UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly period Ended: June 30, 2003; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________
Commission File Number: 0-22057
-----------------------
GK INTELLIGENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0513297
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2602 Yorktown Place, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
(713) 626-1504
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, $0.001
par value, as of June 30, 2003, was 24,066,273.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
GK INTELLIGENT SYSTEMS, INC.
Report on Form 10-QSB
For the Quarter Ended June 30, 2003
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (unaudited)..................... 3
Balance Sheet ....................................... 3
Statements of Operations ............................ 4
Statements of Cash Flows............................. 5
Notes to the Financial Statements ................... 7
Item 2. Management's Discussion and Analysis or Plan
of Operation ...................................... 10
Item 3. Controls and Procedures ............................. 13
Part II. Other Information
Item 1. Legal Proceedings ................................... 13
Item 2. Changes in Securities ............................... 13
Item 3. Defaults Upon Senior Securities ..................... 13
Item 4. Submission of Matters to a Vote of Security Holders . 13
Item 5. Other Information ................................... 13
Item 6. Exhibits and Reports on Form 8-K .................... 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
June 30,
2003
-------------------
(Unaudited)
CURRENT ASSETS
Cash $ 14,512
-------------------
Total Current Assets 14,512
-------------------
COMPUTER SOFTWARE, NET -
-------------------
TOTAL ASSETS $ 14,512
===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 229,950
Accrued liabilities 1,160,163
Accrued liabilities - related parties 62,484
Stock subscription payable 42,000
Notes payable 384,500
Notes payable - related parties 16,296
-------------------
Total Current Liabilities 1,895,393
-------------------
TOTAL LIABILITIES 1,895,393
-------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock authorized: 10,000,000 preferred shares at $0.001 par
value; -0- issued and outstanding -
Common stock authorized: 275,000,000 common shares at $0.001 par
value; 24,166,274 shares issued and outstanding 24,166
Additional paid-in capital 39,851,549
Deficit accumulated during the development stage (41,756,596)
-------------------
Total Stockholders' Equity (Deficit) (1,880,881)
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 14,512
=====================
The accompanying notes are an integral part of these financial statements.
3
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
From
Inception
For the Three For the Six on October 4,
Months Ended Months Ended 1993 through
June 30, June 30, June 30,
------------------------------- ----------------------------------
2003 2002 2003 2002 2003
-------------- --------------- --------------- ----------------- --------------
REVENUES $ - $ - $ - $ - $ 100,156
Cost of sales - - - - 29,961
-------------- --------------- --------------- ----------------- --------------
Gross margin - - - - 70,195
-------------- --------------- --------------- ----------------- --------------
EXPENSES
Loss on disposal of fixed assets - - - - 1,385,199
Depreciation and amortization - - - - 3,458,369
Impairment loss on software - - - - 1,308,520
General and administrative 392,194 122,306 700,629 199,397 36,715,292
-------------- --------------- --------------- ----------------- --------------
Total Costs and Expenses 392,194 122,306 700,629 199,397 42,867,380
-------------- --------------- --------------- ----------------- --------------
LOSS BEFORE OTHER INCOME
(EXPENSE) (392,194) (122,306) (700,629) (199,397) (42,797,185)
-------------- --------------- --------------- ----------------- --------------
OTHER INCOME (EXPENSE)
Interest income - - - - 7,663
Gain on release of debt 2,652,925 2,250 2,652,925 2,250 2,728,178
Interest expense (30,683) (87,279) (113,987) (177,237) (1,507,937)
-------------- --------------- --------------- ----------------- --------------
Total Other Income (Expense) 2,622,242 (85,029) 2,538,938 (174,987) 1,227,904
-------------- --------------- --------------- ----------------- --------------
INCOME (LOSS) BEFORE INCOME
TAXES 2,230,048 (207,335) 1,838,309 (374,384) (41,569,281)
INCOME TAXES - - - - -
-------------- --------------- --------------- ----------------- --------------
NET INCOME (LOSS) 2,230,048 (207,335) 1,838,309 (374,384) (41,569,281)
DIVIDENDS ON PREFERRED STOCK - - - - (187,315)
-------------- --------------- --------------- ----------------- --------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 2,230,048 $ (207,335) $ 1,838,309 $ (374,384) $ (41,756,596)
============== =============== =============== ================= ==============
BASIC INCOME (LOSS) PER SHARE $ 0.10 $ (0.02) $ 0.09 $ (0.04)
============== =============== =============== =================
BASIC WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 22,539,593 17,406,952 21,881,560 13,040,506
============== =============== =============== ================
FULLY DILUTED INCOME (LOSS) PER
SHARE $ 0.08 $ (0.02) $ 0.07 $ (0.04)
============== =============== =============== ================
FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF SHARE OUTSTANDING 29,246,243 17,406,952 29,246,243 13,040,506
============== =============== =============== ================
The accompanying notes are an integral part of these financial statements.
