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

Unassociated Document

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: September 30, 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)

Nevada		27-3755055
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

585 Molly Lane

Woodstock, GA 30189

(Address of principal executive offices)

(404) 474-7256

Issuer’s telephone number

Securities registered under Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
None		N/A

Securities registered under Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Copies to:

Philip Magri, Esq.

The Sourlis Law Firm

The Courts of Red Bank

130 Maple Avenue, Unit 9B2

Red Bank, New Jersey 07701

Direct Dial: (646) 373-7430

T: (732) 530-9007

F: (732) 530-9008

PhilMagri@SourlisLaw.com

www.SourlisLaw.com

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 x No ¨

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):

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

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 REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨ No ¨

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 November 15, 2011, there were 24,673,790 shares of common stock, par value $0.001 per share, of the Registrant issued and outstanding.

TABLE OF CONTENTS
		Page No:
PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	F1
	Balance Sheet	F2
	Statement of Operations	F4
	Statement of Cash Flows	F5
	Notes to the Financial Statements	F6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	11
Item 4.	Controls and Procedures	11

PART II – OTHER INFORMATION:		12
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	[Removed and Reserved by the Securities and Exchange Commission]	12
Item 5.	Other Information	12
Item 6.	Exhibits	12
Signatures		12

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

GBS Enterprises Incorporated

Interim Consolidated Financial Statements

September 30, 2011

(Unaudited)

F-1

GBS Enterprises Incorporated

Consolidated Interim Balance Sheets

September 30, 2011 and March 31, 2011

(Unaudited)

	September 30		March 31
	2011		2011
	$		$
Assets
Current Assets
Cash and cash equivalents		2,791,068		8,530,864
Accounts receivable		5,280,334		5,698,321
Inventories		267,837		-
Prepaid expenses		1,660,330		1,423,281
Other receivables		576,615		2,222,887
Total current assets		10,576,184		17,875,353

Property, plant and equipment (Note 5)		506,185		298,497
Financial assets		2,834,163		837,481
Investment in related company, at equity		317,010		290,973
Deferred tax assets		2,592,096		1,136,135
Goodwill (Note 6)		49,705,472		39,688,966
Software (Note 7)		17,901,923		16,514,894
Other assets		324,709		223,630
Total non-current assets		74,181,558		58,990,576

Total assets		84,757,742		76,865,929

Liabilities and shareholders' equity
Current liabilities
Notes payable		1,547,851		1,440,295
Liabilities to banks		107,324		50,073
Accounts payables and accrued liabilities		4,552,446		4,996,748
Other liabilities		1,942,553		2,820,002
Deferred income		9,033,714		6,208,458
Due to related parties		580,422		830,156
Total current liabilities		17,764,310		16,345,732

Liabilities to banks		3,197,482		780,277
Deferred tax liabilities		690,574		878,450
Retirement benefit obligation		173,191		153,962
Other liabilities		4,330,411		6,127,373
Total non-current liabilities		8,391,658		7,940,062

Total liabilities		26,155,968		24,285,794

See Accompanying Notes

F-2

GBS Enterprises Incorporated

Consolidated Interim Balance Sheets

September 30, 2011 and March 31, 2011

(Unaudited)

	September 30			March 31
	2011			2011
	$			$
Shareholders' equity
Capital stock (Note9)
Authorized:
75,000,000 common shares, par value $.001
25,000,000 preferred shares, par value $.001
Issued and outstanding
24,673,8000 shares of common stock
(22,544,000 shares at March 31, 2011)		24,674			22,544
Additional paid in capital		43,167,531			33,894,661
Retained earnings		(1,982,705	)		(322,519	)
Other comprehensive income		1,585			(13,639	)
		41,211,085			33,581,047
Noncontrolling interest in subsidiaries		17,390,689			18,999,088
Total equity		58,601,774			52,580,135

Total equity and liabilities		84,757,742			76,865,929

See Accompanying Notes

F-3

GBS Enterprises Incorporated

Consolidated Interim Statements of Operations

For the three and six month periods ended March 31, 2011 and 2010

(Unaudited)

	For the three months						For the six months
	Ended September 30						Ended September 30
	2011			2010			2011			2010
	$			$			$			$
Net sales		7,414,602			5,544,341			13,091,032			12,597,579
Cost of goods sold		3,560,606			2,920,945			6,149,954			5,969,189
Gross profit		3,853,996			2,623,396			6,941,078			6,628,390

Operating expenses
Selling expenses		4,305,381			2,133,774			7,968,855			5,500,893
Administrative expenses		1,757,283			1,004,743			3,257,139			2,009,077
General expenses		498,551			295,316			700,855			582,843
		6,561,215			3,433,833			11,926,849			8,092,813

Operating income		(2,707,219	)		(810,437	)		(4,985,771	)		(1,464,423	)

Other Income (expense)
Other Income (expense)		(1,348,022	)		135,868			310,547			1,422,329
Interest income		5,506			9,630			16,887			17,088
Interest expense		(227,785	)		(125,898	)		(208,484	)		(220,053	)
		(1,570,301	)		19,600			118,950			1,219,364

Income (loss) before income taxes		(4,277,520	)		(790,837	)		(4,866,821	)		(245,059	)
Income tax expense (recovery)		(546,195	)		(53,399	)		(1,583,072	)		40,076

Net income (loss)		(3,731,325	)		(737,438	)		(3,283,749	)		(285,135	)
Net income (loss) attributable to noncontrolling interest		(1,838,378	)		1,155			(1,623,563	)		(9,571	)

Net income (loss) attibutable to equity stockholders		(1,892,947	)		(738,593	)		(1,660,186	)		(275,564	)

Other comprehensive income (loss)		52,278			17,143			30,387			9,572

Other comprehensive income (loss) attributable to noncontrolling interest		26,087			-			15,163			-

Comprehesive income (loss) attributed to equity stockholders		(1,866,755	)		(721,450	)		(1,644,962	)		(265,992	)

Net earnings (loss) per share Basic and diluted		(0.077	)		(0.045	)		(0.069	)		(0.017	)

Weighted average number of common stock outstanding Basic and diluted		24,444,235			16,500,000			24,037,461			16,500,000

