SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 1998
Commission File Number:33-385-11-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
------ ------
State the number of shares outstanding of each of the issuer's common
equity, as of the latest practicable date: 17,310,792 (November 7, 1998)
Transitional Small Business Format: YES NO X
------ ------
1
<PAGE>
TABLE OF CONTENTS
-----------------
PART I-Financial Statements
------
Item 1. Financial Statements
ACCOUNTANTS' REPORT 5
UNAUDITED CONSOLIDATED BALANCE SHEETS 6-7
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 8
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS 9-10
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 11-19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
GENERAL INFORMATION 20
RESULTS OF OPERATIONS 21-22
LIQUIDITY AND CAPITAL RESOURCES 22
YEAR 2000 COMPLIANCE 23
PART II-Other Information
-------
Item 2. Changes in Securities and Use of Proceeds 24-25
Item 5. Other Information 25-27
Item 6. Exhibits and Reports on Form 8-K 27
Exhibit #10 29-47
2
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and March 31, 1998
3
<PAGE>
C O N T E N T S
Independent Accountants' Report................................................5
Consolidated Balance Sheets....................................................6
Consolidated Statements of Operations..........................................8
Consolidated Statements of Cash Flows..........................................9
Notes to Consolidated Financial Statements....................................11
4
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors and Stockholders
Chequemate International, Inc.
Salt Lake City, Utah 84101
The accompanying consolidated balance sheets of Chequemate International, Inc.,
and its subsidiaries as of September 30, 1998 and the related consolidated
statements of operations, and cash flows for the three months and six months
ended September 30, 1998 and 1997 were not audited by us and, accordingly, we do
not express an opinion on them.
The accompanying balance sheet as of March 31, 1998 was audited by us and we
expressed an unqualified opinion on it in our report dated June 23, 1998.
The financial statements presented were prepared in compliance with regulation
S-X for form 10-QSB for the Securities and Exchange Commission and contain
selected footnote disclosures. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
Jones, Jensen & Company
Salt Lake City, Utah
November 9, 1998
5
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---------- ----------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 80,960 $ 220,840
Accounts receivable - net of allowances of $154,234
and $115,000 123,947 24,305
Prepaid expenses 10,808 11,259
Inventory (Note 2) 2,450,702 2,684,378
---------- ----------
Total Current Assets 2,666,417 2,940,782
---------- ----------
PROPERTY AND EQUIPMENT (Note 3) 174,054 200,335
---------- ----------
OTHER ASSETS
Organization costs and product rights (Note 1) 2,529,013 2,657,296
Refundable deposits 8,053 8,053
Investments in subsidiaries 3,000 3,000
---------- ----------
Total Other Assets 2,540,066 2,668,349
---------- ----------
TOTAL ASSETS $5,380,537 $5,809,466
========== ==========
</TABLE>
6
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,554,548 $ 1,584,576
Related party accounts payable (Note 15) 42,034 42,034
Customer deposits -- 54,724
Accrued expenses 80,401 43,339
Income tax payable (Note 1) 500 500
Accrued interest - related party (Note 5) 71,062 65,903
Current portion related party (Note 5) 175,000 156,802
Current portion long-term debt (Note 6) 49,080 50,080
Current portion capital lease (Note 7) 4,989 4,989
------------ ------------
Total Current Liabilities 1,977,614 2,002,947
------------ ------------
LONG-TERM LIABILITIES
Long-term related party notes payable (Note 5) -- --
Long-term debt (Note 6) -- 11,976
Capital lease obligations (Note 7) 1,338 2,788
------------ ------------
Total Long-Term Liabilities 1,338 14,764
------------ ------------
Total Liabilities 1,978,952 2,017,711
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value 500,000,000 shares
authorized, 16,958,422 and 14,088,650 shares
outstanding, respectively 1,696 1,409
Subscribed stock (Note 4) 1,117,374 4,022,970
Capital in excess of par 18,796,692 14,960,783
Accumulated deficit (16,514,177) (15,193,407)
------------ ------------
Total Stockholders' Equity 3,401,585 3,791,755
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,380,537 $ 5,809,466
============ ============
</TABLE>
7
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 77,628 $ 371,144 $ 167,376 $ 594,093
COST OF SALES 78,111 131,725 106,245 198,819
------------ ------------ ------------ ------------
GROSS PROFIT (483) 239,419 61,131 395,274
------------ ------------ ------------ ------------
EXPENSES
Selling expenses 85,873 380,897 215,509 686,846
General and administrative 550,687 849,519 991,842 1,663,246
------------ ------------ ------------ ------------
Total Expenses 636,560 1,230,416 1,207,351 2,350,110
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on sale of assets (165,167) -- (165,167) --
Interest income -- 9,062 -- 12,913
Interest expense (4,579) 2,684 (7,383) 1,389
------------ ------------ ------------ ------------
Total Other Income
(Expense) (169,746) 11,746 (174,550) 14,302
------------ ------------ ------------ ------------
NET LOSS BEFORE INCOME
TAXES (806,789) (988,313) (1,320,770) (1,953,447)
INCOME TAX PROVISION -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (806,789) $ (988,313) $ (1,320,770) $ (1,953,447)
============ ============ ============ ============
BASIC LOSS PER SHARE $ (0.05) $ (0.07) $ (0.08) $ (0.14)
============ ============ ============ ============
BASIC AVERAGE NUMBER OF
SHARES OUTSTANDING 16,050,274 13,655,412 16,050,274 13,655,412
============ ============ ============ ============
</TABLE>
8
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net (loss) $ (806,789) $ (988,312) $(1,320,770) $(1,953,447)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 150,096 119,376 178,166 273,736
(Increase) decrease in accounts
receivable (86,050) 1,407 (99,642) 5,803
