SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended:March 31, 1998
Commission File Number:33-38511-FW
CHEQUEMATE INTERNATIONAL, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Utah 76-0279816
---------------------------
(State or other jurisdiction (I.R.S. Employer of incorporation
or organization )Identification No.)
57 West 200 South, Suite 350; Salt Lake City, Utah 84101
--------------------------------------------------------
(Address of principal executive offices)
(801) 322-1111
--------------
(Issuer's Telephone Number)
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 requirement for the past 90 days. YES X No
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State issuer's revenues for
Its most recent fiscal year: $1,091,794
As of July 7, 1998, the aggregate market value of the voting stock held
by non-affiliates Computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: $13,783,460
State the number of shares outstanding of each of the issuer's common
equity, as of the latest practicable date: 16,059,441 (July 7, 1998)
Transitional Small Business Format: YES NO X
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TABLE OF CONTENTS
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PART I
------
Item 1. Description of Business...............................................3
Item 2. Description of Property...............................................6
Item 3. Legal Proceedings.....................................................6
Item 4. Submission of Matters to a Vote of Security Holders...................6
PART 2
------
Item 5. Market for Common Equity.......................................... ...6
Item 6. Management's Discussion and Analysis................................. 7
Item 7. Financial Statements..................................................8
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................................26
PART 3
------
Item 9. Directors and Executive Officers.....................................26
Item 10. Executive Compensation...............................................28
Item 11. Security Ownership of Certain Beneficial Owners and Managemen.29
Item 12. Certain Relationships and Related Transactions.......................29
Item 13. Exhibits and Reports.................................................30
2
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Part I
------
Item 1. Description of Business
History of the Company
The Company was incorporated under the laws of the State of Texas on
April 21, 1989 under the name Ainsley Corporation. The Company issued its
initial shares of common stock on April 25, 1989 (inception) and was organized
primarily for the purpose of raising capital to take advantage of potential
business opportunities. The name of the Company was later changed to Automated
Compliance & Training, Inc. (AC&T), with Utah the state of incorporation. On
September 3, 1996, AC&T merged with its wholly owned subsidiary Chequemate
International, Inc. (the "Company" or "CMI") and assumed the name of the
subsidiary.
On November 15, 1994, the Company acquired all of the outstanding
capital stock of CMI, a marketing company of family and small business finance
products. In addition, the Company purchased Families in Focus, Inc., a Utah
corporation. Chequemate International, Inc. was incorporated under the laws of
the State of Utah in March 1992. CMI, and its subsidiaries, provide financial
record keeping and money management services to individuals and small business.
On June 15, 1992, CMI entered into an agreement with its majority owned
(51%) subsidiary Data Control Inc. (DCI) whereby DCI is to perform computer
processing required by CMI for its financial record keeping and money management
services.
On September 3, 1996 AC&T merged with its wholly owned subsidiary CMI
and officially changed its name to Chequemate International, Inc. CMI maintained
it's subsidiaries of FIF and DCI as previously outlined.
On April 17, 1997 CMI formed a new wholly owned subsidiary named
Chequemate Third Dimension, Inc. The name has since been changed to Chequemate
Electronics, Inc. (CE). CE was formed to manufacture and market breakthrough 3D
imaging technology which was be acquired from Advanced Technology Group, LLC
(ATG). On June 23, 1997 an agreement was finalized by which CE obtained the
exclusive worldwide license to the 3D technology developed by ATG.
Principal Products and Services
3D
The Company is very excited about its position in the future of 3D
technology. The vision is to integrate the three areas of electronic
entertainment from production to distribution to exhibition. We see ourselves as
the "channel" or conduit that will enable all three areas to become actively
involved in producing 3D material, distributing what is produced and providing
the mechanism for it to be displayed in every television or computer owning home
in the world.
Up to now a limited quantity of quality 3D material has been produced
due to the fact that distribution was difficult and no cost effective system to
display the material had been developed. CMI is solving these problems. CMI has
developed a low cost manner by which people can view real-time 3D from the
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comfort of their own home. With CMI lowering the cost to exhibit 3D content,
distributors can now make it available to their customers by whatever means they
use; whether it be cable, satellite, internet or some other kind of
distribution. Those distributors will be pushing producers to provide more and
more 3D material to fill their growing distribution capability. CMI is
strategically positioned to revolutionize the home entertainment industry.
The system has been marketed under two names, Realeyes 3D and C-3D. The
system is used to show 3D images on any television. The system is capable of
displaying pre-processed stereoscopic imagery, or converting two-dimensional
media into three-dimensional images in real time. The product accepts NTSC or
PAL compatible signals from network broadcasts, video game consoles, satellite
transmissions, cable decoders, VCR's, or any video component. After receiving a
composite RCA or S-VHS video input from a signal source, the system digitally
processes the images and displays them in real-time on any standard television.
With the system any television can transform flat 2D images to stunning 3D
images.
Finance
The Company continues to base its financial programs on The Four T's
tracking, targeting, trimming and training. Through its Fastrak(TM) System, the
Company provides a method to quickly and easily track spending and income,
generating monthly reports that pinpoint exactly where each penny was spent.
Targets, or goals, are then set based on spending information, providing the
means and motivation to trim unnecessary expenditures. Finally, the company
offers educational and training opportunities that build positive spending and
money-management habits.
The Chequemate Financial Manager (CFM) program takes the Fastrak System
a step further by offering a debt restructuring and an accelerated repayment
program. When combined with Fastrak, CFM represents a means too not only get out
of debt, but to stay out of debt permanently.
Distribution Methods
3D
Distribution of the 3D imaging system during the fiscal year was
through numerous different channels. Although some conventional retail and
wholesale outlets were used, the majority of sales were due to the Company's own
marketing efforts. These included ads in national publications such as "Home
Theater Magazine" and "Sports Illustrated" along with local ads in area
newspapers. Opportunity was also taken to use the news media as a source to
inform the public about the new technology. This included an interview during
the new business segment on CNN business news. Local television stations have
also visited our offices and run segments during their news broadcasts.
Newspapers from across the nation have also run articles about the 3D system.
Along with these established distribution methods, CMI is also
currently negotiating with one of the largest hotel/motel in room entertainment
providers to have the 3D imaging system as part of the entertainment options
they provide for guests. Besides being a valuable source of revenue to the
company it would also supply an excellent chance to learn more about how the
public responds to the product and what content they most enjoy viewing in 3D.
A contract has also recently been signed to sell the 3D system through
several TV shopping networks. The first broadcast is scheduled for July 25. This
provides an outlet to the mass market without the high expense of national
advertising. Original purchase orders have been placed, and projections for
follow up orders are now underway.
