UNITED
      STATES




**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**









**FORM
      10-Q**





(MARK
      ONE)





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





FOR
      THE
      QUARTERLY PERIOD ENDED September 30, 2008





OR





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
      ACT OF 1934





COMMISSION
      FILE NUMBER: 000-30104







**GPS
      INDUSTRIES, INC.**


(Exact
      name of registrant as specified in its charter)





**Nevada**
            
            **88-0350120**(State or other jurisdiction of incorporation organization)
            
            (IRS
                Employer Identification No.)





1358
                Fruitville Road, Suite 210
              Sarasota,
                Florida
            
            34236(Address
                of principal executive offices)
            
            (Zip
                Code)





(941)
      364-8180


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that 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 o .





Indicate
      the number of shares outstanding of each of the registrant's classes of common
      stock, as of the latest practicable date. On November 10, 2008, there were
      542,499,653 shares of common stock issued and outstanding.





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 Act.





Large
      accelerated
      filer             
  Yes o No o


Non-accelerated
      filer                 
Yes o No o


Accelerated
      filer                         
Yes o No o


Smaller
      reporting company        Yes x No o





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


Yes o No x








**GPS
      INDUSTRIES, INC.**


**For
      the period ended September 30, 2008**


**FORM
      10-Q**





**PAGE NO.****PART
                I. FINANCIAL
                INFORMATION**Item
                1.
            
            Consolidated
                Financial Statements (unaudited):
            
            1Consolidated
                Balance Sheets at September 30, 2008 and December 31, 2007
                (audited)
            
            1Consolidated
                Statements of Operations for the nine months ended September 30,
                2008 and
                2007
            
            2Consolidated
                Statements of Operations for the three months ended September 30,
                2008 and
                2007
            
            3Consolidated
                Statements of Cash Flows for the nine months ended September 30,
                2008 and
                2007
            
            4Notes
                to Consolidated Financial Statements
            
            5Item
                2.
            
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            17Item
                3.
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            22Item
                4.
            
            Controls
                and Procedures
            
            22PART
                II. OTHER INFORMATION
            
            24Item
                1.
            
            Legal
                Proceedings
            
            24Item
                1A.
            
            Risk
                Factors
            
            25Item
                2.
            
            Unregistered
                Sales of Equity and Use of Proceeds
            
            31Item
                3.
            
            Defaults
                Upon Senior Securities
            
            31Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            31Item
                5.
            
            Other
                Information
            
            31Item
                6.
            
            Exhibits
            
            32SIGNATURES
            
            33








**PART
      I**





**ITEM
      1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):**





**GPS
        INDUSTRIES INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**





**(000's except per share data and number of shares)**
              
              **September 30, 2008**
              
              **December 31, 2007****(unaudited)**
              
              **(audited)****Assets****Current**Cash
              
              $
              1,500
              
              $
              1,488Accounts
                  receivable, net
              
              
              1,508
              
              
              1,493Inventories
              
              
              3,432
              
              
              3,011Short-term
                  corporate loan
              
              
              50
              
              
              946Prepaid
                  expenses and other current assets
              
              
              990
              
              
              459Total
                  current assets
              
              
              7,480
              
              
              7,397**Property
                  and equipment, net**
              
              
              1,034
              
              
              829**GPS
                  system assets under third party leases with recourse,
                  net**
              
              
              2,521
              
              
              617**Other
                  assets**
              
              
              1,505
              
              
              424**Patents/designs,
                  net plus goodwill**
              
              
              17,543
              
              
              2,723$
              30,083
              
              $
              11,990******Liabilities
                  and Stockholders' Deficit****Current
                  liabilities**Short
                  term debt
              
              $
              4,549
              
              $
              3,379Short
                  term deferred revenue
              
              
              2,903
              
              
              847Accounts
                  payable
              
              
              5,513
              
              
              5,078Accrued
                  liabilities
              
              
              4,684
              
              
              1,948Current
                  maturities of long-term debt
              
              
              112
              
              
              -Total
                  current liabilities
              
              
              17,761
              
              
              11,252Long-term
                  debt, net of current maturities
              
              
              5,109
              
              
              -Convertible
                  promissory note, net of debt discount (unamortized debt discount
                  $913)
              
              
              4,587
              
              
              -Deferred
                  revenue
              
              
              4,931
              
              
              1,252Total
                  liabilities
              
              
              32,388
              
              
              12,504**Stockholders'
                  deficit**Series
                  B Convertible Preferred Shares, $10 par value, 4,000,000authorized,
                  3,244,089 and 3,124,089 issued and outstanding respectively
              
              
              32,441
              
              
              31,241Class
                  A common stock, $.001 par value, 1,600,000,000 authorized542,499,653
                  and 399,203,369 issued and outstanding respectively
              
              
              543
              
              
              399Accumulated
                  other comprehensive income
              
              
              722
              
              
              722Additional
                  paid-in capital
              
              
              78,179
              
              
              70,052Accumulated
                  deficit
              
              
              (
                  114,190
              )
              
              (
                  102,928
              )Total
                  Stockholder's Deficit
              
              
              (
                  2,305
              )
              
              (
                  514
              )$
              30,083
              
              $
              11,990


*See
        accompanying notes to these unaudited consolidated financial
        statements*


1


**GPS
          INDUSTRIES INC. AND SUBSIDIARIES**
 **UNAUDITED
          CONSOLIDATED STATEMENTS OF OPERATIONS**


**For the Nine Months Ended September 30**
                
                **2008**
                
                **2007****(000's except per share data and number of shares) (unaudited)**
                
                ****
                
                **(restated)****Revenue**
                
                $
                12,023
                
                $
                5,357**Cost
                    of goods sold**
                
                
                10,635
                
                
                4,325**Gross
                    profit**
                
                
                1,388
                
                
                1,032**Operating
                    Expenses**Selling,
                    general and administrative expenses
                
                
                8,691
                
                
                5,602Research
                    and development
                
                
                1,373
                
                
                2,863Amortization
                    of intellectual property
                
                
                1,781
                
                
                34711,845
                
                
                8,812**Loss
                    Before Other Income (Expense)**
                
                
                (10,457
                )
                
                (
                    7,780
                )**Other
                    Income (Expense)**Finance
                    costs
                
                
                (
                    107
                )
                
                (
                    79
                )Interest
                    expense
                
                
                (
                    1,020
                )
                
                (
                    443
                )Gain/(Loss)
                    on foreign exchange
                
                
                291
                
                
                (
                    416
                )Gain/(Loss)
                    on extinguishment of debt
                
                
                31
                
                
                (
                    31
                )(
                    805
                )
                
                (
                    969
                )**Net
                    Loss Before Deemed Preferred Stock Dividend**
                
                $
                (
                    11,262
                )
                $
                (
                    8,749
                )Deemed
                    preferred stock dividend
                
                
                -
                
                
                (
                  12,500
                )**Net
                    Loss**
                
                $
                (
                    11,262
                )
                $
                (
                    21,249
                )**Loss
                    per common share - basic and diluted**$
                (
                    0.02
                )
                $
                (
                    0.06
                )**Weighted
                    average number of common shares outstanding -****basic
                    and diluted**
                
                
                536,539,418
                
                
                380,861,837




See
        accompanying notes to these unaudited consolidated financial
        statements


2


**GPS
        INDUSTRIES INC. AND SUBSIDIARIES**
 **UNAUDITED
        CONSOLIDATED STATEMENTS OF OPERATIONS**





**For the Three Months Ended September 30**
            
            **2008**
            
            **2007****(000's except per share data and number of shares) (unaudited)**
            
            
            
            **(restated)****Revenue**
            
            $
            4,793
            
            $
            1,050**Cost
                of goods sold**
            
            
            5,069
            
            
            892**Gross
                (loss) profit**
            
            
            (
                276
            )
            
            158**Operating
                Expenses**Selling,
                general and administrative expenses
            
            
            2,736
            
            
            1,689Research
                and development
            
            
            396
            
            
            1,353Amortization
                of intellectual property
            
            
            630
            
            
            1513,762
            
            
            3,193**Loss
                Before Other Income (Expense)**
            
            
            (
                4,038
            )
            
            (
                3,035
            )**Other
                Income (Expense)**Finance
                costs
            
            
            (
                56
            )
            
            (
                29
            )Interest
                expense
            
            
            (
                502
            )
            
            (
                129
            )Gain/(Loss)
                on foreign exchange
            
            
            150
            
            
            (
                427
            )Gain
                on extinguishment of debt
            
            
            -
            
            
            128(
                408
            )
            
            (
                457
            )**Net
                Loss**
            
            $
            (
                4,446
            )
            $
            (
                3,492
            )**Loss
                per common share - basic and diluted**$
            (
                0.01
            )
            $
            (
                0.01
            )**Weighted
                average number of common shares outstanding -****basic
                and diluted**
            
            
            542,061,455
            
            
            395,532,349




*See
      accompanying notes to these unaudited consolidated financial
      statements*


3


**GPS
        INDUSTRIES INC. AND SUBSIDIARIES**
 **UNAUDITED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**


**For the Nine Months Ended September 30**
              
              **2008**
              
              **2007****(000's except per share data and number of shares) (unaudited)**
              
              
              
              **(restated)****Cash
                  Flow From Operating Activities**Net
                  loss from operations
              
              $
              (
                  11,262
              )
              $
              (
                  8,749
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activities:Depreciation
                  and amortization
              
              
              3,022
              
              
              347Amortization
                  of deferred compensation
              
              
              -
              
              
              169(Gain)/Loss
                  on extinguishment of debt
              
              
              (
                  31
              )
              
              377Expenses
                  paid by issuance of stock
              
              
              41
              
              
              128Expenses
                  paid by issuance of stock options
              
              
              -
              
              
              65Stock
                  based compensation
              
              
              68
              
              
              -Interest
                  converted to stock
              
              
              -
              
              
              43Writedown
                  of inventory
              
              
              1,266
              
              
              -Unrealized
                  foreign exchange gains
              
              
              (
                  292
              )
              
              -Amortization
                  of convertible debt discount
              
              
              97
              
              
              -Amortization
                  of finance costs
              
              
              -
              
              
              5Changes
                  in operating assets and liabilities:Inventories
              
              
              (
                  898
              )
              
              (
                  2,158
              )Accounts
                  receivable
              
              
              12
              
              
              (
                  533
              )Prepaid
                  expenses and deposits
              
              
              (
                  505
              )
              
              (
                  5
              )Other
                  assets
              
              
              (
                  220
              )
              
              (
                  364
              )Accounts
                  payable and accrued liabilities
              
              
              58
              
              
              2,683Discontinued
                  operations - accounts payable and accrued liabilities
              
              
              -
              
              
              (
                  309
              )Deferred
                  revenue
              
              
              246
              
              
              1,737**Net
                  Cash Used In Operating Activities**
              
              
              (
                  8,398
              )
              
              (
                  6,564
              )**Cash
                  Flow From Investing Activities**Purchase
                  of property and equipment
              
              
              (
                  434
              )
              
              (
                  1,330
              )Investment
                  in Optimal Golf Solutions Inc.
              
              
              -
              
              
              (
                  807
              )Issued
                  short-term corporate loan
              
              
              (
                  50
              )
              
              (
                  885
              )Investment
                  in patents
              
              
              -
              
              
              (
                  45
              )**Net
                  Cash Flow Used In Investing Activities**
              
              
              (
                  484
              )
              
              (
                  3,067
              )Changes
                  in non-cash working capital related to investing
                  activities
              
              
              (
                  997
              )
              
              -(
                  1,481
              )
              
              (
                  3,067
              )**Cash
                  Flow From Financing Activities**Preferred
                  Stock issued for cash (Net of costs)
              
              
              -
              
              
              11,169Preferred
                  Stock issued for debt
              
              
              -
              
              
              1,000Subscription
                  receivable - Preferred Stock
              
              
              -
              
              
              (
                  4,000
              )Proceeds
                  (payments) - short term loans
              
              
              (
                  609
              )
              
              -Proceeds
                  (payments) - convertible promissory loan
              
              
              5,500
              
              
              -Proceeds
                  (payments) - long term loans
              
              
              5,000
              
              
              (
                  1,727
              )**Net
                  Cash Flow Provided By Financing Activities**
              
              
              9,891
              
              
              6,442Changes
                  in non-cash working capital related to financing
                  activities
              
              
              -
              
              
              1,0009,891
              
              
              7,442**Net
                  Increase/(Decrease) In Cash**
              
              
              12
              
              
              (
                  2,189
              )**Cash,
                  Beginning Of Period**
              
              
              1,488
              
              
              2,196**Cash,
                  End Of Period**
              
              $
              1,500
              
              $
              7**Supplemental
                  disclosure of cash flow information:**Cash
                  paid for interest
              
              $
              425
              
              $
              443Cash
                  paid for taxes
              
              $
              -
              
              $
              22**Non-Cash
                  Investing And Financing Activities**Common
                  stock issued on conversion of convertible notes
              
              $
              -
              
              $
              -Common
                  stock issued to settle debt
              
              $
              -
              
              $
              715Common
                  stock issued in settlement of accounts payable
              
              $
              24
              
              $
              265Deemed
                  dividends on issuance of preferred stock
              
              $
              -
              
              $
              12,500Common
                  stock issued for investments
              
              $
              8,034
              
              $
              2,658Preferred
                  stock issued for investment
              
              $
              1,200
              
              $
              -




*See
        accompanying notes to these unaudited consolidated financial
        statements*
  4




**GPS
      Industries, Inc.**





Notes
      to
      Consolidated Financial Statements




Nine
      months ended September 30, 2008 and 2007




(Amounts
      in thousands of dollars, except per share data)




(Unaudited)




**1.
      Organization and Basis of Presentation**




Basis
      of
      Presentation - The consolidated financial statements include the operations
      of
      GPS Industries, Inc. and its wholly-owned subsidiaries (collectively, the
      "Company"). All significant intercompany transactions and balances have been
      eliminated in consolidation.




The
      interim consolidated financial statements are unaudited, but in the opinion
      of
      management of the Company, contain all adjustments, which include normal
      recurring adjustments, necessary to present fairly the financial position of
      the
      Company at September 30, 2008 and December 31, 2007, the results of operations
      for the three and nine months ended September 30, 2008 and 2007, and the cash
      flows for the nine months ended September 30, 2008 and 2007. The results of
      operations for the three and nine months ended September 30, 2008 are not
      necessarily indicative of the results of operations to be expected for the
      full
      fiscal year ending December 31, 2008.




Certain
      information and footnote disclosures normally included in financial statements
      that have been presented in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and regulations
      of the Securities and Exchange Commission with respect to interim financial
      statements, although management of the Company believes that the financial
      statements provide a fair presentation of the periods presented . For further
      information, refer to the consolidated financial statements and notes thereto
      included in the Company's Annual Report on Form 10-KSB for the fiscal year
      ended
      December 31, 2007, as filed with the Securities and Exchange
      Commission.




Business
       - GPS Industries, Inc. (GPSI or the Company) is a global technology
      solutions provider with customizable, patent-protected applications in GPS
      and
      Wi-Fi software and hardware for use with golf course operations and residential
      community developments. With the development of the Inforemer HDX largely
      complete, GPSI is transitioning away from a research and development focus;
      however, GPSI will continue to dedicate resources to new opportunities where
      market potential and economics justify investment. GPSI’s primary business is
      the development, manufacture and sale of the Inforemer HDX mobile display units
      (“MDU”) in both cart mounted and hand held product lines along with the related
      infrastructure.   In late 2007, GPSI reorganized its various product
      offerings and divisions to more accurately reflect how GPSI manages its internal
      operations whereby Inforemedia, Wi Stream and Fire at the Flag are peripheral
      to
      the core Inforemer product and hence the management of these divisions have
      been
      integrated into its core Inforemer business. GPSI has offices in the United
      States, Canada and United Kingdom in order to focus on the geographic markets
      including North America, Europe and the Middle East with exclusive distributor
      arrangements covering Asia, South Africa, Australia and New
      Zealand. Business activities are divided between its Vancouver, Canada,
      Austin, Texas and Sarasota, Florida offices.




