UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 30549
FORM 10-QSB
(MarkOne)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
of 1934
For the quarterly period ended March 31, 2003
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number: 0-28363
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SBS Interactive Co.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0705830
------------------------------ -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
200 Viceroy Road, Unit 5, Concord, Ontario L4K 3N8, Canada
----------------------------------------------------------
(Address of principal executive offices)
(905) 660-0646
---------------------------
(Issuer's telephone number)
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(Former name, former address and former fiscal year
(if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a Court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity, as of May 12, 2003 was 7,017,200 shares of common stock.
Transitional Small Business Disclosure Format (Check one): Yes {X} No { }
INDEX
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet as of March 31, 2003 3
Consolidated Statement of Operations for the
Three Months Ended March 31, 2003
And March 31, 2002 and From September 20, 1996
(inception) to March 31, 2003 4
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2003
And March 31, 2002 and From September 20, 1996
(inception) to March 31, 2003 5
Summary of Significant Accounting Policies 6
Notes to Consolidated Financial Statements 10
Item 2. Plan of Operation 18
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults in Senior Securities 21
Item 4. Submission of Matters to a Vote of Securities Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
SBS Interactive, Co.
Consolidated Balance Sheets
March 31 2003
- -------- --------------
Current Assets
Cash and cash equivalents $ 1,305
-------------
Total current assets 1,305
Property and equipment, net 7,449
Non-compete agreement, net 250,000
Patent, net 2,373,271
Deposits 1,167
-------------
$ 2,633,191
=============
Liabilities, and Stockholders' Equity
Current Liabilities
Accounts payable $ 188,763
Accrued interest 4,331
Notes payable 202,000
-------------
Total current liabilities 395,094
Notes payable shareholders 68,071
-------------
Total liabilities 463,165
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.001 par value; 50,000,000 shares
authorized; 10,198,184 shares issued and outstanding 10,198
Additional paid-in capital 14,560,160
Deficit accumulated during the development stage (12,400,332)
-------------
Total stockholders' equity 2,170,026
-------------
$ 2,633,191
=============
See accompanying summary of significant accounting policies
and notes to financial statements.
3
SBS Interactive, Co.
Consolidated Statements of Operations
For the For the From
three months three months Sep. 20, 1996
ended ended (inception)
Mar. 31, Mar. 31, to Mar. 31,
2003 2002 2002
------------ ------------ --------------
Development stage expenses:
Selling, general and administrative, $ 73,952 $ 16,098 $ 526,548
Non-cash compensation 3,875,000
Acquisition expenses - research and development 7,943,080
----------- ---------- ------------
Total development stage expenses 73,952 16,098 12,344,628
----------- ---------- ------------
Loss from operations (73,952) (16,098) (12,344,628)
Interest income 2,238
Interest expense (2,042) (4,262)
Non-cash interest, beneficial conversion feature (9,000) (42,000)
Other expenses (11,220) (11,680)
----------- ---------- ------------
Net loss $ (96,213) $ (16,098) $(12,400,332)
=========== ========== ============
Net loss per common share (basic and diluted) $ (.01) $ (.00)
=========== ==========
Weighted average number of common shares outstanding 10,198,184 7,017,200
=========== ==========
See accompanying summary of significant accounting policies and notes to financial statements.
4
SBS Interactive, Co.
