U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
OR
/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission File No. 0-30299
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Global Innovative Systems Inc.
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(Exact name of registrant as specified in its charter)
Nevada 98-0217653
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
5975 Selkirk Crescent, Prince George, British Columbia, Canada V2N 2G9
-------------------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (250) 964-2692
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N/A
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(Former name or former address, if changed since last report.)
Check whether the registrant (1) 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 No X
---- ----
As of August 1, 2000, there were issued and outstanding 21,700,000 shares
of common stock, par value $0.001 per share, of the registrant issued and
outstanding.
Transitional small business disclosure format
Yes No X
----
<PAGE>
Global Innovative Systems Inc.
Quarterly Report on Form 10-QSB
Table of Contents
PAGE
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholders' Deficit 4
Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis or Plan of Operation 11 - 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars)
June 30, September 30,
2000 1999
--------------------------------
(Unaudited)
ASSETS
Current assets
Cash $ 4,247 $ 811
Receivables 1,031 1,100
Investment tax credits refundable - 97,136
Prepaid expenses 2,729 5,134
------------ --------------
8,007 104,181
Fixed assets 8,673 9,050
Licence (Note 5) 45,707 -
------------ --------------
$ 62,387 $ 113,231
============ ==============
LIABILITIES
Current liabilities
Accounts payable $ 45,833 $ 14,449
Accrued liabilities 6,230 5,430
Loan payable to related party 32,164 34,074
Advances from stockholders (Note 6) 91,898 467,357
------------ --------------
176,125 521,310
------------ --------------
STOCKHOLDERS' DEFICIT
Common stock
Authorized:
200,000,000 common shares,
par value $0.001
Issued:
21,700,000 (1999 - 12,000,000)
common shares 21,700 12,000
Additional paid-in capital 410,632 -
Accumulated other comprehensive income
Foreign currency translation loss (10,542) (5,751)
Deficit accumulated in the
development stage (535,528) (416,189)
------------ --------------
(113,738) (409,940)
------------ --------------
$ 62,387 $ 113,231
============ ==============
The accompanying notes are an integral part of these
consolidated financial statements
2
<PAGE>
<TABLE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Expressed in US Dollars)
<CAPTION>
January 15, 1997
(incorporation) Three months ended June 30, Nine months ended June 30,
to June 30, 2000 -------------------------------- ----------------------------
Cumulative 2000 1999 2000 1999
------------------ ---------------- ------------- ------------ -------------
EXPENSES
<S> <C> <C> <C> <C> <C>
Accounting, audit and legal $ 40,542 $ 6,080 $ 1,358 $ 23,159 $ 5,403
Automotive 18,098 1,319 4,561 2,988 9,231
Bank charges and interest 5,009 1,524 1,402 3,305 1,474
Consulting 10,064 6,064 - 10,064 -
Depreciation 4,794 726 645 1,754 1,888
Directors' fees 12,000 6,000 - 12,000 -
Insurance 16,127 2,154 1,268 6,255 3,421
Office and supplies 4,039 175 465 953 2,263
Rent 12,527 440 - 1,058 2,756
Research and development costs (Note 7) 344,117 3,655 8,734 21,366 38,360
Telephone 9,822 840 1,807 2,989 4,254
Travel 16,840 454 5,685 1,690 12,784
------------------ ---------------- ------------- ------------ -------------
LOSS BEFORE OTHER ITEMS (493,979) (29,431) (25,925) (87,581) (81,834)
------------------ ---------------- ------------- ------------ -------------
OTHER ITEMS
Interest income 4,596 1,116 - 3,791 25
Loss on terminated proposed
business acquisition (Note 8) (46,145) - - (46,145) -
------------------ ---------------- ------------- ------------ -------------
(41,549) 1,116 - (42,354) 25
------------------ ---------------- ------------- ------------ -------------
NET LOSS FOR THE PERIOD $ (535,528) $ (28,315) $ (25,925) $ (129,935) $ (81,809)
================== ================ ============= ============ =============
LOSS PER SHARE - BASIC AND DILUTED $ 0.00 $ 0.00 $ 0.01 $ 0.00
================ ============= ============ =============
WEIGHTED AVERAGE COMMON SHARES 21,700,000 12,000,000 17,388,889 12,000,000
================ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
<PAGE>
<TABLE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
<CAPTION>
Deficit
Accumulated Accumulated
Common Shares Additional in the Other Total
------------------------------ Paid-in Development Comprehensive Stockholders'
Number Amount Capital Stage Income Deficit
------------ -------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1999 -
Niew Industries Inc. 5,000 $ 3,265 $ - $ (405,593) $ (5,751) $ (408,079)
Common stock redeemed at
$1 Cdn on October
31, 1999 (2,850) (1,861) - - - (1,861)
------------ -------------- ------------ ------------- ------------- --------------
2,150 1,404 - (405,593) (5,751) (409,940)
Adjustment for the issuance
of common stock on
reverse acquisition 11,997,850 10,596 - (10,596) - -
------------ -------------- ------------ ------------- ------------- --------------
12,000,000 12,000 - (416,189) (5,751) (409,940)
Settlement of debt to the
former stockholders of
Niew Industries Inc.