GPS
      Industries, Inc. was originally incorporated as Diversified Marketing Services
      Ltd. in 1996, subsequently changed its name to Inforetech Wireless Technology
      Inc. in 1999 and then to GPS Industries, Inc in 2004. GPSI common stock was
      first publicly traded on the OTC Bulletin Board in January 2000 as Inforetech
      Wireless Technology and is currently trading on the OTC Bulletin Board under
      the
      symbol "GPSN."


5




In
      October 2007, GPSI acquired 100% of the outstanding capital stock of Direct
      Golf
      Services Inc. and Golf Academies Ltd., now operating as GPSI Europe and owns
      17.5% of GPSI Asia, its Asian distributor.




On
      January 18, 2008, GPSI’s wholly owned subsidiary, GPS IT, LLC, acquired the
      assets and assumed certain liabilities of UpLink Corporation.




Restatement
      of 2007 Quarterly Comparative Consolidated Financial Statements
      (Unaudited)





As
      a
      result of an in-depth review of certain sales and installation agreements and
      course installations that occurred in the first three quarters of 2007, the
      Company determined that it had incorrectly accounted for the related revenues;
      cost of goods sold, course assets, accrued liabilities and deferred revenues.
      Therefore, the Company’s management, its Audit Committee and its Board of
      Directors determined that, the Company’s financial statements for the quarters
      ended March 31, 2007, June 30, 2007 and September 30, 2007 initially filed
      with
      the Securities and Exchange Commission (the SEC) on May 21, 2007, August 14,
      2007 and November 19, 2007 should no longer be relied upon. The Company’s
      financial statements presented in this report for both the three and nine months
      ended September 30, 2007 reflects these restatements.




The
      following tables present selected consolidated statement of operations
      information for the three and nine months ended September 30, 2007 as previously
      reported and as restated ($000s, except per share data)
      (unaudited):





Three Months
              Ended
            
            Nine Months
              EndedPeriod Ended September 30, 2007
            
            30-Sep
            
            30-SepReported
            
            ReportedTotal
                revenue
            
            $
            989
            
            $
            6,914Total
                cost of goods sold
            
            
            875
            
            
            5,169Gross
                margin
            
            $
            114
            
            $
            1,745Operating
                expense
            
            
            3,186
            
            
            8,827Loss
                from operations
            
            $
            (3,072
            )
            $
            (7,082
            )Net
                loss
            
            
            (3,529
            )
            
            (20,551
            )Basic
                and diluted loss per share
            
            $
            (0.01
            )
            $
            (0.05
            )




Three Months
              Ended
            
            Nine Months
              EndedPeriod Ended September 30, 2007
            
            30-Sep
            
            30-SepAdjustments [1]
            
            Adjustments [2]Total revenue
            
            $
            61
            
            $
            (1,557
            )Total
                cost of goods sold
            
            
            17
            
            
            (844
            )Gross
                margin (loss)
            
            $
            44
            
            $
            (713
            )Operating
                expense
            
            
            7
            
            
            (15
            )Income
                (loss) from operations
            
            $
            37
            
            $
            (698
            )Net
                income (loss)
            
            
            37
            
            
            (698
            )Basic
                and diluted loss per share
            
            $
            -
            
            $
            -




Three Months
              Ended
            
            Nine Months
              EndedPeriod Ended September 30, 2007
            
            30-Sep
            
            30-SepRestated
            
            RestatedTotal
                revenue
            
            $
            1,050
            
            $
            5,357Total
                cost of goods sold
            
            
            892
            
            
            4,325Gross
                margin
            
            $
            158
            
            $
            1,032Operating
                expense
            
            
            3,193
            
            
            8,812Loss
                from operations
            
            $
            (3,035
            )
            $
            (7,780
            )Net
                loss
            
            
            (3,492
            )
            
            (21,249
            )Basic
                and diluted loss per share
            
            $
            (0.01
            )
            $
            (0.06
            )


6





[1]
      The
      primary basis for the corrections during the three and nine months ended
      September 30, 2008 is to reverse revenue and cost of sales previously recognized
      during the quarter for system sales whereby GPSI has guaranteed the differential
      between the customers lease payments to its financier and the amount the
      customer receives from golf courses under rental contracts. Cost of sales for
      these sales have been set-up on the Company’s balance sheet as assets and are
      being amortized over the life of the golf courses rental contracts. Proceeds
      received on these sales have been set-up as deferred revenue on the Company’s
      balance sheet and are being recognized as revenue as the golf courses make
      their
      rental payments.





[2]
      Other
      adjustments, in addition to corrections for the three and nine months ended
      September 30, 2008, were to recognize a further performance obligation whereby
      GPSI had sold the HDX Inforemer System to the customer but was unable to deliver
      and instead provided the HD Inforemer system. This created a further obligation
      to deliver the HDX when available. Additionally, the Company failed to recognize
      expense for 1st year warranty and service costs on sales during the
      period.





**2.
      Acquisitions**





UpLink
      operations, assets and certain assumed liabilities





Effective
      January 18, 2008, the Company acquired the operations, assets and certain
      assumed liabilities of UpLink Corporation (UpLink), a Texas corporation that
      produces and sells global positioning satellite distance measuring systems,
      associated software, software development and service and maintenance contracts
      to golf course owners and operators. In particular, the acquisition enhanced
      the
      GPSI patent portfolio through the addition of UpLink’s patents for
      position-based advertising on a golf course, “IQ Link” cart control and
      monitoring technology and added over 200 customers to GPSI’s customer base. For
      these factors, the Company purchased the UpLink business at a premium over
      the
      fair value of the net assets acquired.





In
      consideration for the net assets acquired, GPSI paid $11.837 million including
      Notes Payable of $1.521 million, 142.100 million Common Shares valued at $7.814
      million, 120 thousand Series B Preferred Shares with a par value of $1.200
      million and 4.918 million common stock warrants at an exercise price of $0.122
      per share valued at $219 thousand. The Company incurred transaction costs of
      $1.083 million including the elimination of inter-company loans to UpLink.
      The
      shares of common stock issued were valued at the average market price of GPSI
      common shares ($0.055) for the 2 trading days before and after the announcement
      of closing of the acquisition on January 18, 2008.





Upon
      closing the common shares issued were held in escrow as security of
      representations and warranties. The Company retains the option to re-purchase
      up
      to 59.7 million common shares at a fixed price of $0.12 per share. If GPSI
      does
      not exercise its right to repurchase approximately 30 million of the shares
      after the first anniversary of the acquisition, then all of the shares in escrow
      will be released. If the Company, exercises its repurchase rights at the first
      anniversary, then 112.3 million shares will be released from escrow at that
      time
      with the remaining shares being released upon the second
      anniversary.





As
      a
      result of the acquisition, UpLink’s results of operations have been included in
      the Company’s Consolidated Financial Statements from the date of acquisition.
      The business combination was accounted for under Financial Accounting Standard
      Board (FASB) Statement No. 141, “Business Combinations.” The application of
      purchase accounting under Statement No. 141 requires the total purchase price
      be
      allocated to the fair value of the assets acquired and liabilities assumed
      based
      on their fair values at the acquisition date, with amounts exceeding fair value
      being recorded as goodwill. The Company is currently in the process of assessing
      and finalizing the fair values of the assets acquired and liabilities assumed
      but the following table summarizes the Company’s best estimate of the purchase
      accounting at this time; however, due to the inherent difficulty in assessing
      the fair value of patents, trademarks and other intangibles acquired, the
      Company was not able to allocate to those items at this time.


7





Amount($000's)(unaudited)Assets
                AcquiredCash
            
            $
            21Accounts
                receivable
            
            
            30Inventory
            
            
            789Prepaid
                expenses
            
            
            25Fixed
                assets
            
            
            254GPS
                system assets under third party leases with recourse, net
            
            
            3,096Deposits/other
                assets
            
            
            861Patents/designs,
                plus goodwill
            
            
            16,164Total
                assets acquired
            
            $
            21,240Liabilities
                assumedAccounts
                payable
            
            $
            1,881Accrued
                liabilities
            
            
            1,521Deferred
                revenue
            
            
            267Long-term
                debt
            
            
            478Long-term
                deferred revenue
            
            
            5,256Total
                liabilities assumed
            
            $
            9,403Net
                assets acquired
            
            $
            11,837Funded
                by:Restricted
                shares issued
            
            $
            7,814Series
                B shares issued
            
            
            1,200Common
                stock warrants issued
            
            
            219Secured
                promissory notes issued
            
            
            1,521Intercompany
                loans extinguished
            
            
            1,083$
            11,837





The
      following pro forma condensed combined Statements of Income and notes thereto,
      assume the Acquisition occurred at the beginning of the periods presented except
      for the application of FASB Statement 141. These condensed financial statements
      should be read in conjunction with the consolidated financial statements of
      GPSI
      for the 12 months ended December 31, 2007.





The
      following pro forma financial information is presented for illustrative purposes
      only and is not necessarily indicative of:





i.
            The
                results of operations that would have occurred had the acquisition
                taken
                place on the dates indicated or,ii.
            The
                future operations of the combined
                business.





The
      following information should be relied on only for the limited purpose of
      presenting what the financial results of operations of the combined businesses
      might have looked like had the Acquisition taken place at an earlier
      date.


8


**For the nine month period ended September
                  30, 2007,**
              
              **GPSI**
              
              **UpLin** **k**
              
              **Adjustments**
              
              **Proforma**
                **Combined****(000's except per share data and number of shares) (unaudited)**
              
              **(restated)****Revenue**
              
              $
              5,357
              
              $
              9,035
              
              $
              (215
              )(a)
              $
              14,177**Cost
                  of goods sold**
              
              
              4,325
              
              
              5,954
              
              
              (128
              )(a)
              
              10,151**Gross
                  profit**
              
              $
              1,032
              
              $
              3,081
              
              $
              (87
              )
              $
              4,026**Operating
                  Expense**Selling,
                  general and administrative
              
              
              5,602
              
              
              3,619
              
              
              -
              
              
              9,221Research
                  and development
              
              
              2,863
              
              
              868
              
              
              -
              
              
              3,731Amortization
                  of intellectual property
              
              
              347
              
              
              562
              
              
              1,224
              (b)
              
              2,133$
              8,812
              
              $
              5,049
              
              $
              1,224
              
              $
              15,085**Loss
                  Before Other Income (Expense)**
              
              
              (7,780
              )
              
              (1,968
              )
              
              (1,311
              )
              
              (11,059
              )Other
                  Income (Expense)
              
              
              (969
              )
              
              (352
              )
              
              53
              (a)
              
              (1,268
              )**Net
                  Loss Before Deemed Preferred Stock Dividend**
              
              $
              (8,749
              )
              $
              (2,320
              )
              $
              (1,258
              )
              $
              (12,327
              )Deemed
                  preferred stock dividend
              
              
              12,500
              
              
              -
              
              
              -
              
              
              12,500**Net
                  Loss**
              
              $
              (21,249
              )
              $
              (2,320
              )
              $
              (1,258
              )
              $
              (24,827
              )**Net
                  loss per common share, basic and diluted**
              
              $
              (0.06
              )
              
              
              
              $
              (0.01
              )
              $
              (0.05
              )**Weighted
                  average common shares outstanding, basic and
                  diluted**
              
              
              380,861,837
              
              
              
              
              
              142,083,334
              (c)
              
              522,945,171


(a)
            Elimination
                of inter-company revenues and expenses related to the settlement
                and
                acquisition of Patent Licenses by UpLink Corporation from
                GPSI





(b)
            Amortization
                of the estimated amount of value ascribed to intangible assets and
                patents. For this purpose, it was assumed that approximately $8.150
                million would be allocated under FASB Statement 141 to such assets.
                It was
                further estimated that the useful life of these acquired assets would
                approximate 5 years. As such, for the purpose of the pro forma
                presentation, we estimated amortization expense of $1.224 million
                for the
                nine month period ended September 30,
                2007.





(c)
            Adjustment
                to reflect shares issued on acquisition for the period presented
                as if
                acquisition happened at the beginning of
                period.


9




**3.
      Going Concern**




Going
      Concern - The consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern, which contemplates the realization
      of assets and the satisfaction of liabilities in the normal course of business.
      The carrying amounts of assets and liabilities presented in the consolidated
      financial statements do not purport to represent the realizable or settlement
      values. The Company has incurred significant losses and had a working capital
      deficit at September 30, 2008 and December 31, 2007. The continued
      commercialization of the Company's technology is dependent on the Company's
      ability to successfully finance its working capital requirements through a
      combination of debt and equity financings, sales of its GPS systems and payments
      from distributors and potential strategic partners. The Company's independent
      registered certified public accountants, in their independent auditors' report
      on the consolidated financial statements as of and for the year ended December
      31, 2007, have expressed substantial doubt about the Company's ability to
      continue as a going concern.




The
      Company’s operations currently do not generate sufficient cash to internally
      fund its working capital needs. Accordingly, to date, its operating deficits
      have been funded by outside sources of funding, including funds raised from
      (i)
      the sale of shares of its common stock and preferred stock, (ii) the issuance
      of
      debentures, (iii) the issuance of shares as payment for services and in
      satisfaction of indebtedness, (iv) bank lines of credit, (v) short-term
      loans, and (vi) the issuance of non-negotiable convertible promissory
      notes made pursuant to loans by the Company’s affiliates and by third
      parties. For at least the next twelve months, the Company anticipates that
      such
      funding activities must continue in order for the Company to maintain its
      operations.




Two
      of
      the Company’s investors provided additional funding during the nine months ended
      September 30, 2008. Leisurecorp LLC, a major stockholder of the Company that
      has
      the ability to exercise significant influence over the Company, advanced the
      Company $477 thousand on April 10, 2008 and $477 thousand on August 19, 2008
      against a contract between the two parties whereby the Company will design,
      supply, deliver and install a Wi-Fi network and GPS management system for a
      golf
      estates project in Dubai. These funds were advanced so the Company could meet
      its immediate working capital requirements. In addition, on May 2, 2008, GPSI
      and Silicon Valley Bank (SVB) entered into an amendment to a Loan and Security
      Agreement (Loan Agreement) dated February 28, 2008 pursuant to which SVB
      agreed to make available to the Company advances under a revolving line of
      credit up to $6.5 million, an increase of $3.5 million from the existing Loan
      Agreement. The increased obligations of the Company under the Loan Agreement
      are
      secured pursuant to a pledge by Great White Shark Enterprises LLC, a
      stockholder, of cash collateral in the form of certificates of deposit placed
      on
      deposit at SVB. At September 30, 2008 the Company had drawn the full amount
      of
      the $3.5 million increase. Subsequently in November 2008, the Company completed
      a transaction which has provided an increase in working capital of $2.337
      million as the result of the conversion of certain current obligations into
      long
      term debt  (See Note 8, Subsequent Events).





