UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
of 1934
For the quarterly period ended September 30, 2004
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-28363
SBS Interactive, Co.
(Exact name of registrant as specified in its charter)
Florida 65-0705830
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4211 Yonge Street, Suite 235
Toronto, Ontario M2P 2A9
Canada
(Address of principal executive offices)
(Zip Code)
(416) 223-9293
(Registrant's telephone number including area code)
N/A
(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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The registrant had 28,822,377 shares
of common stock, $0.001 par value, issued and outstanding as of November 10,
2004.
Transitional Small Business Disclosure Format (Check one): Yes [x] No [ ]
SBS Interactive, Co.
INDEX
PAGE
PART I NUMBER
Item 1 - Financial Information
Consolidated Balance Sheet for the period ended September 30, 2004 1
Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 2004 and 2003 and from inception 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2004 and 2003 and from inception 3 - 4
Consolidated Statements of Stockholders' Deficit from inception
to September 30, 2004 5 - 6
Notes to Financial Statements 7 - 16
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 15 - 21
Item 3. - Disclosure Controls and Procedures 21
PART II
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities 21
Item 3 - Defaults Upon Senior Securities 22
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 23
Signature Page
PART I - ITEM 1
FINANCIAL INFORMATION
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Balance Sheet - Unaudited
September 30 2004
- ------------ --------------
Assets
Current Asset:
Cash and cash equivalents $ 80,268
Property and equipment, net 8,688
Prepaid expenses 10,000
Deposits 1,642
------------
$ 100,598
============
Liabilities, and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 159,378
Accrued interest 17,736
Notes payable, related party 200,000
------------
Total current liabilities 377,114
Commitments and Contingencies -
Stockholders' Deficit:
Common stock, $0.001 par value; 50,000,000 shares
authorized; 28,872,337 shares issued and outstanding 28,873
Additional paid-in capital 18,688,392
Deferred compensation (1,000)
Other comprehensive loss - foreign currency translation (32,732)
Deficit accumulated during the development stage (18,960,049)
------------
Total stockholders' deficit (276,516)
------------
$ 100,598
============
See accompanying summary of accounting policies and notes to unaudited
consolidated financial statements
1
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Statements of Operations - Unaudited
For the For the
For the For the three months nine months From
three months nine months ended ended Sep. 20, 1996
ended ended Sept. 30, Sept. 30, (inception)
Sept. 30, Sept. 30, 2003 2003 to Sept. 30,
2004 2004 (restated) (restated) 2004
------------ ------------- ------------- -------------- -------------
Operating expenses:
Selling, general and administrative $ 368,827 $ 958,642 $ 56,262 $ 102,642 $ 1,641,154
Non-cash compensation 50,977 5,374,265 - 346,500 10,159,265
Debt extinguishment costs to
related parties - 6,186,373 - - 6,186,373
------------ ------------ ------------ ------------- ------------
Total operating expenses 419,804 12,519,280 56,262 449,142 17,986,792
------------ ------------ ------------ ------------- ------------
Loss from operations (419,804) (12,519,280) (56,262) (449,142) (17,986,792)
Interest income - 1 - - 2,239
Interest expense (3,046) (14,187) 3,919 (9,757) (42,746)
Non-cash interest expense from
amortization of debt discount - (563,621) (30,000) (71,491) (932,750)
------------ ------------ ------------ ------------- ------------
Net loss $ (422,850) $(13,097,087) $ (82,343) $ (530,390) $(18,960,049)
============ ============ ============ ============ ============
Net loss per common share (basic and diluted) $ (.02) $ (.64) $ (.01) $ (.05)
============ ============ ============ ============
Weighted average number of common shares
outstanding 27,351,641 20,616,029 10,198,184 10,198,184
============ ============ ============ ============
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
2
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows - Unaudited
For the
For the nine months From
nine months ended Sep. 20, 1996
ended Sept. 30, (inception)
Sept. 30, 2003 to Sept. 30,
2004 restated 2004
------------- ------------- -------------
Operating activities:
Net loss $(13,097,087) $ (544,115) $(18,960,049)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,317 6,788 14,171
Translation adjustments (23,395) (1,183) (14,056)
Non-cash interest, beneficial conversion feature 563,621 71,492 932,750
Issuance of equity instruments for extinguishment of debt 6,186,373 - 6,186,373
Issuance of equity instruments for services 5,374,265 346,500 10,059,265
Change in assets and liabilities:
Deposits (231) (81) (550)
Prepaid expenses (10,000) - (10,000)
Accrued interest 30,129 9,627 58,364
Accounts payable 25,973 (34,216) 23,297
------------ ------------ ------------
Net cash used in operating activities (946,035) (145,188) (1,710,435)
------------ ------------ ------------
Investing activities:
Cash from acquired subsidiaries - 1,980
Purchase of property and equipment (11,639) (12,027)
------------ ------------ ------------
Net cash provided by investing activities (11,639) (10,047)
------------ ------------ ------------
Financing activities:
Proceeds from issuance of common stock 500,000 - 815,160
Proceeds from issuance of debt to related parties - - 39,840
Proceeds from issuance of debt, shareholders 510,000 138,786 945,750
------------ ------------ ------------
Net cash provided by financing activities 1,010,000 138,786 1,800,750
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 52,326 (6,402) 80,268
Cash and equivalents, beginning of period 27,942 7,419 0
------------ ------------ ------------
Cash and equivalents, end of period $ 80,268 $ 1,017 $ 80,268
============ ============ ============
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements
3
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows - Unaudited
September 30, 2004 2003
- ------------- ----------- -----------
Cash paid for interest $ 322 $ 2,041
Cash paid for taxes - -
----------- ----------
Non-cash investing and financing activities:
Issuance of stock for services 5,374,265 -
