UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2004
OR
[_] TRANSITION 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 DURNG 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 20,079,557 shares
of common stock, no par value, issued and outstanding as of June 11, 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 Sheets for the period ended March 31, 2004 F-1
Consolidated Statements of Operations for the Three Months Ended
March 31, 2004 and 2003 and from inception F-2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 and from inception F-3
Consolidated Statements of Stockholders' Deficit for the Three Months
Ended March 31, 2004 F-4
Notes to Financial Statements F-5 - F-11
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 1
Item 3. - Disclosure Controls and Procedures 5
PART II
Item 1 - Legal Proceedings 6
Item 2 - Changes in Securities 6
Item 3 - Defaults Upon Senior Securities 6
Item 4 - Submission of Matters to a Vote of Security Holders 7
Item 5 - Other Information 7
Item 6 - Exhibits and Reports on Form 8-K 7
Signature Page 8
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET - UNAUDITED
- ---------------------------------------------------------------------------------
March 31 2004
- ---------------------------------------------------------------------------------
ASSETS
CURRENT ASSET:
Cash and cash equivalents $ 88,900
Property and equipment, net 5,329
Deposits 1,619
- ---------------------------------------------------------------------------------
$ 95,848
- ---------------------------------------------------------------------------------
LIABILITIES, AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 142,713
Accrued interest 12,836
Notes payable 100,000
- ---------------------------------------------------------------------------------
Total current liabilities 255,549
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value; 50,000,000 shares authorized;
20,109,004 shares issued and outstanding 20,110
Additional paid-in capital 13,333,891
Deferred compensation (67,000
Other comprehensive loss - foreign currency translation (35,483
Deficit accumulated during the development stage (13,411,219 )
- ---------------------------------------------------------------------------------
Total stockholders' deficit (159,701
- ---------------------------------------------------------------------------------
$ 95,848
- ---------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to condensed consolidated financial statements.
F-1
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the For the From
three months three months Sep. 20, 1996
ended ended (inception)
Mar. 31 Mar. 31, to Mar. 31,
2004 2003 2004
(restated)
- -----------------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT STAGE EXPENSES:
Selling, general and administrative $ 344,003 $ 24,389 $ 1,026,515
Non-cash compensation, including $58,000 to related parties 469,000 - 5,254,000
Debt extinguishment costs to related parties 6,186,373 - 6,186,373
- -----------------------------------------------------------------------------------------------------------------------------------
Total development stage expenses 6,999,376 24,389 12,466,888
- -----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (6,999,376) (24,389) (12,466,888)
Interest income - - 2,239
Interest expense (9,260) (2,042) (37,820)
Non-cash interest expense from amortization of debt discount (539,621) (20,861) (908,750)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (7,548,257) $ (47,292) $ (13,411,219)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss per common share (basic and diluted) $ (0.52) $ (0.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 14,407,313 10,198,184
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to condensed consolidated financial statements.
F-2
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the For the From
three months three months Sep. 20,
ended ended 1996
Mar. 31, Mar. 31, (inception)
2004 2003 to Mar. 31,
(restated) 2004
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss $ (7,548,257) $ (47,292) $ (13,411,219)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 5,468 2,733 15,322
Non-cash interest, beneficial conversion feature 539,621 20,860 908,750
Issuance of equity instruments for extinguishment of debt 6,186,373 - 6,186,373
Issuance of equity instruments for services 469,000 - 5,154,000
Change in assets and liabilities:
Deposits (208) (81) (527)
Accrued interest 25,228 2,113 53,465
Accounts payable 9,309 (6,805) 6,631
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (313,466) (28,472) (1,087,205)
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Cash from acquired subsidiaries - - 1,980
Purchase of property and equipment (9,430) (1,183) (9,818)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (9,430) (1,183) (7,838)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 315,160
Proceeds from issuance of debt to related parties - 30,000 39,840
Proceeds from issuance of debt, shareholders 410,000 4,761 845,750
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 410,000 34,761 1,200,750
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSLATION ADJUSTMENTS (26,146) (11,220) (16,807)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 60,958 (6,114) 88,900
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 27,942 7,419 0
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF PERIOD $ 88,900 $ 1,305 $ 88,900
- ---------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 322 $ 2,041
Cash paid for taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for services $ 469,000 $ -
Issuance of stock for accrued compensation $ 350,000 $ -
Conversion of debt to equity $ 1,033,475 $ -
Non-cash interest, beneficial conversion feature $ 410,000 $ 48,000
See accompanying summary of accounting policies and
notes to condensed consolidated financial statements.
