UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 13, 2004
(Date of earliest event reported)
GK INTELLIGENT SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
----------------------
Delaware 000-22057 76-0513297
- ---------------------------- ------------------------ -----------------
(State or other jurisdiction (Commission File Number) (IRS Employer of
incorporation) Identification No.)
=======================================================================
2602 Yorktown Place
Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
=======================================================================
Registrant's telephone number, including area code: (713) 626-1504
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 9.01 Financial Statements and Exhibits
We previously filed a Current Report on Form 8-K, dated August 19, 2004
(pertaining to an acquisition of Texas Source Group, Inc. whereby we issued
shares of our restricted common stock having a total value of $1,500,000 to
Julie Maranto in exchange for 100% of the issued and outstanding shares of
common stock of Ascendant Texas Source Group) without certain financial
information required by Item 7 of such Form 8-K. We hereby amend Item 9.01,
subparagraphs (a) and (b) of the Current Report on Form 8-K to read as
follows:
TEXAS SOURCE GROUP, INC.
FINANCIAL STATEMENTS
December 31, 2003
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm.....................3
Balance Sheet ..............................................................4
Statements of Operations ...................................................5
Statements of Stockholders Equity (Deficit) ................................6
Statements of Cash Flows....................................................7
Notes to the Financial Statements ..........................................8
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------
To the Board of Directors
Texas Source Group, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Texas Source Group, Inc as
of December 31, 2003 and the related statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 31, 2003 and
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Source Group, Inc as of
December 31, 2003 and the results of its operations and its cash flows for the
years ended December 31, 2003 and 2002, in conformity with accounting
principles generally accepted in the United States of America.
/s/ HJ & Associates
HJ & Associates, LLC
Salt Lake City, Utah
October 13, 2004
3
TEXAS SOURCE GROUP, INC.
Balance Sheet
ASSETS
-------
December 31,
2003
--------------
CURRENT ASSETS
Cash (Note 1) $ 18,152
Accounts receivable 147,428
--------------
Total Current Assets 165,580
--------------
FIXED ASSETS, NET (Note 2) 95,002
--------------
OTHER ASSETS 673
--------------
TOTAL ASSETS $ 261,255
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------------------
CURRENT LIABILITIES
Current portion of notes payable - related party (Note 3) $ 31,000
Current portion of contracts payable (Note 4) 13,331
Accrued expenses 81,856
--------------
Total Current Liabilities 126,187
--------------
LONG-TERM LIABILITIES
Long-term portion of notes payable - related party (Note 3) 80,500
Long-term portion of contracts payable (Note 4) 63,572
--------------
Total Long-Term Liabilities 144,072
--------------
TOTAL LIABILITIES 270,259
--------------
STOCKHOLDERS' EQUITY
Common stock; 100,000 shares authorized, $1.00
par value, 611 shares issued and outstanding 611
Accumulated deficit (9,615)
--------------
Total Stockholders' Equity (Deficit) (9,004)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 261,255
==============
The accompanying notes are an integral part of these financial statements.
4
4
TEXAS SOURCE GROUP, INC.
Statements of Operations
For the Years Ended
December 31,
---------------------------
2003 2002
------------- -------------
REVENUES $ 1,542,812 $ 462,673
COST OF SALES 672,633 246,887
------------- -------------
GROSS MARGIN 870,179 215,786
------------- -------------
OPERATING EXPENSES
Rent 86,490 70,205
Payroll expense 140,640 163,453
Depreciation 5,610 18,974
General and administrative 258,405 162,378
------------- -------------
Total Operating Expenses 491,145 415,010
------------- -------------
OPERATING INCOME (LOSS) 379,034 (199,224)
------------- -------------
OTHER INCOME (EXPENSES)
Interest expense (14,102) (23,388)
Gain on sale of assets - 14,649
------------- -------------
Total Other Income (Expenses) (14,102) (8,739)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES
Income tax expense - -
------------- -------------
NET INCOME (LOSS) $ 364,932 $ (207,963)
============= =============
BASIC INCOME (LOSS) PER SHARE $ 447.22 $ (187.19)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 816 1,111
============= =============
The accompanying notes are an integral part of these financial statements.
5
5
TEXAS SOURCE GROUP, INC.
Statements of Stockholders' Equity (Deficit)
Retained
Common Stock Additional Earnings
-------------------------- Paid-In (Accumulated
Shares Amount Capital Deficit)
------------- ------------ ------------ -------------
Balance,
December 31, 2001 1,111 $ 1,111 $ - $ (167,084)
Net loss for the year
ended December 31, 2002 - - - (207,963)
------------- ------------ ------------ -------------
Balance,
December 31, 2002 1,111 1,111 - (375,047)
Redemption of common stock (500) (500) - 500
Net income for the year
ended December 31, 2003 - - - 364,932
------------- ------------ ------------ -------------
Balance,
December 31, 2003 611 $ 611 $ - $ (9,615)
============= ============ ============ =============
The accompanying notes are an integral part of these financial statements.
6
6
TEXAS SOURCE GROUP, INC.
