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 June 30, 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.)
247 Lesmill Road
Toronto, Ontario M3B 2V1
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 28,027,576 shares of common stock outstanding as of July 19,
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 June 30, 2005 1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2005 and June 30,
2004 and from inception to June 30, 2005 2
Condensed Consolidated Statements of Comprehensive Loss
for the Three and Six Months Ended June 30, 2005 and June
30, 2004 and from inception to June 30, 2005 3
Condensed Consolidated Statements of Stockholders' Deficit
from inception to June 30, 2005 4
Condensed Consolidated Statement of Cash Flows for the Six
Months Ended June 30, 2005 and June 30, 2004 and from
inception to June 30, 2005 14
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 34
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements.
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(UNAUDITED)
ASSETS
CURRENT ASSET
Cash and cash equivalents $ 1,952
Stock subscription receivable 100,000
Prepaid expenses 21,935
------------
TOTAL CURRENT ASSETS 123,887
PROPERTY AND EQUIPMENT,
NET OF ACCUMULATED DEPRECIATION 134,564
SECURITY DEPOSIT 1,407
------------
TOTAL ASSETS $ 259,858
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses,
including related party of $83,205 $ 567,425
Notes payable, related party 678,140
------------
TOTAL CURRENT LIABILITIES 1,245,565
------------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value
50,000,000 shares authorized
30,527,576 shares issued
28,027,576 shares outstanding 30,529
Treasury stock (at cost) (70,700)
Additional paid-in capital 19,621,961
Other comprehensive loss -
Foreign currency translation adjustment (46,340)
Deficit accumulated during the
Development stage (20,521,157)
------------
TOTAL STOCKHOLDERS' DEFICIT (985,707)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 259,858
============
See accompanying notes to the Condensed Consolidated Financial Statements
1
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
JUNE 30, 2005
(UNAUDITED)
Three Months Ended Six Months Ended From
June 30, June 30, September 20,
------------------------------ ------------------------------ 1996 Inception
2005 2004 2005 2004 To June 30, 2005
------------ ------------ ------------ ------------ ----------------
DEVELOPMENT STAGE EXPENSES
Selling, general and administrative $ 226,016 $ 245,812 $ 531,797 $ 589,815 $ 2,615,313
Non-cash compensation 0 466,288 269,000 935,288 10,214,151
Debt restructuring expense 0 4,388,000 0 10,574,373 6,186,373
------------ ------------ ------------ ------------ ------------
TOTAL DEVELOPMENT
STAGE EXPENSES 226,016 5,100,100 800,797 12,099,476 19,015,837
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (226,016) (5,100,100) (800,797) (12,099,476) (19,015,837)
INTEREST INCOME 0 0 0 1 2,239
INTEREST EXPENSE (8,930) (1,880) (15,320) (11,141) (66,009)
NON-CASH INTEREST EXPENSE
FROM AMORTIZATION OF DEBT DISCOUNT (30,650) (24,000) (195,650) (563,621) (1,441,550)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (265,596) $ (5,125,980) $ (1,011,767) $(12,674,237) $(20,521,157)
============ ============ ============ ============ ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (.01) $ (.26) $ (.03) $ (.74) $ (.69)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 29,218,361 20,109,004 29,949,086 17,114,241 29,652,848
============ ============ ============ ============ ============
See accompanying notes to the Condensed Consolidated Financial Statements
2
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
JUNE 30, 2005
(UNAUDITED)
Three Months Ended Six Months Ended From
June 30, June 30, September 20,
---------------------------------- ---------------------------------- 1996 Inception
2005 2004 2005 2004 To June 30, 2005
--------------- --------------- --------------- --------------- ----------------
NET LOSS $ (265,596) $ (5,125,980) $ (1,011,767) $ (12,674,237) $ (20,521,157)
OTHER COMPREHENSIVE LOSS
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT (137) (108) (123) (26,254) (46,340)
