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 June 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.)





6554
                176th Street, Unit 103
              Surrey,
                B.C. Canada
            
            V3S
                4G5(Address
                of principal executive offices)
            
            (Zip
                Code)





(604)
      576-7442


(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 August 12, 2008, there were
      541,686,703 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 June 30, 2008**


**FORM
      10-Q**





**PAGE NO.****PART
                I. FINANCIAL INFORMATION**Item
                1.
            
            Consolidated
                Financial Statements (unaudited):
            
            1Consolidated
                Balance Sheets at June 30, 2008 and December 31, 2007
                (audited)
            
            1Consolidated
                Statements of Operations for the six months ended June 30, 2008 and
                2007
            
            2Consolidated
                Statements of Operations for the three months ended June 30, 2008
                and
                2007
            
            3Consolidated
                Statements of Cash Flows for the six months ended June 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)**
              
              **June
                  30,**
                **2008**
              
              **December
                  31,**
                **2007****(unaudited)**
              
              **(audited)****Assets****Current**Cash
              
              $
              4,830
              
              $
              1,488Accounts
                  receivable, net
              
              
              1,824
              
              
              1,493Inventories
              
              
              4,524
              
              
              3,011Short-term
                  corporate loan
              
              
              -
              
              
              946Prepaid
                  expenses and other current assets
              
              
              960
              
              
              459Total
                  current assets
              
              
              12,138
              
              
              7,397**Property
                  and equipment, net**
              
              
              1,088
              
              
              829**GPS
                  system assets under third party leases with recourse,
                  net**
              
              
              2,935
              
              
              617**Other
                  assets**
              
              
              1,622
              
              
              424**Patents/designs,
                  net plus goodwill**
              
              
              17,963
              
              
              2,723$
              35,746
              
              $
              11,990**Liabilities
                  and Stockholders' Equity/(Deficit)****Current
                  liabilities**Short
                  term debt
              
              $
              4,709
              
              $
              3,379Short
                  term deferred revenue
              
              
              3,205
              
              
              847Accounts
                  payable
              
              
              5,384
              
              
              5,078Accrued
                  liabilities
              
              
              4,910
              
              
              1,948Current
                  maturities of long-term debt
              
              
              215
              
              
              -18,423
              
              
              11,252Long-term
                  debt, net of current maturities
              
              
              5,030
              
              
              -Convertible
                  promissory note, net of debt discount (unamortized debt discount
                  $998)
              
              
              4,502
              
              
              -Deferred
                  revenue
              
              
              5,464
              
              
              1,252Total
                  liabilities
              
              
              33,419
              
              
              12,504**Stockholders'
                  equity/(deficit)**Series
                  B Convertible Preferred Shares, $10 par value, 4,000,000authorized,
                  3,244,089 issued and outstanding
              
              
              32,441
              
              
              31,241Class
                  A common stock, $.001 par value, 1,600,000,000 authorized541,686,703
                  issued and outstanding
              
              
              542
              
              
              399Accumulated
                  other comprehensive income
              
              
              722
              
              
              722Additional
                  paid-in capital
              
              
              78,365
              
              
              70,052Accumulated
                  deficit
              
              
              (
                  109,743
              )
              
              (
                  102,928
              )Total
                  Stockholders' Equity/(Deficit)
              
              
              2,327
              
              
              (
                  514
              )$
              35,746
              
              $
              11,990
  *See
                  accompanying notes to these unaudited consolidated financial
                  statements*
  1





**GPS
                  INDUSTRIES INC. AND SUBSIDIARIES****UNAUDITED
                  CONSOLIDATED STATEMENTS OF OPERATIONS****For
                  the Six Months Ended June 30**
                **(000's
                    except per share data and number of shares)
                    (unaudited)**
              
              **2008**
              
              **2007****(restated)****Revenue**
              
              $
              7,230
              
              $
              4,308**Cost
                  of goods sold**
              
              
              5,566
              
              
              3,432**Gross
                  profit**
              
              
              1,664
              
              
              876**Operating
                  Expenses**Selling,
                  general and administrative expenses
              