Issuance of stock for accrued compensation 350,000 -
Conversion of debt to warrants 6,186,373 -
Conversion of debt to equity 1,033,475 -
Non-cash interest, beneficial conversion feature 434,000 71,492
See accompanying summary of accounting policies and notes to unaudited
consolidated financial statements
4
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Deficit - Unaudited
Deficit
Other Accumulated
Common Stock Comprehensive Additional During the
-------------------- Deferred Loss-foreign Paid in Development Total Equity
Shares Amount Compensation Currency Capital Stage (Deficit)
---------- --------- ------------ ------------- ----------- ------------ ------------
Common stock issued for cash
(09/20/1996) 500,000 $ 500 $ - $ - $ 9,500 $ - $ 10,000
Common stock issued for cash
(10/01/1996 to 12/31/1996) 17,200 17 5,143 5,160
Net loss during 1996 - -
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 1996 517,200 517 - - 14,643 15,160
Net loss during 1997 (15,160) (15,160)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 1997 517,200 517 - - 14,643 (15,160) 0
Net loss during 1998 (17,087) (17,087)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 1998 517,200 517 - - 14,643 (32,247) (17,087)
Common stock issued for cash 6,000,000 6,000 294,000 300,000
Net loss during 1999 (54,829) (54,829)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 1999 6,517,200 6,517 - - 308,643 (87,076) 228,084
Net loss during 2000 (55,545) (55,545)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 2000 6,517,200 6,517 - - 308,643 (142,621) 172,539
Common stock issued for services
(11/30/2001) 500,000 500 3,874,500 3,875,000
Net loss during 2001 (3,941,567) (3,941,567)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 2001 7,017,200 7,017 - - 4,183,143 (4,084,188) 105,972
Common stock issued for business
acquisition (10/29/2002) 3,180,984 3,181 (313,938) (310,757)
Debt discount arising from
beneficial conversion feature 33,000 33,000
Net loss during 2002 (226,317) (226,317)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 2002,
restated 10,198,184 10,198 - - 3,902,205 (4,310,505) (398,102)
Common stock issued for services
(07/01/2003) 100,000 101 346,399 346,500
Debt discount arising from
beneficial conversion feature 465,750 465,750
Common stock issued for services
(11/20/2003) 1,000,000 1,000 109,000 110,000
Stock discount expense 103,500 103,500
Deferred compensation (100,000) (100,000)
Foreign currency translation (9,339) (9,339)
Net loss during 2003 (1,552,457) (1,552,457)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at December 31, 2003 11,298,184 $11,299 $(100,000) $ (9,339) $ 4,926,854 $ (5,862,962) $(1,034,148)
5
SBS Interactive, Co.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Deficit - Unaudited
Common stock issued for services
(02/09/2004) 3,500,000 3,500 346,500 350,000
Warrants issued for services
(02/09/2004) 48,000 48,000
Warrants issued to retire
outstanding debt (02/2004) 6,186,373 6,186,373
Common stock issued to retire
debt (02/2004) 3,741,111 3,741 904,331 908,072
Common stock issued to retire
debt (02/2004) 589,709 590 124,813 125,403
Shares issued for services
(02/04/04 and 02/19/04) 500,000 500 109,500 110,000
Shares issued for services
(02/09/04) 250,000 250 24,750 25,000
Shares issued for services
(03/29/04) 230,000 230 252,770 253,000
Warrants issued for services
(04/01/04) 225,853 225,853
Warrants issued for services
(04/01/04) 22,355 22,355
Warrants issued for services
(05/01/04) 17,293 17,293
Warrants issued for services
(06/01/04) 12,067 12,067
Warrants issued for services
(06/29/04) 43,719 43,719
Warrants issued for services
(07/01/04 and 08/01/04) 17,977 17,977
Debt discount arising from
beneficial conversion feature 434,000 434,000
Deferred compensation 99,000 99,000
Foreign currency translation (23,393) (23,393)
Shares issued for services
(07/22/04) 7,313,333 7,313 4,380,687 4,388,000
Shares issued for services
(08/06/04) 200,000 200 111,800 112,000
Common stock units issued for
cash (08/06/04) 1,250,000 1,250 498,750 500,000
Net loss period ended
September 30, 2004 (13,097,087) (13,097,087)
---------- ------- --------- --------- ----------- ------------ -----------
Balance at September 30, 2004 28,872,337 $28,873 $ (1,000) $ (32,732) $18,688,392 $(18,960,049) $ (276,516)
========== ======= ========= ========= =========== ============ ===========
See accompanying summary of accounting policies and notes to unaudited consolidated financial statements.
6
SBS Interactive, Co.
(A Development Stage Enterprise)
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 Item 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 the financial statements and
accompanying notes included in the SBS Interactive, Co. Annual Report on Form
10-KSB for the fiscal year ended December 31, 2003.
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 1999, the Company changed its activities to acting as a
consultant to internet related enterprises that were 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 enabled the
consumers to use their televisions as an interactive medium. 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 its
subsidiary's product.
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.
SBS Interactive, Inc. ("SBS, Inc."), the Company's wholly owned subsidiary, was
incorporated on August 3, 2000 under the laws of the State of Nevada. SBS,
Inc.'s line of business is to design, develop and manufacture technology which
captures a 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 its product.
In May 2002, SBS Inc. acquired High Plateau Holdings, Inc. ("High Plateau"), as
a wholly owned subsidiary. High Plateau was incorporated on April 3, 1974 under
the laws of Canada and had been operating as a development stage enterprise
since its inception devoting substantially all its efforts to its ongoing
development. High Plateau has had no significant transactions since inception
other than the acquisition and development of its technology (United States
Patent Number 6,072,933).
7
SBS Interactive, Co.
(A Development Stage Enterprise)
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts the Company
and its wholly owned subsidiaries, SBS Interactive, Inc. and High Plateau
Holdings, Inc. All material intercompany accounts and transactions have been
eliminated.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2004
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.