The
      Company’s working capital position temporarily improved during the nine months
      ended September 30, 2008 as the Company, on June 16, 2008, entered into an
      agreement with Tulip Group Investments Limited where Tulip loaned to the Company
      $5.5 million pursuant to a Non-negotiable Convertible Promissory Note. The
      Tulip
      Agreement and the Note have an effective date of June 12, 2008. The Note bears
      interest on a non-compounded basis at the rate of 7%. The principal amount
      and
      accrued unpaid interest is payable on June 12, 2011 (the Maturity Date). The
      Note is secured by a lien on the assets of the Company which lien is subordinate
      to the lien of Silicon Valley Bank and certain other secured creditors but
      on
      parity with the lien in favor of Great White Shark Enterprises LLC, the Estate
      of Douglas Wood and Hansen, Inc. At any time prior to the Maturity Date, Tulip
      has the right to convert all or a portion of the Loan into shares of a newly
      created Series C Preferred Stock (the Series C Preferred Stock) at a conversion
      price of $10.00 per share and shares of Common Stock at a conversion rate of
      $0.031 per share (subject to adjustment as provided in the Note). The Series
      C
      Preferred Stock has a liquidation preference of $10.00 per share and will
      participate on a parity basis with the holders of the Series B Preferred Stock
      with respect to liquidation. Upon conversion, the holders of the Series C
      Preferred Stock have limited and specified voting rights and a conditional
      right
      to elect one director. Upon conversion of the Loan, the Company will issue
      to
      Tulip a warrant granting Tulip the right to purchase up to 22,540,983 shares
      of
      Common Stock at a price of $0.122 per share.





The
      Company’s ability to repay its accounts payable and other outstanding
      indebtedness and the Company’s ability to maintain sufficient liquidity to
      continue its operations is significantly dependent upon its ability to generate
      sufficient sales in the fourth quarter of 2008 and first quarter of 2009 and
      beyond further supplemented by the Company’s ability to attract additional
      investment. The Company continues to work with its existing investors to obtain
      further debt or equity funding that will provide longer term
      liquidity.




**4.
      Summary of Significant Accounting Policies**





The
      accompanying consolidated financial statements have been prepared in accordance
      with U.S. generally accepted accounting principles and include the accounts
      of
      the Company and its consolidated subsidiaries. In the opinion of management,
      the
      accompanying unaudited consolidated financial statements contain all adjustments
      necessary to present fairly the consolidated financial position of the Company
      and its consolidated results of operations and cash flows. These interim
      consolidated financial statements and notes should be read in conjunction with
      the financial statements and accompanying notes included in the Company’s Annual
      Report on Form 10-KSB for the year ended December 31, 2007.


10




Revenue
      Recognition - The Company recognizes revenue only when persuasive evidence
      of an
      arrangement exists, delivery has occurred, the sales price is fixed or
      determinable, and collectability is probable. When other significant obligations
      remain after products are delivered, associated revenue is recognized only
      after
      such obligations are fulfilled.





System
      sales are derived from the sales of the Company’s product lines directly to
      end-user customers and third-party equipment lessors. Recurring revenues consist
      of (i) transactions which are recognized ratably over the end-user contract
      term
      from equipment sales to third parties that have a recourse component to the
      Company (as described below), (ii) revenues realized from the rental of Company
      owned equipment through either fixed rental payments or actual usage (iii)
      advertising revenues and (iv) service revenues. Major projects revenues consist
      of transactions involving long-term contracts. The Company recognizes revenue
      on
      long-term contracts using the percentage of completion method and measures
      the
      extent of work accomplished by performance of critical project
      milestones.





Rental
      income arises from the leasing of the Company’s golf equipment to customers.
      Lease terms are generally 60 months and are operating leases. Depreciation
      expense for assets subject to these operating leases is provided primarily
      on
      the straight-line method over the term of the lease in amounts necessary to
      reduce the carrying amount to its estimated residual value.




For
      certain long-term equipment lease contracts, the Company utilizes third-party
      financing entities to which the Company sells the equipment for a purchase
      price. The Company evaluates the rights of the financing entity in these
      transactions to determine the proper revenue recognition treatment. For
      instances where the Company has guaranteed the lease rental payments in the
      event of customer default, revenue is recognized ratably over the contract
      term.




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





Foreign
      Currency Translation - Assets and liabilities of subsidiaries operating in
      foreign countries are translated into U.S. dollars using the exchange rate
      in
      effect at the balance sheet date or historical rate, as applicable. Results
      of
      operations are translated using the average exchange rates prevailing throughout
      the year. Both the effects of exchange rate fluctuations on translating foreign
      currency assets and liabilities into U.S. dollars and gains and losses resulting
      from foreign currency transactions are included in operations.




Cash
      and
      cash equivalents - Cash and cash equivalents include all highly liquid
      investments with maturities of three months or less when purchased.





Concentration
      of Credit Risks - The Company is subject to concentrations of credit risk
      primarily from cash and cash equivalents.   The Company's cash and cash
      equivalents accounts are held at financial institutions and are insured by
      the
      Federal Deposit Insurance Corporation ("FDIC") up to $100,000. During the period
      ended September 30, 2008, the Company has reached bank balances exceeding the
      FDIC insurance limit. To reduce its risk associated with the failure of such
      financial institutions, the Company’s accounts are held at financial
      institutions with the highest credit ratings.





Net
      Loss
      Per Common Share - Basic loss per common share is calculated by dividing net
      loss by the weighted average number of common shares outstanding during the
      period. Diluted loss per common share reflects the potential dilution that
      would
      occur if dilutive stock options and warrants were exercised. These potentially
      dilutive securities were not included in the calculation of loss per share
      for
      the periods presented because the Company incurred a loss during such periods
      and thus their effect would have been anti-dilutive. Accordingly, basic and
      diluted loss per common share is the same for all periods
      presented.





Stock-Based
      Compensation - The Company periodically issues shares of common stock for
      services rendered or for financing costs. Such shares are valued based on the
      market price on the transaction date.





The
      Company periodically issues stock options and warrants to employees and
      non-employees in non-capital raising transactions for services and for financing
      costs.


11




The
      Company expenses stock options and warrants under the provisions of Statement
      of
      Financial Accounting Standards (SFAS) No. 123(R), "Share-Based Payment" (SFAS
      123(R)). Stock-based compensation represents the cost related to stock-based
      awards granted to employees and others. The Company measures stock-based
      compensation cost at grant date, based on the estimated fair value of the award,
      and recognizes the cost as expense on a straight-line basis (net of estimated
      forfeitures) over the requisite service period. The Company estimates the fair
      value of stock options using a Black-Scholes valuation model. The expense is
      recorded in the Consolidated Statements of Operations.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options that have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price
      volatility.




Income
      Taxes **-** The
      Company records a valuation allowance to reduce its deferred tax assets arising
      from net operating loss carry forwards to the amount that is more likely than
      not to be realized. In the event the Company was to determine that it would
      be
      able to realize its deferred tax assets in the future in excess of its recorded
      amount, an adjustment to the deferred tax assets would be credited to operations
      in the period such determination was made. Likewise, should the Company
      determine that it would not be able to realize all or part of its deferred
      tax
      assets in the future, an adjustment to the deferred tax assets would be charged
      to operations in the period such determination was made.




Reclassifications
      - Certain reclassifications of items in the prior period's financial statements
      have been made to conform to the current year's presentation.




**Recent
      Accounting Pronouncements**




In
      May
      2008, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
      Accepted Accounting Principles.” The new standard is intended to improve
      financial reporting by identifying a consistent framework, or hierarchy, for
      selecting accounting principles to be used in preparing financial statements
      that are presented in conformity with U.S. generally accepted accounting
      principles (GAAP) for non-governmental entities. The Company is currently
      evaluating the effects, if any, that SFAS No. 162 may have on its financial
      reporting.





In
      March
      2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
      No. 161, Disclosures about Derivative Instruments and Hedging Activities,
      an amendment of FASB Statement No. 133, which requires additional
      disclosures about the objectives of the derivative instruments and hedging
      activities, the method of accounting for such instruments under SFAS
      No. 133 and its related interpretations, and a tabular disclosure of the
      effects of such instruments and related hedged items on our financial position,
      financial performance, and cash flows. SFAS No. 161 is effective for the
      Company beginning January 1, 2009. Management believes that, for the
      foreseeable future, this Statement will have no impact on the financial
      statements of the Company once adopted.





In
      December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business
      Combinations. This Statement replaces FASB Statement No. 141, Business
      Combinations. This Statement retains the fundamental requirements in
      Statement 141 that the acquisition method of accounting (which Statement
      141 called the purchase method) be used for all business combinations and for
      an
      acquirer to be identified for each business combination. This Statement defines
      the acquirer as the entity that obtains control of one or more businesses in
      the
      business combination and establishes the acquisition date as the date that
      the
      acquirer achieves control. This Statement’s scope is broader than that of
      Statement 141, which applied only to business combinations in which control
      was
      obtained by transferring consideration. By applying the same method of
      accounting—the acquisition method—to all transactions and other events in which
      one entity obtains control over one or more other businesses, this Statement
      improves the comparability of the information about business combinations
      provided in financial reports. This Statement requires an acquirer to recognize
      the assets acquired, the liabilities assumed, and any non-controlling interest
      in the acquiree at the acquisition date, measured at their fair values as of
      that date, with limited exceptions specified in the Statement. That replaces
      Statement 141’s cost-allocation process, which required the cost of an
      acquisition to be allocated to the individual assets acquired and liabilities
      assumed based on their estimated fair values. This Statement applies to all
      transactions or other events in which an entity (the acquirer) obtains control
      of one or more businesses (the acquirer), including those sometimes referred
      to
      as “true mergers” or “mergers of equals” and combinations achieved without the
      transfer of consideration, for example, by contract alone or through the lapse
      of minority veto rights. This Statement applies to all business entities,
      including mutual entities that previously used the pooling-of-interests method
      of accounting for some business combinations. It does not apply to: (a) The
      formation of a joint venture, (b) The acquisition of an asset or a group of
      assets that does not constitute a business, (c) A combination between entities
      or businesses under common control, (d) A combination between not-for-profit
      organizations or the acquisition of a for-profit business by a not-for-profit
      organization. This Statement applies prospectively to 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, 2008. An entity may not
      apply it before that date. We are currently evaluating the potential impact
      of
      Statement 141 (revised 2007) on our financial statements.


12




In
      December 2007, the FASB issued FASB Statement No. 160 - Noncontrolling Interests
      in Consolidated Financial Statements - an amendment of ARB No. 51. This
      Statement applies to all entities that prepare consolidated financial
      statements, except not-for-profit organizations, but will affect only those
      entities that have an outstanding noncontrolling interest in one or more
      subsidiaries or that deconsolidate a subsidiary. This Statement amends ARB
      51 to
      establish accounting and reporting standards for the noncontrolling interest
      in
      a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
      a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. Before this Statement was issued, limited guidance existed
      for reporting noncontrolling interests. As a result, considerable diversity
      in
      practice existed. So-called minority interests were reported in the consolidated
      statement of financial position as liabilities or in the mezzanine section
      between liabilities and equity. This Statement improves comparability by
      eliminating that diversity. A noncontrolling interest, sometimes called a
      minority interest, is the portion of equity in a subsidiary not attributable,
      directly or indirectly, to a parent. The objective of this Statement is to
      improve the relevance, comparability, and transparency of the financial
      information that a reporting entity provides in its consolidated financial
      statements by establishing accounting and reporting standards that require:
      (a)
      The ownership interests in subsidiaries held by parties other than the parent
      be
      clearly identified, labeled, and presented in the consolidated statement of
      financial position within equity, but separate from the parent’s equity, (b) The
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest be clearly identified and presented on the face of
      the
      consolidated statement of income, (c) Changes in a parent’s ownership interest
      while the parent retains its controlling financial interest in its subsidiary
      be
      accounted for consistently. A parent’s ownership interest in a subsidiary
      changes if the parent purchases additional ownership interests in its subsidiary
      or if the parent sells some of its ownership interests in its subsidiary. It
      also changes if the subsidiary reacquires some of its ownership interests or
      the
      subsidiary issues additional ownership interests. All of those transactions
      are
      economically similar, and this Statement requires that they be accounted for
      similarly, as equity transactions, (d) When a subsidiary is deconsolidated,
      any
      retained noncontrolling equity investment in the former subsidiary be initially
      measured at fair value. The gain or loss on the deconsolidation of the
      subsidiary is measured using the fair value of any noncontrolling equity
      investment rather than the carrying amount of that retained investment, (e)
      Entities provide sufficient disclosures that clearly identify and distinguish
      between the interests of the parent and the interests of the noncontrolling
      owners. This Statement is effective for fiscal years, and interim periods within
      those fiscal years, beginning on or after December 15, 2008 (that is, January
      1,
      2009, for entities with calendar year-ends). Earlier adoption is prohibited.
      This Statement shall be applied prospectively as of the beginning of the fiscal
      year in which this Statement is initially applied, except for the presentation
      and disclosure requirements. The presentation and disclosure requirements shall
      be applied retrospectively for all periods presented. We are currently
      evaluating the potential impact of Statement 141 (revised 2007) on our financial
      statements.





**5.
      Supplemental Balance Sheet Information**





**Inventories**




Based
      on
      management’s review of inventory at September 30, 2008, the Company has written
      off $493 thousand in inventory that was determined to be obsolete or unusable
      due to damage or due to incompatibility with the Company’s current and future
      product offerings. Additionally, the Company recorded a $684 thousand allowance
      against inventory items such as GPS units that were returned to inventory as
      a
      result of being swapped out or returned from golf courses and overstocked items.
      These amounts were charged to cost of goods sold.





**Other
      Assets**




Other
      assets consist of the following items ($000’s):


September 30,
                2008
              
              December 31,
                2007Other assetsLong-term
                  receivables
              
              $
              355
              
              $
              223Deferred
                  development costs
              
              
              139
              
              
              105Deferred
                  acquisition costs
              
              
              -
              
              
              96Deferred
                  costs - major projects
              
              
              149
              
              
              -Deposits
              
              
              862
              
              
              -Total
                  other assets
              
              $
              1,505
              
              $
              424


**Bank
      Indebtedness**




At
      December 31, 2007, the Company had borrowed $183 thousand under a line of credit
      with HSBC. The line of credit bore interest at prime plus 0.5%, and was
      repayable in full on demand and was secured by a one year standby bank letter
      of
      credit for $1.5 million that was provided by a third party, Hansen Inc. This
      standby letter of credit from Hansen Inc. expired on March 31, 2008 at which
      point the line of credit was removed. All funds borrowed under this line of
      credit were repaid at March 31, 2008.


13





On
      February 28, 2008, the Company and Silicon Valley Bank (SVB) entered into a
      Loan
      and Security Agreement (Loan Agreement) pursuant to which the SVB agreed to
      make
      available to the Company advances under a revolving line of credit up to $3
      million. The obligations of the Company under the Loan Agreement are secured
      by
      a first priority security interest (subject to permitted liens) on the assets
      of
      the Company, and certificates of deposit in the principal amount of $1.5 million
      provided by Hansen, Inc. and $1.5 million of the obligation are guaranteed
      by
      Douglas Wood, the Company’s interim Chief Executive Officer, member of the board
      of directors and a stockholder. On March 30, 2008, Douglas Wood passed away.
      On
      his passing, the Company triggered an event of default in the Loan Agreement
      whereby the bank could demand repayment of $1.5 million secured by Mr. Wood.
      The
      Company and SVB entered into a forbearance agreement as SVB negotiates with
      the
      estate of Mr. Wood. This forbearance agreement expired on July 1, 2008 and
      no
      new forbearance agreement has been entered into. SVB is working with the Company
      to find a resolution that is satisfactory to all parties involved and has not
      demanded repayment of the $1.5 million but negotiations are in progress during
      which time SVB has requested the Company maintain a minimum amount of cash
      on
      deposit with SVB in the approximate amount of $750 thousand.





