INTRODUCTION
GPS Industries, Inc. ("GPSI" or the "Company") was incorporated on December 12, 1995 as Diversified Marketing Services, Inc. It changed its name to Inforetech Wireless Technology, Inc. on December 6, 1999 and again on September 30, 2003 to GPS Industries, Inc. The Company has been publicly traded since January 2000 on the OTC.BB under the symbol IWTI and after its latest name change under the symbol GPSN. GPSI develops and markets global positioning satellite ("GPS") and Wi-Fi wireless multimedia solutions to golf facilities worldwide. The Company's unique and patented Inforemer(TM) product line provides a complete Wi-Fi GPS golf business solution, combining a backend management information system and revenue generating modules with mobile color handheld and cart-mounted Differential GPS units, seamlessly connected via a wireless, high-speed Wi-Fi network.
GPSI's current target market is the golf industry with the goal to be one of the premier supplier of GPS and Wi-Fi business solutions. Management believes that GPSI's technology is well suited to recreational activities outside of golf and, subject to available working capital, the Company plans to expand its offering to other recreational industries in the future.
GPSI's Inforemer suite of products provides golf facility managers with a total business solution, helping the facilities drive profit and become more competitive. Inforemer enables managers to run their businesses more efficiently with a wireless Virtual Private Network (VPN), wireless security camera applications and data management and reporting capabilities. Facilities can generate more revenue with advertising, wireless internet access, tournament and point-of-purchase applications. The mobile handheld or cart-mounted GPS units help attract and retain customers by delivering a better golf experience on the course or at the learning center with precise distance measurements, detailed color course maps, media streaming of real-time sports scores and news headlines, food and beverage ordering, electronic scoring, tournament play and emergency communication to the clubhouse.
GPSI offers the broadest product line in the industry, including both handheld and cart-mounted GPS units and offers golf facilities to mix and match any combination of these units to best suit their needs. GPSI was the first company to develop a handheld and a color handheld GPS unit, and remains the only company to mount their cart units ergonomically to the steering column instead of on the cart roof.
On November 26, 2004, GPSI entered into a strategic partnership arrangement with back-office software developer, Jencess Software & Technologies, Inc. to integrate their software with the Inforemer product. This partnership provides GPSI with strategic marketing opportunities to Jencess' customer base of more than 900 golf facilities. Management believes that the integration of the systems will also create the industry's most comprehensive golf business solution.
GPSI remains the only GPS golf solutions provider to utilize an integrated Wi-Fi wireless infrastructure. This wireless infrastructure provides golf facilities with benefits completely outside of golf. Facilities can attract more conferences and events with wireless internet access in meeting rooms and resorts and residential communities can extend wireless internet access to resort guest rooms and residences. Moreover, GPSI can introduce completely new wireless applications to golf facilities. In January 2005, GPSI introduced the first of these new applications, wireless security cameras.
On July 2, 2004, GPSI purchased the patents to Differential GPS in Australia, Japan and 11 European Nations from Pinranger (Australia) Pty Ltd. On November 19, 2004 GPSI purchased the patents to GPS for golf in the United States and in Canada from Optimal Golf Solutions, Inc. in Texas. The purchase of these patents not only helps establish a leadership position for GPSI in the worldwide golf marketplace, but opens up new revenue streams through licensing fees.
GPSI appointed distributors in key golf markets worldwide, including Canada, United States, Europe, Australia/New Zealand, Asia and South Africa, thus transferring some of its sales and marketing costs to these independent firms. North America continues to be a key focus area with coverage by both distributors and direct sales representatives. Currently, GPSI has installations in the United States, Canada, Australia, China, France, Spain, United Kingdom and South Africa.
GPSI intends to continue its current momentum and become the industry leader for wireless GPS golf technology, and to leverage its core technology into related markets, such as gated communities and large scale golf residential developments as well as other recreational industries. Within the golf market, GPSI intends to grow its current position by; (i) offering reliable, advanced Wi-Fi and GPS based business solutions; (ii) competitively pricing its wireless solutions by offering economic and tax friendly customized leasing solutions through specialized financial institutions; (iii) leveraging its strategic and technological relationships; (iv) selectively acquiring providers of GPS-based products and services to expand its installation base and product offering; and (v) building brand awareness.
Convertible Debt
On September 20, 2005, the Company entered into a Securities Purchase Agreement (the "Stock Purchase Agreement") with AJW Offshore, Ltd, AJW Partners, LLC, AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC (the Purchasers) providing for the issuance by the Company to the Purchasers of up to $3,720,000 of secured convertible notes (the "Notes"). The Notes are convertible into shares of the Company's Common Stock at the option of the holder. The conversion price is the lesser of (i) the Variable Conversion Price (as defined) and (ii) $.10 (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" means the Applicable Percentage (as defined) multiplied by the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices (as defined) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the conversion notice is sent by the applicable Holder to the Company. "Trading Price" means the intraday trading price on the Over-the-Counter Bulletin Board. The Applicable Percentage is 60%.
The term of the Notes is three years from the date of issuance. The repayment of the principal amount of the Notes is based on 124% of the subscription amount.
The Company may redeem the Notes upon at least 10 trading days notice in accordance with the following. So long as the Common stock is trading at or below $.15 per share, as such price may be adjusted for stock splits, recapitalizations and similar events (the "Maximum Price") the Company has the right to prepay all of the outstanding Notes in an amount in cash (the "Optional Prepayment Amount") equal to (i) 125% (for prepayments occurring within 30 days of the Issue Date), (ii) 130% for prepayments occurring between 31 and 60 days of the Issue Date, or (iii) 135% (for prepayments occurring after the sixtieth 60th day following the Issue Date), multiplied by the sum of the then outstanding principal amount of the applicable Note plus certain other amounts, if any, required to be paid by the Company as a result of specified defaults under the definitive agreements. If the stock is trading above the Maximum Price, the Company may exercise its right to prepay the Notes by paying to the Holders, in addition to the Optional Prepayment Amount, an amount equal to the aggregate number of shares that such Holders would have received upon conversion of the amount of the Note being prepaid multiplied by the difference between the closing price of the Company's Common Stock on the Optional Prepayment Date less the Conversion Price then in effect. In the event that the average daily price of the Common Stock for each day of the month ending on any determination date is below the Initial Market Price, the Company may, at its option, prepay a portion of the outstanding principal amount of the Notes equal to 104% of the principal amount hereof divided by 36 plus one month's interest. The term "Initial Market Price" means the volume weighted average price of the Common Stock for the five (5) Trading Days immediately preceding the Closing which is $.08.