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Finance
The established network of CMI independent representatives continue to
be the major source of distribution for the various financial products. However,
with the increased emphasis on the CFM Program (debt consolidation and bill
paying service) more opportunities to work with mortgage companies are
appearing. Mortgage companies see the financial products as natural fit to the
value-added services they are now trying to provide to their customers.
Due to the interest shown by some of the mortgage companies and CMI's
desire to focus completely on the 3D products, potential buyers are being
courted for the financial division of the company.
Status of Publicly Announced Products or Service
The 3D imaging system released early this year under the name Realeyes
3D and /or C-3D went through many modifications as it was transformed from
prototype to final product. Further enhancements are currently being worked on
by the R&D engineers which will hopefully be instigated in the coming months.
The plan to start broadcasting a 24 hour a day 3D channel are still in
place, however the actual start date is uncertain. Hopes are that the target
date of this fall can still be meet, but due to the scale of the project and
numerous other factors management cannot be sure.
Competition
3D
The Company has yet to find a product that competes directly with the
major features of its C-3D system. These features include the real-time 2D to 3D
conversion, eye dominance, depth adjustment, and cost. Many large companies have
spent time and money in trying to develop similar 3D technology without being
able to establish a product that has been successfully marketed to the
individual consumer.
CMI is obviously a small player in the world of consumer electronics.
Management believes that if these larger companies decide to further pursue the
3D business, they will do so as a strategic move to sell their other hardware.
CMI has already had discussions with some electronic manufactures about
licensing the product and other possible partnerships. It could very well become
important for CMI to use its patent pending technology to strategically align
itself as more companies become involved in the 3D industry.
Finance
CMI's financial products are unique, however the financial arena is
highly competitive. Literally thousands of companies are willing to tell people
how to invest their money, how to spend their money, and how they can help them
refinance the debt they've gotten into. CMI's financial products truly have the
purpose of helping people get control of their financial lives. This is why it
has become such an attractive product to other companies and should help in the
divesting by CMI of that division.
Patents and Trademarks
The Company has several patents and trademarks which it uses with
respect to the conduct of the business. The most important one is the patent on
the licensed 3D technology. Originally filed in May of 1997 as a provisional
patent it now has patent pending status. Other patents still being used are
those in the financial division, which include the three-digit code used in the
Fastrak System and design elements of its CFM Program. Patents and Trademarks
still exist which were used by AC&T Direct, a wholly owned subsidiary, but
operations have been closed in that division due to lack of consumer interest.
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Employees
As of June 30, 1998, the Company and its subsidiaries had 13 full time
employees.
ITEM 2. Description of Property
The company occupies leased office space at 57 West 200 South, Suite
350, 301 & 302, Salt Lake City, Utah. The company offices comprise of 7,921
square feet and are leased at a monthly base rental of $11,435. The Company also
occupies space for its fulfillment division at 545 West 500 South, Suite 140
Bountiful, Utah. The office space is 3,879 square feet, and is leased at a
monthly base rental of $2,223.
ITEM 3. Legal Proceedings
March 11, 1997 a citation and petition for suit on damages was filed
against Chequemate Tele-Services Inc., in the District Court of Dallas County
Texas. The plaintiff is Peak Credit Card Processing, L.C. d/b/a Peak Financial
Services. Relief is being sought by plaintiff for unspecified damages to be
determined at some later date. A response to the citation was filed in a timely
basis in the court of jurisdiction denying any and all allegation made in the
citation. A court hearing was set for May 4, 1998; the plaintiff did not show
up. A motion was moved to throw out the action, but the court wanted to give the
plaintiff time to file a motion for continuance. No motion for continuance has
been filed, and it is the belief of the registrant that the plaintiff does not
have the means or the will to continue this action. No action has been evident
since the original citation was filed.
December 18, 1997 a citation and petition for suit was filed against
Chequemate Tele-Services, Inc., Blaine Harris, and Fred Boedeker, in the
District Courts of Dallas County Texas. The plaintiff is Central Meadow Park,
L.P. Plaintiff seeks damages both direct and consequential for breach of
contract on leased premises as detailed in the citation. No specific dollar
damages are mentioned.
June 22, 1998 a suit was filed against Chequemate International, Inc.
in the District Court for the Northern District of Illinois Eastern Division.
The plaintiff, BH Productions, Inc. d/b/a Ignite Advertising is seeking payment
remaining under a contract for advertising entered into in October 1997. The
payment of $382,595.40 still owing is reflected in the Company's financial
statements in the current liabilities section under accounts payable.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders for the fourth
quarter of fiscal year 1997.
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters.
The stock of the Company is traded on the OTC Bulletin Board (OTCBB) of
the NASD Stock market, Inc. The OTCBB symbol for the Company is CQMT. As of July
7, 1997 there are approximately 781 shareholders of record of the Company. As of
July 7, 1997, the Company had issued and outstanding shares of 16,059,441. An
estimated 740,000 of paid subscription shares were also due to be issued. The
6
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stock of the company as of July 9,1998, was quoted at $1.22 bid and $1.25 ask.
The NASD Stock Market, Inc. provided the fiscal year 1998 quotations
for the Company's stock. The referenced quotations reflect inter-dealer prices
without dealer mark-up, markdown or commissions and may not represent actual
transactions.
Fiscal Year High Bid Price Low Bid Price
- --------------------------------------------------------------------------------
1997 - 1st Quarter (4/96-6/96) 7.25 6.625
1997 - 2nd Quarter (7/96-9/96 7.00 6.25
1997 - 3rd Quarter (10/96-12/96) 7.00 5.75
1997 - 4th Quarter (1/97-3/97) 6.25 3.50
1998 - 1st Quarter (4/97-6/97) 6.6875 3.50
1998 - 2nd Quarter (7/97-9/97) 6.0625 3.625
1998 - 3rd Quarter (10/97-12/97) 3.6875 2.25
1998 - 4th Quarter (1/98-3/98) 2.625 1.20
- --------------------------------------------------------------------------------
The Company has paid no dividends on common stock during its two most recent
fiscal years, and has no present intention to pay dividends in fiscal year 1998.
ITEM 6. Management's Discussion and Analysis
General
For more detailed financial information, please refer to the Audited
Financial Statements for the periods of March 31, 1998 and 1997. A copy of these
Financial Statements is attached to this Report.
Fiscal year 1998 has been an exciting and adventurous year for CMI and
its subsidiaries. The Company has successfully confronted the challenges of
entering the electronics manufacturing industry while maintaining some divisions
and selling of another. The Company's intent as it moves forward is to focus on
the 3D product due to its huge potential.
With a years experience in manufacturing and selling the 3D product the
Company has been able to gain extensive knowledge about the industry and the
energy and focus it requires to be successful. Feedback from consumers has shown
us areas where we can improve the product and also great hope for the future as
their excitement for the product became evident. Work is currently taking place
that will directly address improvements consumers would like to see.
