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, 2005.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 000-28363
SBS Interactive, Co.
(Exact name of Registrant as specified in its Charter)
Florida 65-0705830
(State of Incorporation) (IRS Employer
Identification No.)
4211 Yonge Street, Suite 235
Toronto, Ontario M2P 2A9
Canada
(Address of principal executive offices)
Registrant's telephone number, including area code: (416) 223-9293
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
The registrant had 30,027,576 shares of common stock outstanding as of May 9,
2005.
Transitional Small Business Disclosure Format: Yes |X| No |_|
SBS Interactive, Co.
INDEX
Page Number
PART I -- FINANCIAL INFORMATION
Item 1. - Financial Statements.
Condensed Consolidated Balance Sheet as of March 31, 2005 (unaudited) 1
Condensed Consolidated Statements of Operations (unaudited) for the 2
Three Months Ended March 31, 2005 and March 31, 2004 and
from inception (September 20, 1996) to March 31, 2005
Condensed Consolidated Statements of Comprehensive Loss for the Three 3
Months Ended March 31, 2005 and March 31, 2004 and from inception
(September 20, 1996) to March 31, 2005
Condensed Consolidated Statements of Stockholders' Deficit from inception 4
(September 20, 1996) to March 31, 2005 (unaudited)
Condensed Consolidated Statement of Cash Flows (unaudited) for the 14
Three Months Ended March 31, 2005 and March 31, 2004
and from inception (September 20, 1996) to March 31, 2005
Notes to the Condensed Consolidated Financial Statements 16
Item 2. - Management's Discussion and Analysis or Plan of Operations. 26
Item 3. - Controls and Procedures. 31
PART II -- OTHER INFORMATION
Item 1. - Legal Proceedings. 31
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds. 31
Item 3. - Defaults Upon Senior Securities. 32
Item 4. - Submission of Matters to a Vote of Security Holders. 32
Item 5. - Other Information. 32
Item 6. - Exhibits and Reports on Form 8-K. 32
Signature Page 37
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements.
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 74,014
Prepaid expenses 29,677
------------
TOTAL CURRENT ASSETS 103,691
PROPERTY AND EQUIPMENT,
NET OF ACCUMULATED DEPRECIATION 103,671
------------
TOTAL ASSETS $ 207,362
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses, including related party of $84,988 $ 455,874
Notes payable, related party 602,140
------------
TOTAL CURRENT LIABILITIES 1,058,014
------------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value;
50,000,000 shares authorized;
30,027,576 issued and outstanding 30,029
Additional paid-in capital 19,421,111
Other comprehensive loss -
Foreign currency translation adjustment (46,231)
Deficit accumulated during the
Development stage (20,255,561)
------------
TOTAL STOCKHOLDERS' DEFICIT (850,652)
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 207,362
============
See accompanying notes to the Condensed Consolidated Financial Statements
1
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
From
For The Three For The Three September 20,
Months Ended Months Ended 1996 (Inception)
March 31, 2005 March 31, 2004 to March 31, 2005
------------ ------------ ------------
DEVELOPMENT STAGE EXPENSES
Selling, general and administrative, including
Related party of $119,481 and $11,840 $ 305,781 $ 344,003 $ 2,389,297
Non-cash compensation, including
Related party of $254,200 and $216,000 269,000 469,000 10,214,151
Debt restructuring expense 0 6,186,373 6,186,373
------------ ------------ ------------
TOTAL DEVELOPMENT
STAGE EXPENSES 574,781 6,999,376 18,789,821
------------ ------------ ------------
LOSS FROM OPERATIONS (574,781) (6,999,376) (18,789,821)
INTEREST INCOME 0 0 2,239
INTEREST EXPENSE (6,390) (9,260) (57,079)
NON-CASH INTEREST EXPENSE
FROM AMORTIZATION OF
DEBT DISCOUNT (165,000) (539,621) (1,410,900)
------------ ------------ ------------
NET LOSS $ (746,171) $ (7,548,257) $(20,255,561)
============ ============ ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (.02) $ (.52) $ (.69)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 29,853,057 14,407,313 29,164,771
============ ============ ============
2
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
From
For The Three For The Three September 20,
Months Ended Months Ended 1996 (Inception)
March 31, 2005 March 31, 2004 to March 31, 2005
------------ ------------ ------------
NET LOSS $ (746,171) $ (7,548,257) $(20,255,561)
OTHER COMPREHENSIVE LOSS
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT (14) (26,146) (46,231)
------------ ------------ ------------
NET COMPREHENSIVE LOSS $ (746,185) $ (7,574,403) $(20,301,792)