(Increase) decrease in inventory 208,247 (1,626,049) 236,676 (2,679,330)
(Increase) decrease in prepaid expense 605 (5,296) 451 (122,046)
Increase (decrease) in accounts payable 198,103 652,242 144,972 1,221,827
Increase (decrease) in short-term debt (35,968) (50,000) (57,724) (75,000)
Increase (decrease) in accrued expenses 43,744 20,195 42,221 27,079
Increase (decrease) in notes payable -- -- -- 7,514
Increase (decrease) in income taxes
payable -- 400 -- (400)
----------- ----------- ----------- -----------
Net Cash (Used) by Operating
Activities (328,012) (1,876,037) (875,650) (3,348,422)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Product license rights -- (6,000,000) (23,602) (6,000,000)
Equipment purchase -- (34,729) -- (189,038)
Investment in subsidiary -- -- -- (100,000)
----------- ----------- ----------- -----------
Net Cash (Used) by Investing
Activities -- (6,034,729) (23,602) (6,289,038)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from common stock 555,556 7,057,335 930,600 7,057,335
Proceeds from subscribed stock -- (93,200) -- 3,203,000
Payments of capital leases (796) (1,796) (1,450) (4,891)
Payments of long-term debt (165,850) (25,034) (169,778) (43,169)
------------ ------------ ------------ ------------
Net Cash Provided by Financing
Activities $ 388,910 $ 6,937,005 $ 759,372 $ 10,212,275
------------ ------------ ------------ ------------
</TABLE>
9
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET INCREASE IN CASH $ 60,898 $ (973,761) $ (139,880) $ 574,815
CASH AT BEGINNING PERIOD 20,062 1,714,112 220,840 165,536
------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 80,960 $ 740,351 $ 80,960 $ 740,351
============ ============ ============ ============
</TABLE>
10
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and March 31, 1998
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 six months ended September 30, 1998 and for the year
ended March 31, 1998 amounted to $23,703 and $427,575 , 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
<TABLE>
<CAPTION>
Organization costs and product rights Net Book Value
------------------------------------- --------------
March 31, Sept.30,
Term Cost Amortization 1998 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Product rights 5 years $2,972,167 $ 443,154 $2,580,574 $2,529,013
Goodwill 15 years -- -- -- --
Trademark 15 years -- -- -- --
Client list 15 years -- -- -- --
Training video 5 years -- -- 76,722 --
Organization cost 5 years 17,261 17,261 -- --
---------- ---------- ---------- ----------
$2,989,428 $ 460,415 $2,657,296 $2,529,013
========== ========== ========== ==========
</TABLE>
Intangibles sold in 1998 are shown at zero cost.
11
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic Loss Per share
- --------------------
Basic loss per share is 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 $18,796,692
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.
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements include all of the adjustments
which, in the opinion of management, are necessary for a fair presentation.
Such adjustments are of a normal, recurring nature.
12
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and March 31, 1998
NOTE 2 - INVENTORY
September 30, March 31,
1998 1998
---------- ----------
(Unaudited)
Finished goods $1,004,582 $1,238,258
WIP 124,243 124,243
Raw goods 1,321,877 1,321,877
---------- ----------
$2,450,702 $2,684,378
========== ==========
The Company inventories are stated at the lower of cost or market, using the
first-in, first-out (FIFO) method.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1998 and March 31, 1998 are detailed
in the following summary:
<TABLE>
<CAPTION>
Net Book Value
--------------
Accumulated September 30, March 31,
Cost Depreciation 1998 1998
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 61,147 $ 34,411 $ 26,736 $ 33,237
Machinery and equipment 225,318 101,218 124,100 161,464
Capital leases 26,877 25,124 1,753 2,707
Leasehold improvements 24,581 3,116 21,465 2,927
-------- -------- -------- --------
Total $337,923 $163,869 $174,054 $200,335
======== ======== ======== ========
</TABLE>
13
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and March 31, 1998
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 six months ended September
30, 1998 and the year ended March 31, 1998 amounted to $77,291 and $70,209,
respectively.
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 16,958,422 shares of common stock.
During the period from April 1993 through March 1998, the Company issued
2,913,961 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 period
and issued 2,025,663 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 $1,117,374 for the sale of approximately 560,000 shares of common
stock. The Company has accounted for the transaction as subscribed stock until
the stock could be issued.
NOTE 5 - RELATED PARTIES
Notes payable to related parties as of September 30, 1998 and March 31, 1998 are
detailed in the following summary:
September 30, March 31,
1998 1998
--------- --------
(Unaudited)
Note payable to CEO; due on demand, with an
interest rate of 10.4% $175,000 $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 $71,602 is due -- 21,802
--------- --------
Total related party notes payable 175,000 156,802
Less: current portion (175,000) (156,802)
--------- ---------
Long-term portion $ - $ -
Maturities of the related party notes payable are as follows:
Period ending September 30, 1998 $ 175,000
1999 --
----------
Total $ 175,000
==========
14
<PAGE>
NOTE 6 - LONG-TERM DEBT
Notes payable as of September 30, 1998 and March 31, 1998 are detailed in the
following summary:
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured $ 49,080 $ 62,056
---------- ----------
Total long-term debt 49,080 62,056
Less: current portion (49,080) (50,080)
---------- ----------
Long-term portion $ - $ 11,976
========== ==========
Maturities of long-term debt are summarized below:
Period ending June 30, 1998 $ 41,032
1999 8,048
2000 --
2001 --
2002 --
------
Total $ 49,080
======
</TABLE>
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".