The Company has also realized the need to bring management with more
experience and expertise in the fields of consumer electronics and
entertainment. One of these key figures is Joseph Napoli. Mr. Napoli has vast
experience in the cable and satellite industry and has worked for companies such
as HBO, Time Warner and most recently the Sega Channel. Mr. Napoli will be key
in establishing the 24 hour a day 3D cable station and has already helped
tremendously in the negotiations to have the 3D system installed in thousands of
hotel/motel rooms.
Liquidity and Capital Resources
The audited financial statements reflect the consolidated financial
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position of the Company and its subsidiary entities. As of March 31, 1998, the
Company had current assets of $2,940,782 with current liabilities of $2,002,947.
This represents working capital of $937,835. At March 31, 1997, the Company had
current assets of $398,409 with current liabilities of $703,670. This
represented negative working capital of $305,261.
The change in working capital results in a ratio of current assets to
current liabilities, as of March 31, 1998, of 1.47 as compared to .57 on March
31, 1997. The major contributor to current assets is inventory ($2,684,378)
which is primarily made up of C-3D units.
At March 31, 1997, long term liabilities were $14,764 compared to
$145,639 at March 31, 1997, a reduction of $130,875. Long-term debt continued to
decrease because the Company uses equity to fund operations instead of acquiring
more debt.
At March 31, 1998, the Stockholders' equity was $3,791,755 versus
$437,451 at March 31, 1997. This represents an improvement of $3,354,304.
Stockholders' equity increased significantly due to the value placed upon the 3D
product rights acquired from Advanced Technology Group, LLC in an equity
transaction.
The sale of stock to offshore entities continues to be an important
source of capital funding for the Company. As previously reported in Form 8K,
the Company has sold additional shares to offshore entities to raise capital for
the continued operations of the Company. Furthermore, other sources of capital
funding are being pursued to help meet the cash needs of the Company.
Results of Operations
For the fiscal year 1998, total gross revenue of the Company was
$1,091,794 compared to $776,963 for the previous fiscal year; an increase of
$314,831. Total expenses for fiscal year 1998 increased to $5,208,070 as
compared to $1,974,738 for the previous year. The Company also had to recognize
a large Other Expense in the re-valuation of the 3-D technology. The result of
the incresaed expenses and the large other expense was an increase in net loss
from $1,502,573 in fiscal year 1997 to $8,024,045 in fiscal year 1998.
The loss for the twelve-month period ended March 31, 1998 can be
attributed to increases in both selling and general and administrative expenses
which were associated with the launch of the new C-3D product, along with the
large adjustment which was made to product rights. Action has been taken to trim
expenses until revenue can grow in a more proportional manner.
ITEM 7. Financial Statements
CHEQUEMATE TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Financial Statements
March 31, 1998 and 1997
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C O N T E N T S
Independent Auditors' Report .................................................10
Consolidated Balance Sheets ................................................. 11
Consolidated Statements of Operations ....................................... 13
Consolidated Statements of Stockholders' Equity ............................. 14
Consolidated Statements of Cash Flows ....................................... 16
Notes to Consolidated Financial Statements .................................. 18
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INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Chequemate Technologies, Inc. and Subsidiaries
(Formerly Chequemate International, Inc.)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Chequemate
Technologies, Inc. and Subsidiaries (formerly Chequemate International, Inc.) as
of March 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended March 31,
1998, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Chequemate Technologies, Inc. and Subsidiaries (formerly Chequemate
International, Inc.) as of March 31, 1998 and 1997 and the consolidated results
of their operations and their cash flows for the years ended March 31, 1998,
1997 and 1996 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered recurring losses
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 12. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
June 23, 1998
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CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Balance Sheets
ASSETS
------
March 31,
---------
1998 1997
---------- ----------
CURRENT ASSETS
Cash $ 220,840 $ 165,536
Accounts receivable - net of allowances of $115,000
and $7,520 in 1998 and 1997, respectively 24,305 38,852
Inventory (Note 2) 2,684,378 185,518
Prepaid expenses 11,259 8,503
---------- ----------
Total Current Assets 2,940,782 398,409
---------- ----------
PROPERTY AND EQUIPMENT (Note 3) 200,335 454,174
---------- ----------
OTHER ASSETS
Organization costs and product rights (Note 1) 2,657,296 415,610
Note receivable -- 7,514
Refundable deposits 8,053 8,053
Investments 3,000 3,000
---------- ----------
Total Other Assets 2,668,349 434,177
---------- ----------
TOTAL ASSETS $5,809,466 $1,286,760
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
March 31,
---------
1998 1997
------------ ------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,584,576 $ 174,865
Related party accounts payable (Note 16) 42,034 19,413
Short term debt (Note 15) -- 300,000
Customer deposits 54,724 --
Accrued expenses 43,339 103,552
Income tax payable (Note 1) 500 400
Accrued interest - related party (Note 5) 65,903 65,903
Current portion related party (Note 5) 156,802 --
Current portion long-term debt (Note 6) 50,080 33,533
Current portion capital lease (Note 7) 4,989 6,004
------------ ------------
Total Current Liabilities 2,002,947 703,670
------------ ------------
LONG-TERM LIABILITIES
Long-term related party notes payable (Note 5) -- 90,000
Long-term debt (Note 6) 11,976 46,834
Capital lease obligations (Note 7) 2,788 8,805
------------ ------------
Total Long-Term Liabilities 14,764 145,639
------------ ------------
Total Liabilities 2,017,711 849,309
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 500,000,000 shares
authorized, 14,088,650 and 13,117,84 shares outstanding
at 1998 and 1997, respectively 1,409 1,312
Minority interest -- 100,000
Subscribed stock (Note 4) 4,022,970 270,000
Capital in excess of par 14,960,783 7,235,501
Accumulated deficit (15,193,407) (7,169,362)
------------ ------------
Total Stockholders' Equity 3,791,755 437,451
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,809,466 $ 1,286,760
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Operations
<CAPTION>
For the Years Ended March 31,
-----------------------------
1998 1997 1996
------------ ------------ ------------
REVENUES
<S> <C> <C> <C>
