UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 30549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 28, 2002
SBS Interactive, Co.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 0-28363 65-0705830
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
37 Prince Arthur Avenue, Suite 300 Toronto, Ontario Canada M5R 1E2
- ---------------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 416-961-1409
------------
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements of SBS Interactive, Inc., a subsidiary of the issuer,
SBS Interactive, Co., which subsidiary was acquired in October 29, 2002 as
reported in the issuer's Quarterly Report on Form 10-QSB for the Quarter ended
September 30, 2002 are filed herewith as follows:
Item Page No.
---- --------
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of June 30, 2001 and 2002 F-2
Consolidated Statements of Operations for the year ended
June 30, 2002, From August 3, 2000 (inception)
To June 30, 2001 and From August 3, 2000 (inception)
to June 30, 2002 F-3
Consolidated Statements of Stockholders' Equity
As of June 30, 2002 F-4
Consolidated Statements of Cash Flows for the year ended
June 30, 2002, From August 3, 2000 (inception)
To June 30, 2001 and From August 3, 2000 (inception)
to June 30, 2002 F-5
Summary of Significant Accounting Policies F-6
Notes to Consolidated Financial Statements F-10
2
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SBS INTERACTIVE CO.
Dated: January 27, 2003 By: /s/ Todd Gotlieb
------------------------------------
Todd Gotlieb, President
and Chief Executive Officer
3
BARRY I. HECHTMAN, P.A.
Certified Public Accountants
Member of
Florida and American Institute of CPAs
Private Comapnies and Sec Practice Sections
8100 SW 81 Drive Telephone: (305) 270-0014
Suite 210 Fax: (305) 598-3695
Miami Florida, 33143-6603 email: barrycpa@netzero.net
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
SBS Interactive, Inc.
Stuart, Florida
We have audited the accompanying consolidated balance sheets of SBS Interactive,
Inc. and subsidiary as of June 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
June 30, 2002 and August 3, 2000 (inception) to June 30, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SBS Interactive, Inc. and
subsidiary as of June 30, 2002 and 2001, and the results their operations and
cash flows for the periods then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has operated at a loss since
inception and has an excess of current liabilities over current assets that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Barry I. Hechtman, P.A.
Miami, Florida Certified Public Accountants
December 29, 2002
F-1
SBS Interactive, Inc.
Consolidated Balance Sheets
June 30 2002 2001
- ------- ------------- -------------
Current Assets
Cash and cash equivalents $ 5,038 $ 5,427
Prepaid expenses and other 16,151
------------ ------------
Total current assets 5,038 21,578
Property and equipment, net 12,125 18,938
Non-compete agreement, net 295,000
Patent, net 2,476,957
Deposit - business acquisition 1,562,500
------------ ------------
$ 2,789,120 $ 1,603,016
============ ============
Liabilities, and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 161,364 $ 164,967
Accrued expenses related party 4,613
Loan payable to shareholders 84,588 39,539
------------ ------------
Total current liabilities 245,952 209,119
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.0001 par value; 50,000,000 shares authorized;
20,676,000 and 17,926,000 shares issued and outstanding 2,068 1,793
Additional paid-in capital 3,696,374 2,459,249
Deficit accumulated during the development stage (1,155,274) (1,067,145)
------------ ------------
Total stockholders' equity 2,543,168 1,393,897
------------ ------------
$ 2,789,120 $ 1,603,016
============ ============
F-2
SBS Interactive, Inc.
Consolidated Statements of Operations
From From
For the Aug 3, 2000 Aug. 3, 2000
year ended (inception) (inception)
June 30, to June 30, to June 30,
2002 2001 2002
------------ ------------- -------------
Development stage expenses:
Selling, general and administrative, $ 88,452 $ 1,066,271 $ 1,154,723
----------- ----------- -----------
Total development stage expenses 88,452 1,066,271 1,154,723
----------- ----------- -----------
Loss from operations (88,452) (1,066,271) (1,154,723)
Interest income 394 6,652 7,046
Other expenses (71) (7,526) (7,597)
----------- ----------- -----------
Net loss $ (88,129) $(1,067,145) $(1,155,274)
=========== =========== ===========
Net loss per common share (basic and diluted) $ (.01) $ (.06)
=========== ===========
Weighted average number of common shares outstanding 18,364,551 17,741,408
=========== ===========
F-3
SBS Interactive, Inc.