              
              5,956
              
              
              3,912Research
                  and development
              
              
              977
              
              
              1,510Amortization
                  of intellectual property
              
              
              1,151
              
              
              1968,084
              
              
              5,618**Loss
                  Before Other Income (Expense)**
              
              
              (
                  6,420
              )
              
              (
                  4,742
              )**Other
                  Income (Expense)**Finance
                  costs
              
              
              (
                  51
              )
              
              (
                  50
              )Interest
                  expense
              
              
              (
                  519
              )
              
              (
                  314
              )Gain
                  on foreign exchange
              
              
              142
              
              
              11Gain/(Loss)
                  on extinguishment of debt
              
              
              33
              
              
              (
                  160
              )(
                  395
              )
              
              (
                  513
              )**Net
                  Loss Before Deemed Preferred Stock Dividend**
              
              $
              (
                  6,815
              )
              $
              (
                  5,255
              )Deemed
                  preferred stock dividend
              
              
              -
              
              
              (
                  12,500
              )**Net
                  Loss**
              
              $
              (
                  6,815
              )
              $
              (
                  17,755
              )**Loss
                  per common share - basic and diluted**$
              (
                  0.01
              )
              $
              (
                  0.05
              )**Weighted
                  average number of common shares outstanding -****basic
                  and diluted**
              
              
              533,748,058
              
              
              373,405,002*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 June 30**
                  **(000's
                    except per share data and number of shares)
                    (unaudited)**
              
              **2008**
              
              **2007****(restated)****Revenue**
              
              $
              4,564
              
              $
              2,215**Cost
                  of goods sold**
              
              
              3,296
              
              
              1,628**Gross
                  profit**
              
              
              1,268
              
              
              587**Operating
                  Expenses**Selling,
                  general and administrative expenses
              
              
              3,730
              
              
              1,711Research
                  and development
              
              
              499
              
              
              517Amortization
                  of intellectual property
              
              
              598
              
              
              1044,827
              
              
              2,332**Loss
                  Before Other Income (Expense)**
              
              
              (
                  3,559
              )
              
              (
                  1,745
              )**Other
                  Income (Expense)**Finance
                  costs
              
              
              (
                  39
              )
              
              (
                  29
              )Interest
                  expense
              
              
              (
                  265
              )
              
              (
                  20
              )Loss
                  on foreign exchange
              
              
              (
                  16
              )
              
              (
                  3
              )Gain/(Loss)
                  on extinguishment of debt
              
              
              13
              
              
              (
                  267
              )(
                  307
              )
              
              (
                  319
              )**Net
                  Loss Before Deemed Preferred Stock Dividend**
              
              $
              (
                  3,866
              )
              $
              (
                  2,064
              )Deemed
                  preferred stock dividend
              
              
              -
              
              
              (
                  12,500
              )**Net
                  Loss**
              
              $
              (
                  3,866
              )
              $
              (
                  14,564
              )**Loss
                  per common share - basic and diluted**$
              (
                  0.01
              )
              $
              (
                  0.04
              )**Weighted
                  average number of common shares outstanding -****basic
                  and diluted**
              
              
              541,686,703
              
              
              378,324,414
  *See
                  accompanying notes to these unaudited consolidated financial
                  statements*




3


**GPS
                    INDUSTRIES INC. AND SUBSIDIARIES****UNAUDITED
                    CONSOLIDATED STATEMENTS OF CASH
                    FLOWS**
  **For
                      the Six Months Ended June 30**
                      **(000's
                        except per share data and number of shares)
                        (unaudited)**
                
                **2008**
                
                **2007****(restated)****Cash
                    Flow From Operating Activities**Net
                    loss from operations
                
                $
                (
                    6,815
                )
                $
                (
                    5,255
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Depreciation
                    and amortization
                
                
                2,019
                
                
                196Amortization
                    of deferred compensation
                
                
                -
                
                
                113Gain/(loss)
                    on extinguishment of debt
                
                
                (
                    32
                )
                
                375Expenses
                    paid by issuance of stock
                
                
                18
                
                
                118Expenses
                    paid by issuance of stock options
                
                
                -
                
                
                62Stock
                    based compensation
                
                
                64
                
                
                -Interest
                    converted to stock
                
                
                -
                
                
                43Writedown
                    of inventory
                
                
                89
                
                
                -Unrealized
                    foreign exchange gains
                
                
                (
                    149
                )
                