Statements of Cash Flows
For the Years Ended
December 31,
---------------------------
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 364,932 $ (207,963)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation 5,610 18,974
(Gain) on sale of assets - (14,649)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (137,350) 36,796
Increase (decrease) in accounts payable and
accrued expenses (193,608) 7,823
------------- -------------
Net Cash Provided (Used) by
Operating Activities 39,584 (159,019)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (8,510) -
Sale of fixed assets - 29,005
------------- -------------
Net Cash Provided (Used) by
Investing Activities (8,510) 29,005
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on contracts payable - (23,300)
Cash received on notes payable - 131,000
Payments on notes payable (19,500) -
------------- -------------
Net Cash Provided (Used) by
Financing Activities (19,500) 107,700
------------- -------------
NET INCREASE (DECREASE) IN CASH 11,574 (22,314)
CASH AT BEGINNING OF YEAR 6,578 28,892
------------- -------------
CASH AT END OF YEAR $ 18,152 $ 6,578
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 14,102 $ 7,909
Income Taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
7
7
TEXAS SOURCE GROUP, INC.
Note to the Financial Statements
December 31, 2003 and 2002
NOTE 1 - NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Texas Source Group, Inc. is
presented to assist in the understanding of the Company's financial
statements. The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and
objectivity. The financial statements conform to the Standards of the Public
Company Accounting Oversight Board (United States) and have been consistently
applied in the preparation of the financial statements.
a. Organization and Business Activities
Texas Source Group, Inc. was incorporated under the laws of the State of Texas
in February, 1992 for the purpose of engaging in any lawful business
activities. At the time of incorporation the Company authorized 100,000
shares of $1.00 par common stock. Currently, the Company is involved in the
employee leasing and business operations consulting industry.
b. Depreciation
The cost of the Company's fixed assets is depreciated over the estimated
useful lives of the respective assets, which for the Company's computer
equipment, vehicles, and furniture, has been estimated at three to seven
years. Depreciation is computed using the straight-line method when the
assets are placed in service.
c. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year-end.
d. Cash and Cash Equivalents
For purpose of the statement of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be
cash equivalents.
e. Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
f. Basic Income (Loss) Per Share
The computation of basic and diluted loss per share of common stock is based
on the weighted average number of shares outstanding during the periods
presented.
8
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31, 2003 and 2002
NOTE 1 - NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
g. Revenue Recognition
The Company recognizes consulting fees revenue when the services have been
provided and collection is reasonably assured.
NOTE 2 - FIXED ASSETS
Fixed assets at December 31, 2003 consisted of the following:
Computer equipment $ 14,645
Furniture 31,659
Automobiles 78,793
Less: Accumulated depreciation (30,095)
-----------
Equals: Net Fixed Assets $ 95,002
===========
Depreciation expense for the years ended December 31, 2003 and 2002 was $5,610
and $18,974, respectively.
NOTE 3 - NOTES PAYABLE - RELATED PARTY
At December 31, 2003, notes payable related party consisted of the
following:
Note payable to former shareholder, bearing simple
interest at 5.0% per annum, unsecured, monthly
payments of $3,100, maturing on February 21, 2007 $ 111,500
Less: current portion 31,000
----------
Long-term portion $ 80,500
==========
Maturities of long-term debt are as follows:
Year ending December 31:
2004 $ 31,000
2005 37,200
2006 37,200
2007 6,100
2008 -
Thereafter -
----------
TOTAL $ 111,500
==========
9
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31, 2003 and 2002
NOTE 4 - CONTRACTS PAYABLE
Contracts payable at December 31, 2003 consist of the following installment
contracts:
Contract with Chase, interest rate of 4.49%, secured
with vehicle, monthly payments of $912, maturing on
January 14, 2009. $ 48,821
Contract with Capital One, interest rate of 4.24%,
secured with vehicle, monthly payments of $521,
maturing on December 25, 2008. 28,082
-----------
Total contracts payable 76,903
Less: current portion 13,331
-----------
Long-term portion $ 63,572
===========
Maturities of long-term debt are as follows:
Year ending December 31:
2004 $ 13,331
2005 14,689
2006 15,348
2007 16,037
2008 16,704
Thereafter 794
-----------
Total $ 76,903
===========
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the year ended December 31, 2003, the Company adopted the following
accounting pronouncements:
SFAS No. 143 -- In August 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations, which established a uniform methodology for
accounting for estimated reclamation and abandonment costs. The statement was
effective for fiscal years beginning after June 15, 2002. The adoption of
SFAS No. 143 did not have a material effect on the financial statements of the
Company.