STOCK BASED COMPENSATION
The Company accounts for its stock option plans using the fair value based
method of accounting, under which compensation expense has been recognized for
stock option awards granted. For purposes of pro forma disclosures under FAS
123, Accounting for Stock-Based Compensation, as amended by FAS 148, Accounting
for Stock-Based Compensation--Transition and Disclosure, the estimated fair
value of the stock options is amortized to compensation expense over the
options' vesting period. No pro forma disclosures have been made since the fair
value based method has been applied to all outstanding and unvested awards in
each period.
The Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model based on the following assumptions:
September 30, 2004 2003
--------------------------------------------------------------------------
Risk free interest rate 4% -%
Expected life 3 years -
Expected volatility 208-216% -%
Dividend yield 0.0 -
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options which 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. Because
the Company's stock options and warrants have characteristics different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of such stock options.
8
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
1. GOING CONCERN
The accompanying unaudited financial statements were prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the realization of its assets and the satisfaction of its liabilities in the
normal course of operations. Since inception, the Company has incurred losses of
approximately $20 million and, at September 30, 2004, has a working capital
deficit of approximately $276,516. The Company presently has no established
source of revenue. 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. Management plans to raise additional capital through private
equity financing by selling shares of the Company's common stock or through debt
financing. Management believes that the Company will need approximately $1
million to provide it with the ability to continue in existence for the next
twelve months.
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 unaudited
consolidated 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. NOTE PAYABLE, SHAREHOLDER
Notes payable consist of the following:
September 30, 2004
- ------------- ---------
Note payable to related party, due on $ 100,000
demand, bearing interest at 5% per annum,
unsecured.
Note payable to related party, due on $ 100,000
demand, bearing interest at 6% per annum,
unsecured.
---------
200,000
---------
Less current portion 200,000
---------
Long-term $ -
=========
In January 2004 the notes payable to Arthur Cohn were consolidated and extended
with a stated interest rate of 6% per annum and a due date of April 30, 2004.
This note allowed the Company to borrow up to $841,750 in the aggregate, was
secured by the Company's assets and was convertible immediately at the holder's
discretion into shares of the Company's common stock equal to the lesser of $.04
per share or 60% of the average closing prices for the 5 trading days
9
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
immediately prior to the applicable conversion date. In accordance with EITF
98-5 and 00-27, the note contained a beneficial conversion feature which was
calculated at an estimated fair value of $410,000 (limited to the face amount of
the new debt acquired) and was amortized over the life of the note. The Company
issued 3,741,111 shares of its common stock upon conversion of these debts at
$0.22 per share on March 17, 2004.
In connection with these financings, the Company recorded an aggregate charge to
non-cash interest, including amortization of debt discount, in the amount of
$563,621 and $71,492 (restated) for the six months ended June 30, 2004 and 2003,
respectively.
In May and June, 2004 the Company received loans from Arthur Cohn with a stated
interest rate of 6% per annum and due upon demand.
On July 21, 2004 the Company received a loan from Arthur Cohn with an interest
rate of 6% per annum and a maturity date of September 30, 2004. The loan was
repaid on September 30, 2004.
The Company renegotiated the note payable with Maple Leaf Holdings in the amount
of $100,000 extending the due date from August 31, 2003 to due on demand. It
continues to accrue interest at a rate of 5% per annum.
3. COMMON STOCK
Shares Issued for Debt
- ----------------------
On March 17, 2004, Arthur Cohn exercised his conversion rights under the
promissory note. As an inducement to Mr. Cohn to take this action, the Company
issued a warrant to purchase 4,741,111 shares of the Company's common stock, as
payment for principal and accrued interest totaling $908,072 previously loaned
to the Company. The Company issued 3,741,111 shares of its common stock and a
warrant to acquire up to 4,741,111 shares of common stock at the following
exercise prices: the first 3,741,111 shares at $1.00 per share and an additional
1,000,000 shares at $0.85 per share. The warrant expires March 18, 2007 and is
fully vested at grant. The Company recorded the issuance of these warrants
valued at $5,396,202 using the Black-Scholes Option pricing model with the
following assumptions: life of 3 years, volatility of 216% and a risk free
interest rate of 4.0%. During the three months ended March 31, 2004, $5,396,202
was charged to expense as a debt restructuring charge. On July 11, 2004 the
Company issued another 7,313, 333 shares to settle claims made by Mr. Cohn in
June 2004 regarding a renegotiated settlement agreement which had raised the
conversion rate from $.04 to $.225 immediately prior to the conversion of the
debt. The issuance of these shares gave the shareholder a controlling interest
(49.8%) of the Company. An expense of $4,388,000 was recognized during the six
months ended June 30, 2004 on the statement of operations.
10
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
On March 19, 2004 the Company issued shares and warrants to Todd Gotlieb (a
shareholder) as payment for principal and accrued interest totaling $57,711
previously loaned to the Company. The Company issued 264,923 shares of iys
common stock and warrants to acquire up to 318,034 shares of common stock at the
following exercise prices: the first 264,923 shares at $1.00 per share and an
additional 53,111 shares at $0.85 per share. The warrants expire March 18, 2007
and are fully vested at grant. The Company recorded the issuance of these
warrants valued at $346,407 using the Black-Scholes Option pricing model with
the following assumptions: life of 3 years, volatility of 216% and a risk free
interest rate of 4.0%. During the three months ended March 31, 2004, $346,407
was charged to expense as a debt restructuring charge.
On March 17, 2004 the Company issued shares and warrants to Challure Holdings (a
shareholder) as payment for principal and accrued interest totaling $67,692
previously loaned to the Company. The Company issued 324,786 shares of its
common stock and warrants to acquire up to 389,898 shares of its common stock at
the following exercise prices: the first 324,786 shares at $1.00 per share and
an additional 65,112 shares at $0.85 per share. The warrants expire March 18,
2007 and are fully vested at grant. During the three months ended March 31,
2004, $443,684 was charged to expense as a debt restructuring charge.
