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EX-31 - GMS Capital Corp.ex_31120110630.htm
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EX-31 - GMS Capital Corp.ex_31220110630.htm



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


(Mark One)

x

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


FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011


OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission file number: 000-53519

 

GMS CAPITAL CORP.

(Exact name of Registrant as specified in its charter)

 

Florida

 

7372

 

26-1094541

(State or jurisdiction of

Incorporation or organization)

 

(Primary Std. Industrial

Classification Code Number)

 

(IRS Employer

ID Number)

 

5925 Monkland Ave., Montreal, Quebec H4A 1G7 Canada

(Address of principal executive offices) (Zip Code)


Registrants telephone number, including area code: 514-287-0103

 

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

 

None

 

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

 

Common Stock, $0.001 par value per share

 

(Title of Class)

 

 

 

 

 

 

 


 

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

 

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨  No ¨

 

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

 

Large accelerated filer

o

 

Accelerated filer

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes xNo

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of August 17, 2011 there were 5,365,400 shares of the issuer's $.001 par value common stock issued and outstanding.

 

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

  

 

Page 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements:

1

 

 

 

 

Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010 

1

 

 

 

 

Statements of Operations and Comprehensive Income (Loss) for the Six and Three Months Ended June 30, 2011 and 2010 (unaudited)

2




 

Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (unaudited)

3

 

 

 

 

Notes to Financial Statements (unaudited)

4

 

 

 

Item 2.

Management Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

32

 

 

 

Item 4.

Control and Procedures

32

 

 

PART II - OTHER INFORMATION

32

 

 

 

Item 1.

Legal Proceedings

32

 

Item 1A

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults its Upon Senior Securities

33

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

33

 

 

 

Item 5

Other Information

33

 

 

 

Item 6.

Exhibits

33

 

 

 

Signatures

 

34

 

 

 

 



GMS CAPITAL CORP.

BALANCE SHEETS

JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31,2010







ASSETS



(IN US$)







June 30,

December 31,



2011

2010



(unaudited)


Current Assets:




  Cash and cash equivalents


 $9,160

 $4,086

  Accounts receivable, net


 2,703

 7,784





    Total Current Assets


 11,863

 11,870





  Fixed assets, net of depreciation


 328

 548





TOTAL ASSETS


 $12,191

 $12,418



   


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)





LIABILITIES




Current Liabilities:




  Advances - Shareholders


 $86,597

 $65,941

  Line of credit


 11,914

 3,712

  Due to related companies


 4,505

 3,362

  Accounts payable and accrued expenses


 6,858

 826





      Total Current Liabilities


 109,874

 73,841





      Total Liabilities


 109,874

 73,841





STOCKHOLDERS' EQUITY (DEFICIT)




  Common stock, $.001 Par Value; 100,000,000 shares authorized




    and 5,365,400 shares issued and outstanding, respectively


 5,365

 5,365

  Additional paid-in capital


 509,805

 509,805

  Accumulated deficit


 (582,583)

 (550,614)

  Accumulated other comprehensive income (loss)


 (30,270)

 (25,979)





      Total Stockholders' Equity (Deficit)


 (97,683)

 (61,423)





TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


 $12,191

 $12,418





1


 

GMS CAPITAL CORP.

 

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

 






 

















 


IN US$



IN US$

 


SIX MONTHS ENDED



THREE MONTHS ENDED

 










 


2011


2010



2011


2010

 










 

OPERATING REVENUES









 

  Sales

 $24,440


 $9,332



 $13,901


 $1,070

 










 

COST OF SALES









 

  Purchases

 -   


 32,292



 -   


 19,983

 

       Total Cost of Sales

 -   


 32,292



 -   


 19,983

 










 

GROSS PROFIT (LOSS)

 24,440


 (22,960)



 13,901


 (18,913)

 










 

OPERATING EXPENSES









 

   Selling, general and administrative

 55,863


 8,843



 22,576


 5,954

 

   Depreciation

 220


 2,949



 110


 1,009

 

       Total Operating Expenses

 56,083


 11,792



 22,686


 6,963

 










 

LOSS BEFORE OTHER INCOME (EXPENSE)

 (31,643)


 (34,752)



 (8,785)


 (25,876)

 










 

OTHER INCOME (EXPENSE)









 

   Interest expense

 (326)


 (305)



 (208)


 (192)

 

       Total Other Income (Expense)

 (326)


 (305)



 (208)


 (192)

 

 









 

NET LOSS BEFORE PROVISION









 

    FOR INCOME TAXES

 (31,969)


 (35,057)



 (8,993)


 (26,068)

 

Provision for Income Taxes

 -


 -



 -


 -

 










 

NET LOSS APPLICABLE









 

   TO COMMON SHARES

 $(31,969)


 $(35,057)



 $(8,993)


 $(26,068)

 










 

NET LOSS PER BASIC AND DILUTED SHARES









 

      BASIC AND DILUTED

 $(0.01)


 $(0.01)



 $(0.00)


 $(0.01)

 










 

WEIGHTED AVERAGE NUMBER OF COMMON









 

    SHARES OUTSTANDING - BASIC AND DILUTED

 5,365,400


 5,115,400



 5,365,400


 5,115,400

 










 

COMPREHENSIVE INCOME (LOSS)









 

    Net loss

 $(31,969)


 $(35,057)



 $(8,993)


 $(26,068)

 

    Other comprehensive income (loss)









 

       Currency translation adjustments

 (4,291)


 2,639



 (2,271)


 3,816

 

Comprehensive income (loss)

 $(36,260)


 $(32,418)



 $(11,264)


 $(22,252)

 











2



GMS CAPITAL CORP.