As a condition to the closing the Company's President entered into a Guaranty and Pledge agreement (the "Pledge Agreement") pursuant to which he agreed to pledge 6,371,306 shares as collateral. The Notes are also secured by the assets of the Company pursuant to a Security Agreement and Intellectual Property Security Agreement.
On September 20, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $1,860,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 3,000,000 shares at an exercise price of $0.25 per share for an aggregate purchase price of $1,500,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $150,000.
On October 28, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $930,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 1,500,000 shares for an aggregate purchase price of $750,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $75,000.
On December 9, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $930,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 1,500,000 shares for an aggregate purchase price of $750,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $75,000.
On September 20, 2005, in connection with the purchase of the Notes, the Company also entered into a Registration Rights Agreement with the investors signatory thereto, which provided that on or prior to 30 days after the closing, of which one occurred on September 20, 2005, the Company would prepare and file with the Securities and Exchange Commission a registration statement ("Registration Statement") covering the resale of all of the Registrable Securities (defined as the shares issuable upon conversion of the Notes and the shares issuable upon exercise of the Warrants). If the registration statement was not filed within 30 days or was, for any reason, not declared effective within 90 days, or was for any reason not available for use after the effective date, the Registrant would pay liquidated damages to the investors. The Company filed the Registration Statement on October 20, 2005 and it was declared effective on December 7, 2005.
The issuance of the Notes and the Registration Statement, in particular the variable conversion rights and the potential for liquidated damages and a default premium if the Company has insufficient authorized and unissued shares to meet its obligations under the Notes, created derivative liabilities which the Company has valued at approximately $9.5 million, resulting in the recording of an other expense charge of approximately $6.5 million. The derivative liabilities are more fully disclosed in the "Derivative Liabilities" note to the Financial Statements.
Acquisition of ProShot Golf, Inc. (Proshot)
On January 12, 2001 the Company acquired all of the outstanding capital stock of ProShot. ProShot was a California based company involved in the manufacture, marketing, leasing, and installation of an integrated GPS based distance measuring equipment for golf courses. Pursuant to the acquisition, the Company agreed to pay certain bank debt of ProShot which was guaranteed by a group of former ProShot shareholders ("Guarantors"). The Company was unable to pay off the guaranteed obligations.
On September 21, 2001, after receiving notices of default from the Guarantors, the Company and one of its directors signed an agreement with the Guarantors that the Company would use its best efforts to assist in the foreclosure of ProShot assets by the Bank so that the Bank debt and ultimately the obligation of the Guarantors to the Bank, in respect of their guarantee of ProShot's Bank debt, might be reduced. In an amended agreement dated October 16, 2001, the Guarantors agreed to release the Company and one of its directors from certain financial obligations and to convert such obligations into stock in the Company. Upon such releases in the total amount of $1,118,000, the Company agreed to issue to the Guarantors, or their designees, 11,180,000 shares of Common Stock. During the fourth quarter of 2001, ProShot ceased operations and filed a petition for relief under Chapter 7 of the United States Bankruptcy Code on May 31, 2002, which was subsequently granted. Liabilities related to these discontinued operations remain in the consolidated balance sheet of GPSI as current liabilities. They include a promissory note payable, accounts payable and accrued liabilities, loans payable to related parties, and capital lease obligations. They are being written off in accordance with the statute of limitations rules in each state in which they were incurred and are reflected as a gain on extinguishment of debt in the consolidated statement of operations as they are written off.
Pursuant to a Settlement Agreement dated May 10, 2004, the Company issued 6,336,883 restricted shares in the Company valued at market value of $570,320 to the Guarantors, ProShot shareholders, and ProShot Investors LLC. 1,873,651 of these shares have been put in escrow for the future benefit of the Guarantors and the Company against any unforeseen claims from the ProShot debtors. These shares were all issued in July, 2004.
The Company has signed a Business Cooperation letter of agreement with ProShot Golf dated June 2, 2004, whereby the Company and ProShot will cooperate to the extent possible with each other to market their products and provides for referrals of customers or prospective customers which may prefer one party's system over the other. This letter is currently being renegotiated so that a finder's fee owing by GPSI to ProShot of $15,000 for each referral will no longer be required.
Acquisition of Optimal Golf Solutions, Inc.
On November 19, 2004 GPSI acquired 100% of the common shares of Optimal Golf Solutions, Inc. ("Optimal"), a Texas corporation owned by Darryl Cornish and Charles Huston ("Optimal Shareholders"), for a total of $5,250,000 plus interest of 4.75% on the principal balance outstanding payable as follows: $100,000 on signing a Letter Of Intent on November 8, 2004, $1,000,000 on closing, a stock payment of 9,000,000 restricted common shares of GPSI valued at $2,250,000 using a minimum price of $.25 per share and a final stock payment of $1,900,000 representing 7,600,000 common shares of GPSI using a minimum price of $.25 per share. These shares can be sold after the effectiveness of a registration statement and in accordance with a Leakage Agreement. The final purchase price may vary, however, depending on the price that the Optimal Shareholders receive for the shares they sell. The obligation to pay the deferred purchase price was secured by a first security interest in the Optimal patents as described below.
The first stock payment of 9,000,000 shares can be sold (in accordance with the Leakage Agreement) over 180 trading days. Any funds received from the sale of those shares over $3,250,000 (i.e. $1,000,000 over the $2,250,000 target price for the first share payment) will be deducted from the amount to be paid with the second stock payment, for the remaining amount due of $1,900,000 (plus interest). If the former Optimal shareholders sold their shares and received less than the target price of $.25 per share, then the Company was required to issue additional shares to make up the difference (or cash under certain conditions).