Consolidated Statements of Stockholders' Equity
Deficit
Common Stock Accumulated
Par Value $.001 Additional During Total
------------------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
--------------------------------------------------------------------------------
Common stock issued for cash (09/08/2000) 15,928,000 $1,593 $ 215 $ 1,693
Common stock issued as deposit for
business acquisition (09/08/2000) 1,250,000 125 562,375 562,500
Common stock issued for cash (09/09/2000
to 11/14/2000) 1,798,000 180 1,797,820 1,798,000
Common stock issued for cash (05/01/2001) 100,000 10 98,839 98,849
Net loss for the period August 3, 2000
inception) to June 30, 2001 $(1,067,145) (1,059,619)
---------- ------ ------------ ----------- ------------
Balance at June 30, 2001 17,926,000 1,793 2,459,249 (1,067,145) 1,393,897
Common stock issued for business
acquisition (05/30/2002) 2,750,000 275 1,237,225 1,237,500
Adjustment for Canadian currency investment (100) (100)
Net loss for the year ended June 30, 2002 (88,129) (88,129)
---------- ------ ------------ ----------- ------------
Balance at June 30, 2002 20,676,000 $2,068 $ 3,696,374 $(1,155,274) $ 2,543,168
========== ====== =========== =========== ===========
F-4
SBS Interactive, Inc.
Consolidated Statements of Cash Flows
From From
For the Aug 3, 2000 Aug. 3, 2000
year ended (inception) (inception)
June 30, to June 30, to June 30,
2002 2001 2002
------------ ------------ ------------
Operating activities:
Net loss $ (88,129) $(1,067,145 ) $(1,155,274)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 34,839 4,876 39,715
Currency translation, net (82) - (82)
Change in assets and liabilities:
Prepaid expenses and other 16,150 (16,150) -
Accounts payable and accrued expenses (8,216) 169,580 161,364
----------- ----------- -----------
Net cash used in operating activities (45,438) (908,839) (954,277)
----------- ----------- ------------
Investing activities:
Business acquisition - (1,000,000) (1,000,000)
Purchase of property and equipment - (23,815) (23,815)
----------- ----------- ------------
Net cash used in investing activities - (1,023,815) (1,023,815)
----------- ----------- -----------
Financing activities:
Proceeds from issuance of debt to shareholders 45,049 39,539 84,588
Proceeds from issuance of common stock 1,898,542 1,938,081
----------- ----------- -----------
Net cash provided by financing activities 45,049 1,938,081 1,983,130
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (389) 5,427 5,038
Cash and equivalents, beginning of year 5,427 0 0
----------- ----------- -----------
Cash and equivalents, end of year $ 5,038 $ 5,427 $ 5,038
=========== =========== ===========
F-5
SBS Interactive, Inc.
Summary of Significant Accounting Policies
NATURE OF OPERATIONS
- --------------------
SBS Interactive, Inc. (the "Company") was incorporated on August 3, 2000 under
the laws of the State of Nevada. The Company designs, develops and manufactures
technology which captures the user's image and local background environment and
composites that image side-by-side with a pre-recorded image. The Company has
been operating as a development stage enterprise since its inception and is
devoting substantially all its efforts to the ongoing development of the
Company.
High Plateau Holdings, Inc., its wholly owned subsidiary, was incorporated on
April 3, 1974 under the laws of Canada. High Plateau Holdings has been operating
as a development stage enterprise since its inception and is devoting
substantially all its efforts to its ongoing development. High Plateau Holdings,
Inc. has had no significant transactions since inception other than the
acquisition of United States Patent Number 6,072,933.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying amounts of the Company's financial assets, including cash and cash
equivalents and of certain financial liabilities (accounts payable and accrued
expenses and due to related parties), approximate fair value because of their
short maturities.
Based on the Company's estimate of its current incremental borrowing rate for
loans with similar terms and average maturities, the carrying amounts of loans
payable to shareholders approximate fair value.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
F-6
SBS Interactive, Inc.