The Company recorded the issuance of these warrants valued at $443,684 using the
Black-Scholes Option pricing model with the following assumptions: life of 3
years, volatility of 216% and a risk free interest rate of 4.0%.
Stock issued for services
- -------------------------
On February 9, 2004 the Company issued 3,500,000 shares having a fair market
value of $0.10 per share to two shareholders for past services performed. An
expense of $350,000 was reflected in non-cash compensation on the December 31,
2003 statement of operations. During the three months ended March 31, 2004,
these shares were issued to settle the unpaid accrued compensation.
On February 4, 2004 the Company approved the issuance of 450,000 common shares
having a fair market value of $0.08 per share to its legal counsel for services
performed. An expense of $36,000 was recognized during the three months ended
March 31, 2004 on the statement of operations.
On February 9, 2004 the Company approved the issuance of 250,000 common shares
having a fair market value of $0.09 per share to an employee for services
performed. An expense of $25,000 was recognized during the three months ended
March 31, 2004 on the statement of operations.
On February 19, 2004 the Company approved the issuance of 50,000 common shares
having a fair market value of $1.50 per share to its legal counsel for services
performed. An expense of $74,000 was recognized during the three months ended
March 31, 2004 on the statement of operations.
On March 29, 2004 the Company approved the issuance of 230,000 common shares
having a fair market value of $1.10 per share to a consultant for services
performed. An expense of $253,000 was recognized during the three months ended
March 31, 2004 on the statement of operations.
On June 25, 2004 the Company approved the issuance of 200,000 common shares
having a fair market value of $0.56 per share to a consultant for services
performed. An expense of $112,000 was recognized during the six months ended
June 30, 2004 on the statement of operations.
11
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
Warrants and Options
- --------------------
On June 25, 2004 the Company issued warrants to acquire up to 100,000 shares of
common stock at the exercise price of $0.75 per share for consulting fees. The
warrants expire June 24, 2007 and are vested as follows: 20,000 shares vested on
April 1, 2004, 20,000 shares vested on May 1, 2004, 20,000 shares vested on June
1, 2004, 20,000 shares will vest on July 1, 2004, and 20,000 will vest on August
1, 2004. During the three months ended June 30, 2004, $22,355, $17,293 and
$12,067 was charged to expense as non-cash compensation. During the three months
ended September 30, 2004, $17,977 was charged to expense as non-cash
compensation.
The Company recorded the issuance of these warrants valued at $69,692 using the
Black-Scholes Option pricing model with the following assumptions: life of 3
years, volatility of 208% and a risk free interest rate of 4.0%.
On February 9, 2004 the Company issued warrants to acquire up to 20,512 shares
of common stock at the exercise price of $1.25 per share for consulting services
performed. The warrants expire March 19, 2007 and are fully vested at grant.
During the three months ended March 31, 2004, $48,000 was charged to expense as
non-cash compensation.
The Company recorded the issuance of these warrants valued at $48,000 using the
Black-Scholes Option pricing model with the following assumptions: life of 3
years, volatility of 208% and a risk free interest rate of 4.0%.
On June 29, 2004 the Company issued warrants to acquire up to 75,000 shares of
common stock at the exercise price of $0.50 per share for consulting services
performed. The warrants expire June 28, 2007 and are fully vested at grant.
During the three months ended June 30, 2004, $43,719 was charged to expense as
non-cash compensation.
The Company recorded the issuance of these warrants valued at $43,719 using the
Black-Scholes Option pricing model with the following assumptions: life of 3
years, volatility of 208% and a risk free interest rate of 4.0%.
On July 22, 2004 the Company issued shares and warrants to Arthur Cohn (a
shareholder) in order to secure amounts loaned to the Company on May 30, 2004
and June 11, 2004. The Company issued warrants to acquire up to 400,000 shares
of common stock at the following exercise prices: the first 200,000 shares at
$1.00 per share and an additional 200,000 shares at $1.25 per share. The
warrants expire July 21, 2007 and are fully vested at grant. During the three
months ended June 30, 2004, $225,854 was charged to expense as non-cash
compensation.
The Company recorded the issuance of these warrants valued at $225,854 using the
Black-Scholes Option pricing model with the following assumptions: life of 3
years, volatility of 208% and a risk free interest rate of 4.0%.
Private Placement Common Stock offering
- ---------------------------------------
On August 6, 2004 the Company completed a private placement common stock
offering to qualified investors. The offering was for the sale of units. Each
unit consisted of one share of common stock and a warrant. The price per unit
12
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
was $0.50. The warrant grants the holder the right to purchase two shares of the
Company's common stock for every one unit purchased at exercise prices of $1.00
per share for the first share and $1.25 per share for second share. The stock
offering contained provisions for a "reset price" which was to be the lowest
average closing price for the five consecutive trading days prior to the
closing, however the Reset Price was not to be less than $0.35 per share. The
Company sold 1,250,000 units at reset price of $.40 per share for an aggregate
of $500,000.
The following table summarizes information about fixed stock warrants
outstanding at September 30, 2004:
Warrants Outstanding Warrants Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------------------------------------- -----------------------
$ 1.25 1,450,000 2.8 1.25 1,450,000 1.25
1.00 5,801,332 2.6 1.00 5,801,332 1.00
0.85 1,477,611 2.5 0.85 1,477,611 0.85
0.75 100,000 2.7 0.75 100,000 0.75
0.50 825,000 3.8 .50 825,000 0.50
4. RELATED PARTY TRANSACTIONS
Consulting Services
- -------------------
Fees totaling $154,677 and $41,420 have been paid to officers and companies
owned by shareholders during the periods ended September 30, 2004 and 2003 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 Commitments
- -----------------
Lease expense for the periods ended September 30, 2004 and 2003 amounted to
$21,631 and $10,397. At September 30, 2004, the Company was subleasing the
office space under a month-to-month lease from a related company for monthly
payments of $2,500 Canadian.