The second stock payment is to be issued at a 15% discount to market price at the time of issuance and can be sold into the market by the Optimal Shareholders over a further 180 trading days. On May 28, 2005 the Company entered into a First Amendment to Stock Purchase Agreement whereby the Company was granted up to six months of additional time to have a Registration Statement declared effective. As consideration for this extension, the Company agreed to pay $100,000 per month until the Registration Statement was declared effective, which would be applied to the balance owing which was to be settled with the second stock payment. The Company paid a total of $600,000 to the Optimal Shareholders under this amendment. However, because the Registration Statement was not filed by September 30, 2005, the Company lost the benefit of the reduction in the balance of the second stock payment and of any amounts realized from the sales of the first stock payment over $3,250,000 (the "cap"), which was to reduce the amount to be paid in the second stock payment.
GPSI agreed to use its best efforts to file and cause to have effective a Registration Statement covering the resale of the shares issued. If the Registration Statement was not effective by June 30, 2005, GPSI was obliged to pay cash of $2,250,000 plus interest over eight monthly installments of $250,000 each starting June 1, 2005. In that case, the first stock payment of shares would be returned to GPSI. If the Registration Statement was not effective by September 30, 2005, then GPSI would also pay cash to the Optimal Shareholders (in lieu of a second stock payment) of $1,900,000 plus interest in eight monthly payments of $237,500 commencing on October 1, 2005.
Because the Company did not have the Registration Statement filed by September 30, 2005, it agreed to register the resale of the 9,000,000 shares issued for the first stock payment and an additional 31,000,000 shares to cover the shares issuable for the second stock payment and the additional shares that must be issued to cover decrease in the market price of its common stock which had a closing bid price of $0.065 on December 31, 2005. The SB2 Registration Statement covering these shares was filed by the Company on October 20, 2005 and was declared effective by the SEC on December 7, 2005.
Upon receipt of the first $727,000 of net proceeds from the sale of shares issued to the Optimal Shareholders for the second stock payment, this amount will be forwarded to GPSI's attorney to be held in escrow for a period of 18 months from closing to partially secure the shareholders indemnification obligations to GPSI under the Agreement.
Optimal was primarily engaged in the business of holding patents relating to GPS technology for the golf industry. Optimal held an important U.S. patent no. 5,364,093 which was issued on November 15, 1994 for a Golf Distance Measuring System and Method. They also owned U.S. Patent No. 5,751,244 which was for the Method and Apparatus for Calibration of a GPS Receiver. Optimal had also made a Canadian patent application no 2,134,737 entitled Method and Apparatus for Message Display on a Golf Course. The 093 Patent has been licensed to six companies and currently generates revenue from two of them, namely UpLink Corporation and ProLink/ParView, LLC. totalling $584,326 per annum. A third licensee, ProShot Golf, was estimated to have paid approximately $35,000 per year in license payments, but has claimed that it has met the requirements for a paid-up license and is negotiating with GPSI to not make any further license payments. All license payments that GPSI receives are forwarded to Great White Shark Enterprises until their loan in the amount of $3,000,000, plus interest owing of 10% per annum, is fully repaid (see "Loan From Great White Shark Enterprises, Inc.").
GPSI expects to license the 093 Patent on a non exclusive basis to other GPS based golf system providers. Combined with the differential GPS patents the Company holds in 13 countries outside North America, GPSI believes that it now holds all patents required for it to sell its GPS systems throughout 15 countries. GPSI feels it is in a strong position to enforce these patents against infringers.
Loan From Great White Shark Enterprises
On December 3, 2004, GPSI entered into a Credit Agreement with Great White Shark Enterprises, Inc. ("GWSE") for GWSE to provide a Term Loan of $3,000,000 to GPSI. These funds were received by GPSI as follows: $1,000,000 on November 22, 2004 and the balance of $2,000,000 on December 3, 2004 (less outstanding service fees owed by GPSI to GWSE to December 31, 2004 of $548,750 pursuant to a Merchandising Agreement dated April, 2003). Collateral for the loan was (a) a first priority security interest in (a) all of the shares of the capital stock of Optimal, (b) a second security interest in the Optimal Patents and (c) a first security interest in the Pinranger Patents acquired by GPSI pursuant to an Agreement dated July 2, 2004 between GPSI and Pinranger (Australia) Pty. Ltd. and PagiSat, LLC. The Pinranger Patents are registered in 13 countries in Europe, Japan, and Australia.
The Term Loan may be repaid at any time prior to maturity without premium or penalty, except that the total minimum interest to be paid must be $300,000 irrespective of when the loan is repaid. During the term of the loan, GPSI must pay interest of 10% per annum on a monthly basis in cash or shares. If GWSE chooses to receive shares, the interest rate will be adjusted to 15% for the period selected and the shares will be priced at a 15% discount to market, using the average daily close for the three trading days prior to the end of the monthly period for which interest is due.
Repayment of the principal and interest due under the Credit Agreement has been provided for by GPSI giving to GWSE (commencing December 4, 2004) all license payments GPSI receives under all license agreements between Optimal as licensor and its licensees. Once the Term Loan and accrued interest is paid in full, for a period of two years from the repayment date, GWSE will receive 20% of the license payments and thereafter 40% of the license payments for the remaining life of the Patents. Any fees received in connection with enforcement of the Optimal Patents will also be paid to GWSE in accordance with the above-mentioned formula, except that GPSI must pay all legal costs to enforce the Optimal Patents. Any fees received from infringement payments relating to the Pinranger Patents will be shared on a 50/50 basis (net of legal costs) until the Term Loan and accrued interest are fully repaid, after which GPSI will have no further obligation to GWSE regarding the Pinranger Patents for any revenue they generate, and GWSE will agree to have its security interest in the Pinranger Patents removed by GPSI.
To the extent that, during any calendar year commencing January 1, 2005, the total annual license payments received by GWSE do not total $500,000, then the shortfall must be paid to GWSE in equal monthly payments over the next calendar year, above and beyond the following year's minimum license payment. The maturity date of the Term Loan is November 15, 2011, the termination of the life of one of the key Optimal Patents.
In addition to the above-mentioned interest and security provided for the Term Loan, GWSE also received an equity bonus of 3,000,000 restricted Common Shares of GPSI and a three year Warrant dated December 3, 2004 to purchase 2,000,000 Common Shares of GPSI at an exercise price of $.15.