SFAS No. 145 -- On April 30, 2002, the FASB issued FASB Statement No. 145
(SFAS 145), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS 145 rescinds both
FASB Statement No. 4 (SFAS 4), "Reporting Gains and Losses from Extinguishment
of Debt," and the amendment to SFAS 4, FASB Statement No. 64 (SFAS 64),
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and,
if material, classified as an extraordinary item, net of the related income
tax effect. However, an
10
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31, 2003 and 2002
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
SFAS No. 145 -- (Continued)
entity is not prohibited from classifying such gains and losses as
extraordinary items, so long as it meets the criteria in paragraph 20 of
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Further, SFAS 145 amends paragraph 14(a) of FASB Statement No. 13, "Accounting
for Leases", to eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The amendment
requires that a lease modification (1) results in recognition of the gain or
loss in the 9 financial statements, (2) is subject to FASB Statement No. 66,
"Accounting for Sales of Real Estate," if the leased asset is real estate
(including integral equipment), and (3) is subject (in its entirety) to the
sale-leaseback rules of FASB Statement No. 98, "Accounting for Leases:
Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real
Estate, Definition of the Lease Term, and Initial Direct Costs of Direct
Financing Leases." Generally, FAS 145 is effective for transactions occurring
after May 15, 2002. The adoption of SFAS 145 did not have a material effect
on the financial statements of the Company.
SFAS No. 146 -- In June 2002, the FASB issued SFAS No. 146, "Accounting for
Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses significant
issues regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for under EITF No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The scope
of SFAS 146 also includes costs related to terminating a contract that is not
a capital lease and termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is
not an ongoing benefit arrangement or an individual deferred-compensation
contract. SFAS 146 will be effective for exit or disposal activities that are
initiated after December 31, 2002 and early application is encouraged. The
provisions of EITF No. 94-3 shall continue to apply for an exit activity
initiated under an exit plan that met the criteria of EITF No. 94-3 prior to
the adoption of SFAS 146. The effect on adoption of SFAS 146 will change on a
prospective basis the timing of when the restructuring charges are recorded
from a commitment date approach to when the liability is incurred. The
adoption of SFAS 146 did not have a material effect on the financial
statements of the Company.
SFAS No. 147 -- In October 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 147,
"Acquisitions of Certain Financial Institutions" which is effective for
acquisitions on or after October 1, 2002. This statement provides
interpretive guidance on the application of the purchase method to
acquisitions of financial institutions. Except for transactions between two
or more mutual enterprises, this Statement removes acquisitions of financial
institutions from the scope of both SFAS 72 and Interpretation 9 and requires
that those transactions be accounted for in accordance with SFAS No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets".
The adoption of SFAS No. 147 did not have a material effect on the financial
statements of the Company.
11
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31, 2003 and 2002
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
SFAS No. 148 -- In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123" which is effective for financial statements issued for
fiscal years ending after December 15, 2002. This Statement amends SFAS 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation.
In addition, this Statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based compensation and the effect of
the method used on reported results. The adoption of SFAS No. 148 did not
have a material effect on the financial statements of the Company.
SFAS No. 149 -- In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" which is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. This statement amends
and clarifies financial accounting for derivative instruments embedded in
other contracts (collectively referred to as derivatives) and hedging
activities under SFAS 133. The adoption of SFAS No. 149 did not have a
material effect on the financial statements of the Company.
SFAS No. 150 -- In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" which is effective for financial instruments entered into or modified
after May 31, 2003, and is otherwise effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement establishes
standards for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. The adoption of SFAS No. 150 did not have a material effect on the
financial statements of the Company.
FASB Interpretation No. 45 -- "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an Interpretation of FASB Statements No. 5, 57 and 107". The initial
recognition and initial measurement provisions of this Interpretation are to
be applied prospectively to guarantees issued or modified after December 31,
2002. The disclosure requirements in the Interpretation were effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FASB Interpretation No. 45 did not have a material
effect on the financial statements of the Company.
FASB Interpretation No. 46 -- In January 2003, the FASB issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities." FIN 46
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights, variable interest
entities, and how to determine when and which business enterprises should
consolidate variable interest entities. This interpretation applies
immediately to variable interest entities created after January 31, 2003. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN 46 did
not have a material impact on the Company's financial statements.
12
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31 , 2003 and 2002
NOTE 5 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
FASB Interpretation No. 46 -- (Continued)
During the year ended December 31, 2003, the Company adopted the following
Emerging Issues Task Force Consensuses: EITF Issue No. 00-21 "Revenue
Arrangements with Multiple Deliverables", EITF Issue No. 01-8 " Determining
Whether an Arrangement Contains a Lease", EITF Issue No. 02-3 "Issues Related
to Accounting for Contracts Involved in Energy Trading and Risk Management
Activities", EITF Issue No. 02-9 "Accounting by a Reseller for Certain
Consideration Received from a Vendor", EITF Issue No. 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination",
EITF Issue No. 02-18 "Accounting for Subsequent Investments in an Investee
after Suspension of Equity Method Loss Recognition", EITF Issue No. 03-1, "The
Meaning of Other Than Temporary and its Application to Certain Instruments",
EITF Issue No. 03-5, "Applicability of AICPA Statement of Position 9702,
'Software Revenue Recognition' to Non-Software Deliverables in an Arrangement
Containing More Than Incidental Software", EITF Issue No. 03-7, "Accounting
for the Settlement of the Equity Settled Portion of a Convertible Debt
Instrument That Permits or Requires the Conversion Spread to be Settled in
Stock", EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by
Resellers to Sales Incentives Offered to Consumers by Manufacturers.