(Note 3) - - 410,268 10,596 - 420,864
Adjustment for the stockholders'
equity of the Company at
the acquisition date
(Note 3) 9,700,000 9,700 364 - - 10,064
------------ -------------- ------------ ------------- ------------- --------------
21,700,000 21,700 410,632 (405,593) (5,751) 20,988
------------ -------------- ------------ ------------- ------------- --------------
Net loss for the period - - - (129,935) - (129,935)
Foreign currency
translation loss - - - - (4,791) (4,791)
------------ -------------- ------------ ------------- ------------- --------------
Total comprehensive loss - - - (129,935) (4,791) (134,726)
------------ -------------- ------------ ------------- ------------- --------------
Balance, June 30, 2000 21,700,000 $ 21,700 $ 410,632 $ (535,528) $ (10,542) $ (113,738)
============ ============== ============ ============= ============= ==============
4
</TABLE>
<PAGE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
<TABLE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Expressed in US Dollars)
<CAPTION>
January 15, 1997
(incorporation) to Nine months ended June 30,
June 30, 2000 ----------------------------------
Cumulative 2000 1999
------------------- -------------- ---------------
CASH PROVIDED BY (USED IN)
<S> <C> <C> <C>
Operating
Net loss for the period $ (535,528) $ (129,935) $ (81,809)
Non cash item
Depreciation 4,794 1,754 1,888
(Increase) decrease in assets
Receivables (1,031) 69 (14,153)
Investment tax credits refundable - 97,136 (11,300)
Prepaid expenses (2,729) 2,405 (1,164)
Increase (decrease) in liabilities
Accounts payable 14,796 347 (4,853)
Accrued liabilities 6,230 800 (1,639)
----------------- -------------- ---------------
(513,468) (27,424) (113,030)
----------------- -------------- ---------------
Financing
Loan payable to related party 32,164 (1,910) 34,034
Issuance of common stock 1,404 - -
Advances from stockholders 571,674 104,317 105,704
Repayments to stockholders (69,144) (69,144) -
----------------- -------------- ---------------
536,098 33,263 139,738
----------------- -------------- ---------------
Investing
Cash acquired on reverse acquisition 10,064 10,064 -
Purchase of licence (14,670) (14,670) -
Purchase of fixed assets (12,090) (1,449) (3,628)
----------------- -------------- ---------------
(16,696) (6,055) (3,628)
----------------- -------------- ---------------
INCREASE (DECREASE) IN CASH 5,934 (216) 23,080
EFFECT OF FOREIGN EXCHANGE ON CASH (1,687) 3,652 (12,996)
CASH AT BEGINNING OF PERIOD - 811 4,828
----------------- -------------- ---------------
CASH AT END OF PERIOD $ 4,247 $ 4,247 $ 14,912
================= ============== ===============
Supplemental Information
Non cash investing and financing activities
Shares of Niew Industries Inc. and loans payable to
stockholders of Niew Industries Inc. acquired for
consideration totalling 12 million shares of common stock $ 420,864 $ -
============== ===============
Licence acquired by issuance of accounts payable $ 31,037 $ -
============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
6
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in US Dollars)
June 30, 2000
1. UNAUDITED FINANCIAL STATEMENTS
The interim financial statements for the nine month periods ended June 30,
2000 and 1999 included herein have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information, contained therein. It is suggested that
these interim financial statements be read in conjunction with the
financial statements of Niew Industries Inc. (Note 3) for the years ended
September 30, 1999 and 1998 and the notes thereto included elsewhere in the
Company's registration on Form 10-SB. The Company follows the same
accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
2. NATURE OF BUSINESS AND CONTINUING OPERATIONS
The Company was incorporated in the State of Nevada on September 14, 1995
and was inactive until January 31, 2000 when it closed a share exchange
agreement with the stockholders of Niew Industries Inc. ("NIEW"). The
transaction resulted in NIEW becoming a wholly owned subsidiary of the
Company. Since the stockholders of NIEW controlled 55% of the combined
entity after the merger and the business of NIEW presents the only
operations of the new entity, the transaction was recorded as a reverse
acquisition and NIEW was considered the accounting acquiror. As such, the
historical financial information of the Company is that of NIEW.