Sales - products $ 1,091,794 $ 776,963 $ 382,137
------------ ------------ ------------
COST OF SALES
Product, supplies and materials 849,919 291,072 167,566
------------ ------------ ------------
GROSS PROFIT 241,875 485,891 214,571
------------ ------------ ------------
EXPENSES
Bad debts 138,259 6,465 5,627
Selling expenses 1,639,806 630,207 539,123
General and administrative 3,430,005 1,338,066 1,486,948
------------ ------------ ------------
Total Expenses 5,208,070 1,974,738 2,031,698
------------ ------------ ------------
OPERATING (LOSS) (4,966,195) (1,488,847) (1,817,127)
OTHER INCOME (EXPENSE)
Interest income 24,152 7,018 --
Interest expense (18,478) (20,344) (61,588)
Reduction in valuation of product rights (3,133,333) -- --
Gain on sale of equipment 70,309 -- --
------------ ------------ ------------
Total Other Income (Expense) (3,057,350) (13,326) (61,588)
------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES (8,023,545) (1,502,173) (1,878,715)
INCOME TAX PROVISION 500 400 300
------------ ------------ ------------
NET INCOME (LOSS) $ (8,024,045) $ (1,502,573) $ 1,879,015
============ ============ ============
EARNINGS (LOSS) PER SHARE $ (0.59) $ (0.12) $ (0.15)
============ ============ ============
AVERAGE NUMBER OF
SHARES OUTSTANDING 13,568,845 12,891,947 12,208,526
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1998, 1997 and 1996
Total Capital
Shares Common in Excess
Issued Stock of Par
----------- ----------- ----------
Balance, March 31, 1995 11,738,700 $ 1,174 $ 2,548,545
Shares becoming free trading -- -- --
Shares issued through stock
offering 833,570 83 2,599,917
Shares issued in exchange for
services 6,000 1 29,999
Subscribed stock -- -- --
Shares issued for debt 87,783 9 307,234
250,000 shares donated to the
Company and reissued -- -- 200,000
Net loss -- -- --
----------- ----------- -----------
Balance, March 31,1996 12,666,053 1,267 5,685,695
----------- ----------- -----------
Shares becoming free trade -- -- --
Minority interest -- -- --
Shares issued through
stock offering 450,788 44 1,546,307
Shares issued for services 1,000 1 3,499
Subscribed stock -- -- --
Net loss -- -- --
----------- ----------- -----------
Balance, March 31, 1997 13,117,841 1,312 7,235,501
Subscribed stock -- -- --
Shares issued through stock offering 379,000 38 994,962
Shares issued for cash 315,142 31 76,105
Shares issued in exchange for services 256,667 26 387,474
Shares issued for debt 20,000 2 85,494
Option issued for compensation -- -- 81,247
Options issued for rights -- -- 6,000,000
Acquisition of minority interest -- -- 100,000
Net loss -- -- --
----------- ----------- -----------
Balance, March 31, 1998 14,088,650 $ 1,409 $14,960,783
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended March 31, 1998, 1997 and 1996
<CAPTION>
Total
Accumulated Subscribed Minority Stockholders'
Deficit Stock Interest Equity
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, March 31, 1995 $(3,787,774 ) $ 850,000 $ -- $ (388,055)
Shares becoming free trading -- -- -- --
Shares issued through stock offering -- (850,000) -- 1,750,000
Shares issued in exchange for services -- -- -- 30,000
Subscribed stock -- 100,000 -- 100,000
Shares issued for debt -- -- -- 307,243
250,000 shares donated to the Company
and reissued -- -- -- 200,000
Net loss (1,879,015 ) -- -- (1,879,015)
-------------- ------------- ------------- -------------
Balance, March 31, 1996 (5,666,789 ) 100,000 -- 120,173
-------------- ------------- ------------- -------------
Shares becoming free trade -- -- -- --
Minority interest -- -- 100,000 100,000
Shares issued through stock offering -- (100,000) -- 1,446,351
Shares issued for services -- -- -- 3,500
Subscribed stock -- 270,000 -- 270,000
Net loss (1,502,573 ) -- -- (1,502,573)
-------------- ------------- ------------- -------------
Balance, March 31, 1997 (7,169,362 ) 270,000 100,000 437,451
Subscribed stock -- 4,756,720 -- 4,756,720
Shares issued through stock offering -- (995,000) -- --
Shares issued for cash -- (8,750) -- 67,386
Shares issued in exchange for services -- -- -- 387,500
Shares issued for debt -- -- -- 85,496
Option issued for compensation -- -- -- 81,247
Options issued for rights -- -- -- 6,000,000
Acquisition of minority interest -- -- (100,000) --
Net loss (8,024,045 ) -- -- (8,024,045)
-------------- ------------- ------------- -------------
Balance, March 31, 1998 $(15,193,407 ) $ 4,022,970 $ -- $ 3,791,755
============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
<TABLE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended March 31,
-----------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $(8,024,045) $(1,502,573) $(1,879,015)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 427,575 62,183 78,496
Depreciation 70,209 41,549 31,887
Bad debt expense 107,480 4,602 4,646
Reduction in product rights valuation 3,133,333 -- --
Common stock and options issued for services
rendered 651,517 -- 47,327
(Increase) decrease in:
Accounts receivable (92,933) 9,546 (7,466)
Prepaid expenses (2,756) (1,859) (6,644)
Inventory (2,498,860) (101,637) 39,191
Note receivable -- -- (8,894)
Deposits 7,514 2,862 1,065
Increase (decrease) in:
Accounts payable 1,448,879 94,038 (61,411)
Accrued interest payable -- (7,000) 3,421
Customer deposits 54,724 -- --
Short-term note payable (300,000) -- --
Accrued expenses (60,213) 81,056 (15,646)
Income taxes payable 100 400 --
----------- ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (5,077,476) (1,316,833) (1,773,043)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets 375,000 -- --
Purchase/development of intangibles -- (222,706) --
Equipment purchases (194,392) (101,121) (23,076)
Collection on notes receivable -- 1,380 --
----------- ----------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 180,608 (322,447) (23,076)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,071,234 1,549,851 2,800,000
Subscribed stock 3,752,970 170,000 (750,000)
Minority interest -- 100,000 --
Issuance of notes payable 135,000 -- --
Payments made on notes payable (7,032) (45,415) (255,720)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 4,952,172 $ 1,774,436 $ 1,794,280
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended March 31,
-----------------------------
1998 1997 1996
-------- -------- --------
NET INCREASE (DECREASE) IN CASH $ 55,304 $135,156 $ (1,839)
CASH AT BEGINNING OF YEAR 165,536 30,380 32,219
-------- -------- --------
CASH AT END OF YEAR $220,840 $165,536 $ 30,380
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect practices of the
software sales and services industries and conform to generally
accepted accounting principles. Certain prior year amounts have
been reclassified to be consistent with the March 31, 1998
presentation. The following policies are considered to be
significant:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Families in Focus, Inc., AC&T
Direct, AC&T, Chequemate Third Dimension, Inc. and Chequemate
Tele-Services, Inc. All significant intercompany accounts and
transactions have been eliminated.
Revenue recognition
-------------------
Revenue is recognized on an accrual basis upon deliver of the
software or product. Revenue consists of software sales, product
sales, license fees, and monthly service fees.