--------------- --------------- --------------- --------------- ----------------
NET COMPREHENSIVE LOSS $ (265,733) $ (5,126,088) $ (1,011,890) $ (12,700,491) $ (20,567,497)
=============== =============== =============== =============== ================
See accompanying notes to the Condensed Consolidated Financial Statements
3
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
---------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
-------- -------- --------- ------------ -------------
September 20, 1996 -
common stock
issued for cash 500,000 $ 500 $ 9,500 $ 0 $ 0
October 1, 1996 to
December 31, 1996 -
common stock
issued for cash 17,200 17 5,143 0 0
Net (loss) for the period
from September 20, 1996
to December 31, 1996 0 0 0 0 0
-------- -------- --------- ------------ -------------
Balance, December 31, 1996 517,200 517 14,643 0 0
Net (loss) for the year
ended December 31, 1997 0 0 0 0 0
-------- -------- --------- ------------ -------------
Balance, December 31, 1997 517,200 517 14,643 0 0
-------- -------- --------- ------------ -------------
Net (loss) for year ended
December 31, 1998 0 0 0 0 0
-------- -------- --------- ------------ -------------
Deficit
Accumulated
During The Treasury Stock Total
Development ---------------------- Stockholders'
Stage Shares Amount Deficit
----------- -------- -------- -------------
September 20, 1996 -
common stock
issued for cash $ 0 0 $ 0 $ 10,000
October 1, 1996 to
December 31, 1996 -
common stock
issued for cash 0 0 0 5,160
Net (loss) for the period
from September 20, 1996
to December 31, 1996 0 0 0 0
----------- -------- -------- -------------
Balance, December 31, 1996 0 0 0 15,160
Net (loss) for the year
ended December 31, 1997 (15,160) 0 0 (15,160)
----------- -------- -------- -------------
Balance, December 31, 1997 (15,160) 0 0 0
----------- -------- -------- -------------
Net (loss) for year ended
December 31, 1998 (17,087) 0 0 (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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
Balance, December 31, 1998 517,200 $ 517 $ 14,643 $ 0 $ 0
1998 - Common stock
issued for cash 6,000,000 6,000 294,000 0 0
Net (loss) for the year ended
December 31, 1999 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 1999 6,517,200 6,517 308,643 0 0
Net (loss) for the year ended
December 31, 2000 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 2000 6,517,200 6,517 308,643 0 0
November 30, 2001, common
stock issued for services 500,000 500 3,874,500 0 0
Net (loss) for the year ended
December 31, 2001 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 2001 7,017,200 7,017 4,183,143 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
Balance, December 31, 1998 $ (32,247) 0 $ 0 $ (17,087)
1998 - Common stock
issued for cash 0 0 0 300,000
Net (loss) for the year ended
December 31, 1999 (54,829) 0 0 (54,829)
----------- ----------- ----------- ----------------
Balance, December 31, 1999 (87,076) 0 0 228,084
Net (loss) for the year ended
December 31, 2000 (55,545) 0 0 (55,545)
----------- ----------- ----------- ----------------
Balance, December 31, 2000 (142,621) 0 0 172,539
November 30, 2001, common
stock issued for services 0 0 0 3,875,000
Net (loss) for the year ended
December 31, 2001 (3,941,567) 0 0 (3,941,567)
----------- ----------- ----------- ----------------
Balance, December 31, 2001 (4,084,188) 0 0 105,972
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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
October 29, 2002 - common
stock issued for business
acquisition 3,180,984 $ 3,181 $ (313,938) $ 0 $ 0
Debt discount arising from
beneficial conversion
feature 0 0 33,000 0 0
Net (loss) for the year ended
December 31, 2002 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 2002 10,198,184 10,198 3,902,205 0 0
July 1, 2003 - common
stock issued for services 100,000 101 346,399 0 0
Debt discount arising from
beneficial conversion feature 0 0 465,750 0 0
November 20, 2003 - common
stock issued for services 1,000,000 1,000 109,000 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
October 29, 2002 - common
stock issued for business
acquisition $ 0 0 $ 0 $ (310,757)
Debt discount arising from