Consolidated Statements of Cash Flows
For the For the From
three months three months Sep. 20, 1996
ended ended (inception)
Mar. 31, Mar. 31, to Mar. 31,
2003 2002 2002
------------ ------------ --------------
Operating activities:
Net loss $ (96,214) $(3,941,567) $(12,400,332)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 52,297 86,376
Cash from acquired subsidiaries 1,980
Translation adjustments 3,578 3,578
Research & development from acquisition 7,943,080
Non-cash interest, beneficial conversion feature 9,000 42,000
Issuance of equity instruments for services 3,875,000 3,875,000
Change in assets and liabilities:
Deposits (81) (224) (73)
Accrued interest 2,113 4,331
Accounts payable (6,807) 7,823 27,539
--------- ----------- ------------
Net cash used in operating activities (36,114) (58,968) (416,521)
--------- ----------- ------------
Investing activities:
Purchase of property and equipment - (388)
--------- ----------- ------------
Net cash used in investing activities - (388)
--------- ----------- ------------
Financing activities:
Proceeds from issuance of common stock 315,160
Proceeds from issuance of debt to shareholders 1,054
Proceeds from issuance of debt 30,000 102,000
--------- ----------- ------------
Net cash provided by financing activities 30,000 418,214
--------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (6,114) (58,968) 1,305
Cash and equivalents, beginning of year 7,419 166,689 0
--------- ----------- ------------
Cash and equivalents, end of year $ 1,305 $ 107,721 1,305
========= =========== ============
See accompanying summary of significant accounting policies and notes to financial statements.
5
SBS Interactive, Co.
Summary of Significant Accounting Policies
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All adjustments which,
in the opinion of management, are considered necessary for a fair presentation
of the results of operations for the periods shown are of a normal recurring
nature and have been reflected in the unaudited condensed financial statements.
The results of operations for the periods presented are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. The information included in these unaudited condensed financial
statements should be read in conjunction with Plan of Operation and Results of
Operations contained in this report and the financial statements and
accompanying notes included in the SBS Interactive, Co. and subsidiaries (the
"Company") Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
NATURE OF OPERATIONS
- --------------------
SBS Interactive, Co. (the "Company") was incorporated on September 20, 1996
under the laws of the State of Florida as Cosmetics Consultants Corp. for the
purpose of marketing sales and support services to retailers of cosmetic
companies. In November of 1999 the Company changed its activities to acting as a
consultant to internet related enterprises that are seeking capital. In July,
2002 the Company changed its activities to operate 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 November 25, 1996, Cosmetics Consultants Corp. changed its name to Lomillo
Consultants Corp.
On July 17, 1997, the Company amended and restated its articles of incorporation
and changed its name to Inet Commerce Conduit Corp.
On July 30, 2002, the Company amended and restated its articles of incorporation
and changed its name to SBS Interactive, Co.
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.
6
SBS Interactive, Co.
Summary of Significant Accounting Policies
SBS Interactive, Inc. ("SBS, Inc."), its wholly owned subsidiary, was
incorporated on August 3, 2000 under the laws of the State of Nevada. SBS, Inc.
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. SBS, Inc. has been operating as a development stage
enterprise since its inception and is devoting substantially all its efforts to
the ongoing development of the SBS, Inc..
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.
7
SBS Interactive, Co.
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 October 29, 2002 the Company acquired 100% of the stock of SBS Interactive,
Inc., a Nevada corporation, and it's subsidiary High Plateau Holdings, Inc., a
Canadian corporation, through the issuance of 3,180,984 shares of common stock
(see Note 10). Prior to the acquisition SBS Interactive, Inc. and subsidiary 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 and
$1,825 for the three months ended March 31, 2002 and 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.
8
SBS Interactive, Co.
Summary of Significant Accounting Policies
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,
Co. and its wholly owned subsidiaries, SBS Interactive, Inc. and High Plateau
Holdings, Inc. All material intercompany accounts and transactions are
eliminated.
9
SBS Interactive, Co.
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 has incurred losses of approximately $12.4 million and, at March
31, 2003, has a working capital deficiency of $393,789. The Company
presently has no revenues of operations. All of these factors 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. 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.
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.
2. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
Estimated
Useful
March 31, Life 2003
--------- ---------- ---------
Office equipment 3 years $ 11,220
--------
11,220
Less accumulated depreciation (3,771)
--------
$ 7,449
========
3. NON-COMPETE AGREEMENT
---------------------
A five year, non-compete agreement was acquired by the company through its
acquisition of SBS Interactive, Inc. and subsidiary on October 29, 2002
(see Note 9). The fair value (as defined by SFAS 141) of the non-compete
agreement was determined to be approximately $275,000 at the date of
10
SBS Interactive, Co.
