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UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM 10-Q/A
(Amendment No. 1)

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

For the quarterly period ended: June 30, 2011

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

Commission file number: 000-53223

GBS ENTERPRISES INCORPORATED
 (Exact name of registrant as specified in its charter)
Nevada
 
27-3755055
(State or other jurisdiction of incorporation or
 
(I.R.S. Employer Identification No.)
organization)
   
 
585 Molly Lane
Woodstock, GA 30189
(Address of principal executive offices)
 
(404) 474-7256
Issuer’s telephone number
 
Securities registered under Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
None
N/A
Securities registered under Section 12(g) of the Act:

Common Stock, $0.001 par value
 (Title of class)

Copies to:
 Philip Magri, Esq.
The Sourlis Law Firm      
The Courts of Red Bank
130 Maple Avenue, Unit 9B2
 Red Bank, New Jersey 07701
 Direct Dial: (646) 373-7430
T: (732) 530-9007
 F: (732) 530-9008
 PhilMagri@SourlisLaw.com
www.SourlisLaw.com

 
 

 

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

Yes ¨ No x

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

Yes ¨ No x

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

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

Yes x No ¨

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

Yes ¨ No x

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

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

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

Yes ¨ No x

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
 PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨ No x

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of September 14, 2011, there were 23,793,790 shares of common stock, par value $0.001 per share, of the Registrant issued and outstanding.
 
 
 

 
 
EXPANATORY NOTE
 
On August 19, 2011, the Registrant filed its Form 10-Q for the fiscal quarter ended June 30, 2011 with the Securities and Exchange Commission.

This amendment reflects a change to the Registrant’s Balance Sheet wherein the Company added a line item under Current Liabilities, “Due to Related Parties,” and reduced “Other Liabilities” by such amounts.  Also, this amendment corrects the issued and outstanding capital by 210 shares, representing rounding on shares issues.  This results in a reduction in equity in investments in related parties and a corresponding reduction in additional paid in capital.

These two adjustments required a change in the notes related to those accounts.  Note 4 – Equity Investments in Related Parties, Note 8 – Related Party Transactions and Balances and Note 9 – Capital Stock were all adjusted to describe those changes.

This Form 10-Q/A includes the Registrant’s amended unaudited financial statements for the fiscal quarter ended June 30, 2011 formatted in eXtensible Business Reporting Language (“XBRL”) as Exhibits 101.  This Form 10-Q/A also includes updated Exhibits 31 and 32 to cover this Form 10-Q/A.

No other changes have been made to the Form 10-Q other than those described above. This Amendment No. 1 does not reflect subsequent events occurring after the original filing date of the Form 10-Q or modify or update in any way disclosures made in the Form 10-Q.

Users of this data are advised that pursuant to Rule 406T of Regulation S-T, these interactive data files attached as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
  
TABLE OF CONTENTS
 
 
Page
No:
PART I — FINANCIAL INFORMATION
 
Item 1.
Consolidated Financial Statements
3
 
Balance Sheet
4
 
Statement of Operations
6
 
Statement of Cash Flows
7
 
Notes to the Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
25
Item 4.
Controls and Procedures
25
     
PART II – OTHER INFORMATION:
  
Item 1.
Legal Proceedings
25
Item 1A.
Risk Factors
25
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25
Item 3.
Defaults Upon Senior Securities
26
Item 4.
[Removed and Reserved by the Securities and Exchange Commission]
26
Item 5.
Other Information
26
Item 6.
Exhibits
27
Signatures
27

 
2

 

PART I — FINANCIAL INFORMATION

Item 1.                      Financial Statements
 
GBS Enterprises Incorporated

Interim Consolidated Financial Statements

June 30, 2011

(Unaudited)
 
 
3

 

GBS Enterprises Incorporated
Interim Consolidated Balance Sheets
June 30, 2011 and March 31, 2011
(Unaudited)

   
June 30, 2011
   
March 31, 2011
 
    $     $  
                 
Assets
               
Current Assets
               
Cash and cash equivalents
    6,805,940       8,530,864  
Accounts receivable
    4,896,092       5,698,320  
Prepaid expenses
    1,647,095       1,423,281  
Other receivables
    854,486       1,981,887  
Total current assets
    14,203,613       17,634,352  
                 
Equity investments in related parties - Note 4
    6,583,971       -  
Property, plant and equipment - Note 5
    347,477       298,497  
Financial assets
    2,687,035       1,369,454  
Deferred tax assets
    2,107,040       1,136,135  
Goodwill - Note 6
    39,688,966       39,688,966  
Software - Note 7
    16,900,047       16,514,894  
Other assets
    228,544       223,630  
Total non-current assets
    68,543,080       59,231,576  
                 
Total assets
    82,746,693       76,865,928  
                 
Liabilities and shareholders' equity
               
Current liabilities
               
Notes payable
    1,516,383       1,440,295  
Liabilities to banks
    42,493       50,324  
Accounts payable and accrued liabilities
    3,759,994       4,972,832  
Other liabilities
    2,901,918       2,846,417  
Due to related parties – Note 8
    688,532       827,656  
Deferred income
    9,673,504       6,208,458  
Total current liabilities
    18,582,824       16,345,982  
                 
Liabilities to banks
    -       780,277  
Deferred tax liabilities
    798,009       878,450  
Retirement benefit obligation
    162,095       153,962  
Other liabilities
    5,778,505       6,127,373  
Total non-current liabilities
    6,738,609       7,940,062  
                 
Total liabilities
    25,321,433       24,286,044  

See Accompanying Notes

 
4

 

GBS Enterprises Incorporated
Interim Consolidated Balance Sheets
June 30, 2011 and March 31, 2011
(Unaudited)

   
June 30, 2011
   
March 31, 2011
 
    $     $  
Shareholders' equity
               
Capital Stock - Note 9
               
Authorized:
               
75,000,000 common shares and
               
25,000,000 preferred shares each with a
               
par value of $.001
               
Issued and outstanding
               
23,793,790 common shares
               
(22,544,000 shares at March 31, 2011)
    23,794       22,544  
Additional paid in capital
    39,911,382       33,894,661  
Deficit
    (1,989,851 )     (174,959 )
Other comprehensive income
    800,929       (13,639 )
Total shareholders' equity
    38,746,254       33,728,607  
                 
Noncontrolling interest in subsidiaries
    18,679,006       18,851,277  
                 
Total equity and liabilities
    82,746,693       76,865,928  

See Accompanying Notes

 
5

 

GBS Enterprises Incorporated
Interim Consolidated Statements of Operations
For the three months ended June 30, 2011 and June 30, 2010
(Unaudited)