============ ============ ============
See accompanying notes to the Condensed Consolidated Financial Statements
3
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
September 20, 1996 -
common stock
issued for cash 500,000 $ 500 $ 9,500 $ 0 $ 0 $ 0 $ 10,000
October 1, 1996 to
December 31, 1996 -
common stock
issued for cash 17,200 17 5,143 0 0 0 5,160
Net (loss) for the period
from September 20, 1996
to December 31, 1996 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 517,200 517 14,643 0 0 0 15,160
Net (loss) for the year
ended December 31, 1997 0 0 0 0 0 (15,160) (15,160)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1997 517,200 517 14,643 0 0 (15,160) 0
-------- -------- -------- -------- -------- -------- --------
Net (loss) for year ended
December 31, 1998 0 0 0 0 0 (17,087) (17,087)
-------- -------- -------- -------- -------- -------- --------
See accompanying notes to the Condensed Consolidated Financial Statements
4
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1998 517,200 $ 517 $ 14,643 $ 0 $ 0 $ (32,247) $ (17,087)
1998 - Common stock
issued for cash 6,000,000 6,000 294,000 0 0 0 300,000
Net (loss) for the year ended
December 31, 1999 0 0 0 0 0 (54,829) (54,829)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 6,517,200 6,517 308,643 0 0 (87,076) 228,084
Net (loss) for the year ended
December 31, 2000 0 0 0 0 0 (55,545) (55,545)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 6,517,200 6,517 308,643 0 0 (142,621) 172,539
November 30, 2001, common
stock issued for services 500,000 500 3,874,500 0 0 0 3,875,000
Net (loss) for the year ended
December 31, 2001 0 0 0 0 0 (3,941,567) (3,941,567)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 7,017,200 7,017 4,183,143 0 0 (4,084,188) 105,972
See accompanying notes to the Condensed Consolidated Financial Statements
5
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
October 29, 2002 - common
stock issued for business
acquisition 3,180,984 $ 3,181 $ (313,938) $ 0 $ 0 $ 0 $ (310,757)
Debt discount arising from
beneficial conversion
feature 0 0 33,000 0 0 0 33,000
Net (loss) for the year ended
December 31, 2002 0 0 0 0 0 (226,317) (226,317)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 10,198,184 10,198 3,902,205 0 0 (4,310,505) (398,102)
July 1, 2003 - common
stock issued for services 100,000 101 346,399 0 0 0 346,500
Debt discount arising from
beneficial conversion feature 0 0 465,750 0 0 0 465,750
November 20, 2003 - common
stock issued for services 1,000,000 1,000 109,000 0 0 0 110,000
See accompanying notes to the Condensed Consolidated Financial Statements
6
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
Stock discount expense 0 $ 0 $ 103,500 $ 0 $ 0 $ 0 $ 103,500
Deferred compensation 0 0 0 (100,000) 0 0 (100,000)
Foreign currency
translation adjustment 0 0 0 0 (9,339) 0 (9,339)
Net (loss) for the year ended
December 31, 2003 0 0 0 0 0 (1,552,457) (1,552,457)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 11,298,184 11,299 4,926,854 (100,000) (9,339) (5,862,962) (1,034,148)
February 9, 2004 - common
stock issued conversion
of accrued compensation 3,000,000 3,000 297,000 0 0 0 300,000
February 9, 2004 - warrants
issued for services 0 0 72,000 0 0 0 72,000
February 2004 - warrants
issued to retire outstanding
debt, net of fees 0 0 6,186,373 0 0 0 6,186,373
See accompanying notes to the Condensed Consolidated Financial Statements
7
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
February 2004 - common
stock issued to retire debt,
net of fees 4,330,820 $ 4,331 $ 980,983 $ 0 $ 0 $ 0 $ 985,314
February 12, 2004 -
common stock issued for
services 500,000 500 109,500 0 0 0 110,000
February 9, 2004 - common
stock issued for services 250,000 250 24,750 0 0 0 25,000
February 19, 2004 - common
stock issued for services 50,000 50 49,950 0 0 0 50,000
March 19, 2004 - common
stock issued for services 450,000 450 49,550 0 0 0 50,000
March 29, 2004 - common
stock issued for services 230,000 230 252,770 0 0 0 253,000
April 1, 2004 - warrants
issued for services 0 0 20,134 0 0 0 20,134
See accompanying notes to the Condensed Consolidated Financial Statements
8
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
May 1, 2004 - warrants
issued for services 0 $ 0 $ 14,914 $ 0 $ 0 $ 0 $ 14,914
June 1, 2004 - warrants
issued for services 0 0 11,142 0 0 0 11,142
June 29, 2004 - warrants
issued for services 0 0 11,706 0 0 0 11,706
July 1, 2004 and August 1, 2004 -
warrants issued for services 0 0 7,426 0 0 0 7,426
July 22, 2004 - common
stock issued for settlement 7,313,333 7,313 4,384,345 0 0 0 4,391,658
June 25, 2004 - common