NOTE 6 - CONCENTRATIONS OF RISK
Accounts Receivable
- -------------------
Credit losses, if any, have been provided for in the financial statements and
are based on management's expectations. The Company's accounts receivable are
subject to potential concentrations of credit risk. The Company does not
believe that it is subject to any unusual, or significant risk in the normal
course of its business.
Major Customers
- ---------------
Net sales for the years ended December 31, 2003 and 2002 include sales to the
following major customers:
Net Sales
December 31,
----------------------------
2003 2002
-------------- -------------
Customer A $ 1,392,733 $ 15,000
Customer B - 76,487
Customer C - 95,290
Customer D - 89,154
Customer E - 107,544
Other 150,079 79,198
-------------- -------------
$ 1,542,812 $ 462,673
============== =============
Because of the nature of the Company's business, the major customers may vary
between years.
13
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements (Continued)
December 31, 2003 and 2002
NOTE 7 - SIGNIFICANT AND SUBSEQUENT EVENTS
On January 2, 2004, the Company purchased a building from a related party for
$550,000, made up of a cash payment of $250,000, the assumption of $154,895
worth of the related party's debt for the building, and a note payable with
the related party in the amount of $145,105.
On August 13, 2004, the Company entered into a Corporate Restructuring
Agreement ("the Agreement") in which the Company was acquired by GK
Intelligent Systems, Inc. ("GK"). According to the terms of the Agreement, GK
acquired all of the Company's issued and outstanding common stock in exchange
for $1,500,000 in the form of GK common stock (42,857,153 shares).
In accordance with the Agreement with GK Intelligent Systems, dated August 13,
2004, the Company rescinded the building purchase transaction made on January
2, 2004, such that the building was again the property of the related party.
As of that date, the Company remained in the building and entered into a month
to month lease agreement for the use of the furnished building for $2,850 per
month.
14
TEXAS SOURCE GROUP, INC.
FINANCIAL STATEMENTS
June 30, 2004
15
TEXAS SOURCE GROUP, INC.
Balance Sheet
June 30, 2004
ASSETS
------
June 30,
2004
--------------
(Unaudited)
CURRENT ASSETS
Cash $ 81,648
Accounts receivable 974
--------------
Total Current Assets 82,622
--------------
FIXED ASSETS, NET 624,790
--------------
OTHER ASSETS
Other assets 673
--------------
Total Other Assets 673
--------------
TOTAL ASSETS $ 708,085
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
CURRENT LIABILITIES
Notes payable 213,385
Notes payable - related 200,965
--------------
Total Current Liabilities 414,350
--------------
TOTAL LIABILITIES 414,350
--------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 100,000 shares authorized, $1.00
par value, 611 shares issued and outstanding 611
Retained earnings 293,124
--------------
Total Stockholders' Equity (Deficit) 293,735
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 708,085
==============
The accompanying notes are an integral part of these financial statements.
2
16
TEXAS SOURCE GROUP, INC.
Statements of Operations
(Unaudited)
For the Six
Months Ended
June 30,
---------------------------
2004 2003
------------- -------------
REVENUES $ 513,331 $ 750,357
Cost of Sales 144,929 279,279
------------- -------------
Gross Margin 368,402 471,078
------------- -------------
OPERATING EXPENSES
Salaries and wages 73,890 59,709
Depreciation and amortization 20,212 2,805
General and administrative 50,407 148,419
------------- -------------
Total Expenses 144,509 210,933
------------- -------------
INCOME FROM OPERATIONS 223,893 260,145
------------- -------------
OTHER EXPENSE
Loss on disposal of assets - ( 4,330)
Interest expense (3,010) ( 6,839)
------------- -------------
Total Other Expenses (3,010) (11,169)
------------- -------------
NET INCOME $ 220,883 $ 248,976
============= =============
BASIC INCOME PER SHARE $ 361.51 $ 407.49
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 611 611
============= =============
The accompanying notes are an integral part of these financial statements.
3
17
TEXAS SOURCE GROUP, INC.
Statements of Cash Flows
(Unaudited)
For the Six
Months Ended
June 30,
---------------------------
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 220,883 $ 248,976
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 20,212 2,805
Loss on disposal of assets - 4,330
Changes in operating assets and liabilities:
Increase in other assets - (5,566)
(Increase) decrease in accounts receivable 146,454 (36,767)
Decrease in accrued assets - ( 2,286)
------------- -------------
Net Cash Provided by Operating Activities 387,549 211,492
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (250,000) -
------------- -------------
Net Cash Used by Investing Activities (250,000) -
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (18,701) (113,162)
Payments on notes payable - related party (55,352) (21,000)
------------- -------------
Net Cash Used by Financing Activities (74,053) (134,162)
------------- -------------
NET INCREASE IN CASH 63,496 77,330
CASH AT BEGINNING OF PERIOD 18,152 6,578
------------- -------------
CASH AT END OF PERIOD $ 81,648 $ 83,908
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES:
Cash Paid For:
Income taxes $ - $ -
Interest $ 3,010 $ -
The accompanying notes are an integral part of these financial statements.