See Accompanying Notes

F-4

GBS Enterprises Incorporated

Consolidated Interim Statements of Cash Flows

For the six month periods ended September 30, 2011 and 2010

(Unaudited)

	2011			2010
	$			$
Cash flow from operating activties
Net income (loss) for the period		(1,660,186	)		(275,564	)
Adjustments
Deferred income taxes		(1,643,836	)		-
Depreciation and amortization		2,280,760			1,901,802
Loss from equity investment		(26,037	)		-
Minority interest losses		(1,623,563	)		9,571
Changes in operating assets and liabilities
Accounts receivable and other assets		1,827,210			(3,143,514	)
Retirement benefit obligation		(101,080	)		-
Inventories		(267,837	)		(14,173	)
Accounts payable and other liabilities		1,645,061			2,309,259
Net cash provided by operating activities		430,492			787,381

Cash flow from investing activties
Purchase of intangible assets		(4,346,981	)		(1,735,200	)
Purchase of property, plant and equipment		(304,002	)		(73,785	)
Increase in financial assets		(1,996,682	)		(777,834	)
Net cash used in investing activities		(6,647,665	)		(1,808,985	)

Cash flow from financing activties
Net borrowings - banks		2,474,205			572,417
Other borrowings		(1,777,733	)		1,186
Loans from related party		(249,734	)		-
Net cash used in financing activities		446,738			573,603

Effect of exchange rate changes on cash		30,639			175,988

Net increase in cash		(5,739,796	)		(272,013	)
Cash and cash equivalents - Beginning of the period		8,530,864			2,685,368

Cash and cash equivalents - End of period		2,791,068			2,413,355

Supplemental disclosures - Note 10

See Accompanying Notes

F-5

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 1 – INTERIM REPORTING

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 interim financial statements follow the same accounting policies and methods of their application as the Company’s audited March 31, 2011 financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s March 31, 2011 financial statements.

Operating results for the six months ended September 30, 2011 are not necessarily indicative of the results that can be expected for the year ending March 31, 2012.

NOTE 2 - OPERATIONS AND RESTRUCTURING

GBS Enterprises Incorporated, a Nevada corporation (sometimes referred to in these statements as the “Company,” “GBSX,” “we,” “us,” “our” or similar terms), conducts its primary business through its 50.1% owned subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW. GROUP’s core business is focused on serving IBM’s Lotus Notes and Domino market where it has become IBM’s largest provider of business solutions worldwide. GROUP caters primarily to mid-market and enterprise-size organizations having over 3,500 customers in thirty-eight countries spanning four continents, representing more than 5,000,000 active users of its products. GROUP’s customers include Abbot, Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota. GROUP provides Cloud Computing technology, IBM Lotus Notes/Domino Application Transformation technology, Email Management software, Lotus Software Services, Customer Relationship Management software and Risk & Compliance Management solutions. Headquartered in Eisenach, Germany, GROUP has offices throughout Europe and North America.

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 assets of Lotus Holdings Limited (“Lotus”) pursuant to an Asset Purchase Agreement in consideration for aggregate of 2,265,240 shares of SWAV common stock. Lotus is a holding company specializing in software technology and training services, particularly in the areas of advanced software development tools, innovative point-of-care electronic health record (EHR) software, and sales training. Simultaneously with SWAV’s acquisition of Lotus, the SWAV stockholders sold an aggregate of 11,984,770 shares of SWAV common stock to Lotus, for an aggregate purchase price of $370,000.

Upon the consummation of the acquisition, the then executive officers and directors of SWAV resigned and Joerg Ott was appointed as the Company’s Chief Executive Officer, President and Chairman of the Board of Directors. 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.

F-6

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 2 - OPERATIONS AND RESTRUCTURING – (continued)

On November 5, 2010, the Company entered in to an agreement to acquire approximately 28.2% of the outstanding common shares of GROUP Business Software AG, (“GROUP”) a German company, trading on the Frankfurt Stock Exchange under the symbol INW. The Company purchased 3,043,985 of its own shares for $300,000 and then exchanged those shares for 7,115,500 shares of common stock of GROUP. Their fair value was calculated at $.0579 per share as determined by an independent valuation firm. The agreement was effective December 30, 2010. The acquisition was a two-step transaction, culminating in a share exchange.

On January 6, 2011, the Company acquired an additional aggregate of 5,525,735 shares of common stock of GROUP in exchange for 1,908,005 shares of common stock of the Company. The acquisition represents approximately 21.9% of the issued and outstanding shares of GROUP. The effect of this transaction is that the Company gained a 50.1% controlling interest of GROUP with an aggregate of 12,641,235 common shares. The value of this additional purchase, using the same techniques as the previous acquisition, was $2,796,000, based on a value of $0.506 per share.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are the representations of the Company’s management, who is responsible for their integrity and objectivity.

There have been no changes in accounting policies form those disclosed in the notes to the audited financial statements for March 31, 2011.

Use of 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. The financial statements above reflect all of the costs of doing business.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, management considers liquid investments with an original maturity of three months or less to be cash equivalents. As at September 30, 2011, the Company did not have any cash equivalents ($nil – 2010).

Comprehensive Income (Loss)

The Company adopted FASB Codification topic 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.

F-7

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Net Income per Common Share

FASB Codification topic 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. There were no adjustments required to net income for the period presented in the computation of diluted earnings per share.

Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, financial assets, notes payable, liabilities to banks, accounts payable and accrued liabilities and other liabilities. As of the financial statement date, the Company does not hold any derivate financial instruments. 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.

Fair Value Measurements

The Company follows FASB Codification topic 820, Fair Value Measurements and Disclosures, for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. This 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 FASB Codification topic 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.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its fixed assets and other assets in accordance with FASB Codification topic, 360.10, Property, Plant and Equipment, Impairment or Disposal of Long-Lived Assets. 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, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. No impairment has been recognized in the accounts.

F-8

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Customers take ownership at point of sale and bear the costs and risks of delivery. Maintenance earnings are realized per FASB Codification topic 605 Revenue Recognition on a pro rata basis over the contractual service period. Consulting and training services are realized upon provision of the service. Sales revenues are presented with deductions made for discounts, customer bonuses, and rebates.