Notes to Consolidated Financial Statements
acquisition. The valuation was established through the use of the
non-compete agreement's original cost ($300,000) on May 29, 2002 paid by
the acquired subsidiary less the expired portion of its useful life
($25,000)
Estimated
Useful
March 31, Life 2003
--------- ---------- --------
Non-compete agreement 5 years $275,000
--------
275,000
Less accumulated amortization (25,000)
--------
$250,000
========
At March 31, 2003 future amortization charges were as follows:
Periods ending December 31,
---------------------------
2003 $ 45,000
2004 60,000
2005 60,000
2006 60,000
2007 35,000
Thereafter -
--------
Total $250,000
========
4. PATENT
------
United States Patent Number 6,072,933 was acquired by the company through
its acquisition of SBS Interactive, Inc. and subsidiary on October 29, 2002
(see Note 10). The fair value (as defined by SFAS 141) of the patent was
determined to be approximately $2,430,875 at the date of acquisition. The
valuation was established through the use of an independent valuation
service.
Estimated
Useful
March 31, Life 2003
--------- ---------- ----------
Patent 17.5 years $2,430,875
----------
2,430,875
Less accumulated amortization (57,604)
----------
$2,373,271
==========
11
SBS Interactive, Co.
Notes to Consolidated Financial Statements
At March 31, 2003 future amortization charges were as follows:
Periods ending December 31,
---------------------------
2003 $ 104,167
2004 138,889
2005 138,889
2006 138,889
2007 138,889
Thereafter 1,713,548
----------
Total $2,373,271
==========
5. NOTES PAYABLE
-------------
Notes payable consist of the following:
March 31, 2003
--------- ---------
Note 1 payable Karlgar Limited, due May $ 72,000
15, 2003, secured by all assets of the
company, convertible immediately at the
holders discretion into 32,000 shares of
restricted common stock.
Note 2 payable Karlgar Limited, due May 72,000
15, 2003, secured by all assets of the
company, convertible immediately at the
holders discretion into 15,000 shares of
restricted common stock.
Note payable to unrelated party, due 100,000
August 31, 2003, bearing interest at 5%
per annum, unsecured.
--------
172,000
Less current portion 172,000
--------
$ -
========
The note(s) payable to Karlgar Limited in lieu of a stated interest rate,
had the option upon execution to be converted into restricted common shares
equal to an exchange rate of $2.00 per share. At the date of execution of
Note 2 management estimated the fair value of the restricted stock to be
$2.60 per share, causing the note to contain a beneficial conversion
feature upon issuance. The Company, in accordance with applicable
accounting rules, recognized interest expense in the amount of $9,000 for
this beneficial conversion feature interest component of the note at
issuance.
12
SBS Interactive, Co.
Notes to Consolidated Financial Statements
6. NOTES PAYABLE SHAREHOLDERS
--------------------------
Notes payable to shareholders consist of the following:
March 31, 2003
--------- --------
Unsecured notes payable to shareholders
bearing interest at 5% per annum, $ 68,071
principle and interest due at maturity of
October 29, 2007.
--------
68,071
Less current portion -
--------
$ 68,071
========
7. COMMON STOCK LOSS PER SHARE
---------------------------
The following reconciles the components of the loss per share computation:
For the periods ended
March 31, 2003 2002
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Loss per common share
Net (loss)
available to
common
shareholders $(96,214) 10,198,194 $ (.01) $(16,098) 7,017,200 $ (.00)
Effect of Dilutive
Securities:
Stock
options/warrants - - - - - -
-------- ---------- ------ -------- --------- ------
Net (loss) available
to common
shareholders
plus assumed
conversions $(96,214) 10,198,194 $ (.01) $(16,098) 7,017,200 $ (.00)
======== ========== ====== ======== ========= ======
13
SBS Interactive, Co.