Change of name and share structure
Effective September 30, 2003, the Company amended its Articles of Incorporation to change its name to GPS Industries Inc., to increase the authorized shares of common stock from 100,000,000 shares to 250,000,000 shares, to authorize 25,000,000 shares of preferred stock, and to eliminate the dual classes of common stock.
Effective April 27, 2005 the Company increased the total number of authorized shares to 550,000,000 of which 500,000,000 were common shares and 50,000,000 were preferred shares with the series, rights, preferences privileges and restrictions to be determined by the Board of Directors of the Company.
Patents
The Company has obtained certain patents and filed for further patents including the following:
1. Hand Held communicator patents issued in the U.S. on Feb. 1, 2000, in Canada on September 29, 2000; and in the United Kingdom on November 30, 1999. 2. Charging base for Electronic Apparatus patent issued in the US on Feb. 1, 2000. 3. Golf course communication system and method patent was applied for in the US on January 29, 2004 and is awaiting office action by the USPTO. GPSI also filed a PCT application in the European Community on January 20, 2005 and it is awaiting a serial number and filing receipt. 4. Endurable Sports PDA with communications capabilities and accessories. This patent was applied for in the US on January 22, 2003 and is pending, awaiting office action of the USPTO. 5. Portable GPS Unit patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 6. Cart mounted GPS Unit patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 7. Mounting bracket patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 8. Method for conducting a multi-golf course performance contest patent was applied for in the US on May 4, 2004 and is pending, awaiting office action. 9. On July 2, 2004 GPSI acquired Distance Measuring System patents in 13 countries as follows: Australia, Austria, France, Germany, Great Britain, Ireland, Italy, Japan, Netherlands, Portugal, Spain, Sweden, and Switzerland. The patents were acquired from Pinranger (Australia) Pty Ltd. These patents were filed in these countries on December 16, 1992. GPSI has applied to the patent office in each country to have the patents assigned to the Company. The Company is also in the process of registering the security interest of Great White Shark Enterprises in each of these countries. 10. Optimal, which GPSI acquired on November 19, 2004 has been issued patent no. 5,364,093 on November 11, 1994 relating to a Golf Distance Measuring System and Method, and patent no 5,751,244 on May 12, 1998 for a Method and Apparatus for Calibration of a GPS Receiver.
With the Company's own patents, plus those acquired through the acquisition of Optimal and those acquired from Pinranger in 13 countries, GPSI now holds important GPS patent rights in 15 countries, which it considers to be all of the major golf markets in the world. Opportunities exist for GPSI to license infringers of the GPS patents it holds. It has identified 13 such infringers to date and is in the process of communicating with them through its agent to offer a patent license.
Trademarks
The Company has registered trademarks as follows:
1. Informer 2000 Handset Software trademark in the US. 2. Inforetech Clubhouse Computer Software in the US. 3. Inforemer in the European Community. 4. Inforemer in the US. 5. Inforetech in Canada. 6. Inforetech in the European Community. 7. Inforetech in the US.
Other Intellectual Property
The Company also has developed additional proprietary intellectual property. The Company is seeking further patent protection for various proprietary aspects of its products and technologies. However, even if the Company were to be granted all of the patent protection which it seeks, no assurances can be given that Company would be able to prevent other companies from developing substantially similar products. Furthermore, there can be no assurance that the Company's pending patents will be awarded, and litigation may be necessary to protect the Company's patents, and there can be no assurance that the Company will have the financial resources to pursue such litigation. In addition to pursuing patent protection, the Company also relies on various trade secrets for its unpatented proprietary technology. However, trade secrets are difficult to protect, and there can be no assurances that other companies will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. While the Company has a policy of having its employees and consultants execute non-disclosure agreements regarding confidential information, there can be no assurance that these agreements will be enforceable or will provide meaningful protection for the Company's trade secrets or other proprietary information.
The Market
The target market for GPSI's Inforemer system is the multi billion dollar golf-recreational market, with golf courses being GPSI's target customer. There are approximately 20,000 golf courses in North America and more than 40,000 world-wide. Current market penetration of GPS systems represent approximately 5% of the market, with adoption by golf courses increasing steadily as the product is now being more widely accepted as a business solution, and the products in general become more stable, affordable and user-friendly. GPSI is now also expanding its GPS-based wireless solutions beyond the golf course, to golf course residential communities and golf course resorts, further increasing the size of its market. Due to the flexibility of GPSI's core technology and software, it is able to repurpose and leverage its applications for use in numerous markets which the company is now exploring.
Competition
Competition in the GPS golf market can be segmented into two main categories; low-priced consumer products and high-value GPS-based management business solutions.
While there are an increasing number of GPS golf products on the market, many of these new products and competitors are consumer oriented, utilizing devices such as laser finders, binoculars or personal digital assistants (PDA's). These commodity products are basic in functionality, and do not provide the same level of accuracy or reliability as the business solutions being deployed by golf courses, which utilize more advanced technology, mapping data and infrastructure.
GPSI's direct competition in the GPS golf management system market consists of a limited number of competitors, with two primary ones: UpLink Corporation, in Austin, Texas, and recently merged ProLink/Parview, LLC of Tempe, Arizona. Similar to GPSI, both companies have developed GPS based golf management solutions which provide courses with various applications for improving operations, increasing revenue and as a tool for golfers to utilize while golfing. Uplink and Parview/ProLink are similar in size, with upwards of 200 installations each. Both companies are focused primarily in the North American market, due to their dependence on manufacturer-specific golf carts. Both have also taken a non-exclusive license from Optimal (now owned by GPSI) and make license payments to Optimal for the use of Optimal's GPS patents in the United States. It is estimated that there are approximately 1,000 golf courses in North America with GPS systems installed, constituting a market penetration of approximately 5%. While the North American GPS-golf market is more mature, GPSI is targeting various emerging markets in Europe, Asia, Australia and South Africa where its handheld GPS product is well-suited. There is no major competition or identifiable market leader in these emerging markets; however ProLink/Parview is now selling its system through its agents in Europe and Asia.
