Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GBSX > SEC Filings for GBSX > Form 10-K on 17-May-2013All Recent SEC Filings

Show all filings for GBS ENTERPRISES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for GBS ENTERPRISES INC


17-May-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

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

The Company's Common Stock is quoted on the OTC Bulletin Board under the ticker symbol "GBSX."

Products and Services

GBS has grown by consolidating the fragmented Lotus Software market through the acquisition of companies with complementary product, technology or services offerings. GBS has continuously developed its software and service business to service and support GBS's expanding Lotus customer base.

Historically, GROUP has achieved growth by acquiring underperforming companies with complimentary operations and leveraging GROUP's expertise to turnaround and integrate these companies. Key success factors for this strategy are: enhanced portfolio, positioning GROUP as the 'one-stop-shop' for Lotus applications and services, expanded customer support, fast code migration, and cloud enablement/XPages conversion of acquired applications.

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

Messaging and Business Applications Software & Solutions

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

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

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

Consulting Services

GBS develops, sells and orchestrates customer-specific Lotus Domino strategy and consulting services, such as CIO and IT department leader Strategic Advisory Services, Managed Services, Outsourcing, Administration, Assessments and Implementations, Performance Improvements, Custom Application Development, Governance and Security, Technical Support, and Training, as well as Email Migration Services.

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

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

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

Market Trends

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

GBS Lotus Application Modernization and Migration

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

Revenue Model

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

Strategy and Focus Areas

Based on current market demands for modern, Cloud-based and mobile-device capable business applications, we have acquired and developed a set of unique technologies that help organizations reduce the time, cost, resources and risks associated with modernizing or migrating their existing applications.

We generate revenue from subscription and usage fees and related services, including support and strategic consulting services. The subscription period is typically based on a yearly or multi-year contract with our customers. Another sector of our strategic portfolio is a suite of tools and methodologies we have developed to rapidly convert Lotus Notes applications into web and modern mobile applications. This portfolio includes a set of powerful analysis tools known as Insights that identify all of the Lotus Notes applications within an organization and provide metrics about the uses and users of those applications. Because of the nature of Lotus Notes and Domino, the applications within a customer environment tend to be highly distributed and number in the thousands. For many organizations, this fact alone makes it extremely difficult to plan for projects that involve modernizing these applications for use in a browser and on mobile devices or migrating them to another platform. Our technologies help them to dramatically reduce the cost, risk, time and resources associated with these highly complex projects.

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

We also believe there is significant revenue opportunity in licensing these tools to a network of global partners who also have existing presence and expertise in the Lotus Notes and Domino market. We have established partner agreements for the use of the analysis and conversion tools with partners in several countries and directly with IBM.

Results of Operations

Fiscal year ended December 31, 2012 compared to fiscal year ended December 31, 2011

Assets

Total Assets decreased from $68,703,394 at December 31, 2011 to $56,802,492 at December 31, 2012. Total Assets consists of Total Current Assets and Total Non-Current Assets.

Total Current Assets

At December 31, 2012, our Total Current Assets were $6,444,192 compared to $9,982,991 at December 31, 2011. Total Current Assets consist of: Cash and Cash Equivalents; Accounts Receivable; Inventories; Prepaid Expenses; Other Receivables and Assets held for Sale.

n Cash and Cash Equivalents decreased from $3,250,821 at December 31, 2011 to $1,154,602 at December 31, 2012 as a result of our investments in the strategic technology areas such as application migration and modernization, cloud technology and the associated costs necessary to build and implement the go to market strategy.

n Accounts Receivable decreased from $5,007,194 at December 31, 2011 to $4,143,448 at December 31, 2012.

n Inventories decreased from $236,712 at December 31, 2011 to $ nil at December 31, 2012.

n Prepaid Expenses decreased from $444,147 at December 31, 2011 to $84,304 at December 31, 2012 due to the reclassification of prepaid license payments to a vendor into Intangible Assets.

n Other Receivablesdecreased from $1,020,010 at December 31, 2011 to $676,976 at December 31, 2012. Other Receivables consist primarily of derivatives used for hedging held by one business entity, warrants sold with related funding in escrow, and installment payments due from the sale of GROUP Business Software Holding OY together with their Subsidiary GEDYS IntraWare GmbH on February 28, 2010. The decrease was primarily due to an insurance claim of approximately $1,900,000 which was included in the previous year.

n Assets held for Sale were increased from $24,107 at December 31, 2011 to $384,862 at December 31, 2012.