4
18
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements
June 30, 2004
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared
by the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations, and cash flows at June 30, 2004
and 2003, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2003 audited financial statements. The results of operations for
the periods ended June 30, 2004 and 2003 are not necessarily indicative of the
operating results for the full years.
NOTE 2 - SIGNIFICANT EVENTS
On January 2, 2004, the Company purchased a building from a related party for
$550,000. The purchase included a cash payment of $250,000, the assumption of
$154,895 worth of the related party's debt for the building, and a note
payable with the related party in the amount of $145,105.
NOTE 3 - SUBSEQUENT EVENTS
On August 13, 2004, the Company entered into a Corporate Restructuring
Agreement ("the Agreement") with GK Intelligent Systems, Inc. ("GK") whereby
GK acquired the Company. According to the terms of the Agreement, GK acquired
all of the Company's issued and outstanding common stock in exchange for
$1,500,000 in the form of GK common stock (42,857,153 shares).
In accordance with the Agreement with GK, the Company rescinded the building
purchase transaction made on January 2, 2004, such that the building, as well
as the furniture and office equipment in the building, again became the
property of the related party. The $250,000 in cash that was paid to secure
the building was not returned, however, and was instead reclassified as a
payment for consulting services rendered. Despite the rescission, the Company
continued to occupy in the building and subsequently entered into a
month-to-month lease agreement for the use of the furnished building for
$2,850 per month. Below is a proforma balance sheet as of 6/30/04, as if the
rescission had occurred prior to that date taking into account the reduction
in the Company's assets resulting from the Corporate Restructuring Agreement
with GK Intelligent Systems, Inc.
ASSETS
June 30,
2004
-------------
(Unaudited)
CURRENT ASSETS
Cash $ 81,648
Accounts receivable 974
-------------
Total Current Assets 82,622
-------------
19
TEXAS SOURCE GROUP, INC.
Notes to the Financial Statements
June 30, 2004
NOTE 3 - SUBSEQUENT EVENTS (Continued)
FIXED ASSETS, NET 624,790
OTHER ASSETS
Other assets 673
-------------
Total Other Assets 673
-------------
TOTAL ASSETS $ 708,085
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 213,385
Notes payable - related 200,965
-------------
Total Current Liabilities 414,350
-------------
TOTAL LIABILITIES 414,350
-------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000 shares authorized,
$1.00 par value, 611 shares issued and
outstanding 611
Retained earnings 293,124
-------------
Total Stockholders' Equity (Deficit) 293,735
-------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 708,085
=============
20
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements
("the pro forma financial statements) and explanatory notes have been prepared
and give effect to the acquisition of Texas Source Group, Inc. ("TSG") by GK
Intelligent Systems, Inc. ("GK"). The historical financial statements prior
to the effective date of the acquisition will be those of GK.
In accordance with Article 11 of Regulation S-X under the Securities Act, an
unaudited condensed combined pro forma balance sheet (the "pro forma balance
sheet") as of December 31, 2003, and unaudited condensed combined pro forma
statements of income for the year ended December 31, 2003 (the "pro forma
statements of income"), have been prepared to reflect, for accounting
purposes, the acquisition of TSG by GK.
The following pro forma financial statements have been prepared based upon the
historical financial statements of TSG and GK, and GK's consolidated
subsidiary, Stellar Software Network, Inc. ("Stellar"). The pro forma
financial statements should be read in conjunction with (a) the historical
financial statements and related notes thereto of TSG as of December 31, 2003
and 2002; and (b) the historical consolidated financial statements and related
notes thereto of GK as of December 31, 2003 and 2002, and the historical
financial statements and related notes thereto of Stellar as of December 31,
2003 and 2002; included in the Form 8-K filed on September 28, 2004.
The December 31, 2003, pro forma balance sheet assumes that the acquisition of
TSG by GK was completed on January 1, 2003. The December 31, 2003, pro forma
balance sheet includes the historical audited balance sheet data of TSG as of
December 31, 2003, the historical audited consolidated balance sheet data of
GK as of December 31, 2003, and the historical audited balance sheet of
Stellar as of December 31, 2003. TSG, GK, and Stellar have had no
intercompany activity that would require elimination in the pro forma
financial statements.
The pro forma statement of operations for the year ended December 31, 2003,
assumes that the acquisition of TSG by GK occurred on January 1, 2003, and
includes the audited historical statement of operations data of TSG for the
year ended December 31, 2003, the audited historical consolidated statement of
operations data of GK for the year ended December 31, 2003, and the audited
historical statement of operations data of Stellar for the year ended December
31, 2003.
The pro forma financial statements are provided for illustrative purposes
only, and are not necessarily indicative of the operating results or financial
position that would have occurred if the mergers had been consummated at the
beginning of the periods or on the dates indicated, nor are they necessarily
indicative of any future operating results or financial position. The pro
forma financial statements do not include any adjustments related to any
restructuring charges or one-time charges which may result from the mergers or
the final result of valuations of inventories, property, plant and equipment,
intangible assets, debt, and other obligations.