stock issued for services 200,000 200 111,800 0 0 0 112,000
See accompanying notes to the Condensed Consolidated Financial Statements
9
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
August 6, 2004 - common
stock issued for cash, net
of registration right penalty 1,250,000 $ 1,250 $ 336,250 $ 0 $ 0 $ 0 $ 337,500
August 19, 2004 - common
stock issued as a reset to the
August 6, 2004 common
stock issued for cash 178,572 179 62,321 0 0 0 62,500
October 7, 2004 - common
stock issued for services 30,000 30 11,970 0 0 0 12,000
October 29, 2004 - options
issued for services 0 0 19,170 0 0 0 19,170
Debt discount arising from
beneficial conversion
feature 0 0 747,150 0 0 0 747,150
Deferred compensation 0 0 0 100,000 0 0 100,000
See accompanying notes to the Condensed Consolidated Financial Statements
10
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
Foreign currency translation
adjustment 0 $ 0 $ 0 $ 0 $ (36,878) $ 0 $ (36,878)
Net (loss) for the year ended
December 31, 2004 0 0 0 0 0 (13,646,428) (13,646,428)
------------ ----------- ------------ --------- ----------- ------------ ------------
Balance, December 31, 2004 29,080,909 29,082 18,688,058 0 (46,217) (19,509,390) (838,467)
January 3, 2005 - common
stock issued for services 10,000 10 5,490 0 0 0 5,500
January 7, 2005 - common
stock issued for cash 666,667 667 199,333 0 0 0 200,000
January 31, 2005 -
common stock issued
for services 200,000 200 109,800 0 0 0 110,000
February 1, 2005 -
common stock issued
for services 10,000 10 5,290 0 0 0 5,300
See accompanying notes to the Condensed Consolidated Financial Statements
11
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
February 17, 2005 -
warrants issued
for services 0 0 224,200 0 0 0 224,200
March 1, 2005 -
common stock issued
for services 10,000 10 3,990 0 0 0 4,000
March 10, 2005 -
common stock issued
for cash 50,000 $ 50 $ 19,950 $ 0 $ 0 $ 0 $ 20,000
March 31, 2005 -
Debt discount arising
from beneficial conversion
feature 0 0 165,000 0 0 0 165,000
Foreign currency translation
adjustment 0 0 0 0 (14) 0 (14)
See accompanying notes to the Condensed Consolidated Financial Statements
12
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO MARCH 31, 2005
(UNAUDITED)
Deficit
Accumulated Accumulated
Common Stock Additional Other During The Total
---------------------- Paid-In Deferred Comprehensive Development Stockholders'
Shares Amount Capital Compensation (Loss) Stage Deficit
-------- -------- -------- -------- -------- -------- --------
Net loss for the three months
ended March 31, 2005 0 0 0 0 0 (746,171) (746,171)
------------ ---------- ------------ ------------ ---------- ------------ -----------
Balance, March 31, 2005 30,027,576 $ 30,029 $ 19,421,111 $ 0 $ (46,231) $(20,255,561) $ (850,652)
============ ========== ============ ============ ========== ============ ===========
See accompanying notes to the Condensed Consolidated Financial Statements
13
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From
For The Three For The Three September 20,
Months Ended Months Ended 1996 (Inception)
March 31, 2005 March 31, 2004 to March 31, 2005
------------ ------------ ------------
OPERATING ACTIVITIES:
Net loss $ (746,171) $ (7,548,257) $(20,255,561)
Adjustments to reconcile net loss to net cash (used) in operating activities:
Depreciation and amortization 403 5,468 15,941
Non-cash interest, beneficial
conversion feature 165,000 539,621 1,410,900
Issuance of equity instruments for
debt extinguishment cost 0 6,186,373 6,186,373
Issuance of equity instruments
for services 269,000 469,000 10,073,517
Changes in assets and liabilities:
Deposits 0 (208) 0
Prepaid expenses (29,677) 0 (29,677)
Accrued interest 6,390 25,228 27,441
Accounts payable 43,955 9,309 508,033
------------ ------------ ------------
NET CASH (USED) IN
OPERATING ACTIVITIES (291,100) (313,466) (2,063,033)
------------ ------------ ------------
INVESTING ACTIVITIES:
Cash from acquired subsidiaries 0 0 1,980
Purchase of property and equipment (31,975) (9,430) (109,964)
------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (31,975) (9,430) (107,984)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 220,000 0 935,160
Proceeds from issuance of debt to related parties 0 0 39,840
Proceeds from issuance of debt, shareholders,
net of fees 165,000 410,000 1,343,762
Payment on debt, shareholders, net of fees 0 0 (27,500)
------------ ------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 385,000 410,000 2,291,262
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (14) (26,146) (46,231)
------------ ------------ ------------
See accompanying notes to the Condensed Consolidated Financial Statements