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 is mainly based on useful lives of 3 to 10 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.

Intangible Assets

Intangible assets predominately comprise goodwill, acquired software and capitalized software development services. Intangible assets acquired in exchange for payment are reflected as acquisition costs. If the development costs can be capitalized per FASB Codification topic 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.

GROUP amortizes intangible assets with a limited useful life to the estimated residual book value in accordance with codification regulations. In addition, in special circumstances according to FASB Codification topic 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-designed software.

Intangible assets obtained as part of an acquisition which do not meet the criteria for a separate entry are identified as goodwill and are reviewed once a year as to their recoverability in the form of an impairment test. If they are no longer recoverable, an unscheduled amortization expense entry is performed.

Use value is generally used in order to determine the recoverability of goodwill and intangible assets with an indefinite useful life. The current plan prepared by the management serves as the basis for this policy. 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 essentially determined based on the expected growth rates of the markets in question.

F-9

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Other Provisions

According to FASB Codification topic 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 a 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.

Foreign currency translation

The functional currency of the Company is US dollars. For financial reporting purposes, the financial statements of GROUP were translated into US dollars. Assets and liabilities were translated at the exchange rates at the balance sheet dates and 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.

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, 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.

Stock Based Compensation

The Company adopted the fair value recognition provisions of FASB Codification topic 740 Stock Compensation” under which the Company records stock-based compensation expense for warrants and stock options granted to employees, directors and officers using the fair value method. Under this method, stock-based compensation is recorded over the vesting period of the warrant and option based on the fair value of the warrant and option as the grant date. The fair value of each warrant and option granted is estimated using the Black-Scholes option pricing model that takes into account on the grant date, the exercise price, expected life of the warrant and/or option, the price of the underlying security, the expected volatility, expected dividends on the underlying security, and the risk-free interest rate. Transactions in which goods or services are received from non-employees in exchange for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Stock based compensation is recorded with a corresponding increase to additional paid-in capital. Consideration received on the exercise of warrants and options, together with the amount previously credited to additional-paid in capital, is recognized as an increase in common stock.

F-10

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

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 interim financial statements reflect the historical consolidated financial statements of GROUP for all periods presented prior to the merger of January 6, 2011. Only transactions and balances subsequent to that date are included in these interim financial statements. Common stock and additional paid in capital are the only exceptions, as their structure immediately after the merger were accounted for as being the initial balances at inception.

The Company has based its financial reporting for the consolidation with GROUP in accordance with FASB Accounting Standard Codification (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. 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, in a reverse acquisition, 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.

It should also be noted that the Company and GROUP have different year-end reporting dates. The Company’s fiscal year-end reporting date is March 31 and GROUP”s calendar year-end reporting date is December 31. The consolidation of these entities for financial reporting purposes has been performed without any adjustments for timing differences between these two reporting dates in accordance Regulation S-X Rule 11-02.

Inventories

Pursuant to FASB Codification topic 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.

Recent Accounting Pronouncements

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

F-11

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 4 – SUBSIDIARY COMPANIES ACQUIRED

Effective April 1, 2011, the Company entered into an agreement to acquire 100% of the outstanding common shares of Pavone AG, a German corporation, for $350,000 in cash and 1,000,000 shares of its common stock. The fair value of the common stock was determined to be $4.90 per share, representing the market value at the end of trading on the date of the agreement. The total value of the investment, including the assumption of $11,261 in debt was $5,261,261.

Effective June1, 2011, the Company acquired 100% of the outstanding common shares of GroupWare, Inc., a State of Florida corporation. As consideration the Company paid $250,000 and issued 250,000 shares of its common stock. The fair value of the common stock was determined to be $4.34 per share, representing the market value at the end of trading on the date of the agreement. The total value of the investment, including the assumption of $219,902 in debt was $1,554,902.

On July 25, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of IDC Global, Inc. (“IDC”), a Delaware corporation with offices in Chicago, New York, London and other key cities. Pursuant to the acquisition agreement of July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and make a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and pay signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction. The total value of the investment, including $883,005 of debt assumption was $4,713.005.

The assets and liabilities of these companies represent the values as of June 30, 2011 as per Regulation S-X Rule 11-02.

NOTE 5 – PROPERTY PLANT AND EQUIPMENT

Fixed assets are measured at cost less scheduled straight-line depreciation. The specific useful life was based on those used uniformly at the parent company.

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.

	September 30, 2011						March 31, 2011
			Accumulated		Net Book				Accumulated		Net Book
	Cost		Depreciation		Value		Cost		Depreciation		Value
	$		$		$		$		$		$
Equipment		5,409,386		4,903,201		506,185		4,857,380		4,558,883		298,497

F-12

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 6 – GOODWILL

Goodwill results from business combinations and is tested annually for recoverability as part of an impairment test. Goodwill arises from the following business acquisitions:

Affiliated Company	Date of the First Consolidation	Goodwill YE in kUSD		Goodwill Q2 in kUSD
global words AG	01/10/02		5,095.3		5,095.3
GROUP Technologies AG	01/09/05		4,479.7		4,479.7
GROUP Business Software Inc.	31/12/05		2,177.5		2,177.5
GROUP LIVE N.V.	31/12/05		1,324.2		1,324.2
zurückbehaltener GoF CRM	31/12/05		3,108.4		3,108.4
GROUP Business Software Ltd	31/12/05		2,765.1		2,765.1
ebVOKUS Software GmbH	01/10/05		443.6		443.6
GAP AG für GSM Applikationen und Produkte	31/12/05		1,913.9		1,913.9
Relavis Corporation	01/08/07		7,288.3		7,288.3
Permessa	22/09/10		2,387.4		2,387.4
GROUP Business Software AG	06/01/11		8,705.5		8,705.5
Pavone AG					4,956.7
Groupware Inc.					992.8
IDC					4,066.0
			39,689.0		49,704.5

NOTE 7 – SOFTWARE

Development costs

The costs of developing new software products and updating products already marketed by GROUP Business Software AG are generally recognized as expenses in the period in which they arise. Provided they meet the conditions for capitalization as per FASB Codification 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 to be 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.