4
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From
Inception
For the Six Months on October 4,
Months Ended 1993 through
June 30, June 30,
--------------------------------------
2003 2002 2003
------------------ ------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,838,309 $ (374,384) $ (41,471,081)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization - - 3,458,369
Loss on disposal of fixed assets - - 1,385,199
Impairment loss on software - - 1,308,520
Gain on release of debt (2,652,925) (2,250) (2,728,178)
Beneficial conversion on issuance of debt - - 103,068
Amortization of unearned compensation 46,900 127,354 5,929,531
Issuance of common stock, options and warrants
for services 326,199 60,500 13,435,418
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued
expenses 230,803 166,724 4,265,502
Increase in accrued liabilities - related party 83,906 22,056 1,181,710
------------------ ------------------ ----------------
Net Cash Used by Operating Activities (126,808) - (13,131,942)
------------------ ------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software - - (915,742)
Other capital expenditures - - (1,651,988)
Organization costs - - (78,745)
------------------ ------------------ ----------------
Net Cash Used by Investing Activities - - (2,646,475)
------------------ ------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in stock subscription payable 42,000 - 42,000
Proceeds from issuance of note payable - - 1,098,769
Common stock issued for cash 137,500 - 13,937,329
Payments on notes payable - - (306,637)
Proceeds from issuance of notes payable - related party - - 250,000
Payments on notes payable related party (53,746) - (53,746)
Receipt of subscription receivable - - 779,900
Capital contributed by the Company's president - - 45,314
------------------ ------------------ ----------------
Net Cash Provided by Financing Activities 125,754 - 15,792,929
------------------ ------------------ ----------------
NET DECREASE IN CASH (1,054) - 14,512
CASH AT BEGINNING OF PERIOD 15,566 - -
------------------ ------------------ ----------------
CASH AT END OF PERIOD $ 14,512 $ - $ 14,512
================== ================== ================
The accompanying notes are an integral part of these financial statements.
5
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
From
Inception
For the Six Months on October 4,
Months Ended 1993 through
June 30, June 30,
--------------------------------------
2003 2002 2003
------------------ ------------------ -----------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW
ACTIVITIES:
Cash Paid For:
Income taxes $ - $ - $ -
Interest $ 2,255 $ - $ 39,255
Schedule of Non-Cash Financing Activities:
Common stock issued for debt $ 128,155 $ 13,583 $ 698,685
Common stock issued for debt- related party $ 102,125 $ 789,062 $ 891,187
Options and warrants issued for debt - related party $ 110,000 $ - $ 110,000
Common stock issued for services - related party $ 10,625 $ 60,000 $ 4,619,748
Options and warrants issued for services $ 20,000 $ - $ 2,461,986
Common stock issued for services $ 256,199 $ 500 $ 6,284,511
Fixed assets distributed for debt $ - $ - $ 42,738
The accompanying notes are an integral part of these financial statements.