14
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
From
For The Three For The Three September 20,
Months Ended Months Ended 1996 (Inception)
March 31, 2005 March 31, 2004 to March 31, 2005
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 61,911 $ 60,958 $ 74,014
CASH AND EQUIVALENTS,
Beginning of period 12,103 27,942 0
---------- ---------- ----------
CASH AND EQUIVALENTS,
End of period $ 74,014 $ 88,900 $ 74,014
========== ========== ==========
March 31, March 31,
2005 2004
---------- ----------
SUPPLEMENTAL DISCLOSURE OF:
Cash paid for interest $ 0 $ 322
Cash paid for taxes$ $ 0 $ 0
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of equity instruments for services $ 349,000 $ 0
Issuance of stock for accrued compensation $ 0 $ 300,000
Conversion of debt to equity $ 0 $1,033,475
See accompanying notes to the Condensed Consolidated Financial Statements
15
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
The interim condensed consolidated financial statements of SBS
Interactive, Co. 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 condensed consolidated
financial statements for the interim periods presented. Operating results
for the three months ended March 31, 2005, are not necessarily indicative
of the results that may be expected for the year ended December 31, 2005.
Accordingly, your attention is directed to footnote disclosure found in
the December 31, 2004 Annual Report and particularly to Note 1, which
includes a summary of significant accounting policies.
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
operating 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. 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 the SBS, Inc.
16
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Nature of Operations (continued)
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 of the Company
and its wholly owned subsidiaries, SBS Interactive, Inc. and High Plateau
Holdings, Inc. All material intercompany accounts and transactions have
been eliminated.
Loss Per Share
Basic and diluted net loss per share has been computed by dividing net
loss by the weighted average number of common shares outstanding during
the fiscal period. At March 31, 2005, the Company had stock warrants
outstanding that could potentially be exercised into 8,549,043 additional
common shares and stock options outstanding that could potentially be
exercised into 925,000 additional shares. The Company additionally had
debentures outstanding at March 31, 2005 that could potentially be
converted into 3,755,750 additional shares. Such potentially issuable
shares are excluded from the computation of net loss per share since the
effect would be anti-dilutive. Should the Company report net income in a
future period, diluted net income per share will be separately disclosed
giving effect to the potential dilution that could occur if the then
outstanding stock warrants, options and debentures were exercised and
converted into common shares.
17
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 aggregate fair value of all stock warrants
issued to related parties at the grant date to be $224,200, for 500,000
warrants at $0.60 for three years, (the Company expensed the full fair
value on date of grant during the three months ended March 31, 2005) by
using the Black-Scholes option pricing model based on the following
assumptions:
March 31,
2005
----------
Risk free interest rate 4.0 %
Expected life 3 years
Expected volatility 191.3 %
Dividend yield 0.0
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded warrants which have no vesting restrictions and
are fully transferable. In addition, warrant 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 warrants, 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 and warrants.
18
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment".
This Statement is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
Accounting For Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair
value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services
in share-based payment transactions. This Statement does not change the
accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and
EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services." This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.
In December 2004 the Financial Accounting Standards Board issued two FASB
Staff Positions--FSP FAS 109-1, Application of FASB Statement 109
"Accounting for Income Taxes" to the Tax Deduction of Qualified Production
Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
109-2 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004.