F-13

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

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 Corporation on those used by the parent company. Scheduled amortization is performed over a period from three to ten years.

NOTE 8 – RELATED PARTY TRANSACTIONS AND BALANCES

The Company had the following transactions with related parties for the six months ending September 30, 2011 and 2010:

	2011		2010
	$		$
Expenses paid to related parties:
Wages		92,965		91,643
Rent		30,331		28,671
Consulting fees		482,984		173,069
Interest		23,327		-
Stock Base Compensation		34,000		-

The transactions between the Company and the parties were consummated at the price agreed upon between the parties.

	Sept 30		March 31
	2011		2011

Due to a director and shareholder, unsecured demand note payable, bearing interest at 5%	$	-	$	114,750
Due to Lotus Holdings Ltd., a shareholder, demand notes note bearing interest at 5% , due October 31, 2011
- secured by shares in GROUP Business Software AG		447,240		600,000
- secured by OUTPUT Software		100,000		105,000
Accrued interest		23,327		7,906
	$	570,567	$	827,656

NOTE 9 - CAPITAL STOCK

The following are changes to the Company’s capital stock from April 1, 2010.

On April 26, 2010, the Company issued 2,265,240 shares in aggregate for goodwill, inventory, licenses, customer lists and computer software valued at $165,000.

On November 5, 2010, the Company purchased 3,043,985 shares from an existing shareholder for $300,000. Thereupon it exchanged those shares for 7,115,500 common shares of GROUP Business Software AG, a German Company, the fair value of which was determined to be $3,898,000.

F-14

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 9 - CAPITAL STOCK – (continued)

On January 6, 2011, the Company acquired an additional aggregate of 5,525,735 shares of common stock of GROUP in exchange for 2,361,426 shares of common stock of the Company. The fair value was determined to be $2,796,000. This brought the total ownership of the issued and outstanding shares of GROUP owned by the Company to be 50.1%

The acquisition of GROUP was accounted for as a reverse acquisition whereby GROUP is treated as the accounting acquirer and the Company is treated as the accounting acquiree. As the transaction is accounted for as a recapitalization applied retroactively, the balance of 16,500,000 issued and outstanding at that time has been recorded as outstanding since inception.

On March 31, 2011, the Company completed a private placement offering whereby it raised $7,555,000 gross proceeds through the sale of 6,044,000 units at $1.25 per unit. Each unit represents one share of common stock and one warrant. The warrant allows the holder to purchase one share of common stock of the Company from the date of the grant until the third anniversary of the date of the grant for a purchase price of $1.50 per share.

On April 1, 2011, the Company issued 1,000,000 shares of common stock as partial payment for 100% of the issued and outstanding shares of Pavone AG. The fair value of the shares issued was determined to be $4,900,000.

On June 1, 2011, the Company issued 250,000 shares of common stock as partial payment for 100% of the issued and outstanding shares of GroupWare, Inc. The fair value of the shares issued was determined to be $1,085,000.

On July 25, 2011 the Company issued 880,000 shares of common stock as a partial payment for 100% of the issued and outstanding shares of IDC Global, Inc. The fair value of the shares issued was determined to be $3,080,000

NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION

Non cash transactions during the period are described above in Note 4 – Subsidiary Companies Acquired and Note 9 – Capital Stock.

	Sept 30, 2011		Sept 30, 2010

Interest paid	$	208,484	$	220,053
Income taxes paid	$	60,764	$	40,076

NOTE 11 – STOCK BASED COMPENSATION

Effective April 1, 2011, a warrant to purchase shares was granted to an officer of the Company. The warrant allowed the grantee to purchase 100,000 common shares of the Company at $1.50. The warrant may be exercised any time before the third anniversary of the grant. This was the only compensation granted in either of the three month periods ending June 30, 2011 or June 30, 2010.

Compensation was recorded at the fair value of the warrant as at the grant date based on the Black-Scholes option pricing model, using the following assumptions:

F-15

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 11 – STOCK BASED COMPENSATION – (continued)

Expected dividend yield		0%
Average risk-free interest rate		1.19%
Expected life		3 years
Expected volatility		77.1%

Under the fair value method of accounting for stock options (warrants) the Company recorded compensation expense for the six months ending September 30, 2011 of $34,000 ($nil – 2010). This amount has been credited to additional paid in capital.

NOTE 12- WARRANTS

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 warrant issued on October 10, 2010, 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 as noted below. 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.

Common Stock Warrants Issued to Outside Consultants	Common Shares		Exercise Price		Valuation Date	Fair Value per Warrant Share		Warrants' Fair Value

Issued on October 1, 2010		2,000,000	$	4.00	10/1/2010	$	-	$	-
Issued on March 14, 2011		707,280	$	1.50	3/14/2011	$	0.34	$	240,475
Issued on March 24, 2011		15,000	$	1.50	3/24/2011	$	0.34	$	5,100
Total Warrant Value								$	245,575

The fair value of the warrant as at the grant date of October 1, 2010 was based on the Black-Scholes option pricing model, using the following assumptions:

Expected dividend yield		0%
Average risk-free interest rate		0.74%
Expected life		2.5 years
Expected volatility		65.0%

The fair value of the warrant as at the grant date of March 14, and March 24, 2011 were based on the Black-Scholes option pricing model, using the following assumptions:

Expected dividend yield		0%
Average risk-free interest rate		1.07 – 1.19%
Expected life		3 years
Expected volatility		77.2%

F-16

GBS Incorporated Inc.

Notes to the Interim Financial Statements

September 30, 2011

(Unaudited)

NOTE 12- WARRANTS – (continued)

As at September 30, 2011, the number of shares the warrants outstanding could purchase if exercised was as follows:

			Weighted
	Common		Average
Warrants	Shares		Price/sh
Outstanding, beginning of period		8,766,280	$	2.07
Issued		100,000	$	1.50
Expired		-	$	-
Outstanding, end of period		8,866,280	$	2.06

NOTE 13 – SUBSEQUENT EVENTS

On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings Ltd, a Mauritius corporation and the parent company of Synaptris, Inc. (“Synaptris”), a privately held company headquartered in San Jose California. Under the terms of the agreement, which has yet to be finalized, the Company intends to acquire 100% of the issued and outstanding shares of Synaptris in consideration for 700,000 shares of common stock of the Company and cash of $525,529.