STATEMENTS OF CASH FLOWS (UNAUDITED)


FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010












IN US$




2011


2010








CASH FLOWS FROM OPERATING ACTIVITIES






   Net loss


 $(31,969)


 $(35,057)








   Adjustments to reconcile net loss to net cash






    (used in) operating activities:






     Depreciation


 220


 2,949








  Changes in assets and liabilities






    Decrease in accounts receivable


 5,326


 2,022


    Increase (decrease) in accounts payable and






       and accrued expenses


 6,031


 (1,152)


     Total adjustments


 11,577


 3,819








     Net cash (used in) operating activities


 (20,392)


 (31,238)








CASH FLOWS FROM INVESTING ACTIVITIES






   (Increase) Decrease in due to/from related parties


 1,037


 (707)








      Net cash provided by (used in) investing activities


 1,037


 (707)








CASH FLOWS FROM FINANCING ACTIVITES






    Proceeds from line of credit, net of repayments


 8,085


 (5,753)


    Increase (Decrease) in due to/from related parties


 18,584


 45,789








       Net cash provided by financing activities


 26,669


 40,036








Effect of foreign currency


 (2,240)


 957








NET (DECREASE) IN CASH AND CASH EQUIVALENTS


 5,074


 9,048








CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD


 4,086


 354




 


 


CASH AND CASH EQUIVALENTS - END OF PERIOD


 $9,160


 $9,402








CASH PAID DURING THE PERIOD FOR:






    Interest expense


 $326


 $305



3



GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 1-

ORGANIZATION AND BASIS OF PRESENTATION


The unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Companys annual statements and notes.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the December 31, 2010 10-K and audited financial statements and the accompanying notes thereto.  While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.


These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.


GMS Capital Corp. (the Company or GMS), a Florida Corporation, was founded on March 9, 2000 originally doing business as Metratech Retail Systems Inc., a Canadian Corporation up until the reincorporation as GMS Capital Corp. in the State of Florida on September 18, 2007, in order to develop and market inventory management software for suppliers to major retailers, which enable suppliers to forecast consumer demand for their products and to optimize their production and inventory accordingly.


The Company's objective in the reincorporation in the state of Florida is to raise capital through the issuance of stock on the public markets in the US once achieving regulatory approval.  This capital raised will be utilized to further the promotion of The Company's flagship software product, ManageThePipe, a specialized inventory management software for small to medium sized businesses who sell their products via large chain Retail sales outlets known as big box chains.


The Company has grown primarily in the Province of Quebec, Canada through the installation of its software via direct sales to customers.  While sales to date of the software have occurred via a direct sales channel, the Company will look to add further distribution channels to other sectors in the United States and Canada in the coming year.


4

GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 1-

ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)


Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles Overall (ASC 105-10). ASC 105-10 establishes the FASB Accounting Standards Codification (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.


Going Concern


As shown in the accompanying financial statements the Company has incurred a net loss of ($31,969 and ($35,057) for the six months ended June 30, 2011 and 2010 and has an accumulated deficit of ($582,583) as of June 30, 2011.  The Companys limited customer base exposes them to significant risk of future revenues.  The Company has been searching for new distribution channels to sell their software and services to provide additional revenues to support their operations.  There is no guarantee that the Company will be able to raise additional capital or generate the increase in revenues sought.


There can be no assurance that management will be able to raise sufficient capital, under terms satisfactory to the Company, if at all.


Management believes that the Companys capital requirements will depend on many factors. These factors include the increase in sales through its existing channel as well as the Companys ability to continue to expand its distribution channels.


The financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.


Cash and Cash Equivalents


The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalent.


5


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(CONTINUED)


Comprehensive Income


The Company adopted ASC 220-10, Reporting Comprehensive Income, (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations.  


Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.


Fair Value of Financial Instruments (other than Derivative Financial Instruments)


The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.


Currency Translation

The Companys functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations. For the three month period ended June 30, 2011 and 2010, the Company had translations gains (losses) of $(4,291) and $2,639 respectively.


Research and Development


The Company occasionally incurs costs on activities that relate to research and development of new products. Research and development costs are expensed as incurred. Certain of these costs are reduced by government grants and investment tax credits where applicable.


Revenue Recognition


The Company generates revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education.



6


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Revenue Recognition (Continued)


The Company recognizes revenue pursuant to the requirements of ASC 450-10 and ASC 985-605, Software Revenue Recognition. In accordance with the ASCs, the Company begins to recognize revenue from licensing and supporting its software products when all of the following criteria are met: (1) the Company has evidence of an arrangement with a customer; (2) the Company delivers the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.


The Companys software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the software for a defined period of time before committing to license the software. If a license agreement were to include an acceptance provision, the Company would not record deferred subscription value or recognize revenue until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.


Under the Companys business model, software license agreements frequently include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software products with maintenance for the term of the agreement. Under these agreements, once all four of the above noted revenue recognition criteria are met, the Company is required to recognize revenue ratably over the term of the license agreement.


Under the Companys business model, a relatively small percentage of the Companys revenue related to certain products is recognized on an up-front or perpetual basis once all revenue recognition criteria are met in accordance with the ASCs as described above, and is reported in the Software fees and other line of the statements of operations. License agreements pertaining to such products do not include the right to receive unspecified future software products, and maintenance is deferred and subsequently recognized over the term of the maintenance period. In the event such license agreements are executed within close proximity or in contemplation of other license agreements with the same customer which are recognized on a subscription basis, the contracts may be considered a single multi-element agreement, and as such all revenue is deferred and recognized as Subscription revenue in the statements of operations.