NIEW was incorporated on January 15, 1997 under the British Columbia
Company Act. The Company was inactive until March 23, 1998 when it began
the development of a twin rotating asphalt mixing system. To date, this has
been Niew's only activity. These financial statements are expressed in US
dollars and have been prepared in accordance with accounting principles
generally accepted in the United States.
The Company has made an application to the United States Securities and
Exchange Commission to register its common stock.
These accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. As at June 30, 2000, the Company has accumulated operating losses
of $535,528 since its inception. The continuation of the Company is
dependent upon the continuing financial support of creditors, directors and
stockholders and obtaining long term financing as well as achieving a
profitable level of operations through the successful development of the
twin rotating asphalt mixing system. It is the intention of the Company to
raise a new equity financing of approximately $1,500,000 within the
upcoming year. Amounts raised will be used to complete the development of
the twin rotating asphalt mixing system and then proceed into a stage of
commercial production.
7
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in US Dollars)
June 30, 2000
2. NATURE OF BUSINESS AND CONTINUING OPERATIONS - CONTINUED
While the Company is expending its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will
be available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do no include any
adjustments that might arise from this uncertainty.
3. ACQUISITION OF NIEW INDUSTRIES INC.
By agreement dated December 11, 1999, the Company agreed to acquire 100% of
the issued and outstanding shares, and settle $420,864 owing to the
stockholders, of Niew Industries Inc. in exchange for 12 million common
shares of the Company. The acquisition closed on January 31, 2000.
Effective as of the closing date, the transaction was accounted for using
the purchase method of accounting as applicable for a reverse acquisition.
Following reverse acquisition accounting, consolidated financial statements
subsequent to closing of the acquisition are presented as a continuation of
NIEW. The operations of the Company are consolidated with those of NIEW
from the date of the acquisition.
The net assets of the Company at the date of acquisition consisted of
$10,064 of cash remaining on its initial capitalization. No goodwill was
recorded on the acquisition.
The company intends to retain September 30 as its fiscal year end.
Since the Company was inactive until the acquisition of NIEW, pro-forma
information reflecting the acquisition had it occurred at the beginning of
the earliest period presented would not yield results different from the
net loss and loss per share presented on the Consolidated Statement of
Operations.
8
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in US Dollars)
June 30, 2000
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivatives contracts as either assets
or liabilities on the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption of the new
standards on October 1, 2000 to affect its financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities", ("SOP 98-5") which provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. SOP
98-5 is effective for fiscal years beginning after December 15, 1998 with
initial adoption reported as the cumulative effect of a change in
accounting principle. Adoption of this standard did not have a material
effect on the financial statements.
5. COMMITMENT
By agreement dated November 8, 1999, the Company agreed to purchase a
license entitling it to manufacture a component known as a "Portable
Overhead Bin". This component will be part of the twin rotating asphalt
mixing system that is currently being developed by the Company. To acquire
the license, the Company is required to pay a one time payment of $75,000
in Canadian dollars, $30,000 which has been paid with the balance to be
paid by August 31, 2000. In addition, the company will be required to pay a
royalty based on the number of units manufactured in a calendar year. The
minimum royalty is Cdn. $10,000 for 2000 and Cdn. $20,000 for 2001 and
thereafter.
9
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in US Dollars)
June 30, 2000
6. ADVANCES FROM STOCKHOLDERS
In connection with the acquisition of Niew Industries Inc., the purchase
price of 12 million common shares included the settlement of outstanding
debts to directors totalling $420,864.