F-17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

GBS Enterprises Incorporated, a Nevada corporation (the “Company,” “GBSX,” “we” or “our” or similar expressions), conducts its primary business through its 50.1% owned subsidiary, GROUP Business Software AG (“GROUP”), a German-based public-company whose stock trades on the Frankfurt Exchange under the stock symbol INW. GROUP’s core business is focused on serving IBM’s Lotus Notes and Domino market where it has become IBM’s largest provider of business solutions worldwide. GROUP caters primarily to mid-market and enterprise-size organizations having over 3,500 customers in thirty-eight countries spanning four continents, representing more than 5,000,000 active users of its products. GROUP’s customers include Abbot, Ernst & Young, Deutsche Bank, Bayer, HBSC, Merck and Toyota. GROUP provides Cloud Computing technology, IBM Lotus Notes/Domino Application Transformation technology, Email Management software, Lotus Software Services, Customer Relationship Management software and Risk & Compliance Management solutions. Headquartered in Eisenach, Germany the Company has offices throughout Europe and North America.

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 assets of Lotus Holdings Limited (“Lotus”) pursuant to an Asset Purchase Agreement in consideration for aggregate of 2,265,240 shares of SWAV common stock. Lotus is a holding company specializing in software technology and training services, particularly in the areas of advanced software development tools, innovative point-of-care electronic health record (EHR) software, and sales training. Simultaneously with SWAV’s acquisition of Lotus, the SWAV stockholders sold an aggregate of 11,984,770 shares of SWAV common stock to Joerg Ott, our CEO and Chairman, for an aggregate purchase price of $370,000.

Effective December 30, 2010, the Company acquired approximately 28.2% of the issued and outstanding shares of common stock of GROUP Business Software AG, a Frankfurt-based German software company (“GROUP”), pursuant to Share Purchase Agreements between the Company and several of GROUP’s stockholders, including Mr. Joerg Ott (also the Company’s Chairman and Chief Executive Officer). Pursuant to the Share Purchase Agreements, the Company acquired an aggregate of 7,115,500 shares of common stock of GROUP in consideration for an aggregate of 3,049,489 shares of the Company’s common stock.

On January 6, 2011, the Company acquired an additional 5,525,735 shares of common stock of GROUP, representing approximately 21.9% of the issued and outstanding shares, from several additional GROUP stockholders in consideration for an aggregate of 2,355,922 shares of the Company’s common stock.

In total, the Company purchased an aggregate of 12,641,235 shares of common stock of GROUP from a total of nine GROUP stockholders in consideration for a total of 5,405,411 shares of common stock of the Company, resulting in the Company owning a controlling equity interest of approximately 50.1% in GROUP. The Company conducts its primary business through GROUP.

Subsidiaries:

Acquisitions of Subsidiary Companies

Pavone AG

On April 1, 2011, the Company consummated its acquisition of Pavone AG, a German corporation (“Pavone”). The acquisition was effected pursuant to the terms of an acquisition agreement, dated April 1, 2011, by and among the Company, Pavone and the shareholders of Pavone (the “Pavone Shareholders”) under which the Company acquired 100% of the issued and outstanding shares of capital stock of Pavone (the “Pavone Shares”). As consideration for the Pavone Shares, an aggregate of 1,000,000 shares of common stock of the Company were issued on a pro rata basis to the Pavone Shareholders within 30 days of the closing. The agreement also required a pro rata cash payment of $350,000 to the Pavone Shareholders within 10 days of the Closing.

PAVONE AG is a leader in business process management and optimization technologies. PAVONE's extensive workflow software for Lotus Notes and Domino along with their large customer base is well suited to GBS Enterprises portfolio strategy. This acquisition of PAVONE complements GBS's majority ownership in Group Business Software (GBS), and further strengthens their leading industry position on the IBM Lotus Platforms and expands their cloud computing technology offerings beyond the IBM Lotus market. PAVONE currently has offices in Germany and the UK. They have over 2,500 customers and over 150,000 users worldwide. Some of their customers include Deutsche Bundes Bank, BMW, Linde AG, Philips, British Sugar and Mahle Industries.

Group Ware AG

The Company acquired GroupWare AG, a German company with offices in Florida (“GroupWare”), pursuant to an Acquisition Agreement, dated June 1, 2011 (the “Agreement”), by and among the Company, GroupWare and the holder of 100% of the issued and outstanding shares of common stock of GroupWare (the “Selling Stockholder”).

In consideration for one hundred percent (100%) of the outstanding shares of GroupWare, the Company agreed to issue to the Selling Stockholder an aggregate of 250,000 shares of restricted common stock of the Company and to pay the Selling Stockholder a sum of $250,000.

Upon the consummation of the acquisition, the management and board of GroupWare resigned and Joerg Ott, the Company’s Chief Executive Officer and sole director, was appointed as the Chief Executive Officer and sole director of GroupWare.

GroupWare's ePDF server delivers centralized, network-wide PDF solutions for messaging, workflow, document, content and data management. This acquisition strengthens the GBS Transformer offering, which helps bring IBM Lotus Notes client applications to the web, by substituting traditional printing methods provided by the Notes client with simple-to-use print-to-PDF capabilities in the browser. In addition, GroupWare provides a solution for applications that are ready to be retired. With the ePDF Server, GBS customers can convert the entire contents of IBM Lotus Notes and Domino applications to a permanent and secure archive in PDF or PDF/A format, while preserving their ability to be full-text searched and ensuring that the critical application data is accessible in the future, when needed. GBS will deliver the application archiving capabilities via its GroupLive cloud, making it possible for customers and partners to take advantage of elastic cloud computing resources to rapidly process the application contents without the need to dedicate hardware on-site for temporary or intermittent processing jobs.

IDC Global, Inc.