Summary of Significant Accounting Policies
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment is stated at cost, maintenance and repairs are charged to
operations. Property and equipment consists principally of office equipment.
Depreciation and amortization is computed using the straight-line method based
on the estimated useful lives of the related assets of 3 years.
LONG-LIVED ASSETS
- -----------------
The Company evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At such time the evaluations indicate that the
future undiscounted cash flows of the long-lived assets would not be sufficient
to recover the carrying value of such assets, the assets would be adjusted to
their fair values.
PATENTS
- -------
The patent is stated at cost and is being amortized on a straight-line basis
over the estimated future periods to be benefited (18 years).
NON-COMPETE AGREEMENT
- ---------------------
The non-compete agreement is stated at cost and is being amortized on a
straight-line basis over the stated life of the agreement (5 years).
BUSINESS
- --------
Acquisitions On May 30, 2002 the Company acquired 100% of the stock of High
Plateau Holdings, Inc., a Canadian corporation, for $610,000 in cash, assumed
$40,000 in outstanding payables, and issued four million shares of common stock
(see Note 9). Prior to the acquisition High Plateau Holdings, Inc. had devoted
all of its efforts in the development of its sole asset, United States Patent
Number 6,072,933.
ADVERTISING
- -----------
The Company conducts advertising for the promotion of its products. Advertising
costs are charged to operations when incurred; such amounts aggregated $0 in
2002 and $118,039 in 2001.
INCOME TAXES
- ------------
The Company accounts for income taxes pursuant to the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which requires, among other things, a liability approach to calculating deferred
income taxes. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities.
F-7
SBS Interactive, Inc.
Summary of Significant Accounting Policies
RECLASSIFICATIONS
- -----------------
Certain prior year amounts have been reclassified to conform to the fiscal year
2002 presentation.
LOSS PER SHARE
- --------------
Basic loss per share is computed on the basis of the weighted average number of
common shares outstanding during each year. Diluted loss per share is computed
on the basis of the weighted average number of common shares and dilutive
securities outstanding. Dilutive securities having an antidilutive effect on
diluted loss per share are excluded from the calculation.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of SBS Interactive,
Inc. and its wholly owned subsidiary, High Plateau Holdings, Inc. All material
intercompany accounts and transactions are eliminated.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 2001, the Financial Accounting Standards Board (FASB) finalized SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires the use of the purchase method of accounting for
business combinations initiated after June 30, 2001. SFAS 141 also requires that
the Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142 that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
F-8
SBS Interactive, Inc.
Summary of Significant Accounting Policies
first interim quarter after adoption of SFAS 142. The Company is assessing but
has not yet determined how the adoption of SFAS 142 will impact its financial
position and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets." This Statement addressed financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board (APB) Opinion
No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," (as previously defined in that Opinion).
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption encouraged. The provisions of this
Statement generally are to be applied prospectively. Currently the company is
assessing but has not yet determined how the adoption of SFAS 144 will impact
its financial position and results of operations.
F-9
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
1. GOING CONCERN
-------------
The accompanying financial statements were prepared assuming that the
Company will continue as a going concern. This basis of accounting
contemplates the realization of assets and the satisfaction of its
liabilities in the normal course of operations. Since inception, the
Company incurred losses of approximately $1.2 million, at June 30, 2002 has
a working capital deficiency of $242,799 and has not reached a profitable
level of operations, all of which raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's continued existence is dependent upon its ability to resolve
its liquidity problems, principally by obtaining additional debt financing
and equity capital.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
Accordingly, there are no assurances that the Company will be successful in
achieving the above plans, or that such plans, if consummated, will enable
the Company to obtain profitable operations or continue as a going concern.
2. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
Estimated
Useful
June 30, Life 2002
-------- --------- ---------
Office equipment 3 years $ 23,798
---------
23,798
Less accumulated depreciation (11,673)
---------
$ 12,125
=========
3. NON-COMPETE AGREEMENT
---------------------
The Company paid $300,000 for a five year, non-compete agreement from the
sole shareholder of High Plateau Holdings, Inc. on May 30, 2002
(acquisition date).