                -Amortization
                    of convertible debt discount
                
                
                12
                
                
                -Amortization
                    of finance costs
                
                
                -
                
                
                3Changes
                    in operating assets and liabilities:Inventories
                
                
                (
                    812
                )
                
                (
                    1,462
                )Accounts
                    receivable
                
                
                (
                    305
                )
                
                (
                    391
                )Prepaid
                    expenses and deposits
                
                
                (
                    476
                )
                
                91Other
                    assets
                
                
                (
                    337
                )
                
                (
                    442
                )Accounts
                    payable and accrued liabilities
                
                
                19
                
                
                1,297Discontinued
                    operations - accounts payable and accrued liabilities
                
                
                -
                
                
                (
                    201
                )Deferred
                    revenue
                
                
                1,077
                
                
                414**Net
                    Cash Used In Operating Activities**
                
                
                (
                    5,628
                )
                
                (
                    5,039
                )**Cash
                    Flow From Investing Activities**Purchase
                    of property and equipment
                
                
                (
                    319
                )
                
                (
                    1,164
                )Investment
                    in Optimal Golf Solutions Inc.
                
                
                -
                
                
                (
                    807
                )Investment
                    in patents
                
                
                (
                    2
                )
                
                (
                    45
                )**Net
                    Cash Flow Used In Investing Activities**
                
                
                (
                    321
                )
                
                (
                    2,016
                )Changes
                    in non-cash working capital related to investing
                    activities
                
                
                (
                    784
                )
                
                (
                    234
                )(
                    1,105
                )
                
                (
                    2,250
                )**Cash
                    Flow From Financing Activities**Preferred
                    Stock issued for cash (Net of costs)
                
                
                -
                
                
                11,173Preferred
                    Stock issued for debt
                
                
                -
                
                
                1,000Subscription
                    receivable - Preferred Stock
                
                
                -
                
                
                (
                    8,000
                )Proceeds
                    (payments) - short term loans
                
                
                (
                    425
                )
                
                -Proceeds
                    (payments) - convertible promissory loan
                
                
                5,500
                
                
                -Proceeds
                    (payments) - long term loans
                
                
                5,000
                
                
                (
                    2,072
                )**Net
                    Cash Flow Provided By Financing Activities**
                
                
                10,075
                
                
                2,101Changes
                    in non-cash working capital related to financing
                    activities
                
                
                -
                
                
                3,00010,075
                
                
                5,101**Net
                    Increase/(Decrease) In Cash**
                
                
                3,342
                
                
                (
                    2,188
                )**Cash,
                    Beginning Of Period**
                
                
                1,488
                
                
                2,196**Cash,
                    End Of Period**
                
                $
                4,830
                
                $
                8**Supplemental
                    disclosure of cash flow information:**Cash
                    paid for interest
                
                $
                318
                
                $
                309Cash
                    paid for taxes
                
                $
                -
                
                $
                22**Non-Cash
                    Investing And Financing Activities**Common
                    stock issued to settle debt
                
                $
                -
                
                $
                715Common
                    stock issued in settlement of accounts payable
                
                $
                -
                
                $
                263Deemed
                    dividends on issuance of preferred stock
                
                $
                -
                
                $
                12,500Common
                    stock issued for investments
                
                $
                8,034
                
                $
                2,178Preferred
                    stock issued for investment
                
                $
                1,200
                
                $
                -*See
                    accompanying notes to these unaudited consolidated financial
                    statements*




4




**GPS
      Industries, Inc.**




Notes
      to
      Consolidated Financial Statements




Six
      months ended June 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 June 30, 2008 and December 31, 2007, the results of operations for
      the three and six months ended June 30, 2008 and 2007, and the cash flows for
      the six months ended June 30, 2008 and 2007. The results of operations for
      the
      three and six months ended June 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
      collapsed 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. Corporate
      activities are divided between its Vancouver, Canada and Austin, Texas offices
      with software development, research and development, manufacturing and finance
      located in Canada and sales, customer service and installation and repairs
      and
      maintenance in Austin, Texas.