On
      May 2,
      2008, GPSI and SVB entered into an amendment to the Loan Agreement pursuant
      to
      which SVB agreed to make available to the Company advances under a revolving
      line of credit up to $6.5 million, an increase of $3.5 million from the existing
      Loan Agreement. At September 30, 2008, the Company has drawn $6.5 million on
      the
      line of credit. The Loan Agreement terminates in February 2010 at which time
      all
      advances and unpaid interest are due. The principal amount outstanding accrues
      interest at a floating rate per annum of the greater of 1% above the prime
      rate
      or 6%, with interest payable monthly. The obligations of the Company under
      the
      Loan Agreement are also secured by a first priority security interest (subject
      to permitted liens) on the assets of the Company, and certificates of deposit
      in
      the principal amount of $5 million provided by Great White Shark Enterprises
      (GWSE) and Hansen, Inc. As consideration for GWSE pledging the security, the
      Company and GWSE have entered a Facility Fee Agreement whereby the Company
      agrees to pay to GWSE all fees and other amounts payable under the Loan
      Agreements including a facility fee equal to the difference between the interest
      yield earned on all the certificates of deposit purchased by GWSE and pledged
      to
      SVB pursuant to the Pledge Agreement and 7%, such that GWSE receives a net
      annual interest rate of 7%. The Facility Fee accrues monthly and is payable
      quarterly beginning July 31, 2008.The Loan Agreement provides for customary
      covenants. On March 31, 2008, the Company used $1.5 million of the Loan
      Agreement to repay a credit facility from HSBC Bank which was secured by a
      letter of credit from Hansen, Inc.





The
      Company’s 100% wholly owned subsidiary, GPSI Europe (formerly Golf Academies
      Limited and Direct Golf Services) has an overdraft facility with their bank
      comprised of both a Sterling overdraft, a Euro overdraft and a USD overdraft
      with a combined limit of £35 thousand (an amount equivalent to $70 thousand USD
      at September 30, 2008). As of September 30, 2008, GPSI Europe had drawn £128
      thousand (an amount equivalent to $233 thousand USD) on this facility. The
      Company was able to draw funds above their limit provided the net of all their
      accounts with bank are below the overdraft limit. The bank may at anytime demand
      repayment as such amounts owing have been classified as current liabilities.
      Interest is to be charged at the rate of 3.75% per annum over the bank’s base
      rate as published from time to time. The facility is secured by a debenture
      comprising fixed and floating charges over all the assets and undertaking of
      GPSI Europe and personal guarantee limited to £15 thousand   (an amount
      equivalent to $30 thousand USD at September 30, 2008) given by GPSI Europe’s
      board of directors.





As
      part
      of the Company’s acquisition of Golf Academies (now part of GPSI Europe), the
      Company assumed current liabilities which included a small firm's loan. At
      September 30, 2008, the balance of the loan was $nil as all principal and
      interest were repaid during the nine months ended September 30,
      2008.




**Short-Term
      Loans**




As
      of
      September 30, 2008, the Company has $4.549 million owing on short term notes.
      These notes consist of the following:





a)
            Purchase
                order financing whereby the Company has entered into agreements with
                several entities and individuals to provide purchase order financing
                on
                confirmed sales orders. Amounts advanced at September 30, 2008 are
                $1.244
                million ($1.520 million at December 31, 2007). The Company pays interest
                ranging from 12% to 18% per annum for the period of these
                advances.


14




b)
            Short-term
                loan for $1.572 million at September 30, 2008 ($1.572 million at
                December
                31, 2007) from Douglas Wood, the Company’s former interim Chief Executive
                Officer, board of director member and a stockholder who passed away
                on
                March 30, 2008. This loan is repayable on demand and bears interest
                at 8%
                per annum.c)
            $1.5
              million advance under revolving line of credit with Silicon Valley
              Bank.
              This amount has been classified as current due to an event of default
              triggered by the passing of Doug Wood. Mr. Wood had provided a
              guarantee to Silicon Valley Bank for this obligation.d)
            $233thousand
              drawn on an overdraft facility by GPSI
              Europe.




**Non-negotiable
      Convertible Promissory Note**




On
      June
      16, 2008, the Company entered into an agreement with Tulip Group Investments
      Limited (Tulip) pursuant to which Tulip loaned to the Company $5.5 million
      pursuant to a Non-negotiable Convertible Promissory Note. The Tulip Agreement
      and the Note have an effective date of June 12, 2008. The Note bears interest
      on
      a non-compounded basis at the rate of 7%. The principal amount and accrued
      unpaid interest is payable on June 12, 2011 (the Maturity Date). The Note is
      secured by a lien on the assets of the Company which lien is subordinate to
      the
      lien of Silicon Valley Bank and certain other secured creditors but on parity
      with the lien in favor of Great White Shark Enterprises LLC, the Estate of
      Douglas Wood and Hansen, Inc. At any time prior to the Maturity Date, Tulip
      has
      the right to convert all or a portion of the Loan into shares of a newly created
      Series C Preferred Stock at a conversion price of $10.00 per share and shares
      of
      Common Stock at a conversion rate of $0.031 per share (subject to adjustment
      as
      provided in the Note). The Series C Preferred Stock has a liquidation preference
      of $10.00 per share and will participate on a parity basis with the holders
      of
      the Series B Preferred Stock with respect to liquidation. Upon conversion,
      the
      holders of the Series C Preferred Stock have limited and specified voting rights
      and a conditional right to elect one director. Upon conversion of the Loan,
      the
      Company will issue to Tulip a warrant granting Tulip the right to purchase
      up to
      22,540,983 shares of Common Stock at a price of $0.122 per share. As part of
      the
      transaction, Tulip entered into a Purchase Option Agreement on June 16, 2008
      with Leisurecorp LLC, a major stockholder of the Company that has the ability
      to
      exercise significant influence over the Company and Great White Shark
      Enterprises, a stockholder of the Company who has appointed a member of the
      Company's Board of Directors, pursuant to which Tulip was granted the exclusive
      right and option to purchase shares of the Company’s Common Stock, Series B
      Preferred Stock and warrants to purchase shares of Common Stock from Leisurecorp
      and Great White Shark Enterprises.




The
      Certificate of Designation of the Company's Series B Convertible Preferred
      Stock
      contains provisions lowering the applicable conversion price thereof (on a
      weighted average basis) in the case of certain issuances of derivative
      securities where the conversion price of such securities is lower than the
      conversion price of the Series B Preferred Stock. The Non-Negotiable Convertible
      Promissory Note issued to Tulip Group Investments, Limited permits the holder
      to
      convert all or any portion of the Note into, inter alia, shares of the Company's
      Common Stock at a conversion price lower than the Series B conversion price.
      Accordingly, the Company may be required to adjust the conversion price of
      the
      Series B Preferred Stock in the absence of a waiver from the holders thereof.
      The adjusted conversion price, if applicable, is $0.057.




**Acquisition
      of Optimal Golf Solutions, Inc.**





On
      November 19, 2004 the Company acquired 100% of the common shares of Optimal
      Golf
      Solutions, Inc. (Optimal), a Texas corporation for a total of $5,250,000 plus
      interest of 4.75% on the principal balance outstanding payable by a combination
      of cash and stock. In January 2007 the Company paid $807 thousand cash and
      issued 30.392 million shares to satisfy the remaining liability for the
      purchase. Full satisfaction of this liability will depend on the Optimal
      shareholders receiving sufficient funds from the sale of the issued shares,
      which equates to $0.054 per share issued, to pay down the remaining liability
      in
      full. Assuming that the remaining shares are sold at the market price of the
      Company's stock at September 30, 2008, the remaining liability would not be
      satisfied in full from the sale of the shares issued. Therefore, during the
      period ended September 30, 2008, the Company recorded an additional $881
      thousand in liability offset by a decrease in paid-in capital associated with
      the Optimal acquisition due to the decrease in the stock price below $0.054
      to
      $0.025 on September 30, 2008.




**6.
      Related Party Transactions**




On
      November 5, 2007, the Company entered into a contract with Leisurecorp LLC,
      a
      major stockholder of the Company that has the ability to exercise significant
      influence over the Company, to design, supply, deliver and install a Wi-Fi
      network and GPS management system for a golf estates project in Dubai. The
      contract calls for payments from Leisurecorp LLC in excess of $2 million upon
      achievement of specific milestones as defined in the contract. On June 29,
      2008,
      the Company and Leisurecorp LLC have extended this contract with an extra scope
      of work worth approximately $4.9 million. The extended contract is to deliver
      four separate and distinct solutions to the customer, a utilities management
      application, an asset tracking solution, an amenities management system and
      an
      eCommunity Management system. This transaction is in the normal course of
      operations and will be measured at the exchange amount, which is the amount
      of
      consideration established and agreed to by the related parties. During the
      three
      and nine months ended September 30, 2008, the Company recognized an amount
      of
      $305 thousand in revenue in the Company’s results of operations for the
      completion of a significant deliverable in this long-term contract. On
      April 10, 2008, Leisurecorp LLC advanced the Company $477 thousand and on August
      19, 2008 Leisurecorp LLC advanced the Company an additional $477 thousand.
      Both
      theses advances were against the contract between the two parties. These funds
      were advanced so the Company could meet its immediate working capital
      requirements. At September 30, 2008 $700 thousand is included in the current
      portion of deferred revenue related to these advances.





On
      November 16, 2007, the Company engaged a third party to provide financial and
      management consulting services. For the nine month period ended September 30,
      2008, the Company made payments to this third party consultant in the amount
      of
      $510 thousand. During this period, the Company was reimbursed by Leisurecorp
      LLC
      an amount of $350 thousand for these costs. The Company recorded the recovery
      of
      the consulting services costs from Leisurecorp LLC as an offset to consulting
      services expense included in Selling, general and administrative operating
      expenses in the Company’s results of operations for the nine months ended
      September 30, 2008.




During
      the nine month period ended September 30, 2008, Leisurecorp LLC provided legal
      and professional services for the sourcing and evaluation of business and
      financing opportunities in the United Arab Emirates including but not limited
      to
      the negotiation and obtaining of additional financing for the Company as well
      as
      securing new GPS system sales. The Company has recorded an expense of $820
      thousand for these services in its results of operations for the nine months
      ended September 30, 2008.




As
      of
      September 30, 2008, the Company owed approximately $2.358 million to the estate
      of Doug Wood and the Wood Family Trust. This amount includes $94 thousand
      recorded as interest expense during the nine months ended September 30, 2008.
      Interest is payable at 8% per annum. This interest was earned on loans provided
      to the Company by Mr. Wood. Prior to his passing, Mr. Wood was the Company’s
      Chief Executive Officer and Chairman of the Board.




For
      the
      nine months ended September 30, 2008, the Company has recorded $34 thousand
      in
      interest expense due to Great White Shark Enterprises for interest on balances
      owing to Great White Shark Enterprises. The Company also recorded $71 thousand
      in facility fees due to Great White Shark Enterprises per terms of the Facility
      Fee Agreement between the Company and Great White Shark Enterprises whereby
      the
      Company agreed to pay to Great White Shark Enterprises a facility fee equal
      to
      the difference between the interest yield earned on all the certificates of
      deposit purchased by Great White Shark Enterprises and pledged to Silicon Valley
      Bank and 7%. Great White Shark Enterprises is a stockholder of the Company
      and
      has appointed a member of the Company's Board of Directors. Included in accounts
      payable and accrued liabilities at September 30, 2008 is $1.266 million due
      to
      Great White Shark Enterprises.





In
      the
      three and nine months ended September 30, 2008, the Company entered into several
      transactions with GPSI Asia, Ltd., a company which GPS Industries owns 17.5%.
      These transactions were in the normal course of operations and have been
      measured at the exchange amount, which is the amount of consideration
      established and agreed to by the related parties. The Company paid GPSI Asia
      $60
      thousand for consulting services performed during the period. These expenses
      have been recorded in operating expenses. The Company has recorded GPS system
      sales revenue in the amount of $300 thousand for GPS systems sold and delivered
      to GPSI Asia during the periods ending September 30, 2008. These GPS system
      sales were done under terms of a Master Supply Agreement between the Company
      and
      GPSI Asia, Ltd. In addition, the Company recorded $4 thousand in commission
      expense and $2 thousand in installation expense for work performed by GPSI
      Asia.
      The Company also prepaid, to GPSI Asia, $95 thousand for installation services
      performed in China which is recorded in prepaid expenses and other current
      assets in the Company’s balance sheet at September 30, 2008. Included in
      accounts payable and accrued liabilities at September 30, 2008 is $16 thousand
      due to GPSI Asia.




**7.
      Legal Proceedings**





On
      August
      1, 2007, CCG Investor Relations, Inc. ("CCG"), filed a complaint against the
      Company, in the Los Angeles Superior Court for alleged breach of contract.
      CCG
      claims that the Company breached a consulting agreement by failing to pay
      monthly consulting fees. In May 2008, the Company and CCG agreed to terms of
      settlement of the dispute between the parties. The Company had agreed to pay
      CCG
      an amount of $25 thousand to resolve the matter but the Company failed to make
      payment per terms of the settlement and a judgment of $60 thousand has been
      entered upon the Company.




On
      February 5, 2007, David Stratton filed a lawsuit against the Company in the
      Supreme Court of British Columbia, Vancouver, Canada. Mr. Stratton entered
      into
      a written employment agreement with us on June 12, 2006 pursuant to which we
      employed Mr. Stratton as our Vice President, Sales. On March 20, 2008 the
      Company and David Stratton agreed to terms of settlement of the dispute between
      the parties. The Company has agreed to pay Mr. Stratton an amount of $83
      thousand to resolve the matter. At September 30, 2008, all amounts due to Mr.
      Stratton concerning this matter have been paid.




15




On
      November 1, 2007, ProLink Holdings, a provider of GPS golf course management
      systems and on-course advertising, filed a patent infringement lawsuit against
      the Company and Uplink Corporation, a company that the Company has agreed to
      purchase. The compliant alleges that Uplink and one of its customers have
      infringed U.S. Patent No. 6,525,690, which is directed to a method of
      determining locations and distances using specific GPS-based methodologies.
      The
      complaint also charged Uplink with infringement of U.S. Patent No. 6,236,940
      and
      6,470,242 which relate to a monitor for displaying distances and other golf
      course information. The complaint further alleges that the Company and one
      of
      its customers have infringed the 6,525,690 patent and further seeks a
      declaratory judgment that ProLink has not infringed U.S. Patent No. 5,685,786
      acquired by the Company as a result of the UpLink acquisition and that this
      patent is invalid. ProLink seeks injunctive relief and damages against the
      Company and Uplink, enhanced damages for alleged willful infringement and
      recover of ProLink’s attorneys’ fees and litigation costs. By virtue of the
      Asset Purchase Agreement between the Company and Uplink, as amended effective
      January 18, 2008, the Company has assumed any liability of Uplink and has agreed
      to defend and indemnify Uplink at the Company’s expense. In addition, the
      Company intends to indemnify and defend both its customer and Uplink’s customer
      in connection with the litigation. The Company intends to vigorously defend
      this
      lawsuit.





On
      October 29, 2007, Optimal I.P. Holdings, L.P. initiated arbitration proceedings
      against the Company alleging breach of a Patent Enforcement Cooperation
      Agreement between the two companies. Optimal I.P. Holdings, L.P. seeks a
      declaration of the scope of its rights under the Agreement and actual damages,
      together with its costs and legal fees associated with the action. On November
      16, 2007 the Company responded to the arbitration demand by objecting to the
      jurisdiction of the American Arbitration Association (AAA) over the dispute
      and
      further denying all material allegations of the demand. On May 25, 2008, the
      arbitrator ruled that the AAA did not have jurisdiction over the arbitration
      proceeding and dismissed the proceeding.





On
      July
      9, 2008, Optimal I.P. Holdings, L.P. initiated arbitration proceedings in
      Chicago, Illinois against the Company alleging breach of a Patent License
      Agreement between the two companies. Optimal I.P. Holdings, L.P. seeks a
      declaration of the scope of its rights under the Agreement and actual damages,
      together with its costs and legal fees associated with the action. The Company
      denies all material allegations of the arbitration demand, and further believes
      that the AAA does not have jurisdiction over the arbitration proceeding. The
      parties have discussed a resolution of the matter and the proceeding has been
      stayed pending completion of those discussions.