15
<PAGE>
The following analysis represents property under capital lease at September 30,
1998 and March 31, 1998:
September 30, March 31,
1998 1998
-------- --------
(Unaudited)
Equipment $ 26,877 $ 26,877
Less: accumulated depreciation (25,124) (24,170)
-------- --------
Net property under capital lease $ 1,753 $ 2,707
======== ========
At September 30, 1998, the Company is liable under the terms of non-cancelable
leases for the following minimum lease commitments:
Capital Operating
Leases Leases
-------- --------
Period ended September 30,
1999 $ 4,070 $184,649
2000 3,561 166,941
2001 -- 146,169
2002 --
31,368
later years -- --
-------- --------
Total minimum lease payments 7,631 529,127
Less: interest (1,304)
--------
Present value of net minimum lease payment 6,327
Less: current portion (4,989)
--------
Capital lease obligations payable long-term $ 1,338
========
Rental expense for the years ended September 30, 1998 amounted to $74,497.
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
Cash flow information
September 30, March 31,
1998 1998
------------ -----------
(Unaudited)
Interest paid $ 7,383 $18,478
Interest received $ -- $24,152
Income taxes paid $ -- $ 400
16
<PAGE>
Non-cash investing and financing activities
- -------------------------------------------
For the six months ending September 30, 1998 and March 31, 1998, the Company
incurred the following non-cash investing and financing activities.
September 30, March 31,
1998 1998
------------ -----------
(Unaudited)
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).
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.
17
<PAGE>
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 September
30, 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.
Activity regarding stock options is summarized as follows:
Number of Shares
--------------------------
September 30, March 31,
1998 1998
-------- -------
(Unaudited)
Options Granted:
Beginning of year 354,800 354,800
Additional granted -- --
------- -------
End of year 354,800 354,800
======= =======
Options Exercised:
Beginning of year 100 100
Additional exercised -- --
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.
18
<PAGE>
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 - 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 September 30, 1998 and March 31, 1998 was $42,034 and $42,034,
respectively.
NOTE 16 - 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.
NOTE 17 - SALE OF ASSETS - RELATED PARTY
The Company entered into an agreement with TFL, L.L.C. to sell all of the assets
of the Company's financial services business during the three months period
ended September 30, 1998. The selling price of these assets was $50,000. The
terms of the repayment are 25% of the TFL, L.L.C. profits until the $50,000 is
repaid. The $50,000 must be repaid by October 31, 2001.
19
<PAGE>
Item 2: Management's Discussion and Analysis of Financial condition and Results
of Operation
General
For more detailed information, please refer to the Unaudited Financial
Statements for the period ending September 30, 1998 and the Audited Financial
Statements for the year ended March 31, 1998. A copy of these Financial
Statements are included in Item 1 of this report.
During the second quarter of the current fiscal year the Company
continued to focus its efforts on developing and marketing the 3D Imaging
System. As part of the focus on the 3D business segment, an in depth business
plan has been written which the Company plans to use as its guide for the
future. The plan addresses the major markets the Company anticipates to
penetrate and the technique it plans to use. Also addressed is the timing for
these different efforts and the capital necessary to fund such actions. One of
the major pieces to the business plan is to launch a cable channel which will
carry a combination of true 3D programming and 2D to 3D converted material. The
programming will have a wide variety and is expected to include action and
horror movies, sporting events, nature shows, animation, travel and documentary,
and many others. The anticipated launch for the channel is January 1999. There
can be no assurance that the Company will be able to successfully meet the goals
of its business plan and raise the capital required to launch the channel in the
anticipated time frame.
For the quarter ended September 30, 1998, the Company generated
revenues of $77,628, approximately 57% of total revenues came from sales related
to the 3D Imaging System. In addition to the relationship with Home Shopping
Network, the Company has begun to sell its 3D Imaging System on Value Vision
which is a similar type of organization. The Company's results of operations and
future earnings is dependent on its ability to further the development and
marketing of the 3D Imaging System and related business segments. This
dependence may cause significant volatility to the stock price, particularly on
a quarterly basis.
The Company has successfully sold the assets associated with the
financial services division of the Company. The sale accomplished three major
objectives according to management. First, it completed the total focus on the
3D business segment. Second, it decreased the monthly overhead, and third, it
required minimum payment for the sold business segment with the opportunity of
sharing in future profits depending upon the success of the purchasing group.
20
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Results of Operations
Comparison of Quarters Ended September 30, 1998 and 1997
Gross Revenue
For the quarter ended September 30, 1998, total gross revenue of the
Company was $77,628 compared to $371,144 for the quarter ended September 30,
1997; a decrease of $293,516. The major portion of the decrease can be
attributed to decreased revenue from the financial services division of the
Company and other business segments that had previously been sold or closed
according to the strategic plan to dispose of these business segments. The first
revenues from the 3D Imaging System were recorded during the quarter ended
September 30, 1997.
