2012, we issued an aggregate of 2,020,000 warrants to five “accredited investors” pursuant to Section 4(2) of the Securities Act (the “Investor Warrants”). Each Investor Warrant is exercisable for the three-year period commencing from the date of issuance for $0.50 per share of Common Stock and has the same terms as the Private Placement Warrants.

 

On April 9, 2012, the Company filed a Registration Statement on Form S-1 (File No: 333-180626) (the “Registration Statement”) therein registering the 6,044,000 shares of Common Stock underlying the Private Placement Warrants and 2,020,000 underlying the Investor Warrants on behalf of the selling stockholders named in the Registration Statement (the “Selling Stockholders”). As of the date of this Form 10-Q, the Registration Statement has not been declared effective under the Securities Act by the SEC. The Company is in the process of amending the Registration Statement in response to the SEC’s most recent comments regarding the first amendment to the Registration Statement filed on July 19, 2012.

 

We will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. We will, however, receive proceeds in the event the Private Placement Warrants and Investor Warrants are exercised by the Selling Stockholders. As of the date of this Form 10-Q, the Selling Stockholders have exercised an aggregate of 2,025,000 Private Placement Warrants and 900,000 Investor Warrants, for gross proceeds of $3,487,500. If the outstanding 4,019,000 Private Placement Warrants and 1,120,000 Investor Warrants are exercised, we will receive an aggregate of $6,588,500 in additional gross proceeds. However, there can be no assurance that any additional warrants will be exercised. To date, we have used the proceeds of the warrants already exercised for general corporate working capital purposes. We intend to use the proceeds from the exercise of any additional warrants to increase marketing, advertising and Modernization Services, to form development teams and for general corporate working capital purposes. The Board of Directors of the Company has broad discretion as to the use of the net proceeds from any exercise of the warrants and may change the allocation of such proceeds without shareholder notice or consent.

 

40
 

 

On August 13, 2012, the Company entered into a Note Purchase and Security Agreement with John A. Moore, a member of the Board of Directors of the Company, and his spouse (collectively, the “Lender”) pursuant to which the Company sold a secured promissory note (the “Note”) to the Lender in the aggregate principal amount of $1,000,000 bearing interest at a rate of 20% per year and maturing on the first anniversary date of the issuance with a 2% prepayment penalty. To secure the obligations of the Company under the Note, the Company granted the Lender a first priority security interest in the accounts receivable of the Company and its subsidiaries located in the United States of America on a one-for-one (1:1) basis. See “Part II - Item 5. Other Information.” The Company intends to use the proceeds for working capital purposes.

 

Cash Flows

 

   Fiscal Quarter Ended   Fiscal Quarter Ended 
   June 30,   June 30, 
   2012   2011 
Net cash provided (used in) Operating Activities  $(2,983,110)  $1,963,624 
Net cash provided by (used in) Investing Activities  $3,393,214   $(3,382,104)
Net cash provided (used in) by Financing Activities  $(521,180))  $(1,121,012)
Effect of exchange rate changes on cash  $(34,414)  $814,568 
Net increase (decrease) in cash and cash equivalents during the period  $(145,490)  $(1,724,924)
Cash and cash equivalents, beginning of period  $1,502,977   $8,530,864 
           
Cash and cash equivalents, end of period  $1,357,487   $6,805,940 

 

Cash Flows

 

Net Cash used by operating activities for the three month period ending June 30, 2012 was approximately $3.0 million compared to net cash provided by operating activities for the three month period ending June 30, 2011 of approximately $2.0 million. This change is primarily due to the expenditures made by the Company for the development of the strategic areas of GBS. The cash provided by investing activities during the three month period ending June 30, 2012 was approximately $3.4 million, compared to cash used in investing activities in the comparative period ending June 30, 2011 of approximately $3.4. This increase was primarily from the sale of intangible assets of approximately $1.8 million and an increase in financial assets of approximately $1.1 million which resulted from a decrease of intercompany loans (and related exchange costs) during the three month period ending June 30, 2012. Net cash used in financing activities decreased from approximately $1.1 million for the three month period ended June 30, 2011 to approximately $0.5 million for the three month period ended June 30, 2012. The decrease was primarily due to a debt to equity swap in GROUP Business Software AG and approximately $1.5 million provided from additional shares and warrants.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  The areas where critical estimates were made that have significant importance to the financial statements are as follows:

 

     i.     Allowance for doubtful accounts. The company provides for potential bad debts on an account-by-account basis. Bad debts have not been significant and our allowance has been accurate. Non-trade receivables are also scrutinized and allowed for based on expected recovery. One significant item ($1,902,000) which was previously written off was re-evaluated and reinstated during fiscal 2011. The amount was subsequently paid.

 

     ii.     Allocation of the price paid when acquiring subsidiaries. When the Company acquires subsidiary companies an allocation of the purchase is required. The allocation is based on management’s analysis of the value of the net assets, and is based on estimated future cash flows that each component will produce. Such components might include software, customer lists and other intangible assets that are not readily determinable. The allocation has a significant impact on the future earnings of the Company as certain assets, customer lists for example, must be amortized and charged to operations over time, while other assets, notably goodwill, does not.

 

     iii.     Impairment testing on intangibles and goodwill. As noted in more detail below, these areas involve numerous estimates as to expected cash flows, expected rates of return and other factors that are difficult to determine and are often out of the Company’s direct control. Accordingly, the Company adopts a conservative approach.

 

41
 

 

     iv.     Valuation of deferred tax credits. The Company provides an allowance for tax recoveries arising from the application of losses carried forward. An allowance is provided where management has determined that it is less than likely that the loss will be applied and income taxes recovered.

