MARIZYME, INC. - Quarter Report: 2011 March (Form 10-Q)

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2011

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

Commission File Number: 000-53223

GBS ENTERPRISES INCORPORATED

 (Exact name of registrant as specified in its charter)

 (404) 891-1711

(Registrant’s telephone number, including area code)

With a copy to:

Philip Magri, Esq.

The Magri Law Firm, PLLC

11 Broadway, Suite 615

New York, NY 10004

T: (646) 502-5900

F: (646) 826-9200

pmagri@magrilaw.com

www.MagriLaw.com

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Yes ¨ No x

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

Yes ¨ No x

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

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

Yes ¨ No x

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of July 1, 2013, there were 30,812,624  shares of common stock, par value $0.001 per share, of the Registrant issued and outstanding.

EXPLANATORY NOTE

As previously reported by the Company on a Form 8-K filed with the Commission on September 20, 2012, on September 19, 2012, the Company changed its fiscal year end from March 31st to December 31^st, commencing on December 31, 2012. Prior to this change, the Company’s subsidiaries, with the exception of SD Holdings, Ltd. had a December 31^st fiscal year end and in reporting the Company’s financial statements, the Company, incorrectly applied of Rule 3A-02 (“the 93-day rule”) promulgated under Regulation S-X by consolidating those subsidiaries without any adjustments for timing differences in the different period ends. With the change in Company’s fiscal year end, the Company is retroactively adjusting previously released financial statements to reflect this change, beginning with December 31, 2010. Accordingly, the unaudited financial statements for the fiscal quarters ended March 31, 2011 and 2010 have been restated to include the accounts of all consolidated companies for the same three months period. The restatement of the Company’s financial statements is not a change from one accounting policy that applies with GAAP to another accounting policy that complies with GAAP.

Except as otherwise noted herein, this Form 10-Q speaks as of the fiscal quarter ended March 31, 2011.

PART I - FINANCIAL INFORMATION

Item 1.          Financial Statements 

GBS Enterprises Incorporated

Unaudited Interim Consolidated Financial Statements

March 31, 2011

((Restated)

GBS Enterprises Incorporated

Interim Consolidated Balance Sheets

March 31, 2011 and December 31, 2010 (Restated)

(Unaudited)

GBS Enterprises Incorporated

Interim Consolidated Statements of Operations

For the three months ended March 31, 2011 and March 31, 2010 (Restated)

(Unaudited)

GBS Enterprises Incorporated

Interim Consolidated Statements of Operations

For the three months ended March 31, 2011 and March 31, 2010 (Restated)

(Unaudited)

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

GBS Enterprises Incorporated, a Nevada corporation, through its subsidiaries, is a global provider of technology solutions for businesses and government agencies. We focus on developing and delivering solutions that help our customers to gain value and reduce cost in the development, deployment and management of the applications used in the course of conducting their business (“business applications”). We do this by building software and providing services that aid in:

Our customers include corporate and government IT departments, solutions integrators (“SIs”) and independent software vendors (“ISVs”). Our corporate customers are from a variety of industries, including insurance, financial services, pharmaceuticals, healthcare, manufacturing, logistics, and education. The install-base of our software products spans more than 5,000,000 users in 38 countries on four continents. We principally market and sell our products and services directly in the United States, Canada, United Kingdom, Germany, Austria, Switzerland, the Nordics and India; and indirectly through local distributors and resellers representing Australia, South America and regionally in Europe.

Our software and services are designed to mainly serve organizations that have investments in IBM’s Lotus® Notes and Domino platform. The IBM Lotus® Notes and Domino platform is both a system for enterprise email as well as an application platform, meaning that it can be used as both an email system and an environment in which business applications can be deployed and used. This platform was originally brought to market by Lotus Development Corp. in 1989, and was subsequently acquired by IBM in 1995. According to Radiate, in 2011, IBM Lotus Domino will have a worldwide installed base of 189 million mailboxes. Currently, the installed base for On-Premises IBM Lotus Domino mailboxes represents the majority of worldwide IBM Lotus Domino mailboxes, accounting for 87% of worldwide IBM Lotus Domino mailboxes. By 2015, this percentage is expected to decrease to 80%, as hosted email grows in popularity. (The Radiate Group Inc., April 2011, “IBM Lotus Notes/Domino Market Analysis, 2011-2015“)