5. RESTATEMENT
The Company has restated its 2003 financial statements to change the accounting
for the acquisition of SBS, Inc. which took place on October 29, 2002 and which
was accounted for under FASB 141. The Company has accounted for the acquisition
in accordance with SEC Topic 5-G, therefore, the valuation of the 3,180,984
shares issued for the acquisition of SBS, Inc., has changed from the value of
the shares issued to the historical cost basis of SBS, Inc.'s assets and
13
SBS Interactive, Co.
(A Development Stage Enterprise)
Notes to the Unaudited Consolidated Financial Statements
liabilities under GAAP. A change to the recognition of a beneficial conversion
feature was also recorded in accordance with EITF 98-5 and 00-27, and was
amortized over the life of the notes rather than being recognized in full at
inception
The effects of the restatements to the nine months ended September 30, 2004 are
as follows:
As previously filed As restated
Total Assets $2,529,733 $5,598
Stockholders Equity/(Deficit) $1,982,429 $(559,688)
Net Loss $786,201 $530,390
5. SUBSEQUENT EVENTS
In November 2004 the Company received a loan from Mr. Arthur Cohn in the amount
of $150,000. The Company has agreed to the terms of a Secured Convertible
Promissory Note and Common Stock Purchase Warrant, which the Company anticipates
will be executed no later than November 15, 2004. Pursuant to the terms of the
Secured Convertible Promissory Note, the loan will bear interest at the rate of
6% and will be due to be paid on demand. In the event of a default, the interest
rate will increase to 15%. The loan will also secured by all of our assets. At
his election, Mr. Cohn may convert the principal amount of the loan, as well as
all accrued interest, into common stock at the rate of $0.20 per share. Upon
conversion of the loan, he will also receive a warrant to purchase up to
1,500,000 shares of our common stock. The warrant may be exercised as to
one-half the common stock at a price of $1.00 per share and as to the remaining
shares of common stock at a price of $1.25 per share.
Subsequent to the quarter ended September 30, 2004 the Company entered into
various consulting agreements with individuals or entities to assist in the
promotions of its products. The Company intends to utilize the issuance of
equity as compensation for some of the services to be received.
14
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains "forward-looking statements".
These forward-looking statements are based on our current expectations,
assumptions, estimates and projections about our business and our industry.
Words such as "believe," "anticipate," "expect," "intend," "plan," "may," and
other similar expressions identify forward-looking statements. In addition, any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in Item 1 of this report, as well as the
following:
o our lack of capital and whether or not we will be able to raise
capital when we need it,
o whether or not we are able to successfully market our product;
o our overall ability to successfully compete in our market and our
industry,
o whether or not we will continue to receive the services of our
executive officer and director, Mr. Todd Gotlieb,
and other factors, some of which will be outside our control. You are cautioned
not to place undue reliance on these forward-looking statements, which relate
only to events as of the date on which the statements are made. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. You should refer to and
carefully review the information in documents we file with the Securities and
Exchange Commission, including the risk factors discussed in our Annual Report
on Form 10-KSB.
Management's discussion and analysis of results of operations and financial
condition are based upon the Company's financial statements. These statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America. These principles require management to make
certain estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and various other assumptions that are believed 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 from these
estimates under different assumptions or conditions.
15
These interim financial statements are condensed and do not include some of the
information necessary to obtain a complete understanding of the financial data.
Management believes that all adjustments necessary for a fair presentation of
results have been included in the unaudited consolidated financial statements
for the interim periods presented. Operating results for the nine months ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. Accordingly, your attention is
directed to footnote disclosures included in the audited financial statements
found in our Annual Report on Form 10-KSB for the year ended December 31, 2003
and particularly to the summary of significant accounting policies.
OVERVIEW
We are a development stage company located in Toronto, Ontario, Canada. We
have developed a unique interactive video technology product that uses "reverse
blue screen" technology. Used primarily in the making of movies and television
programming, blue screen technology allows actors to perform in front of a blue
background screen, upon which background images are superimposed at a later time
by a chromakey processor. Our product uses patented reverse blue screen
technology to playback, on the user's television screen, pre-recorded
programming into which the user's environment, as photographed by the digital
camera in the set-top box, is combined. In other words, the user and his
surroundings will appear with the pre-recorded programming along with the
actors. The set-top box is easily connected between the user's DVD player and
the TV monitor.
We believe that our technology can be used not only for entertainment
purposes, but also as a teaching and training tool. For exercising or athletics
for example, the user can watch himself or herself stand next to the instructor
and follow the instructor's lead. This allows the user to compare his or her
activity to the instructor's and to immediately correct or modify the activity,
if necessary. Other potential uses by consumers for our interactive video
technology includes children's programs, video karaoke, performance training and
enhancement (including musical instrument training, acting workshops, singing
and dancing training), theme parties and adult entertainment. In the business
and institutional markets the potential uses for the product include product and
procedural training and testing, military and security training, language
education, training and educating the learning disabled, and public speaking
training.
The pre-recorded programming content is inexpensive to develop because
there is no need for costly sets or location shoots. For example, if a business
wants to create a program to instruct employees on how to correctly lift heavy
objects without sustaining injuries, we film an instructor doing the
demonstration in front of a blue screen. When the programming is played back at
the business location, the camera in the set-top box will capture the employee
and his surroundings, which will be projected onto the television screen along
with the instructor.
In August 2004 we received our first purchase order for set-top boxes. The
amount of the purchase order was $280,000.