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
      January 2001, Inforetech Wireless Technology Inc. acquired 100% of the
      outstanding capital stock of ProShot Golf, Inc. through a wholly owned
      subsidiary, Inforetech Golf Technology 2000 Inc. (IGT). IGT filed for relief
      under Chapter 7 of the U.S. Bankruptcy Court on December 19, 2002 and ProShot
      filed for relief under Chapter 7 of the U.S Bankruptcy Court on May 31,
      2002.





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 six months
      ended June 30, 2007 reflects these restatements.




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




Three
                Months Ended
            
            Six
                Months EndedPeriod
                  Ended June, 2007
            
            30-Jun
            
            30-JunReported
            
            ReportedTotal
                revenue
            
            $
            3,669
            
            $
            5,926Total
                cost of goods sold
            
            
            2,637
            
            
            4,293Gross
                margin (loss)
            
            $
            1,032
            
            $
            1,633Operating
                expense
            
            
            2,354
            
            
            5,640Loss
                from operations
            
            $
            (1,322
            )
            $
            (4,007
            )Net
                loss
            
            
            (14,141
            )
            
            (17,020
            )Basic
                and diluted loss per share
            
            $
            (0.04
            )
            $
            (0.05
            )




Three
                  Months Ended
              
              Six
                  Months EndedPeriod
                    Ended June 30, 2007
              
              30-Jun
              
              30-JunAdjustments
                  [1]
              
              Adjustments
                  [2]Total
                  revenue
              
              $
              (1,454
              )
              $
              (1,618
              )Total
                  cost of goods sold
              
              
              (1,009
              )
              
              (861
              )Gross
                  margin (loss)
              
              $
              (445
              )
              $
              (757
              )Operating
                  expense
              
              
              (22
              )
              
              (22
              )Loss
                  from operations
              
              $
              (423
              )
              $
              (735
              )Net
                  loss
              
              
              (423
              )
              
              (735
              )Basic
                  and diluted loss per share
              
              $
              -
              
              $
              -




Three
                Months Ended
            
            Six
                Months EndedPeriod
                  Ended June 30, 2007
            
            30-Jun
            
            30-JunRestated
            
            RestatedTotal
                revenue
            
            $
            2,215
            
            $
            4,308Total
                cost of goods sold
            
            
            1,628
            
            
            3,432Gross
                margin (loss)
            
            $
            587
            
            $
            876Operating
                expense
            
            
            2,332
            
            
            5,618Loss
                from operations
            
            $
            (1,745
            )
            $
            (4,742
            )Net
                loss
            
            
            (14,564
            )
            
            (17,755
            )Basic
                and diluted loss per share
            
            $
            (0.04
            )
            $
            (0.05
            )





6





[1]
      The
      primary basis for the corrections during the three and six months ended June
      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 six months ended
      June
      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)Assets Acquired
              
              
              (unaudited)Cash
              
              $
              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 six month period ended June
                  30, 2007,**
              
              
              **GPSI**
              
              
              **UpLin****k**
              
              
              **Adjustments**
              
              
              
              **Proforma**
                **Combined****(000's except per share data and number of shares) (unaudited)**
              
              
              **(restated)****Revenue**
              
              
              $
              4,308
              
              
              
              7,272
              
              
              $
              (143)
              (a)
              
              
              $
              11,437**Cost
                  of goods sold**
              
              
              
              3,432
              
              
              
              4,617
              
              
              
              -
              
              
              
              
              8,049**Gross
                  profit**
              
              
              $
              876
              
              
              $
              2,655
              
              
              $
              (143
              )
              
              
              $
              3,388**Operating
                  Expense**Selling,
                  general and administrative
              
              
              
              3,912
              
              
              
              2,649
              
              
              
              -
              
              
              
              
              6,561Research
                  and development
              
              
              
              1,510
              
              
              
              549
              
              
              
              -
              
              
              
              
              2,059Amortization
                  of intellectual property
              
              
              
              196
              
              
              
              361
              
              
              
              600
              (b)
              
              
              
              1,157$
              5,618
              
              
              $
              3,559
              
              
              $
              600
              
              
              