F-3
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - UNAUDITED
Other
Common Stock Comprehensive
--------------------- Deferred Loss - foreign
Shares Amount Compensation Currency
-----------------------------------------------------------------------------------------------------------
Common stock issued for cash (09/20/1996) 500,000 $ 500 $ - $ -
Common stock issued for cash (10/01/1996 to 17,200 17
12/31/1996)
Net loss during 1996
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 517,200 517 - -
Net loss during 1997
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 517,200 517 - -
Net loss during 1998
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 517,200 517 - -
Common stock issued for cash 6,000,000 6,000
Net loss during 1999
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 6,517,200 6,517 - -
Net loss during 2000
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 6,517,200 6,517 - -
Common stock issued for services (11/30/2001) 500,000 500
Net loss during 2001
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 7,017,200 7,017 - -
Common stock issued for business acquisition 3,180,984 3,181
(10/29/2002)
Debt discount arising from beneficial
conversion feature
Net loss during 2002
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2002, restated 10,198,184 10,198 - -
Common stock issued for services (07/01/2003) 100,000 101
Debt discount arising from beneficial
conversion feature
Common stock issued for services (11/20/2003) 1,000,000 1,000
Stock discount expense
Deferred compensation (100,000)
Foreign currency translation (9,339)
Net loss during 2003
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 11,298,184 $ 11,299 (100,000) $ (9,339)
Debt discount arising from beneficial
conversion feature
Common stock issued for services (2/4/2004 and
2/19/04) 500,000 500
Common stock issued for services (02/09/2004) 250,000 250
Common stock issued to settle accrued 3,500,000 3,500
compensation
Common stock issued for services (03/29/2004) 230,000 230
Warrants issued for services (02/09/2004)
Warrants issued to retire outstanding debt
(03/17/2004)
Common stock issued to retire debt (03/17/2004) 3,741,111 3,741
Common stock issued to retire debt (02/06/2004) 589,709 590
Deferred compensation 33,000
Foreign currency translation (26,144)
Net loss during period ended March 31, 2004
------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 (unaudited) 20,109,004 $ 20,110 $ (67,000) $ (35,483)
------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the
Paid in Development Total Equity
Capital Stage (Deficit)
------------------------------------------------------------------------------------------------------------
Common stock issued for cash (09/20/1996) $ 9,500 $ - $ 10,000
Common stock issued for cash (10/01/1996 to 5,143 5,160
12/31/1996)
Net loss during 1996 (15,160) (15,160)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 14,643 15,160
Net loss during 1997 (15,160) (15,160)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 14,643 (15,160) 0
Net loss during 1998 (17,087) (17,087)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 14,643 (32,247) (17,087)
Common stock issued for cash 294,000 300,000
Net loss during 1999 (54,829) (54,829)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 308,643 (87,076) 228,084
Net loss during 2000 (55,545) (55,545)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 308,643 (142,621) 172,539
Common stock issued for services (11/30/2001) 3,874,500 3,875,000
Net loss during 2001 (3,941,567) (3,941,567)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 4,183,143 (4,084,188) 105,972
Common stock issued for business acquisition (313,938) (310,757)
(10/29/2002)
Debt discount arising from beneficial 33,000 33,000
conversion feature
Net loss during 2002 (226,317) (226,317)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002, restated 3,902,205 (4,310,505) (398,102)
Common stock issued for services (07/01/2003) 346,399 346,500
Debt discount arising from beneficial 465,750 465,750
conversion feature
Common stock issued for services (11/20/2003) 109,000 110,000
Stock discount expense 103,500 103,500
Deferred compensation (100,000)
Foreign currency translation (9,339)
Net loss during 2003 (1,552,457) (1,552,457)
------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 $ 4,926,854 $ (5,862,962) $ (1,034,148)
Debt discount arising from beneficial 410,000 410,000
conversion feature
Common stock issued for services (2/4/2004 and
2/19/04) 109,500 110,000
Common stock issued for services (02/09/2004) 24,750 25,000
Common stock issued to settle accrued 346,500 350,000
compensation
Common stock issued for services (03/29/2004) 252,770 253,000
Warrants issued for services (02/09/2004) 48,000 48,000
Warrants issued to retire outstanding debt 6,186,373 6,186,373
(03/17/2004)
Common stock issued to retire debt (03/17/2004) 904,331 908,072
Common stock issued to retire debt (02/06/2004) 124,813 125,403
Deferred compensation 33,000
Foreign currency translation (26,144)
Net loss during period ended March 31, 2004 (7,548,257) (7,548,257)
------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 (unaudited) $ 13,333,891 $ (13,411,219) $ (159,071)
------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to condensed consolidated financial statements.