GPS Industries, Inc. ("GPSI" or the "Company") was incorporated on December 12, 1995 as Diversified Marketing Services, Inc. It changed its name to Inforetech Wireless Technology, Inc. on December 6, 1999 and again on September 30, 2003 to GPS Industries, Inc. The Company has been publicly traded since January 2000 on the OTC.BB under the symbol IWTI and after its latest name change under the symbol GPSN. GPSI develops and markets global positioning satellite ("GPS") and Wi-Fi wireless multimedia solutions to golf facilities worldwide. The Company's unique and patented Inforemer(TM) product line provides a complete Wi-Fi GPS golf business solution, combining a backend management information system and revenue generating modules with mobile color handheld and cart-mounted Differential GPS units, seamlessly connected via a wireless, high-speed Wi-Fi network.
GPSI's current target market is the golf industry with the goal to be one of the premier supplier of GPS and Wi-Fi business solutions. Management believes that GPSI's technology is well suited to recreational activities outside of golf and, subject to available working capital, the Company plans to expand its offering to other recreational industries in the future.
GPSI's Inforemer suite of products provides golf facility managers with a total business solution, helping the facilities drive profit and become more competitive. Inforemer enables managers to run their businesses more efficiently with a wireless Virtual Private Network (VPN), wireless security camera applications and data management and reporting capabilities. Facilities can generate more revenue with advertising, wireless internet access, tournament and point-of-purchase applications. The mobile handheld or cart-mounted GPS units help attract and retain customers by delivering a better golf experience on the course or at the learning center with precise distance measurements, detailed color course maps, media streaming of real-time sports scores and news headlines, food and beverage ordering, electronic scoring, tournament play and emergency communication to the clubhouse.
GPSI offers the broadest product line in the industry, including both handheld and cart-mounted GPS units and offers golf facilities to mix and match any combination of these units to best suit their needs. GPSI was the first company to develop a handheld and a color handheld GPS unit, and remains the only company to mount their cart units ergonomically to the steering column instead of on the cart roof.
On November 26, 2004, GPSI entered into a strategic partnership arrangement with back-office software developer, Jencess Software & Technologies, Inc. to integrate their software with the Inforemer product. This partnership provides GPSI with strategic marketing opportunities to Jencess' customer base of more than 900 golf facilities. Management believes that the integration of the systems will also create the industry's most comprehensive golf business solution.
GPSI remains the only GPS golf solutions provider to utilize an integrated Wi-Fi wireless infrastructure. This wireless infrastructure provides golf facilities with benefits completely outside of golf. Facilities can attract more conferences and events with wireless internet access in meeting rooms and resorts and residential communities can extend wireless internet access to resort guest rooms and residences. Moreover, GPSI can introduce completely new wireless applications to golf facilities. In January 2005, GPSI introduced the first of these new applications, wireless security cameras.
On July 2, 2004, GPSI purchased the patents to Differential GPS in Australia, Japan and 11 European Nations from Pinranger (Australia) Pty Ltd. On November 19, 2004 GPSI purchased the patents to GPS for golf in the United States and in Canada from Optimal Golf Solutions, Inc. in Texas. The purchase of these patents not only helps establish a leadership position for GPSI in the worldwide golf marketplace, but opens up new revenue streams through licensing fees.
GPSI appointed distributors in key golf markets worldwide, including Canada, United States, Europe, Australia/New Zealand, Asia and South Africa, thus transferring some of its sales and marketing costs to these independent firms. North America continues to be a key focus area with coverage by both distributors and direct sales representatives. Currently, GPSI has installations in the United States, Canada, Australia, China, France, Spain, United Kingdom and South Africa.
GPSI intends to continue its current momentum and become the industry leader for wireless GPS golf technology, and to leverage its core technology into related markets, such as gated communities and large scale golf residential developments as well as other recreational industries. Within the golf market, GPSI intends to grow its current position by; (i) offering reliable, advanced Wi-Fi and GPS based business solutions; (ii) competitively pricing its wireless solutions by offering economic and tax friendly customized leasing solutions through specialized financial institutions; (iii) leveraging its strategic and technological relationships; (iv) selectively acquiring providers of GPS-based products and services to expand its installation base and product offering; and (v) building brand awareness.
Convertible Debt
On September 20, 2005, the Company entered into a Securities Purchase Agreement (the "Stock Purchase Agreement") with AJW Offshore, Ltd, AJW Partners, LLC, AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC (the Purchasers) providing for the issuance by the Company to the Purchasers of up to $3,720,000 of secured convertible notes (the "Notes"). The Notes are convertible into shares of the Company's Common Stock at the option of the holder. The conversion price is the lesser of (i) the Variable Conversion Price (as defined) and (ii) $.10 (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" means the Applicable Percentage (as defined) multiplied by the Market Price. "Market Price" means the average of the lowest three (3) Trading Prices (as defined) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the conversion notice is sent by the applicable Holder to the Company. "Trading Price" means the intraday trading price on the Over-the-Counter Bulletin Board. The Applicable Percentage is 60%.
The term of the Notes is three years from the date of issuance. The repayment of the principal amount of the Notes is based on 124% of the subscription amount.
The Company may redeem the Notes upon at least 10 trading days notice in accordance with the following. So long as the Common stock is trading at or below $.15 per share, as such price may be adjusted for stock splits, recapitalizations and similar events (the "Maximum Price") the Company has the right to prepay all of the outstanding Notes in an amount in cash (the "Optional Prepayment Amount") equal to (i) 125% (for prepayments occurring within 30 days of the Issue Date), (ii) 130% for prepayments occurring between 31 and 60 days of the Issue Date, or (iii) 135% (for prepayments occurring after the sixtieth 60th day following the Issue Date), multiplied by the sum of the then outstanding principal amount of the applicable Note plus certain other amounts, if any, required to be paid by the Company as a result of specified defaults under the definitive agreements. If the stock is trading above the Maximum Price, the Company may exercise its right to prepay the Notes by paying to the Holders, in addition to the Optional Prepayment Amount, an amount equal to the aggregate number of shares that such Holders would have received upon conversion of the amount of the Note being prepaid multiplied by the difference between the closing price of the Company's Common Stock on the Optional Prepayment Date less the Conversion Price then in effect. In the event that the average daily price of the Common Stock for each day of the month ending on any determination date is below the Initial Market Price, the Company may, at its option, prepay a portion of the outstanding principal amount of the Notes equal to 104% of the principal amount hereof divided by 36 plus one month's interest. The term "Initial Market Price" means the volume weighted average price of the Common Stock for the five (5) Trading Days immediately preceding the Closing which is $.08.