Organization costs and product rights
-------------------------------------
Organization and production costs have been capitalized and
amortized over five years using a straight line method. The total
amortization of organizational and production costs for the twelve
months ended March 31, 1998, 1997 and 1996 amounted to $427,575,
$62,183 and $78,496, respectively.
Property and equipment
----------------------
Property and equipment are stated at cost with depreciation and
amortization computed on the straight line method. Property and
equipment are depreciated over the following estimated useful
lives:
Years
-----
Office equipment 5
Office furniture 5-7
Machinery and equipment 5
Leasehold improvements 3-5
Capital leases 3-5
Organization costs and product rights
-------------------------------------
Net Book Value
--------------
Term Cost Amortization 1998 1997
-------- ---------- ------------ ---------- ---------
Product rights 5 years $2,972,167 $ 391,593 $2,580,574 $ 88,141
Goodwill 15 years -- -- -- 96,865
Trademark 15 years -- -- -- 49,722
Client list 15 years -- -- -- 49,722
Training video 5 years 260,007 183,285 76,722 128,724
Organization cost 5 years 17,261 17,261 -- 2,436
-------- ---------- ---------- ---------- ----------
$3,249,435 $ 592,139 $2,657,296 $ 415,610
========== ========== ========== ==========
Intangibles sold in 1998 are shown at zero cost.
18
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share
------------------
Earnings per share are calculated using a weighted average for
common stock and common stock equivalents.
Cash flows
----------
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and cash on deposit with banks.
Income taxes
------------
The Company's tax basis is the same as the Company's financial
statement basis. The Company has net operating loss carryforwards
of approximately $12,100,000 available to offset future federal
and state income tax through 2013. The Company has not recorded a
tax benefit attributable to the carryforwards because realization
of such benefit cannot be assured.
Computer software costs
-----------------------
The Company classifies the costs of planing, designing and
establishing the technological feasibility of computer software
product as software development costs and charges those costs to
expense when incurred. Costs incurred for duplicating computer
software from product masters, documentation and training
materials and packaging costs are capitalized as inventory and
charged to cost of sales when revenue is recognized. Costs of
maintenance and customer support are charged to expense when costs
are incurred.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - INVENTORY
March 31,
---------
1998 1997
---------- ----------
Finished goods $1,238,258 $ 185,518
WIP 124,243 --
Raw goods 1,321,877 --
---------- ----------
$2,684,378 $ 185,518
========== ==========
The Company inventories are stated at the lower of cost or market,
using the first-in, first-out (FIFO) method.
19
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 1998 and 1997 are detailed
in the following summary:
Accumulated Net Book Value
Cost Depreciation 1998 1997
-------- ------------ -------- --------
Office furniture and fixtures $ 64,398 $ 31,161 $ 33,237 $ 30,575
Software -- -- -- 295,000
Machinery and equipment 270,704 109,240 161,464 117,790
Capital leases 26,877 24,170 2,707 7,024
Leasehold improvements 4,581 1,654 2,927 3,785
-------- -------- -------- --------
Total $366,560 $166,225 $200,335 $454,174
======== ======== ======== ========
Depreciation expense is computed principally on the straight line
method in amounts sufficient to write off the cost of depreciable
assets over their estimated useful lives. Depreciation expense for
the years ended March 31, 1998, 1997 and 1996 amounted to $70,209,
$41,549 and $31,887, respectively. Assets sold in 1998 are shown
at zero cost.
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000,000 shares of common
stock, par value $.0001. Currently the Company has issued
14,088,650 shares of common stock.
During the period from April 1993 through March 1997, the Company
issued 1,387,226 shares of common stock pursuant to a private
placement. These shares were offered under Regulation S to non
U.S. persons and can be exchanged for free trading stock within 40
days after the closing of the offering.
The Company continued the placement of Regulation S stock in the
current year and issued 379,000 shares to non U.S. persons. The
Company's plans are to continue placing stock through private
placements to fund the growth requirements of the Company. As part
of the private placement, the Company received $4,031,720 for the
sale of approximately 1,344,000 shares of common stock. The
Company has accounted for the transaction as subscribed stock
until the stock could be issued.
20
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 5 - RELATED PARTIES
<TABLE>
Notes payable to related parties as of March 31, 1998 and 1997 are
detailed in the following summary:
<CAPTION>
1998 1997
-------- --------
<S> <C> <C> <C>
Note payable to CEO; due on demand, with an
interest rate of 10.4% $135,000 $ --
Note payable to CEO; due in monthly interest
installments of $930 with an interest rate of
12%; due December 31, 1998; unsecured;
accrued interest of $65,903 is due 21,802 90,000
-------- --------
Total related party notes payable 156,802 90,000
Less: current portion (156,802) --
-------- --------
Long-term portion $ -- $ 90,000
======== ========
Maturities of the related party notes payable are as follows:
Period ending March 31, 1998 $ 156,802
---------
1999 --
Total $156,802
</TABLE>
========
NOTE 6 - LONG-TERM DEBT
<TABLE>
Notes payable as of March 31, 1998 and 1997 are detailed in the
following summary:
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured $ 62,056 $ 80,367
----------------- -----------------
Total long-term debt 62,056 80,367
Less: current portion (50,080) (33,533)
----------------- -----------------
Long-term portion $ 11,976 $ 46,834
================= =================
</TABLE>
21
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 6 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are summarized below:
Period ending March 31, 1998 $50,080
1999 11,976
2000 --
2001 --
2002 --
-------
Total $62,056
=======
NOTE 7 - LEASES
All noncancelable leases with an initial term greater than one
year have been categorized as capital or operating leases in
conformity with the definitions in Financial Accounting Standards
Board Statement No. 13, "Accounting for Leases".
The following analysis represents property under capital lease at
March 31, 1998 and 1997.
1998 1997
-------- --------
Equipment $ 26,877 $ 26,877
Less: accumulated depreciation (24,170) (19,853)
-------- --------
Net property under capital lease $ 2,707 $ 7,024
======== ========
At March 31, 1998, the Company is liable under the terms of
non-cancelable leases for the following minimum lease commitments:
Capital Operating
Leases Leases
--------- --------
Period ended March 31,
1999 $ 5,520 $ 184,649
2000 3,561 166,941
2001 -- 146,169
2002 -- 31,368
later years -- --
--------- --------
Total minimum lease payments 9,081 529,127
Less: interest (1,304)
---------
Present value of net minimum lease payment 7,777
Less: current portion (4,989)
---------
Capital lease obligations payable long-term $ 2,788
=========
Rental expense for the years ended March 31, 1998, 1997 and 1996
amounted to $187,961, $86,094 and $90,305, respectively.