   
For the three months
 
   
ended June 30
 
   
2011
   
2010
 
    $     $  
Net sales
    5,676,430       7,053,238  
Cost of goods sold
    2,589,348       3,048,244  
Gross profit
    3,087,082       4,004,994  
                 
Operating expenses
               
Selling expenses
    3,663,474       3,367,119  
Administrative expenses
    1,499,856       1,004,334  
General expenses
    202,304       287,527  
      5,365,634       4,658,980  
                 
Operating income
    (2,278,552 )     (653,986 )
                 
Other Income (expense)
               
Other Income (expense)
    (658,569 )     1,286,461  
Interest income
    11,381       7,458  
Interest expense
    (98,301 )     (94,155 )
      (745,489 )     1,199,764  
                 
Income (loss) before income taxes
    (3,024,041 )     545,778  
                 
Income tax (income) expense
    (1,036,877 )     93,475  
                 
Net income (loss)
    (1,987,164 )     452,303  
                 
Net income (loss) attributable to non controlling interest
    (172,271 )     (10,726 )
                 
Net income (loss) attributable to shareholders
    (1,814,893 )     463,029  
                 
Other comprehensive income (loss)
    (21,891 )     (7,571 )
                 
Net income (loss) and comprehensive income (loss) attributed to shareholders
    (1,836,784 )     455,458  
                 
Basic and diluted income (loss) per share
    (0.077 )     0.021  
                 
Weighted average number of shares outstanding
    23,626,418       22,544,000  

See Accompanying Notes

 
6

 

GBS Enterprises Incorporated
Interim Consolidated Statements of Cash Flows
For the three months ended June 30, 2011 and June 30, 2010
(Unaudited)

   
For the three months
 
   
ended June 30
 
   
2011
   
2010
 
    $     $  
Cash flow from operating activities
               
Net loss / net income
    (1,814,893 )     463,029  
Adjustments
               
Deferred income taxes
    (1,051,345 )     351,069  
Depreciation and amortization
    1,030,391       904,269  
Minority interest losses
    (172,271 )     444,836  
Changes in operating assets and liabilities
               
Accounts receivable and other assets
    1,705,817       1,365,167  
Retirement benefit obligation
    (4,915 )     84,468  
Inventories
            659  
Accounts payable and other liabilities
    2,270,840       (1,240,803 )
Net cash provided by operating activities
    1,963,624       2,372,694  
                 
Cash flow from investing activities
               
Purchase of intangible assets
    (847,721 )     (1,347,222 )
Purchase of property, plant and equipment
    (64,164 )     (27,344 )
Purchase of subsidiaries
    (600,000 )     -  
Currency differences
    (623,443 )     (292,199 )
Purchase of financial assets
    (1,246,776 )     133,526  
Net cash used in investing activities
    (3,382,104 )     (1,533,239 )
                 
Cash flow from financing activities
               
Net borrowings - banks
    (780,277 )     (751,615 )
other borrowings
    (340,735 )     (113,491 )
Net cash used in financing activities
    (1,121,012 )     (865,106 )
                 
Effect of exchange rate changes on cash
    814,568       138,052  
                 
Net increase in cash
    (1,724,924 )     112,401  
Cash and cash equivalents - Beginning of the period
    8,530,864       1,744,965  
                 
Cash and cash equivalents - End of period
    6,805,940       1,857,366  
                 
Supplemental information
               
Taxes paid
    14,468       7,273  
                 
Interest paid
    702       7,998  
                 
Non cash transaction – 1,249,790 shares issued for equity investment in related parties
    5,983,971       -  

See Accompanying Notes

 
7

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 1 – INTERIM REPORTING

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.  They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, they include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America.  These interim financial statements follow the same accounting policies and methods of their application as the Company’s March 31, 2011 financial statements.  All adjustments are of a normal recurring nature.  It is suggested that these interim financial statements be read in conjunction with the Company’s March 31, 2011 financial statements.
 
Operating results for the three months ended June 30, 2011 are not necessarily indicative of the results that can be expected for the year ending March31, 2012.

NOTE 2 - OPERATIONS AND RESTRUCTURING

GBS Enterprises Incorporated, a Nevada corporation (sometimes referred to in these statements as the “Company,” “GBSX,” “we,” “us,” “our” or similar terms), conducts its primary business through its 50.1% owned subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW.  GROUP’s core business is focused on serving IBM’s Lotus Notes and Domino market where it has become IBM’s largest provider of business solutions worldwide.  GROUP caters primarily to mid-market and enterprise-size organizations having over 3,500 customers in thirty-eight countries spanning four continents, representing more than 5,000,000 active users of its products.  GROUP’s customers include Abbot, Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota.  GROUP provides Cloud Computing technology, IBM Lotus Notes/Domino Application Transformation technology, Email Management software, Lotus Software Services, Customer Relationship Management software and Risk & Compliance Management solutions. Headquartered in Eisenach, Germany, GROUP has offices throughout Europe and North America.

General Corporate History

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

On April 26, 2010, SWAV purchased certain assets of Lotus Holdings Limited (“Lotus”) pursuant to an Asset Purchase Agreement in consideration for aggregate of 2,265,240 shares of SWAV common stock.  Lotus is a holding company specializing in software technology and training services, particularly in the areas of advanced software development tools, innovative point-of-care electronic health record (EHR) software, and sales training. Simultaneously with SWAV’s acquisition of Lotus, the SWAV stockholders sold an aggregate of 11,984,770 shares of SWAV common stock to Joerg Ott, our CEO and Chairman, for an aggregate purchase price of $370,000.

Upon the consummation of the acquisition, the then executive officers and directors of SWAV resigned and Joerg Ott was appointed as the Company’s Chief Executive Officer, President and Chairman of the Board of Directors. On September 6, 2010, SWAV’s name was changed to GBS Enterprises Incorporated. On October 14, 2010, the Company’s trading symbol on the OTC Bulletin Board was changed from SWAV to GBSX.

 
8

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 2 - OPERATIONS AND RESTRUCTURING – (continued)

On November 5, 2010, the Company entered in to an agreement to acquire approximately 28.2% of the outstanding common shares of GROUP Business Software AG, (“GROUP”) a German company, trading on the Frankfurt Stock Exchange under the symbol INW.  The acquisition was a two-step transaction, culminating in a share exchange.  The Company purchased 3,043,985 of its own shares for $300,000 and then exchanged those shares for 7,115,500 shares of common stock of GROUP.  Their fair value was calculated at $.0579 per share as determined by an independent valuation firm. The agreement was effective December 30, 2010.