16
PLAN OF OPERATION
As a development stage company our capital requirements, particularly as
they relate to product development, have been and will continue to be
significant. Our future cash requirements and the adequacy of available funds
will depend on many factors, including the pace at which we are able to launch
our product, whether or not a market develops for our product and, if a market
develops, the pace at which it develops, and the pace at which the technology
involved in making our product changes.
Since our inception we have relied on loans and sales of our securities to
sustain our operations. We will continue to do this until we are able to support
our operations through sales of our product however, we cannot assure you that
this will ever occur. We cannot guarantee that financing will be available to
us, on acceptable terms or at all. If we do not earn revenues sufficient to
support our business and we fail to obtain other financing, either through an
offering of our securities or by obtaining additional loans, we may be unable to
continue our operations.
In February 2004 we reached an agreement with three of our creditors,
including Mr. Todd Gotlieb, our President, Challure Holdings, an entity
controlled by Mr. Barry Alter, a former director, and Mr. Arthur Cohn, our
largest stockholder, to pay approximately $974,435 of our debt with our common
stock. In conjunction with these agreements, we also agreed to issue to each
creditor a warrant to purchase our common stock at exercise prices of $0.85 and
$1.00 per share. These agreements were subsequently prepared and executed in
March 2004. When we are able to do so, we also pay consultants with our common
stock, to conserve our cash.
Our largest stockholder, Mr. Arthur Cohn, has continued to loan us money as
we need it. In July 2004, we executed five agreements with Arthur Cohn. Pursuant
to the First Amendment to Assignment and Agreement to Convert Debt, we agreed to
issue to Mr. Cohn an additional 7,313,333 shares of our common stock to settle
alleged claims Mr. Cohn asserted relating to his agreement, in March 2004, to
convert loans made by him to our securities. The Master Loan Agreement governs
current and future loans made to us by Mr. Cohn. The Pledge and Security
Agreement secures the repayment of any loans made by Mr. Cohn to us with our
assets. The Secured Convertible Promissory Note in the amount of $100,000
originally allowed Mr. Cohn to convert the principal and interest of the loan
into shares of our common stock at the price of $0.50 per share, although this
price was reduced to $0.40 per share in November 2004 as a result of certain
anti-dilution rights Mr. Cohn has, which required us to reset the price per
share in accordance with the terms of the private offering of units we made in
August 2004. The loan bears interest at 6% per annum and is payable on demand.
Mr. Cohn's anti-dilution rights will entitle him to convert the principal and
interest of the loan into 250,000 shares of our common stock (rather than
200,000 shares). Mr. Cohn also received a Common Stock Purchase Warrant that is
subject to the anti-dilution rights and now allows him to purchase up to 500,000
shares of our common stock (rather than 400,000 shares), 250,000 shares at an
exercise price of $1.00 and 250,000 shares at an exercise price of $1.25.
17
On July 26, 2004 we borrowed an additional $27,500 from Mr. Cohn. This loan
was paid from the proceeds of the private offering of units we undertook in
August 2004.
In August 2004 we completed an offering of units to accredited investors,
including an investor who was outside the United States. The units were
comprised of one share of our common stock and warrants to purchase two shares
of our common stock for each unit purchased. The unit price was $0.40, and the
warrant exercise prices were $1.00 and $1.25, respectively. We raised $500,000
in this offering. The proceeds of the offering have been used primarily to pay
for operating expenses and for expenses relating to the launch of our product.
Even with the proceeds from this offering, we will need to raise additional
funds soon to continue our operations. Pursuant to the terms of an agreement we
have with our largest security holder, Arthur Cohn, we may not issue more than
350,000 shares of common stock without his consent. Mr. Cohn is not required to
give us his consent, nor is he required to loan us additional funds. If we are
unable to borrow money or to raise funds through the sale of our securities, we
will be required to severely curtail, or even cease, our operations.
In November 2004 we received an additional loan from Arthur Cohn in the
amount of $150,000. We have agreed to the terms of a Secured Convertible
Promissory Note and Common Stock Purchase Warrant, which we anticipate will be
executed no later than November 15, 2004. Pursuant to the terms of the Secured
Convertible Promissory Note, the loan will bear interest at the rate of 6% and
will be due to be paid on demand. In the event of a default, the interest rate
will increase to 15%. The loan will also secured by all of our assets. At his
election, Mr. Cohn may convert the principal amount of the loan, as well as all
accrued interest, into our common stock at the rate of $0.20 per share. Upon
conversion of the loan, he will also receive a warrant to purchase up to
1,500,000 shares of our common stock. The warrant may be exercised as to
one-half the common stock at a price of $1.00 per share and as to the remaining
shares of common stock at a price of $1.25 per share.
On July 16, 2002, we, SBS Interactive, Inc., a Nevada corporation (referred
to as "Interactive" in this discussion) and SBS Acquisition, Inc., our wholly
owned subsidiary, executed a Merger Agreement. On October 29, 2002 we completed
the merger by issuing 3,180,984 shares of our common stock to the stockholders
of Interactive in exchange for all of the Interactive issued and outstanding
stock.
On February 10, 2004, Barry I. Hechtman, P.A., our former auditor, resigned
from that position and on April 6, 2004, we engaged the firm of Stonefield
Josephson, Inc. as our new auditors. In conducting its review of our financial
statements, Stonefield Josephson, Inc. determined that our acquisition of
Interactive should have been accounted for in accordance with SEC Topic 5-G
rather than under FASB 141, since neither we nor Interactive constituted a
business in accordance with EITF 98-3. This resulted in a change to the
valuation of the shares issued for the acquisition of Interactive. The value of
the shares was reduced to reflect the value of Interactive's assets and
liabilities on the date of the transaction, which was a net liability assumed of
$310,757.