beneficial conversion
feature 0 0 0 33,000
Net (loss) for the year ended
December 31, 2002 (226,317) 0 0 (226,317)
----------- ----------- ----------- ----------------
Balance, December 31, 2002 (4,310,505) 0 0 (398,102)
July 1, 2003 - common
stock issued for services 0 0 0 346,500
Debt discount arising from
beneficial conversion feature 0 0 0 465,750
November 20, 2003 - common
stock issued for services 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
Stock discount expense $ 0 $ 0 $ 103,500 $ 0 $ 0
Deferred compensation 0 0 0 (100,000) 0
Foreign currency
translation adjustment 0 0 0 0 (9,339)
Net (loss) for the year ended
December 31, 2003 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 2003 11,298,184 11,299 4,926,854 (100,000) (9,339)
February 9, 2004 - common
stock issued for conversion
of accrued compensation 3,000,000 3,000 297,000 0 0
February 9, 2004 - warrants
issued for services 0 0 72,000 0 0
February 2004 - warrants
issued to retire outstanding
debt, net of fees 0 0 6,186,373 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
Stock discount expense $ 0 0 $ 0 $ 103,500
Deferred compensation 0 0 0 (100,000)
Foreign currency
translation adjustment 0 0 0 (9,339)
Net (loss) for the year ended
December 31, 2003 (1,552,457) 0 0 (1,552,457)
----------- ----------- ----------- ----------------
Balance, December 31, 2003 (5,862,962) 0 0 (1,034,148)
February 9, 2004 - common
stock issued for conversion
of accrued compensation 0 0 0 300,000
February 9, 2004 - warrants
issued for services 0 0 0 72,000
February 2004 - warrants
issued to retire outstanding
debt, net of fees 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
February 2004 - common
stock issued to retire debt,
net of fees 4,330,820 $ 4,331 $ 980,983 $ 0 $ 0
February 12, 2004 -
common stock issued for services 500,000 500 109,500 0 0
February 9, 2004 - common
stock issued for services 250,000 250 24,750 0 0
February 19, 2004 - common
stock issued for services 50,000 50 49,950 0 0
March 19, 2004 - common
stock issued for services 450,000 450 49,550 0 0
March 29, 2004 - common
stock issued for services 230,000 230 252,770 0 0
April 1, 2004 - warrants
issued for services 0 0 20,134 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
February 2004 - common
stock issued to retire debt,
net of fees $ 0 0 $ 0 $ 985,314
February 12, 2004 -
common stock issued for services 0 0 0 110,000
February 9, 2004 - common
stock issued for services 0 0 0 25,000
February 19, 2004 - common
stock issued for services 0 0 0 50,000
March 19, 2004 - common
stock issued for services 0 0 0 50,000
March 29, 2004 - common
stock issued for services 0 0 0 253,000
April 1, 2004 - warrants
issued for services 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
May 1, 2004 - warrants
issued for services 0 $ 0 $ 14,914 $ 0 $ 0
June 1, 2004 - warrants
issued for services 0 0 11,142 0 0
June 29, 2004 - warrants
issued for services 0 0 11,706 0 0
July 1, 2004 and August 1, 2004 -
warrants issued for services 0 0 7,426 0 0
July 22, 2004 - common
stock issued for settlement 7,313,333 7,313 4,384,345 0 0
June 25, 2004 - common
stock issued for services 200,000 200 111,800 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
May 1, 2004 - warrants
issued for services $ 0 0 $ 0 $ 14,914
June 1, 2004 - warrants
issued for services 0 0 0 11,142
June 29, 2004 - warrants
issued for services 0 0 0 11,706
July 1, 2004 and August 1, 2004 -
warrants issued for services 0 0 0 7,426
July 22, 2004 - common
stock issued for settlement 0 0 0 4,391,658
June 25, 2004 - common
stock issued for services 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
August 6, 2004 - common
stock issued for cash, net
of registration right penalty 1,250,000 $ 1,250 $ 336,250 $ 0 $ 0
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
October 7, 2004 - common
stock issued for services 30,000 30 11,970 0 0
October 29, 2004 - options
issued for services 0 0 19,170 0 0
Debt discount arising from
beneficial conversion feature 0 0 747,150 0 0
Deferred compensation 0 0 0 100,000 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
----------- ----------- ----------- ----------------
August 6, 2004 - common