On January 6, 2011, the Company acquired an additional aggregate of 5,525,735 shares of common stock of GROUP in exchange for 1,908,005 shares of common stock of the Company.  The acquisition represents approximately 21.9% of the issued and outstanding shares of GROUP.  The effect of this transaction is that the Company gained a 50.1% controlling interest of GROUP with an aggregate of 12,641,235 common shares.  The value of this additional purchase, using the same techniques as the previous acquisition, was $2,796,000, based on a value of $0.506 per share.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 
This summary of significant accounting policies is presented to assist in understanding the financial statements.  The financial statements and notes are the representations of the Company’s management, who is responsible for their integrity and objectivity.

There have been no changes in accounting policies form those disclosed in the notes to the audited financial statements for March 31, 2011.

 
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 disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The financial statements above reflect all of the costs of doing business.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, management considers liquid investments with an original maturity of three months or less to be cash equivalents. As at June 30, 2011, the Company did not have any cash equivalents ($nil – 2010).

Comprehensive Income (Loss)

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

 
9

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Net Income per Common Share

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

Financial Instruments

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

Fair Value Measurements

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

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

Impairment of Long-Lived Assets

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

 
10

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Customers take ownership at point of sale and bear the costs and risks of delivery. Maintenance earnings are realized per FASB ASC 605  Revenue Recognition on a pro rata basis over the contractual service period. Consulting and training services are realized upon provision of the service. Sales revenues are presented with deductions made for discounts, customer bonuses, and rebates.
 
Property, Plant and Equipment

Property, plant and equipment are valued at acquisition or manufacturing costs, reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation is mainly based on useful lives of 3 to 10 years.  If fixed assets are sold, retired or scrapped, the profit or loss arising from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.

Intangible Assets

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

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

GROUP amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with ASC regulations. In addition, in special circumstances according to FASB ASC 350-30, a recoverability test is performed and, if applicable, unscheduled amortization is considered.  The useful life of acquired software is between three and five years and three years for Company-designed software.

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

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

 
11

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Other Provisions

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

Foreign currency translation

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

Deferred Taxes

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

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

Stock Based Compensation

The Company adopted the fair value recognition provisions of FASB Codification topic 740 Stock Compensation” under which the Company records stock-based compensation expense for warrants and stock options granted to employees, directors and officers using the fair value method. Under this method, stock-based compensation is recorded over the vesting period of the warrant and option based on the fair value of the warrant and option as the grant date. The fair value of each warrant and option granted is estimated using the Black-Scholes option pricing model that takes into account on the grant date, the exercise price, expected life of the warrant and/or option, the price of the underlying security, the expected volatility, expected dividends on the underlying security, and the risk-free interest rate. Transactions in which goods or services are received from non-employees in exchange for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Stock based compensation is recorded with a corresponding increase to additional paid-in capital. Consideration received on the exercise of warrants and options, together with the amount previously credited to additional-paid in capital, is recognized as an increase in common stock.

 
12

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Principles of Consolidation and Reverse Acquisition

As previously disclosed, the Company has exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP. Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP becomes the accounting acquirer and is deemed to have retroactively adopted the capital structure of the Corporation.  Accordingly, the accompanying consolidated interim financial statements reflect the historical consolidated financial statements of GROUP for all periods presented prior to the merger of January 6, 2011.   Only transactions and balances subsequent to that date are included in these interim financial statements.  Common stock and additional paid in capital are the only exceptions, as their structure immediately after the merger were accounted for as being the initial balances at inception.

The Company has based its financial reporting for the consolidation with GROUP in accordance with FASB Accounting Standard Codification (ASC) 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities. The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, in a reverse acquisition, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.

It should also be noted that the Company and GROUP have different year-end reporting dates. The Company’s fiscal year-end reporting date is March 31 and GROUP”s calendar year-end reporting date is December 31. The consolidation of these entities for financial reporting purposes has been performed without any adjustments for timing differences between these two reporting dates in accordance Regulation S-X Rule 11-02.

Recent Accounting Pronouncements

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date.  Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

NOTE 4 – EQUITY INVESTMENTS IN RELATED PARTIES

Effective April 1, 2011, the Company entered into an agreement to acquire 100% of the outstanding common shares of Pavone AG, a German corporation, for $350,000 in cash and 1,000,000 shares of its common stock.  The fair value of the common stock was determined to be $4.90 per share, representing the market value at the end of trading on the date of the agreement.  The total value of the investment was recorded as $5,248,971 as only 999,790 shares were issued, the difference being rounding.

Effective June 1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a State of Florida corporation.  As consideration the Company paid $250,000 and issued 250,000.  The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the agreement.  The total value of the investment was recorded as $1,335,000.

 
13

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 4 – EQUITY INVESTMENTS IN RELATED PARTIES – (continued)

In order to achieve a fair presentation, the Company has  not yet allocated the purchase prices to the assets and liabilities acquired nor have any operations from these subsidiaries been recorded in the accounts as of June 30, 2011.  Management plans to consolidate these companies into its accounts once it has completed an analysis of the fair value of the assets and liabilities acquired.
 
NOTE 5 – PROPERTY PLANT AND EQUIPMENT

Fixed assets are measured at cost less scheduled straight-line depreciation. The specific useful life was based on those used uniformly at the parent company.

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

   
June 30, 2011
   
March 31, 2011
 
         
Accumulated
   
Net Book
         
Accumulated
   
Net Book
 
   
Cost
   
Depreciation
   
Value
   
Cost
   
Depreciation
   
Value
 
    $     $     $     $     $     $  
                                                 
Equipment
    5,114,071       4,766,594       347,477       4,857,380       4,558,883       298,497  

NOTE 6 – GOODWILL

Goodwill results from business combinations and is tested annually for recoverability as part of an impairment test. Goodwill arises from the following business acquisitions:

Affiliated Company
Date of the First
Consolidation
 
Goodwill
YE in kUSD
   
Goodwill
Q1 in kUSD
 
global words AG
01/10/02
    5,095.3       5,095.3  
GROUP Technologies AG
01/09/05
    4,479.7       4,479.7  
GROUP Business Software Inc.
31/12/05
    2,177.5       2,177.5  
GROUP LIVE N.V.
31/12/05
    1,324.2       1,324.2  
zurückbehaltener GoF CRM
31/12/05
    3,108.4       3,108.4  
GROUP Business Software Ltd
31/12/05
    2,765.1       2,765.1  
ebVOKUS Software GmbH
01/10/05
    443.6       443.6  
GAP AG für GSM Applikationen und Produkte
31/12/05
    1,913.9       1,913.9  
Relavis Corporation
01/08/07
    7,288.3       7,288.3  
Permessa
22/09/10
    2,387.4       2,387.4  
GROUP Business Software AG
06/01/11
    8,705.5       8,705.5  
        39,689.0       39,689.0  

 
14

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 7 – SOFTWARE

Development costs

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

The development costs arising in the reporting period result from the personnel costs to be attributed to the development work as well as overhead costs, provided that these are related to the development work and do not represent general administrative costs. The ascribable overhead costs are directly recognized.  Capitalized development costs are generally amortized over a period of three years starting with the date of marketability of the new products or major releases.