Total Non-Current Assets

At December 31, 2012, our Total Non-Current Assets were $50,358,300, compared to $58,720,403 at December 31, 2011. Total Non-Current Assets consist of: Property (plant and equipment), Financial Assets, Investments in Related Company, Deferred Tax Assets, Goodwill, Software and Other Assets.

n Property (plant and equipment) decreased from $1,604,994 at December 31, 2011 to $332,839 at December 31, 2012 due primarily to the sale of IDC Global, Inc. and their heavy concentration of fixed assets.

n Financial Assets decreased from $548,909 at December 31, 2011 to $428,422 at December 31, 2012, which includes long term loans of $427,232 and the non-current portion of the aforementioned sale of GEDYS IntraWare GmbH on February 28, 2010.

n Deferred Tax Assets decreased from $2,748,800 at December 31, 2011 to $1,132,103 at December 31, 2012 and consisted of Deferred Tax Assets derived from Financial Assets and Losses carried forward.

n Goodwill decreased from $39,221,603 at December 31, 2011 to $34,254,881 at December 31, 2012 and consisted of the goodwill associated with nine business entities. During the year ended December 31, 2012, the Company sold SD Holdings, Ltd. and dissolved Pavone Ltd., the effect of which was to reduce the goodwill associated with these subsidiaries. The reduction in goodwill attributed to GROUP Business Software AG ("GROUP") resulted when the Company purchased additional shares of GROUP as disclosed in Note 2 of the Company's financial statements.

n Software decreased from $14,258,610 at December 31, 2011 to $12,207,031 at December 31, 2012 and consists of capitalized development costs, product rights and licenses. Our capitalized Software includes our expert business developments of $3,779,418, legacy business improvements/developments of $7,545,163, strategic business developments/other of $2,714,568. The decrease from 2011 to 2012 resulted from impairment testing write-downs. The decrease is again primarily based on the business decision to focus on the new CRM product and functional loss of the obsolete CRM.

n Other Assets increased from $93,268 at December 31, 2011 to $156,379 at December 31, 2012. This includes reinsurance claims, tax credits, and other deposits.

n Assets held for Sale were increased from $nil at December 31, 2011 to $1,846,645 at December 31, 2012.

Liabilities

Total Liabilities decreased from $24,946,246 at December 31, 2011 to $22,269,060 at December 31, 2012. Total Liabilities consists of Total Current Liabilities and Total Non-Current Liabilities.

Total Current Liabilities

At December 31, 2012 our Total Current Liabilities were $18,227,184, compared to $19,058,394 at December 31, 2011. Total Current Liabilities consist of: Notes Payable, Liabilities to Banks, Accounts Payable and Accrued Liabilities, Deferred Income, Other Liabilities and Amounts Due to Related Parties.

n Notes Payable increased from $1,381,821 at December 31, 2011 to $2,313,572 at December 31, 2012 and consisted of the exercise of capital components of a convertible bond issue.

n Liabilities to Banks decreased from $19,595 at December 31, 2011 to $6,774 at December 31, 2012 on payments of a line of credit held by a subsidiary.

n Accounts Payable and Accrued Liabilities decreased from $6,491,565 at December 31, 2011 to $6,241,733 at December 31, 2012. This includes Trade payables, Tax Accruals and Other Accruals.

n Deferred Income decreased from $6,476,582 at December 31, 2011 to $6,099,570 at December 31, 2012.

n Other Liabilities of $4,256,410 at December 31, 2011 decreased to $860,032 at December 31, 2012. As a result of a reclassification of long term to short term liabilities due on the purchase of Permessa Corporation. These payments derived from the purchase of Permessa in 2010 and are now due in the short term.

n Amounts Due to Related Parties increased from $432,421 at December 31, 2011 to $2,115,869 at December 31, 2012.

n Liabilities held for Sale were increased from $nil at December 31, 2011 to $589,634 at December 31, 2012.