F-10
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
Estimated
Useful
June 30, Life 2002
-------- --------- ---------
Non-compete agreement 5 years $ 300,000
---------
300,000
Less accumulated amortization (5,000)
---------
$ 295,000
=========
At June 30, 2002 future amortization charges were as follows:
Years ending June 30,
---------------------
2003 $ 60,000
2004 60,000
2005 60,000
2006 60,000
2007 55,000
Thereafter -
---------
Total $ 295,000
=========
4. PATENT
------
United States Patent Number 6,072,933 was acquired by the company through
its acquisition of High Plateau Holdings, Inc. on May 30, 2002 (see Note
9). The fair value (as defined by SFAS 141) of the patent was determined to
be approximately $2,500,000 at the date of acquisition. The valuation was
established through the use of an independent valuation service.
Estimated
Useful
June 30, Life 2002
-------- --------- ---------
Patent 18 years $2,500,000
----------
2,500,000
Less accumulated amortization (23,043)
----------
$2,476,957
==========
F-11
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
At June 30, 2002 future amortization charges were as follows:
Years ending June 30,
---------------------
2003 $ 138,889
2004 138,889
2005 138,889
2006 138,889
2007 138,889
Thereafter 1,782,512
----------
Total $2,476,957
==========
5. LOANS PAYABLE SHAREHOLDERS
--------------------------
Loans payable to shareholders consist of the following:
June 30, 2002 2001
-------- -------- --------
Unsecured loans payable to shareholders
non-interest bearing, due upon demand $ 84,588 $ 39,539
-------- --------
84,588 39,539
Less current portion 84,588 39,539
-------- --------
$ - $ -
======== ========
6. COMMON STOCK
------------
Shares Issued for Cash
----------------------
During the period August 3, 2000 (inception) to June 30, 2001, the Company
issued 16,676,000 shares for net proceeds of $1,898,542.
Acquisition of Subsidiary
-------------------------
On September 8, 2000, the Company issued 1,250,000 shares as a deposit in
the acquisition of High Plateau Holdings, Inc., its wholly owned subsidiary
(see Note 9). These shares were recorded by management at an estimated fair
value of $562,500 ($0.45 per share).
On May 30, 2002 the Company issued an additional 2,750,000 shares in the
acquisition of High Plateau Holdings, Inc., its wholly owned subsidiary.
These shares were recorded by management at an estimated fair value of
$1,237,500 ($0.45 per share).
F-12
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
Loss per Share
--------------
The following reconciles the components of the loss per share computation:
For the periods
ended June 30, 2002 2001
--------------- -------------------------------------- -----------------------------------
Per
Income Shares Per-Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------------------------------------------------
Loss per common share
Net (loss)
available to
common
shareholders $ (88,129) 18,364,551 $(0.01) $(1,067,145) 17,741,408 $(0.06)
========= ========== ====== =========== ========== ======
7. INCOME TAXES
------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At June
30, 2002, the Company had United States net operating losses (NOL) of
approximately $1,119,706 and Canadian net operating losses (NOL) of
approximately $40,364. The United States NOL expires during the years 2021
to 2022 and the Canadian NOL expires during the years 2002 to 2009. In the
event that a change in ownership of the Company of greater than 50 percent
occurs/occurred as a result of the Company's issuance of common and
preferred stock, the utilization of the United States NOL carryforward will
be subject to limitation under certain provisions of the United States
Internal Revenue Code.
Realization of any portion of the approximate $396,846 of deferred tax
assets at June 30, 2002 that arise from the NOL carryforwards is not
considered more likely than not by management; accordingly, a valuation of
allowance has been established for the full amount of such asset.
The reconciliation of income tax benefit computed at the United States
federal tax rate of 34% and the Canadian tax rate of 40% to income tax
benefit is as follows:
Period ended June 30, 2002 2001
--------------------- ----------- ----------
Tax benefit at the United States
statutory rate $ 20,146 $ 362,829
Tax benefit at the Canadian
statutory rate (3,369) (3,369)
Valuation allowance adjustment
(23,515) (366,199)
---------- ---------
Income tax benefit $ - $ -
========== =========
F-13
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31, 2002 2001
------------ ---------- ----------
Deferred tax assets:
US federal $ 382,975 $ 362,829
Canadian 13,127 9,757
Valuation allowance for deferred
tax assets (396,102) (372,857)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
8. RESEARCH AND DEVELOPMENT
------------------------
Research and development cost related to both future and present products
are charged to operations as incurred. The Company recognized research and
development costs of $0 and $130,0530 in 2002 and 2001 respectively.