stock issued for cash, net
of registration right penalty $ 0 0 $ 0 $ 337,500
August 19, 2004 - common
stock issued as a reset to the
August 6, 2004 common
stock issued for cash 0 0 0 62,500
October 7, 2004 - common
stock issued for services 0 0 0 12,000
October 29, 2004 - options
issued for services 0 0 0 19,170
Debt discount arising from
beneficial conversion feature 0 0 0 747,150
Deferred compensation 0 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
Foreign currency translation
adjustment 0 $ 0 $ 0 $ 0 $ (36,878)
Net (loss) for the year ended
December 31, 2004 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, December 31, 2004 29,080,909 29,082 18,688,058 0 (46,217)
January 3, 2005 - common
stock issued for services 10,000 10 5,490 0 0
January 7, 2005 - common
stock issued for cash 666,667 667 199,333 0 0
January 31, 2005 -
common stock issued
to settle accounts payable 200,000 200 109,800 0 0
February 1, 2005 -
common stock issued
for services 10,000 10 5,290 0 0
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
------------ ------------ ----------- ----------------
Foreign currency translation
adjustment $ 0 0 $ 0 $ (36,878)
Net (loss) for the year ended
December 31, 2004 (13,646,428) 0 0 (13,646,428)
------------ ------------ ----------- ----------------
Balance, December 31, 2004 (19,509,390) 0 0 (838,467)
January 3, 2005 - common
stock issued for services 0 0 0 5,500
January 7, 2005 - common
stock issued for cash 0 0 0 200,000
January 31, 2005 -
common stock issued
to settle accounts payable 0 0 0 110,000
February 1, 2005 -
common stock issued
for services 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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
-------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
February 17, 2005 -
warrants issued
for services 0 $ 0 $ 224,200 $ 0 $ 0
March 1, 2005 -
common stock issued for services 10,000 10 3,990 0 0
March 10, 2005 -
common stock issued for cash 50,000 50 19,950 0 0
March 31, 2005 -
Debt discount arising from beneficial
conversion feature 0 0 165,000 0 0
June 27, 2005 -
Common stock issued
for subscription receivable 500,000 500 99,500 0 0
Foreign currency translation
adjustment 0 0 0 0 (123)
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
------------ ------------ ----------- ----------------
February 17, 2005 -
warrants issued
for services $ 0 0 $ 0 $ 224,200
March 1, 2005 -
common stock issued for services 0 0 0 4,000
March 10, 2005 -
common stock issued for cash 0 0 0 20,000
March 31, 2005 -
Debt discount arising from beneficial
conversion feature 0 0 0 165,000
June 27, 2005 -
Common stock issued
for subscription receivable 0 0 0 100,000
Foreign currency translation
adjustment 0 0 0 (123)
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 THER PERIOD OF SEPTEMBER 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 2005
(UNAUDITED)
Accumulated
Common Stock Additional Other
----------------------------- Paid-In Deferred Comprehensive
Shares Amount Capital Compensation (Loss)
----------- ----------- ------------ ------------ -------------
June 2, 2005 -
Repurchase of common
stock with warrants 0 $ 0 $ 70,700 $ 0 $ 0
June 27, 2005 -
Debt discount arising
from beneficial conversion
feature 0 0 30,650 0 0
Net loss for the six months
ended June 30, 2005 0 0 0 0 0
----------- ----------- ------------ ------------ -------------
Balance, June 30, 2005 30,527,576 $ 30,529 $ 19,621,961 $ 0 $ (46,340)
=========== =========== ============ ============ =============
Deficit
Accumulated
During The Treasury Stock Total
Development ----------------------------- Stockholders'
Stage Shares Amount Deficit
------------ ------------ ----------- ----------------
June 2, 2005 -
Repurchase of common
stock with warrants $ 0 (2,500,000) $ (70,700) $ 0
June 27, 2005 -
Debt discount arising
from beneficial conversion
feature 0 0 0 30,650
Net loss for the six months
ended June 30, 2005 (1,011,767) 0 0 (1,011,767)
------------ ------------ ----------- ----------------
Balance, June 30, 2005 $(20,521,157) (2,500,000) $ (70,700) $ (985,707)
============ ============ =========== ================
See accompanying notes to the Condensed Consolidated Financial Statements