              $
              9,777**Loss
                  Before Other Income (Expense)**
              
              
              
              (4,742
              )
              
              
              (904
              )
              
              
              (743
              )
              
              
              
              (6,389
              )Other
                  Income (Expense)
              
              
              
              (513
              )
              
              
              (245
              )
              
              
              -
              
              
              
              
              (758
              )**Net
                  Loss Before Deemed Preferred Stock Dividend**
              
              
              $
              (5,255
              )
              
              $
              (1,149
              )
              
              $
              (743
              )
              
              
              $
              (7,147
              )Deemed
                  preferred stock dividend
              
              
              
              12,500
              
              
              
              -
              
              
              
              -
              
              
              
              
              12,500**Net
                  Loss**
              
              
              $
              (17,755
              )
              
              $
              (1,149
              )
              
              $
              (743
              )
              
              
              $
              (19,647
              )**Net
                  loss per common share, basic and diluted**
              
              
              $
              (0.05
              )
              
              
              
              
              
              $
              (0.01
              )
              
              
              $
              (0.01
              )**Weighted
                  average common shares outstanding, basic and
                  diluted**
              
              
              
              373,405,002
              
              
              
              
              
              
              
              142,083,334
              (c)
              
              
              
              515,488,336


(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 $600 thousand
                for the
                six month period ended June 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 June 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) non-negotiable convertible promissory notes made to it 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 three months
      ended June 30, 2008. On April 10, 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 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 guaranteed by Great
      White Shark Enterprises LLC, a stockholder, whereby GWSE has pledged cash
      collateral in the form of certificates of deposit placed on deposit at SVB.
      At
      June 30, 2008 the Company had drawn the full amount of the $3.5 million
      increase.





The
      Company’s working capital position improved during the quarter ended June 30,
      2008 as the Company, on June 16, 2008, entered into an agreement with Tulip
      Group Investments Limited where Tulip loaned to the Company $5.500 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 third and fourth quarters of 2008 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 June 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
      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**




**Other
      Assets**




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


June
                  30,
                2008
              
              December 31,
                2007Other
                  assetsLong-term
                  receivables
              
              $
              418
              
              $
              223Deferred
                  development costs
              
              
              104
              
              
              105Deferred
                  acquisition costs
              
              
              -
              
              
              96Deferred
                  costs - major projects
              
              
              238
              
              
              -Deposits
              
              
              862
              
              
              -Total
                  other assets
              
              $
              1,622
              
              $
              424
  **Bank
        Indebtedness**


At
      December 31, 2007, the Company had borrowed $183 thousand under a line of
      credit. 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 $1.500 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 $3.000
      million. On May 2, 2008, GPSI and Silicon Valley Bank (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 June 30, 2008,
      the
      Company has drawn $6.500 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. $1.500 million of the obligations of the Company under the Loan
      Agreement 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. 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 $5.000 million provided by Great White Shark Enterprises
      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 $1.500 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 June 30, 2008). As of June 30, 2008, GPSI Europe had drawn £62 thousand (an
      amount equivalent to $124 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 June 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
      June
      30, 2008, the balance of the loan was $nil as all principal and interest were
      repaid during the three and six months ended June 30, 2008.




**Short-Term
      Loans**




As
      of
      June 30, 2008, the Company has $3.078 million owing on short term notes. These
      notes consist of the following:




a)
            Secured
                promissory notes with a balance of $254 thousand outstanding at June
                30,
                2008 ($nil at December 31, 2007). These notes were entered into pursuant
                to the UpLink Asset Purchase Agreement. They bear interest ranging
                from
                prime plus 1% to 18% per annum with principal and interest due in
                six
                equal monthly installments beginning January 31, 2008 and fully repayable
                by June 30, 2008. These notes were fully repaid on July 7, 2008.




b)
            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 June 30, 2008 are $1.252
                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




c)
            Short-term
                loan for $1.572 million at June 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 shareholder who passed away
                on
                March 30, 2008. This loan is repayable on demand and bears interest
                at 8%
                per annum.