F-4
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 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 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, 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 of 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 the Company.
On November 25, 1996, Cosmetics Consultants Corp.
changed its name to Lomillo Consultants Corp.
Further, on July 17, 1997, the Company amended and
restated its articles of incorporation and changed
its name to Inet Commerce Conduit Corp. Further, on
July 30, 2002, the Company amended and restated its
articles of incorporation and changed its name to SBS
Interactive, Co.
F-5
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
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. 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 the SBS, Inc.
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).
PRINCIPLES OF
CONSOLIDATION The 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.
F-6
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE 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 $13.3 million and, at March 31, 2004,
has a working capital deficit of approximately
$160,000. 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 they
will need approximately $1 million to provide the
Company with the ability to continue in existence for
the next twelve months.
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.
F-7
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
2. NOTE PAYABLE Notes payable consist of the following:
---------------------------------------------------------------
March 31, 2004
---------------------------------------------------------------
Note payable to unrelated party, due on $ 100,000
demand, bearing interest at 5% per annum,
unsecured.
100,000
---------------------------------------------------------------
Less current portion 100,000
---------------------------------------------------------------
Long-term $ -
---------------------------------------------------------------
In January, 2004 the notes payable Karlgar were
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 $890,750 in the
aggregate, is secured by all assets of the company
and, is convertible immediately at the holders
discretion into shares of the Company's common stock
equal to the lessor of $.04 per share or 60% of the
average closing prices for the 5 trading days
immediately prior to the applicable conversion date.
In accordance with EITF 98-5 and 00-27, the notes
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 is being amortized over the live of the notes.
The company issued 3,741,111 shares of the Company's'
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 $539,620 and $16,679 (restated) for the
three months ended March 31, 2004 and 2003.
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, Karlgar exercised its conversion
rights under the promissory note, for which the
Company provided an inducement of 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, including
accrued interest, to the Company. The company issued
3,741,111 shares of the Company's' Common Stock and
the 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
warrants expire March 18, 2007 and are 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 extinguishment charge.
F-8
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE 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 and as an inducement
to convert debt to equity. The company issued 264,923
shares of the Company's' 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 extinguishment 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 and as an
inducement to convert debt to equity. The company
issued 324,786 shares of the Company's' Common Stock
and warrants to acquire up to 389,898 shares of
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, $346,407 was charged to expense as a debt
restructuring charge.
F-9
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
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
common shares having a fair market value of $.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.
The following table summarizes information about
fixed stock options outstanding at March 31, 2004:
----------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Weighted Number
Number Average Weighted Exercise-abWeighted
Outstanding Remaining Average at March Average
Range of at March Contractual Exercise 31, 2004 Exercise
Exercise Prices 31, 2004 Life Price Price
----------------------------------------------------------- ---------------------
$ 1.00 4,830,820 2.9 1.00 4,830,820 1.00
0.85 1,118,223 2.9 0.85 1,118,223 0.85
----------------------------------------------------------------------------------
F-10
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
4. RELATED PARTY
TRANSACTIONS CONSULTING SERVICES
Fees totaling $10,000 and $1,568 have been paid to
officers and companies owned by shareholders during
the periods ended March 31, 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 rent expense for the periods ended March 31,
2004 and 2003 amounted to $4,103 and $2,235. At
December 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.