On
      July
      7, 2008, Charles Huston and Daryl Cornish filed a lawsuit in state court in
      Texas alleging, among other things, breach of the Stock Purchase Agreement,
      as
      amended, relating to the purchase by the Company of the capital stock of Optimal
      Golf Solutions, Inc (which is the owner of US patent 5,364,093 patent). The
      Complaint seeks rescission of the Stock Purchase Agreement, attorneys' fees
      and
      damages (including punitive damages). The Company disputes the allegations
      in
      the Complaint. The Company is in settlement discussions with the plaintiffs
      although no assurance can be given that these discussions will be successful.




On
      July
      16, 2008, the Company, filed suit for patent infringement in the United States
      District Court for the Northern District of Illinois against ProLink Holdings
      Corp., ProLink Solutions, LLC, ABC National Television Sales, Inc., and
      LinksCorp, Inc. The suit alleges infringement of U.S. Patent No. 5,685,786,
      which relates to on-screen display of centrally transmitted advertising and
      tournament standings information. The Company has also asserted U.S. Patent
      No.
      5,438,518, which relates to the Company’s position-based hole advance and screen
      scrolling technology. The Complaint also alleges that the ProLink companies
      have
      made false representations in the marketplace and in connection with financing
      activities that they own rights in the ‘518 patent, when in fact they hold no
      interest in the patent and are not authorized to utilize the technology it
      covers.




In
      May 2008, Roblor Marketing Group, Inc filed suit
      against GPS Industries, Inc. for alleged patent infringement in U.S. District
      Court. The Company intends to vigorously defent this lawsuit.





The
      Company has been contacted by a legal representative of several software
      companies about the use of unauthorized copies of these company’s software
      products. The Company is currently in the process of reviewing this issue and
      any possible copyright violations. If the Company has violated software
      copyright laws it may be subject legal action.




The
      Company may occasionally become subject to legal proceedings and claims that
      arise in the ordinary course of business. It is impossible to predict with
      any
      certainty the outcome of any disputes that may arise, and the Company cannot
      predict whether any liability arising from claims and litigation will be
      material in relation to the consolidated financial position or results of
      operations.




**8.
      Subsequent Events**





On
      October 9, 2008, the Company received Notice of Acceleration and Demand for
      Immediate Payment and Documentation of balances due under CitiCapital Contracts.
      As of September 30, 2008, the amount of principal plus other charges due and
      owning under the Contracts was $209 thousand. This amount has been recorded
      in
      current liabilities in the Company’s balance sheet at September 30, 2008.





In
      November 2008, the Company and Silicon Valley Bank entered into a Forbearance
      and Second Amendment to Loan and Security Agreement. The agreement provides
      terms for which SVB will continue to forbear from filing any legal action or
      enforcing any rights and remedies it may have against the Company as a result
      of
      the event of default that occurred due to the death of Guarantor Doug Wood.
      Forbearance period is until November 30, 2008. The following amendments to
      the
      original Loan Document were also made:





·
            The
                Company must maintain unrestricted cash of $750 thousand at all
                times


·
            The
                revolving line is reduced to $3
                million





In
      November 2008, the Company issued a 3 year promissory note in the amount of
      $2.337 million to Estate of Doug Wood for the settlement of current amounts
      due
      to the Estate that are included in current liabilities in the Company’s balance
      sheet at September 30, 2008. The Note bears interest on a non-compounded basis
      at the rate of 7%. The principal amount and accrued unpaid interest is payable
      on June 12, 2011 (the Maturity Date). The Note is secured by a lien on the
      assets of the Company which lien is subordinate to the lien of Silicon Valley
      Bank and certain other secured creditors.


16




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




The
      following discussion should be read in conjunction with, and is qualified in
      its
      entirety to, the financial statements and notes thereto included in Item 1
      of
      this Form 10-Q and the financial statements and notes thereto and our
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operation for the year ended December 31, 2007 included in our 2007 Annual
      Report on Form 10-K. Throughout this quarterly report on Form 10-Q, the
      terms “we,” “us,” “our,” and “our company” refer to GPS Industries, Inc. (GPSI),
      a Nevada corporation, and, unless the context indicates otherwise, also includes
      our subsidiaries, Optimal Golf Solutions Ltd., Direct Golf Services Inc., Golf
      Academies Ltd. (collectively GPSI Europe) and GPS IT, LLC (which owns the assets
      and assumed the liabilities acquired per the UpLink Asset Purchase Agreement
      including the rights to the UpLink name).




This
      report contains forward-looking statements, within the meaning of Section 27A
      of
      the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
      1934, that involve risks and uncertainties. Our expectations with respect to
      future results of operations that may be embodied in oral and written
      forward-looking statements, including any forward looking statements that may
      be
      included in this report, are subject to risks and uncertainties that must be
      considered when evaluating the likelihood of our realization of such
      expectations. Our actual results could differ materially. The words “believe,”
“expect,” “intend,” “plan,” “project,” “will” and similar phrases as they relate
      to us are intended to identify such forward-looking statements. In addition,
      please see the “Risk Factors” in Part II, Item 1A of this Form 10-Q for a
      discussion of items that may affect our future results.





**RESTATEMENT
      OF CONSOLIDATED 2007 QUARTERLY COMPARATIVE RESULTS**





As
      a
      result of an in-depth review of certain sales and installation agreements and
      course installations that occurred in 1st, 2nd and 3rd quarters of 2007, the
      company determined that it had incorrectly accounted for the related revenues,
      cost of goods sold, course assets, accrued liabilities and deferred revenues.
      Accordingly, the Company announced on April 15, 2008 that previously filed
      quarterly reports on Form 10-QSB for the quarters ended March 31, 2007, June
      30,
      2007 and September 30, 2007 initially filed with the Securities and Exchange
      Commission (the “SEC”) on May 21, 2007, August 14, 2007 and November 19, 2007
      (the “Original Filings”), should no longer be relied upon. The Company’s
      consolidated financial statements presented in this report as at and for the
      period ended September 30, 2007 reflects these restatements.


17





Effect
      on
      Financial Statements:





The
      following table summarizes the impact on the quarterly results for the period
      ($000s) (unaudited):





Restatement
      of Financial Results for the three and nine month’s ended September 30, 2007 and
      financial position at September 30, 2007





Increase
      (decrease)


Quarter
                Ended
              
              Quarter
                Ended
              
              Quarter
                Ended
              
              Nine
                Months
                Ended31-Mar-07
              
              30-Jun-07
              
              30-Sep-07
              
              30-Sep-07Condensed statement of operations:Revenue
              
              $
              (164
              )
              $
              (1,454
              )
              $
              61
              
              $
              (1,557
              )Expense
              
              
              148
              
              
              (1,031
              )
              
              24
              
              
              (859
              )Operating
                  income
              
              $
              (312
              )
              $
              (423
              )
              $
              37
              
              $
              (698
              )Condensed
                  balance sheets:Assets
              
              $
              -
              
              $
              (218
              )
              $
              996
              
              $
              778Liabilities
              
              
              312
              
              
              205
              
              
              959
              
              
              1,476Accumulated
                  deficit
              
              
              (312
              )
              
              (423
              )
              
              37
              
              
              (698
              )


The
      primary basis for the corrections is as follows:





·
            To
                reverse revenue and cost of sales previously recognized during the
                quarter
                for system sales whereby GPSI has guaranteed the differential between
                the
                customers lease payments to its financier and the amount the customer
                receives from golf courses under rental contracts. Cost of sales
                for these
                sales have been set-up on the Company’s balance sheet as assets and are
                being amortized over the life of the golf courses rental contracts.
                Proceeds received on these sales have been set-up as deferred revenue
                on
                the Company’s balance sheet and are being recognized as revenue as the
                golf courses make their rental payments;
                and





·
            To
                recognize a further performance obligation whereby GPSI had sold
                the HDX
                Inforemer System to the customer, was unable to deliver and instead
                provided the HD Inforemer system. This created a further obligation
                to
                deliver the HDX when available. Additionally, the Company failed
                to
                recognize expense for 1st year warranty and service costs on sales
                during
                the period.





**Overview**




GPS
      Industries, Inc.(GPSI or the Company) is a global technology solutions provider
      with customizable, patent-protected applications in GPS and Wi-Fi software
      and
      hardware for use with golf course operations and residential community
      developments. With the development of the Inforemer HDX largely complete, GPSI
      is transitioning away from a research and development focus; however, GPSI
      will
      continue to dedicate resources to new opportunities where market potential
      and
      economics justify investment. Our primary business is the development,
      manufacture and sale of the Inforemer HDX mobile display units (MDU) in both
      cart mounted and hand held product lines along with the related
      infrastructure.





On
      January 18, 2008, the Company acquired the operations, assets and assumed
      certain liabilities of UpLink Corporation (UpLink), a Texas corporation that
      produces and sells global positioning satellite distance measuring systems,
      associated software, software development and service and maintenance contracts
      to golf course owners and operators. In consideration for the net assets
      acquired, the Company paid approximately $11.837 million including secured
      promissory notes of $1.521 million, 142.100 million Common Shares valued at
      $7.814 million, Series B Preferred Shares with a par value of $1.200 million,
      4.918 million common stock warrants at an exercise price of $0.122 per share
      valued at $219 thousand and the extinguishment of $1.083 million of intercompany
      loans. The net assets acquired consisted of total assets of approximately
      $21.240 million less approximately $9.403 million in assumed
      liabilities.


18




GPSI
      has
      offices in the United States, Canada and United Kingdom in order to focus on
      the
      geographic markets including North America, Europe and the Middle East with
      exclusive distributor arrangements covering Asia, South Africa, Australia and
      New Zealand.





Business activities
      are divided between our Vancouver, Canada, Austin, Texas and Sarasota, Florida
      offices.




Critical
      Accounting Policies





Management’s
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires management to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosures of contingent assets and
      liabilities. On an ongoing basis, management evaluates its estimates, including
      those related to impairment of long-lived assets, including finite lived
      intangible assets, accrued liabilities and certain expenses. We base our
      estimates on historical experience and on various other assumptions that we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      materially from these estimates under different assumptions or
      conditions.





Our
      significant accounting policies are summarized in Note 4 of our consolidated
      financial statements for the period ended September 30, 2008.





**Results
      of Operations**




**Comparison
      of Three and Nine Months Ended September 30, 2008 vs. Three and Nine Months
      Ended September 30, 2007**




Revenue -
      Revenue during these two periods was comprised of (i) sales generated from
      our
      GPS system products,(ii) service contract fees we received in connection with
      the GPS system sales, (iii) fees we received from certain programs such as
      advertising , (iv) patent license fees received by us for the right to use
      certain of our patented technologies, and (v) revenues generated from the
      completion of milestones by our Major Projects division.





The
      Major
      Projects division generated $311 thousand for the three and nine month periods
      ending September 30, 2008 in comparison to $301 thousand for the three and
      nine
      month periods ended 2007. This was a result of completion of a significant
      deliverable in the long-term contract with our customer to provide GPS tracking
      advisory and design services and Wi-Fi Network design services.





For
      the
      three and nine month periods ended September 30, 2008, the Company recorded
      revenues from its wholly owned subsidiary GPSI Europe (formerly Golf Academies
      Limited and Direct Golf Services) and revenues from the newly acquired
      operations and assets of UpLink Corporation for which no revenues were reported
      during the same three and nine month periods in 2007. GPSI Europe generates
      revenues through the rental of GPS systems, operation of the hole-in-one program
      Fire At the Flag (TM) and GPS system sales throughout the United Kingdom,
      Europe, South Africa and the Middle East. The prior UpLink related operations
      generated revenues through the sale, rental and leasing of GPS systems, service
      maintenance contracts and parts sales and repair service activities throughout
      North America.





For
      the
      three months ended September 30, 2008, we recorded total revenue of $ 4.793
      million, compared to $1.050 million during the three months ended September
      30,
      2007. This increase in revenue is attributable to a significant increase in
      18-hole equivalent sales during the period, a significantly higher average
      selling price per 18-hole equivalent system and the results of the Company’s
      recent acquisitions of GPSI Europe and the operations and assets of UpLink
      Corporation. For the nine months ended September 30, 2008, we recorded total
      revenue of $12.023 million, compared to $5.357 million during the same period
      in
      2007. This increase was also due to both an increase in 18-hole equivalent
      sales
      and an increase in the higher average selling price per 18-hole equivalents
      and
      the leasing/rental programs and service and maintenance contract revenues
      generated by GPSI Europe and from the operations and assets of UpLink
      Corporation. During the third quarter, the Company surpassed the total number
      of
      18-hole installations it completed in all of 2007.


19




Patent
      license revenue earned by GPSI in the three and nine months ended September
      30,
      2008 was $127 thousand and $381 thousand respectively compared to $199 thousand
      and $596 thousand during the same periods in 2007. The decrease is due to the
      elimination of intercompany revenues resulting from the UpLink operations and
      asset purchase.





Cost
      of Goods Sold - Cost
      of goods sold represent the costs associated with the production of our products
      and the installation costs of delivering and installing our equipment at our
      customers' sites which often include costs of third party services we incur
      in
      the installation of systems that we sell to our customers. Cost of goods sold
      also includes the appropriate percentage of costs associated with the completion
      of terms of contracts undertaken by the Major Projects division.





During
      the three months ended September 30, 2008, the Major Projects division completed
      a significant deliverable in a long-term contract. Accordingly, the Company
      has
      recorded $229 thousand in cost of goods sold for the completion of this
      deliverable.




Costs
      of
      goods sold, on a dollar basis, increased in the three and nine month periods
      ended September 30, 2008 due to increased revenues and a write-down of and
      allowance against inventory. Based on management’s review of inventory at
      September 30, 2008, the Company has written off $493 thousand in inventory
      that
      was determined to be obsolete or unusable due to damage or due to
      incompatibility with the Company’s current and future product offerings.
      Additionally, the Company recorded a $684 thousand allowance against inventory
      items such as GPS units that were returned to inventory as a result of being
      swapped out or returned from golf courses and overstocked items. Cost of goods
      sold, excluding the amounts recorded for the inventory write-down and allowance,
      as a percentage of revenue actually decreased slightly in both the three and
      nine month periods ended September 30, 2008. For the nine month period cost
      of
      goods sold decreased from 81% in 2007 to 78% in 2008. Reduction of cost of
      goods
      sold as a percentage of revenue is a key target for the Company and significant
      effort is continuing to be expended to reduce these costs. Management
      anticipates seeing further reductions during the fourth quarter of 2008 and
      into
      2009.





Selling,
      General and Administrative Expenses - Selling, general and administrative expenses increased to $2.736 million
      and $8.691 million for the three month and nine month periods ended September
      30, 2008 respectively. This represents a $1.047 million and $3.089 million
      increase over the same periods in the prior year. The increase was due to the
      inclusion of the results of operations of GPSI Europe and UpLink Corporation
      during the 2008 period but not 2007 as these acquisition transactions occurred
      in late 2007 and early 2008. Nonetheless, the increase was significantly less
      than the combined entities expenses prior to the acquisition due to reductions
      in all aspects of the operations. During the nine month period ended September
      30, 2008, the Company has taken several one time charges associated with the
      restructuring activities. These one time charges involved the downsizing of
      current operations and the costs associated with the rescission of the “Golf IT”
Asset Purchase Agreement. Included in these charges were severance payments,
      consulting services and legal services. Other one time charges during this
      period included $965 thousand for consulting services. Of these costs, $820
      thousand represent fees charged by Leisurecorp LLC, a major stockholder of
      the
      Company that has the ability to exercise significant influence over the Company,
      for providing both review and analysis of the Company’s operations and
      financials, legal and other services in relation to new debt financing obtained
      by the Company and arrangement and sourcing of significant business
      opportunities in the UAE for the Company. In both the three and nine month
      periods ended September 30, 2008, the Company has incurred significant legal
      costs relating to its defense of a patent infringement lawsuit brought by
      ProLink Holdings. In both the three and nine month periods ended September
      30,
      2008 the Company has significantly reduced costs in the areas of advertising
      and
      promotion, stock option compensation and commissions. Commissions have been
      reduced as a result of the expiration of our marketing agreement with Great
      White Shark Enterprises. No new agreement has been reached. These cost savings
      were offset by higher costs in the following areas, personnel related costs,
      rent and utilities, travel and office operating costs. Personnel related costs,
      rent and utilities and office operations costs all increased during the periods,
      in comparison to 2007, due to the GPSI Europe and UpLink acquisitions which
      resulted in higher staffing levels and two additional offices. The Company
      is
      currently working on a plan to reduce rent and utilities and other office
      related costs by centralizing certain corporate services in one office location.