Gross Profit
The Company experienced a gross profit loss for the quarter ended
September 30, 1998 of $483 compared to gross profit income of $239,419 for the
quarter ended September 30, 1997. The decrease can be attributed to lower
revenues and the movement of older inventory near cost. Future gross profit and
gross profit percentage can not be assured due to continued movement of older
inventory.
Operating Expenses
General and Administrative expenses for the quarter ending September
30, 1998 were $550,687 compared to $849,519 for the same quarter last year; a
decrease of $298,832. The decrease is to due to the continuing focus on the 3D
segment which caused the elimination of overhead associated with other business
areas of the Company.
Net Loss
The Company's net loss for the quarter ending September 30, 1998 was
$806,789, a decrease of $181,524, when compared to the $988,313 loss for the
quarter ended September 30, 1997. The improvement is due to decreases in
expenses rather than increased revenue and gross profit.
Comparison of Six Month Periods Ended September 30, 1998 and 1997
Gross Revenue
For the six month period ended September 30, 1998, total gross revenue
of the Company was $167,376 compared to $594,093 for the six month period ended
September 30, 1997; a decrease of $426,717. The major portion of the decrease
can be attributed to decreased revenue from the financial services division of
the Company. Further decreases were attributable to other business segments that
had previously been sold or closed according to the strategic plan to dispose of
these business segments.
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<PAGE>
Gross Profit
Gross profit for the six month period ended September 30, 1998 was
$61,131, compared to gross profit of $395,274 for the six months ended September
30, 1997. The decrease can be attributed to lower revenues and the movement of
older inventory near cost. Future gross profit and gross profit percentage can
not be assured due to continued movement of older inventory.
Operating Expenses
General and Administrative expenses for the six month period ended
September 30, 1998 were $991,842 compared to $1,663,246 for the same six month
period last year; a decrease of $671,404. The decrease is to due to the
continuing focus on the 3D segment which caused the elimination of overhead
associated with other business areas of the Company.
Net Loss
The Company's net loss for the six month period ended September 30,
1998 was $1,320,770, a decrease of $632,677, when compared to the $1,953,447
loss for the six month period ended September 30, 1997. The improvement is due
to decreases in expenses rather than increased revenue and gross profit.
Liquidity and Capital Resources
The Company is currently unable to finance its operations from cash
flow from operating activities. The Company continues to finance its operations
through the net proceeds from private placements of its equity. The Company has
entered into negotiations to raise additional capital through two separate
transactions. A preliminary term sheet has been executed for a $4 million line
of credit arrangement requiring the issuance of common stock of the Company. A
definitive agreement for this financing package is currently being negotiated,
and material changes may be adopted, if the transaction is to be completed.
Negotiations are also continuing regarding a newly offered $1 million dollar
convertible debenture transaction that may be funded as early as December of
this year. Discussions regarding these financing proposals are preliminary, and
there is no assurance that such transactions will be completed. If either
transaction is completed, the Company will be required to register the shares of
common stock to be issued pursuant to the described arrangements.
At September 30, 1998, the Company had current assets of $2,666,417
and current liabilities of $1,977,614 resulting in net working capital of
$688,803 and a current ratio of 1.35. This is a decrease of $249,032 from the
Company's working capital of $937,835 as of March 31, 1998. During the three
22
<PAGE>
month period the Company utilized approximately $328,012 in cash primarily to
fund operations and to reduce liabilities. The Company's total liabilities as of
September 30, 1998 were $1,978,952, a decrease of $38,759, when compared to
total liabilities as of March 31, 1998.
Year 2000 Compliance
The Year 2000 issue is a result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using A00" as the year 1900 rather than the year 2000. This could result in
a system/job failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar business transactions.
The Company utilizes and is dependent upon computer systems and
software to conduct its business. The Company began a review of its computer
systems and software applications during the first quarter of 1998. Preliminary
indications are that most of Company's systems are already year 2000 compliant
and that others can become compliant through manufacturer updates. The Company
does not use any specialized software programmed internally in its operations,
so there will be no need for expensive re-programming of this kind of system.
The Company has initiated formal communications with all of its
significant suppliers and larger customers to determine the extent to which the
Company is vulnerable to those third parties failure to remediate their own Year
2000 issue. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
failure to convert by another company, or a conversion that is incompatible with
the Company's systems, would not have a material adverse effect on the Company.
The Company presently believes that with modifications to existing
software and conversions to new software for those systems which may be
affected, the Year 2000 issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material adverse impact on the operations of the Company.
Forward-Looking Statements
Certain matters in the above discussion contain "forward-looking
statements". These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the Company
"believes," "antcipates," "expects," "estimates," or words of similar meaning.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
23
<PAGE>
subject to certain risks and uncertainties which are described in close
proximity to such statements and which could cause actual results to differ
materially from those anticipated as of the date of this report. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements are
included herein are only made as of the date of this report and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
PART II
Item 2. Changes in Securities and Use of Proceeds
Sales of Equity Securities Pursuant to Regulation S
The following table shows sales of securities of the Company sold since
June 30, 1998 pursuant to Regulation S promulgated by the Securities and
Exchange Commission. The securities were all restricted common stock, and shall
remain as restricted securities for the one-year distribution compliance period.
The facts relied upon to satisfy the exemption were as follows:
(a) The Regulation S stock purchasers (the "Purchasers") were not U.S.
persons as that term is defined under Regulation S.