Maintenance revenue is derived from two primary sources: (1) combined license and maintenance agreements recorded under the prior business model; and (2) stand-alone maintenance agreements.


7


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Revenue Recognition (Continued)


Under the prior business model, maintenance and license fees were generally combined into a single license agreement. The maintenance portion was deferred and amortized into revenue over the initial license agreement term. Certain of these license agreements have not reached the end of their initial terms and, therefore, continue to amortize. This amortization is recorded to the Maintenance line item in the Statements of Operations. The deferred maintenance portion, which was optional to the customer, was determined using its fair value based on annual, fixed maintenance renewal rates stated in the agreement. For license agreements entered into under the Companys current business model, maintenance and license fees continue to be combined; however, the maintenance is inclusive for the entire term of the arrangement. The Company reports such combined fees on the Subscription revenue line item in the statements of operations.


The Company also records stand-alone maintenance revenue earned from customers who elect optional maintenance. Revenue from such renewals is recognized on the Maintenance line item in the statements of operations over the term of the renewal agreement.


The Deferred maintenance revenue line item on the Companys balance sheets principally represents payments received in advance of maintenance services to be rendered.


Revenue from professional service arrangements is generally recognized as the services are performed. Revenue from committed professional services arrangements that are sold as part of a software transaction is deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.


Revenue from sales to distributors, resellers, and value-added resellers (VARs) commences when all four of the ASC revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. Revenue from the sale of products to distributors, resellers and VARs under licenses that include the right for the end-users to receive certain unspecified future software products is recognized on a ratable basis.


8


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Accounts Receivable


The Company conducts business and extends credit based on an evaluation of the customers financial condition, generally without requiring collateral.


Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has an allowance for doubtful accounts of $0 at June 30, 2011.


Accounts receivable are generally due within 30 days and collateral is not required. Unbilled accounts receivable represents amounts due from customers for which billing statements have not been generated and sent to the customers.


Income Taxes


The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.  Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.



Advertising Costs


The Company expenses the costs associated with advertising as incurred.  Advertising expenses for the six months ended June 30, 2011 and 2010 are included in general and administrative expenses in the statements of operations.


Fixed Assets


Fixed assets are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets; automobiles 3 years, computer equipment 3 years, furniture and fixtures 5 years and leasehold improvements- 5 years.


 When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.  Deduction is made for retirements resulting from renewals or betterments.  

9


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-  

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Impairment of Long-Lived Assets


Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.


(Loss) Per Share of Common Stock


Basic net (loss) per common share is computed using the weighted average number of common shares outstanding.  Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.  Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.


10


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(Loss) Per Share of Common Stock (Continued)


The following is a reconciliation of the computation for basic and diluted EPS:




The Company has not issued options or warrants to purchase stock in these periods. If there were options or warrants outstanding they would not be included in the computation of diluted EPS because inclusion would have been antidilutive.


Stock-Based Compensation


In 2006, the Company adopted the provisions of ASC 718-10 Share Based Payments for its year ended December 31, 2008. The adoption of this principle had no effect on the Companys operations.




11


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Stock-Based Compensation (Continued)


The Company has elected to use the modifiedprospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.


The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Companys common stock on the date that the commitment for performance by the counterparty has been reached or the counterpartys performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.


Segment Information


The Company follows the provisions of ASC 280-10, Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.

12


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recent Accounting Pronouncements


In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.

In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of ASC 320-10, (ASC 825-10) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

In December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parents ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parents ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.


ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Companys financial position, results of operations or cash flows.


In December 2007, the Company adopted ASC 805, Business Combinations (ASC 805). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.  

13


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recent Accounting Pronouncements (Continued)


ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Companys results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 is not expected to have a material effect on the Companys financial position, results of operations or cash flows.


In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities, (ASC 815). ASC 815 requires enhanced disclosures about an entitys derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.


Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (ASC 855). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Companys results of operations or financial condition.







14


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 2-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recent Accounting Pronouncements (Continued)


Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (ASU 2009-05). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Companys results of operations or financial condition.


In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements (ASU 2010-06). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the rollforward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements.


In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This update addresses both the interaction of the requirements of Topic 855, Subsequent Events, with the SECs reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. Adoption of ASU 2010-09 did not have a material impact on the Companys results of operations or financial condition.


Other ASUs that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.



15


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 3-

FIXED ASSETS


Fixed assets as of June 30, 2011 and December 31, 2010 were as follows:



Estimated Useful


June 30,



December 31,


Lives (Years)

2011


2010






Computer equipment

3

$ 1,318


1,318

Office equipment

5

1,422


1,422

Leasehold improvements

5

13,994


13,994


TOTAL:

16,734


16,734






Less: accumulated depreciation


16,406


15,826

Property and equipment, net


$ 328


$ 548


There was $220 and $2,949 charged to operations for depreciation expense for the six months ended June 30, 2011 and 2010, respectively.


NOTE 4-

OPERATING LINE OF CREDIT


The Company has established an operating line of credit of CDN$15,000 with a bank through a credit card, with the full outstanding amount guaranteed by a Director.  The interest rate charged is a floating rate, bank prime rate + 2%.  As of June 30, 2011, the interest rate was 7.0% with an outstanding balance of $11,914. The Company recorded interest expense of $326 and $305 for the six months ended June, 2011 and 2010, respectively.