The remaining advances are unsecured, do not bear interest and have no
specific terms of repayment. The advances are summarized as follows:
June 30, September 30,
2000 1999
---------------------------------
Cash advances to the company $ 153,411 $ 464,619
Repayments (69,144) -
Reimbursable expenses 7,631 2,738
--------- ----------
$ 91,898 $ 467,357
========= ==========
Average balance for the period $ 146,992 $ 403,645
========= ==========
7. RESEARCH AND DEVELOPMENT COSTS
The company is in the process of developing a twin rotating asphalt mixing
system. Costs incurred to date consist of the following:
January 15, 1997
(incorporation) Three months Nine months
to June 30, 2000 ended June 30, ended June 30,
Cumulative 2000 1999 2000 1999
---------------- ------ ------- ------- --------
Materials and supplies $ 277,620 $2,641 $9,460 $ 8,910 $31,442
Salaries and benefits 139,772 1,014 1,053 4,418 5,463
Patent application 22,211 - 781 8,038 10,947
Investment tax
credits recovery (95,486) - (2,560) - (9,492)
---------------- ------ ------- ------- --------
$ 344,117 $3,655 $8,734 $21,366 $38,360
================ ====== ======= ======= ========
Upon conclusion of the share exchange agreement, the company is no longer
eligible for recoverable investment tax credits.
10
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in US Dollars)
June 30, 2000
8. LOSS ON TERMINATED PROPOSED BUSINESS ACQUISITION
During the period, the Company advanced funds in anticipation of the
acquisition of a business. The directors have reassessed the proposed
acquisition and have chosen to abandon it. As a result, the advances have
been written off.
The company to which the funds were advanced and the Company have one
common director.
Safe Harbor Statement
Certain statements in this Form 10-QSB, including information set forth
under Item 2 "Management's Discussion and Analysis or Plan of Operation"
constitute or may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company
desires to avail itself of certain "safe harbor" provisions of the Act and is
therefore including this special note to enable it to do so. Forward-looking
statements included in this Form 10-QSB or hereafter included in other publicly
available documents filed with the Securities and Exchange Commission, reports
to its stockholders and other publicly available statements issued or released
by us involve known and unknown risks, uncertainties, and other factors which
could cause our actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward-looking statement.
Such factors include, but are not limited to: (i) our lack of historical
revenues; (ii) our ability to complete the development and commercially exploit
the TRAMS; (iv) our ability to manage growth; (v) our ability to develop our
brand; (vi) competition; and (vii) our ability to adapt to evolving
environmental regulations. Such future results are based upon management's best
estimates based upon current conditions and the most recent results of
operations.
11
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company was incorporated on September 14, 1995 under the laws of the
State of Nevada. The Company was inactive until it entered into a share exchange
agreement with the stockholders of Niew Industries Inc ("NII"). By agreement
dated December 1, 1999 and closed on January 31, 2000, the Company acquired all
the issued and outstanding shares of NII along with settling amounts owing to
NII's stockholders totaling $420,864 in exchange for 12 million shares of common
stock of the Company. NII was incorporated on January 15, 1997 in British
Columbia and is in the process of developing and marketing for sale a simplified
asphalt mixing system that would be compact, environmentally friendly and easy
to mobilize. NII was inactive until April 15, 1998 when it began development of
a twin rotating asphalt-mixing system ("TRAMS"). In 2000, the Company filed its
initial registration statement with the Securities and Exchange Commission on
Form 10-SB and intends to make the necessary applications to list its common
stock on the National Association of Securities Dealers Over the Counter
Bulletin Board ("NASD OTC:BB").
Prior to the acquisition of NII, the Company was inactive. Since the
operations of the surviving entity are those of NII, the discussion below
pertaining to periods prior to the acquisition date (January 31, 2000) relate to
a discussion of the financial results of NII and management's plan of operations
for the consolidated entity. The financial results of NII were first
consolidated with the financial statements of the Company in the 2nd quarter of
the Company's 2000 fiscal year.