Research
      and Development Expenses - Research and development expenses for the three and nine month periods
      ended September 30, 2008 decreased by $957 thousand and $1.490 million
      respectively. During early 2007, the Company incurred significant product
      development costs for the development of the next generation of the Inforemer
      product, which was subsequently introduced to the market during the first
      quarter of 2008. In 2007, the Company also significantly increased staffing
      levels in this area during the third quarter. Staffing levels were subsequently
      reduced during late 2007 and the first quarter of 2008 and have remained at
      these reduced levels through the current quarter. In addition, the Company
      recognized product development cost recoveries per a development agreement
      between the Company and one of its strategic development partners during the
      2008 period.





Amortization
      of Intellectual Property - This expense is primarily due to the amortization of the Company’s
      acquired patents. Secondarily, it also includes the depreciation of the
      Company’s property and equipment. Depreciation and amortization increased from
      $151 thousand for the three month period ended September 30, 2007 to $630
      thousand for the three month period ended September 30, 2008. For the nine
      month
      period ended September 30, 2008 it increased from $347 thousand to $1.781
      million. 75% of the expense during the first three quarters in 2008 is
      attributable to patent amortization. The increase is a result of the
      amortization of the estimated fair value assigned to the assets acquired as
      part
      of the UpLink and GPSI Europe transactions including certain patents, fixed
      assets and goodwill. All patents are being amortized over the remaining life
      of
      the patents.





Loss
      from Operations - The
      Company’s loss from operations increased in both the three and nine month
      periods ended September 30, 2008. The three month loss increased from $3.035
      million in 2007 to $4.038 million in 2008 and the nine month loss increased
      from
      $7.780 million to $10.457 million. The increase in loss from operations for
      the
      three month period ended September 30, 2008 was due to increased operating
      expenses and decreased gross profit. Gross profit decreased due to the write
      down of and allowance against inventory while operating expenses increased
      due
      to $479 thousand increase in amortization of intellectual property, a $1.047
      million increase in selling, general and administrative expenses offset by
      a
      $957 million decrease in research and development expenses. The increase in
      loss
      from operations for the nine months ended September 30, 2008 was due to
      increased operating expenses offset slightly by an improvement in gross profit.
      Higher operating expenses during this period were due to $1.434 million increase
      in amortization of intellectual property, a $3.089 million increase in selling,
      general and administrative expenses offset by a $1.490 million decrease in
      research and development expenses. The nine month gross profit increased due
      to
      more sales at a higher average sales price and a slight reduction in cost of
      goods sold.


20




Finance
      Costs -
      Finance costs for both the three and nine months ended September 30, 2008 are
      $27 thousand and $28 thousand higher, respectively, than during the same periods
      in 2007. This is due to facility fees due to Great White Shark Enterprises
      per
      terms of the Facility Fee Agreement between the Company and Great White Shark
      Enterprises whereby the Company agreed to pay to Great White Shark Enterprises
      a
      facility fee equal to the difference between the interest yield earned on all
      the certificates of deposit purchased by Great White Shark Enterprises and
      pledged to Silicon Valley Bank and 7%.





Interest
      Expense -
      Interest expense increased by $373 thousand and $577 thousand respectively
      during the three and nine month periods ended September 30, 2008 compared to
      the
      same three and nine month period in 2007. The increase in both periods in 2008
      is due to the significant increase in interest-bearing debt obtained by the
      Company during 2008. The Company has obtained a $6.5 million line of credit
      with
      Silicon Valley Bank which represents a $3.5 million increase over its previous
      line of credit and the Company has borrowed $5.5 million under a Non-negotiable
      Convertible Promissory Note.





Loss
      on Foreign Exchange - During
      the three months ended September 30, 2008 the Company incurred a currency
      exchange gain of $150 thousand. For the nine months ended September 30, 2008
      we
      incurred a currency exchange gain of $291 thousand which represents an increase
      of $707 thousand over the same period in the prior year. The significant
      increase in our gain on foreign exchange is due to the fact that most of our
      revenues are collected in U.S. dollars, and many of our expenses are paid in
      Canadian dollars. Therefore we are subject to currency fluctuation risks. During
      the nine month period ended September 30, 2008, the value of the U.S. dollar
      increased compared to the Canadian dollar, thereby causing us to record a
      substantial gain on our currency exchange whereas in the third quarter of 2007
      the value of the U.S. dollar had significantly decreased compared to the
      Canadian dollar.





Gain/(Loss)
      on Extinguishment of Debt - The
      Company recorded a gain on extinguishment of debt of $nil for the three months
      ended September 30, 2008 versus a gain of $128 thousand in the same period
      in
      2007. The gain recorded in this period in 2007 was due to the amortization
      of
      liabilities associated with discontinued operations. These liabilities were
      fully amortized at December 31, 2007. A gain on extinguishment of debt of $31
      thousand was recorded for the nine months ended September 30, 2008 versus a
      loss
      of $31 thousand for the nine months ended September 30, 2007. The prior year
      losses were a result of the Company settling debt through issuance of the
      Company’s stock to the debt holders at a discount to the market price of the
      Company’s stock at the time of issuance.





Net
      Loss - Net
      loss was $4.446 million and $11.262 million for the three and nine months ended
      September 30, 2008 respectively compared to $3.492 million and $21.249 million
      for the three and nine months ended September 30, 2007. The Company’s 2007 net
      loss for the nine month period ended September 30, 2007 was increased by a
      deemed preferred stock dividend of $12.5 million. No similar dividend was
      recorded during the same period in 2008. Excluding the deemed preferred stock
      dividend from the prior year nine month net loss, current period net losses
      increased by $2.513 million. The increased loss was due to an increase in
      operating expenses partially offset by an increase in gross profit and other
      income. The three months ended September 30, 2008 net loss increased by $954
      thousand in comparison to the same period in 2007. This period loss increased
      due to higher operating expenses, lower gross profits due to a write down of
      and
      an allowance against inventory partially offset by an increase in other
      income.





**Liquidity
      And Capital Resources**




To
      date,
      we have incurred significant losses from operations. As of September 30, 2008,
      we had a working capital deficit of $10.281 million. Our operations currently
      do
      not generate sufficient cash to internally fund our working capital needs.
      Accordingly, to date, our operating deficits have been funded by outside sources
      of funding, including funds raised from (i) the sale of shares of our common
      stock and preferred stock, (ii) the issuance of debentures, (iii) the issuance
      of shares as payment for services and in satisfaction of indebtedness, (iv)
      bank
      lines of credit, (v) short-term loans, and (vi) the issuance of non-negotiable
      convertible promissory notes made pursuant to loans by our affiliates and by
      third parties. For at least the next twelve months, the Company anticipates
      that
      such funding activities must continue in order for the Company to maintain
      its
      operations. During the nine months ended September 30, 2008, the Company did
      obtain two additional sources of funds. On May 2, 2008, the Company and Silicon
      Valley Bank entered into an amendment to a Loan and Security Agreement dated
      February 28, 2008 pursuant to which Silicon Valley Bank agreed to make
      available to the Company advances under a revolving line of credit up to $6.5
      million, an increase of $3.5 million from the existing Loan Agreement. At
      September 30, 2008, the Company has drawn $6.5 million on the line of credit.
      On
      June 16, 2008, the Company entered into an agreement with Tulip Group
      Investments Limited pursuant to which Tulip loaned to the Company $5.5 million
      pursuant to a Non-negotiable Convertible Promissory Note.





As
      a
      result of this additional funding, the Company’s working capital deficit
      temporarily improved as of June 30, 2008. However, at September 30, 2008, the
      working capital deficit has increased to $10.281 million from $6.285 million
      at
      June 30, 2008. Currently, the Company is negotiating with several of its major
      investors to settle current trade payables and short-term debt facilities in
      exchange for long-term promissory notes. The Company’s working capital deficit
      is also being negatively impacted by the default status of the Doug Wood estate
      $1.5 million guarantee of the Silicon Valley Bank revolving line of credit.
      As a
      result of this default, $1.5 million borrowed by the Company on the revolving
      line of credit has been classified as a current liability. The Company and
      Silicon Valley Bank had entered into a forbearance agreement that expired on
      July 1, 2008. Silicon Valley Bank has not demanded repayment of the $1.5 million
      but negotiations are in progress during which time SVB has requested that the
      Company maintain a minimum amount of cash on deposit with Silicon Valley Bank
      in
      the approximate amount of $750 thousand. Subsequently in November 2008, the
      Company completed a transaction which has provided an increase in working
      capital of $2.337 million as the result of the coversion of certain current
      obligations into long term debt.





Our
      ability to repay our accounts payable and other outstanding indebtedness, and
      our ability to maintain sufficient liquidity to continue our operations, is
      significantly dependent upon our ability to generate sufficient sales in the
      fourth quarter of 2008 and beyond, supplemented by the Company’s ability to
      attract additional investment. The Company is continuing to work with its
      existing investors to obtain further debt or equity funding that will provide
      longer term liquidity although no assurance can be given that such funds will
      be
      available or, if available, what the terms might be.


21




Effective
      January 18, 2008, the Company acquired the operations, assets and certain
      assumed liabilities of UpLink Corporation (UpLink), a Texas corporation that
      produces and sells global positioning satellite distance measuring systems,
      associated software, software development and service and maintenance contracts
      to golf course owners and operators. In addition, due to the elimination of
      the
      intercompany loans and the increase in liabilities resulting from this
      transaction, the purchase may continue to negatively impact the Company’s
      on-going liquidity in 2008 as the Company incurs costs to integrate the acquired
      assets and to meet the obligations of the assumed liabilities.





In
      October 2007, we purchased Direct Golf Services, Inc. and Golf Academies
      Limited. Operations of these two businesses are being conducted through GPSI
      Europe (formerly Golf Academies Limited and Direct Gold Services). The
      additional overhead costs related to the operations of GPSI Europe negatively
      affect our liquidity.




Operating
      Activities -
      During the nine months ended September 30, 2008, our operations utilized cash
      of
      $8.398 million as compared to $6.564 million during the same period in 2007.
      The
      increase in cash utilized in operations in the 2008 period as compared to the
      2007 period was primarily a result of the increase in the loss from operations,
      adjusted for non-cash items and by negative changes to operating assets and
      liabilities.




Investing
      Activities -
      Net cash used in investing activities was $484 thousand and $3.067 million
      for
      the nine months ended September 30, 2008 and 2007, respectively. In the 2008
      period, investing activities consisted of the purchase of equipment and the
      issuance of a short-term corporate loan to a related party.




Financing
      Activities -
      Net cash provided by financing activities was $9.891 million for the 2008 nine
      month period ended September 30, 2008, as compared to $6.442 million for the
      same period in 2007. Financing activities during the nine months ended September
      30, 2008 consisted of a $5.5 million loan pursuant to a Non-negotiable
      Convertible Promissory Note and receipt of bank loans offset by repayments
      of
      bank indebtedness and short-term loans.




We
      do not believe that inflation has had a material impact on our business or
      operations.




We
      are not a party to any off-balance sheet arrangements and do not engage in
      trading activities involving non-exchange traded contracts. In addition, we
      believe we have no financial guarantees, debt or lease agreements or other
      arrangements that we have not provided for or disclosed in our financial
      statements and notes





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




Not
      applicable.





**ITEM
      4. CONTROLS AND PROCEDURES**




Disclosure
      Controls and Procedures





Historically,
      we have maintained disclosure controls and procedures that are designed to
      ensure that information required to be disclosed in the reports that we file
      with the SEC under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC's rules and forms and
      that
      such information is accumulated and communicated to our management, including
      our principal executive and financial officers, as appropriate, to allow for
      timely decisions regarding required disclosure. Disclosure control procedures,
      no matter how well designed and operated, can provide only reasonable assurance
      of achieving the desired control objectives, and management is required to
      apply
      its judgment in evaluating the cost-benefit relationship of controls and
      procedures.


22




As
      reported in Company's Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 2007, as filed with the Securities and Exchange Commission, our
      management, with the participation of the Chief Executive Officer and Chief
      Financial Officer at the time, assessed and reported on the effectiveness of
      our
      internal control over financial reporting as of December 31, 2007, based on
      the
      control criteria established in a report entitled Internal Control - Integrated
      Framework, issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO). That framework defines a material weakness as a control
      deficiency, or combination of control deficiencies, that results in more than
      a
      remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected. Based on such
      evaluation, we concluded that our internal control over financial reporting
      was
      not effective and contained significant deficiencies which represent a material
      weakness in the Company’s internal control over financial reporting as of
      December 31, 2007.





As
      of the date of this report, The Company’s management, including the Chief
      Executive Officer and the Principal Accounting Officer, carried out an
      evaluation of the effectiveness of the design and operation of the Company’s
      disclosure controls and procedures pursuant to Exchange Act Rule 13a - 15(b).
      Based upon the evaluation, the Chief Executive Officer and the Principal
      Accounting Officer concluded that the Company’s disclosure controls and
      procedures are not effective in timely alerting them to material information
      required to be included in periodic SEC filings.





Management’s
      Discussion of Material Weakness





Management
      has identified the following groups of control deficiencies, each of which,
      in
      the aggregate, represents a material weakness in the Company’s internal control
      over financial reporting as of September 30, 2008:


·
              The
                  Company has engaged in a number of related-party transactions.
                  Additionally, certain of the Company’s executive, directors and
                  shareholders have outside business interests that could conflict
                  with the
                  priorities of the Company.
 
 ·
              The
                  Company has not widely circulated a code of ethics beyond the Company’s
                  directors and officers, including the Company’s whistle blower
                  policy.
 
 ·
              The
                  Company did not design and implement controls to communicate and
                  monitor
                  corporate strategy and objectives or compliance with policies and
                  procedures, including expenditure policies at its operation in
                  the United
                  Kingdom.
 
 ·
              The
                  Company has no independent directors on the Board of
                  Directors.
 
 ·
              There
                  has been a temporary degradation of controls, which may or may
                  not have
                  reached the level of a material weakness, resulting from the departure
                  of
                  certain key personnel arising from the integration of the Uplink
                  acquisition into GPS
                  Industries.




Management
      of the Company takes very seriously the strength and reliability of the of
      the
      internal control environment for the Company. During the fourth quarter of
      2007
      and continuing in 2008, the Company has undertaken steps necessary to improve
      the control environment that include:


·
              The
                  Company implemented a new accounting system to more effectively
                  manage
                  expenditures and analyze results against budgets and
                  plans.
 
 ·
              Engaged
                  Deloitte Touche LLP to assist in the assessment, development and
                  implementation of internal controls and business process documentation.
                  The Company has started to develop a top-down, risk based approach
                  to SOX
                  compliance that focuses on key controls and high risk areas. This
                  effort
                  was suspended during the third quarter as the Company focused on
                  the
                  integration of UpLink into the GPS Industries
                  organization.
 
 ·
              The
                  Company has hired a permanent Chief Executive
                  Officer.
 