As a condition to the closing the Company's President entered into a Guaranty and Pledge agreement (the "Pledge Agreement") pursuant to which he agreed to pledge 6,371,306 shares as collateral. The Notes are also secured by the assets of the Company pursuant to a Security Agreement and Intellectual Property Security Agreement.
On September 20, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $1,860,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 3,000,000 shares at an exercise price of $0.25 per share for an aggregate purchase price of $1,500,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $150,000.
On October 28, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $930,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 1,500,000 shares for an aggregate purchase price of $750,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $75,000.
On December 9, 2005, pursuant to the Securities Purchase Agreement, the Company sold to the Purchasers, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder, $930,000 in aggregate principal amount of Notes and issued Warrants to purchase an aggregate of 1,500,000 shares for an aggregate purchase price of $750,000. Lionheart Group, Ocean Avenue Advisors and E.H. Winston Associates and Co. received commissions in the aggregate amount of $75,000.
On September 20, 2005, in connection with the purchase of the Notes, the Company also entered into a Registration Rights Agreement with the investors signatory thereto, which provided that on or prior to 30 days after the closing, of which one occurred on September 20, 2005, the Company would prepare and file with the Securities and Exchange Commission a registration statement ("Registration Statement") covering the resale of all of the Registrable Securities (defined as the shares issuable upon conversion of the Notes and the shares issuable upon exercise of the Warrants). If the registration statement was not filed within 30 days or was, for any reason, not declared effective within 90 days, or was for any reason not available for use after the effective date, the Registrant would pay liquidated damages to the investors. The Company filed the Registration Statement on October 20, 2005 and it was declared effective on December 7, 2005.
The issuance of the Notes and the Registration Statement, in particular the variable conversion rights and the potential for liquidated damages and a default premium if the Company has insufficient authorized and unissued shares to meet its obligations under the Notes, created derivative liabilities which the Company has valued at approximately $9.5 million, resulting in the recording of an other expense charge of approximately $6.5 million. The derivative liabilities are more fully disclosed in the "Derivative Liabilities" note to the Financial Statements.
Acquisition of ProShot Golf, Inc. (Proshot)
On January 12, 2001 the Company acquired all of the outstanding capital stock of ProShot. ProShot was a California based company involved in the manufacture, marketing, leasing, and installation of an integrated GPS based distance measuring equipment for golf courses. Pursuant to the acquisition, the Company agreed to pay certain bank debt of ProShot which was guaranteed by a group of former ProShot shareholders ("Guarantors"). The Company was unable to pay off the guaranteed obligations.
On September 21, 2001, after receiving notices of default from the Guarantors, the Company and one of its directors signed an agreement with the Guarantors that the Company would use its best efforts to assist in the foreclosure of ProShot assets by the Bank so that the Bank debt and ultimately the obligation of the Guarantors to the Bank, in respect of their guarantee of ProShot's Bank debt, might be reduced. In an amended agreement dated October 16, 2001, the Guarantors agreed to release the Company and one of its directors from certain financial obligations and to convert such obligations into stock in the Company. Upon such releases in the total amount of $1,118,000, the Company agreed to issue to the Guarantors, or their designees, 11,180,000 shares of Common Stock. During the fourth quarter of 2001, ProShot ceased operations and filed a petition for relief under Chapter 7 of the United States Bankruptcy Code on May 31, 2002, which was subsequently granted. Liabilities related to these discontinued operations remain in the consolidated balance sheet of GPSI as current liabilities. They include a promissory note payable, accounts payable and accrued liabilities, loans payable to related parties, and capital lease obligations. They are being written off in accordance with the statute of limitations rules in each state in which they were incurred and are reflected as a gain on extinguishment of debt in the consolidated statement of operations as they are written off.
Pursuant to a Settlement Agreement dated May 10, 2004, the Company issued 6,336,883 restricted shares in the Company valued at market value of $570,320 to the Guarantors, ProShot shareholders, and ProShot Investors LLC. 1,873,651 of these shares have been put in escrow for the future benefit of the Guarantors and the Company against any unforeseen claims from the ProShot debtors. These shares were all issued in July, 2004.
The Company has signed a Business Cooperation letter of agreement with ProShot Golf dated June 2, 2004, whereby the Company and ProShot will cooperate to the extent possible with each other to market their products and provides for referrals of customers or prospective customers which may prefer one party's system over the other. This letter is currently being renegotiated so that a finder's fee owing by GPSI to ProShot of $15,000 for each referral will no longer be required.
Acquisition of Optimal Golf Solutions, Inc.
On November 19, 2004 GPSI acquired 100% of the common shares of Optimal Golf Solutions, Inc. ("Optimal"), a Texas corporation owned by Darryl Cornish and Charles Huston ("Optimal Shareholders"), for a total of $5,250,000 plus interest of 4.75% on the principal balance outstanding payable as follows: $100,000 on signing a Letter Of Intent on November 8, 2004, $1,000,000 on closing, a stock payment of 9,000,000 restricted common shares of GPSI valued at $2,250,000 using a minimum price of $.25 per share and a final stock payment of $1,900,000 representing 7,600,000 common shares of GPSI using a minimum price of $.25 per share. These shares can be sold after the effectiveness of a registration statement and in accordance with a Leakage Agreement. The final purchase price may vary, however, depending on the price that the Optimal Shareholders receive for the shares they sell. The obligation to pay the deferred purchase price was secured by a first security interest in the Optimal patents as described below.
The first stock payment of 9,000,000 shares can be sold (in accordance with the Leakage Agreement) over 180 trading days. Any funds received from the sale of those shares over $3,250,000 (i.e. $1,000,000 over the $2,250,000 target price for the first share payment) will be deducted from the amount to be paid with the second stock payment, for the remaining amount due of $1,900,000 (plus interest). If the former Optimal shareholders sold their shares and received less than the target price of $.25 per share, then the Company was required to issue additional shares to make up the difference (or cash under certain conditions).