NOTE 5-

RELATED PARTY LOANS


The Company has entered into related party loans with an officer of the Company.  This loan is non-interest bearing and payable on demand.  The amounts owed as of June 30, 2011 and December 31, 2010 is $49,775 and $30,240, respectively.


The Company has entered into related party loans with a company owned and controlled by an officer of the Company.  This loan is non-interest bearing and payable on demand.  The amounts owed as of June 30, 2011 and December 31, 2010 is $4,505 and $3,362, respectively.


The Company has entered into related party loans with shareholders of the Company.  These loans are non-interest bearing and payable on demand.  The amounts owed as of June 30, 2011 and December 31, 2010 is $36,822 and $35,701, respectively.



16


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 6-

STOCKHOLDERS EQUITY (DEFICIT)


Common Stock


As of June 30, 2011 and December 31, 2010, the Company has 5,365,400 shares of common stock issued and outstanding respectively.


The Company has not issued any shares for the six months ended June 30, 2011.


As of December 31, 2010 and 2009, the Company has 125,000,000 shares of common stock authorized with a par value of $0.01


The Company issued 250,000 shares in 2010 for cash in the amount of $48,630.


The Company has not issued any shares in 2009 or 2008.


The Company issued 2,537,400 shares for services during 2007 valued at $253,740.


The Company issued 2,578,000 shares in 2007 as replacement shares for the original shares issued in Metratech Retail Systems, Inc. These shares were valued at $212,800.


NOTE 7-

PROVISION FOR INCOME TAXES


Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Companys assets and liabilities.  Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Companys tax return.  Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.


17


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 7-

PROVISION FOR INCOME TAXES (CONTINUED)


At June 30, 2011, deferred tax assets consist of the following:

                       




At June 30, 2011, the Company had a net operating loss carryforward in the amount of $582,583, available to offset future taxable income through 2031.  The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.  


A reconciliation of the Companys effective tax rate as a percentage of income before taxes and federal statutory rate for the six month periods ended June 30, 2011 and 2010 is summarized as follows:



 

 

 

 


2011


2010


Federal statutory rate

(34.0)%


(34.0)%


State income taxes, net of federal benefits

3.3


3.3


Valuation allowance

30.7


30.7



0%


0%



18


GMS CAPITAL CORP.

FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010 (UNAUDITED)


NOTE 8-

FAIR VALUE MEASUREMENTS


The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:


Level 1 inputs: Quoted prices for identical instruments in active markets.


Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.


Level 3 inputs: Instruments with primarily unobservable value drivers.


The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011:




NOTE 9-

CONCENTRATION OF CREDIT RISK


On June 30, 2011, 100% of the Companys accounts receivables were with one customer.  For the six months ended June 30, 2011 and 2010, three and one customers represented 100% of the revenue for the Company. Each of these customers was considered a major customer.


19



 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


You should read the following discussion of our financial condition and operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this quarterly report. This quarterly report contains forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as anticipate, expect, intend, plan, will, we believe, our company believes, management believes and similar language. The forwardlooking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including our ability to (1) obtain sufficient capital or a strategic business arrangement to fund our expansion plans; (2) build the management and human resources infrastructure necessary to support the growth of our business; (3) competitive factors and developments beyond our control; and (4) those other risk factors, uncertainties and assumptions that are set forth in the discussion under the headings captioned Business, Risk Factors, and Managements Discussion and Analysis. Our actual results may differ materially from results anticipated in these forwardlooking statements. We base the forwardlooking statements on information currently available to us, and we assume no obligation to update or revise them, whether as a result of new information, future events or otherwise. In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance.


The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10Q.


GENERAL OVERVIEW


BACKGROUND

 

Company Overview


GMS Capital Corp. was incorporated in Canada on March 9, 2000 under the name "Metratech Retail Systems Inc." for the development and sales of specialized inventory management software.  The Company re-incorporated itself in the State of Florida on September 18, 2007 and was subsequently renamed "GMS Capital Corp." in order to raise capital on the US public markets to realize its objectives of investing in its development and marketing plans.

 

 

 

20


 

The details of the merger and re-incorporation are as follows:

 

The 2,578,000 issued and outstanding shares of Metratech Retail Systems Inc. were converted to 2,578,000 shares of GMS Capital Corp.  Each shareholder of the Company received one share of GMS Capital Corp. for every share of Metratech Retail Systems Inc.  The three directors of Metratech Retail Systems Inc., George Metrakos, Marcel Côté and Spiro Krallis were replaced by George Metrakos on the board of directors of the newly incorporated company.

 

On October 1, 2007, the Company issued an additional 2,537,400 shares at a price of $0.10 per share in order to compensate shareholders and external consultants to perform the consulting work necessary to complete the company's prospectus.

 

GMS decided to reincorporate itself under the laws of the State of Florida in order to take advantage of opportunities available to public entities in the US.  The reincorporation saw existing shareholders receive the equivalent number of shares in the Florida corporation as they held in the company prior to reincorporation.  The reincorporation in no way has changed the capital structure of the Company.


On April 20, 2010, the Companys Initial Public Offering Prospectus was deemed effective by the Securities and Exchange Commission.  The Company successfully completed its minimum offering on September 17, 2010 with the issuance of 250,000 sold at $0.20 per share and as of October 25, 2010 has commenced the process to request the services of a Market Maker to apply to the Financial Industry Regulatory Authority (FINRA) to have its common stock traded over-the-counter on the OTCBB exchange.  The Company was successful and the Company now trades under the symbol GMCP.