**Non-negotiable
      Convertible Promissory Note**




On
      June
      16, 2008, the Company entered into an agreement with Tulip Group Investments
      Limited pursuant to which Tulip loaned to the Company $5.500 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 holdersof 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 June 30, 2008, the remaining liability would not be satisfied
      in full from the sale of the shares issued. Therefore, during the period ended
      June 30, 2008, the Company recorded an additional $669 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 $0.032 on June 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 $2.000 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. No
      amounts for this transaction have been recognized in the Company’s results of
      operations for the six months ended June 30, 2008. On April 10, 2008,
      Leisurecorp LLC advanced the Company $477 thousand against the contract between
      the two parties. These funds were advanced so the Company could meet its
      immediate working capital requirements and are included in the current portion
      of deferred revenue.





On
      November 16, 2007, the Company engaged a third party to provide financial and
      management consulting services. For the six month period ended June 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 & administrative operating
      expenses in the Company’s results of operations for the six months ended June
      30, 2008.





During
      the three and six month periods ended June 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 three and
      six
      months ended June 30, 2008.




As
      of
      June 30, 2008, the Company owed approximately $2.326 thousand to the estate
      of
      Doug Wood and the Wood Family Trust. This amount includes $62 thousand recorded
      as interest expense during the six months ended June 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
      six months ended June 30, 2008, the Company has recorded $22 thousand in
      interest expense due to Great White Shark Enterprises for interest on balances
      owing to Great White Shark Enterprises. The Company also recorded $27 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 June 30, 2008 is $1.241 million due to Great
      White Shark Enterprises.





At
      June
      30, 2008, the Company had received $300 thousand deposit from GPSI Asia, Ltd.,
      a
      company which GPS Industries owns 17.5%. This deposit was pursuant to a Master
      Supply Agreement for China between the Company and GPSI Asia, Ltd. The Master
      Supply Agreement for China provides the terms for the Company to sell
      approximately 15 Inforemer GPS Golf Systems to GPSI Asia, Ltd.




**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 has agreed to pay
      CCG
      an amount of $25 thousand to resolve the matter.




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 June 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 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 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 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.




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
      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 recession 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 are not
      authorized to utilize the technology it covers.


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 June 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 six month’s ended June 30, 2007 and
      financial position at June 30, 2007





Increase
      (decrease)


Three
                  Months Ended
              
              Three
                  Months Ended
              
              Six
                  Months EndedCondensed
                  statement of operations:
              
              March
                  31, 2007
              
              June
                  30, 2007
              
              June
                  30, 2007Revenue
              
              $
              (164
              )
              $
              (1,454
              )
              $
              (1,618
              )Expense
              
              
              148
              
              
              (1,031
              )
              
              (883
              )Operating
                  income
              
              $
              (312
              )
              $
              (423
              )
              $
              (735
              )Condensed
                  balance sheets:Assets
              
              $
              -
              
              $
              (218
              )
              $
              (218
              )Liabilities
              
              
              312
              
              
              205
              
              
              517Accumulated
                  deficit
              
              
              (312
              )
              
              (423
              )
              
              (735
              )




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.





Corporate
      activities are divided between our Vancouver, Canada and Austin, Texas offices
      with software development, research and development, manufacturing and finance
      located in Canada and sales, customer service and installation and repairs
      and
      maintenance in Austin, Texas.




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 June 30, 2008.





**Results
      of Operations**




**Comparison
      of Three and Six Months Ended June 30, 2008 vs. Three and Six Months Ended
      June
      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, which generated revenues during the year ended December
      31,
      2007 for providing GPS tracking advisory and design services and Wi-Fi Network
      design services to our customers, did not generate any revenue for the three
      and
      six month periods ending June 30, 2008 and 2007. This was a result of no
      significant deliverable, in the long-term contract with our customers, being
      due
      or being completed during this period.





For
      the
      three and six month periods ended June 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 six 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 June 30, 2008, we recorded total revenue of $ 4.564 million,
      compared to $2.215 million during the three months ended June 30, 2007. This
      increase in revenue is attributable to an 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 six months
      ended June 30, 2008, we recorded total revenue of $7.230 million, compared
      to
      $4.308 million during the same period in 2007. This increase was due to a higher
      average selling price per 18-hole equivalents as the actual number of 18-hole
      equivalent sales was only marginally higher than in the prior year 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 period, the Company successfully completed its single largest installation
      to date which was a four course 18-hole equivalent installation for one of
      North
      America’s premier golf resort destinations.