 ·
              The
                  Company reconstituted and enhanced the Board of Directors with
                  the
                  appointment of Tony Sole, CFO of Leisurecorp LLC, Declan Hogan,
                  Senior IT
                  Manager, Leisurecorp LLC and David Chessler, CEO of GPS
                  Industries.




23





Management
      acknowledges its responsibility for internal controls over financial reporting
      and seeks to continually improve these controls. In order to achieve compliance
      with Section 404 of the Sarbanes Oxley Act, we will be performing additional
      system and process documentation and evaluation. We believe our process for
      documenting, evaluating and monitoring our internal control over financial
      reporting is consistent with the objectives of Section 404 of the
      Act.





Changes
      in Internal Controls





During
      the six months ended June 30, 2008, the Company continued to take remediation
      steps to enhance its internal control over financial reporting and reduce
      control deficiencies. During the three months ended September 30, 2008, the
      remediation efforts were slowed as the result of trying to integrate the
      operations of the Uplink acquisition and to streamline the resulting
      organization. We will continue to work on the elimination of control weaknesses
      and deficiencies noted.




**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





On
      August 1, 2007, CCG Investor Relations, Inc. ("CCG"), filed a complaint against
      the Company, in the Los Angeles Superior Court for alleged breach of contract.
      CCG claims that the Company breached a consulting agreement by failing to pay
      monthly consulting fees. In May 2008, the Company and CCG agreed to terms of
      settlement of the dispute between the parties. The Company had agreed to pay
      CCG
      an amount of $25 thousand to resolve the matter but the Company failed to make
      payment per terms of the settlement and a judgment of $60 thousand has been
      entered upon the Company.




On
      February 5, 2007, David Stratton filed a lawsuit against the Company in the
      Supreme Court of British Columbia, Vancouver, Canada. Mr. Stratton entered
      into
      a written employment agreement with us on June 12, 2006 pursuant to which we
      employed Mr. Stratton as our Vice President, Sales. On March 20, 2008 the
      Company and David Stratton agreed to terms of settlement of the dispute between
      the parties. The Company has agreed to pay Mr. Stratton an amount of $83
      thousand to resolve the matter. At September 30, 2008, all amounts due to Mr.
      Stratton concerning this matter have been paid.




On
      November 1, 2007, ProLink Holdings, a provider of GPS golf course management
      systems and on-course advertising, filed a patent infringement lawsuit against
      the Company and UpLink Corporation, a company that the Company subsequently
      purchased. The compliant alleges that UpLink and one of its customers have
      infringed U.S. Patent No. 6,525,690, which is directed to a method of
      determining locations and distances using specific GPS-based methodologies.
      The
      complaint also charged UpLink with infringement of U.S. Patent No. 6,236,940
      and
      6,470,242 which relate to a monitor for displaying distances and other golf
      course information. The complaint further alleges that the Company and one
      of
      its customers have infringed the 6,525,690 patent and further seeks a
      declaratory judgment that ProLink has not infringed U.S. Patent No. 5,685,786
      acquired by the Company as a result of the UpLink acquisition and that this
      patent is invalid. ProLink seeks injunctive relief and damages against the
      Company and UpLink, enhanced damages for alleged willful infringement and
      recover of ProLink’s attorneys’ fees and litigation costs. By virtue of the
      Asset Purchase Agreement between the Company and UpLink, as amended effective
      January 18, 2008, the Company has assumed any liability of UpLink in the
      lawsuit and has agreed to defend and indemnify UpLink at the Company’s expense.
      In addition, the Company intends to indemnify and defend both our customer
      and
      UpLink’s customer in connection with the litigation. The Company intends to
      vigorously defend this lawsuit.





On
      October 29, 2007, Optimal I.P. Holdings, L.P. initiated arbitration proceedings
      against the Company alleging breach of a Patent Enforcement Cooperation
      Agreement between the two companies. Optimal I.P. Holdings, L.P. seeks a
      declaration of the scope of its rights under the Agreement and actual damages,
      together with its costs and legal fees associated with the action. On November
      16, 2007 the Company responded to the arbitration demand by objecting to the
      jurisdiction of the American Arbitration Association (AAA) over the dispute
      and
      further denying all material allegations of the demand. On May 25, 2008, the
      arbitrator ruled that the AAA did not have jurisdiction over the arbitration
      proceeding and dismissed the proceeding.





On
      July 9, 2008, Optimal I.P. Holdings, L.P. initiated arbitration proceedings
      in
      Chicago, Illinois against the Company alleging breach of a Patent License
      Agreement between the two companies. Optimal I.P. Holdings, L.P. seeks a
      declaration of the scope of its rights under the Agreement and actual damages,
      together with its costs and legal fees associated with the action. The Company
      denies all material allegations of the arbitration demand, and further believes
      that the AAA does not have jurisdiction over the arbitration proceeding. The
      parties have discussed a resolution of the matter and the proceeding has been
      stayed pending completion of those discussions.





On
      July 7, 2008, Charles Huston and Daryl Cornish filed a lawsuit in state court
      in
      Texas alleging, among other things, breach of the Stock Purchase Agreement,
      as
      amended, relating to the purchase by the Company of the capital stock of Optimal
      Golf Solutions, Inc (which is the owner of US patent 5,364,093 patent). The
      Complaint seeks rescission of the Stock Purchase Agreement, attorneys' fees
      and
      damages (including punitive damages). The Company disputes the allegations
      in
      the Complaint. The Company is in settlement discussions with the plaintiffs
      although no assurance can be given that these discussions will be
      successful.




On
      July 9, 2008, Optimal I.P. Holdings, L.P. initiated arbitration proceedings
      in
      Chicago, Illinois against the Company alleging breach of a Patent License
      Agreement between the two companies. Optimal I.P. Holdings, L.P. seeks a
      declaration of the scope of its rights under the Agreement and actual damages,
      together with its costs and legal fees associated with the action. The Comany
      denies all material allegations of the arbitration demand, and further believes
      that the AAA does not have jurisdiction over the arbitration proceeding. The
      parties have discussed a resolution of the matter and the proceeding has been
      stayed pending completion of those discussions.





On
      July 16, 2008, the Company, filed suit for patent infringement in the United
      States District Court for the Northern District of Illinois against ProLink
      Holdings Corp., ProLink Solutions, LLC, ABC National Television Sales, Inc.,
      and
      LinksCorp, Inc. The suit alleges infringement of U.S. Patent No. 5,685,786,
      which relates to on-screen display of centrally transmitted advertising and
      tournament standings information. The Company has also asserted U.S. Patent
      No.
      5,438,518, which relates to the Company’s position-based hole advance and screen
      scrolling technology. The Complaint also alleges that the ProLink companies
      have
      made false representations in the marketplace and in connection with financing
      activities that they own rights in the ‘518 patent, when in fact they hold no
      interest in the patent and are not authorized to utilize the technology it
      covers.




In
      May 2008, Roblor Marketing Group, Inc. filed suit
      against GPS Industries Inc. for alleged patent infringement in U.S. District
      Court. The Company intends to vigorously defendt this lawsuit.


24




The
      Company may occasionally become subject to legal proceedings and claims that
      arise in the ordinary course of business. It is impossible to predict with
      any
      certainty the outcome of any disputes that may arise, and the Company cannot
      predict whether any liability arising from claims and litigation will be
      material in relation to the consolidated financial position or results of
      operations.




**ITEM
      1A. RISK FACTORS**





You
      should carefully consider the risks described below before deciding to invest
      in
      or maintain your investment in GPS Industries, Inc. The risks described below
      and described in our 2007 Annual Report are not intended to be an all-inclusive
      list of the potential risks relating to an investment in our securities.
      Additional risks and uncertainties that we do not presently know, or that we
      currently view as immaterial, may also impair our business operations. If any
      of
      the following or other risks actually occurs, our business, financial condition
      or operating results and the trading price or value of our securities could
      be
      materially adversely affected. The following factors should be considered in
      connection with the other information contained in this quarterly report on
      Form
      10-Q. This report is qualified in its entirety by these risk
      factors.




**Risks
      Related To Our Business**




**We
      have a history of losses, and our auditors have issued a going concern
      opinion.**




We
      have a history of losses, and our auditors have issued a going concern opinion
      as a result of an inability to generate sufficient cash from operations to
      meet
      our current obligations. GPSI has undertaken a restructuring of our operations
      in order to reduce and ultimately eliminate the operating losses incurred.
      In
      addition, GPSI is evaluating alternate sources and types of financing to
      generate sufficient liquidity to maintain operations for the foreseeable future.
      However there can be no assurance that we will be successful in these efforts.
      Our operating losses are attributable to the developing nature of our business
      and have resulted primarily from:





·
            significant
                costs associated with the development of our
                products;





·
            marketing
                and distribution costs of our products;
                and





·
            limited
                sales history of our recently developed
                products.




**We
      will need additional financial support in order to continue to operate and
      grow,
      and cannot be certain that additional funds will be available when needed on
      satisfactory terms, if at all.**




Our
      operations currently do not generate sufficient cash to internally fund our
      working capital needs. Accordingly, to date, our operating deficits have been
      funded by outside sources of funding, including funds raised from (i) the sale
      of shares of our common stock and preferred stock, (ii) the issuance of
      debentures, (iii) the issuance of shares as payment for services and in
      satisfaction of indebtedness, (iv) bank lines of credit, (v) short-term loans,
      and (vi) the issuance of non-negotiable convertible promissory notes made
      pursuant to loans by our affiliates and by third parties. For at least the
      next
      twelve months, the Company anticipates that such funding activities must
      continue in order for the Company to maintain its operations. Based on our
      currently projected revenues and our existing lines of credit the Company does
      not have sufficient capital resources to fund our anticipated working capital
      needs. The Company is currently working with its existing investors to obtain
      additional debt or equity funding. At this time, we are unable to determine
      if
      we will be successful in obtaining this funding or any other. Should the Company
      not be able to obtain sufficient funding, the Company will not be able to meet
      its working capital needs.   If the Company were unable to continue as a
      going concern, investors risk losing their investment in GPSI.




**We
      depend on GPS technology owned and controlled by others. If we do not have
      continued access to GPS technology and satellites, we will be unable to deliver
      our services and our revenues will decrease.**




Our
      services rely on signals from GPS satellites built and maintained by the U.S.
      Department of Defense. GPS satellites and their ground support systems are
      subject to electronic and mechanical failures and sabotage. If one or more
      satellites malfunction, there could be a substantial delay before they are
      repaired or replaced, if at all, and our services may cease and customer
      satisfaction would suffer.


25




In
      addition, the U.S. government could decide not to continue to operate and
      maintain GPS satellites over a long period of time or to charge for the use
      of
      GPS. Furthermore, because of ever-increasing commercial applications of GPS,
      other U.S. government agencies may become involved in the administration or
      the
      regulation of the use of GPS signals in the future. If the foregoing factors
      affect GPS, such as by affecting the availability and pricing of GPS technology,
      our business will suffer.




**Our
      GPS technology depends on the use of radio frequency spectrum controlled by
      others.**




Our
      GPS technology is dependent on the use of radio frequency spectrum. The
      assignment of spectrum is controlled by an international organization known
      as
      the International Telecommunications Union or ITU. The Federal Communications
      Commission or FCC is responsible for the assignment of spectrum for
      non-government use in the United States in accordance with ITU regulations.
      Any
      ITU or FCC reallocation of radio frequency spectrum, including frequency band
      segmentation or sharing of spectrum, could cause interference with the reception
      of GPS signals and may materially and adversely affect the utility and
      reliability of our products, which would, in turn, cause a material adverse
      effect on our operating results. In addition, emissions from mobile satellite
      service and other equipment operating in adjacent frequency bands or inband
      may
      materially and adversely affect the utility and reliability of our products,
      which could result in a material adverse effect on our operating
      results.




On
      May 11, 2000, the FCC issued a Notice of Proposed Rulemaking that proposes
      rules
      for the operation of Ultra-Wideband or UWB radio devices on an unlicensed basis
      in the frequency bands allocated to GPS. If the FCC issues final rules
      authorizing such operation, UWB devices might cause interference with the
      reception of GPS signals. Such interference could reduce demand for GPS products
      in the future. Any resulting change in market demand for GPS products could
      have
      an adverse effect on our financial results.




**Speculative
      Nature of Business.**




There
      is sufficient evidence to determine that there is in fact a market for our
      products. It is less than certain that the market is deep enough to generate
      revenues of sufficient magnitude to cover all costs associated with the
      manufacture, sales, marketing, general and administrative nature of the
      business.




**Government
      regulations and standards may harm our business and could increase our costs
      or
      reduce our opportunities to earn revenues.**




In
      addition to regulations applicable to businesses in general, we may also be
      subject to direct regulation by governmental agencies, including the FCC and
      Department of Defense. A number of legislative and regulatory proposals under
      consideration by federal, state, provincial, local and foreign governmental
      organizations may lead to laws or regulations concerning various aspects of
      wireless communications and GPS technology. Additionally, it is uncertain how
      existing laws governing issues such as taxation, intellectual property, libel,
      user privacy and property ownership, will be applied to our services. The
      adoption of new laws or the application of existing laws may expose us to
      significant liabilities and additional operational requirements, which could
      decrease the demand for our services and increase our cost of doing
      business.




**We
      depend on intellectual property rights and development of new products and
      the
      inability to obtain patents or develop new products may have an adverse effect
      on our ability to be profitable.**




Our
      success is partly dependent upon our intellectual property rights. Effective
      protection may not be available for these rights. There can be no assurance
      that
      a patent will provide adequate protection for the underlying technology. While
      we have patents covering our technology, there is no assurance that such patents
      will be able to prevent other companies from developing substantially similar
      products. In addition, litigation may be necessary in the future to enforce
      the
      intellectual property rights. Such litigation, whether successful or
      unsuccessful, could result in substantial costs and diversions of resources,
      either of which could negatively affect our business.


26




**Conflicts
      of Interest.**




We
      have engaged in transactions with our management in the past, and we can be
      expected to engage in such transactions in the future. In each case, the
      transactions are approved by our Board of Directors and are considered to be
      fair to and in the best interests of the company.




**Board
      Independence**




The
      current Board of Directors, Audit and Compensation Committee are all considered
      to be non-independent directors as a result of the investment in the Series
      B
      Preferred Shares in November 2006 and again in April 2007. The holders of our
      outstanding Series B Shares have the right to approve or disapprove certain
      corporate action, which could materially affect the holders of our common stock.
      Currently, the rights of the Series B Shares are controlled by Leisurecorp
      LLC.




**Competition.**




We
      face competition in all aspects of our business. We compete for customers with
      other electronics and recreation companies, many of which have substantially
      greater assets and resources. Our primary competitor is Prolink Holdings Corp.
      Our ability to compete successfully in the future will depend on several
      factors, including:


·
              the
                  cost effectiveness, quality, price, service and market acceptance
                  of our
                  products;
 
 ·
              response
                  to the entry of new competitors or the introduction of new products
                  by
                  competitors;
 
 ·
              ability
                  to keep pace with changing technology and customer
                  requirements;
 
 ·
              timely
                  development or acquisition of new or enhanced products;
                  and
 
 ·
              timing
                  of new product introductions by the Company or our
                  competitors.




**Acquisitions
      of companies may disrupt our business and distract management due to
      difficulties in assimilating personnel and operations.**




In
      October 2007, we purchased Direct Golf Services, Inc. and Golf Academies Limited
      and in January 2008 we purchased all of the operations and assets of UpLink
      Corporation. Although, the purchases of complimentary businesses are expected
      to
      improve our overall operations in the future and to improve our market presence
      in the worldwide golf industry, the cost of purchasing these, and other
      businesses, will negatively impact our financial condition in the near
      term.