History of Key Agreements

 

On July 10, 2000, founding shareholders entered into a term sheet for the partnership agreement representing the ownership structure of Metratech Retail Systems Inc.  While a final partnership agreement was never executed, the Term sheet is enforceable against the parties.  The agreement outlined the share structure to represent initial investments made by the founding shareholders, along with roles and responsibilities of the President, Secretary and CEO of the Corporation.

 

On April 1, 2000, the Company entered into a Non-Disclosure Agreement with MGA Concept, a software development firm in Montreal, Canada which outlined the roles and responsibilities of MGA Concept as it relates to their provision of software programming services to the Company.  MGA Concept went on to provide all the consulting services required by the Company to develop, test and deploy its software.

 

On October 16, 2000, George Metrakos, acting on behalf of the Company, entered into an agreement with Junior Active Designs Inc., a supplier to Retailer Wal-Mart Stores, in order to learn and record all of the requirements set forth by Wal-Mart Stores with respect to the management of inventory within their Retail Stores.  The Agreement outlined that all of the rights, title and interest in any inventions, improvements, discoveries, processes, know-how and trade secrets discovered by Mr. Metrakos as it pertained to any software development at Junior Active Designs Inc. would be the property of George Metrakos in order to utilize and transfer to Metratech Retail Systems Inc. for its use in the development and marketing of its software.

 

Description of Business

 

Principal products or services and their markets

 

The Company's software, known as "ManageThePipe", permits suppliers to major retailers such as Wal-Mart to predict the amount of inventory required in the near future in order to meet the sales demands for its products on retail store shelves.  The software collects data such as production schedules, shipping schedules, historic sales and current retail store inventories in order to calculate an estimate of future inventory requirements for each item that a supplier sells through major retailers such as Wal-Mart Stores.

 

 

21


 

Our Company has invested in the research and development of our inventory management software which collects data and performs forecast calculations. Our technology consists of proprietary software programming however, we have no specific legal entitlement that does not permit someone else from utilizing the same base software languages in order to produce similar inventory management software offerings.

 

Base software languages are the language building blocks used by programmers to translate the desired logic sequences into a message that the computer can understand and execute.  An example of a logic sequence is if the user wishes to predict the future sales of their product based on historical sales, the software should calculate a forecast based on mathematical models provided in its logic tables to calculate the forecasted values. The combination and use of these building blocks is known as software code, and hence this combination, created by the Companys programmers, along with off-the-shelf computer hardware (ie. Equipment that is readily available by computer companies such as servers) is collectively referred to as our technology and trade secrets.

 

We therefore cannot be certain that others will not gain access to our technology. In order to protect this proprietary technology, we hold non-disclosure and confidentiality agreements and understandings with our employees, consultants, re-sellers, distributors, wholesalers and technology partners. We cannot guarantee that our technology and trade secrets will not be stolen, challenged, invalidated or circumvented. If any of these were to occur, we would suffer from a decreased competitive advantage, resulting in lower profitability due to decreased sales.

 

The Company offers the following products and services to customers utilizing its ManageThePipe inventory management software:

 

 

·

 

Installation and configuration of the software within the customer's computer network

 

·

 

Professional and consulting services to assist the customer to optimize their inventory to meet sales demands

 

·

 

Maintenance services in order to assist the customer in ensuring daily importation of data from various sources into the ManageThePipe software

 

·

 

Software subscription fees for the use of the software on the premises of the customer.

 

Distribution methods of the products or services

 

To date, our Sales & Marketing expenses have been limited to commission-based sales costs and minimal marketing expenses. As a result, there is very little brand awareness for our products and services. We believe a strategic marketing campaign is necessary to achieve the customer base growth that we anticipate due to significant investments in customer acquisition. The bulk of this investment is due to costs related to promoting our brand through advertising in different media, along with analysis of new market segments and product placement strategies.

 

The main market segment where we will invest in Sales & Marketing is that of the Canadian small to medium sized manufacturer or importer of goods that are sold through retail stores to the general public.  These investments include travel, participation in industry trade shows and print/on-line media within industry publications and web sites.

 

 

 

 

22


 

Direct Sales.

 

We solicit customers directly in order to purchase our products and services.  Upon acceptance of our offer, our customers sign a Service Agreement.

 

Sales Through a Value-Added Reseller.

 

A Value-Added Reseller typically re-sells our software in combination with other software also offered by the Value-Added Reseller, providing a customized and complete solution for the customer.  Other software which is compatible with the ManageThePipe software includes production planning software, enterprise resource planning software and sales analysis software.

 

In the case of any sale, the Company enters into a services agreement with the customer.


Status of any publicly announced new product or service

 

ManageThePipe software was in a pre-commercialization phase with the deployment of the first version of the software at a garment manufacturing facility in July of 2002.  The software has since been deployed in numerous customer facilities and is available for sale in its current state.

 

The software installation, use and maintenance represent a first year investment of $25,000 followed by yearly subscription fees of $12,000.

 

Competitive Business Conditions

 

There are numerous software products existing on the market which provide solutions to the challenges of inventory management on retailer store shelves on a daily basis.  They can be classified by the following categories:

 

Larger, established software companies for larger multinational companies:

 

The following corporations involved in inventory managementand are not a direct competitors to The Company's software product, ManageThePipe: Demantra, Viewlocity, Riverone, Verticalnet, Steelwedge and Evant.  These companies, present in a wide range of industry sectors, produce completely integrated software involved from sourcing of raw materials, delivery, manufacturing, packaging and all other elements of production (known as "end-to-end" software) of goods sold to consumers.  These complete end-to-end softwares sell at a very high cost (+1M$), which require a high level of integration.  ManageThePipe is focused solely on smaller to medium sized companies who are Suppliers of Major Retailers.