6
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2003 and 2002
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company 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 accounting
principles generally accepted in the United States of America have been
condensed or omitted in accordance with such rules and regulations. The
information furnished in the interim financial statements include normal
recurring adjustments and reflects all adjustments, which, in the opinion
of management, are necessary for a fair presentation of such financial
statements. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 2002 audited financial statements. Operating results
for the six months ended June 30, 2003 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2003.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company does not
have cash or other material assets, nor does it have an established source
of revenue to cover its operating costs and to allow it to continue as a
going concern. The financial statements do not reflect any adjustments that
might result from the outcome of this uncertainty. It is the intent of the
Company to obtain additional financing through equity offerings or other
feasible financing alternatives to fund its ongoing operations. The Company
also continues to pursue the development and marketing of its software to
generate sales to cover the Company's working capital needs and software
development expenditures. There is no assurance that the Company will be
successful in raising the needed capital or that there will be sales of its
software.
NOTE 3 - SIGNIFICANT AND SUBSEQUENT EVENTS
Commitments and Contingencies
-----------------------------
On June 14, 2002, an agreed judgment was entered on behalf of Lyon
Financial Services d.b.a. The Manifest Group. It was ordered that GK
Intelligent Systems, Inc. and Gary Kimmons, individually as guarantor, pay
to Lyon Financial Services d.b.a. The Manifest Group the sum of $20,000
with interest at eight percent per annum from September 20, 2001 to the
above date of judgment, as well as $1,500 in attorney's fees. Subsequent to
the judgment for $21,500, the two parties agreed to settle for $12,750. The
Company has paid $5,500 through June 30, 2003.
7
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2003 and 2002
NOTE 3 - SIGNIFICANT AND SUBSEQUENT EVENTS (Continued)
Common Stock
------------
During the six months ended June 30, 2003, the Company issued 550,000
common shares for $137,500 of cash proceeds or $0.25 per share. These
shares were issued pursuant to an October 18, 2002 Private Placement
Memorandum (see further discussion ate Note 6.)
During the six months ended June 30, 2003, the Company had issued 1,882,154
common shares to various consultants valued at $0.15 to $0.17 per share for
services performed.
During the six months ended June 30, 2003, the Company had issued 876,581
common shares to the Company's President/CEO and to a Director valued at
$0.15 to $0.18 per share for the conversion of related party debt.
During the six months ended June 30, 2003, the Company had issued 62,500
common shares to a Director of the Company valued at $0.17 per share for
services performed
Subsequent Events
-----------------
Subsequent to June 30, 2003, the Company sold an additional 1.5 Units
pursuant to the October 18, 2002 Private Placement Memorandum (see further
discussion at Note 6).
On July 22, 2003, the Company entered into a consulting agreement with an
unrelated individual. Under the agreement, the individual will provide
executive management and public markets consulting and will receive
compensation of $75,000 or 500,000 shares of the Company's common stock
pursuant to the Company's Non-Employee Director and Consultant Retainer
Stock Plan.
NOTE 3 - RELEASE OF DEBT
The Company had a total of $2,652,926 of accounts payable, notes payable,
accrued liabilities, and accrued interest, which had been outstanding
longer than four years. According to the Company's legal council, The Texas
Code V.T.C.A., Civil Practice and Remedies Code Section 16.004 (a), states
that an action upon any contract obligation or liability founded upon an
instrument in writing must be brought within four years of such a written
agreement. As of June 30, 2003, no such actions to enforce payment of the
obligations have been filed. Accordingly, the amounts have been written off
and a gain on extinguishment of debt of $2,652,926 and $2,250 has been
recorded in the six months ended June 30, 2003 and 2002, respectively.
8
GK INTELLIGENT SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2003 and 2002
NOTE 4 - STOCK OPTIONS
During 1998, the Company established the "1998 stock option plan (the plan)
to promote the interest of the Company and its shareholders by attracting
and retaining exceptional employees and directors. Any employee, of the
Company is eligible to be designated a participant. The Board of the
Company has sole and complete authority to determine the employees to whom
options shall be granted, the number of each grant and any additional
conditions and limitations. The exercise price shall not be less than the
fair market value of the underlying shares.