On July 25, 2011, the Company consummated its acquisition of 100% of the issued and outstanding shares of common stock of IDC Global, Inc. (“IDC”), a Delaware corporation with offices in Chicago, New York, London and other key cities. Pursuant to the acquisition agreement of July 15, 2011, the Company agreed to issue the shareholders an aggregate of 800,000 shares of common stock and make a cash payment of $750,000. The agreement required an additional payment to the management shareholders of 80,000 shares of common stock and pay signing bonuses to personnel of $35,000. The Company also agreed to reimburse IDC up to $25,000 for incurred accounting and legal fees related to the transaction.

IDC is a privately held company that provides nationwide network and data center services. IDC delivers customized, high availability technology solutions for WAN, Wireless Services, Co-location & Hosting, Managed Services, and Network Security. IDC has data centers in Chicago, New York and London and other key cities. IDC is helping customers make the transition from large, static and expensive on-premise computing to dynamic, flexible and cost-effective off-premise computing. The acquisition of IDC provides the Company with the infrastructure needed to provide a comprehensive end-to-end solution for all customers regardless of their platforms. It proves especially beneficial to IBM Lotus Domino and Notes customers who finally have the same options as other platforms.

Intended Future Acquisitions/Subsequent Events

SD Holdings Ltd. and Synaptris, Inc.

On September 27, 2011, the Company entered into an acquisition agreement with SD Holdings Ltd, a Mauritius corporation and the parent company of Snyaptris, Inc, a privately held company headquartered in San Jose California. Under the terms of the agreement, which has yet to be finalized, the Company intends to acquire 100% of the issued and outstanding shares of Snyaptris, Inc. (“Synaptris”) in consideration for 700,000 shares of common stock of the Company and cash of $525.529.

The Company not consummated its acquisition of Synpatris as of the date of this Quarterly Report on Form 10-Q.

Synaptris' product portfolio improves corporate decision-making by providing real-time enterprise reporting, user defined dashboards, and comprehensive analytic capabilities for Lotus Notes / Domino and Java/.NET environments. Synaptris employs 70 people and has operations in the US, Europe, and India, with over 2,500 customers in 80 countries, including over one hundred Fortune 1000 companies. Some of their client companies include ABB, Goodyear Tire and Rubber, Standard Life Insurance, ABN Amro Bank, Dunlop, Caterpillar, Philips International BV, and Electrolux.

With the integration of the Synaptris product portfolio, GBS will add another tier of Lotus Notes applications including reporting products, advanced dashboards, and email productivity solutions. Additionally, the Synaptris acquisition will bring a comprehensive search engine specialized for use with email that is faster and easier to use than other products in the market and which is expected to be made available for XPage applications in the near future through the GBS Transformer. The GBS Transformer is the only technology in the marketplace that can convert any legacy Lotus Notes applications into a cloud ready format. There are over 18 million Lotus Notes applications worldwide.

In addition to product synergy and additional revenue streams, GBS will derive operational synergy from this acquisition. Synaptris' presence in India is anticipated to accelerate GBS's plan to expand its Development & Service Center operations for its Transformer 2.0 suite in India. Transformer 2.0 expedites the conversion of client-based applications to Web 2.0-based applications. The Development & Service Center should further enable GBS a cost-effective method to rapidly transform (web-enable) large volumes of Lotus Notes applications. In addition, GBS plans to leverage Synaptris' 135 channel partners spanning 45 countries to expand its existing worldwide network of partners.

Overview of Cloud Computing Technology and Industry Trends

Cloud computing is a general term for anything that involves delivering hosted services over the Internet. These services are broadly divided into three categories: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).

IaaS providers have massive data centers that can handle the data run over the cloud, the largest of which is Amazon.com. IBM also participates in this business and hosts GROUP Live. PaaS providers offer the actual cloud platform that runs on the IaaS data centers and can deploy the applications (SaaS products). Some of the leading PaaS providers include Amazon Web Services, Microsoft Azure Services Platform, Google App Engine, and Rackspace Cloud, along with GBS’s CAP and GROUP Live products. SaaS delivers applications on the cloud, which simplify product licensing and maintenance. The SaaS market was first filled by a number of CRM (Customer Relationship Management), ERP (Enterprise Risk Management) and email applications but has spread into nearly all other types of software. Leading providers in this space include Salesforce.com, Google and Zoho as well as IBM’s Lotus Live suite. In 2009, SaaS made up the bulk of cloud computing revenue at $8 billion (Source: IDC, June 2010).

Over the past five years, there has been a migration from on-premise hardware and software to cloud computing which allows companies to increase efficiency and reduce cost by paying for software and hardware use on a subscription basis. In this model, IT managers are able to rent server capacity on an as-needed basis from a third party, instead of managing a data center on-premise, and purchasing up-to-date licenses for software based on real-time, instead of purchasing bundles of licenses or software and upgrading when updates are released.

An October 2010 IBM Tech Trend Survey found that 91% of the 2,000 IT developers surveyed expect cloud computing to over-take on-premise computing as the primary way organizations acquire IT over the next five years. An IDC July 2010 report shows global public cloud-related spending at $16.5 billion in 2009 (4% of the total IT spending) with the expectation that the market will increase to $55.5 billion by 2014, making up 12% of total IT spending. IDC broke down the market into five categories, three of which GBS competes in, including Applications, App Development and Deployment, and Infrastructure Software. These three make up $13.0 billion of the 2009 total and $40.5 billion in 2014, which leaves plenty of room for growth for a number of competitors in the market.

Competition

The competitive landscape in the enterprise data center market is intense and changing, and we expect there will be a new class of very large, well-financed, and aggressive competitors, each bringing its own new class of products to address this new market. We also expect to see acquisitions, further industry consolidation, and new alliances among companies as they seek to serve the enterprise data center market.

The Company is focused on developing a portfolio of Cloud Computing software technologies and Application Services to address the needs of ISV’s, Data Center providers, as well as commercial and government organizations. GBSX is pursuing an aggressive growth strategy based upon highly targeted mergers and acquisitions so as to build its portfolio of technologies, applications, and services.