Total Non-Current Liabilities

At December 31, 2012, our Total Non-Current Liabilities were $4,041,876, compared to $5,887,852 at December 31, 2011. Total Non-Current Liabilities consist of: Liabilities to Banks, Deferred Tax Liabilities, Retirement Benefit Obligation, Other Liabilities.

n Liabilities to Banks increased from $3,463,483 at December 31, 2011 to $3,716,102 at December 31, 2012 and consisted of long-term business line of credit due to the Baden-Württembergische Bank. The increase from 2011 to 2012 in notes payable is due to the funding of expenditures consistent with the advancement of our technology and overall business plan.

n Retirement Benefit Obligation increased from $150,632 at December 31, 2011 to $165,876 at December 31, 2012.

n Other Liabilities decreased from $2,273,737 at December 31, 2011 to $nil at December 31, 2012. As a result of a reclassification of long term to short term liabilities due on the purchase of Permessa Corporation. Within the non-current liabilities, an amount of $2,270,000 has been converted into equity of the corresponding subsidiary in February, 2012. In adherence to Regulation S-X Rule 3A-02 this transaction and the resulting reduction of the liabilities will be presented in the Company's financials as per June 30, 2012.

n Liabilities held for Sale were increased from $nil at December 31, 2011 to $159,898 at December 31, 2012.

Revenues

The Company generates revenue from product Licenses, Maintenance, Third-Party Products, Services and Other Revenue. For the fiscal year ended December 31, 2012, total revenue decreased $2,537,308 from $28,273,092 at December 31, 2011 to $25,735,784 at December 31, 2012. The decline mainly resulted from a $1,944,833 decrease in Service revenues, as a result of the sale of IDC, combined with a net decrease of $592,475 in product and other revenues.

The Company operates across 4 primary regions United States, Germany, United Kingdom, and Other. For the fiscal year ended December 31, 2012 revenue across all regions decreased as presented in detail in the Company's Notes to the Annual Consolidated Financial Statements.

Cost of Goods Sold

For the fiscal year ended December 31, 2012, our Cost of Goods Sold decreased to $14,615,074 from $15,898,182. Cost of Goods Sold consists of Cost for Services, Cost for Third-Party Products and Cost for Software Licenses. Within Cost of Goods Sold the associated costs within the product division of revenue increased $62,481, from $5,575,747 at December 31, 2011, to $5,638,228 at December, 31 2012. The associated costs within the services division of revenue decreased $1,345,589, from $10,322,435 at December 31, 2011, to $8,975,846 at December 31, 2012. The gross profit margin remains with 43% (2012) and 44% (2011) on the same level.

Operating Expenses

For the fiscal year ended December 31, 2012, our Operating Expenses decreased to $19,565,495 from $22,513,690 for the fiscal year ended December 31, 2011. Operating Expenses consist of Selling Expenses, Administrative Expenses and General Expenses.

For the fiscal year ended December 31, 2012, our Selling Expenses decreased to $12,102,534 from $15,426,600 for the fiscal year ended December 31, 2011. Selling Expenses consist of costs for the Sales, Marketing and Service units and decreased primarily due to the sale and consolidation of subsidiary companies.

For the fiscal year ended December 31, 2012, our Administrative Expenses decreased to $5,962,875 from $6,160,961 for the fiscal year ended December 31, 2011. Administrative Expenses consist of costs for the management and administration units and decreased primarily due to the sale and consolidation of subsidiary companies.

For the fiscal year ended December 31, 2012, our General Expenses increased to $1,500,086 from $926,129 for the fiscal year ended December 31, 2011.