A summary of the status of the Company's outstanding stock options as of
June 30, 2003 and December 31, 2002 and changes during the six months ended
June 30, 2003 and the year ended December 31, 2002 is presented below:
2003 2002
------------------------------- ------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ---------------- ------------- ---------------
Outstanding, beginning of
year 826,559 $ 0.34 830,309 $ 0.34
Granted - - - 0.00
Expired/Cancelled 3,380,091 0.35 (3,750) 1.25
Exercised - - - -
------------- ---------------- ------------- ---------------
Outstanding end of year 4,206,650 $ 0.34 826,559 $ 0.34
============= ================ ============= ===============
Exercisable 4,206,650 $ 0.34 826,559 $ 0.34
============= ================ ============= ===============
Outstanding Exercisable
--------------------------------------------- ------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at June 30, Contractual Exercise at June 30, Exercise
Exercise Prices 2003 Life Price 2003 Price
---------------------- ------------- ------------- ------------- ------------- ---------------
$ 0.10-9.99 4,190,000 4.75 $ 0.10-9.99 4,190,000 $ 1.00
1.00-39.99 10,050 0.75 1.00-39.99 10,050 13.32
40.00-50.00 6,600 1.00 40.00-50.00 6,600 40.91
---------------------- ------------- ------------- ------------- ------------- ---------------
$ 0.10-50.00 4,206,650 3.75 $ 0.01-5.00 4,206,650 $ 2.57
====================== ============= ============= ============= ============= ===============
NOTE 5 - WARRANTS
On October 18, 2002, the Company issued a Private Placement Memorandum
(PPM) to accredited investors as defined in Rule 501 of Regulation 1 of the
Securities Act of 1933. This PPM was for 40 units with each unit consisting
of 100,000 shares of common stock and a warrant to purchase up to 200,000
shares of common stock. Each warrant vests immediately and will be
exercisable for a period of two years from the date of issuance. Each unit
is being offered for $25,000 or $0.25 per share. Each warrant is
exercisable at $0.35 per share. The Company has sold 12.5 units or
1,250,000 shares of common stock and 2,500,000 warrants.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CAUTIONARY FORWARD - LOOKING STATEMENT
--------------------------------------
The following discussion should be read in conjunction with the Company's
financial statements and related notes.
Certain matters discussed herein may contain forward-looking statements
that are subject to risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the following:
- the volatile and competitive nature of the software business,
- the uncertainties surrounding the rapidly evolving markets in which
the Company competes,
- the uncertainties surrounding technological change and the Company's
dependence on computer systems,
- the Company's dependence on its intellectual property rights,
- the success of marketing efforts by third parties,
- the changing demands of customers and
- the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should
any of the underlying assumptions prove incorrect, actual results of current and
future operations may vary materially from those anticipated.
Business Overview
-----------------
From inception (October 4, 1993) through March, 1999, the Company has
utilized funds obtained primarily through private placements of restricted
common stock to acquire and develop core software technologies used in the
creation of computer-based training products. The Company's first product,
Around the Web in 80 Minutes, a CD-ROM based internet training course, was
introduced at the COMDEX Fall '98 trade show in mid November 1998 and
subsequently made available to consumers solely through direct sales beginning
in late November 1998. During the first quarter of 1999, in an effort to align
itself with established product distribution companies capable of serving major
national retailers, the Company shifted emphasis from its direct sales approach
to a distributor-based approach and engaged as its marketing representatives
High Altitude Sales and Marketing, Inc. and Computer Generation. As a result,
the Company in turn signed distribution agreements with Ingram Micro, Inc. and
Tech Data Corporation in February and March 1999, respectively. Ingram Micro,
Inc. distributes products and services to more than 115,000 resellers in 120
countries. Tech Data serves more than 100,000 value-added resellers and retail
dealers in the United States, Canada, the Caribbean, Latin America, Europe, and
the Middle East.
To fund its operations, the Company commenced a private placement in
November 1998, which was closed in early May 1999 after raising $3,373,000 for
the sale of 168,650 (post reverse split adjusted) shares of its common stock.