Results of Operations

Assets

Total Assets increased from $76,865,929 at March 31, 2011 to $84,757,741 at September 30, 2011. Total Assets consist of Total Current Assets and Total Non-Current Assets.

At March 31, 2011, our Total Current Assets were $17,875,353, compared to $10,576,183 at September 30, 2011. Our cash and cash equivalents decreased from $8,530,864 at March 31, 2011 to $2,791,068 at September 30, 2011. The decrease was primarily due to the cash payments relating to three acquisitions and on-going working capital needs to finance current operations. Accounts Receivable decreased from $5,698,320 at March 31, 2011 to $5,280,334 at September 30, 2011. This decrease was primarily due to a slight increase in payment activity. Prepaid Expenses increased from $1,423,281 at March 31, 2011 to $1,660,330 at September 30, 2011 based on payments for upcoming marketing events. Other receivables consisted of a receivable for anticipated compensation for damage, security deposits, tax refund claims and decreased from $2,222,887 at March 31, 2011 to $576,615 at September 30, 2011. The decrease was primarily due to receipt of damage compensation and tax refund claims. Inventories increased from $-0- at March 31, 2011 to $267,837 at September 30, 2011. The reason for this increase was primarily due to the consolidation of two acquired companies during the period, Pavone and Groupware.

At March 31, 2011, our Total Non-Current Assets were $58,990,576, compared to $74,181,558 at September 30, 2011. Our Financial Assets increased from $837,480 at March 31, 2011 to $2,834,163 at September 30, 2011 and consists of an Intercompany Loan given during the previous quarter and therefore cannot be eliminated because of a timing difference emanating as per Regulation S-X Rule 11-02 regarding consolidation. Our Financial Assets also include the remaining balance from a note receivable from the purchaser of GEDYS IntraWare GmbH which is being paid off in monthly installments. Goodwill increased from $39,688,967 at March 31, 2011 to $49,705,472 at September 30, 2011 due primarily to the purchase price allocations relating to three acquisitions recorded in the period. Software increased from $16,514,894 at March 31, 2011 to $17,901,923 at September 30, 2011 and consists of an increase in capitalized development costs. Other Assets increased from $223,630 at March 31, 2011 to $324,709 at September 30, 2011 and consisted of the reinsurance relating to pension obligations.

Liabilities

Total Liabilities increased from $24,285,794 at March 31, 2011 to $26,155,969 at September 30, 2011. Total Liabilities consist of Total Current Liabilities and Total Non-Current Liabilities.

At March 31, 2011, our Total Current Liabilities were $16,345,733, compared to $17,764,311 at September 30, 2011. Notes Payable increased from $1,440,295 at March 31, 2011 to $1,547,852 at September 30, 2011 due to currency conversion. Liabilities to Bank increased from $50,073 at March 31, 2011 to $107,324 at September 30, 2011 and consisted of a line of credit. Accounts Payable and Accrued Liabilities decreased from $ 4,996,748 at March 31, 2011 to $4,552,446 at September 30, 2011 and consists of Trade payables, Tax accruals and other accruals. Other Liabilities decreased from $2,820,002 at March 31, 2011 to $1,942,553 at September 30, 2011 and consists of the liabilities relating to the purchase of assets, tax liabilities, and other miscellaneous loans. Deferred Income increased from $6,208,458 at March 31, 2011 to $9,033,714 at September 30, 2011 and consists mainly of maintenance income collected in advance of the contractual maintenance period.

At March 31, 2011, our Total Non-Current Liabilities were $ 7,940,061, compared to $ 8,391,658 at September 30, 2011. Liabilities to Banks increased from $780,277 at March 31, 2011 to $3,197,482 at September 30, 2011 and consisted of an increase of long-term liabilities vis-à-vis Baden-Württembergische Bank. Deferred Tax Liabilities decreased from $878,450 at March 31, 2011 to $690,574 at September 30, 2011 and consists of the Deferred Tax Liabilities from the capitalization of software expenses. The decrease was primarily due to depreciation of Assets. Retirement Benefit Obligation increased from $153,962 at March 31, 2011 to $ 173,191 at September 30, 2011, and consisted of additional accrued retirement benefit obligations. Other Liabilities decreased from $6,127,373 at March 31, 2011 to $4,330,411 at September 30, 2011 and consisted of a reduction of liabilities related to the purchase of assets in a prior period.

Six-Month Period Ended September 30, 2011 Compared to the Six-Month Period Ended September 30, 2010

Revenues

For the six-month period ended September 30, 2011, our Net Sales increased to $ 13,091,032 from $ 12,597,579 for the six-month period ended September 30, 2010. The Company generates net sales by Licenses, Maintenance, Services, Third-Party Products and Others. The increase was primarily due to additional revenues from acquired companies during the period.

Cost of Goods Sold

For the six-month period ended September 30, 2011, our Cost of Goods Sold increased to $ 6,149,954 from $5,969,189 for the six-month period ended June 30, 2010. Cost of Goods Sold consists of Cost for Services, Cost for Third-Party Products and Cost for Software Licenses. The increase was primarily due to additional cost of goods relating to additional sales generated by acquired companies during the period.

Operating Expenses

For the six-month period ended September 30, 2011, our Operating Expenses increased to $11,926,849 from $8,092,812 for the six-month period ended September 30, 2010. Operating Expenses consist of Selling Expenses, Administrative Expenses and General Expenses. For the six-month period ended September 30, 2011, our Selling Expenses increased to $7,968,855 from $5,500,893 for the six-month period ended September 30, 2010. Selling Expenses consist of cost for the Sales, Marketing and Service units. The reason for the increase was primarily due to an increase in sales personnel and related selling costs such as travel expenses and marketing costs. For the six-month period ended September 30, 2011, our Administrative Expenses increased to $ 3,257,139 from $2,009,077 for the six-month period ended September 30, 2010. The reason for the increase was primarily due to an increase in legal expense, consultant expense, investor relation expense and associated travel costs as well as the additional Expenses of the acquired Companies. For the six-month period ended September 30, 2011, our General Expenses increased to $ 700,855 from $ 582,843 for the six-month period ended September 30, 2010. The reason for the increase was primarily due to an increase in professional fees, cost of money transactions, bad debt provision and currency conversion. For the six-month period ended September 30, 2011, Other Income decreased to $ 310,547 from $1,422,329 for the six-month period ended September 30, 2010. The reason for the decrease was primarily due to earnings in the previous year in relation to the selling of the Assets of Gedys IntraWare GmbH.