13
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
JUNE 30, 2005
(UNAUDITED)
From
For The Six For The Six September 20,
Months Ended Months Ended 1996 (Inception)
June 30, 2005 June 30, 2004 to June 30, 2005
------------- ------------- ----------------
OPERATING ACTIVITIES:
Net loss $ (1,011,767) $(12,674,237) $(20,521,157)
Adjustments to reconcile net loss to net
cash (used) in operating activities:
Depreciation and amortization 747 3,464 16,285
Loss on disposal of fixed asset 1,542 0 1,542
Non-cash interest, beneficial
conversion feature 195,650 563,621 1,441,550
Issuance of equity instruments for
debt extinguishment cost 0 6,186,373 6,186,373
Issuance of stock in settlement
of accounts payable 30,000 0 0
Issuance of equity instruments
for services 239,000 1,173,288 10,073,517
Changes in assets and liabilities:
Deposits (1,407) (208) (1,407)
Prepaid expenses (21,935) (10,000) (21,935)
Accrued compensation 0 4,150,000 0
Accrued interest 15,320 27,128 36,371
Accounts payable 146,576 82,252 610,654
------------ ------------ ------------
NET CASH (USED) IN
OPERATING ACTIVITIES (406,274) (498,319) (2,178,207)
------------ ------------ ------------
INVESTING ACTIVITIES:
Cash from acquired subsidiaries 0 0 1,980
Purchase of property and equipment (64,754) (11,253) (142,743)
------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (64,754) (11,253) (140,763)
------------ ------------ ------------
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 241,000 510,000 1,419,762
Payment on debt, shareholders,
net of fees 0 0 (27,500)
------------ ------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 461,000 510,000 2,367,262
------------ ------------ ------------
See accompanying notes to the Condensed Consolidated Financial Statements
14
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
From
For The Six For The Six September 20,
Months Ended Months Ended 1996 (Inception)
June 30, June 30, to June 30,
2005 2004 2005
------------ ------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS $ (123) $ (26,254) $ (46,340)
------------ ------------- ---------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (10,151) (25,826) 1,952
CASH AND CASH EQUILAVENTS,
Beginning of period 12,103 27,942 0
------------ ------------- ---------------
CASH AND CASH EQUIVALENTS,
End of period $ 1,952 $ 2,116 $ 1,952
============ ============= ===============
June 30, June 30,
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 payment
of accounts payable $ 110,000 $ 0
Issuance of equity instruments for services $ 239,000 $1,173,288
Issuance of equity instruments for repurchase
of common stock $ 70,700 $ 0
Issuance of stock for accrued compensation $ 0 $ 350,000
Conversion of debt to equity $ 0 $1,033,475
Conversion of debt to warrants $ 0 $6,186,373
Non-cash interest expense from
amortization of debt discount $ 195,650 $ 563,621
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 six months
ended June 30, 2005 are not necessarily indicative of the results
that may be expected for the year ending 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.
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 June 30, 2005, the Company had stock
warrants outstanding that could potentially be exercised into
9,549,043 additional common shares and stock options outstanding
that could potentially be exercised into 925,000 additional shares.
The Company additionally had debentures outstanding at June 30, 2005
that could potentially be converted into 3,390,700 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.
Treasury Shares
We intend to hold repurchased shares in treasury for general
corporate purposes, including issuances under various employee stock
option plans. We account for the treasury shares using the cost
method.
See accompanying notes to the Condensed Consolidated Financial Statements
16
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 six years, (the Company expensed the
full fair value on date of grant during the six months ended June
30, 2005) by using the Black-Scholes option pricing model based on
the following assumptions:
June 30,
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.