Concessions, Industrial Property Rights, Licenses

The intangible financial assets carried in this item are licenses acquired in exchange for payment. These financial assets are measured at acquisition cost less scheduled straight-line amortization. The assets added in the scope of the cost price allocation of the business divisions acquired this year.  The useful life spans were based uniformly throughout the Corporation on those used by the parent company. Scheduled amortization is performed over a period from three to ten years.

NOTE 8 – RELATED PARTY TRANSACTIONS AND BALANCES
   
June 30
   
March 31
 
   
2011
   
2011
 
    $     $  
Due to a director and shareholder, unsecured demand note payable
             
bearing interest at 5%, due March 1, 2011
    5,012       114,750  
Due to Lotus Holdings Ltd., a shareholder, demand notes payable,
               
bearing interest at 5%, due October 31, 2011
               
- secured by shares in GROUP Business Software AG
    562,238       600,000  
- secured by OUTPUT software
    105,000       105,000  
Accrued interest on loans
    16,282       7,906  
      688,532       827,656  

The Company had the following transactions with related parties for the three months ending June 30, 2011 and June 30, 2010:

   
2011
   
2010
 
   
$
   
$
 
Expenses paid to related parties:
               
Wages
   
34,615
     
34,615
 
Rent
   
15,098
     
14,722
 
Consulting fees
   
273,171
     
88,871
 
Interest
   
5,000
     
-
 
Stock Base Compensation
   
34,000
     
-
 
 
The transactions between the Company and the parties were consummated at the price agreed upon between the parties.

NOTE 9 - CAPITAL STOCK

On March 20, 2007 the Company issued 8,900,000 shares in aggregate for $75,462 of debt.

On May 4, 2007, the Company completed a private placement, issuing 2,500,000 shares for $67,757 in cash.

On June 30, 2008, the Company completed a private placement, issuing 834,670 shares for $25,040 in cash.

 
15

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 9 - CAPITAL STOCK – (continued)

On April 26, 2010, the Company issued 2,265,240 shares in aggregate for goodwill, inventory, licenses, customer lists and computer software valued at $165,000.

On November 5, 2010, the Company purchased 3,043,985 shares from an existing shareholder for $300,000.  Thereupon it exchanged those shares for 7,115,500 common shares of GROUP Business Software AG, a German Company, the fair value of which was determined to be $3,898,000.

On January 6, 2011, the Company acquired an additional aggregate of 5,525,735 shares of common stock of GROUP in exchange for 2,361,426 shares of common stock of the Company.  The fair value was determined to be $2,796,000.  This brought the total ownership of the issued and outstanding shares of GROUP owned by the Company to be 50.1%

The acquisition of GROUP was accounted for as a reverse acquisition whereby GROUP is treated as the accounting acquirer and the Company is treated as the accounting acquiree.  As the transaction is accounted for as a recapitalization applied retroactively, the balance of 16,500,000 issued and outstanding at that time has been recorded as outstanding since inception.

On March 31, 2011, the Company completed a private placement offering whereby it raised $7,555,000 gross proceeds through the sale of 6,044,000 units at $1.25 per unit.  Each unit represents one share of common stock and one warrant.  The warrant allows the holder to purchase one share of common stock of the Company from the date of the grant until the third anniversary of the date of the grant for a purchase price of $1.50 per share.

On April 1, 2011, the Company issued 999,790 shares as partial payment for 100% of the issued and outstanding shares of Pavone AG.  The fair value of the shares issued was determined to be $4,898,971.

On June 1, 2011, the Company issued 250,000 shares as partial payment for 100% of the issued and outstanding shares of GroupWare, Inc.  The fair value of the shares issued was determined to be $1,085,000.

NOTE 10 – STOCK BASED COMPENSATION

Effective April 1,2011, a warrant to purchase shares was granted to an officer of the Company.  The warrant allowed the grantee to purchase 100,000 common shares of the Company at $1.50.  The warrant may be exercised any time before the third anniversary of the grant.  This was the only compensation granted in either of the three month periods ending June 30, 2011 or June 30, 2010.

Compensation was recorded at the fair value of the warrant as at the grant date based on the Black-Scholes option pricing model, using the following assumptions:

Expected dividend yield
    0 %
Average risk-free interest rate
    1.19 %
Expected life
   
3 years
 
Expected volatility
    77.1 %

Under the fair value method of accounting for stock options (warrants) the Company has recorded compensation expense for the quarter ending June 30, 2011 of $34,000 ($nil – 2010).  This amount has been credited to additional paid in capital.

 
16

 

GBS Incorporated Inc.
Notes to the Interim Financial Statements
June 30, 2011
(Unaudited)

NOTE 11- WARRANTS

The Company has issued warrants to outside consultants in payments for services provided as detailed in the following schedule. The warrants are issued as “cashless” warrants and all have a three-year term with the exception of the warrant issued on October 10, 2010, which has a 30 month term. The warrants have been valued using a Black-Scholes option pricing model with appropriate volatility, equity value and interest rate inputs as noted below. The valuation of the warrants is for disclosure purposes only as the charge is related to the cost of issuing the shares and there is no impact to the financial statements.

Common Stock Warrants Issued
to Outside Consultants
 
Common
Shares
   
Exercise
Price
 
Valuation
Date
 
Fair Value per
Warrant Share
   
Warrants' Fair
Value
 
                           
Issued on October 1, 2010
    2,000,000     $ 4.00  
10/1/2010
  $ -     $ -  
Issued on March 14, 2011
    707,280     $ 1.50  
3/14/2011
  $ 0.34     $ 240,475  
Issued on March 24, 2011
    15,000     $ 1.50  
3/24/2011
  $ 0.34     $ 5,100  
Total Warrant Value
                            $ 245,575  

The fair value of the warrant as at the grant date of October 1, 2010 was based on the Black-Scholes option pricing model, using the following assumptions:

Expected dividend yield
    0 %
Average risk-free interest rate
    0.74 %
Expected life    
2.5 years
 
Expected volatility
    65.0 %

The fair value of the warrant as at the grant date of March 14, and March 24, 2011 were based on the Black-Scholes option pricing model, using the following assumptions:

Expected dividend yield
    0 %
Average risk-free interest rate
    1.07 – 1.19 %
Expected life    
3 years
 
Expected volatility
    77.2 %

As at June 30, 2011, the number of shares the warrants outstanding could purchase if exercised was as follows:

         
Weighted
 
   
Common
   
Average
 
Warrants
 
Shares
   
Price/sh
 
Outstanding, beginning of period
    8,766,280     $ 2.07  
Issued
    100,000     $ 1.50  
Expired
    -     $ -  
Outstanding, end of period
    8,866,280     $ 2.06  
 