Notes to Consolidated Financial Statements
8. 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
December 31, 2002, the Company had United States net operating losses (NOL)
of approximately $1,068,469. The United States NOL expires during the years
2020 to 2022. 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 $394,568 of deferred tax
assets at March 31, 2003 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% is as follows:
Period ended March 31, 2003 2002
---------------------- ------------ ------------
Tax benefit at the United States
statutory rate $ 32,713 $ 5,747
Valuation allowance
adjustment
(32,713) (5,747)
----------- -----------
Income tax benefit $ - $ -
=========== ===========
Significant components of the Company's deferred tax assets and liabilities
are as follows:
March 31, 2003 2002
--------- ------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 394,568 $ 146,382
Compensation related to equity
instruments issued for services 1,317,500 1,317,500
Compensation related to equity
instruments issued for acquisitons 2,700,851
Compensation related to equity
instruments issued for debt 14,280
Valuation allowance for deferred
tax assets (4,426,929) (1,463,882)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
Subsidiaries of the Company have net operating loss carryovers that are
subject to limitation under certain provisions of the United States
Internal Revenue Code. The NOLs total approximately $1,119,706 and expire
during the years 2021 to 2022. The Company also has an NOL carryover in
Canada that totals approximately $40,364 and expires during the years 2002
to 2009 at December 31, 2002.
14
SBS Interactive, Co.
Notes to Consolidated Financial Statements
9. BUSINESS ACQUISITION
--------------------
On October 29, 2002, SBS Interactive, Co. (SBS, Co) acquired 100 percent of
the outstanding common shares of SBS Interactive, Inc. (SBS, Inc.) and its
subsidiary High Plateau Holdings, Inc. (High Plateau). At the time of the
transaction, SBS, Inc. and subsidiary had been operating as a development
stage company and its assets consisted of cash, property and equipment, a
non-compete agreement and, a patent. The results of SBS, Inc and subsidiary
operations have been included in the consolidated financial statements
since that date. High Plateau's patent is crucial to SBS, Inc.'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.
On July 16, 2002, SBS, Co, SBS, Inc. and SBS Acquisition, Inc., a Nevada
corporation and a wholly owned subsidiary of SBS, Co. executed and entered
into a "Merger Agreement". The Merger Agreement was closed on October 29,
2002 for the Business Combination in which the SBS, Inc. became a wholly
owned subsidiary of SBS, Co. and the stockholders of the SBS, Inc. became
shareholders of SBS, Inc. The Merger Agreement provided that upon its
"Effective Time":
Acquisition was merged into the SBS, Inc. which is the surviving
corporation in the merger.
The 20,676,000 shares of the common stock of SBS, Inc. outstanding
immediately prior to the Effective Time was cancelled and the holders of
that stock became shareholders of SBS, Co. with each 6.5 old shares of SBS,
Inc. stock becoming 1 share of SBS, Co.'s common stock (no fractional
shares of SBS Co's shares were issued and each shareholder of the Company
entitled to a fractional share was issued a whole share therefor).
The Business Combination was 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 SBS, Co. issued to the Company shareholders was: (i) 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.
15
SBS Interactive, Co.
Notes to Consolidated Financial Statements
10. RELATED PARTY TRANSACTIONS
--------------------------
Consulting Services
-------------------
Fees totaling $1,568 and $4,000 have been paid to officers and companies
owned by shareholders during the periods ended March 31, 2003 and 2002 for
administrative fees, consulting services rendered and, expenses paid on
behalf of the Company. The officers and directors of the Company are
involved in other business activities and may, in the future, become
involved in other business opportunities.
Lease rent expense for the periods ended March 31, 2003 and 2002 amounted
to $2,235 and $1,200. At March 31, 2003, the Company was subleasing the
office space under a month-to-month lease from a related company for
monthly payments of $1,715 Canadian.