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

We, through our subsidiaries, have executed our strategy to acquire companies, which have developed software and specialized services for the Lotus Notes and Domino market. This growth by acquisition strategy has resulted in less competition for our software products; a large concentration of highly skilled employees with unique expertise in the area of Lotus Notes and Domino; staff and physical offices on three continents providing greater access to a global market; significant market awareness and greater market share amongst organizations that use Lotus Notes and Domino; and a comprehensive portfolio of solutions specific to the needs and requirements of organizations which use Lotus Notes and Domino.

While our products and services remain in use and demand, over the last several years, the market itself has been undergoing a paradigm shift. New technologies, especially in the areas of Cloud Computing and Mobile applications, have grown in popularity due to the potential cost savings and operational efficiencies they can offer. As organizations make investments in these new technologies, they are faced with highly complex and costly projects to migrate (“migration”) or replace their existing systems that don’t operate in the cloud or on mobile devices (“modernization”) – this includes their existing email and business applications that run on Lotus Notes and Domino.

To that end, we have acquired and developed technologies that help organizations reduce the time, cost, resources and risks associated with these highly complex migration and modernization projects.

General Corporate History

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

On April 26, 2010, SWAV purchased certain technology assets of Lotus Holdings Ltd. (“Lotus”) in exchange for 2,265,240 shares of SWAV common stock. Also on April 26, 2010, Lotus (on behalf of the SPPEF Members as discussed below) purchased an aggregate of 11,984,770 of the outstanding shares of common stock from the selling shareholders of SWAV for an aggregate of $370,000. As a result of the two sets of transactions, Lotus owned an aggregate of 14,250,010 shares of common stock of SWAV, representing approximately 95.0% of the 15,000,000 shares of SWAV common stock outstanding on April 26, 2010.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

On September 6, 2010, SWAV’s name was changed to GBS Enterprises Incorporated. On October 14, 2010, the Company’s trading symbol on the OTC Bulletin Board was changed from SWAV to GBSX.

About Lotus Holdings, Ltd.

Lotus is a holding company which was formed under the laws of Gibraltar for the purpose of financing merger and acquisition projects, specifically in the niche market of small or microcap companies listed on the Frankfurt Stock Exchange with complex shareholder structures and whose stock is trading below one Euro (€1.00) per share.

SPPEFs

Lotus typically finances its merger and acquisition projects through the use of Special Purpose Private Equity Funds (“SPPEFs”). Typically, SPPEFs are funded by a company’s major shareholders (the “Major Shareholders”) seeking to raise capital for projects and who fund at least 50% of the SPPEF, with the remaining portion being provided through the investment community and network of investors in Lotus. Each SPPEF is co-managed by a representative of the company’s Major Shareholders (the “Representative Secretary”) and an attorney appointed by Lotus (the “Lotus Representative”).

On February 25, 2010, a group of shareholders (the “GROUP Major Shareholders”) of GROUP Business Software AG, a German public company trading on the Frankfurt Stock Exchange under the symbol “INW” (“GROUP”), engaged Lotus to provide financial consulting and advisory services, on a non-exclusive basis, for the primary task of establishing a SPPEF. On March 12, 2010, the GROUP Major Shareholders and Lotus established and funded a SPPEF with $1,400,000, consisting of $1,000,000 from the GROUP Major Shareholders and $400,000 from a Lotus investor (collectively, the “SPPEF Members”).