 
17

 

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

General Summary

GBS Enterprises Incorporated, a Nevada corporation (the “Company,” “GBS”), is a software and services company specializing in Cloud Automation and business software application modernization and transformation. Through its 50.1% subsidiary, GROUP Business Software AG, a German corporation (“GROUP”), the Company is the world’s largest supplier of applications for IBM’s Lotus Notes and Domino markets.  GROUP also markets its Cloud Automation Platform (“CAP”) (branded under the name “GROUP Live”) and Domino Application Transfer technology (“DAT”) (branded under the name “Transformer”), which automatically transforms applications from client-only to modern web 2.0 styled browser and mobile accessible applications, ready to be deployed in the cloud.  The Company,  through its global subsidiaries, serves  over five million active users with over 3,500 customers in 38 countries, the bulk of which are large and mid-sized firms that include Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota.  The Company and its subsidiaries have offices throughout Europe, Asia and North America. Joerg Ott, our CEO and Chairman, is also the CEO of GROUP.

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

Products and Services

GBS has achieved significant growth by consolidating the fragmented Lotus Software market through the successful merger & acquisitions of companies with complementary product, technology or services offerings. Based on its organic growth and growth by acquisition the following four global divisions have been formed to service and support GBS’s expanding Lotus customer base:  Communication Software & Solutions, Cloud Computing, Business Applications and Consulting Services divisions.

 
 
Communication and
Business Application
Software & Solutions
Division
 
 
 
Cloud Computing
Division
 
 
 
 
Application Modernization
and Transformation
Division
 
 
 
Consulting Services
Division
 
 
E-mail and Instant Messaging (IM) Management, Security, Compliance, Archiving and Productivity, CRM Applications, Governance, Risk & Compliance (GRC) Management software, Workflow and Business Process Management software, and
e-Banking solutions
 
 
  Platform-as- Service (PaaS) Cloud Automation (IaaS technology) and  Cloud-enablement services
 
 
 
 Application modernization and transformation (Transformer technology), Application Cloud enablement  and deployment, Migration Services
 
 
 
Lotus Domino Consulting and, Strategy, Managed Services, Outsourcing, Administration,, Assessments and Implementations, Performance Improvements, Custom Application Development , Governance and Security,  , Technical Support, and Training
 

Revenue Model

GBS receives four types of revenues for its products and services, including Licensing, Service, Maintenance, and Subscription.  Licensing revenue is derived from the licensing of applications for Lotus Notes and Domino, which will now include IBM’s marketing of the CAP and DAT products.  Service revenue is obtained from a wide range of consulting services provided by the GROUP Experts division.
 
Strategy and Focus Areas

The Company is focused on developing a portfolio of Cloud Computing software technologies and Application Services to address the needs of Independent Service Providers (ISV’s), Data Center providers, as well as commercial and government organizations. GBSX is pursuing an aggressive growth strategy based upon highly targeted mergers and acquisitions so as to build its portfolio of technologies, applications, and services.
 
In addition to the significant growth potential anticipated through its multiple partnerships with IBM, GBS also has the potential for dramatic growth from large strategic partnerships such as with major Cloud platform/OEM players, data centers, ISV’s as well as a variety of large enterprise class and medium sized end users who are interested in having their own private clouds. GBS also intends to pursue highly attractive opportunities with a wide variety of other Cloud vendors including Computer Associates, Dell, HP, Accenture, and Amazon, as well as with specialized distributors and system integrators.

 
18

 
 
Company History

GBS Enterprises Incorporated, a Nevada corporation (sometimes referred to in this prospectus as the “Company,” “GB.” “GBSX,” “we,” “our,” “us” or similar terms), conducts its business through its global subsidiaries, primarily through its 50.1% subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW.

The Company went public through a reverse merger with SWAV Enterprises Ltd. on April 26, 2010, and simultaneously acquired 100% of the software assets from Lotus Holdings Limited for an aggregate of 2,265,240 shares of Common Stock.  On September 16, 2010, SWAV Enterprises Ltd. changed its name to GBS Enterprises Incorporated. On October 14, 2010, the trading symbol of the Company’s Common Stock on the OTC Bulletin Board was changed from “SWAV” to “GBSX.”
 
In November 2010, the Company acquired 28.2% of GROUP through a series of share exchange agreements with several major shareholders of GROUP, including Mr. Joerg Ott (our Chairman, President and Chief Executive Officer), other private investors in GROUP and LVM Landwirtschaftlicher Versicherungsverein Muenster AG.  In January 2011, the Company acquired an additional 21.9% of GROUP through a series of share exchange agreements with other GROUP shareholders, for a total controlling interest of 50.1%.
 
On April 1, 2011, the Company acquired 100% of the issued and outstanding shares of capital stock of Pavone, AG, a German corporation (“Pavone”), from the stockholders of Pavone in consideration for one million shares of Common Stock of the Company and an aggregate of $350,000. Pavone is a leader in business process management and optimization technologies. Pavone’s extensive workflow software for Lotus Notes and Domino along with their large customer base is well suited to GBS Enterprises portfolio strategy. This acquisition of Pavone complements GBS's majority ownership in GROUP and further strengthens their leading industry position on the IBM Lotus Platforms and expands their cloud computing technology offerings beyond the IBM Lotus market. Pavone currently has offices in Germany and the UK. They have over 2,500 customers and over 150,000 users worldwide. Some of their customers include Deutsche Bundes Bank, BMW, Linde AG, Philips, British Sugar and Mahle Industries.
 
On June 1, 2011, the Company acquired GroupWare, Inc., a Florida corporation pursuant to an Acquisition Agreement, dated June 1, 2011 (the “Agreement”), by and among the Company, GroupWare and the holder of 100% of the issued and outstanding shares of Common Stock of GroupWare (the “Selling Stockholder”) in consideration for 250,000 shares of Common Stock of the Company and $250,000. Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director, was appointed as the Chief Executive Officer and sole director of GroupWare. GroupWare is based in Lubeck, Germany with offices in St. Petersburg, Florida. GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. This acquisition strengthens the GBS Transformer offering, which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser. In addition, GroupWare provides a solution for applications that are ready to be retired. With the ePDF Server, GBS customers can convert the entire contents of IBM Lotus Notes and Domino applications to a permanent and secure archive in PDF or PDF/A format, while preserving their ability to be full-text searched and ensuring that the critical application data is accessible in the future, when needed. GBS will deliver the application archiving capabilities via its GroupLive cloud, making it possible for customers and partners to take advantage of elastic cloud computing resources to rapidly process the application contents without the need to dedicate hardware on-site for temporary or intermittent processing jobs.
 