Provided
      that we have sufficient financing, we may consider purchasing other businesses
      that could complement or supplement our current product offerings. If we acquire
      any other company, we could face difficulties in assimilating that company's
      personnel and operations. Acquisitions also involve the need for integration
      into existing administration, services marketing, and support efforts. These
      acquisitions and investments could disrupt our ongoing business, distract
      management and employees and increase our expenses. In addition, key personnel
      of the acquired company may decide not to work for us.


27




**We
      have not been able to implement Section 404 of the Sarbanes-Oxley Act on a
      timely basis.**




We
      were required to restate the 1st, 2nd and 3rd quarters of 2007. Management
      has
      evaluated the Company’s internal controls over financial reporting in light of
      the restatements and has identified groups of control deficiencies, each of
      which, in the aggregate, represents a material weakness in the Company’s
      internal control over financial reporting as of December 31, 2007 and June
      30,
      2008. See Item 8A in the Company's Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2007, as filed with the Securities and Exchange
      Commission and Part I, Item 4 in this quarterly report on Form 10Q for
      Management’s discussion of these material weaknesses.




Although,
      GPSI has made progress towards Section 404 compliance, we are not able to
      conclude that our internal controls are effective or have we completed our
      Section 404 implementation. We have in the past discovered, and may in the
      future discover, areas of our internal controls that need improvement. However,
      we can not assure you that we will be successful. Any failure to implement
      required new or improved controls, or difficulties encountered in their
      implementation, could negatively affect our operating results or cause us to
      fail to meet our reporting obligations. The costs incurred necessary to achieve
      compliance may be significant.




**RISKS
      RELATED TO OUR COMMON STOCK**




**Our
      common stock is traded on the OTC Bulletin Board, and a shareholder may be
      unable to sell at or near ask prices or at all if the shareholder needs to
      sell
      his shares to raise money or otherwise desire to liquidate his
      shares.**




Our
      common stock is currently listed for trading on the OTC Bulletin Board. Shares
      listed for trading on the OTC Bulletin Board often are thinly traded, meaning
      the number of persons interested in purchasing the shares at or near ask prices
      at any given time may be relatively small or non-existent. This situation may
      apply to our shares and is attributable to a number of factors, including the
      fact that we are a small public company which is relatively unknown to stock
      analysts, stock brokers, institutional investors and others in the investment
      community that generate or influence sales volume. In addition, even if we
      came
      to the attention of such persons, they tend to be risk-averse and would be
      reluctant to follow a company of our size and expanding into a relatively new
      line of business as we are in, or purchase or recommend the purchase of our
      shares until such time as we became more seasoned and proven. As a consequence,
      there may be periods of several days or more when trading activity in our shares
      is minimal or non-existent, as compared to a seasoned issuer which has a large
      and steady volume of trading activity that will generally support continuous
      sales without an adverse effect on share price. We cannot give you any assurance
      that a broader or more active public trading market for our common stock will
      develop or be sustained, or that current trading levels will be sustained.
      Due
      to these conditions, we can give you no assurance that you will be able to
      sell
      your shares at or near ask prices or at all if you need money or otherwise
      desire to liquidate your shares.




**The
      holders of our outstanding Series B Shares have the right to approve or
      disapprove certain corporate action, which could materially affect the holders
      of our common stock. Currently, the rights of the Series B Shares are controlled
      by Leisurecorp LLC.**




In
      January 2008, May 2007 and December 2006 we issued the Series B Shares to four
      investors. Under the terms of the Series B Shares, we may not, without first
      obtaining the prior approval of the holders of a majority of the then
      outstanding Series B Shares, voting separately as a class, take any of the
      following actions: (i) amend our Articles of Incorporation or Bylaws if such
      action would adversely affect the rights, preferences, privileges, or
      restrictions of the Series B Shares; (ii) authorize or issue any class or series
      of our capital stock or any rights, options, warrants or other securities that
      are convertible into or exchangeable for any of our capital stock, having any
      right, preference or privilege superior to or on parity with the Series B Shares
      in any respect whether by reclassification or otherwise; (iii) pay any dividends
      or distributions on any shares of our capital stock; (iv) amend any of the
      provisions of the Certificate of Designation of the Series B Shares; (v) redeem
      or declare a dividend with respect to any security; (vi) increase or decrease
      the authorized number of shares of Series B Shares; (vii) effect a merger,
      consolidation, or business combination or other acquisition involving GPSI
      (other than solely for the purposes of reincorporation); or (viii) increase
      or
      decrease the authorized number of directors on our Board of Directors. The
      foregoing voting provisions shall remain in effect so long as one holder of
      our
      Series B Shares, Leisurecorp LLC, is the owner of record of 25% or more of
      the
      number of Series B Shares that it purchased in December 2006 and May 2007.
      As a
      result of its investment in the Series B Shares and the voting agreements
      contained in a shareholders agreement Leisurecorp has entered into with the
      other holders of the Series B Shares, Leisurecorp LLC owns or controls the
      vote
      of approximately 87% of the currently issued and outstanding Series B
      Shares.


28




**The
      holders of the Series B Shares have the ability to elect a majority of our
      Board
      of Directors, and we are prohibited from taking certain corporate actions
      without the approval of the directors elected by Series B Share
      holders.**




The
      holders of a majority of the outstanding Series B Shares have the right, voting
      as a separate class, to elect three of our five members of our board of
      directors, of which two shall be designated by the holders of a majority of
      the
      outstanding Series B Shares as the "Reviewing Preferred Directors." Our Board
      of
      Directors may not take certain actions, and none of such actions shall be valid
      and constitute an action of the Board of Directors unless such action is
      approved by a majority of the Board of Directors, which majority shall include
      at least one of the Reviewing Preferred Directors. The actions that must be
      approved by at least one Reviewing Preferred Director are as follows: (i)
      reorganize GPSI or voluntarily liquidate, dissolve or wind up GPSI, (ii) incur
      any new indebtedness or refinance any existing indebtedness for borrowed money
      other than trade payables and accrued expenses incurred in the ordinary course
      of business and indebtedness not to exceed at any time $500,000 in the
      aggregate, (iii) approve, adopt or amend our annual budget, (iv) incur any
      capital or operating expenditures (other than purchases of inventory purchased
      solely for, and specifically to fill signed purchase orders) in excess of
      $50,000 in one or a series of related expenditures, or in excess of $250,000
      in
      the aggregate unless included in our annual budget approved by the Board of
      Directors (including one of the Reviewing Preferred Directors), (v) hire or
      fire
      our Chief Executive Officer, the Chief Financial Officer, or any of our other
      officer or employee who, at the time, earns or is expected to earn a salary
      (excluding bonuses) of $100,000 or more per year, (vi) acquire any assets or
      equity securities of any other business or entity, or sell any of our assets
      (other than in the ordinary course of business), in each case if the transaction
      value of such acquisition or disposition is greater than $2,000,000, (vii)
      issue
      options or securities except under our stock compensation, bonus or other
      compensation plan, (viii) amend our stock compensation, bonus or other
      compensation plan, or (ix) enter into a transaction with a stockholder or an
      affiliate of ours or of a stockholder of ours. The foregoing restrictions will
      remain in effect until the earlier of (a) the date on which Leisurecorp is
      the
      owner of record of less than 25% of the number of Series B Shares that it
      purchased in December 2006 and May 2007 pursuant to the Securities Purchase
      Agreement, or (b) we meet or exceed the approved annual budget for two
      consecutive fiscal years. Under a shareholder agreement entered into by, among
      others, the holders of approximately 87% of our currently outstanding Series
      B
      Shares, Leisurecorp LLC has the right to designate both Reviewing Preferred
      Directors.




**Our
      Board of Directors has the right to issue additional series of preferred stock,
      the terms of which could adversely affect the value of our common
      stock.**




Under
      our articles of incorporation, our board of directors has the power, without
      further action by the holders of our common stock, to designate the relative
      rights and preferences of the preferred stock, and to issue the preferred stock
      in one or more series as designated by our board of directors. The designation
      of rights and preferences could include preferences as to liquidation,
      redemption and conversion rights, voting rights, dividends or other preferences,
      any of which may be dilutive of the interest of the holders of our common stock
      or the preferred stock of any other series. The issuance of preferred stock
      may
      have the effect of delaying or preventing a change in control of our company
      without further stockholder action and may adversely affect the rights and
      powers, including voting rights, of the holders of our common
      stock.




**If
      securities or industry analysts do not publish research reports about our
      business, our stock price and trading volume could
      decline.**




Small,
      relatively unknown public companies can achieve visibility in the trading market
      through research and reports that industry or securities analysts publish.
      However, to our knowledge, no analysts cover our company. The lack of published
      reports by independent securities analysts could limit the interest in our
      stock
      and negatively affect our stock price. We do not have any control over research
      and reports these analysts publish or whether they will be published at all.
      If
      any analyst who does cover us downgrades our stock, our stock price would likely
      decline. If any analyst initiates and then ceases coverage of our company or
      fails to regularly publish reports on us, we could lose visibility in the
      financial markets or never achieve such visibility, which in turn could cause
      our stock price or trading volume to stagnate or decline.


29




**You
      may have difficulty selling our shares because they are deemed “penny
      stocks.”**




Since
      our common stock is not listed on the Nasdaq Stock Market or any national
      securities exchange, if the trading price of our common stock is below $5.00
      per
      share, trading in our common stock will be subject to the requirements of
      certain rules promulgated under the Securities Exchange Act of 1934, as amended
      (the Exchange Act). These rules require additional disclosures by broker-dealers
      in connection with any trades involving a stock defined as a penny stock. Such
      rules require the delivery, prior to any penny stock transaction, of a
      disclosure schedule explaining the penny stock market and the risks associated
      therewith and impose various sales practice requirements on broker-dealers
      who
      sell penny stocks to persons other than established customers and accredited
      investors (generally defined as an investor with a net worth in excess of
      $1,000,000 or annual income exceeding $200,000 individually or $300,000 together
      with a spouse). For these types of transactions, the broker-dealer must make
      a
      special suitability determination for the purchaser and have received the
      purchaser’s written consent to the transaction prior to the sale. The
      broker-dealer also must disclose the commissions payable to the broker-dealer,
      current bid and offer quotations for the penny stock and, if the broker-dealer
      is the sole market maker, the broker-dealer must disclose this fact and the
      broker-dealer’s presumed control over the market. Such information must be
      provided to the customer orally or in writing before or with the written
      confirmation of trade sent to the customer. Monthly statements must be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks. The additional burdens
      imposed upon broker-dealers by such requirements could discourage broker-dealers
      from effecting transactions in our common stock, which could severely limit
      the
      market liquidity of the common stock and the ability of holders of the common
      stock to sell their shares.




**The
      market price of our**  **common
      stock may be adversely affected by market volatility.**




The
      market price of our common stock is likely to be volatile and could fluctuate
      widely in response to many factors, including:


·
              announcements
                  of the results of our operations or the operations of our
                  competitors,
 
 ·
              developments
                  with respect to intellectual property
                  rights,
 
 ·
              announcements
                  of technological innovations by us or our
                  competitors,
 
 ·
              announcements
                  of new services, products or new contracts by us or our
                  competitors,
 
 ·
              actual
                  or anticipated variations in our operating results due to the level
                  of
                  development expenses and other
                  factors,
 
 ·
              changes
                  in financial estimates by securities analysts, if any, and whether
                  our
                  earnings meet or exceed such
                  estimates,
 
 ·
              new
                  accounting standards,
 
 ·
              general
                  economic, political and market conditions and other factors,
                  and
 
 ·
              the
                  occurrence of any of the risks described in this registration
                  statement.


30





**ITEM
      2. UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS**




During
      the three and nine month periods ended September 30, 2008, the Company completed
      the following transactions:





Non-negotiable
      Convertible Promissory Note: On June 16, the Company entered into an agreement with Tulip Group Investments
      Limited pursuant to which Tulip or its nominee loaned to the Company $5.500
      million pursuant to a Non-negotiable Convertible Promissory Note. The principal
      amount and accrued unpaid interest is payable on June 12, 2011 (the Maturity
      Date). At any time prior to the Maturity Date, Tulip has the right to convert
      all or a portion of the Loan into shares of a newly created Series C Preferred
      Stock at a conversion price of $10.00 per share and shares of Common Stock
      at a
      conversion rate of $0.31 per share (subject to adjustment as provided in the
      Note). The Series C Preferred Stock has a liquidation preference of $10.00
      per
      share and will participate on a parity basis with the holders of the Series
      B
      Preferred Stock with respect to liquidation. The holders of the Series C
      Preferred Stock have limited and specified voting rights and a conditional
      right
      to elect one director. Upon conversion of the Loan, the Company will issue
      to
      Tulip a warrant granting Tulip the right to purchase up to 22,540,983 shares
      of
      Common Stock at a price of $0.122 per share.




The
      Certificate of Designation of the Company's Series B Convertible Preferred
      Stock
      contains provisions lowering the applicable conversion price thereof (on a
      weighted average basis) in the case of certain issuances of derivative
      securities where the conversion price of such securities is lower than the
      conversion price of the Series B Preferred Stock. The Non-Negotiable Convertible
      Promissory Note issued to Tulip Group Investments, Limited permits the holder
      to
      convert all or any portion of the Note into, inter alia, shares of the Company's
      Common Stock at a conversion price lower than the Series B conversion price.
      Accordingly, the Company may be required to adjust the conversion price of
      the
      Series B Preferred Stock in the absence of a waiver from the holders thereof.
      The adjusted conversion price, if applicable, is $0.057.




Preferred
      Stock and Warrants :
      On January 18, 2008, the Company issued a total of 120 thousand shares of Series
      B Preferred Shares with a par value of $1.200 million and warrants to purchase
      up to 4.918 million shares of our common stock valued at $219 thousand. These
      Series B shares and warrants were issued as part of the consideration for the
      UpLink asset acquisition.




Common
      Stock :




The
      Company issued the following shares of common stock in the nine months ended
      September 30, 2008:


·
              On
                  January 10, 2008, the Company issued 142.083 million shares valued
                  at
                  $7.814 million in relation to the UpLink asset acquisition;
                  and
 
 ·
              On
                  February 29, 2008, the Company issued 400 thousand shares valued
                  at $18
                  thousand for services
                  rendered.
  
 ·
              On
                  August 14, 2008, the Company issued 191 thousand shares valued
                  at $6
                  thousand for settlement of trade
                  payables.
 
 ·
              On
                  August 20, 2008, the Company issued 622 thousand shares valued
                  at $18
                  thousand for settlement of trade
                  payables.




All
      such securities were issued pursuant to an exemption from the registration
      requirements of the Securities Act of 1933, as amended, under Section 4 (2)
      and
      Regulation D.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




$1.500
      million of the obligations of the Company under the Loan Agreement entered
      into
      on February 29, 2008 between the Company and Silicon Valley Bank (SVB) are
      guaranteed by Douglas Wood, the Company’s interim Chief Executive Officer,
      member of the board of directors and a shareholder. On March 30, 2008, Douglas
      Wood passed away. On his passing, the Company triggered an event of default
      in
      the Loan Agreement whereby the bank could demand repayment of $1.500 million
      secured by Mr. Wood. SVB is currently forbearing such demand as it negotiates
      with the estate of Mr. Wood.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




No
      Matters were submitted to a vote of our security holders during the three month
      period ended September 30, 2008.





**ITEM
      5. OTHER INFORMATION**




None.


31





**ITEM
      6. EXHIBITS**





**Exhibit Number**
            
            **Description**31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act31.2
            
            Certification
                of the Chief Accounting Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act32.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act32.1
            
            Certification
                of the Chief Accounting Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act


32





**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.




GPS
                INDUSTRIES, INC.Date: November
                14, 2008
            By:
            /s/ DAVID
                CHESSLERDavid
                ChesslerChief
                Executive Officer




Date: November
                14, 2008
            By:
            /s/ DAVID
                HAECKERDavid
                Haecker,Chief
                Accounting Officer


33