In early April 2010, the SPPEF Members decided to acquire SWAV. As disclosed above, on April 26, 2010, Lotus, on behalf of the SPPEF Members, acquired an aggregate of 11,984,770 shares of SWAV common stock from the selling shareholders of SWAV for an aggregate purchase price of $370,000. The 11,984,770 shares of SWAV common stock represented approximately 79.9% of the 15,000,000 outstanding shares of SWAV common stock on April 26, 2010. Upon the consummation of the acquisition, the then executive officers and directors of SWAV resigned and Mr. Joerg Ott, the Chief Executive Officer of GROUP and a GROUP Major Shareholder, was appointed the Chief Executive Officer of SWAV and sole member of SWAV’s Board of Directors.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Transactions following the acquisition

On November 1, 2010, the Company repurchased an aggregate of 3,043,985 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for the 3,043,985 shares of the Company’s common stock, the Company issued to Lotus a Secured Demand Note, dated November 1, 2010 (the “First Demand Note”), for the principal amount of $300,000 bearing interest at the rate of 5% per annum. The First Demand Note was repaid in September 2011.

Effective December 30, 2010, pursuant to securities purchase agreements between the Company and six GROUP Major Shareholders, the Company purchased an aggregate of 7,115,500 shares of GROUP common stock from the six GROUP Major Shareholders in consideration for an aggregate for 3,043,985 shares of the Company’s common stock (the “December Transaction”). As a result the Company owned approximately 28.2% of the outstanding common stock of GROUP.

Reverse Merger

After the December Transaction was completed, the additional GROUP Major Shareholders accepted the share swap offer from the Company and effectuated a reverse merger of GROUP and the Company. To effectuate the reverse merger, on January 5, 2011, the Company repurchased from Lotus an aggregate of 2,361,426 of the 11,984,770 shares of the Company’s common stock originally purchased by Lotus on April 26, 2010. In consideration for these 2,361,426 shares, the Company issued to Lotus a Secured Demand Note, dated January 5, 2011 (the “Second Demand Note”), for the principal amount of $200,000 bearing interest at the rate of 5% per annum. The Second Demand Note was repaid in November 2011.

Effective January 6, 2011, pursuant to securities purchase agreements between the Company and the remaining GROUP Major Shareholders, the Company purchased an aggregate of 5,525,735 shares of GROUP common stock from the remaining GROUP Major Shareholders in consideration for an aggregate of 2,361,426 shares of the Company’s common stock (the “January Transaction”). The 5,525,735 GROUP shares represented approximately 21.9% of the outstanding shares of common stock of GROUP. As a result of the December Transaction and January Transaction, the Company purchased an aggregate of 12,641,235 shares of GROUP from the GROUP Major Shareholders in consideration for an aggregate of 5,405,411 shares of the Company’s common stock, resulting in the Company owning approximately 50.1% of the outstanding common stock of GROUP and effectuating a reverse merger of the Company and GROUP whereby GROUP became the accounting acquirer.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Additional Acquisition

On February 27, 2012, the Company acquired an additional 883,765 shares of common stock of GROUP from GAVF LLC for an average purchase price of $.070 per share, or approximately $619,000, after an outstanding loan of GROUP was converted into an aggregate of 1,750,000 shares of GROUP common stock, thereby increasing GROUP’s outstanding common stock to 26,982,000 shares. By acquiring the new shares, the Company increased its ownership of GROUP common stock to an aggregate of 13,525,000 shares, representing approximately 50.1% of the outstanding common stock of GROUP.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, they include all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These unaudited interim consolidated financial statements follow the same accounting policies and methods of their application as the Company’s audited consolidated financial statements. All adjustments are of a normal recurring nature.

Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2011.

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, the more significant of which are as follows:

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segment Reporting

The Financial Accounting Standards Board (“FASB”) authoritative guidance regarding segment reporting establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has determined that it operates in only one segment – the development and maintenance of computer software programs and support products.

Comprehensive Income (Loss)

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

Net Income per Common Share

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

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Financial Instruments

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

Currency Risk

We use the US dollar as our reporting currency. The functional currencies of our significant foreign subsidiaries are the local currency, which includes the Euro, the British Pound, the Indian Rupee, and the Bulgarian Lev. Accordingly, some assets and liabilities are incurred in those currencies and we are subject to foreign currency risks.

Fair Value Measurements

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

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

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Cash and cash equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

Inventories

Pursuant to ASC 330 (Inventories), inventories held for sale are recognized under inventories. Inventories were measured at the lower of cost or market. Cost is determined on a first-in-first out basis, without any overhead component.