Other Income (Expense)

For the fiscal year ended December 31, 2012, Other expense of $1,531,793 compared to Other Expense of $16,267,197 for the fiscal year ended December 31, 2011. Bad debts changes in this category increased for the write off of receivables primarily in our entities no longer functioning due to obsolete technology. Income from a settlement received in the previous fiscal year also was a contributing factor to the change.

Income taxes (Expense)

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

For the fiscal year ended December 31, 2012 a statutory tax range from 23% to 34% has been applied resulting in an expected income tax recovery of $7,986,000. Reduced by Price Allocations from Consolidation of $2,798,000, permanent differences of $533,000 and other items as mentioned in Note 27. The total amount of income tax expense has been $1,054,734.

Liquidity & Capital Resources

At December 31, 2012, we had $1,154,602 in cash and cash equivalents, compared to $3,250,821 at December 31, 2011. At December 31, 2012, our accumulated stockholders' deficit was $18,974,582 compared to $12,147,666 at December 31, 2011.

In principal, the Company's cash flow depends on the timely and successful market entry of its strategic offerings. The dependency accounts for revenue generated from direct customers engagements, as well as for revenue generated through the partner channel network.

Especially for strategic offerings for paradigm shifting technologies, the management's budget plan is based on a series of assumptions regarding market acceptance, readiness and pricing. While management's assumptions are based on market research and customer surveys, assumptions bear the risk of being incorrect and may result in a delay in customer projects and consequently a delay or a reduction in the related strategic offering invoicing. In case these delays have an impact on the Company's liquidity and therefore its ability to support its operations with the necessary cash flow, the Company depends on its ability to generate cash flow from other resources, such as debt financing from related or independent resources or as equity financing from existing shareholders or through the stock market.

During the entire fiscal year 2012 and for the first five months of 2013, the Company was in constant contact with internal and external sources for financing. These sources provided the necessary funds to support the working capital needs of the Company; mainly to finance the Company's strategic offering. There can be no assurances, however, that the Company will be able to obtain additional funds from these or any other sources or that such funds will be sufficient to permit the Company to implement its intended business strategy. In the event, the Company is not able to generate additional funds, management will postpone any strategic investment until the financing will be sufficient. However, management believes as a result of the assets purchased to date, in accordance with the above-mentioned statement, the Company will be able to provide sufficient cash flow to support its standard operations for the next 12 months.

To date, we have funded our operations from private financings and operations. In March 2010, we consummated a private placement of Units for $1.25 per Unit for total gross proceeds of $7,555,000 (the "Private Placement"). The net proceeds of this offering were $6,839,327.25. Each Unit consisted of one share of common stock and one warrant exercisable to purchase one share of common stock from the date of grant until the third anniversary of the date of grant for $1.50 per share (the "Private Placement Warrants"). As of December 31, 2012, warrant holders exercised an aggregate of 2,025,000 Private Placement Warrants for gross proceeds to the Company of $3,037,500. If the remaining 4,019,000 Private Placement Warrants were exercised, of which there can be no assurance, the Company would receive $6,028,000 in additional gross proceeds.

In March 2012, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with each of five "accredited investors" (as that term is defined by Rule 501(a) of Regulation D promulgated under the Securities Act), one of whom was Stephen D. Baksa, a member of the Board of Directors of the Company, and all of whom were investors in the Private Placement. Pursuant to the Securities Purchase Agreements entered into by the Company and the accredited investors, the Company sold the accredited investors an aggregate of 2,020,000 warrants (the "Investor Warrants") in consideration for $10.00 per investor. Each Investor Warrant is exercisable to purchase one share of common stock of the Company for a purchase price of $0.50 per share from the date of issuance to the third anniversary date of the date of issuance. As of December 31, 2012, warrant holders exercised an aggregate 905,000 Investor Warrants for gross proceeds to the Company of $457,500. If the remaining 1,120,000 Investor Warrants were exercised, of which there can be no assurance, the Company would receive $560,000 in additional gross proceeds.

In addition to the foregoing, during the fiscal year ended December 31, 2012, we raised capital by consummating the following transactions:

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

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

. . .

  Add GBSX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GBSX - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.