Due to increased marketing costs associated with product rollout the Company
needed additional capital. Unable to secure necessary capital from institutional
sources, the Company attempted a private placement in May 1999 wherein it
offered 240,000 (post reverse split adjusted) units at $2.00 per unit with each
unit consisting of one share of common stock and one warrant to purchase one
share of common stock at an exercise price of $4.00 per share. As of May 13,
1999, no funding had occurred under the new private placement.
10
Thereafter, the Company continued to pursue the private placement of its
securities with accredited investors but was unsuccessful. In May 1999, Gerald
C. Allen requested that Gary F. Kimmons resign as Chief Executive Officer,
claiming that if Mr. Kimmons resigned the Company would receive financing which
would be provided through previous private placement sources. Before a
resignation agreement could be effectuated, the Company at the direction of
Gerald C. Allen announced the resignation of Mr. Kimmons and purported to
appoint Winston Van Bieutenen as Chief Executive. Despite these actions, no
financing was forthcoming as Mr. Allen represented, and on June 11, 1999, Marcus
F. Wray, Jean Paul Dejoria, and Gerald C. Allen all submitted letters of
resignation as officers and directors of the Company. Mr. Kimmons attempted to
resurrect the Company and was unable to do so, and the Company closed its doors
on June 11, 1999.
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive conditions that
currently exist in the market for "blank check" companies similar to the Company
and (ii) lack or resources to maintain the Company's good standing status and
requisite filings with the Securities and Exchange Commission. The foregoing
list should not be construed as exhaustive and the Company disclaims any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
Plan of Operation
-----------------
The Company has not engaged in any material operations or had any revenues
from operations during the last three fiscal years. The Company's plan of
operation for the next 12 months is to continue to seek the acquisition of
assets, property or business that may benefit the Company and its shareholders.
Because the Company has virtually no resources, management anticipates that to
achieve any such acquisition, the Company will be required to issue shares of
its common stock as the sole consideration for such acquisition.
11
In the event that the Company contacts or is contacted by a private company
or other entity which may be considering a merger with or into the Company, it
is possible that the Company would be required to raise additional funds in
order to accomplish the transaction. Otherwise, and even though the Company only
possesses nominal funds, as the Company does not engage in any ongoing business
which requires the routine expenditure of funds, the Company would not be
required to raise additional funds during the next twelve months. The Company
does not routinely expend any funds for the ownership or lease of property, as
any routine activities are being conducted out of an office made available by
the Company's President.
During the next 12 months, the Company's only foreseeable cash requirements
will relate to maintaining the Company in good standing and making the requisite
filings with the Securities and Exchange Commission and the payment of expenses
associated with reviewing or investigating any potential business venture, which
may be advanced by management or principal shareholders, or as loans to the
Company. Because the Company has not identified any such venture as of the date
of this Report, it is impossible to predict the amount of any such loan.
However, any such loan will not exceed $25,000 and will be on terms no less
favorable to the Company than would be available from a commercial lender in an
arm's length transaction. Management may at its discretion raise any required
funds through any private placement of "unregistered" and "restricted"
securities or any public offering of its common stock.
Results of Operations
---------------------
The Company had no net revenues for the three months and six months ended
June 30, 2003 and 2002. The Company had operating expenses of $392,194 for the
three months ending June 30, 2003 compared to $122,306 for the comparative
period of 2002. The Company had operating expenses of $700,629 for the six
months ended June 30, 2003 compared to $199,397 for the same period in 2002. The
increase was due to the issuance of shares of the Company's common stock to
consultants who are assisting in reviving the Company's operations. The
consultants are developing the Company's business plan and providing legal and
accounting services. The Company paid $326,199 of these expenses through the
issuance of common stock, options and warrants.
The Company unsuccessfully launched its product sales in the first six
months of 1999. The Company was unable to raise sufficient capital to sustain
its marketing effort and closed its offices and terminated most of the personnel
in June of 1999. The Company's expenses are accruals of officer compensation and
interest on its liabilities. The Company was inactive until the second quarter
of 2002.
Liquidity
---------
During the six months ended June 30, 2002 and 2001, the Company used cash
of $126,808 and $-0-, respectively. The Company had cash on hand of $14,512 as
of June 30, 2003 compared to no cash as of June 30, 2002. The Company received
$179,500 from the sale of common stock during the six months ended June 30,
2003. The State of Texas provides that any liabilities not paid or reduced to a
judgment within four years of the date incurred are not legally collectible.