The second stock payment is to be issued at a 15% discount to market price at the time of issuance and can be sold into the market by the Optimal Shareholders over a further 180 trading days. On May 28, 2005 the Company entered into a First Amendment to Stock Purchase Agreement whereby the Company was granted up to six months of additional time to have a Registration Statement declared effective. As consideration for this extension, the Company agreed to pay $100,000 per month until the Registration Statement was declared effective, which would be applied to the balance owing which was to be settled with the second stock payment. The Company paid a total of $600,000 to the Optimal Shareholders under this amendment. However, because the Registration Statement was not filed by September 30, 2005, the Company lost the benefit of the reduction in the balance of the second stock payment and of any amounts realized from the sales of the first stock payment over $3,250,000 (the "cap"), which was to reduce the amount to be paid in the second stock payment.
GPSI agreed to use its best efforts to file and cause to have effective a Registration Statement covering the resale of the shares issued. If the Registration Statement was not effective by June 30, 2005, GPSI was obliged to pay cash of $2,250,000 plus interest over eight monthly installments of $250,000 each starting June 1, 2005. In that case, the first stock payment of shares would be returned to GPSI. If the Registration Statement was not effective by September 30, 2005, then GPSI would also pay cash to the Optimal Shareholders (in lieu of a second stock payment) of $1,900,000 plus interest in eight monthly payments of $237,500 commencing on October 1, 2005.
Because the Company did not have the Registration Statement filed by September 30, 2005, it agreed to register the resale of the 9,000,000 shares issued for the first stock payment and an additional 31,000,000 shares to cover the shares issuable for the second stock payment and the additional shares that must be issued to cover decrease in the market price of its common stock which had a closing bid price of $0.065 on December 31, 2005. The SB2 Registration Statement covering these shares was filed by the Company on October 20, 2005 and was declared effective by the SEC on December 7, 2005.
Upon receipt of the first $727,000 of net proceeds from the sale of shares issued to the Optimal Shareholders for the second stock payment, this amount will be forwarded to GPSI's attorney to be held in escrow for a period of 18 months from closing to partially secure the shareholders indemnification obligations to GPSI under the Agreement.
Optimal was primarily engaged in the business of holding patents relating to GPS technology for the golf industry. Optimal held an important U.S. patent no. 5,364,093 which was issued on November 15, 1994 for a Golf Distance Measuring System and Method. They also owned U.S. Patent No. 5,751,244 which was for the Method and Apparatus for Calibration of a GPS Receiver. Optimal had also made a Canadian patent application no 2,134,737 entitled Method and Apparatus for Message Display on a Golf Course. The 093 Patent has been licensed to six companies and currently generates revenue from two of them, namely UpLink Corporation and ProLink/ParView, LLC. totalling $584,326 per annum. A third licensee, ProShot Golf, was estimated to have paid approximately $35,000 per year in license payments, but has claimed that it has met the requirements for a paid-up license and is negotiating with GPSI to not make any further license payments. All license payments that GPSI receives are forwarded to Great White Shark Enterprises until their loan in the amount of $3,000,000, plus interest owing of 10% per annum, is fully repaid (see "Loan From Great White Shark Enterprises, Inc.").
GPSI expects to license the 093 Patent on a non exclusive basis to other GPS based golf system providers. Combined with the differential GPS patents the Company holds in 13 countries outside North America, GPSI believes that it now holds all patents required for it to sell its GPS systems throughout 15 countries. GPSI feels it is in a strong position to enforce these patents against infringers.
Loan From Great White Shark Enterprises
On December 3, 2004, GPSI entered into a Credit Agreement with Great White Shark Enterprises, Inc. ("GWSE") for GWSE to provide a Term Loan of $3,000,000 to GPSI. These funds were received by GPSI as follows: $1,000,000 on November 22, 2004 and the balance of $2,000,000 on December 3, 2004 (less outstanding service fees owed by GPSI to GWSE to December 31, 2004 of $548,750 pursuant to a Merchandising Agreement dated April, 2003). Collateral for the loan was (a) a first priority security interest in (a) all of the shares of the capital stock of Optimal, (b) a second security interest in the Optimal Patents and (c) a first security interest in the Pinranger Patents acquired by GPSI pursuant to an Agreement dated July 2, 2004 between GPSI and Pinranger (Australia) Pty. Ltd. and PagiSat, LLC. The Pinranger Patents are registered in 13 countries in Europe, Japan, and Australia.
The Term Loan may be repaid at any time prior to maturity without premium or penalty, except that the total minimum interest to be paid must be $300,000 irrespective of when the loan is repaid. During the term of the loan, GPSI must pay interest of 10% per annum on a monthly basis in cash or shares. If GWSE chooses to receive shares, the interest rate will be adjusted to 15% for the period selected and the shares will be priced at a 15% discount to market, using the average daily close for the three trading days prior to the end of the monthly period for which interest is due.
Repayment of the principal and interest due under the Credit Agreement has been provided for by GPSI giving to GWSE (commencing December 4, 2004) all license payments GPSI receives under all license agreements between Optimal as licensor and its licensees. Once the Term Loan and accrued interest is paid in full, for a period of two years from the repayment date, GWSE will receive 20% of the license payments and thereafter 40% of the license payments for the remaining life of the Patents. Any fees received in connection with enforcement of the Optimal Patents will also be paid to GWSE in accordance with the above-mentioned formula, except that GPSI must pay all legal costs to enforce the Optimal Patents. Any fees received from infringement payments relating to the Pinranger Patents will be shared on a 50/50 basis (net of legal costs) until the Term Loan and accrued interest are fully repaid, after which GPSI will have no further obligation to GWSE regarding the Pinranger Patents for any revenue they generate, and GWSE will agree to have its security interest in the Pinranger Patents removed by GPSI.
To the extent that, during any calendar year commencing January 1, 2005, the total annual license payments received by GWSE do not total $500,000, then the shortfall must be paid to GWSE in equal monthly payments over the next calendar year, above and beyond the following year's minimum license payment. The maturity date of the Term Loan is November 15, 2011, the termination of the life of one of the key Optimal Patents.
In addition to the above-mentioned interest and security provided for the Term Loan, GWSE also received an equity bonus of 3,000,000 restricted Common Shares of GPSI and a three year Warrant dated December 3, 2004 to purchase 2,000,000 Common Shares of GPSI at an exercise price of $.15.