The consolidated Statements of Operations also include expenses of $ 1.5 million directly relating to Group Live, the Company’s cloud computing technology service, and expenses of $ 1.3 million directly relating to the Transformer, the Company’s Lotus Notes application conversion service, for the first six months 2011.

Liquidity & Capital Resources

At September 30, 2011, we had $2,791,068 in cash and cash equivalents, compared to $2,413,355 at September 30, 2010. Management believes that the Company’s cash at September 30, 2011 will be sufficient to meet the Company’s working capital requirements for the next 6 month period. Management believes that as a result of the assets purchased to date, it will generate additional funds and that it will be able to obtain additional capital as required, to meet projected operational requirements.

Cash Flows

	Fiscal Quarter Ended
	September 30,
	2011			2010
Cash provided by operating activities	$	430,492		$	787,381
Net cash provided by (used in) Investing Activities	$	(6.647,665	)	$	(1,808,985	)
Net cash provided by (used in) Financing Activities	$	446,738		$	573,603
Effect of exchange rate changes on cash	$	30,639		$	175,988
Net increase (decrease) in cash and cash equivalents during the period	$	(5,739,796	)	$	(272,013	)
Cash and cash equivalents, beginning of period	$	8,530,864		$	2,685,368

Cash and cash equivalents, end of period	$	2,791,068		$	2,413,355

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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. The areas where critical estimates were made that have significant importance to the financial statements are as follow:

(a)

Allowance for doubtful accounts. The company provides for potential bad debts on an account by account basis. Bad debts have not been significant and our allowance has been accurate. Non trade receivables are also scrutinized and allowed for based on expected recovery. One significant item ($1,902,000) which was previously written off was re-evaluated and reinstated during fiscal 2011. The amount was subsequently paid.

(b)

Allocation of the price paid when acquiring subsidiaries. When the Company acquires subsidiary companies an allocation of the purchase is required. The allocation is based on management’s analysis of the value of the net assets, and is based on estimated future cash flows that each component will produce. Such components might include software, customer lists and other intangible assets that are not readily determinable. The allocation will have significant impact on the future earnings of the Company as certain assets, customer lists for example, must be amortized and charged to operations over time, while other assets, notably goodwill, does not.

(c)

Impairment testing on intangibles and goodwill. As noted in more detail below, these areas involve numerous estimates as to expected cash flows, expected rates of return and other factors that are difficult to determine and are often out of the Company’s direct control. Accordingly, the Company adopts a conservative approach and has experienced better than projected results for the most part.

(d)

Valuation of deferred tax credits. The Company provides an allowance for tax recoveries arising from the application of losses carried forward. An allowance is provided where management has determined that it is less than likely that the loss will be applied and income taxes recovered.

Comprehensive Income (Loss)

Net Income per Common Share

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 and the British pound. Accordingly, some assets and liabilities are incurred in those currency and we are subject to foreign currency risks.

Fair Value Measurements

The Company follows FASB Codification topic 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.

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 FASB ASC 330 (Inventories), inventories held for sale are recognized under inventories. Inventories were measured at cost, which is determined on a first-in-first out basis, without any overhead component.

Intangible Assets

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

GROUP 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 FASB 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-designed software.

Property, Plant and Equipment

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 FASB Codification 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, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. No impairment has been recognized in the accounts.

Revenue Recognition

Maintenance earnings are realized per FASB ASC 605 Revenue Recognition on a pro rata basis over the contractual service period. Consulting and training services are realized upon provision of the service. Sales revenues are presented with deductions made for discounts, customer bonuses, and rebates.

Foreign Currency Translation

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 a 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.

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.

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2012); early adoption is permitted. The Company does not expect the adoption of ASU 2010-06 to have a material impact on its results of operations or financial position.

In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its results of operations or financial position.

Effective July 1, 2010, we adopted the update to the accounting standard regarding derivatives and hedging (Topic 815). This update clarifies how to determine whether embedded credit derivatives, including those interests held in collateralized debt obligations and synthetic collateralized debt obligations, should be bifurcated and accounted for separately. The adoption of this standard did not have a significant impact on our results of operations.

In December 2010, the FASB issued Accounting Standards Update ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805). The update requires public companies to disclose pro forma information for business combinations that occur in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company’s adoption of FASB ASU No. 2010-29 effective December 1, 2010 did not have an impact on the Company’s consolidated results of operations or financial position but did result in additional disclosures.

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements

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.

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 all periods presented, and do not include the historical financial statements of the Company. All costs associated with the reverse merger transaction were expensed as incurred.

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, in a reverse acquisition, 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.

OFF-BALANCE SHEET ARRANGEMENTS

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

None

Item 4. Controls and Procedures.

Evaluation of Controls and Procedures.

In accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2011, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company presently is not a party to, nor is management aware of, any pending, legal proceedings.

Item 1A. Risk Factors.

The disclosure required under this item is not required to be reported by small reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 25, 2011, the Company issued 880,000 shares of common stock as a partial payment for 100% of the issued and outstanding shares of IDC Global, Inc. The fair value of the shares issued was determined to be $3,080,000. The Company relied on the registration exemption provided under Section 4(2) of the Securities Act of 1933, as amended, due to the fact that it was an isolated issuance and did not involve a public offering of securities.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved by the Securities and Exchange Commission).

Item 5. Other Information.

None.

Item 6. Exhibits.

No.		Description

31.1		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial and Accounting Officer

32.1		Section 1350 Certification of Principal Executive Officer

32.2		Section 1350 Certification of Principal Financial and Accounting Officer

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.

	GBS ENTERPRISES INCORPORATED

Date: November 16, 2011	By: /s/ Joerg Ott
	Joerg Ott
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: November 16, 2011	By: /s/ Ronald Everett
	Ronald Everett
	Chief Financial Officer
	(Principal Financial and Accounting Officer)