Goodwill and other Intangible Assets

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

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

The Company amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with ASC regulations. In addition, in special circumstances according to ASC 350-30, a recoverability test is performed and, if applicable, unscheduled amortization is considered.

The useful life of acquired software is between three and five years and three years for Company created software.

Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill. Goodwill is reviewed once a year during an impairment test, whereby the appraised fair value of the invested capital of the reporting unit, is compared with the carrying (book) value of its invested capital amount (including goodwill.) Use value is generally applied in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The projected financial plan prepared by the management serves as the basis for this determination of use value and the planning assumptions are each adjusted for the current state of knowledge. Reasonable assumptions regarding macroeconomic trends and historical developments are taken into account in making these adjustments. Future estimated cash flows are determined based on the expected growth rates of the markets in question.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

If the carrying amount of the reporting unit exceeds the appraised fair value, the impairment based on use value measures the amount of loss, if any, and an unscheduled amortization expense is recorded. If the appraised value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.

Property, Plant and Equipment

Property, plant and equipment are valued at acquisition or manufacturing costs reduced by scheduled and, if necessary, unscheduled depreciation. Fixed assets are depreciated on a straight-line basis, prorated over their expected useful life. Scheduled depreciation for property, plant and equipment is based on useful lives of 3 to 10 years. Leasehold Improvements are depreciated up to 40 years.

If fixed assets are sold, retired or scrapped, the profit or loss arising from the difference between the net sales proceeds and the residual book value are included under other operating earnings and expenses.

Impairment or Disposal of Long-Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC topic, 360.10. This guidance requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its’ expected cash flows or appraised value In this instance, the asset is considered to be impaired and is written down to fair value.

Revenue Recognition

Sources of Revenues:

License revenues

Our license revenues consist of revenues earned from the licensing of our software products. These products are generally licensed on a perpetual basis. Pricing models have generally been based either upon the physical infrastructure, such as the number of physical desktop computers or servers, on which our software runs or on a per user basis. License revenues are recognized when the elements of revenue recognition for the licensed software are complete, generally upon electronic shipment of the software and the software key to provide full access to all functionalities for our customers. In general, our invoices reflect license, service and maintenance components. In the case of multi element contracts, the revenues allocated to the software license in most cases represent the residual amount of the contract after the fair value of the other elements has been determined. Certain products of our software offering are licensed on a subscription basis.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Software maintenance revenues

Software maintenance revenues are recognized ratably on a pro-rata basis over the range of the contract period. Our contract periods typically range from one to five years. Vendor-specific objective evidence (“VSOE”) of fair value for software maintenance services is established by the rates charged in stand-alone sales of software maintenance contracts or the stated renewal rate for software maintenance. Customers who are party to software maintenance agreements with us are entitled to receive support, product updates and upgrades on a when-and-if-available basis.

Professional services revenues

Professional services include pre-project consulting, software design, customization, project management, implementation and training. Professional services are not considered essential to the functionality of our products, as these services do not alter the product capabilities and may be performed by our customers or by other vendors. Professional services engagements performed for a fixed fee, for which we are able to make reasonably dependable estimates of progress toward completion, are recognized on a proportional performance basis based on hours incurred and estimated hours of completion. Professional services engagements that are on a time and materials basis are recognized based on hours incurred. Revenues on all other professional services engagements are recognized upon completion. Our professional services may be sold with software products or on a stand-alone basis. Vendor Specific Objective Evidence (VSOE) of fair value for professional services is based upon the standard rates we charge for such services when sold separately.

Foreign Currency Translation

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

Other Provisions

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

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Deferred Taxes

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

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

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. With the objective of reducing the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-loved asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having the likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed beginning April 1, 2013. Adoption of this new standard is not expected to have significant impact to the Company’s financial statement.