22
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
Cash flow information
---------------------
March 31,
---------
1998 1997
---- ----
Interest paid $18,478 $24,230
Interest received $24,152 $ 2,585
Income taxes paid $ 400 $ 300
Non-cash investing and financing activities
-------------------------------------------
For the years ending March 31, 1998 and 1997, the Company incurred
the following non-cash investing and financing activities.
March 31, March 31,
1998 1997
---- ----
Capital lease obligations incurred $ - $ -
Issuance of stock and options for
services rendered $ 651,517 $ -
NOTE 9 - FINANCIAL INSTRUMENTS
Concentrations of credit risk
-----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade
receivables. The Company provides credit to its customers in the
normal course of business. However, the Company performs ongoing
credit evaluations of its customers and maintains allowances for
potential credit losses. The Company places its temporary cash
investments with high quality financial institutions. At times
such investments may be in excess of the FDIC insurance limit.
NOTE 10 -RIGHTS TO SOFTWARE PRODUCT
The Company obtained all the rights associated with the sexual
harassment and OSHA compliance software through assuming third
party debt associated with development of the product. In May of
1997, the Company obtained exclusive rights to an intellectual
property from Advance Technology Group (See Note 14).
23
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 11 - ACQUISITIONS
On February 27, 1997, the Company established Chequemate
Tele-Services, Inc. (CTS) along with another individual and
received fifty-one percent (51%) of the company. CTS then entered
into an asset purchase agreement to acquire all of the assets of
Quality Products Distribution, Inc. The assets consisted mainly of
credit card processing software and certain intangibles. In
November of 1997, the Company sold the processing software and
related intangibles.
NOTE 12 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred losses from its inception through March 31, 1998. The
Company does not have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a
going concern. It is the intent of the Company to seek additional
financing through private placements of its common stock.
Management has formulated a plan to seek additional financing from
outside investors and through Reg. S offerings to non U.S.
persons. Management is proceeding with a merger with a U.S.
company to better enhance marketing of its '3-D' product. In
addition, the Company is seeking a joint venture with a national
hotel chain to use its '3-D' technology.
NOTE 13 - COMMON STOCK OPTIONS
Effective May 17, 1995, the stockholders approved an Incentive
Stock Option Plan granting to key employees options to purchase
Company common stock over a ten year period, at the fair market
value at time of grant. The aggregate number of common shares of
the Company which may be granted under the plan is 800,000 shares.
The plan expires on March 23, 2004.
24
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 13 - COMMON STOCK
OPTIONS (Continued)
Activity regarding stock options is summarized as follows:
Number of Shares
----------------
1998 1997
---- ----
Options Granted:
Beginning of year 354,800 154,800
Additional granted -- 200,000
------- -------
End of year 354,800 354,800
======= =======
Options Exercised:
Beginning of year 100 --
Additional exercised -- 100
Expired -- --
------- -------
End of year 100 100
======= =======
Options Outstanding at End of Year -- --
======= =======
Option prices range from $6.25 to $7.00 per share. Options price
for regional directors and executive officers is $3.50 per share.
The Company granted several stock options to various individuals
for service performed or for future services. The option price for
the services performed was stated at $5.00 per share on 14,000
shares. The option price granted on future services was the lower
of the bid price or $7.50 per share on 100,000 shares. In the
current year the option price was $0.01 per share.
NOTE 14 -ACQUISITION OF TECHNOLOGY
In May of 1997, the Company formed the wholly-owned subsidiary,
Chequemate Third Dimension, Inc, (CTD). CTD then entered into an
agreement to acquire technology relating to certain intellectual
property from Advanced Technology Group, LLC. The agreement called
for CMI to contribute to CTD three million dollars within sixty
(60) days of signing. In addition, the agreement requires the
Company to establish a non-qualified stock option for certain
members of the LLC. The non-qualified stock option plan provides
various individuals the option to acquire 2,000,000 shares of
stock at a grant price of $0.01 per share.
NOTE 15 -SHORT TERM DEBT
On February 27, 1997, the Company, through its subsidiary
Chequemate Tele-Services, Inc. (CTS) purchased certain intangible
assets (see Note 11 - Acquisitions). As part of the purchase, the
Company is obligated to pay $300,000 through monthly installments
starting in June 1997 and ending in December 1997.
25
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 16 -RELATED PARTY TRANSACTIONS
The Company owes certain officers and directors royalties from the
revenue of book sales. In addition, the Company owes a major
shareholder royalties on active users of the Chequemate product.
The total amount owing to these individuals as of March 31, 1998
and 1997 was $42,034 and $19,413, respectively.
NOTE 17 -MARKETING DEVELOPMENT AGREEMENT
In December 1996, the Company entered into a venture with an
individual to enhance and improve its marketing capacity as well
to strengthen its in-house administrative capacity. The Company
has incurred monthly expenses of approximately $10,000 on this
venture. The alliance between the parties indicates that the
individual will earn 50% of all net profits directly generated
from revenues created specifically and exclusively by this
agreement. Upon termination of this alliance, the specific
revenues will revert back to the individual.
ITEM 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
The Company has a disagreement with evaluation with the 3D product rights
its accountants on the accounting and financial disclosures contained in this
Form 10-KSB report.
PART III
--------
ITEM 9. Directors and Executive Officers
The following table contains certain information concerning the
nominees for the Board of Directors of the Company.
<TABLE>
<CAPTION>
Name and Principle Occupation or Age First Shares of Percentage of
Employment Became a Common Stock Common
Director Beneficially Stock
Owned Outstanding
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blaine Harris 59 1994 2,377,000 15%
CEO and President of the Company.
Elected as an officer of the Company in
1994
Harold P. Glick 56 1995 528,962 3%
Partner in the real estate company of
Moore Warfield & Glick
Robert E. Warfield 58 1995 1,000,000 6%
Partner in the real estate company of
Moore Warfield & Glick
Chuck Coonradt 54 1996 7,000 .04%
Chairman and CEO of the Game of
Work, Inc. a management consulting
firm
- ----------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Business Experience
Blaine Harris. Chairman, Director, CEO and President. Mr. Harris is an alumnus
of Idaho State University, where he majored in Business and Marketing. Mr.
Harris has extensive experience in real estate with his primary focus being
commercial and residential project development. From 1986 to 1991, he served as
Chief Executive Officer and Chairman of the Board of Directors of Help-U-Sell,
Inc. and was involved with Help-U-Sell as a partner of Conquest Management, a
Utah partnership, which managed and owned a 49% interest in Help-U-Sell. During
his administration, Help-U-Sell grew from 118 franchises to 650 plus franchises
and was listed as the fastest growing real estate franchising organization in
the country. In 1991, the Help-U-Sell parent company, Mutual Benefit Life, was
taken over by the New Jersey State Insurance Regulators and its subsidiaries
were liquidated, including Help-U-Sell, Inc. In 1991, Mr. Harris formulated and
began development of Chequemate International, Inc.