(b) At the time the buy orders were originated, the Purchasers were
outside the U.S. and were outside the U.S. as of the date of the
execution and delivery of any subscription agreements.
(c) Purchasers purchased the shares for their own account and not on
behalf of any U.S. person; the sales had not been pre-arranged with a
purchaser in the U.S.; and all offers and resale of the securities were
only made in compliance with the provisions of Regulation S.
(d) The Purchasers were not entities organized under foreign law by a
U.S. person, as defined in Regulation S Rule 902(k), for the purpose of
investing in unregistered securities, unless the Purchasers were
organized and owned by accredited investors, as defined in Regulation
D, Rule 501(a), who are not natural persons, estates or trusts.
(e) The transactions were not purchases pursuant to a fiduciary account
where a U.S. person, as defined in Regulation S Rule 902(o), had
discretion to make investment decisions for the account.
(f) To the knowledge of the Registrant, all offers and sales of the
Regulation S shares by Purchasers prior to the expiration of a one-year
distribution compliance period have only been made in compliance with
the safe harbor contained in Regulation S, or pursuant to an exemption
from registration.
(g) All offering documents received by Purchasers included statements
to the effect that the shares had not been registered under the 1933
Act and may not be offered or sold in the United States or to U.S.
persons unless the shares are registered under the 1933 Act or an
exemption from the registration requirements was available.
(h) The Purchasers acknowledged that the purchase of the shares
involved a high degree of risk and further acknowledged that they could
bear the economic risk of the purchase of the shares, including the
total loss of their investment.
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(i) The Purchasers understood that the shares were being offered and
sold to them in reliance on specific exemptions from the registration
requirements of United States Federal and State securities laws and
that the Registrant was relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of the Purchasers.
- --------------------------------------------------------------------------------
Date of Sale Amount of Securities Offering Price
- --------------------------------------------------------------------------------
August 26, 1998 100,000 $.50
- --------------------------------------------------------------------------------
September 23 and 24, 1998 325,000 $.50
- --------------------------------------------------------------------------------
October 5, 1998 225,000 $.50
- --------------------------------------------------------------------------------
October 29 and 30, 1998 325,000 $.50
- --------------------------------------------------------------------------------
November 2, 1998 125,000 $.50
- --------------------------------------------------------------------------------
November 30, 1998 400,000 $1.00
- --------------------------------------------------------------------------------
Sales of Equity Securities Pursuant to Regulation D
The following table shows sales of securities of the Company sold since
June 30, 1998 pursuant to Regulation D promulgated by the Securities and
Exchange Commission. The securities were all restricted common stock.
- --------------------------------------------------------------------------------
Date of Sale Amount of Securities Offering Price
- --------------------------------------------------------------------------------
July 2, 1998 80,645 $.62
- --------------------------------------------------------------------------------
July 10, 1998 32,841 $.61
- --------------------------------------------------------------------------------
July 16, 1998 85,470 $.59
- --------------------------------------------------------------------------------
August 8, 1998 38,835 $.52
- --------------------------------------------------------------------------------
September 3, 1998 100,000 $.40
- --------------------------------------------------------------------------------
September 23, 1998 200,000 $.34
- --------------------------------------------------------------------------------
Because of the restricted nature of the shares sold pursuant to the
described Regulation S and Regulation D transactions, the sales prices for the
shares were discounted from the market price on the date of the sales of the
stock. There were no underwriter discounts or commissions with regard to any of
these transactions.
All Regulation S sales were to non-U.S. persons, including private
investment firms. The Regulation D sales were to accredited investors.
The Company has a commitment authorizing the Company to continue to
sell restricted shares pursuant to Regulation S to non-U.S. persons at the price
of $1.00 per share for a maximum of $400,000 a month. The Company continues to
endeavor to find the most favorable terms for its capital transactions. The
Company will continue to utilize Regulation S transactions to provide the
primary funding for its business plan until it no longer becomes necessary.
Item 5. Other Information
C-3D Digital, Inc. Adopted as New Name. The issuer has filed in the state of
Utah an application to conduct business under the assumed name of C-3D Digital,
Inc. This name is more in keeping with the issuer's focus on its entertainment
and communications business related to 3D technology. At the time of the next
meeting of shareholders of the issuer, management contemplates submitting a
proposal to amend the Articles of Incorporation to reflect this new name.
25
<PAGE>
Sale of Financial Services Business. Independent members of the Board of
Directors acted on November 6, 1998 to approve the sale of the financial
services business of the issuer to TFL, L.L.C., a Utah limited liability
company. A definitive sales agreement was executed on November 12, 1998. A
complete copy of the sales agreement is included as an exhibit to this report.
The sale was made in order to pursue the newly developed business plan of the
issuer. This strategic business plan is premised upon focusing on the three
dimensional imaging technology of the issuer. The notion of spinning off the
business segments of the issuer which are not related to the issuer's
communication and entertainment business has long been a matter under
consideration by management.
In conjunction with this sale, the issuer has transferred to the
purchaser the Chequemate trademark which has been identified with the financial
services business formerly conducted by the issuer.
As part of the consideration for the transaction, the purchaser has
agreed to assume all operational expenses of the financial services business
segment from September 1st of this year. The balance of the purchase price
consists of a percentage of the net profits of the business segment from the
closing of the transaction until September 30, 2001, with a Fifty Thousand
Dollar minimum payment obligation. The physical assets sold in the transaction
are limited. Such tangible assets are listed in the Exhibit AA@ which is
included with the sales agreement attached to this report. The remaining assets
are intangibles; including trademarks, proprietary information and other
intellectual property.