On July 25, 2011, the Company acquired 100% of the issued and outstanding capital stock of IDC Global, Inc., a Delaware corporation (“IDC”), in consideration for 880,000 shares of Common Stock of the Company and $750,000.  IDC is a privately held company that provides nationwide network and data center services.  IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC has data centers in Chicago, New York and London and other key cities.  IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing.  The acquisition of IDC provides the Company with the infrastructure needed to provide a comprehensive end-to-end solution for all customers regardless of their platforms.  It proves especially beneficial to IBM Lotus Domino and Notes customers who finally have the same options as other platforms.

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

 
19

 

An October 2010 IBM Tech Trend Survey found that 91% of the 2,000 IT developers surveyed expect cloud computing to over-take on-premise computing as the primary way organizations acquire IT over the next five years.  An IDC July 2010 report shows global public cloud-related spending at $16.5 billion in 2009 (4% of the total IT spending) with the expectation that the market will increase to $55.5 billion by 2014, making up 12% of total IT spending.  IDC broke down the market into five categories, three of which GBS competes in, including Applications, App Development and Deployment, and Infrastructure Software.  These three make up $13.0 billion of the 2009 total and $40.5 billion in 2014, which leaves plenty of room for growth for a number of competitors in the market.

Competition

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

The Company is focused on developing a portfolio of Cloud Computing software technologies and Application Services to address the needs of ISV’s, Data Center providers, as well as commercial and government organizations. GBSX is pursuing an aggressive growth strategy based upon highly targeted mergers and acquisitions so as to build its portfolio of technologies, applications, and services.
 
Results of Operations
 
Assets
 
Total Assets increased from $76,865,928 at March 31, 2011 to $82,746,693 at June 30, 2011.  Total Assets consist of Total Current Assets and Total Non-Current Assets.
 
At June 30, 2011, our Total Current Assets were $14,203,613, compared to $17,634,352 at March 31, 2011. Our cash and cash equivalents decreased from $8,530,864 at March 31, 2011 to $6,805,940 at June 30, 2011.  The decrease was primarily due to the Company’s acquisition of two companies during the quarter and on-going working capital needs to finance current operations.  Accounts Receivable decreased from $5,698,320 at March 31, 2011 to $4,896,092 at June 30, 2011.  This decrease was primarily due to a decrease in sales activity.   Prepaid Expenses increased from $1,423,281 at March 31, 2011 to $1,647,095 at June 30, 2011 based on the purchase of additional material.  Other receivables consisted of a receivable for anticipated compensation for damage, security deposits, tax refund claims and decreased from $1,981,887 at March 31, 2011 to $854,486 at June 30, 2011.  The decrease was primarily due to receipt of damage compensation and tax refund claims.  Equity investments in related parties increased from -0- at March 31, 2011 to $6,543,971at June 30, 2011. See Note 4 to the Financial Statements for explanation.
 
At June 30, 2011, our Total Non-Current Assets were $68,543,080, compared to $59,231,576 at March 31, 2011.  Our Financial Assets increased from $1,369,454 at March 31, 2011 to $2,687,035 at June 30, 2011 and consist of the value of the 50% interest in an associated company and the amount still outstanding against the purchaser of GEDYS IntraWare GmbH due for monthly repayments. Our Deferred Tax Assets increased from $1,136,135 at March 31, 2011 to $2,107,040 at June 30, 2011 and consisted of Deferred Tax Assets derived from increases in Financial Assets. There were no changes in Goodwill during the period. Software increased from $16,514,894 at March 31, 2011 to $16,900,047 at June 30, 2011 and consists of an increase in capitalized development cost, product rights and licenses.  Other Assets increased from $223,630 at March 31, 2011 to $228,544 at June 30, 2011 and consisted of the reinsurance relating to pension obligations.
 
Liabilities
 
Total Liabilities increased from $24,286,044 at March 31, 2011 to $25,321,433 at June 30, 2011.  Total Liabilities consists of Total Current Liabilities and Total Non-Current Liabilities.
 
At March 31, 2011, our Total Current Liabilities were $16,345,982, compared to $18,582,824 at June 30, 2011.  Notes Payable increased from $1,440,295 at March 31, 2011 to $1,516,383 at June 30, 2011 and primarily consists of the external capital components of the convertible bond issue. Liabilities to Bank decreased from $50,324 at March 31, 2011 to $42,493 at June 30, 2011 and consisted of a line of credit.  Accounts Payable and Accrued Liabilities decreased from $4,972,832 at March 31, 2011 to $3,759,994 at June 30, 2011 and consists of Trade payables, Tax accruals and other accruals.  Other Liabilities decreased from $2,846,417 at March 31, 2011to $2,901,918 at June 30, 2011 and consists of the liabilities relating to the purchase of assets, tax liabilities, other miscellaneous loans.  Amounts due to related parties decreased from $827,656 at March 31, 2011 to $688,532 at June 30, 2011.  Deferred Income increased from $6,208,458 at March 31, 2011 to $9,673,504 at June 30, 2011 and consists mainly of maintenance income collected in advance of the contractual maintenance period.
 
 
20

 
 
At June 30, 2011, our Total Non-Current Liabilities were $6,738,609, compared to $7,940,062 at March 31, 2011.  Liabilities to Banks decreased from $780,277 at March 31, 2011 to $-0- at June 30, 2011 and consisted of a reduction of long-term liabilities vis-à-vis Baden-Württembergische Bank.  Deferred Tax Liabilities decreased from $878,450 at March 31, 2011 to $798,009 at June 30, 2011 and consists of the Deferred Tax Liabilities from the capitalization of software expenses.  The decrease was primarily due to depreciation of Assets.  Retirement Benefit Obligation increased from $153,962 at March 31, 2011 to $162,095 at June 30, 2011, and consisted of  additional accrued retirement benefit obligations.  Other Liabilities decreased from $6,127,373 at March 31, 2011 to $5,778,505 at June 30, 2011 and consisted of a reduction of liabilities related to the purchase of assets in a prior period.
 
Fiscal Quarter Ended June 30, 2011 Compared to the Fiscal Quarter Ended June 30, 2010
 
Revenues
 
For the fiscal quarter ended June 30, 2011, our Net Sales decreased to $5,676,430 from $7,053,238 for the fiscal quarter ended June 30, 2010.  The Company generates nets sales by Licenses, Maintenance, Services, Third-Party Products and Others.  The decrease from 2010 to 2011 was primarily due to the sale of the subsidiary Gedys IntraWare GmbH.
 