Neither of these affected the Company as it does not participate in the
related activities.
In March 2004 the Financial Accounting Standards Board issued a consensus
of the Emerging Issues Task Force--EITF 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments", Application of FASB Statement 115 "Accounting for Certain
Investments in Debt and Equity Securities." This EITF did not affect the
Company as it does not hold investments.
The Company does not believe that any of these recent accounting
pronouncements will have a material impact on their financial position or
results of operations.
19
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 March 31,
2005, has a working capital deficit of approximately $954,000. The Company
presently has no established source of revenue. All of these factors raise
uncertainty 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 be
able to obtain adequate financing 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 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.
20
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 NOTES PAYABLE, SHAREHOLDERS
The notes payable consist of the following:
Note payable to related party, due on demand, bearing
interest at 5% per
annum, unsecured. $ 100,000
Notes payable to related party, due on
demand, bearing interest at 6% per
annum, unsecured. 502,140
----------
$ 602,140
In March 2005, the Company received a $165,000 convertible note from
Arthur Cohn, convertible at $0.20 into one share of the Company's common
stock and two warrants to purchase the Company's common stock 1) at a
$1.00 per share and 2) at $1.25 per share for three years. As provisions
to the note, the conversion price resets upon 1) issuance of the Company's
common stock at terms more favorable to this note and 2) other
anti-dilution events. The note has a stated interest rate of 6% per annum
and due upon demand. In accordance with EITF 98-5 and 00-27, the note
contained a beneficial conversion feature which was initially calculated
at an estimated fair value of $165,000 and the warrants upon conversion
would have no allocated value to be recognized upon conversion. Given that
the note is due upon demand, the Company has recorded a $165,000 debt
discount arising from the beneficial conversion feature on this note
during the three months ended March 31, 2005.
NOTE 3 COMMON STOCK
Shares Issued for Cash
On January 7, 2005, the Company sold 666,667 shares of its common stock
for cash at $0.30 per share for a total of $200,000 to an unrelated party.
On March 10, 2005, the Company sold 50,000 shares of its common stock and
two warrants for $0.40 per unit for a total of $20,000 to RP Capital, LLC,
an entity that is owned by the former outside legal counsel for the
Company. The warrants are exercisable at $1.00 for the first 50,000 and
$1.25 for the remaining 50,000 and expire in three years. During the three
months ended March 31, 2005, the Company incurred $63,981 in legal fees
from services rendered by this counsel.
21
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 COMMON STOCK
Shares Issued for Services
On January 3, 2005, the Company issued 10,000 common shares having a fair
value of $0.55 per share, which was the closing value of the Company's
common stock as indicated on the OTCBB on date of grant, to a consultant
for services performed. An expense of $5,500 was recognized during the
three months ended March 31, 2005 on the statement of operations.
On January 31, 2005, the Company approved the issuance of 200,000 common
shares having a fair market value of $0.55 per share, which was the
closing value of the Company's common stock as indicated on the OTCBB on
date of grant, to its former legal counsel for services performed during
the year ended December 31, 2004 in the amount of $80,000. The Company
recorded an additional expense related to the fair market value of the
stock issued in the amount of $30,000.
On February 1, 2005, the Company issued 10,000 common shares having a fair
value of $0.53 per share, which was the closing value of the Company's
common stock as indicated on the OTCBB on date of grant, to a consultant
for services performed. An expense of $5,300 was recognized during the
three months ended March 31, 2005 on the statement of operations.
On March 1, 2005, the Company issued 10,000 common shares having a fair
value of $0.40 per share, which was the closing value of the Company's
common stock as indicated on the OTCBB on date of grant, to a consultant
for services performed. An expense of $4,000 was recognized during the
three months ended March 31, 2005 on the statement of operations.
22
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 COMMON STOCK (CONTINUED)
Warrants Issued for Services
On February 17, 2005, the Company granted Marcus Cohn, Managing Director
of Clearsite, Ltd. warrants to purchase up to 500,000 shares of common
stock at an exercise price of $0.60, for three years, in accordance with a
non-exclusive consulting agreement between the Company and Clearsite, Ltd.
During the three months ended March 31, 2005, $224,200 was charged to
expense as non-cash compensation. The Company recorded the issuance of
these warrants valued at $224,200 using the Black-Scholes Option pricing
model with the following assumptions: life of 3 years, volatility of
191.3% and a risk free interest rate of 4.0%.