Off - Balance Sheet Arrangements

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

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Principles of Consolidation and Reverse Acquisition

As previously disclosed, the Company has exchanged a total of 5,405,411 shares of common stock in exchange for 50.1% of the outstanding common shares of GROUP. Although the Company was the legal acquirer, the transaction was accounted for as a recapitalization of GROUP in the form of a reverse merger, whereby GROUP becomes the accounting acquirer and is deemed to have retroactively adopted the capital structure of the Corporation. Accordingly, the accompanying consolidated financial statements reflect the historical consolidated financial statements of GROUP for periods presented prior to January 6, 2011. All costs associated with the reverse merger transaction were expensed as incurred. Those expenses totaled approximately $300,000 and were included in professional fees in administrative expenses.

The Company has based its financial reporting for the consolidation with GROUP in accordance with the FASB ASC 805-40 as it relates to reverse acquisitions. Goodwill has been measured as the excess of the fair value of the consideration effectively transferred by the Company, the acquiree, for financial reporting purposes, over the net amount of the Company’s recognized identifiable assets and liabilities.

We have recorded the acquired assets and liabilities of Group Business Software Enterprises, Inc. on the acquisition date of January 6, 2011, at their fair value and the operations of Group Business Software Enterprises, Inc. have been included in the consolidated financial statements since the acquisition date.

The assets and liabilities of GROUP, the acquirer for financial reporting purposes, are measured and recognized in the consolidated financial statements at their precombination carrying amounts in accordance with ASC 805-40-45-2(a). Therefore, the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of GROUP’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.

Fiscal reporting

Effective September 19, 2012, the Company changed its fiscal year end from March 31 to December 31. Prior to this change, the company’s subsidiaries, with the exception of SD Holdings, had fiscal year ends of December 31 and in reporting its financial statements, the Company, through the use of Regulation S-X Rule 3A-02 (“the 93 day rule”), consolidated those subsidiaries without any adjustments for timing differences in the period ends. This application was in error. With the change in year end, the Company retroactively adjusted previously released financial statements to reflect this change beginning December 31, 2010. Accordingly, the financial statements for the quarter ended March 31, 2011 and 2010, include the accounts of all consolidated companies for the same three month period beginning January 1, 2011 and 2010 respectively. The Balance Sheets as at March 31, 2011 and March 31, 2010 have also been adjusted to include the accounts of all consolidated companies as of those dates.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Note 5 SUBSIDIARY COMPANIES

As of March 31, 2011, GBS Enterprises Incorporated had the following subsidiaries. Such subsidiaries were included in the basis of consolidation (KUSD = 1,000’s of US Dollars):

D - Direct Subsidiary

I - Indirect Subsidiary

Indirect Subsidiaries are owned 50.1% through GROUP Business Software AG

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Due to the absence of domination/control, B.E.R.S. AD, Varna, Bulgaria was treated an associated company in the consolidated financial statements. GROUP Business Software AG's interest in B.E.R.S AD, with acquisition costs of 265,000.00 Euros, is 50%. It was first consolidated on December 31, 2006.

As of the financial statement date, the Company’s cash and cash equivalents totaled 9,031 KUSD (December 31, 2010 year end Restated: 1,872 KUSD).

As of the financial statement date, Accounts Receivable was 4,896 KUSD (December 31, 2010 year end Restated: 5,712 KUSD). Receivables are generally measured at their nominal value and taking into account all foreseeable risks. Probable default risks are handled with specific allowances for bad debts. With regard to the trade receivables which are neither impaired nor delinquent, there are no indications as of the financial statement date that the debtors will not meet their payment obligations.

Prepaid expenses in the amount of 1,648 KUSD were primarily recorded for prepaid rent, insurance and advance on technological collaboration events (December 31, 2010 year end Restated: 1,421 KUSD).

Other Receivables as of the financial statement date were 837 KUSD (December 31, 2010 year end Restated: 1,983 KUSD).

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Property, plant and equipment are measured at cost less scheduled straight-line depreciation. Depreciation of the computer hardware listed as office equipment is distributed over a period of three to five years. The depreciation period for other office equipment is three to ten years. Office furnishings are depreciated over a period of eight to ten years. Leasehold Improvements are depreciated up to 40 years.