11. 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
enables 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 March 31, 2003.
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
16
SBS Interactive, Co.
Notes to Consolidated Financial Statements
12. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Supplemental disclosure is as follows:
March 31, 2003 2002
--------- ---------- ----------
Cash paid for interest $ - $ -
Cash paid for taxes - -
Non-cash investing and financing activities:
Non-cash interest, beneficial conversion 9,000
feature
15. SUBSEQUENT EVENTS
The Company and Ralph Rubenstein entered into an Employment Agreement
("Agreement") effective as of April 30, 2003. The Agreement is for a three
year term commencing April 30, 2003. It provides that Mr. Rubenstein is to
serve as the Chairman and Chief Executive Officer of the Company. The
Agreement further provides that his salary will commence when the Company
has received $150,000 in capital funds. The following is a summary of the
principal terms of the Agreement:
o A monthly salary of $16,500;
o Mr. Rubenstein is entitled to participate in all benefit plans of the
Company;
o Mr. Rubenstein was granted 605,981 shares of the Company's common
stock (to be issued as "restricted securities" under the Securities
Act of 1933);
o Mr. Rubenstein was granted a stock option to purchase 1,211,963 shares
of the Company's common stock at $.75 per share; exercisable as
605,982 shares on or after November 1, 2003 and the remaining 605,981
shares on or after May 1, 2004 through April 30, 2013 or one year from
his termination of employment, whichever is earlier;
o Payment of $1,000 per month for an automotive allowance;
o Provides for reimbursement of all communication charges incurred in
performance of duties under the Agreement;
o After the initial three year term, the Agreement provides for an
automatic one-year renewal term unless terminated by notice 60 days
prior to the end of a term;
o If Mr. Rubenstein is terminated by the Company other than for cause,
he is entitled to severance payment equal to the greater of his then
monthly salary for the remainder of the term or for 12 months together
with accrued vacation time pay and unpaid bonuses;
o A bonus payment equal to 7% of the Company's Income from Operations
before Income Taxes for each fiscal year during the term of the
Agreement;
o Provides that Mr. Rubenstein may pursue other business activities and
does not have to devote his full time to the Company's affairs; and
o Other provisions customary in such employment arrangements.
17
ITEM 2. PLAN OF OPERATION
- --------------------------
SBS Interactive, Co. ("Company" or "Issuer") was formed as a Florida
corporation named "Cosmetics Consultation Corporation" on September 20, 1996.
Its name was changed to "Lomillo Consulting Corp." on November 25, 1996 and then
to "Inet Commerce Conduit Corp." on July 17, 1997. On July 30, 2002, the Company
changed its name to "SBS Interactive, Co." in anticipation of the completion of
the Business Combination hereinafter described. From September of 1999 to the
summer of 2002, the Company initiated and conducted operations as a consultant
to Internet-related enterprises seeking capital. Due to a lack of any meaningful
response to these efforts, the Company concluded to terminate its consulting
business. On October 29th the Company completed a Business Combination in which
it acquired 100% ownership of SBS Interactive, Inc., a Nevada corporation
("Interactive") in exchange for 3,180,984 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 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 the Company executed and
entered into a "Merger Agreement". The Merger Agreement was closed on October
29, 2002 for the Business Combination in which Interactive became a wholly owned
subsidiary of the Company and the present stockholders of Interactive will
become shareholders of the Company. The Merger Agreement provided that upon its
"Effective Time":
o Acquisition was merged into Interactive which was the surviving
corporation in the merger;
o The 20,676,000 shares of the common stock of Interactive outstanding
immediately prior to the Effective Time were canceled and the holders
of that stock shall become shareholders of the Company with each 6.5
old shares of Interactive stock becoming 1 share of the Company's
common stock (no fractional shares of the Company's shares will be
issued and each Interactive shareholder entitled to a fractional share
will be issued a whole share therefore). A total of 3,180,984 shares
will be issued by the Company in the transaction;
o Interactive issued 1,000 shares of the new common stock to the Company
and thus Interactive became a wholly-owned subsidiary of the Company;
o The Business Combination was 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 Interactive are advised and cautioned to seek their
own tax advice and counsel on this issue;
o The stock of the Company being issued to the Interactive shareholders:
(i) is being issued pursuant to exemptions from 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) will be "restricted securities" as defined under
the Securities Act; and (iii) will be subject to restrictions on their
future transferability and/or sale.