Cost of Goods Sold
 
For the fiscal quarter ended June 30, 2011, our Cost of Goods Sold decreased to $2,589,348 from $3,048,244 for the fiscal quarter ended June 30, 2010.  Cost of Goods Sold consists of Cost for Services, Cost for Third-Party Products and Cost for Software Licenses.   The decrease from 2010 to 2011 was primarily due to the sale of the subsidiary Gedys IntraWare GmbH.
 
Operating Expenses
 
For the fiscal quarter ended June 30, 2011, our Operating Expenses increased to $5,365,634 from $4,658,980 for the fiscal quarter ended June 30, 2010.  Operating Expenses consist of Selling Expenses, Administrative Expenses and General Expenses.  For the fiscal quarter ended June 30, 2011, our Selling Expenses increased to $3,663,474 from $3,367,119 for the fiscal quarter ended June 30, 2010.  Selling Expenses consist of cost for the Sales, Marketing and Service units.  The reason for the increase from 2010 to 2011 was primarily due to an increase in sales personnel and related selling costs such as travel expenses.    For the fiscal quarter ended June 30, 2011, our Administrative Expenses increased to $1,499,856 from $1,004,334 for the fiscal quarter ended June 30, 2010.  The reason for the increase from 2010 to 2011 was primarily due to an increase in legal expense, consultant expense, investor relations expense and associated travel costs.  For the fiscal quarter ended June 30, 2011, our General Expenses decreased to $202,304from $287,527 for the fiscal quarter ended June 30, 2010.  The reason for the decrease from 2010 to 2011 was primarily due to a decrease in professional fees, cost of money transactions and currency conversion.
 
Liquidity & Capital Resources
 
At June 30, 2011, we had $6,805,940 in cash and cash equivalents, compared to $8,530,864 at March 30, 2011.  The decrease in Cash and Cash Equivalents between March 31, 2011 and June 30, 2011 is primarily due to cash payments relating to two acquisitions as explained in Note 4 to the Financial Statements as well as additional working capital needs during the period.
 
Management believes that the Company’s cash at June 30, 2011 will be sufficient to meet the Company’s working capital requirements for the next 12 month period. Management believes that as a result of the assets purchased to date, it will generate additional funds and that it will be able to obtain additional capital as required to meet projected operational requirements.
 
Cash Flows
 
   
Fiscal Quarter Ended
 
   
June 30,
 
   
2011
   
2010
 
Cash provided by operating activities
  $ 1,963,624     $ 2,372,694  
Net cash provided by (used in) Investing Activities
  $ (3,382,104 )   $ (1,533,239 )
Net cash provided by (used in) Financing Activities
  $ (1,121,012 )   $ (865,106 )
Effect of exchange rate changes on cash
  $ 814,568     $ 138,052  
Net increase (decrease) in cash and cash equivalents during the period
  $ (1,724,924 )   $ 112,401  
Cash and cash equivalents, beginning of period
  $ 8,530,864     $ 1,744,965  
Cash and cash equivalents, end of period
  $ 6,805,940     $ 1,857,366  

 
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Comprehensive Income (Loss)
 
The Company adopted FASB Codification topic 220, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income consists of net income and other gains and losses affecting stockholder's equity that are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Since inception, the Company’s other comprehensive income represents foreign currency translation adjustments.
 
Net Income per Common Share
 
FASB Codification topic 260, Earnings per share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations. Basic earnings per share amounts are based on the weighted average shares of Common Stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential Common Stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted net income (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share.
 
Financial Instruments
 
Financial instruments consist of cash and cash equivalents, accounts receivable, financial assets, notes payable, liabilities to banks, accounts payable and accrued liabilities and other liabilities.  As of the financial statement date, the Company does not hold any derivate financial instruments. Financial assets and liabilities are measured upon first recognition and reviewed at the financial statement date.  Changes in fair value are recognized through profit and loss.  Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
 
Currency Risk
 
We use the US dollar as our reporting currency.  The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro and the British pound.  Accordingly, some assets and liabilities are incurred in those currency and we are subject to foreign currency risks.
 
Fair Value Measurements
 
The Company follows FASB Codification topic 820, Fair Value Measurements and Disclosures, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. This new accounting standard establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurement and expands disclosures about fair value measurements required under other accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
 
The Company has adopted FASB Codification topic 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
 
Cash and cash equivalents
 
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
 
Inventories
 
Pursuant to FASB ASC 330 (Inventories), inventories held for sale are recognized under inventories. Inventories were measured at cost, which is determined on a first-in-first out basis, without any overhead component.
 
Intangible Assets
 
Intangible assets predominately comprise goodwill, acquired software and capitalized software development services. Intangible assets acquired in exchange for payment are reflected as acquisition costs. If the development costs can be capitalized per FASB Accounting Standard Codification (“ASC“)  985-20-25, these are reflected as ascribable personnel and overhead costs.

 
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Company created software can be intended for sale to third parties or used by the Company itself. If the conditions for capitalization are not met, the expenses are recorded with their effect on profit in the year in which they were incurred.
 
GROUP amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with ASC regulations. In addition, in special circumstances according to FASB ASC 350-30, a recoverability test is performed and, if applicable, unscheduled amortization is considered.
 
The useful life of acquired software is between three and five years and three years for Company-designed software.
 
Intangible assets obtained as part of an acquisition  which do not meet the criteria for a separate entry are identified as goodwill and are reviewed once a year as to their recoverability in the form of an impairment test. If they are no longer recoverable, an unscheduled amortization expense entry is performed.
 
Use value is generally used in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The current plan prepared by the management serves as the basis for this policy. The planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are essentially determined based on the expected growth rates of the markets in question.
 
Property, Plant and Equipment
 
Property, plant and equipment are valued at acquisition or manufacturing costs, reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation is mainly based on useful lives of 3 to 10 years.
 
If fixed assets are sold, retired or scrapped, the profit or loss arising from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.
 
 Impairment or Disposal of Long-Lived Assets
 
The Company evaluates the recoverability of its fixed assets and other assets in accordance with FASB Codification topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. No impairment has been recognized in the accounts.
 
Revenue Recognition
 
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Customers take ownership at point of sale and bear the costs and risks of delivery.
 
Maintenance earnings are realized per FASB ASC 605  Revenue Recognition on a pro rata basis over the contractual service period. Consulting and training services are realized upon provision of the service. Sales revenues are presented with deductions made for discounts, customer bonuses, and rebates.
 
Foreign Currency Translation
 
The functional currency of the Company is US dollars. For financial reporting purposes, the financial statements of GROUP were translated into US dollars. Assets and liabilities were translated at the exchange rates at the balance sheet dates and revenue and expenses were translated at the average exchange rates and stockholders’ equity was translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
 
Other Provisions
 
According to FASB ASC 450 Contingencies, provisions are made whenever there is a current obligation to third parties resulting from a past event which is likely in the future to lead to an outflow of resources and of which the amount can be reliably estimated. Provisions not already resulting in an outflow of resources in the following year are recognized at their discounted settlement amount on the financial statement date. The discount taken is based on market interest rates. The settlement amount also includes the expected cost increases. Provisions are not set off against contribution claims. If the amended estimate leads to a reduction of the obligatory amount, the provision is proportionally reversed and the earnings are recognized in other operating earnings.
 