See accompanying notes to the Condensed Consolidated Financial Statements
17
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.
See accompanying notes to the Condensed Consolidated Financial Statements
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 (Continued)
In March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB 107"), which provides interpretive
guidance related to the interaction between SFAS 123(R) and certain
SEC rules and regulations. It also provides the SEC staff's views
regarding valuation of share-based payment arrangements. In April
2005, the SEC amended the compliance dates for SFAS 123(R),l to
allow companies to implement the standard at the beginning of their
next fiscal year, instead of the next reporting period beginning
after June 15, 2005. Management is currently evaluating the impact
SAB 107 will have on our consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154 "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB
Statement No. 3. This Statement replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements and changes the requirements
for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provision. When a
pronouncement includes specific transition provisions, those
provisions should be followed. The Company has no transactions that
would be subject to SFAS 154.
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.
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 June 30, 2005, has a working capital deficit of
$1,121,678. 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.
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.
See accompanying notes to the Condensed Consolidated Financial Statements
19
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, secured 578,140
--------
$678,140
========
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 $1.00 per share and 2) at $1.25 per share for three years. As
a provision 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 six months ended June 30, 2005.
In June 2005, the Company received a $76,000 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 a provision 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
$30,650 and the warrants upon conversion would have $45,350
allocated value to be recognized upon conversion. Given that the
note is due upon demand, the Company has recorded a $30,650 debt
discount arising from the beneficial conversion feature on this note
during the six months ended June 30, 2005.
See accompanying notes to the Condensed Consolidated Financial Statements
20
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 NOTES PAYABLE, SHAREHOLDERS (CONTINUED)
Pursuant to his rights under a master loan agreement executed in
March 2004, Arthur Cohn, has the right to accept or reject any
issuance of shares, save and except that the Board of Directors
shall have the right, without the consent of Arthur Cohn, to at any
time, issue an aggregate of 350,000 shares.
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 six months ended June 30, 2005, the Company
incurred and paid $85,198 in legal fees from services rendered by
this counsel.
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 six months ended June 30, 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 the
settlement of $80,000 of accounts payable balance as of December 31,
2004. The Company recorded an additional expense related to the fair
market value of the stock issued in the amount of $30,000, which was
in excess of the liability.
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 six months ended June 30, 2005 on the
statement of operations.
See accompanying notes to the Condensed Consolidated Financial Statements
21
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 COMMON STOCK (CONTINUED)
Shares Issued for Services (continued)
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 six months ended June 30, 2005 on the
statement of operations.
Shares Issued For Subscription Receivable
On June 27, 2005, the Company sold 500,000 shares of its common
stock and 500,000 warrant for $0.20 per unit for a total of $100,000
to Magnum Investments, AVV, an unrelated entity. The warrants are
exercisable at $1.00 each and expire in two years. The Company
subsequently received the $100,000 on July 8, 2005.
Repurchase of Common Stock
On June 2, 2005, the Company repurchased 2,500,000 shares of common
stock from Todd Gotlieb, the Company's President and CFO, in
exchange for 500,000 warrants. The warrants are exercisable at $0.10
each and expire in two years. The Company recorded the issuance of
these warrants valued at $70,700 using the Black-Scholes option
pricing model with the following assumptions: life of two years,
volatility of 254% and a risk free interest rate of 3.64%.
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 six months ended
June 30, 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%.
See accompanying notes to the Condensed Consolidated Financial Statements
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 (Continued)
The following table summarizes information about fixed stock
warrants outstanding at June 30, 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 2.0 1.25 1,300,000 $ 1.25
1.00 6,130,820 1.8 1.00 6,130,820 1.00
0.85 1,118,223 1.7 0.85 1,118,223 0.85
0.60 500,000 2.6 0.60 500,000 0.60
0.10 500,000 1.9 0.10 500,000 .10
Options
As of June 30, 2005, the Company had 925,000 stock options
outstanding and excercisable with a weighted average life of 40
months, weighted average exercise price of $0.53 and weighted
average fair value of $0.17.