During the six months ended June 30, 2003, $2,652,925 of the Company's
liabilities fell beyond this statute of limitations accordingly the Company
recorded a gain on the release of debt for this amount. The Company used $53,746
to repay a loan from an officer in 2003. The Company ceased operations in 1999
and was inactive in 2000 and 2001.
12
Item 3. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Our principal
executive officer and principal financial officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act), as of a date within 90 days of
the filing date of this Quarterly Report on Form 10-QSB. Based on such
evaluation, they have concluded that as of such date, our disclosure controls
and procedures are effective and designed to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable SEC rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of evaluation by our principal executive officer
and principal financial officer.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
The Company is not a party to any pending legal proceedings and is not
aware of any pending claims or assessments that may have a material adverse
impact on the Company's financial position or results of operations.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of our shareholders during the second
quarter of 2003.
Item 5. Other Information.
Non-Employee Directors and Consultants Retainer Stock Plan
- ----------------------------------------------------------
On April 1, 2003, the Board of Directors approved and adopted the GK
Intelligent Systems, Inc., Non-Employee Directors and Consultants Retainer Stock
Plan for the Year 2003. The plan was established in order to provide a method by
which to promote the interest of the Company and its stockholders by attracting
and retaining non-employee directors and consultants capable of furthering the
future success of the Company and by aligning their economic interests more
closely with those of the Company's stockholders. The number of common shares
authorized under the plan is two million (2,000,000).
13
Termination of AfterPlay Entertainment, Inc. Consulting Agreement
- -----------------------------------------------------------------
On April 10, 2003, pursuant to the terms of the Consulting Agreement
between AfterPlay Entertainment, Inc. and the Company, the Company provided
written notice of termination of the Consulting Agreement. On June 2, 2003, the
Company authorized the issuance of three hundred and twenty thousand (320,000)
restricted shares of common stock to AfterPlay Entertainment, Inc. as full and
complete compensation and satisfaction for prior services provided pursuant to
that certain Consulting Agreement. No underwriters were used. The securities
were issued pursuant to an exemption from registration provided under Section
4(2) and 4(6) of the Securities Act of 1933.
Termination of Suns Associates Group Consulting Agreement
- ---------------------------------------------------------
On April 10, 2003, pursuant to the terms of the Consulting Agreement
between Suns Associates Group and the Company, the Company provided written
notice of termination of the Consulting Agreement. On June 2, 2003, the Company
authorized the issuance of one hundred and sixty thousand (160,000) restricted
shares of common stock to Suns Associates Group as full and complete
compensation and satisfaction for prior services provided pursuant to that
certain Consulting Agreement. No underwriters were used. The securities were
issued pursuant to an exemption from registration provided under Section 4(2)
and 4(6) of the Securities Act of 1933.
Financial Public Relations Agreement with Strategic Resources Inc.
- -----------------------------------------------------------------
On April 24, 2003, the Company entered into a Financial Public Relations
Agreement with Strategic Resources International, Inc. under which Strategic
Resources is to provide public relations services to the Company. Pursuant to
the terms of the agreement, Steven Kessler received one hundred thousand
(100,000) restricted shares following the execution of the agreement.
Settlement Agreement with Brewer & Pritchard
- --------------------------------------------
On April 28, 2003, the Company entered into a Settlement Agreement with
Brewer & Pritchard as full compensation and satisfaction for the prior legal
services provided by Brewer & Pritchard to the Company. Pursuant to that
Agreement on June 10, 2003, the Company authorized the issuance of thirty three
thousand (33,000) restricted shares of common stock to Thomas C. Pritchard. No
underwriters were used. The securities were issued pursuant to an exemption from
registration provided under Section 4(2) and 4(6) of the Securities Act of 1933.