Deferred Taxes
 
Income taxes are provided in accordance with FASB Codification topic 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carry forwards.
 
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

 
23

 

Recent Accounting Pronouncements
 
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal quarters beginning after December 15, 2010 (the Company’s fiscal quarter 2012); early adoption is permitted.  The Company does not expect the adoption of ASU 2010-06 to have a material impact on its results of operations or financial position.
 
In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its results of operations or financial position.
 
Effective July 1, 2010, we adopted the update to the accounting standard regarding derivatives and hedging (Topic 815). This update clarifies how to determine whether embedded credit derivatives, including those interests held in collateralized debt obligations and synthetic collateralized debt obligations, should be bifurcated and accounted for separately. The adoption of this standard did not have a significant impact on our results of operations.
 
In December 2010, the FASB issued Accounting Standards Update ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805). The update requires public companies to disclose pro forma information for business combinations that occur in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company’s adoption of FASB ASU No. 2010-29 effective December 1, 2010 did not have an impact on the Company’s consolidated results of operations or financial position but did result in additional disclosures.
 
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements
 
Off - Balance Sheet Arrangements
 
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
 
Principles of Consolidation and Reverse Acquisition
 
As previously disclosed, the Company has exchanged a total of 5,405,411 shares of Common Stock in exchange for 50.1% of the outstanding common shares of GROUP. Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP becomes the accounting acquirer and is deemed to have retroactively adopted the capital structure of the Corporation.  Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for all periods presented, and do not include the historical financial statements of the Company.  All costs associated with the reverse merger transaction were expensed as incurred.
 
The Company has based its financial reporting for the consolidation with GROUP in accordance with FASB Accounting Standard Codification (ASC) 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities.
 
The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, in a reverse acquisition, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.
 
It should also be noted that the Company and GROUP have different year-end reporting dates. The Company’s fiscal quarter-end reporting date is March 31 and GROUP”s calendar year-end reporting date is December 31. The consolidation of these entities for financial reporting purposes has been performed without any adjustments for timing differences between these two reporting dates in accordance Regulation S-X Rule 11-02.

 
24

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

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

None

Item 4T.  Controls and Procedures.

Evaluation of Controls and Procedures.

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.
 
Evaluation of Disclosure Controls and Procedures
 
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2011, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were  ineffective.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
Pavone AG Acquisition
 
On April 1, 2011, the Company acquired 100% of the issued and outstanding shares of capital stock of Pavone, AG, a German corporation (“Pavone”), from the stockholders of Pavone in consideration for 1,000,000 shares of Common Stock of the Company and an aggregate of $350,000.
 
The Company issued the foregoing shares of the Company’s Common Stock pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded the Company under Section 4(2) of Regulation D promulgated under the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

 
25

 

GroupWare AG Acquisition

As previously reported by the Company on a Form 8-K filed by the Company with the Securities and Exchange Commission on June 9, 2011, the Company acquired GroupWare AG, a Florida corporation (“GroupWare”) pursuant to an Acquisition Agreement, dated June 1, 2011 (the “GroupWare Agreement”), by and among the Company, GroupWare and the holder of 100% of the issued and outstanding shares of common stock of GroupWare (the “GroupWare Stockholder”).
 
In consideration for one hundred percent (100%) of the outstanding shares of GroupWare, the Company issued to the GroupWare Stockholder an aggregate of 250,000 shares of restricted common stock of the Company and paid the GroupWare Stockholder a sum of $250,000.

The Company issued the foregoing shares of the Company’s Common Stock pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded the Company under Section 4(2) of Regulation D promulgated under the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

Item 3. Defaults Upon Senior Securities.

None.

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

Item 5. Other Information.

Subsequent Event

IDC Global, Inc. Acquisition

As previously reported by the Company on a Form 8-K filed with the Commission on July 28, 2011, on July 25, 2011, GBS Enterprises Incorporated, a Nevada corporation (the “Company”), consummated its acquisition of IDC Global, Inc., a Delaware corporation (“IDC”), pursuant to an Acquisition Agreement, dated July 15, 2011 (the “Agreement”), by and among the Company, IDC, the shareholders of IDC (the “IDC Shareholders”) represented by a Shareholder Representative, and the management shareholders of the Company (the “Management Shareholders”) represented by a Management Shareholder Representative.

Pursuant to the Agreement, the Company purchased 100% of the issued and outstanding shares of capital stock of IDC (the “IDC Shares”) from the IDC Shareholders in consideration for (i) an aggregate of 800,000 restricted shares of common stock of the Company (the “GBS Common Stock”) and (ii) $750,000.   The Company also agreed to issue an aggregate of 80,000 restricted shares of GBS Common Stock to the Management Shareholders and to pay signing bonuses to certain IDC personnel, totaling $35,000.  The
Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction.

IDC is a privately held company that provides nationwide network and data center services.  IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC has data centers in Chicago, New York and London and other key cities.  IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing.  The acquisition of IDC provides the Company with the infrastructure needed to provide a comprehensive end-to-end solution for all customers regardless of their platforms.  It proves especially beneficial to IBM Lotus Domino and Notes customers who finally have the same options as other platforms

The Company issued the foregoing shares of GBS Common Stock pursuant to the exemption from the registration requirements of the Securities Act, afforded the Company under Section 4(2) of Regulation D promulgated under the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

 
26

 

Item 6. Exhibits.
 
No.
 
Description
 
       
31.1*
 
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer
 
       
31.2*
 
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial and Accounting Officer
 
       
32.1*
 
Section 1350 Certification of Principal Executive Officer
 
       
32.2*
 
Section 1350 Certification of Principal Financial and Accounting Officer
 
       
101.INS **
 
XBRL Instance Document
 
       
101.SCH **
 
XBRL Taxonomy Extension Schema Document
 
       
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
       
101.LAB **
 
XBRL Taxonomy Extension Labels Linkbase Document
 
       
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
 
       
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 

*
Filed herewith.
 
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.
 

SIGNATURES

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

 
GBS ENTERPRISES INCORPORATED
   
Date: September 14, 2011
By: /s/ Joerg Ott
 
Joerg Ott
 
President and Chief Executive Officer
 
(Principal Executive Officer)

Date: September 14, 2011
By: /s/ Ronald Everett
 
Ronald Everett
 
Chief Financial Officer
 
(Principal Financial and Accounting Officer)

 
27