9. BUSINESS ACQUISITION
--------------------
On May 30, 2002, SBS Interactive, Inc. (SBS) acquired 100 percent of the
outstanding common shares of High Plateau Holdings, Inc. (High Plateau). At
the time of the transaction, High Plateau had no operations and its sole
asset was a patent. The results of High Plateau's operations have been
included in the consolidated financial statements since that date. High
Plateau's patent is crucial to SBS's intended product, technology which
captures the user's image and local background environment and composites
that image side-by-side with a pre-recorded image.
The aggregate purchase price was $2,500,000, including $700,000 of cash and
stock valued at $1,800,000. The value of the 4,000,000 shares issued was
determined based on the fair value of High Plateau's only asset, United
States Patent Number 6,072,933, which was appraised by a third-party
valuation service. Per accounting pronouncement APB 29, this valuation was
considered to be a more accurate indicator of the value of the transaction
than any other available information as the Company's shares are not
publicly traded.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
At May 30, 2002
---------------
Intangible Assets $ 2,500,000
Current liabilities (40,000)
-------------
Net assets acquired $ 2,460,000
=============
F-14
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
10. MAJOR VENDORS AND CONCENTRATIONS
--------------------------------
Royalty Agreement
-----------------
On September 9, 1999 High Plateau Holdings, Inc. entered into a Royalty and
Development Agreement with Ultimatte Corporation (Ultimatte) to develop a
"keyer unit" based on patented technology held by Ultimatte. The keyer unit
would enable the patented technology of the Company to interact with the
consumer and is crucial to the Company's existing plans for development and
production of its intended product. In accordance with the agreement, the
Company is obligated to pay $130,000 to Ultimatte in development fees, of
which $90,000 has been paid through june 30, 2002.
The contract calls for the manufacture of the keyer units by the Company
after the test units are delivered and FCC approval is received. The
contract also calls for the Company, after final acceptance of the test
units, to manufacture 200,000 units within two years and 600,000 units
within three years or the company loses their exclusive rights to the
technology in this market.
The Company shall pay to Ultimatte royalties accrued during each quarter no
later than the end of the month following such quarter in accordance with
the following table:
Cumulative number of keyer units for Royalty amount per
which royalties have been paid unit produced
------------------------------------ ------------------
Less than 100,001 units $ 3.00
100,001 to 500,000 units $ 2.50
500,001 to 1,000,000 units $ 2.25
1,000,000 to 5,000,000 units $ 2.00
More than 5,000,000 units $ 1.00
11. COMMITMENT AND CONTINGENCIES
----------------------------
The Company currently maintains an office in Canada. The Company does not
currently own or operate any manufacturing, operating or repair facilities.
Substantially all of the Company's operations are devoted to the
development of its patented technology. The Company believes that it is in
substantial compliance with all environmental laws and regulations
applicable to its business as currently conducted.
F-15
Lease rent expense for the periods ended June 30, 2002 and 2001 amounted to
$2,261 and $24,661. At June 30, 2002, the Company was subleasing the office
space under a month-to-month lease from a related company for monthly
payments of $1,715 Canadian.
12. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental disclosure is as follows:
June 30, 2002 2001
-------- ---------- ----------
Cash paid for interest $ - $ -
Cash paid for taxes - -
Non-cash investing and financing activities:
Stock issued in acquisition of High Plateau
Holdings, Inc. $1,237,500 $562,500
13. SUBSEQUENT EVENTS
-----------------
(a) The Company expects to have an amended royalty agreement with
Ultimatte Corporation which will revise the two and three year target
dates based on the recent delivery of the test units.
(b) On August 9, 2002 the Company issued a promissory note in the amount
of $100,000, with a due date of August 31, 2003, unsecured, bearing
interest at 5% per annum.
(c) During the three months ended September 30, 2002, $19,574 of the
outstanding unsecured shareholder loans were repaid by the Company. On
October 29, 2002 the Company agreed in principle with the shareholders
to issue promissory notes for the remaining balances, bearing interest
at 5% per annum, with due dates of October 28, 2007.