5. SUBSEQUENT EVENTS On May 7, 2004 a major stockholder, loaned the
Company $45,000. On June 8, 2004 the stockholder
loaned the Company an additional $55,000. The Company
is currently negotiating an agreement with the
stockholder to allow him to convert the principal
amount of the loans and any accrued interest into
shares of our common stock at a conversion rate of
$0.50 per share. If this stockholder converts any of
the principal amount or accrued interest into common
stock, the major stockholder will also receive a
warrant to purchase two shares of our common stock
for each share of common stock he receives as a
result of the conversion. The exercise price for the
warrant shares will be $1.00 and $1.25, respectively.
6. RESTATEMENT
The Company has restated its 2003 financial
statements to change the account for the acquisition
of SBS, Inc. on October 29, 2002, which was accounted
for under FASB 141. The Company has accounted for the
acquisition in accordance with SEC Topic 5-G;
therefore, a change to the valuation of the 3,180,984
shares, issued for the acquisition of SBS, Inc., from
the value of the shares issued to the historical cost
basis of SBS, Inc.'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 live of the notes rather than being recognized in
full at inception
F-11
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE FINANCIAL STATEMENTS
The effects of the restatements for the three months
ended March 31, 2003 are as follows:
AS PREVIOUSLY FILED AS RESTATED
------------------- -----------
Total Assets $ 2,633,191 $ 9,921
Stockholders Equity/(Deficit) $ 2,170,026 $ (412,394)
Net loss $ (96,213) $ (47,292)
Net loss per share $ (0.01) $ (0.01)
F-12
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,"
"will," "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 develop our product,
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 future documents we file with the Securities
and Exchange Commission.
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.
1
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 three months ended
March 31, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. Accordingly, you attention is
directed to footnote disclosures found in the December 31, 2003 Annual Report
and particularly to Note 1, which includes a summary of significant accounting
policies.
PLAN OF OPERATION
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.
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.
2
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
maintain our operations.
In February 2004 we reached an agreement with four of our creditors,
including Mr. Todd Gotlieb, our President, and Mr. Barry Alter, a former
director, to pay approximately $979,500 of our debt with our common stock. 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.
On May 7, 2004 a major stockholder, Mr. Arthur Cohn, loaned us $45,000 and
on June 8, 2004 Mr. Cohn loaned us an additional $55,000. We are currently
negotiating an agreement with Mr. Cohn to allow him to convert the principal
amount of the loans, and any accrued interest, into shares of our common stock
at a conversion rate of $0.50 per share. If Mr. Cohn converts any of the
principal amount or accrued interest into common stock, he will also receive a
warrant to purchase two shares of our common stock for each share of common
stock he receives as a result of the conversion. The exercise price for the
warrant shares will be $1.00 and $1.25, respectively.
We are currently offering to accredited investors only units 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 is $0.50 and the warrant exercise
prices are $1.00 and $1.25, respectively. We hope to raise a minimum of $500,000
and a maximum of $2,500,000. The proceeds of the offering will be used primarily
for operating expenses relating to the launch of our product. If we are able to
raise the entire $2,500,000 we may not be required to raise additional funds for
the remainder of the fiscal year, although changes to our operational needs
could require us to revise this projection. If we raise substantially less than
$2,500,000, we will likely be required to borrow funds or sell additional
securities to fund our operations for 12 months. We cannot guarantee that we
will raise the entire $2,500,000 or that we will be able to, if necessary, find
lenders or investors to fund our operations. In that case, we may be required to
severely curtail, or even cease, our operations.
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.
3
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.