21
GK INTELLIGENT SYSTEMS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
Pro Forma
Texas Combined
Stellar GK Source Combined Stellar and GK
as of as of as of Historical & Texas Source
December 31, December 31, December 31, Stellar, GK & Pro Forma December 31,
2003 2003 2003 Texas Source Adjustments 2003
------------ ------------- ------------- ------------- ------------- -------------
<s> <c> <c> <c> <c> <c> <c>
ASSETS
Current Assets:
Cash $ 34,111 $ 97 $ 18,152 $ 52,360 $ - $ 52,360
Prepaid expenses - 6,476 - 6,476 - 6,476
Accounts receivable 128,177 - 147,428 275,605 - 275,605
------------ ------------- ------------- ------------- ------------- -------------
Total Current
Assets 162,288 6,573 165,580 334,441 - 334,441
------------ ------------- ------------- ------------- ------------- -------------
Fixed Assets, Net: 3,458 - 95,002 98,460 - 98,460
Other Assets
Goodwill - - - - 116,988 (2) 1,626,603
1,509,615 (4)
Other assets - - 673 673 - 673
------------ ------------- ------------- ------------- ------------- -------------
Total Other
Assets - - 673 673 1,626,603 1,627,276
------------ ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 165,746 $ 6,573 $ 261,255 $ 433,574 $ 1,626,603 $ 2,060,177
============ ============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 68,401 $ 157,998 $ - $ 226,399 $ - $ 226,399
Accrued liabilities - 962,142 81,856 1,043,998 - 1,043,998
Accrued liabilities
- related parties - 442,628 - 442,628 - 442,628
Notes and contracts
payable - short
term portion 9,639 530,500 13,331 553,470 - 553,470
Notes payable -
related party -
short-term portion 9,421 216,296 31,000 256,717 - 256,717
------------ ------------- ------------- ------------- ------------- -------------
Total Current
Liabilities 87,461 2,309,564 126,187 2,523,212 - 2,523,212
------------ ------------- ------------- ------------- ------------- -------------
Non-Current Liabilities:
Long-term portion
of notes and
contracts payable - - 63,572 63,572 - 63,572
Long-term portion
of notes payable
- related - - 80,500 80,500 - 80,500
------------ ------------- ------------- ------------- ------------- -------------
Total
Non-Current
Liabilities - - 144,072 144,072 - 144,072
------------ ------------- ------------- ------------- ------------- -------------
Total
Liabilities 87,461 2,309,564 270,259 2,667,284 - 2,667,284
------------ ------------- ------------- ------------- ------------- -------------
Stockholders' Equity:
Preferred stock - - - - - -
Common stock 4,273 27,562 611 32,446 (4,273)(1) 78,444
8,025 (2)
( 611)(3)
42,857 (4)
Additional
paid-in capital - 40,574,178 - 40,574,178 4,273 (1) 42,219,180
182,975 (2)
611 (3)
1,457,143 (4)
Unearned
compensation - (135,000) - (135,000) - (135,000)
Accumulated deficit
during the
development stage - - - - - -
Retained earnings
(deficit) 74,012 (42,769,731) (9,615) (42,705,334) (74,012)(2) (42,769,731)
9,615 (4)
------------ ------------- ------------- ------------- ------------- -------------
Total
Stockholders'
Equity 78,285 (2,302,991) (9,004) (2,233,710) 1,626,603 (607,107)
------------ ------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 165,746 $ 6,573 $ 261,255 $ 433,574 $ 1,626,603 $ 2,060,177
============ ============= ============= ============= ============= =============
____________________________
(1) To eliminate the common stock of Stellar as of the date of the acquisition.
(2) To record the issuance of 8,025,211 shares of common stock valued at $0.0238 per share in the
acquisition of Stellar Software Network, Inc.
(3) To eliminate the common stock of Texas Source Group as of the date of the acquisition.
(4) To record the issuance of 42,857,143 shares of common stock valued at $0.035 per share in the
acquisition of Texas Source Group by GK for $1,500,000.