18
We restated our 2003 financial statements to change the accounting for the
acquisition of Interactive, which required us to change the valuation of the
3,180,984 shares issued for the acquisition to the historical cost basis of
Interactive's assets and liabilities under GAAP. A change to the recognition of
a beneficial conversion feature was also recorded in accordance with EITF 98-5
and 00-27, and is being amortized over the lives of the notes rather than being
recognized in full at inception
The effects of the restatements for the nine months ended September 30,
2003 are as follows:
As previously filed As restated
Total Assets $2,529,733 $ 5,598
Stockholders Equity/(Deficit) $1,982,429 $(559,688)
Net income (loss) 786,201 $ 530,390
Our development stage expenses for the three and nine month periods ended
September 30, 2004 were $419,804 and $12,519,280, respectively, as compared to
$56,262 and $449,142 in development stage expenses for the three month and nine
month periods ended September 30, 2003. During the nine month period ended
September 30, 2004, we granted common stock and warrants to induce conversion of
debt and settle claims valued at $6,186,373. During the three month and the nine
month periods ended September 30, 2004, we issued common stock and warrants to
employees and consultants in exchange for services rendered to us, which
accounted for $50,977 and $5,374,265, respectively, in expense. In comparison,
we had no such expenses for the three months ended September 30, 2003 and a
total of $346,500 in non-cash compensation expenses for the nine months ended
September 30, 2003. Other operating expenses for the three and nine month
periods ended September 30, 2004 included selling, general and administrative
expenses of $368,827 and $958,642, respectively. In comparison, for the three
and nine month periods ended September 30, 2003 we had $56,262 and $102,642,
respectively, in selling, general and administrative expenses. The increase in
selling, general and administrative expenses for the three and nine month
periods ended September 30, 2004 resulted from the ramp-up of our business while
the increase in non-cash compensation resulted not only from ramping-up our
business, which meant retaining the services of individuals who could assist us
with the marketing of our product, but also from an increase in professional
fees that were incurred as a result of the preparation of filings we are
required to make with the Securities and Exchange Commission and the preparation
or review of general business documents. We have adopted two employee benefit
plans that will permit us to pay employees, officers, directors, consultants and
agents with our common stock or options to purchase common stock, so long as the
services these individuals render to us do not relate to capital raising
transactions. With the consent of Mr. Arthur Cohn, we will continue to pay
compensation and debt with our securities whenever possible, in order to
conserve our cash for operations.
Our loss from operations for the three and nine month periods ended
September 30, 2004 was $419,804 and $12,519,280, respectively, as compared to
loss from operations of $56,262 and $449,142 for the same periods in the prior
fiscal year. As a result of the payment of debt with securities, we incurred
19
non-cash interest expense for the three and nine month periods ended September
30, 2004 of $0 and $563,621, respectively, from the amortization of debt
discount, as compared to non-cash interest expense in the amount of $30,000 and
$71,491, respectively, for the same periods in the prior fiscal year. Interest
expense for the three and nine month periods ended September 30, 2004 was $3,046
and $14,187, respectively, as compared to interest expense of $3,919 and $9,757
for the three and nine month periods ended September 30, 2003. Interest expense
relates to a loan of $100,000 made to us by Maple Leaf Holdings. The loan
accrues interest at the rate of 5% per annum.
Because of the increase in expenses related to implementation of our
business plan, including the expenses we incurred by paying compensation and
loans with our securities, our net loss for the three and nine month periods
ended September 30, 2004 was $422,850 and $13,097,087, respectively, as compared
to a net loss of $82,343 and $530,390, respectively, for the three and nine
month periods ended September 30, 2003.
In May 2004 we received the completed prototype of the Side-by-Side(TM)
set-top box and we began our marketing efforts. A dance and fitness instruction
facility, a global digital media company and a team of stunt professionals have
agreed to use our product and to act as value-added resellers of our
Side-by-Side hardware. We have not yet earned any revenues from the sales of our
product. Even though we have received our first purchase order for our product,
we do not anticipate that sales of our product will immediately provide us with
the revenue we need to maintain our operations. In order to maintain our
operations, we will be required to either continue borrowing money or to raise
money through the sale of our securities. Pursuant to the terms of an agreement
we have with our largest security holder, Mr. Arthur Cohn, we may not issue more
than 350,000 shares of common stock without his consent. Mr. Cohn is not
required to give us his consent, nor is he required to loan us additional funds.
If we are unable to borrow money or to raise funds through the sale of our
securities, we will have to severely curtail, or even cease, our operations.
Net cash used in operating activities for the nine month period ended
September 30, 2004 was $(946,035) as compared to $(145,188) in net cash used in
operating activities for the nine month period ended September 30, 2003.
We used $11,639 to purchase property and equipment during the nine month
period ended September 30, 2004, as compared to $0 used to purchase property and
equipment during the nine month period ended September 30, 2003. This increase
in investment in property and equipment related to the ramp-up of our business.
During the nine month period ended September 30, 2004, $500,000 was
provided to us from gross proceeds raised through the sale of units composed of
common stock and warrants and $510,000 was provided to us from security holder
loans. During the nine month period ended September 30, 2003, we raised no money
through sales of our securities, although we received $138,786 from security
holder loans.
As of the nine month period ended September 30, 2004 we had a net loss of
$13,097,087 and a working capital deficiency of approximately $276,516. Our
auditor, Stonefield Josephson, Inc., has issued a "going concern" report on our
20
consolidated financial statements for the year ended December 31 2003. In that
report and in the notes to the consolidated financial statements, the auditor
noted that we have generated no revenues and that our continued existence will
be dependent on our ability to resolve our liquidity problems and to obtain
adequate financing to fulfill our development activities. These factors raise
substantial doubt about our ability to continue as a going concern.
ITEM 3. DISCLOSURE CONTROLS AND PROCEDURES
Management, including the Company's President (who is also the Company's
Principal Accounting Officer), carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures as of the end
of the period covered by this report. The evaluation was undertaken in
consultation with the Company's accounting personnel. Based on that evaluation,
the President/Principal Accounting Officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their evaluation.