The major components of the Non-current Receivables include the following:

Goodwill derives from the following business acquisitions:

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Development costs

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

The development costs arising in the reporting period result from the personnel costs attributed to the development work as well as overhead costs, provided that these are related to the development work and do not represent general administrative costs. The ascribable overhead costs are directly recognized.

Capitalized development costs are generally amortized over a period of three years starting with the date of marketability of the new products or major releases.

Concessions, Industrial Property Rights, Licenses

The intangible financial assets carried in this item are licenses acquired in exchange for payment.

These financial assets are measured at acquisition cost less scheduled straight-line amortization. The assets added in the scope of the cost price allocation of the business divisions acquired this year.

The useful life spans were based uniformly throughout the Company according to those used by the parent company. Scheduled amortization is performed over a period from three to ten years.

The useful life of the domain “gbs.com”, was estimated as unlimited. This is because no other legal, contractual or other factors exist which would limit its useful life. It is not systematically amortized, but rather annually. Should there exist signs indicating towards impairment it is tested for recoverability and, if necessary, written down to the amount which could be obtained for it if sold.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Amortization of concessions, industrial property and similar rights and assets, as well as licenses to such rights and assets are presented in the profit and loss statement under "Depreciation and Amortization."

The balance of this account of 229 KUSD primarily includes rent and other security deposits (December 31, 2010 year end Restated: 224 KUSD).

Notes Payable had a balance of $1,516,381 at March 31, 2011 (December 31, 2010 year end Restated: $1,441,263).

Included in this account is an operating line of credit of 42 KUSD (December 31, 2010 year end Restated: 50 KUSD) with interest at a 3.25% daily periodic rate with a credit limit of 100 KUSD.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Trade payables

As of the financial statement date, trade accounts payable amounted to 1,130 KUSD (December 31, 2010 year end Restated: ___ KUSD). Trade payables are carried at their repayment amount and all have a residual term of up to one year.

Other Accrual

Other provisions are created as of the financial statement date in an amount necessary according to a reasonable commercial appraisal, to cover future payment obligations, perceivable risks and uncertain liabilities of the Company. Amounts deemed to be most likely to occur, in careful assessment, are accrued.

Provisions for salaries of 902 KUSD (December 31, 2010 year end Restated: ___ KUSD) include the provisions created for the variable salaries of the sales staff for the sales objectives reached in this business period.

Vacation provisions of 311 KUSD (December 31, 2010 year end Restated: ___ KUSD) include the obligations of GROUP’s companies to their employees for remaining vacation claims from the reporting period. The amount of the provision is calculated on the gross salary of the individual employee plus the employer contribution to social security/medicare and based on the unused vacation days as of the financial statement date.

For liabilities not yet settled, a provision totaling 774 KUSD (December 31, 2010 year end Restated: ___ KUSD) was created.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Other Provisions of 98 KUSD (December 31, 2010 year end Restated: ___ KUSD) include miscellaneous provisions.

Expenses for the audit of the Company and preparation of the annual consolidated financial statements were recognized at 192 KUSD (December 31, 2010 year end Restated: ___ KUSD).

A provision for anticipated legal consulting of 23 KUSD was recorded (December 31, 2010 year end Restated: __ KUSD).

For warranty claims, a provision of 45 KUSD (December 31, 2010 year end Restated: __ KUSD) was created determined by service income.

Accruals for future periods leading to realization of sales after the financial statement date are reported under deferred income. The deferred income items listed as of the financial statement date in the amount of 10,504 KUSD (December 31, 2010 year end Restated: 6,213 KUSD) primarily include maintenance income collected in advance for the period after the end of the financial statement date. They are amortized on a straight-line basis over their respective contract terms.

Other short-term liabilities of 2,906 KUSD (December 31, 2010 year end Restated: 2,822 KUSD) are comprised of obligations and payments currently due for the purchase of assets from Lotus 911, Permessa and Salesplace.

Related parties basically refer to the Board of Directors, Supervisory Board, stockholders and associated companies.

Business transactions between the companies and its subsidiaries which are also considered to be related companies were eliminated through the consolidation and are not reflected within these footnotes to the consolidated statements.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Remuneration of the management occupying key positions in the Corporation subject to disclosure includes the remuneration of the Board of Directors and that of the Supervisory Board.