The following table summarizes information about fixed stock warrants
outstanding at March 31, 2005:
Warrants
Warrants Outstanding Exercisable
- --------------------------------------------------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------- --------------- --------------- --------------- --------------- ---------------
$ 1.25 1,300,000 2.2 1.25 1,300,000 $ 1.25
1.00 5,630,820 2.0 1.00 5,630,820 1.00
0.85 1,118,223 2.0 0.85 1,118,223 0.85
0.60 500,000 2.9 0.60 500,000 0.60
Options
As of March 31, 2005, the Company had 925,000 stock options outstanding
and exercisable with a weighted average life of 43 months, weighted
average exercise price of $0.53 and weighted average fair value of $0.17.
23
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 COMMITMENTS AND CONTINGENCIES
Royalty Agreement
On September 9, 1999, High Plateau entered into a Royalty and Development
Agreement with Ultimatte Corporation ("Ultimatte") to develop a "keyer
unit" based on patented technology held by Ultimatte. The keyer unit
enables the patented technology of the Company to interact with the
consumer and is crucial to the Company's existing plans for development
and production of its intended product. In accordance with the agreement,
the Company was obligated to pay $300,000 to Ultimatte in development
fees, of which, the entire amount has been paid through December 31, 2004.
This relationship is now governed by the Amended and Restated Design and
Development Agreement that the Company entered into with Ultimatte
Corporation on June 15, 2003. Pursuant to this agreement, the Company
agreed to pay Ultimatte Corporation a development fee of $300,000 for the
development and fabrication of five keyer units. The contract calls for
the Company to manufacture the keyer units after the Company has received
test units and FCC approval is received for which the Company has received
approval. The Company also agreed to pay certain royalties to Ultimatte
Corporation upon UL or CSA approval and CE marking. The royalty equals 7%
of the gross revenue the Company recognizes from the rental, lease,
license or sale of the units manufactured for the Company by Ultimatte
Corporation and the content used with the units plus 40% of the gross
revenue the Company recognizes related to licensing to a third party the
right to manufacture and sell or use or rent the units. The Company must
pay a minimum royalty ("Minimum Payment") of $100,000 during the first
quarter following the UL or CSA approval and CE marking, $150,000 during
the second quarter, $250,000 during the third quarter, $250,000 during the
fourth quarter and the greater of $312,500 or 50% of the projected amount
of royalties due during the fifth quarter and each quarter thereafter.
Royalties must be paid within 30 days following the end of each quarter.
If the Company fails to pay the Minimum Payments as required, Ultimatte
will have the right to use Keyer Unit for any purpose. At March 31, 2005,
the Company paid the first $50,000 to Ultimatte that was due on April 1,
2005 with the remaining $50,000 due on May 25, 2005.
24
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 COMMITMENTS AND CONTINGENCIES (CONTINUED)
Real Estate Lease
The Company currently maintains an office in Canada. The Company does not
currently own or operate any manufacturing, operating or repair
facilities. Substantially all of the Company's operations are devoted to
the development of its patented technology. The Company believes that it
is in substantial compliance with all environmental laws and regulations
applicable to its business as currently conducted.
Rent expense for the three months ended March 31, 2005 and 2004 amounted
to $15,236 and $4,103. On February 3, 2005, the Company accepted
assignment of a five year lease, ending on September 30, 2008, from a
related company. The lease calls for base monthly rental payments of
$2,133 plus applicable operating expenses and taxes. (See Note 5.)
NOTE 5 SUBSEQUENT EVENTS
During May 2005, the Company received $45,000 from Mr. Arthur Cohn under a
new debt agreement that remains under negotiation.
During May 2005, the Company and the parties involved in the assignment of
the five year lease mentioned in Note 4 to the Condensed Consolidated
Financial Statements in Part I, Item 1 hereof mutually agreed to cancel
the assignment of such lease. The Company has since relocated its office.
25
Item 2. - Management's Discussion and Analysis or Plan 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 the financial statements included in
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
principal executive officer, principal financial 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 financial condition and results of
operations 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.
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, 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.
26
We believe that our technology can be used not only for the entertainment
purposes, but also as a teaching and training tool. For exercising or athletics
for example, the user can watch him 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 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 the set-top boxes. The
amount of the purchase order was $280,000.
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.
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, and the pace at which the technology involved
in making our product changes.
Since our inception, we have relied on loans, sales of our securities and stock
and options issued for services 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 we will ever occur. We cannot guarantee
that the financing will be available to support our business and if 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.