Harold P. Glick. Director. Mr. Glick received his BS degree in Accounting from
the University of Maryland in 1965 and became a Certified Public Accountant the
following year. Mr. Glick successfully built and managed a family-owned retail
business prior to joining Mr. Robert Warfield as a partner in the real estate
Company of Moore, Warfield and Glick. Additionally, since 1988, Mr. Glick has
been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland,
Washington D.C. and Delaware. Mr. Glick served as President of the Greater Ocean
City, Maryland, Board of Realtors in 1988, is a member of the Advisory Board of
Nations Bank and serves on the Maryland Governor's Economic Development
Committee.
Robert E. Warfield. Director. Mr. Warfield has a BS Degree in Economics from
Western Maryland College. He has an extensive background in real estate and
regional sales management with the Weyerhaeuser Corporation. Mr. Warfield first
became licensed in real estate in 1962, and in 1975 started Warfield Real
Estate. He has been in the real estate and development business in Ocean City,
Maryland since 1971. For the past 18 years Mr. Warfield has been President of
Moore, Warfield and Glick, Inc., with real estate sales over $100 million and
rentals of $12 million. Additionally, since 1988, Mr. Warfield has been a
regional owner of help-U-Sell Real Estate in Virginia, Maryland, Washington D.C.
and Delaware. Mr. Warfield currently serves on the Board of Directors of
Atlantic General Hospital and Ocean City Golf and Yacht Club. He has also served
as a director of Second National Service Corp., and Salisbury School.
Chuck Coonradt. Director. Mr. Coonradt is Chairman of the Board and CEO of The
Game of Work, a Utah-based corporation engaged in providing management and
personnel training for its corporate clients in the fields of goal-setting and
profit improvement. Clients of the firm include Quaker Oats, Wendy's, The
Chicago Tribune, First Interstate Bank, Dow Chemical and Pepsi-Cola.
Executive Officers
<TABLE>
The following table outlines the executive officers of the
Company. This table does not include those officers that serve as Directors.
<CAPTION>
Name Age Positions Held Current Term of Office or
Directorship and period of Service
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Ken Redding 35 Executive Vice Current Term August 1997-August
President 1998. Service since November 1994
John Garrett 56 CFO Current Term August 1997 - August
1998. Service since June 1996
Marci Redding 34 Secretary/Treasurer Current Term December 1997-
August 1998. Service since
November 1994
- -----------------------------------------------------------------------------------------------------
</TABLE>
Business Experience
Kenneth D. Redding. Executive Vice President. Mr. Redding is an alumnus of
California State University, Sacramento where he majored in Business
27
<PAGE>
Administration and Marketing. From 1985 to 1992, Mr. Redding was involved in the
ownership and operation of several Help-U-Sell real estate franchise offices
throughout Northern California. Mr. Redding is the son-in-law of Blaine Harris.
John Garrett. Vice President, Financial Advisor to the President. Mr. Garrett
received his BS Degree in finance from Brigham Young University in 1967. He also
graduated from Pacific Coast Banking School, University of Washington in 1983.
He has 15 years executive management experiences in banking and was a founder
and executive officer of First Beverly Bank, Beverly Hills California. He has
developed, owned and/or managed a variety of financial, manufacturing and
industrial businesses over the past 20 years.
Marci Redding. Management Services Director/ Secretary. Ms. Redding has a BS
Degree in Management Information Systems Development and Business Administration
from Utah State University. Since 1986, she has worked directly on the
development of automated operational and accounting systems as Director of MIS
Services for a large real estate franchise organization and through independent
client consultation. In 1992 Ms. Redding joined with Chequemate International as
the Chief Operating Officer. Throughout her employment with Chequemate, Ms.
Redding has been involved extensively in all areas of department and company
administration encompassing product development, training, finance, personnel,
legal and the general operational aspects of the business.
ITEM 10. Executive Compensation
The table set forth on the following page contains information
about the remuneration received and accrued during fiscal years 1997 and 1998
from the Company and its subsidiaries by the Chief Executive officer and each of
the most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
Name and All Other Annual
Principal Position Fiscal Year Salary ($) Bonus ($) Compensation
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blaine Harris, CEO 1998 $100,000 $1,457 $ 10,000
1997 $100,000 $1,015 $ 24,174 (1)
Lavar Butler, 1998 $ 60,000 $1,491 $ 1,083
Senior VP 1997 $ 60,000 $ 585 $ 2,166
Ken Redding, 1998 $ 54,000 $1,491 $ 0
Executive VP 1997 $ 54,000 $ 585 $ 3,249
Marci Redding, 1998 $ 42,000 $1,491 $ 0
Secretary/Treasurer 1997 $ 42,000 $ 455 $ 1,750
Albert Alvey, 1998 $110,000 $ 0 $ 0
President (CE) 1997 $ 0 $ 0 $ 0
John Garrett, CFO 1998 $ 54,000 $1,491 $ 875
1997 $ 48,370 $ 390 $ 1,642
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following chart shows the stock options that were granted to any
executive officer of the Company during the last completed fiscal year.
Name and Principal Position Total Options Granted Total Options Vested
- --------------------------------------------------------------------------------
Blaine Harris, CEO 70,000 42,000
Ken Redding, Executive VP 70,000 35,000
Marci Redding, Secretary 70,000 35,000
John Garrett, Vice President 70,000 14,000
Other Executive Officers 60,000 21,000
(2)
- --------------------------------------------------------------------------------
- ----------
1This amount includes a payment of $17,174 in deferred compensation from
previous fiscal years.
28
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The table on the following page sets forth certain information as
of July 7, 1998 with respect to each person who owns of record, or is known to
the Company to beneficially own, more than 5% of the outstanding shares of
Voting Common Stock, and the beneficial ownership of such securities by each
officer and director who owns any stock, and by all officers and directors as a
group. The original directors and officers of the Company, whose aggregate share
holdings are now less than three percent of the total shares outstanding, may be
deemed to have been promoters of the Company.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of Percent of currently issued and
Owner Ownership of Voting Stock Subscribed Common Stock
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Blaine Harris 2,377,0002
57 West 200 South Suite 350 Direct Ownership 14.8%
Salt Lake City, Utah 84101
Robert Warfield 1,000,000
10481 Golf Course Road Direct Ownership 6.2%
Ocean City, MD 21842
Don Christensen 941,617
1321 East 1700 South Direct Ownership 5.9%
Bountiful, Utah 84010
Harold P. Glick 528,962
10706 Piney Island Drive Direct Ownership 3.3%
Bishipville, MD 21842
Chuck Coonradt 7,000
3797 W. Blacksmith Road Direct Ownership 0.04%
Park City, Utah 84060
Ken Redding 35,0002
57 West 200 South Suite 350 Direct Ownership 0.2%
Salt Lake City, Utah 84101
Marci Redding 35,0002
57 West 200 South Suite 350 Direct Ownership 0.2%
Salt Lake City, Utah 84101
John Garrett 14,0002
57 West 200 South Suite 350 Direct Ownership 0.2%
Salt Lake City, Utah 84101
Officers and Directors as a group 4,938,579 30.8%
- --------------------------------------------------------------------------------
</TABLE>
The Company knows of no arrangements, including any pledge by any person
of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
ITEM 12. Certain Relationships and Related Transactions.