Liabilities to banks as of the financial statement date was 0 KUSD (December 31, 2010 year end Restated: 781 KUSD) represent bank obligations of GROUP AG with Baden-Württembergische Bank with a credit line totaling approx. 3,844 KUSD (3,000 KEUR) and are collateralized by a silent blanket agreement for GROUP AG’s trade receivables. The loan is provided with approx. 2,563 KUSD (2,000 KEUR) as an asset backed security and with 1,281 KUSD (1,000 KEUR) as a credit line backed up with the accounts receivables of GROUP AG. The term of the loan runs until June 30, 2014. The Company has curtailed the risk of changing interest rates existing with regard to liabilities to banks due to variable interest rate agreements by obtaining a fixed interest rate for half of its credit line. Accordingly, approx. 1,922 KUSD (1,500 KEUR) is bearing interest at prime plus 1.5% and approx. 1,922 KUSD (1,500 KEUR) is fixed at 3.5%

Common stock belongs to the legally purchasing company according to the principles of a Reverse Acquisition and therefore, the common stock is that of GBS Enterprises Incorporated. The Company has authorized capital of 75,000,000 common shares and 25,000,000 preferred shares each with a par value of $001. No preferred shares have been issued. As at March 31, 2011, there were 22,544,000 shares of common stock issued. At the time of the Reverse Acquisition, there were 16,500,000 shares of common stock outstanding and, as the Reverse Acquisition was accounted for as a recapitalization applied retroactively, this balance is recorded as the balance outstanding since inception.

Unless otherwise noted, in each instance where the Company issued its securities to a U.S. Person, the Company relied on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) afforded the Company under Section 4(2) promulgated under the Securities Act due to the fact that it was an isolated issuance and did not involve a public offering of securities. In the instances where the Company issued its securities to a non-U.S. Person, the Company relied on the exemption from the registration requirements of the Securities Act afforded the Company under Regulation S promulgated under the Securities Act:

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Warrants and Options

The Company has issued warrants to outside consultants in payments for services provided as detailed in the following schedule. The warrants are issued as “cashless” warrants and all have a three-year term with the exception of the Ventana Capital Partners’ warrant which has a 30 month term. The warrants have been valued using a Black-Scholes option pricing model with appropriate volatility, equity value and interest rate inputs. The valuation of the warrants is for disclosure purposes only as the charge is related to the cost of issuing the shares and there is no impact to the financial statements. There are no stock options issued by the Company to employees or other parties.

Valuation of Common Stock Purchase Warrants

Summary of Warrants Issued 

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Transactions occurring in 2011

Transactions occurring in 2012

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised, Mr. Shihadah would receive a 3-year warrant to purchase shares at 50,000 shares of common stock at $1.00 per share.

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement Mr. Shihadah was issued a 3-year warrant to purchase shares at 50,000 shares of common stock at $1.00 per share.

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised, K Group Ltd. would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement K Group was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

The Note was convertible in full at $0.50 per share into common stock of the Company if this conversion was exercised on or before September 30, 2012. If not exercised Vitamin B Venture GmbH would receive a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

The conversion was not exercised by September 30, 2012, therefore, as per the terms of the Loan Agreement Vitamin B Venture GmbH was issued a 3-year warrant to purchase shares at 250,000 shares of common stock at $1.00 per share.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

In connection with the execution of the Loan Agreement, on October 26, 2012, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 100,000 shares of common stock at an exercise price of $0.35 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and the Lender and was exempt from registration under the Securities and Exchange Act of 1933, as amended, pursuant to Section 4(2) thereof.

In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Moore amended the Note pursuant to which Mr. Moore agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 450,960 shares of Common Stock to Mr. Moore. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities.