19




Patent
      license revenue earned by GPSI in the three and six months ended June 30, 2008
      was $127 thousand and $254 thousand respectively compared to $199 thousand
      and
      $397 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. No costs,
      associated with the completion of terms of contracts undertaken by the Major
      Projects division, were included in cost of goods sold for the three or six
      months ended June 30, 2008 as no terms or deliverables were due or completed
      during the period. Costs of goods sold, on a dollar basis, increased in the
      three and six month periods ended June 30, 2008 due to increased revenues.
      As a
      percentage of revenue, cost of goods sold decreased in both the three and six
      month periods ended June 30, 2008. For the six month period they decreased
      from
      80% in 2007 to 77% in 2008. Reduction of cost of goods sold as a percentage
      of
      revenue is a key target for the Company and significant effort was been expended
      during the second quarter of 2008 to reduce these costs. Management anticipates
      seeing further reductions during the third and fourth quarters of
      2008.





Selling,
      General and Administrative Expenses - Selling, general and administrative expenses increased to $3.730 million
      and $5.956 million for the three month and six month periods ended June 30,
      2008
      respectively. This represents a $2.019 million and $2.044 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 both the three and six month period ended June 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. In the three months ended June 30, 2008, these
      charges 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 addition, the Company incurred
      significant legal costs relating to its defense of a patent infringement lawsuit
      brought by ProLink Holdings. For both the six month ended June 30, the Company
      has significantly reduced costs in the areas of advertising and promotion,
      office expenses, stock option compensation and commissions. Commissions have
      been reduced as a result of the expiration of our marketing agreement with
      Great
      White Shark Enterprises. A new agreement is currently under negotiation. These
      cost savings were offset by higher personnel related costs and higher rent.
      Personnel related costs, in 2007, had not increased significantly until the
      second and third quarters of 2007. The Company spent the fourth quarter of
      2007
      and early part of the first quarter of 2008 establishing what it believes is
      the
      appropriate staffing levels for this area of the business to function
      effectively under current circumstances.





Research
      and Development Expenses - Research and development expenses for the three and six month periods
      ended June 30, 2008 decreased by $18 thousand and $533 thousand respectively.
      During the first six months of 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 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. These lower expenses
      were
      offset by an increase in personnel related costs due to the acquisition of
      the
      operations of UpLink Corporation.





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
      $104 thousand for the three month period ended June 30, 2007 to $598 thousand
      for the three month period ended June 30, 2008. For the six month period ended
      June 30, 2008 it increased from $196 thousand to $1.151 million. 75% of the
      expense during the first two 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 six month periods
      ended June 30, 2008. The three month loss increased from $1.745 million in
      2007
      to $3.559 million in 2008 and the six month loss increased from $4.742 million
      to $6.420 million. The increase in loss from operations for both the three
      and
      six months ended June 30, 208 was due to increased operating expenses offset
      slightly by an improvement in gross margin. Higher operating expenses during
      the
      six months ended June 30, 2008 were due to $955 thousand increase in
      amortization of intellectual property, a $2.044 million increase in selling,
      general and administrative expenses offset by a $533 thousand decrease in
      research and development expenses.




20




Finance
      Costs -
      Finance costs for the three months ended June 30, 2008 are $10 thousand higher
      than during the period in 2007 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 agrees 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%. Finance costs for the
      six
      months ended June 30, 2008 are in line with the same period in the prior year
      due to the Great White Shark Enterprises facility fees offset by a reduction
      in
      the number of warrants issued in the current six month fiscal period.





Interest
      Expense -
      Interest expense increased by $245 thousand and $205 thousand respectively
      during the three and six month periods ended June 30, 2008 compared to the
      same
      three and six 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 by of way of a Non-negotiable
      Convertible Promissory Note.