27
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 lend us money, as we
need it. In July 2004, we executed five agreements with Mr. 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 covert 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 $0.20 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. 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 500,000 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
1,000,000 shares of our common stock (rather than 400,000 shares), 500,000
shares at an exercise price of $1.00 and 500,000 shares at an exercise price of
$1.25.
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.
28
In November 2004 we received an additional loan from Arthur Cohn in the amount
of $150,000. Pursuant to the terms of the Secured Convertible Promissory Note,
the loan bears interest at the rate of 6% and is due upon demand. In the event
of a default, the interest rate will increase to 15%. The loan is 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.
In December 2004 we received an additional loan from Arthur Cohn in the amount
of $87,150. Pursuant to the terms of the Secured Convertible Promissory Note,
the loan bears interest at the rate of 6% and is due upon demand. In the event
of a default, the interest rate will increase to 15%. The loan is 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 430,750 shares of our common stock. The warrant may be exercised
at a price of $1.00 per share.
In March 2005 we received an additional loan from Arthur Cohn in the amount of
$165,000. Pursuant to the terms of the Secured Convertible Promissory Note, the
loan bears interest at the rate of 6% and is due upon demand. In the event of a
default, the interest rate will increase to 15%. The loan is 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 1,660,000 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.
Our development stage expenses for the three months ended March 31, 2005 were
$574,781 as compared to $6,999,376 in development stage expenses for the three
months ended March 31, 2004. During the three months ended March 31, 2004, we
granted common stock and warrants to induce conversion of debt and settle claims
valued at $6,186,373. During the three months ended March 31, 2005, we issued
common stock and warrants to consultants and our former legal counsel in
exchange for services rendered to us, which accounted for $269,000 in expense as
compared to a total of $469,000 in non-cash compensation expenses for the three
months ended March 31, 2004. Other operating expenses for the three months ended
March 31, 2005 included selling, general and administrative expenses of $305,781
as compared to $344,003 for the three months ended March 31, 2004. The decrease
in selling, general and administrative expenses for the three months ended March
31, 2005 was due to the lack of cash on hand and credit resources to afford
business promotion and research and development expenditures. 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.
29
Our loss from operations for the three months ended March 31, 2005 was $574,781
as compared to loss from operations of $6,999,376 for the three months ended
March 31, 2004. As a result of the payment of debt with securities and the
issuance of debt securities, we incurred non-cash interest expense for the three
months ended March 31, 2005 of $165,000, as compared to non-cash interest
expense in the amount of $539,621 for the three months ended March 31, 2004.
Interest expense for the three months ended March 31, 2005 was $6,390 as
compared to interest expense of $9,260 for the three months ended March 31,
2004. Interest expense relates to a loan of $100,000 made to us by Maple Leaf
Holdings that accrues interest at the rate of 5% per annum and loans from Mr.
Cohn of $502,140 that accrue interest at the rate of 6% 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 months ended March 31, 2005 was
$746,171 as compared to a net loss of $7,548,257 for the three months ended
March 31, 2004.
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 three months ended March 31, 2005
was $291,100 as compared to $313,466 in net cash used in operating activities
for the three months ended March 31, 2004.
We used $31,975 to purchase property and equipment during the three months ended
March 31, 2005, as compared to $9,430 used to purchase property and equipment
during the three months ended March 31, 2004. This increase in investment in
property and equipment related to the ramp-up of our business.
During the three months ended March 31, 2005, $220,000 was provided to us from
net proceeds raised through the sale of units composed of common stock and
warrants and $165,000 was provided to us from shareholder loans. During the
three months ended March 31, 2004, we raised no money through sales of our
securities, although we received $410,000 from shareholder loans.
As of March 31, 2005 we had a deficit accumulated during the development stage
of $20,255,561 and a working capital deficiency of approximately $954,000. Our
auditor, Stonefield Josephson, Inc., has issued a "going concern" report on our
consolidated financial statements for the three months ended March 31, 2005. In
that report and in the notes to the condensed 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 uncertainty about our ability to continue as a going concern.
30
SUBSEQUENT EVENTS
During May 2005, the Company received $45,000 from Mr. Arthur Cohn under a new
debt agreement that remains under negotiation.
During May 2005, the Company and the parties involved in the assignment of the
five year lease mentioned in Note 4 to the Condensed Consolidated Financial
Statements in Part I, Item 1 hereof mutually agreed to cancel the assignment of
such lease. The Company has since relocated its office.