The purchase price and all material terms of the agreement were
established in arm's length negotiations with an independent third party. After
the issuer achieved the best possible terms for the transaction, the proposed
purchaser declined to proceed with the closing of the transaction. With the
transaction stalemated in this manner, Ken and Marci Redding (two former
employees of the issuer), agreed to step into the shoes of the independent third
party and consummate the transaction on the same terms in all material respects.
This purchase was completed by the Reddings through a limited liability company
which they control. Because Ken and Marci Redding were former employees of the
issuer (and are the son-in-law and daughter respectively of the Chairman of the
board of directors of the issuer), the substitution of the Reddings as
purchasers in the transaction was disclosed to the board of directors and the
terms of the transaction were approved a second time. Upon this latter vote, the
Chairman abstained from voting. The final sales transaction was approved by the
unanimous action of the independent board members.
Acquisition of Assets of Alpha Broadcasting Communications. The issuer has
executed a letter of intent to purchase certain assets of Coast Broadcasting,
Inc., a Nevada corporation, doing business in Arizona as Alpha Broadcasting
Communications. The due diligence review of the issuer is continuing. Pursuant
to the terms of the letter of intent, the due diligence period is to expire on
November 30th. A definitive purchase agreement is being prepared as the due
diligence review is proceeding. A copy of the definitive agreement will be filed
as a material contract exhibit to a subsequent Form 8-K report of the issuer.
The closing of the transaction is anticipated to take place as early as December
1, 1998.
The principal assets to be acquired are contracts for providing
pay-per-view movies and cable TV services to 2,854 hotel rooms in 19 hotels
located principally in the states of Arizona and California.
The second principal category of assets consists of tangible equipment
used to deliver the pay-per-view services. The acquisition of these contracts
and equipment is the initial step in enhancing these services by providing the
3D imaging technology of the issuer in the hotel and lodging business market.
Management anticipates that the revenues from this market segment will cover
operating expenses and be profitable in the first quarter following the
acquisition.
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The purchase price for the assets consists of a cash down payment of
$60,000.00 and the issuance of 250,000 shares of restricted common stock of the
issuer. The balance of the purchase price (in the amount of $440,000.00), will
be carried for eighteen months at an interest rate of 10% APR with monthly
payments of interest only. Total consideration for the transaction is deemed to
be $1 million. The value of the assets acquired is based principally on an
estimated value of the contracts for the hotel pay-per-view services and on the
fair market value of the tangible equipment. It is anticipated that these
estimated values will by verified by independent parties having expertise in the
pay-per-view hotel/lodging industry, and with cable and related equipment. These
evaluations are to be completed prior to the closing of the transaction.
There are no known material relationships between Alpha Broadcasting
Communications, its officers, directors and owners, and the officers, directors
and affiliates of the issuer. Paul LaBarre, the vice president and a 50%
shareholder of the selling corporation is a personal acquaintance of the Chief
Executive Officer of the issuer. Such individuals do not have any common
business investments or contractual obligations.
The consummation of the Alpha asset acquisition transaction is subject
to the due diligence investigation of the company and other contingencies.
Management is optimistic that the transaction will be favorably completed in the
fourth quarter of 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10 Asset Purchase Agreement for the Sale of the Financial
Services Business
27 Financial Data Schedule (for SEC use only)
(b) Form 8-K
None
27
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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.
CHEQUEMATE INTERNATIONAL, INC.
/s/ Michael Heil
- ------------------------------------- ---------------------------
J. Michael Heil Date
Chief Executive Officer
/s/ Steve Anderson
- ------------------------------------- ---------------------------
Steve Anderson Date
Chief Financial Officer
28
EXHIBIT #10
ASSET PURCHASE AGREEMENT
BETWEEN
CHEQUEMATE INTERNATIONAL, INC.
AND
TFL, L.L.C.
NOVEMBER 12, 1998
29
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into by and
between Chequemate International, Inc., a Utah corporation, d/b/a Chequemate
Technologies, Inc. (the "Seller") and the TFL , L.L.C., a Utah limited liability
company (the "Buyer", as of November 12, 1998. The Seller and the Buyer are
referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which Buyer will purchase
substantially all of the assets of the Seller's financial services business (as
set forth on Schedule AA@, attached hereto) in return for the purchase price set
forth in Section 1 below.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Purchase and Sale of Assets. On and subject to the terms and conditions of
this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to
sell, transfer, convey, and deliver to Buyer, the assets as set forth on
Schedule "A" attached hereto (collectively, the "Acquired Assets"), at the
Closing (as defined in Section 2) for the consideration specified below in
this Section 1.
1.1 Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, Buyer agrees to assume and become responsible for
the liabilities related to the Acquired Assets set forth on Schedule
"B" at the Closing.