22
GK INTELLIGENT SYSTEMS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma
Texas Combined
Stellar GK Source GK, Stellar &
for the for the for the Texas Source
Year Ended Year Ended Year Ended Combined for the
Dec. 31, Dec. 31, Dec. 31, GK, Steller & Pro Forma Year Ended
2003 2003 2003 Texas Source Adjustments Dec. 31, 2003
------------ ------------- ------------- ------------- ------------- -------------
<s> <c> <c> <c> <c> <c> <c>
REVENUES
Consulting revenue $ 807,280 $ - $ 1,542,812 $ 2,350,092 $ - $ 2,350,092
Other revenue 14,003 - - 14,003 - 14,003
------------ ------------- ------------- ------------- ------------- -------------
Total Revenues 821,283 - 1,542,812 2,364,095 - 2,364,095
------------ ------------- ------------- ------------- ------------- -------------
COST OF GOODS SOLD - - 672,633 672,633 - 672,633
------------ ------------- ------------- ------------- ------------- -------------
GROSS MARGIN 821,283 - 870,179 1,691,462 - 1,691,462
------------ ------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES
General and
administrative 813,568 1,282,364 485,535 2,581,467 - 2,581,467
Depreciation and
amortization 436 - 5,610 6,046 - 6,046
------------ ------------- ------------- ------------- ------------- -------------
Total Costs
and Expenses 814,004 1,282,364 491,145 2,587,513 - 2,587,513
------------ ------------- ------------- ------------- ------------- -------------
OPERATING
INCOME (LOSS) 7,279 (1,282,364) 379,034 (896,051) - (896,051)
------------ ------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense
and loan discount
fees (1,421) (174,032) (14,102) (189,555) - (189,555)
Gain on extinguish-
ment of debt - 60,788 - 60,788 - 60,788
Gain on release
of debt - 2,220,782 - 2,220,782 - 2,220,782
------------ ------------- ------------- ------------- ------------- -------------
Total Other
Income (Expense) (1,421) 2,107,538 (14,102) 2,092,015 - 2,092,015
------------ ------------- ------------- ------------- ------------- -------------
NET INCOME $ 5,858 $ 825,174 $ 364,932 $ 1,195,964 $ - $ 1,195,964
============ ============= ============= ============= ============= =============
Basic income
per share $ 5.86 $ 0.03 $ 447.22
============ ============= =============
Weighted average
shares outstanding 1,000 30,958,916 816
============ ============= =============
23
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements
("the pro forma financial statements") and explanatory notes have been
prepared and give effect to the acquisition of Texas Source Group, Inc.
("TSG") by GK Intelligent Systems, Inc. ("GK"). The historical financial
statements prior to the effective date of the acquisition will be those of GK.
In accordance with Article 11 of Regulation S-X under the Securities Act, an
unaudited condensed combined pro forma balance sheet (the "pro forma balance
sheet") as of June 30, 2004, and unaudited condensed combined pro forma
statements of income for the six months ended June 30, 2004 (the "pro forma
statements of income"), have been prepared to reflect, for accounting
purposes, the acquisition of TSG by GK.
The following pro forma financial statements have been prepared based upon the
historical financial statements of TSG, GK, and GK's consolidated subsidiary,
Stellar Software Network, Inc. ("Stellar"). The pro forma financial
statements should be read in conjunction with (a) the historical consolidated
financial statements and related notes thereto of TSG as of December 31, 2003
and 2002; and (b) the historical consolidated financial statements and related
notes thereto of GK as of December 31, 2003 and 2002; included in this Form
8-K.
The June 30, 2004 pro forma balance sheet assumes that the acquisition of TSG
by GK was completed on January 1, 2004. The June 30, 2004 pro forma balance
sheet includes the historical unaudited consolidated balance sheet data of TSG
as of June 30, 2004, and the historical reviewed consolidated balance sheet
data of GK as of June 30, 2004, and the unaudited balance sheet of Stellar at
June 30, 2004. TSG, GK, and Stellar have had no intercompany activity that
would require elimination in the pro forma financial statements.
The pro forma statement of operations for the six months ended June 30, 2004,
assumes that the acquisition of TSG by GK occurred on January 1, 2004, and
includes the unaudited historical consolidated statement of operations data of
TSG for the six months ended June 30, 2004, the reviewed historical
consolidated statement of operations data of GK for the six months ended June
30, 2004, and the unaudited statement of operations for Stellar for the six
months ended June 30, 2004.
The pro forma financial statements are provided for illustrative purposes
only, and are not necessarily indicative of the operating results or financial
position that would have occurred if the mergers had been consummated at the
beginning of the periods or on the dates indicated, nor are they necessarily
indicative of any future operating results or financial position. The pro
forma financial statements do not include any adjustments related to any
restructuring charges or one-time charges which may result from the mergers or
the final result of valuations of inventories, property, plant and equipment,
intangible assets, debt, and other obligations.