 

Enterprise Resource Planning Software (ERP)

 

ERP systems (ex. SAP, JD Edwards, Manugistics, Navision, etc.) are primarily internally focused back-office systems, that is that they are involved in monitoring the daily transactions of a business, from invoicing, to production of packing slips and delivery confirmations.  The result of such a complex software is that it is cumbersome and has a long implementation cycle inside the business.  A long implementation cycle means that the business implementing an ERP solution have to consider at least six months of time to integrate the software, transfer the company's existing operations into the new software and provide sufficient training to employees.  Due to this longer implementation time, these softwares are not competition to ManageThePipe.

 

 

 

 

 

23


 

Direct Competition to ManageThePipe:

 

The following competitors sell to mid to large Suppliers of Major Retailers:

 

Demand Management Inc. (MO, USA) (www.demandsolutions.com) founded in 1985.

Thrive Technologies (GA, USA) (www.thrivetech.com), founded in 2001.

Vendor Managed Technologies (MI, USA) (www.vmtsoftware.com) Founded in 1998.

 

The inventory management software industry is highly competitive, rapidly evolving and subject to constant technological change and to intense marketing by different providers of functionally similar services. Since there are few, if any, substantial barriers to entry, we expect that new competitors are likely to enter our markets. Most, if not all, of our competitors are significantly larger and have substantially greater market presence and longer operating history as well as greater financial, technical, operational, marketing, personnel and other resources than we do.

 

Competitive Advantages

 

Today, Major Retailers such as Wal-Mart are relying on their suppliers to make inventory replenishment decisions, that is deciding which stores should get which products and at what quantity, in order to ensure that the retail shelves remain adequately stocked to meet consumer demand.  As a result, Suppliers utilize inventory management software and forecasting software in order to assist them to make a decision about how much product to manufacture or import, how much to stock in their warehouse and how much to ship to each store.

 

We believe that we have the following competitive advantages:

 

(1)  Competitive Pricing

 

Our use our proprietary software enables us to provide customers with competitive pricing for their inventory management needs. Nonetheless, there can be no assurance that we will be able to successfully compete with major software suppliers in present and prospective markets. While there can be no assurances, we believe that by offering competitive pricing we will be able to compete in our present and prospective markets.

 

(2)  Advantages of Equipment and Technology

 

We rely on our own internally-developed software to meet the needs of our customers. We will need to continue to select, invest in and develop new and enhanced technology to remain competitive. Our future success will also depend on our operational and financial ability to develop information technology solutions that keep pace with evolving industry standards and changing client demands. Our business is highly dependent on our software systems, the temporary or permanent loss of which could materially and adversely affect our business.

 

Existing and Probable Governmental Regulation

 

The software industry is not a regulated industry.

 

Research and Development

 

The Company occasionally incurs costs on activities that relate to research and development of new products. Research and development costs are expensed as incurred. Certain of these costs are reduced by government grants and investment tax credits where applicable.  The Company did not incur Research and Development expenses during 2007, 2008, 2009, 2010 and 2011.

 

 

 

 

 

24


 

Compliance with Environmental Laws

 

We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws.

 

CORPORATE OFFICES

 

The Company's executive offices are currently located at 5925 Monkland Ave. Montreal, Quebec H4A 1G7 Canada.

 

EMPLOYEES

 

The Company has no full time employees and has three part time employees.

 

Critical Accounting Policies and Estimates


Management's Discussion and Analysis of Financial Conditions and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When preparing our financial statements, we make estimates and judgments that affect the reported amounts on our balance sheets and income statements, and our related disclosure about contingent assets and liabilities. We continually evaluate our estimates, including those related to revenue, allowance for doubtful accounts, reserves for income taxes, and litigation. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable in order to form the basis for making judgments about the carrying values of assets and liabilities that are not readily ascertained from other sources. Actual results may deviate from these estimates if alternative assumptions or condition are used.


Recent Accounting Pronouncements


In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.


In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of ASC 320-10, (ASC 825-10) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

 

 

 


 

25


 

In December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parents ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parents ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.


ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Companys financial position, results of operations or cash flows.


In December 2007, the Company adopted ASC 805, Business Combinations (ASC 805). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.  


ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Companys results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 is not expected to have a material effect on the Companys financial position, results of operations or cash flows.


In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities, (ASC 815). ASC 815 requires enhanced disclosures about an entitys derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.


Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (ASC 855). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Companys results of operations or financial condition.


Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (ASU 2009-05). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Companys results of operations or financial condition.

 

 

 


 

26


 

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements (ASU 2010-06). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the rollforward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements.


Other ASUs that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.


Fair Value Measurements


The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:


Level 1 inputs: Quoted prices for identical instruments in active markets.


Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.


Level 3 inputs: Instruments with primarily unobservable value drivers.


Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.


Cash and Cash Equivalents         


The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.


Comprehensive Income


The Company adopted ASC 220-10, Reporting Comprehensive Income, (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations. 


Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.

 

 

 


 

27


 

Fair Value of Financial Instruments (other than Derivative Financial Instruments)


The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.


Currency Translation


The Companys functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations.


Research and Development


The Company occasionally incurs costs on activities that relate to research and development of new products. Research and development costs are expensed as incurred. Certain of these costs are reduced by government grants and investment tax credits where applicable.