Consulting Agreement with Sage Office Solutions
- -----------------------------------------------
On May 4, 2003, the Company entered into a Consulting Agreement to retain
the services of Sage Office Solutions. Under the Agreement, Sage Office
Solutions was to provide assistance to the Company gaining approval from the
NASD for the quotation of the Company's stock on the OTC Bulletin Board. For its
services Sage Office Solutions was to receive one hundred thousand (100,000)
restricted shares of common stock. Pursuant to the mutual agreement of the
parties this agreement was cancelled and no shares were issued.
14
Consulting Agreement with Donald E. Giebler
- -------------------------------------------
On May 14, 2003, the Company entered into a Consulting Agreement with
Donald E. Giebler under which Mr. Giebler is to provide assistance to the
Company in the creation of a new subsidiary targeting the amateur football
market. Pursuant to the terms of the agreement Mr. Giebler received one hundred
thousand (100,000) restricted shares following the execution of the agreement
and is to receive an additional two hundred thousand (200,000) restricted shares
upon the satisfactory completion of the services to be provided under the terms
of the agreement.
Consulting and Advisory Services Provided by Gordon Jones
- ---------------------------------------------------------
On May 22, 2003, the Company authorized the issuance of five hundred
thousand (500,000) shares of common stock to Gordon Jones as consideration for
consulting and advisory services provided to the Company. The shares were issued
under the Company's Non-Employee Director and Consultant Retainer Stock Plan,
which Plan and shares were registered on Form S-8 under the Securities Act of
1933 and pursuant to Section 61-1-9 of the Utah Uniform Securities Act. No
underwriters were used.
Consulting Agreement with Benchmark Consulting Inc.
- --------------------------------------------------
On May 30, 2003, the Company entered into a Consulting Agreement with
Benchmark Consulting, Inc under which Benchmark is to provide assistance to the
Company through consulting and investment banking practices to improve and
enhance the financial structure of the Company. Pursuant to that Agreement
Benchmark received one hundred thousand (100,000) restricted shares of common
stock and is to receive an additional four hundred thousand (400,000) restricted
shares according to a time schedule and upon the satisfactory completion of the
services to be provided under the terms of the agreement. Additionally under the
Agreement, Benchmark received warrants entitling them to purchase five hundred
thousand (500,000) shares of common stock. The shares issuable under both the
Agreement and the Warrant are subject to registration rights as set forth on
that certain Registration Rights Agreement dated May 30, 2003.
Consulting Services provided by George G. Chachas
- -------------------------------------------------
On June 20, 2003, the Company authorized the issuance of one hundred and
twenty five thousand (125,000) restricted shares of common stock to the George
G. Chachas in consideration of consulting services provided to the Company. No
underwriters were used. The securities were issued pursuant to an exemption from
registration provided under Section 4(2) and 4(6) of the Securities Act of 1933
and Section 25102(f) of the California Corporations Code.
Recent Sale of Unregistered Securities
- --------------------------------------
During the quarter ended June 30, 2003, the Company sold 3 Units at a price
of $25,000 per Unit, under its Private Placement Memorandum dated October 18,
2002. As of June 30, 2003, the Company had received $42,000 of the $50,000
subscription for said 3 units. The balance of $8,000 was received on July 15,
2003. Each Unit consists of 100,000 restricted shares of Common Stock and a
Warrant to purchase 200,000 restricted shares of Common Stock. Each Warrant
vests immediately and is exercisable for a period of two years from date of
issuance at an exercise price of $0.35 per share. No underwriters were used. The
securities were issued pursuant to an exemption from registration provided under
Section 4(2) and 4(6) of the Securities Act of 1933.
15
Subsequent Events
Recent Sale of Unregistered Securities
- --------------------------------------
Subsequent to the period covered by this report, the Company sold 1.5 Units
at a price of $25,000 per Unit, under its Private Placement Memorandum dated
October 18, 2002. Each Unit consists of 100,000 restricted shares of Common
Stock and a Warrant to purchase 200,000 restricted shares of Common Stock. Each
Warrant vests immediately and is exercisable for a period of two years from date
of issuance at an exercise price of $0.35 per share. No underwriters were used.