Loss
      on Foreign Exchange - During
      the three months ended June 30, 2008 the Company incurred a currency exchange
      loss of $16 thousand. For the six months ended June 30, 2008 we incurred a
      currency exchange gain of $142 thousand which represents an increase of $131
      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
      six
      month period ended June 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.





Gain/(Loss)
      on Extinguishment of Debt - The
      Company recorded a gain on extinguishment of debt of $13 thousand and $33
      thousand for the three and six months ended June 30, 2008 respectively. Both
      these gains represent an increase over the same periods in the prior year as
      the
      Company recorded a loss on extinguishment of debt for both the three and six
      month periods ended June 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 $3.866 million and $6.815 million for the three and six months ended
      June 31, 2008 respectively compared to $14.564 million and $17.755 million
      for
      the three and six months ended June 30, 2007. The Company’s 2007 net loss for
      these periods was increased by a deemed preferred stock dividend of $12.500
      million. No similar dividend was recorded during the 2008 periods. Excluding
      the
      deemed preferred stock dividend from the prior year net losses, current period
      net losses increased by $1.802 million and $1.560 million for the three and
      six
      month periods ended June 30, 2008. Net losses increased due to an increase
      in
      operating expenses partially offset by an increase in gross margins.





**Liquidity
      And Capital Resources**




To
      date,
      we have incurred significant losses from operations. As of June 30, 2008, we
      had
      a working capital deficit of $6.285 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) non-negotiable convertible
      promissory notes made to us 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
      three months ended June 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 June 30, 2008, the Company has drawn $6.500
      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 $5.500 million pursuant to a Non-negotiable Convertible Promissory
      Note. As a result of the additionally funding obtained during the second quarter
      of 2008, the Company’s working capital deficit has improved from the first
      quarter of 2008. 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 third and fourth quarters of 2008 and beyond, 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.




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 settlement terms of the secured promissory
      notes.





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 six months ended June 30, 2008, our operations utilized cash of $5.628
      million as compared to $5.039 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 $321 thousand and $2.016 thousand for
      the
      six months ended June 30, 2008 and 2007, respectively. In the 2008 period,
      investing activities consisted of the purchase of equipment and
      patents.




Financing
      Activities - Net
      cash provided by financing activities was $10.075 million for the 2008 six
      month
      period ended June 30, 2008, as compared to $2.101 million for the same period
      in
      2007. Financing activities during the six months ended June 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





We
      maintain 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. In designing and evaluating the
      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
      of the
      date of this report, The Company’s management, including the Chief Executive
      Officer and the Chief Financial 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 Chief Financial 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.




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 our Chief Executive Officer and Chief
      Financial Officer, has 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 have 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.





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 June 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.




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:





·
            Hired
                new accounting and finance staff with experience and skills more
                appropriate for a publicly traded
                company.





·
            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 developed a top-down, risk based approach to SOX compliance
                that focuses on key controls and high risk
                areas.





·
            The
                Company has hired a permanent Chief Executive
                Officer.





·
            Initiation
                of a cascading sub-certification process among process owners and
                managers.





·
            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 are performing system and process
      documentation and evaluation needed to comply with Section 404, which is both
      costly and challenging. 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 has continued taking remediation
      steps to enhance its internal control over financial reporting and reduce
      control deficiencies. We are working to eliminate the control weaknesses and
      deficiencies noted by strengthening management and by documenting and testing
      the control environment and process controls.





**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 has agreed to pay
      CCG
      an amount of $25 thousand to resolve the matter.




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 June 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 the 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
      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 are not authorized to utilize the technology it
      covers.





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 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
      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 recession 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.


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, and (v) short-term
      loans made to us 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




**Our
      future success is dependent upon our ability to attract and retain key
      management.**




Effective
      August 31, 2008, the Company’s Chief Financial Officer has resigned. The Company
      has begun its search for a new Chief Financial Officer.




**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
      are
      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 six month periods ended June 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 six months ended
      June
      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.




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 June 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 Financial 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 Financial 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: August
              19, 2008
            By:
            /s/ DAVID
              CHESSLERDavid
                ChesslerChief
                Executive Officer




Date: August
              19, 2008
            By:
            /s/ JOSEPH
              MILLERJoseph
                Miller,Chief
                Financial Officer




33