Revenue Recognition


The Company generates revenue from the following primary sources: (1) licensing software products; (2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and education.


The Company recognizes revenue pursuant to the requirements of ASC 450-10 and ASC 985-605, Software Revenue Recognition. In accordance with the ASCs, the Company begins to recognize revenue from licensing and supporting its software products when all of the following criteria are met: (1) the Company has evidence of an arrangement with a customer; (2) the Company delivers the products; (3) license agreement terms are deemed fixed or determinable and free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is probable.


The Companys software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the software for a defined period of time before committing to license the software. If a license agreement were to include an acceptance provision, the Company would not record deferred subscription value or recognize revenue until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the expiration of the acceptance period.

Under the Companys business model, software license agreements frequently include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products for no additional fee. These agreements combine the right to use the software products with maintenance for the term of the agreement. Under these agreements, once all four of the above noted revenue recognition criteria are met, the Company is required to recognize revenue ratably over the term of the license agreement.


Under the Companys business model, a relatively small percentage of the Companys revenue related to certain products is recognized on an up-front or perpetual basis once all revenue recognition criteria are met in accordance with the ASCs as described above, and is reported in the Software fees and other line of the statements of operations. License agreements pertaining to such products do not include the right to receive unspecified future software products, and maintenance is deferred and subsequently recognized over the term of the maintenance period. In the event such license agreements are executed within close proximity or in contemplation of other license agreements with the same customer which are recognized on a subscription basis, the contracts may be considered a single multi-element agreement, and as such all revenue is deferred and recognized as Subscription revenue in the statements of operations.

 

 

 


 

28


 

Maintenance revenue is derived from two primary sources: (1) combined license and maintenance agreements recorded under the prior business model; and (2) stand-alone maintenance agreements.


Under the prior business model, maintenance and license fees were generally combined into a single license agreement. The maintenance portion was deferred and amortized into revenue over the initial license agreement term. Certain of these license agreements have not reached the end of their initial terms and, therefore, continue to amortize. This amortization is recorded to the Maintenance line item in the Statements of Operations. The deferred maintenance portion, which was optional to the customer, was determined using its fair value based on annual, fixed maintenance renewal rates stated in the agreement. For license agreements entered into under the Companys current business model, maintenance and license fees continue to be combined; however, the maintenance is inclusive for the entire term of the arrangement. The Company reports such combined fees on the Subscription revenue line item in the statements of operations.


The Company also records stand-alone maintenance revenue earned from customers who elect optional maintenance. Revenue from such renewals is recognized on the Maintenance line item in the statements of operations over the term of the renewal agreement.


The Deferred maintenance revenue line item on the Companys balance sheets principally represents payments received in advance of maintenance services to be rendered.


Revenue from professional service arrangements is generally recognized as the services are performed. Revenue from committed professional services arrangements that are sold as part of a software transaction is deferred and recognized on a ratable basis over the life of the related software transaction. If it is not probable that a project will be completed or the payment will be received, revenue is deferred until the uncertainty is removed.


Revenue from sales to distributors, resellers, and value-added resellers (VARs) commences when all four of the ASC revenue recognition criteria noted above are met and when these entities sell the software product to their customers. This is commonly referred to as the sell-through method. Revenue from the sale of products to distributors, resellers and VARs under licenses that include the right for the end-users to receive certain unspecified future software products is recognized on a ratable basis.


Accounts Receivable


The Company conducts business and extends credit based on an evaluation of the customers financial condition, generally without requiring collateral.


Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.


Accounts receivable are generally due within 30 days and collateral is not required. Unbilled accounts receivable represents amounts due from customers for which billing statements have not been generated and sent to the customers.


Income Taxes


The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.  Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.


Advertising Costs


The Company expenses the costs associated with advertising as incurred. 

 

 

 


 

29


 

Fixed Assets

               

Fixed assets are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets; automobiles 3 years, computer equipment 3 years, furniture and fixtures 5 years and leasehold improvements- 5 years.

 

 When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.  Deduction is made for retirements resulting from renewals or betterments. 


Impairment of Long-Lived Assets


Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.


(Loss) Per Share of Common Stock


Basic net (loss) per common share is computed using the weighted average number of common shares outstanding.  Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.  Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.


Stock-Based Compensation


In 2006, the Company adopted the provisions of ASC 718-10 Share Based Payments for its year ended December 31, 2008 and all subsequent years. The adoption of this principle had no effect on the Companys operations.


The Company has elected to use the modifiedprospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.


The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Companys common stock on the date that the commitment for performance by the counterparty has been reached or the counterpartys performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.


Segment Information


The Company follows the provisions of ASC 280-10, Disclosures about Segments of an Enterprise and Related Information. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.

 

 

 

 

 

30


 

Results of Operations Six and Three Months Ended June 30, 2011 Compared to Six and Three Months Ended June 30, 2010

 

The Company recorded sales of $13,901 of which $103 was maintenance services, $7,597 was professional services and $6,201 was subscription revenue for the three month period ending June 30, 2011 as compared to $1,070 of which $778 was maintenance services and $292 was professional services for the three month period ending June 30, 2010.


The Company recorded sales of $24,440 of which $6,201 was subscription revenue, $17,324 was for professional services and $915 was maintenance services for the six month period ending June 30, 2011 as compared to $9,332 of which $5,284 was subscription revenue, $292 was professional services and $3,756 was maintenance services for the six month period ending June 30, 2010.