24
GK INTELLIGENT SYSTEMS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
Stellar GK Texas Source Pro Forma
as of as of as of Combined Combined
---------------------------------------- Historical Stellar and GK
June 30, Stellar, GK & Pro Forma & Texas Source
2004 Texas Source Adjustments June 30, 2004
---------------------------------------- ------------- ------------- -------------
<s> <c> <c> <c> <c> <c> <c>
ASSETS
Current Assets:
Cash $ 74,553 $ 151,404 $ 81,648 $ 307,605 $ - $ 307,605
Accounts receivable 137,989 - 974 138,963 - 138,963
------------ ------------- ------------- ------------- ------------- -------------
Total Current
Assets 212,542 151,404 82,622 446,568 - 446,568
------------ ------------- ------------- ------------- ------------- -------------
Fixed Assets, Net: 2,060 2,945 624,790 629,795 (574,818)(5) 54,977
Other Assets
Goodwill - - - - 73,277 (2) 1,610,485
1,206,876 (4)
330,332 (5)
Other assets - - 673 673 - 673
------------ ------------- ------------- ------------- ------------- -------------
Total Other
Assets - - 673 673 1,610,485 1,611,158
------------ ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 214,602 $ 154,349 $ 708,085 $ 1,077,036 $ 1,035,667 $ 2,112,703
============ ============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 66,856 $ 172,251 $ - $ 239,107 $ - $ 239,107
Accrued liabilities 317 745,633 - 745,950 - 745,950
Accrued liabilities
- related parties - 323,757 - 323,757 - 323,757
Notes payable 26,512 102,000 213,385 341,897 (213,385)(5) 128,512
Notes payable
- related party 1,921 - 200,965 202,886 (31,101)(5) 171,785
------------ ------------- ------------- ------------- ------------- -------------
Total Current
Liabilities 95,606 1,343,641 414,350 1,853,597 (244,486) 1,609,111
------------ ------------- ------------- ------------- ------------- -------------
Total
Liabilities 95,606 1,343,641 414,350 1,853,597 (244,486) 1,609,111
------------ ------------- ------------- ------------- ------------- -------------
Stockholders' Equity:
Preferred stock - - - - - -
Common stock 1,273 73,619 611 75,503 (1,273)(1) 124,501
8,025 (2)
(611)(3)
42,857 (4)
Additional
paid-in capital - 42,583,841 - 42,583,841 1,273 (1) 44,225,843
182,975 (2)
611 (3)
1,457,143 (4)
Unearned
compensation - (558,372) - (558,372) - (558,372)
Stock subscription
receivable - (10,000) - (10,000) - (10,000)
Treasury stock - - - - - (5) -
Accumulated deficit
during the
development stage 72,297 (42,769,731) - (42,697,434) (72,297)(2) (42,769,731)
- (4)
Current period
earnings (loss) 45,426 (508,649) 293,124 (170,099) (45,426)(2) (508,649)
(293,124)(4)
------------ ------------- ------------- ------------- ------------- -------------
Total
Stockholders'
Equity 118,996 (1,189,292) 293,735 (776,561) 1,280,153 503,592
------------ ------------- ------------- ------------- ------------- -------------
TOTAL
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT) $ 214,602 $ 154,349 $ 708,085 $ 1,077,036 $ 1,035,667 $ 2,112,703
============ ============= ============= ============= ============= =============
__________________________
(1) To eliminate the common stock of Stellar as of the date of the acquisition.
(2) To record the issuance of 8,025,211 shares of common stock valued at $0.0238 per share in the
acquisition of Stellar Software Network, Inc.
(3) To eliminate the common stock of Texas Source Group as of the date of the acquisition.
(4) To record the issuance of 42,857,143 shares of common stock valued at $0.035 per share in the
acquisition of Texas Source Group by GK for $1,500,000.
(5) To eliminate the fixed assets and corresponding notes payable, the purchase of which was rescinded
subsequent to June 30, 2004.
25
GK INTELLIGENT SYSTEMS, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma
Combined
GK, Stellar &
Stellar GK Texas Source Texas Source
---------------------------------------- for the
for the Combined Six Months
Six Months Ended GK, Stellar & Pro Forma Ended
June 30, 2004 Texas Source Adjustments June 30, 2004
---------------------------------------- ------------- ------------- -------------
<s> <c> <c> <c> <c> <c> <c>
REVENUES
Consulting revenue $ 287,880 $ - $ 513,331 $ 801,211 $ - $ 801,211
Other revenue 6,256 - - 6,256 - 6,256
------------ ------------- ------------- ------------- ------------- -------------
Total Revenues 294,136 - 513,331 807,467 - 807,467
------------ ------------- ------------- ------------- ------------- -------------
COST OF SALES - - 144,929 144,929 - 144,929
------------ ------------- ------------- ------------- ------------- -------------
GROSS MARGIN 294,136 - 368,402 662,538 - 662,538
------------ ------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES
General and
administrative 248,027 1,306,447 124,297 1,678,771 - 1,678,771
Depreciation and
amortization 683 264 20,212 21,159 - 21,159
------------ ------------- ------------- ------------- ------------- -------------
Total Costs
and Expenses 248,710 1,306,711 144,509 1,699,930 - 1,699,930
------------ ------------- ------------- ------------- ------------- -------------
OPERATING
INCOME (LOSS) 45,426 (1,306,711) 223,893 (1,037,392) - (1,037,392)
------------ ------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense and
loan discount fees - (50,907) (3,010) (53,918) - (53,919)
Gain on extinguish-
ment of debt - (22,121) - (22,121) - (22,121)
Gain on release
of debt - 871,090 - 871,090 - 871,090
------------ ------------- ------------- ------------- ------------- -------------
Total Other
Income (Expense) - 798,062 (3,010) 795,052 - 795,052
------------ ------------- ------------- ------------- ------------- -------------
NET INCOME(LOSS) $ 45,426 $ (508,649) $ 220,883 $ (242,339) $ - $ (242,339)
============ ============= ============= ============= ============= =============
Basic income
per share $ 45.43 $ (0.01) $ 361.51
============ ============= =============
Weighted average
shares outstanding 1,000 45,211,781 611
============ ============= =============
26
SIGNATURE
Pursuant to 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 hereunto duly authorized.
GK Intelligent Systems, Inc.
(Registrant)
Date: November 18, 2004 /s/ Gary F. Kimmons
-----------------------------------------
Gary F. Kimmons,
President and Chief
Executive Officer