The securities were issued pursuant to an exemption from registration provided
under Section 4(2) and 4(6) of the Securities Act of 1933.
Consulting Agreement with Andrew Stack
- --------------------------------------
On July 22, 2003, subsequent to the period covered by this report, the
Company entered into a Consulting Agreement to retain the services of W. Andrew
Stack. Under the Agreement, Andrew Stack will provide executive management and
public markets consulting and will receive compensation of seventy five thousand
dollars ($75,000) or five hundred thousand (500,000) shares of common stock
pursuant to the Company's Non-Employee Director and Consultant Retainer Stock
Plan.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits attached or incorporated by referenced pursuant to
Item 601 of Regulation S-B.
Exhibit Description
------- -----------
3.1(1) Certificate of Incorporation of the Company and Amendments thereto
3.2(1) By-laws of the Company
3.3(2) Amendment to Certificate of Incorporation
3.4(4) Certificate of Amendment to Certificate of Incorporation
10.11(3) Consulting Agreement with Berkshire Capital Management Co., Inc.
10.12(3) Consulting and Finder's Fee Agreement with The Herman Group, L.P.
10.13(3) Engagement Letter with Petty International Development Corp.
10.14(3) Consulting Agreement with Ron Sparkman
10.15(3) Consulting Agreement with Rockne J. Horvath
10.16(3) Consulting Agreement with Stephen K. Carper
10.17(3) Consulting Agreement with Renee H. Ethridge
10.18(3) Consulting Agreement with Technical Objective, Inc.
10.19(3) Debt Resolution Agreement with Gary F. Kimmons
10.20(3) Interim Compensation Agreement with Gary F. Kimmons
10.21(3) Amended and Restated Consulting Agreement with Dick Meador
10.22(3) Promissory Note to BDO Seidman LLP
10.23(3) Consulting Agreement with Alan S. Litvak
10.24(3) Promissory Note to Gary Kimmons
10.25(5) Marketing Agreement with BTH2
10.26(6) Consulting Agreement with AfterpPlay Entertainment Inc.
10.27(6) Consulting Agreement with Suns Associates Group
10.28(6) Non-Employee Director Agreement with Dick Mead
10.29(6) Employment Agreement with Gary F. Kimmons
16
Exhibit Description (continued)
------- -----------
10.30(7) GK Intelligent Systems, Inc. 2003 Stock Option Plan
10.31(7) GK Intelligent Systems, Inc. Non-Employee Directors and Consultants Retainer Stock Plan for the Year 2003
10.32** Financial Public Relations Agreement with Strategic Resources
10.33** Settlement Agreement with Brewer & Pritchard
10.34** Consulting Agreement with Sage Office Solutions
10.35** Consulting Agreement with Donald Giebler
10.36** Consulting Agreement with Benchmark Consulting
10.37** Registration Rights Agreement with Benchmark Consulting
10.38** Benchmark Consulting Warrant
10.39** Consulting Agreement with W. Andrew Stack dated 7/22/03
21(6) Subsidiaries
99.1** Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2** Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
99.3** 906 Certification
------------------------
(1) Filed as an exhibit to the Company's registration statement on
Form 10-SB filed on January 24, 1997, and incorporated by
reference herein.
(2) Filed as an exhibit to the Company's Annual Report for fiscal
year ended May 31, 1998 on Form 10-KSB filed on September 14,
1998, and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Current Report on Form 8-K
filed November 6, 2002 and incorporated by reference herein.
(4) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the Quarter Ended March 31, 2002, and incorporated by
reference herein.
(5) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the Quarter Ended June 30, 2002, and incorporated by
reference herein.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the Year Ended December 31, 2003, and incorporated by
reference herein.
(7) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed on May 12, 2003, and incorporated by reference
herein.
** Filed herewith.
(b) Reports on Form 8-K.
There were no other reports on Form 8-K filed during the period covered by
this report.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
GK Intelligent Systems, Inc.
Dated: August 18, 2003 /S/ Gary F. Kimmons
--------------------------------------
By: Gary F. Kimmons
Its: President, Chief Executive Office
and Chief Financial Officer
18