1.2 Purchase Price. Buyer agrees to pay to Seller as consideration for the
Acquired Assets an amount (the "Purchase Price") equal to the greater
of Fifty Thousand Dollars ($50,000) (the "Minimum Purchase Price") or
twenty five percent (25%) of Buyer's "Net Income" (as defined in
Section 1.3) for each of the following periods (each, a "Contract
Period"):
Percentage of Buyer's
Net Income for such
Contract Period Contract Period
--------------- ---------------
First -- Closing Date -to- 10/31/1999 25%
Second -- 11/1/1999 -to- 10/31/2000 25%
Third -- 11/01/2000 -to- 10/31/2001 25%
[Payments by Buyer of the Purchase Price for each Contract Period (a "Net
Income Payment") under this Section 1.2 shall be made no later than the 30th day
after completion by Buyer of its financial statements ("Buyer's Financial
Statements"), audited in accordance with generally accepted accounting
principles ("GAAP"), but no later than 90 days following the end of an
30
<PAGE>
applicable Contract Period (the "Payment Date").] If after the third Net Income
Payment is made, the aggregate amount of the Purchase Price paid by Buyer to
Seller ("Total Net Income Payments") is less than the Minimum Purchase Price,
then Buyer shall additionally pay to Seller, within five (5) business days of
the third Payment Date (the "Final Payment Date"), the difference of the Minimum
Purchase Price and the Total Net Income Payments. Beginning on the Closing Date,
Buyer shall accrue interest on the Minimum Purchase Price at an annually
compounded interest rate of 8% (the "Interest Rate") until Buyer has paid Seller
the Minimum Purchase Price. Any outstanding interest amount owed by Buyer to
Seller shall be due and paid on the Final Payment Date.
1.3 Buyer's Net Income. Buyer's Net Income for any Contract Period under
this Section 1, shall mean the consolidated net income of Buyer (and
its subsidiaries and affiliates, if any) before interest expense and
state and federal income taxes determined in accordance and consistent
with GAAP.
1.3.1 The following shall be excluded in determining Buyer's Net Income:
1.3.1.1 The loss from any sale, exchange or other disposition of
assets;
1.3.1.2 The loss from the exchange of securities, or member
interests or any increase or reduction in the carrying
value of such securities or member interests, or any
increase or reduction in the carrying value of such
securities or member interests;
1.3.1.3 Any extraordinary loss;
1.3.1.4 Any additional depreciation, amortization or other
expense resulting from the write-up of any asset and any
amortization of goodwill or other intangibles relating
to the acquisition of the Acquired Assets by Buyer;
1.3.1.5 Any expenses directly or indirectly incurred in
connection with the financing of the acquisition of the
Acquired Assets;
1.3.1.6 The effect of valuing inventories on a last-in-first-out
basis;
1.3.1.7 Any loss or expense resulting from a change in Buyer's
accounting methods, principles or practices or a change
in GAAP or any GAAP election.
1.3.1.8 Intercompany charges between Buyer and any of Buyer's
affiliates;
1.3.1.9 Any employee termination or other costs arising out of a
consolidation of services or facilities or other
rationalization of Buyer or its affiliates subsequent to
the acquisition by Buyer of the Acquired Assets;
1.3.1.10 Any employment related costs associated with hiring of
employees by Buyer that are not demonstratably essential
to the operation of the business.
1.3.1.11 Any expenses directly or indirectly incurred in
connection with the acquisition of the Acquired Assets
by Buyer; and
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<PAGE>
1.3.1.12 Any reserves or adjustments to reserves which are not
consistent with GAAP in connection with the financial
services business associated with the Acquired Assets.
1.3.2 The pre-tax profits resulting from or derived out of (I) the sale
of any product line, brand or proprietary right of Buyer related
directly to the Acquired Assets disposed of after the date of this
Agreement or (ii) the expiration by its terms or termination by a
supplier of any supply agreement related to the business of the
Acquired Assets between Buyer and a supplier, shall be included in
Net Income and amortized equally over the remaining months in the
period commencing on the earliest of (x) the expiration date of
the agreement, (y) the date of the agreement to dispose of such
product lines or brands was publicly announced, and (z) the date
of such agreement, as the case may be, and in each case ending on
the Closing Date;
1.3.3 If Buyer's Net Income for any Contract Period is a loss, then such
loss shall not be carried forward to any subsequent Contract
Period for purposes of computing Buyer's Net Income.
1.3.4 Any gains or losses from the trading of inventory in bulk shall be
included in the computation of Net Income as long as Buyer
maintains inventory at levels reasonable in relation to the
circumstances of its business related to the Acquired Assets; and
1.3.5 If the Buyer sells, transfers or assigns substantially all of the
acquired assets within the contract period as defined in Section
1.2, the net sale proceeds shall be considered part of net income.
1.3.6 Any other adjustments agreed to in writing by Buyer and the Seller
1.1.1
1.4 Event of Default. The following shall constitute an Event of Default by
Buyer with respect to this Agreement:
1.4.1 Failure by Buyer to pay Seller any amount when due under this
Agreement;
1.4.2 Failure by Buyer to provide its financial statements and related
financial information to Seller as required by Sections 1.2 and
1.6 of this Agreement;
1.4.3 Any bankruptcy, reorganization, debt arrangement or other
proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding instituted by Buyer, or a
third party and not dismissed within thirty (30) days.
1.5 Event of Default Remedies. Seller may exercise any or all of the following
remedies in the event of an Event of Default:
1.5.1 The Interest Rate set forth under Section 1.2 shall immediately be
set at twelve percent (12%) (the "Default Interest Rate") from the
date hereof until the Event of Default is cured to the reasonable
satisfaction of Seller; or
32
<PAGE>
1.5.2 The Minimum Purchase Price shall be due and payable within thirty
(30) business days of receipt of written notice by Buyer from
Seller; or
1.5.3 Seller's right to exercise any remedy under this Section 1.5 shall
be in addition to Seller's right to receive the greater of Minimum
Purchase Price or twenty five percent (25%) of Buyer's Net Income
for each Contract Period as set forth under Section 1.2.