(d) The Company has entered into arrangements for a business combination
in which it will become a wholly owned subsidiary of SBS Interactive
Co., a publicly traded Florida corporation ("Interactive") in exchange
for approximately 3,181,000 shares of common stock to be issued to the
stockholders of Interactive. The Company has concluded to concentrate
its operations on attempting to raise capital to fund and operate the
F-16
business of Interactive as a consumer electronics company focused on
developing, marketing and licensing products that enable the consumers
to use their televisions as an interactive medium.
On July 16, 2002, Interactive, the Company and SBS Acquisition, Inc.,
a Nevada corporation and a wholly owned subsidiary of Interactive
executed and entered into a "Merger Agreement". The Merger Agreement
was closed on October 29, 2002 for the Business Combination in which
the Company became a wholly owned subsidiary of Interactive and the
present stockholders of the Company will become shareholders of
Interactive. The Merger Agreement provided that upon its "Effective
Time":
Acquisition was merged into the Company which is the surviving
corporation in the merger;
The 20,676,000 shares of the common stock of the Company outstanding
immediately prior to the Effective Time was cancelled and the holders
of that stock became shareholders of Interactive with each 6.5 old
shares of Interactive stock becoming 1 share of Interactive's common
stock (no fractional shares of Interactive's shares will be issued and
each shareholder of the Company entitled to a fractional share will be
issued a whole share therefor); Approximately 3,181,000 shares will be
issued by Interactive.
The Company issued 1,000 shares of new common stock to the Company and
thus became a wholly owned subsidiary of the Company.
The Board of Directors and officers of the Company have been
reorganized and the following constitutes its directors and officers:
Name Position(s)
---- -----------
Todd Gotlieb President and Director
Barry Alter Vice President
Patti Cooke Secretary and Director
F-17
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
The Business Combination is designed to constitute a "non-taxable"
transaction under U.S. and Canadian tax laws; however, the parties
have not obtained any tax ruling or opinion on its tax status and the
shareholders of the Company were advised and cautioned to seek their
own tax advice and counsel on this issue;
The stock of Interactive being issued to the Company shareholders is:
(i) being issued pursuant to exemptions for the registration
requirements of the Securities Act of 1933 ("Securities Act") provided
in Rule 506 of Regulation D and/or Regulation S adopted under the
Securities Act; (ii) "restricted securities" as defined under the
Securities Act; and (iii) subject to restrictions on their future
transferability and/or sale.
A copy of the Merger Agreement was filed with the Form 10-QSB Report
of Inet Commerce Corporation for the period ended June 30, 2002 as an
Exhibit 10(A). A copy of the Articles and Plan of Merger was filed
with Nevada on October 29, 2002 to complete the acquisition of the
Company by Interactive. On August 31, 2002, the Company and Steven S.
Cady reached a conditional agreement that, if the Interactive
completed the acquisition of the Company and acquired sufficient
additional capital to fund the Company's program to manufacture and
market its Side by SideTM products by the end of December 2002, Mr.
Cady would become a director and the Chief Executive Officer of
Interactive. This agreement has been ratified by the Interactive since
its acquisition of the Company of October 29, 2002. It is presently
understood by the parties that if the Interactive acquires $2,000,000
in additional capital, Mr. Cady will head a new management team to be
assembled by him and, Barry D. Alter and Patti Cooke will resign from
positions as officers and/or directors. Mr. Cady has been acting as a
consultant to the Company since August 31, 2002, concentrating on
product development with Ultimate Corporation and formation of the new
management team for the Company. The agreement expired December 31,
2002, but Mr. Cady has extended the agreement through the January 31,
2003 due to a potential funding arrangement.
F-18
SBS Interactive, Inc.
Notes to Consolidated Financial Statements
(e) On October 30, 2002 the Company issued a convertible debenture in the
amount of $72,000, with a due date of January 30, 2003, secured by all
assets of the Company. The note may be converted into a number of
common shares of the parent corporation (SBS Interactive Co.) equal to
the lesser of (a) two dollars (US); or (b) the dollar value per common
share which SBS Interactive Co.'s common stock sold in its most recent
private placement.
F-19