The Company's total expenses before interest and income taxes were $22,686 for the three month period ending June 30, 2011 compared to $26,946 for the same period in 2010, primarily as a consequence of an increase in professional services due to increased costs required for reporting compliance with the Securities and Exchange Commission (SEC).  There was a decrease in professional services from $19,983 to $16,839 as the company reduced its expenditures in professional services associated with the delivery of services to its customers as well as reporting obligations with the SEC.  Within its operating expenses, there was an increase in selling, general and administrative expenses from $4,419 to $5,448 as the company increased its expenditures related to administrative costs to run its operations at its head office. There was decrease in depreciation from $1,009 to $110 related to previous acquisitions of equipment that are nearing their useful life.

 

The Company's total expenses before interest and income taxes were $56,083 for the six month period ending June 30, 2011 compared to $44,084 for the same period in 2010, primarily as a consequence of an increase in professional services due to increased costs required for reporting compliance with the Securities and Exchange Commission (SEC).  There was a slight increase in professional services from $32,292 to $32,728 as the company increased its expenditures in professional services associated with the delivery of services to its customers as well as reporting obligations with the SEC.  Within its operating expenses, there was an increase in selling, general and administrative expenses from $8,843 to $12,768 as the company increased its expenditures related to administrative costs to run its operations at its head office. There was decrease in depreciation from $2,949 to $220 related to previous acquisitions of equipment that are nearing their useful life.

 

The Company had a net income (loss) of ($8,993) for the three month period ending June 30, 2011 compared to a net income (loss) of ($26,068) for the same period in 2010. The principal reasons for companys net loss for the three month period ending June 30, 2011 as compared to the prior period is because the company was unable to achieve the level of revenues required to sustain its operating costs.

 

As a result, the Company had a net income (loss) of ($31,969) for the six month period ending June 30, 2011 compared to a net income (loss) of ($35,057) for the same period in 2010. The principal reasons for companys net loss for the six month period ending June 30, 2010 as compared to the prior period is because the company was unable to achieve the level of revenues required to sustain its operating costs.

 

Plan of Operations and Need for Additional Financing

 

The Company's plan of operations for most of 2011 is to build a subscriber base of suppliers to major retailers who purchase software on a monthly subscription basis. Along with the subscription revenues, the Company will also sell professional services, maintenance and software fees to the same customers.


The Company successfully rendered its public offering of stock on Form S-1 on April 20, 2010 which permitted the company to sell common stock at $0.20 per share for a total of $800,000 or 4,000,000 shares.  On September 17, 2010, the Company successfully sold its minimum offering of $250,000 shares for a total of $50,000 (CD$).  The Company opted to close its offering after having completed the minimum offering so as to apply to the exchange regulators to have the common stock trade over the counter and to explore other avenues of raising capital and being supported by a trading stock.  The company is still in the process of achieving this.


Liquidity and Capital Resources

 

For the period ending June 30, 2011:


On The Company's balance sheet as of June 30, 2011, the Company had assets consisting of cash in the amount of $9,160, accounts receivable of $2,703.  The Company has expended its cash in furtherance of its business plan, including primarily expenditure of funds to pay legal and accounting expenses, and to maintain service delivery to its customers.  Consequently, the Company's balance sheet as of June 30, 2011 reflects an accumulated deficit of ($582,583) and a stockholders equity (deficit) of ($97,683).

 

The Company used $20,392 of cash in operating activities in 2011 compared to a use of $31,238 for the same period in 2010. This change was attributable in large part to a decrease in net loss from operations.


The Company was provided $1,037 of cash in investing activities in 2011 compared to a use of  $707 for the same period in 2010. This change was primarily attributable to decrease in amounts borrowed from related parties.

 

The Company had net cash provided by financing activities of $26,669 in 2011 compared to being provided $40,036 during 2010. This change was primarily attributable to an increase of proceeds provided from officers of $18,584 and an increase of proceeds provided from the Companys operating credit line of $8,085.

 

 

 

 

 

 

31



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not required.

 

ITEM 4. CONTROL AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our management carried out an evaluation, with the participation of our Chief Executive and Chief Financial Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.


The Companys management carried out an evaluation, under the supervision and with the participation of the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the Companys Chief Executive Officer and the Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the six months ended June 30, 2011. There have not been any significant changes in the Companys critical accounting policies identified since the Company filed its Form 10-K as of December 31, 2010.


 

 PART II - OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

During the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

We are not a party to any pending material legal proceedings and are not aware of any threatened or contemplated proceeding by any governmental authority against the Company. Notwithstanding, from time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including employment-related and trade related claims.

  

ITEM 1A - RISK FACTORS


We have updated the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10K for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission on March 22, 2011 (the Fiscal 2010 10K). We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Fiscal 2010 10K.

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

 


 

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ITEM 3 - DEFAULTS UPON SENIOR SECURITES

 

There have been no material defaults.

 

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

No matters have been submitted to a vote of security holders during the period covered by this report.

 

ITEM 5 - OTHER INFORMATION


None.

 

ITEM 6 - EXHIBITS

 

31.1

  

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

31.2

  

Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

32.1

  

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 

32.2

  

Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 

 

 

 

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SIGNATURES


Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada.


Dated: August 17, 2011

 

 

 

 

GMS CAPITAL CORP.

 

 

 

 

 

 

 

 

 

/s/ George Metrakos

 

 

 

 

George Metrakos

Chief Executive Officer and President

 

 

 

 

 

GMS CAPITAL CORP.

 

 

 

 

 

 

 

 

 

/s/ George Metrakos

 

 

 

 

George Metrakos

Principal Financial and Accounting Officer

 

 

 

 

34