PART II - ITEM 1 LEGAL PROCEEDINGS
Not applicable.
PART II - ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 2004 our Board of Directors approved a Consulting Agreement with
Done! Ventures, Inc. pursuant to which we issued to Mr. Benjamin Padnos an
option to purchase 100,000 shares of our common stock. The exercise price is
$0.75 per share. The right to exercise the option vests on a monthly basis in
equal increments of 20,000 shares. The term of the option is three years. These
securities were issued in reliance on Section 4(2) of the Securities Act of
1933. There was no general solicitation or advertising engaged in by us in
making this offering and the offeree occupies a status with us that affords him
effective access to the information that registration would otherwise provide.
On July 22, 2004 we agreed to issue to Mr. Arthur Cohn an additional
7,313,333 shares of our common stock to settle alleged claims Mr. Cohn asserted
relating to his agreement, executed in March 2004, to convert loans made by him
to our securities. These securities were issued in reliance on Section 4(2) of
the Securities Act of 1933. There was no general solicitation or advertising
engaged in by us in making this offering and the offeree occupies a privileged
status relative to us that affords him effective access to the information that
registration would otherwise provide.
In August 2004 we completed an offering of units to accredited investors.
The units were comprised of one share of our common stock and warrants to
purchase two shares of our common stock for each unit purchased. The unit price
21
was $0.40, and the warrant exercise prices were $1.00 and $1.25, respectively.
We raised gross proceeds of $360,000 through this offering. These securities
were issued in reliance on Rule 506 of Regulation D. There was no general
solicitation or advertising engaged in by us in making this offering and each of
the offerees was an accredited investor.
In August 2004 we also completed an offering of units to an off-shore
investor. The units were comprised of one share of our common stock and warrants
to purchase two shares of our common stock for each unit purchased. The unit
price was $0.40, and the warrant exercise prices were $1.00 and $1.25,
respectively. We raised gross proceeds of $140,000 through this offering. These
securities were issued in reliance on Regulation S promulgated under the
Securities Act of 1993. The offer and sale of the security occurred outside of
the United States.
PART II - ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
PART II - ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II - ITEM 5 OTHER INFORMATION
In November 2004 we received a loan from Mr. Arthur Cohn in the amount of
$150,000. We have agreed to the terms of a Secured Convertible Promissory Note
and Common Stock Purchase Warrant, which we anticipate will be executed no later
than November 15, 2004. Pursuant to the terms of the Secured Convertible
Promissory Note, the loan will bear interest at the rate of 6% and will be due
to be paid on demand. In the event of a default, the interest rate will increase
to 15%. The loan will also secured by all of our assets. At his election, Mr.
Cohn may convert the principal amount of the loan, as well as all accrued
interest, into our common stock at the rate of $0.20 per share. Upon conversion
of the loan, he will also receive a warrant to purchase up to 1,500,000 shares
of our common stock. The warrant may be exercised as to one-half the common
stock at a price of $1.00 per share and as to the remaining shares of common
stock at a price of $1.25 per share.
Subsequent to the quarter ended September 30, 2004 we entered into various
consulting agreements with individuals or entities we believe can assist us with
the promotion of our product. We also intend to enter into a consulting
agreement with an entity that we believe can assist us with our investor
relations and with increasing awareness of our business in the financial
community. Our securities will make up some or all of the compensation we will
pay for these services.
22
PART II - ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
2 Articles and Plan of Merger of SBS Acquisition, Inc. with and into SBS
Interactive, Inc. (2)
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws (1)
10.1 First Amendment to Assignment and Agreement to Convert Debt dated July
22, 2004 among SBS Interactive, Co., SBS Interactive, Inc. and Arthur
Cohn (3)
10.2 Master Loan Agreement dated July 22, 2004 among SBS Interactive, Co.,
SBS Interactive, Inc. and Arthur Cohn (3)
10.3 Pledge and Security Agreement entered into among SBS Interactive, Co.,
SBS Interactive, Inc. and Arthur Cohn dated July 22, 2004 (3)
10.4 Secured Convertible Promissory Note in favor of Arthur Cohn the amount
of $100,000 dated July 22, 2004 (3)
10.5 Common Stock Purchase Warrant (3)
10.6 Promissory Note in favor of Arthur Cohn in the amount of $27,500 (3)
10.7 Common Stock Purchase Agreement (4)
10.8 Common Stock Purchase Warrant (4)
10.9 Letter dated November 5, 2004 to Mr. Arthur Cohn (5)
31 Certification pursuant to Rule 13a-14(a) and 15d-14(a) (5)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (5)
(1) Incorporated by reference from the Registrant's Form 10-SB filed with the
Securities and Exchange Commission on December 3, 1999, as amended.
(2) Incorporated by reference from the Registrant's Form 10-QSB for the quarter
ended September 30, 2002, filed with the Securities and Exchange Commission
on November 12, 2002.
(3) Incorporated by reference from the Registrant's Form 10-QSB filed with the
Securities and Exchange Commission on August 16, 2004.
(4) Incorporated by reference from the Registrant's Form 8-K filed with the
Securities and Exchange Commission on August 30, 2004.
(5) Filed herewith.
REPORTS ON FORM 8-K
On August 30, 2004, the Registrant filed a current report disclosing that
it had raised $500,000 in gross proceeds from a private offering of its
securities.
On September 9, 2004, the Registrant filed a current report disclosing its
receipt of a purchase order in the amount of $280,000 for set-top boxes. This
report was amended on September 10, 2004 to indicate that the number of set-top
boxes ordered was 1,000, not 10, as had originally been reported.
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
November 15, 2004
SBS Interactive, Co.
By: /s/ Todd Gotlieb
------------------------------------------
President and Principal Accounting Officer
(Principal accounting and financial officer
for the quarter)
24