NOTE 4 RELATED PARTY TRANSACTIONS
Fees totaling $187,198 and $94,303 have been paid to officers,
related parties and related entities during the six months ended
June 30, 2005 and 2004, respectively. Additionally, the Company paid
$224,200 and $216,000 in non-cash compensation to officers, related
parties and related entities during the six months ended June 30,
2005 and 2004, respectively.
See accompanying notes to the Condensed Consolidated Financial Statements
23
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 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.
During June 2005, the Company failed to pay Ultimatte the quarterly
minimum amounts due and lost the exclusive right to use the Keyer
unit chipset and binary code. Therefore Ultimatte received the right
to use the Keyer unit chipset and binary code for any purpose,
including the right to manufacture, sell, rent or license the same
to others with all other terms and conditions to remain the same. On
June 8, 2005, Ultimatte delivered to the Company a letter which
stated that a result of the Company's failure to pay the minimum
amounts due, Ultimatte has the right to use the "Keyer Unit chipset
and binary code".
See accompanying notes to the Condensed Consolidated Financial Statements
24
SBS INTERACTIVE, CO.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 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 six months ended June 30, 2005 and 2004
amounted to $23,245 and $11,450. On February 3, 2005, the Company
accepted assignment of a five year lease, ending on September 30,
2008, from a related company. During May 2005, the Company and the
parties involved in the assignment of the five year lease mutually
agreed to cancel the assignment of such lease. On May 15, 2005, the
Company relocated its office and entered into a one year lease,
ending on May 31, 2006. The lease calls for base monthly rental
payments of $808 plus applicable operating expenses and taxes.
See accompanying notes to the Condensed Consolidated Financial Statements
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, 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
o 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.
26
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.
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 include 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. The customer continues to remain in
contact with the Company, and still expects delivery of the products and to
honor its obligation under the purchase order when such products become
commercially available.
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. Pursuant to his rights under the Master Loan Agreement, Arthur Cohn has
the right to accept or reject any issuance of shares, save and except that the
Board of Directors shall have the right, without the consent of Arthur Cohn, to
issue an aggregate of 350,000 shares at any time.
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 of America. 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 June 2005, we received an additional loan from Arthur Cohn in the amount of
$76,000. 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 760,000 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 and six months ended June 30, 2005
were $226,016 and $800,797, respectively, as compared to $5,100,100 and
$12,099,476 for the three and six months ended June 30, 2004, respectively.
During the six months ended June 30, 2004, we granted common stock and warrants
to induce conversion of debt and settle claims valued at $10,574,373. During the
six months ended June 30, 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 $935,288
in non-cash compensation expenses for the six months ended June 30, 2004. Other
operating expenses for the three and six months ended June 30, 2005 included
selling, general and administrative expenses of $226,016 and $531,797,
respectively, as compared to $245,812 and $589,815 for the three and six months
ended June 30, 2004, respectively. The decrease in selling, general and
administrative expenses for the six months ended June 30, 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 and six months ended June 30, 2005 was
$226,016 and $800,797, respectively, as compared to loss from operations of
$5,100,000 and $12,099,476 for the three and six months ended June 30, 2004,
respectively. As a result of the payment of debt with securities and the
issuance of debt securities, we incurred non-cash interest expense for the six
months ended June 30, 2005 of $195,650, as compared to non-cash interest expense
in the amount of $563,621 for the six months ended June 30, 2004. Interest
expense for the six months ended June 30, 2005 was $15,320 as compared to
interest expense of $11,141 for the six months ended June 30, 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 $578,140
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 and six months ended June 30, 2005
was $265,596 and $1,011,767, respectively, as compared to a net loss of
$5,125,980 and $12,674,237 for the three and six months ended June 30, 2004,
respectively.
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 six months ended June 30, 2005 was
$406,274 as compared to $498,319 in net cash used in operating activities for
the six months ended June 30, 2004.
We used $64,754 to purchase property and equipment during the six months ended
June 30, 2005, as compared to $11,253 used to purchase property and equipment
during the six months ended June 30, 2004. This increase in investment in
property and equipment related to the ramp-up of our business.