We have 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 three months ended March 31, 2003
are as follows:
AS PREVIOUSLY FILED AS RESTATED
------------------- -----------
Total Assets $2,633,191 $ 9,921
Stockholders Equity/(Deficit) $2,170,026 $ (412,394)
Net Income (Loss) $ (96,213) $ (47,292)
Net Income (Loss) Per Share $ (0.01) $ (0.01)
Our development stage expenses for the three month period ended March 31,
2004 were $6,999,376 as compared to $24,389 in development stage expenses for
the three month period ended March 31, 2003, an increase of $6,974,987. Our
development stage expenses for the three month period ended March 31, 2003
consisted solely of selling, general and administrative expenses incurred during
the early stage of the implementation of our business plan. The increase in
development stage expenses was related to an increase of $344,003 in selling,
general and administrative expenses resulting from the ramp-up of our business,
the payment of non-cash (stock) compensation valued at $469,000 to various
individuals for services rendered to us, and costs of $6,186,373 related to the
inducement of converting approximately $1,033,475 of debt to securities. 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. We intend to 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 month period ended March 31, 2004
was $6,999,376 as compared to loss from operations of $24,389 for the same
period in the fiscal year ended March 31, 2003. As a result of the payment of
debt with securities, we incurred non-cash interest expense for the three month
period ended March 31, 2004 of $539,621 from the amortization of debt discount,
as compared to non-cash interest expense in the amount of $20,861 for the same
period in the fiscal year ended March 31, 2003. Interest expense for the three
month period ended March 31, 2004 was $9,260 as compared to interest expense of
$2,042 for the three month period ended March 31, 2003. The increase in interest
expense was incurred due to an increase in borrowing which was necessary to
continue our operations.
4
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 month period ended March
31, 2004 was $7,548,257 as compared to a net loss of $47,292 for the three month
period ended March 31, 2003.
Net cash used in operating activities for the three month period ended
March 31, 2004 was $(313,466) as compared to $(28,472) in net cash used in
operating activities for the three month period ended March 31, 2003. Securities
issued for compensation and as inducements to convert loans, including interest,
accounted for $7,194,994, while depreciation and amortization of $5,468, accrued
interest of $25,228 and accounts payable of $9,308 accounted for the remaining
primary uses of cash.
We used $9,430 to purchase property and equipment during the three month
period ended March 31, 2004, as compared to $1,183 used to purchase property and
equipment during the three month period ended March 31, 2003. This increase in
investment in property and equipment related to the ramp-up of our business.
During the three month period ended March 31, 2004, $410,000 was provided
to us from shareholder loans, as compared to $4,761 provided to us by
shareholder loans during the three month period ended March 31, 2003. During the
three month period ended March 31, 2003, we also received $30,000 in loans from
our officers.
We had $88,900 in cash and cash equivalents on March 31, 2004 as opposed
to $1,305 in cash and cash equivalents on March 31, 2003.
As of the three month period ended March 31, 2004 we had a net loss of
$7,548,257 and a working capital deficiency of approximately $160,000. Our
auditor, Stonefield Josephson, Inc., has issued a "going concern" report on our
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 lack of liquidity and 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 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.
5
PART II - ITEM 1 LEGAL PROCEEDINGS
Not applicable.
PART II - ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
We issued the following securities during the quarter ended March 31,
2004.
On February 19, 2004, we issued 250,000 shares of our common stock to an
employee, for services rendered. This issuance was approved by our Board of
Directors on February 9, 2004. The value of the common stock on the date of
approval was $0.09 per share. The securities were issued in reliance upon the
exemption provided by Section 4(2) of the Securities Act of 1933.
On February 19, 2004 we issued 50,000 shares of our common stock to our
attorneys, Richardson & Patel LLP, for services rendered and to be rendered in
relation to capital raising transactions. The value of the common stock on the
date of grant was $1.50 per share. The securities were issued in reliance upon
the exemption provided by Section 4(2) of the Securities Act of 1933.