RESULTS OF OPERATIONS
Statement of Operations Data
Nine months
ended June 30,
-------------------------------------------
2000 1999
(UNAUDITED)
----------------- -----------------
Revenue $ - $ -
----------------- -----------------
Expenses
General and administrative 43,056 38,071
Accounting audit & legal 23,159 5,403
Research and development 21,366 38,360
Interest Income (3,791) (25)
Loss on terminated proposed
business acquisition 46,145 -
----------------- -----------------
129,935 81,809
----------------- -----------------
Net loss for the period $ (129,935) $ (81,809)
================= =================
12
<PAGE>
General and administrative expenses include automotive, bank charges and
interest, consulting, depreciation, director fees, insurance, office and
supplies, rent, telephone and travel expenses.
NII is a development stage company and therefore has not had any revenue
generating activities.
Balance Sheet Data
June 30, September 30,
2000 1999
------------------------------------
(UNAUDITED)
Working capital
(deficiency ) $(168,118) $(417,129)
Total assets 62,387 113,231
Accumulated deficit (535,528) (405,593)
Stockholders' deficit (113,738) (408,079)
Nine months ended June 30, 2000 compared to nine months ended June 30,
1999.
During the nine-month period ended June 30, 2000, the Company incurred a
net loss of $129,935 compared to a net loss of $81,809 for the comparative
period in 1999. No revenue was recognized in either period.
The research and development costs in the nine month period ended June 30,
2000 of $21,366 declined by $16,994 over the corresponding period in 1999
because development of the TRAMS System is almost complete and NII turned its
attention to finalizing the acquisition of the company by Global, the
registration of Global's stock and arranging for additional financing. Further
development and testing of the TRAMS System has been deferred until NII
completes its registration statement and can obtain additional funding. General
and administrative costs have increased by $4,985 from the comparative period in
1999 to $43,056 due to the current focus on the registration of the Company's
stock. Declines of $17,337 associated with travel and automobile costs in 2000
are offset by new director fees of $12,000 and consulting fees associated with
the stock registration of $10,064. Accounting, audit and legal expenses
increased by $17,756 to $23,159 in 2000 as a result of additional costs incurred
in connection with NII's plans and intentions to become a public company. One
component of this increase was to engage a firm to audit the Company's Financial
Statements, which previously were only compiled for tax purposes.
Management of NII had investigated a proposed acquisition of a Canadian
business involved in the development of a secure locking system for explosive
magazines. In that regard, NII had advanced $46,245 in anticipation of
acquisition in fiscal year 2000. NII performed its due diligence in connection
with the acquisition and has re-evaluated the proposal and decided not to pursue
the acquisition. As a result, the initial advances have been written off. The
company to which the funds were advanced and the Company have one common
director.
13
<PAGE>
Interest income earned on the refund of 1999 and 1998 investment tax
credits increased by $3,766 in the nine months ended June 30, 2000. Refunds for
both taxation years were received in the nine-month period ended June 30, 2000.
Liquidity and Capital Resources
At June 30, 2000, NII has cumulatively expended $344,117 (net of investment
tax credits of $95,486) on direct research and development on the prototype.
During this stage referred to by management as Phase I, NII constructed the
prototype but is working on improving it to make it more efficient and to ensure
that it meets government standards for pollution control. Management estimates
that the completion of Phase I will require approximately $25,000 consisting of
$15,000 for testing and materials and $10,000 for labor and subcontracts. At the
completion of Phase I, management plans to sell its prototype, the proceeds of
which would be used to finance the construction of another Phase I TRAMS System.
NII has plans for Phase II in which it will build a second trailer that
will have a self-erecting silo, asphalt, diesel and propane tanks. NII intends
to sell the commercial version of the two machines as a package, but would also
be able to sell them individually. Management estimates the cost of Phase II to
be as follows:
Materials $ 84,000
Overhead 16,000
Salaries 50,000
------------
$ 150,000
============
To date, the operations of NII have been primarily financed by private
loans from directors and related parties totaling $ 603,838 at June 30, 2000, as
well as $95,486 of refundable Canadian government investment tax credits on
eligible research expenditures. Upon conclusion of the share exchange with NII
resulting in NII no longer being Canadian owned, further investment tax credits
will not be available.