A copy of the Merger Agreement was filed with the Form 10-QSB Report for
the period ended June 30, 2002 as an Exhibit 10(A). A copy of the Articles and
Plan of Merger filed with Nevada on October 29, 2002 to complete the acquisition
of Interactive by the Company was filed as Exhibit 10(b) to the Form 10-QSB for
the Quarter ended September 30, 2002.
Now that the Business Combination is completed, the Company will endeavor
to acquire a significant amount of additional equity capital to fund the
development and business operations of Interactive. This additional equity
capital would be acquired through the sale of restricted equity securities of
the Company in a "Private Placement" proposed to be made pursuant to an
exemption from the registration requirements of the Securities Act of 1933.
Although the Company and Interactive are aware of some potential investor
18
interest in the proposed Private Placement, there are no commitments or binding
arrangements for the acquisition of any additional capital nor any assurance
that such will become available to the Company or Interactive.
Interactive was organized as a Nevada corporation on August 8, 2002. It was
formed to act as a consumer electronics company focused on acquiring,
developing, licensing and marketing products that turn televisions into an
interactive medium. During the period from August 2000 to October 2000,
Interactive raised $ 1,850,000 through the sale of 1,850,000 shares of its
common stock at $1.00 per share. Of this amount, $1,000,000 and 4,000,000 shares
of Interactive common stock was paid on May 30 2002 for the acquisition of all
the outstanding stock of High Plateau Holdings, Inc. ("High Plateau"). High
Plateau is an Ontario corporation which owns the U.S. Patent to Side by SideTM
the interactive video technology product which enables users to interact with
people, characters or objects on their television screens and which Interactive
plans to market. The balance of Interactive's capital has been expended on
operating expenses and development of the Side by SideTM product.
The technology of Side by SideTM is based upon "blue screen" technology
which is widely used in the film and television industries. Side by SideTM uses
its patented reverse "blue screen" technology to seamlessly combine pre-recorded
program elements into the users' environment as captured by the digital camera
in the Side by SideTM set-top box. The Side by SideTM set-top box is connected
between the user's DVD Player (which is transmitting the pre-recorded program
elements) and the TV/Monitor. The TV Monitor then shows the combined
pre-recorded elements and the user's performance captured by the Side by SideTM
set-top box. The user can also add a VCR to record the combined image including
video.
The Side by SideTM product incorporates the use of the Side by SideTM
patented software with a digital camera and a Keyer Unit developed under an
exclusive worldwide Design and Royalty Agreement between High Plateau and
Ultimatte Corporation, a leader in "blue screen" technology. The Side by SideTM
set-top box presently uses camera components from Omnivision, the world's
largest independent supplier of single-chip camera.
If the Company is able to raise sufficient proceeds in its proposed private
placement, it will commence production of the Side by SideTM product and
initiate its marketing efforts.
The potential uses for Side by SideTM in the consumer market includes but
is not limited to children's programs; instructional and training programs
(including fitness, sports, martial arts, exercise and self-help programs);
video karaoke; performance (including musical instrument training, acting
workshops, singing and dancing training); theme parties and adult entertainment.
In the business and institutional markets the potential uses include but are not
limited to: Product and procedural training and testing; military and security
training; language education, training and educating the learning disabled, and
public speaking training.