In calendar year 1992, the limited liability company ( the "LLC")
of John C. Wilkinson, a former director of the Company, received a CEDO grant
for the development of the Compliance Software. Of this amount, the LLC loaned
$120,000 to the Company. In fiscal year 1993, the Company borrowed $30,000 from
WAC Research, Inc. (WAC). Donald M. wood, than a member of the board of
directors of the Company, was an officer, director and shareholder of WAC. The
$30,000 loan from WAC was paid in May of 1993. In a restructuring of the
financial
- --------
2 Includes shares which these individuals have the right to acquire within
sixty days pursuant to options granted through May 31, 1997 in the
following amounts; Harris 42,000; Redding 35,000; Redding 35,000; Garrett
14,000.
29
<PAGE>
obligations of the Company, the Company paid $200,000 of expenses for the LLC of
Mr. Wilkinson, satisfying the $120,000 loan to the Company by the LLC and
resulting in a net payable of the LLC to the Company of $78,890 as of the end of
fiscal year 1993. As of April, 1993, the Company loaned to the LLC an additional
$30,043. The LLC and John Wilkinson executed a promissory note reflecting the
foregoing transactions, resulting in an obligation of the LLC and John Wilkinson
to the Company, at that time, in the total amount of $108,933. This note was an
unsecured demand note bearing interest at the rate of 10%. On April 29, 1993,
the LLC was dissolved. Pursuant to such dissolution, all assets and liabilities
of the LLC were distributed to the members of the LLC. Therefore, the promissory
note was considered to be the obligation of Mr. Wilkinson. As of October 30,
1994, other advances had been made pursuant to the transaction and the principal
balance of such loan was $151,202. This amount was canceled in exchange for Mr.
Wilkinson's return of his 290,000 shares of stock of the Company at the time of
the CMI acquisition.
Pursuant to the authorization of the board of directors in their
December 31, 1992 directors' meeting, the Company issued 2,000,000 shares of
Non-Voting Common Stock of the Company. These shares reflected certain rights of
conversion to Voting Commons Stock. Subsequently, 1,000,000 of the Non-Voting
Common Stock shares were canceled. Of the remaining shares, 500,000 were issued
to John C. Wilkinson, an officer and director of the Company and 500,000 were
issued to WAC Research, Inc., a Utah corporation. Donald M. Wood, the former
Chairman of the board of directors for the Company, was an officer, director and
shareholder of WAC and is deemed to be a beneficial owner of such shares. Mr.
Wilkinson and WAC executed Non-Voting Stock Shareholder's Agreements principally
relating to the conversion rights of the stock. These transactions were
effective as of January 8, 1993. The non-voting shares were issued as
consideration for certain management, marketing and consulting services rendered
by the shareholders. On March 31, 1993, the board of directors of the Company
authorized the conversion of such stock to Voting Common Stock. In conjunction
with the CMI acquisition, Mr. Wood, Mr. Wilkinson, and their transferees
returned a total of 1,820,425 shares of stock to the Company for cancellation.
During fiscal year 1995, Mr. Hal Glick, Bob Warfield and Oxford
International Management Inc., three principal shareholders of the Company
including two directors loaned $273,140 to the Company. On March 29, 1996, these
loans plus accrued interest were exchanged for 87, 783 shares of restricted
common stock of the Company. The exchange price for these shares was $3.50 per
share.
Prior to March 31, 1994, Blain Harris, CEO of the Company and
president of its wholly owned subsidiary Chequemate International, Inc., loaned
$215,000 to CMI. During fiscal year 1995, this loan was paid down to $93,000.
Subsequently, Mr. Harris loaned an additional $200,000 to the Company. This loan
was paid in full in September 1995. The balance of $93,000, owing on the first
loan referred to in this paragraph, bears interest at 12% and matures in
December 31, 1998. On January 29, 1998 the Company entered into a loan agreement
with Mr. Harris that as of March 31, 1998 the Company owed Mr. Harris $135,000.
Blaine Harris, CEO and Chairman of the board and a principal
shareholder of the Company, and Don Christensen, a Director of Chequemate
International, Inc. and shareholder of the Company, have an agreement with the
Company to receive a monthly fee based upon a certain client base of Chequemate
International. During fiscal year 1998, their compensation under this agreement
was less than $1,000.
ITEM 13. Exhibits and Reports on Form 8-K
Reports Filed on Form 8-K
-------------------------
During fiscal year covered by this Form 10-KSB report, the Company
filed a Form 8-K March 30, 1998.
30
<PAGE>
(a)SIGNATURES
-------------
In accordance with Section 13 of 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHEQUEMATE INTERNATIONAL, INC.
By /S/ Date 07-14-1998
------------------------------------- -----------------------
Blaine Harris - CEO
By /S/ Date 07-14-1998
------------------------------------- -----------------------
John Garrett - CFO
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
/S/ 07-14-1998
- --------------------------------------- -----------------
Blaine Harris Chief Executive Officer and Director Date
/S/ 07-14-1998
- ---------------------------------------- -----------------
Harold P. Glick, Director Date
/S/ 07-14-1998
- ---------------------------------------- -----------------
Robert E. Warfield, Director Date
/S/ 07-13-1998
- ---------------------------------------- -----------------
Chuck Coonradt, Director Date
31
MEMBERS
R.Gordon Jones,CPA
Mark F. Jensen, CPA
Franklin L. Hunt CPA
Steve M. Hanni, CPA
JONES,JENSEN
& COMPANY, LLC
----------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statement No.
333-30707 of Chequemate Technologies, Inc. on Forms S-8 of our report dated June
23, 1998, appearing in this Annual Report on Form 10-K of Chequemate
Technologies, Inc. for the year ended March 31, 1998.
/s/ Jones,Jensen&Company
------------------------
Jones,Jensen&Company
Salt Lake City, Utah
July 13, 1998
50 South Main Street
Suite 1450
Salt Lake City, Utah 84188
Telephone (801)328-4408
Facsimile(801)328-4461
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