At June 30, 2000, the Company has cash of $4,247 available for completion
of Phase I development and to finance the costs necessary in the process of
going public in the United States. Going public is important for the Company
since it requires access to capital to finance construction of additional units
and to complete its development initiatives. The Company does not have
sufficient funds on hand to complete its Phase I development and the public
registration process. Deficiencies in cash will be covered by additional loans
and advances by the Company's directors until such time that the Company can
attract equity investors. Should the Company be unable to attract equity
investors, cutbacks and deferrals of the planned development and production
schedule would occur until such funds were otherwise available externally or
from the proceeds received on sale of the Phase I prototype. Alternatively, the
Company could consider a joint venture to proceed with its plans.
14
<PAGE>
At this point in time management has focused its efforts on the completion
of Phase I. Completion of Phase II has been deferred until the stock
registration process is completed and cash flow is available to the Company.
Management believes there is a market for the Phase I product without being
dependent upon Phase II.
Plan of Operations
In the next twelve months, the Company intends to complete Phase I and
possibly, Phase II and then produce the machine for commercial sale.
NII has also acquired a license to manufacture a self-erecting silo, which
is different from the silo that is going to be used in Phase II. Management also
intends to manufacture this silo for commercial sale. At the present time,
further development of Phase I and Phase II has been suspended to devote
attention to the registration of the Company's common stock and listing of its
securities on the NASD OTC:BB market.
These objectives are currently being financed by the Company's controlling
stockholders. The Company believes it requires approximately $25,000 to complete
the development and testing of Phase I at which time management believes it can
sell the prototype. Proceeds from the sale and additional financing will be used
to finance production of additional units. The Company intends to seek
traditional debt, equity or principal funding to further finance the
manufacturing process.
The Company anticipates it will be able to complete the stated plan of
operations if the additional financing can be achieved. The actual expenditures
and business plan of the Company may differ from the stated plan of operations.
The Board of Directors of the Company may decide not to pursue the stated plan
of operations. In addition, the Company may modify the stated plan of operations
based on the available amount of financing in the event that the Company cannot
achieve the required equity financing to complete the stated plan of operations.
The Company does not have any arrangement in place for any debt or equity
financing which would enable the Company to meet the stated plan of operations.
In the event the Company is not successful in achieving any further sales
of its common stock, the Company anticipates that it could not sustain its
business operations without short-term financing from the Company's controlling
stockholders based on the Company's current cash position and the absence of a
current revenue stream. Due to the Company's lack of operating history, there
exists substantial doubt about the Company's ability to continue as a going
concern, as stated in Note 1 to the consolidated financial statements.
The Company anticipates continuing operating losses in the foreseeable
future. The Company bases this expectation in part on the basis that the Company
will incur substantial operating expenses in completing its stated plan of
operations. The Company's future financial results are also uncertain due to a
number of factors, many of which are outside of the Company's control. These
factors include, but are not limited to general economic conditions, government
environmental regulations and increased industry competition, which include the
following:
o Willingness of external investors to advance capital to the Company to
finance continued development and production;
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o Uncertainty regarding whether the Company can meet new British
Columbia environmental regulations in 2001, whether it can comply with
environmental regulations in other North American jurisdictions or
whether the Company can continue to meet new regulatory requirements
as they arise;
o That there will be a market for the Company's Phase I or II products
once the development is complete and demand for the product at that
time will be such to support economically viable production.
The Company believes that it has access to funds sufficient to complete
the development and negotiate the sale of the Phase I prototype. There can be no
assurance that such additional funding would be available to us, or if available
that the terms of such additional financing will be acceptable to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not aware of any material legal proceedings involving any
director, director nominee, promoter or control person including criminal
convictions, pending criminal matters, pending or concluded administrative or
civil proceedings limiting one's participation in the securities or banking
industries or findings of securities or commodities law violations.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27.1 Financial Data Schedule
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SIGNATURES
In accordance with the requirements 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.
Global Innovative Systems Inc.
Date: August 10, 2000 By: /s/ Helge Freudentheil
--------------- ----------------------
Name: Helge Freudentheil
Title: Chief Executive Officer,
President and Director
By: /s/ Ken Bergestad
----------------------
Name: Ken Bergestad
Title: Vice President and Director
By: /s/ Walter Niemi
----------------------
Name: Walter Niemi
Title: Secretary-Treasurer and Director
By: /s/ Robert Stark
----------------------
Name: Robert Stark
Title: Vice President and Director
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