Dependent upon the availability of additional capital to the Company, its
marketing program will include: completion of marketing research; initiation of
efforts to develop direct sales of the Side by SideTM hardware through existing
retail outlets and software products; and to pursue licensing arrangements under
which others in the electronic entertainment and telecommunications industries
would manufacture and/or sell the Side by SideTM hardware and software products.
The potential software licensees would include businesses involved in the filmed
entertainment and music industries, the fitness, exercise and martial arts
industries and adult entertainment industries. Potential hardware licensees
would include electronic and computer products manufacturers. Interactive has
demonstrated the Side by SideTM product to potential licensees and has received
numerous positive responses and indications of interests in it. However, the
Company does not have any firm licensing arrangements for either the software or
the hardware Side by SideTM products of any firm distribution arrangements with
any existing retailers.
The Company and Ralph Rubenstein entered into an Employment Agreement
("Agreement") effective as of April 30, 2003. The Agreement is for a three year
term commencing April 30, 2003. It provides that Mr. Rubenstein is to serve as
the Chairman and Chief Executive Officer of the Company. The Agreement further
provides that his salary will commence when the Company has received $150,000 in
capital funds. The following is a summary of the principal terms of the
Agreement:
19
o A monthly salary of $16,500;
o Mr. Rubenstein is entitled to participate in all benefit plans of the
Company;
o Mr. Rubenstein was granted 605,981 shares of the Company's common
stock (to be issued as "restricted securities" under the Securities
Act of 1933);
o Mr. Rubenstein was granted a stock option to purchase 1,211,963 shares
of the Company's common stock at $.75 per share; exercisable as
605,982 shares on or after November 1, 2003 and the remaining 605,981
shares on or after May 1, 2004 through April 30, 2013 or one year from
his termination of employment, whichever is earlier;
o Payment of $1,000 per month for an automotive allowance;
o Provides for reimbursement of all communication charges incurred in
performance of duties under the Agreement;
o After the initial three year term, the Agreement provides for an
automatic one-year renewal term unless terminated by notice 60 days
prior to the end of a term;
o If Mr. Rubenstein is terminated by the Company other than for cause,
he is entitled to severance payment equal to the greater of his then
monthly salary for the remainder of the term or for 12 months together
with accrued vacation time pay and unpaid bonuses;
o A bonus payment equal to 7% of the Company's income from operations
before taxes for each fiscal year during the term of the Agreement;
o Provides that Mr. Rubenstein may pursue other business activities and
does not have to devote his full time to the Company's affairs; and
o Other provisions customary in such employment arrangements.
A copy of the Employment Agreement and the Stock Option are filed herewith
as Exhibit 10(c).
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS IN SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10(c) Employment Agreement with Ralph Rubenstein and
Stock Option
(b) Form 8-Ks
No Reports of Form 8-K were filed during the three-month period
ended March 31, 2003.
21
SIGNATURES
----------
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SBS INTERACTIVE, CO.
Dated: May 13, 2003 By: /s/ Ralph Rubenstein
-------------------------------------
Ralph Rubenstein, Chairman and
Chief Executive Officer
22
CERTIFICATION
I, Ralph Rubenstein, certify that:
1. I have reviewed the Form 10-QSB for SBS Interactive Co.
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report.
3. Based on my knowledge, the financial statements and other information
included in this Quarterly Report fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented on this Quarterly Report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within this
entities, particularly during the period in which this Quarterly
Report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003 By: /s/ Ralph Rubenstein
------------------------------------
Ralph Rubenstein, Chairman and
Chief Executive Financial Officer
23
CERTIFICATION
I, Todd Gotlieb, certify that:
1. I have reviewed the Form 10-QSB for SBS Interactive Co.
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report.
3. Based on my knowledge, the financial statements and other information
included in this Quarterly Report fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented on this Quarterly Report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
b) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within this
entities, particularly during the period in which this Quarterly
Report is being prepared;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
d) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or person performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003 By: /s/ Todd Gotlieb
--------------------------------------
President and Chief Accounting Officer
24