Change of name and share structure
Effective September 30, 2003, the Company amended its Articles of Incorporation to change its name to GPS Industries Inc., to increase the authorized shares of common stock from 100,000,000 shares to 250,000,000 shares, to authorize 25,000,000 shares of preferred stock, and to eliminate the dual classes of common stock.
Effective April 27, 2005 the Company increased the total number of authorized shares to 550,000,000 of which 500,000,000 were common shares and 50,000,000 were preferred shares with the series, rights, preferences privileges and restrictions to be determined by the Board of Directors of the Company.
Patents
The Company has obtained certain patents and filed for further patents including the following:
1. Hand Held communicator patents issued in the U.S. on Feb. 1, 2000, in Canada on September 29, 2000; and in the United Kingdom on November 30, 1999. 2. Charging base for Electronic Apparatus patent issued in the US on Feb. 1, 2000. 3. Golf course communication system and method patent was applied for in the US on January 29, 2004 and is awaiting office action by the USPTO. GPSI also filed a PCT application in the European Community on January 20, 2005 and it is awaiting a serial number and filing receipt. 4. Endurable Sports PDA with communications capabilities and accessories. This patent was applied for in the US on January 22, 2003 and is pending, awaiting office action of the USPTO. 5. Portable GPS Unit patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 6. Cart mounted GPS Unit patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 7. Mounting bracket patent was applied for in the US on April 1, 2004 and is pending, awaiting office action. 8. Method for conducting a multi-golf course performance contest patent was applied for in the US on May 4, 2004 and is pending, awaiting office action. 9. On July 2, 2004 GPSI acquired Distance Measuring System patents in 13 countries as follows: Australia, Austria, France, Germany, Great Britain, Ireland, Italy, Japan, Netherlands, Portugal, Spain, Sweden, and Switzerland. The patents were acquired from Pinranger (Australia) Pty Ltd. These patents were filed in these countries on December 16, 1992. GPSI has applied to the patent office in each country to have the patents assigned to the Company. The Company is also in the process of registering the security interest of Great White Shark Enterprises in each of these countries. 10. Optimal, which GPSI acquired on November 19, 2004 has been issued patent no. 5,364,093 on November 11, 1994 relating to a Golf Distance Measuring System and Method, and patent no 5,751,244 on May 12, 1998 for a Method and Apparatus for Calibration of a GPS Receiver.
With the Company's own patents, plus those acquired through the acquisition of Optimal and those acquired from Pinranger in 13 countries, GPSI now holds important GPS patent rights in 15 countries, which it considers to be all of the major golf markets in the world. Opportunities exist for GPSI to license infringers of the GPS patents it holds. It has identified 13 such infringers to date and is in the process of communicating with them through its agent to offer a patent license.
Trademarks
The Company has registered trademarks as follows:
1. Informer 2000 Handset Software trademark in the US. 2. Inforetech Clubhouse Computer Software in the US. 3. Inforemer in the European Community. 4. Inforemer in the US. 5. Inforetech in Canada. 6. Inforetech in the European Community. 7. Inforetech in the US.
Other Intellectual Property
The Company also has developed additional proprietary intellectual property. The Company is seeking further patent protection for various proprietary aspects of its products and technologies. However, even if the Company were to be granted all of the patent protection which it seeks, no assurances can be given that Company would be able to prevent other companies from developing substantially similar products. Furthermore, there can be no assurance that the Company's pending patents will be awarded, and litigation may be necessary to protect the Company's patents, and there can be no assurance that the Company will have the financial resources to pursue such litigation. In addition to pursuing patent protection, the Company also relies on various trade secrets for its unpatented proprietary technology. However, trade secrets are difficult to protect, and there can be no assurances that other companies will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets. While the Company has a policy of having its employees and consultants execute non-disclosure agreements regarding confidential information, there can be no assurance that these agreements will be enforceable or will provide meaningful protection for the Company's trade secrets or other proprietary information.
The Market
The target market for GPSI's Inforemer system is the multi billion dollar golf-recreational market, with golf courses being GPSI's target customer. There are approximately 20,000 golf courses in North America and more than 40,000 world-wide. Current market penetration of GPS systems represent approximately 5% of the market, with adoption by golf courses increasing steadily as the product is now being more widely accepted as a business solution, and the products in general become more stable, affordable and user-friendly. GPSI is now also expanding its GPS-based wireless solutions beyond the golf course, to golf course residential communities and golf course resorts, further increasing the size of its market. Due to the flexibility of GPSI's core technology and software, it is able to repurpose and leverage its applications for use in numerous markets which the company is now exploring.
Competition
Competition in the GPS golf market can be segmented into two main categories; low-priced consumer products and high-value GPS-based management business solutions.
While there are an increasing number of GPS golf products on the market, many of these new products and competitors are consumer oriented, utilizing devices such as laser finders, binoculars or personal digital assistants (PDA's). These commodity products are basic in functionality, and do not provide the same level of accuracy or reliability as the business solutions being deployed by golf courses, which utilize more advanced technology, mapping data and infrastructure.
GPSI's direct competition in the GPS golf management system market consists of a limited number of competitors, with two primary ones: UpLink Corporation, in Austin, Texas, and recently merged ProLink/Parview, LLC of Tempe, Arizona. Similar to GPSI, both companies have developed GPS based golf management solutions which provide courses with various applications for improving operations, increasing revenue and as a tool for golfers to utilize while golfing. Uplink and Parview/ProLink are similar in size, with upwards of 200 installations each. Both companies are focused primarily in the North American market, due to their dependence on manufacturer-specific golf carts. Both have also taken a non-exclusive license from Optimal (now owned by GPSI) and make license payments to Optimal for the use of Optimal's GPS patents in the United States. It is estimated that there are approximately 1,000 golf courses in North America with GPS systems installed, constituting a market penetration of approximately 5%. While the North American GPS-golf market is more mature, GPSI is targeting various emerging markets in Europe, Asia, Australia and South Africa where its handheld GPS product is well-suited. There is no major competition or identifiable market leader in these emerging markets; however ProLink/Parview is now selling its system through its agents in Europe and Asia.