 

Comprehensive Income (Loss)

 

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

 

Net Income per Common Share

 

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

 

Financial Instruments

 

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

 

Currency Risk

 

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

 

Fair Value Measurements

 

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

 

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

 

Cash and Cash Equivalents

 

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

 

Inventories

 

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

 

42
 

 

Intangible Assets

 

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

 

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

 

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

 

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

Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill and are reviewed once a year as to their recoverability in the form of an impairment test. If they are no longer recoverable, an unscheduled amortization expense entry is performed.

 

In addition, an impairment test, whereby the appraised fair value of the invested capital of the reporting segment, (as described in Note 14,) is compared with the carrying (book) value of its invested capital amount, including goodwill.

 

If the appraised value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. If the carrying amount of the reporting unit exceeds the appraised fair value, an impairment test based on use value is necessary in order to measure the amount of impairment loss, if any.

 

Use value is generally used in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The current plan prepared by the management serves as the basis for this policy. The planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are essentially determined based on the expected growth rates of the markets in question.

 

Property, Plant and Equipment

 

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

 

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

 

Impairment or Disposal of Long-Lived Assets

 

The Company evaluates the recoverability of its fixed assets and other assets in accordance with FASB Codification topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. No impairment has been recognized in the accounts.

 

Revenue Recognition

 

License Revenues

 

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

 

Software Maintenance Revenues

 

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

 

43
 

 

Professional Services Revenues

 

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

 

Foreign Currency Translation

 

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

 

Other Provisions

 

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

 

Deferred Taxes

 

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

 

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

 

Recent Accounting Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2012); early adoption is permitted. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its results of operations or financial position.

 

In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its results of operations or financial position.

 

Effective July 1, 2010, we adopted the update to the accounting standard regarding derivatives and hedging (Topic 815). This update clarifies how to determine whether embedded credit derivatives, including those interests held in collateralized debt obligations and synthetic collateralized debt obligations, should be bifurcated and accounted for separately. The adoption of this standard did not have a significant impact on our results of operations.

 

44
 

 

In December 2010, the FASB issued Accounting Standards Update ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805). The update requires public companies to disclose pro forma information for business combinations that occur in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company’s adoption of FASB ASU No. 2010-29 effective December 1, 2010 did not have an impact on the Company’s consolidated results of operations or financial position but did result in additional disclosures.

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.

 

Principles of Consolidation and Reverse Acquisition

 

As previously disclosed, the Company originally exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP (and retained its 50.1% shareholding by acquiring an additional 883,765 shares of GROUP on February 27, 2012). Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP became the accounting acquirer and was deemed to have retroactively adopted the capital structure of the Corporation. Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for all periods presented, and do not include the historical financial statements of the Company. All costs associated with the reverse merger transaction were expensed as incurred. Those expenses totaled approximately $300,000 and were included in professional fees in administrative expenses.

 

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

 

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

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

 

It should also be noted that the Company and GROUP have different year-end reporting dates. The Company’s fiscal year-end reporting date is March 31 and GROUP’s calendar year-end reporting date is December 31. The consolidation of these entities for financial reporting purposes has been performed without any adjustments for timing differences between these two reporting dates in accordance Regulation S-X Rule 3A-02.

 

The purpose of the acquisition was to allow GROUP easier access to American financial markets. Goodwill recognized of $9,324,000 was recorded upon consolidation and was calculated as the value of the consideration given less the value of the asset received. The resulting goodwill represents the benefit to be gained by gaining entry into American financial markets.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

None

 

Item 4. Controls and Procedures.

 

Evaluation of Controls and Procedures.

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

 

45
 

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Subsequent Events

 

As previously reported by the Company, Joerg Ott resigned as the Chief Executive Officer (principal executive officer) of the Company on July11, 2012, effective immediately. Mr. Ott will continue in his capacity as the Chairman of the Company’s Board of Directors and as the Chief Executive Officer of GROUP. On July 11, 2012, the Board of Directors of the Company appointed Gary D. MacDonald as the Managing Director of Worldwide Operations and Interim Chief Executive Officer (principal executive officer) of the Company, effective immediately. Mr. MacDonald has been serving as the Company’s Executive Vice President and Chief Corporate Development Officer since April 30, 2010, a member of the Board of Directors since December 2, 2011 and a member of the Board’s Audit Committee since March 1, 2012.

 

PART II-OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Company presently is not a party to, nor is management aware of, any pending, legal proceedings.

 

Item 1A. Risk Factors.

 

The disclosure required under this item is not required to be reported by small reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. (Removed and Reserved by the Securities and Exchange Commission).

 

Item 5. Other Information.

 

46
 

 

Item 6. Exhibits.

 

No.   Description
31.1(1)   Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer
     
31.2(1)   Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial and Accounting Officer
     
32.1(1)   Section 1350 Certification of Principal Executive Officer
     
32.2(1)   Section 1350 Certification of Principal Financial and Accounting Officer
     
101.INS (2)   XBRL Instance Document
     
101.SCH (2)   XBRL Taxonomy Extension Schema Document
     
101.CAL (2)   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB (2)   XBRL Taxonomy Extension Labels Linkbase Document
     
101.DEF (2)   XBRL Taxonomy Extension Definition Linkbase Document
     
101.PRE (2)   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Filed herewith.
(2) To be filed by amendment.

 

47
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  GBS ENTERPRISES INCORPORATED
     
Date: August 20, 2012 By: /s/ Gary D. MacDonald
  Gary D. MacDonald
  Interim Chief Executive Officer
  (Principal Executive Officer)
     
Date: August 20, 2012 By:  /s/ Markus R. Ernst
  Markus R. Ernst
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

48