Item 3. - Disclosure Controls and Procedures
Management, including the Company's principal executive officer and principal
financial officer - the Company's principal executive officer, the President, is
also the Company's principal financial officer, the 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 has been no significant change in the Company's internal controls over
financial reporting since the date of management's most recent evaluation
thereof that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings.
Not applicable.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds.
On January 7, 2005, the Company sold 666,667 shares of its common stock for cash
at $0.30 per share for a total of $200,000 to an unrelated party. 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.
31
On March 10, 2005, the Company sold 50,000 shares of its common stock and two
warrants for $0.40 per unit for a total of $20,000 to RP Capital, LLC, an entity
that is owned by the former outside legal counsel for the Company. The warrants
are exercisable at $1.00 for the first 50,000 and $1.25 for the remaining 50,000
and expire in three years. During the three months ended March 31, 2005, the
Company incurred $63,981 in legal fees from services rendered by this counsel.
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 occupied a status with us that affords it
effective access to the information that registration would otherwise provide.
On February 15, 2005, the Company approved the issuance of 200,000 common shares
having a fair market value of $0.55 per share, which was the closing value of
the Company's common stock as indicated on the OTCBB on date of grant, to its
former legal counsel for services performed during the year ended December 31,
2004 in the amount of $80,000. The Company recorded an additional expense
related to the fair market value of the stock issued in the amount of $30,000.
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 occupied a status with us that afforded it
effective access to the information that registration would otherwise provide.
On February 17, 2005, the Company granted Marcus Cohn, Managing Director of
Clearsite, Ltd. warrants to purchase up to 500,000 shares of common stock at an
exercise price of $0.60, for three years, in accordance with a non-exclusive
consulting agreement between the Company and Clearsite, Ltd. During the three
months ended March 31, 2005, $224,200 was charged to expense as non-cash
compensation. The Company recorded the issuance of these warrants valued at
$224,200 using the Black-Scholes Option pricing model with the following
assumptions: life of 3 years, volatility of 191.3% and a risk free interest rate
of 4.0%. 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.
The net proceeds from each of the foregoing cash transactions described in this
Item 2 are for use as general working capital.
Item 3. - Defaults Upon Senior Securities.
Not applicable.
Item 4. - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. - Other Information.
The information contained in Item 2 of Part II hereof is hereby incorporated by
reference.
32
Item 6. - Exhibits and Reports on Form 8-K.
Exhibit No. Description of Exhibits
- ----------- -----------------------
2 Articles and Plan of Merger of SBS Acquisition, Inc. with and
into SBS Interactive, Inc. (1)
3.1 Certificate of Incorporation, as amended (2)
3.2 Bylaws of SBS Interactive, Co. (2)
10.1 Common Stock Purchase Agreement*
10.2 Warrant issued March 10, 2005 issued to RP Capital, LLC*
10.3 Warrant issued February 17, 2005 to Marcus Cohn*
10.4 Non-Exclusive Consulting Agreement dated February 17, 2005
between Clearsite Ltd. and SBS Interactive, Co.*
31 Certification pursuant to Rule 13a-14(a) and 15d-14(a)*
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
*Filed herewith.
(1) 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.
(2) Incorporated by reference from the Registrant's Form 10-SB filed with the
Securities and Exchange Commission on December 3, 1999, as amended.
33
REPORTS ON FORM 8-K
On April 22, 2005, the Registrant filed a current report disclosing that on
April 18, 2005, Mr. Sam Ash, a member of the Registrant's Board of Directors,
resigned, and also on April 18, 2005, Mr. Trent Walklett and Mr. Alexander von
Mueffling were appointed to the Board of Directors by the Registrant's Board of
Directors.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SBS Interactive, Co.
Date: May 23, 2005 By: /s/ TODD GOTLIEB
------------ --------------------------------------
Todd Gotlieb
President and Principal Accounting Officer
(the Company's principal executive officer
and principal financial officer)
35
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- -----------------------
10.1 Common Stock Purchase Agreement
10.2 Warrant issued March 10, 2005 issued to RP Capital, LLC
10.3 Warrant issued February 17, 2005 to Marcus Cohn
10.4 Non-Exclusive Consulting Agreement dated February 17, 2005
between Clearsite Ltd. and SBS Interactive, Co.
31 Certification pursuant to Rule 13a-14(a) and 15d-14(a)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
36