In connection with the execution of the Loan Agreement, on October 26, 2012, the Company issued the Lender a common stock purchase warrant (the “Warrant”), pursuant to which the Lender is entitled to purchase 500,000 shares of common stock at an exercise price of $0.20 until the third anniversary date of the date of issuance. The Warrant was issued in a private transaction between the Company and the Lender and was exempt from registration under the Securities and Exchange Act of 1933, as amended, pursuant to Section 4(2) thereof. On February 12, 2013, Mr. Baksa exercised the right to purchase 500,000 shares of common stock at the exercise price of $0.20.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

In connection with the Loan Agreement, on February 22, 2013, the Company and Mr. Baksa amended the Note pursuant to which Mr. Baksa agreed to convert the interest due under the Note into shares of GBSX common stock at a rate of $0.30 per share. Pursuant to the amendment, the Company issued 200,000 shares of Common Stock to Mr. Baksa. The Company issued the shares in reliance on Section 4(2) of the Securities Act due to the fact that the issuance was isolated and did not involve a public offering of securities

Transactions occurring in 2013

As of March 31, 2013, these shares had not yet been issued and remain as Subscriptions Receivable.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Other changes in common stock are disclosed in Note 25, Supplementary Cash Flow Disclosures.

Options

The Company does not have any outstanding options.

Warrants

The Company has issued warrants in four different manners. In each instance, the warrant allows the holder to purchase a common share within a three year period from issuance at a specific price per share. In the first instance, warrants have been issued as part of a private placement offering wherein the investor purchases a common share, and a warrant. The fair value of those warrants has been determined (and is shown below) by utilizing the residual method, whereby the current market value of the stock is deducted from the unit price and the remainder is allocated to the warrant. The valuation of the warrants issued is for disclosure purposes only and has no impact to the financial statements. A description of those warrants has been described above under common shares.

The second manner in which warrants are issues is in respect to financing by way of the issuance of notes payable or the conversion of debt into shares. In these instances, the fair value of the warrant has been determined using the effective interest rate method whereby the note is discounted when the interest rate is less than other similar notes and discount is allocated to the warrant and credited to additional paid in capital. The corresponding charge to discount is then amortized over the life of the note. Where there is no difference in interest terms, no value is attributable to the warrant.

The Company has also sold warrants at nominal value to certain investors. In this instance the fair value of the warrants has been determined using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below. The valuation of the warrants issued is for disclosure purposes only and has no impact to the financial statements.

Lastly, the Company has issued warrants to outside consultants in payments for services. The warrants are issued as “cashless” warrants and have been valued using a Black-Scholes option pricing model with volatility, equity value and interest rate inputs noted below.. The fair value of warrants issued for financing are determined for disclosure purposes as there is no impact to the financial statements. The fair value for other services, namely legal, and consulting have been recorded in the financial statements with a charge to the corresponding expense account and a credit to additional paid in capital.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

Black Scholes assumptions for warrants issued were as follows:

The following share purchase warrant transactions have not been disclosed elsewhere.

On April 1, 2011, the former CFO was issued 100,000 share purchase warrants, which gave him the option of purchasing 100,000 shares of common stock for a period of 3 years at a price of $1.50 per common share. The value of this issuance, using the Black Scholes pricing model was determined to $34,000 and this amount was recorded as a consulting expense.

In March, 2012, the Company issued an aggregate of 2,020,000 warrants to five “accredited investors” pursuant to Section 4(2) of the Securities Act. Each investor warrant is exercisable for the three-year period commencing from the date of issuance for $0.50 per share of Common Stock and has the same terms as the Private Placement Warrants. As noted above, certain investors immediately exercised warrants and purchased 900,000 shares of common stock for $450,000.On March 27, 2012, the Company issued an aggregate of 250,000 warrants to three  outside consultants pursuant to Section 4(2) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $1.10 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $270,208 and this amount was recorded as a professional expense.

Notes to the Unaudited Interim Consolidated Financial Statements

March 31, 2011 - Restated

GBS Enterprises Incorporated

In December, 2012, The Company issued 16,875 warrants to an outside consultant pursuant to Section 4(2) of the Securities Act. Each warrant is exercisable for the three-year period commencing from the date of issuance for $0.21 per share of Common Stock and has the same terms as the Private Placement Warrants. The value of this issuance, using the Black Scholes pricing model was determined to $2,624 and this amount was recorded as a consulting expense.