In February 2004 we reached an agreement with four of our creditors,
including Mr. Todd Gotlieb, our President, and Mr. Barry Alter, a former
director, to pay approximately $979,500 of our debt with our common stock. These
agreements were subsequently prepared and executed on March 17, 2004. Pursuant
to the agreements, each creditor converted the amount of his debt into shares of
common stock valued at $0.225 per share. Along with the shares of common stock,
each creditor received a warrant to purchase additional shares of our common
stock. The warrants have three year terms. The exercise price is $1.00 per share
to purchase a number of shares of common stock up to the number of shares into
which each loan was converted. Our largest creditor is also entitled to purchase
an additional 1,000,000 shares of our common stock at $0.85 per share. The
remaining three creditors are, together, entitled to purchase a total of 750,000
shares of our common stock at $0.85 per share. The securities were issued in
reliance upon the exemption provided by Section 4(2) of the Securities Act of
1933.
On March 29, 2004 we issued to CEOcast, Inc. 230,000 shares of common
stock for services to be rendered in connection with stock promotion activities.
This issuance was approved by our Board of Directors on March 29, 2004. The
value of the securities on the date of grant was $1.10, although the volume was
inconsequential. The securities were issued in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933.
PART II - ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
6
PART II - ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II - ITEM 5 OTHER INFORMATION
On May 7, 2004 we received a loan from Mr. Arthur Cohn in the amount of
$45,000. On June 8, 2004 we received another loan from Mr. Cohn in the amount of
$55,000. Mr. Cohn has agreed to allow us to combine these loans. We have agreed
to allow Mr. Cohn to convert the loans to shares of our common stock and
warrants. The principal and any accrued interest, if converted to shares of our
common stock, will be converted at the rate of $0.50 per share. For each share
he receives, Mr. Cohn will also receive a warrant to purchase two shares of our
common stock at exercise prices of $1.00 and $1.25, respectively.
PART II - ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws (1)
6.4 Assignment and Agreement to Convert Debt dated March 17, 2004 between
Karlgar Limited, Arthur Cohn and SBS Interactive, Co. (2)
6.5 Agreement to Convert Debt dated March 17, 2004 between SBS Interactive,
Co. and Todd Gotlieb (2)
6.6 Agreement to Convert Debt dated March 17, 2004 between SBS Interactive,
Co. and Challure Holdings (2)
6.7 Agreement to Convert Debt dated March 17, 2004 between SBS Interactive,
Co. and Barry Alter (2)
6.8 Warrant issued March 19, 2004 issued to Arthur Cohn (2)
6.9 Warrant issued March 19, 2004 issued to Todd Gotlieb (2)
6.10 Warrant issued March 19, 2004 issued to Challure Holdings (2)
6.11 Warrant issued March 19, 2004 issued to Barry Alter (2)
8.1 Articles and Plan of Merger of SBS Acquisition, Inc. with and into SBS
Interactive, Inc. (3)
31 Certification pursuant to Rule 13a-14(a) and 15d-14(a) (4)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (4)
(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-KSB filed with the
Securities and Exchange Commission on June 16, 2004.
(3) 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.
(4) Filed herewith.
7
REPORTS ON FORM 8-K
On February 17, 2004, the registrant filed a current report announcing the
resignation of its auditor, Barry I. Hechtman, P.A.
On February 17, 2004, the registrant filed a current report disclosing
that Ultimatte Corporation, the manufacturer of the keyer unit prototype, would
deliver the prototype by March 25, 2004.
On March 15, 2004, the registrant filed a current report disclosing its
decision to retain Ahern, Jasco + Company, P.A. as its auditors.
On March 17, 2004, the registrant filed a current report disclosing that
Ahern, Jasco + Company, P.A. would be unable to accept the appointment as the
registrant's auditor.
On March 19, 2004, the registrant amended the current report filed on
March 17, 2004 to provide additional information regarding the inability of
Ahern, Jasco + Company, P.A. to serve as its auditors.
On April 9, 2004, the registrant filed a current report disclosing the
engagement of Stonefield Josephson, Inc. as its new auditors.
On April 15, 2004, the registrant filed a current report disclosing a
press release that announced the payment of approximately $980,000 of debt with
its securities.
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.
June 16, 2004
SBS Interactive, Co.
By: TODD GOTLIEB
------------------------------------------
President and Principal Accounting Officer
(Principal accounting and financial officer
for the quarter)
8