During the six months ended June 30, 2005, $220,000 was provided to us from net
proceeds raised through the sale of units composed of common stock and warrants
and $241,000 was provided to us from shareholder loans. During the six months
ended June 30, 2004, we raised no money through sales of our securities,
although we received $510,000 from shareholder loans.
30
As of June 30, 2005, we had a deficit accumulated during the development stage
of $20,521,157 and a working capital deficiency of approximately $1,121,678. Our
auditor, Stonefield Josephson, Inc., has issued a "going concern" report on our
consolidated financial statements for the six months ended June 30, 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.
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 June 27, 2005, the Company sold to Magnum Investments AVV 500,000 shares of
its common stock and one warrant to purchase 500,000 shares of the Company's
common stock for $0.20 per share for a combined purchase price of $100,000. The
warrant is exercisable at $1.00 per share and expires in two years. These
securities were issued in reliance on Regulation S promulgated under the
Securities Act of 1993. The offer and sale of the securities occurred outside of
the United States. Pursuant to his rights under the Master Loan Agreement,
Arthur Cohn consented to the issuance of the shares and warrant in connection
with this transaction.
The net proceeds from the foregoing cash transaction, described in this Item 2,
are for use as general working capital.
31
On June 2, 2005, Todd Gotlieb exchanged 2,500,000 shares of common stock of SBS
Interactive, Co. for a warrant to purchase 500,000 shares of common stock of SBS
Interactive, Co., exercisable within 24 months of its issuance, for $0.10 per
share. Arthur Cohn, pursuant to his rights under the reset provision of the
Master Loan Agreement, agreed to waive such reset rights in connection with the
Company's grant of a warrant, dated June 2, 2005, to Todd Gotlieb.
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.
On June 2, 2005, Todd Gotlieb exchanged 2,500,000 shares of common stock of SBS
Interactive, Co. for a warrant to purchase 500,000 shares of common stock of SBS
Interactive, Co., exercisable within 24 months of its issuance, for $0.10 per
share. Arthur Cohn, pursuant to his rights under the reset provision of the
Master Loan Agreement, agreed to waive such reset rights in connection with the
Company's grant of a warrant, dated June 2, 2005, to Todd Gotlieb.
On June 27, 2005, the Company sold to Magnum Investments AVV 500,000 shares of
its common stock and one warrant to purchase 500,000 shares of the Company's
common stock for $0.20 per share for a combined purchase price of $100,000. The
warrant is exercisable at $1.00 per share and expires in two years. These
securities were issued in reliance on Regulation S promulgated under the
Securities Act of 1993. The offer and sale of the securities occurred outside of
the United States. Pursuant to his rights under the Master Loan Agreement,
Arthur Cohn consented to the issuance of the shares and warrant in connection
with this transaction.
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 Warrant, dated June 2, 2005, by
and between the Company and Todd Gotlieb*
10.2 Secured Convertible Promissory Note dated June 27, 2005,
by and between the Company and Arthur Cohn*
10.3 Offshore Restricted Securities Subscription Agreement,
dated June 27, 2005, by and between the Company and
Magnum Investments AVV*
10.4 Common Stock Purchase Warrant, dated June 27, 2005, by
and between the Company and Magnum Investments AVV*
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.
32
REPORTS ON FORM 8-K
Not applicable.
33
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: August 15, 2005 By: /s/ TODD GOTLIEB
--------------- -------------------------------------------
Todd Gotlieb
President and Principal Accounting Officer
(the Company's principal executive officer
and principal financial officer)
34
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- -----------------------
10.1 Common Stock Purchase Warrant, dated June 2, 2005, by
and between the Company and Todd Gotlieb
10.2 Secured Convertible Promissory Note dated June 27, 2005,
by and between the Company and Arthur Cohn
10.3 Offshore Restricted Securities Subscription Agreement,
dated June 27, 2005, by and between the Company and
Magnum Investments AVV
10.4 Common Stock Purchase Warrant, dated June 27, 2005, by
and between the Company and Magnum Investments AVV
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
35