1.6 Delivery of Financial Statements and Related Financial Information.
1.6.1 In connection with the making of each Contract Payment by Buyer to
Seller under this Agreement, Buyer shall deliver to Seller a
schedule setting forth the computation of Buyer's Net Income and a
copy of the financial information used in making such computation.
Buyer's computation of any Contract Payment under Section 1.2
shall be conclusive and binding upon the Parties hereto unless,
within thirty calendar days following the Seller's receipt of the
Buyer's Financial Statements, Seller notifies Buyer in writing
(the ASeller's=s Notice@) that it disagrees with Buyer's
computation of Net Income. Seller's Notice shall include a
schedule setting forth Seller's computation of the Net Income,
together with a copy of any financial information, other than that
previously supplied by Buyer to Seller, used in making Buyer's Net
Income computation.
1.6.2 Seller's computation of Buyer's Net Income under this Section 1
shall be conclusive and binding upon the parties hereto unless,
within thirty calendar days following Buyer's receipt of Seller's
Notice, Buyer notifies the Seller in writing that it disagrees
with Seller's computation of Buyer's Net Income. If Buyer
disagrees with the Seller's computation of Buyer's Net Income,
Buyer and Seller shall request a firm of independent certified
public accountants mutually agreeable to Buyer and Seller to
compute the amount of the Buyer's Net Income as promptly as
possible, which computation shall be conclusive and binding upon
Buyer and the Seller. In the event that Buyer and Seller cannot
agree on such a firm of independent certified public accountants,
then the firm of PriceWaterhousCoopers, L.L.P., Salt Lake City
office, shall be selected to compute the disputed payment for
purposes of this Agreement. The expenses of any computation by any
such accounting firm selected by Buyer and Seller to resolve
computational disputes hereunder shall be borne equally by Buyer
and Seller.
1.6.3 In the event the amount of Buyer's Net Income to be paid by Buyer
to Seller in accordance with Section 1 for any Contract Period is
recomputed in accordance with Section 1.6, the increase in the Net
Income Payment shall be paid by Buyer to Seller within ten (10)
business days after the date of final recomputation of such
payment. If the Buyer's net income re-computation results in a
decrease in the net income payment, seller shall have ten (10)
days after the date of final re-computation of such payment to
refund the difference to Buyer.
1.6.4 Seller and and its respective agents shall be entitled during
normal business hours to enter onto the property of the Buyer to
review and audit the books and records of Buyer in order to verify
the computation of Buyer's Net Income and related financial
statements and financial information used by Buyer to compute
Buyer's Net Income.
33
<PAGE>
2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Chequemate
International, Inc. located at 57 West 200 South, Suite 350, Salt Lake
City, Utah at 10:00 a.m. Utah time on the second business day following
the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at
the Closing itself) or such other date as the Parties may mutually
determine (the "Closing Date").
2.1 Seller's Deliveries at the Closing. At the Closing, Seller will
deliver to Buyer the following documents:
2.1.1 This Asset Purchase Agreement with Disclosure Schedules
executed by Seller.
2.1.2 A Bill of Sale and Assignment executed by Seller
conveying the Acquired Assets. 1.1.1
2.1.3 Certificate of Good Standing of Seller.
2.1.4 Certified Resolutions by the Board of Directors approving
this Agreement.
2.1.5 Specific assignments of all copyrights, trademarks, and
patents.
2.1.6 Assignment of trade name and consent to use similar
corporate name.
2.1.7 Such other documents as in the opinion of Buyer are
reasonably necessary to complete the transaction
contemplated in this Agreement.
2.2 Buyer's Deliveries at the Closing. At the Closing Buyer will
deliver to Seller the following documents:
2.2.1 This Asset Purchase Agreement executed by Buyer..
2.2.2 Certificate of Good Standing of Buyer.
2.2.3 Certified Resolutions approving this Agreement adopted
unanimously by the members of Buyer.
2.2.4 Such other documents as in the opinion of Seller are
reasonably necessary to complete the transaction
contemplated in this Agreement.
2.3 Allocation. [The Parties agree to allocate the Purchase Price (and
all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in
accordance with the allocation schedule attached hereto as
Schedule "2.3"]
3. Representations and Warranties of the Seller. The Seller represents and
warrants to Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure
schedule accompanying this Agreement and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.
34
<PAGE>
3.1 Organization of Seller. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State
of Utah.
3.2 Authorization of Transaction. Seller has full power and authority
(including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the board of
directors of Seller have duly authorized the execution, delivery,
and performance of this Agreement by Seller. This Agreement
constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and conditions.
3.3 Brokers' Fees. Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which Buyer
could become liable or obligated. None of the Subsidiaries of
Seller has any liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
3.4 Title to Tangible Assets. Seller has good title to, or a valid
interest in, the Acquired Assets set forth on Schedule "A".
3.5 Intellectual Property. To Seller's knowledge, it has title to the
intellectual property listed and described on Schedule 3.5.1,
Schedule 3.5.2, Schedule 3.5.3, Schedule 3.5.4 and 3.5.5
(collectively, the AIntellectual Property@), subject to the
exceptions and exclusions listed on Schedule 3.5.6. To Seller's
knowledge, except as set forth on Schedule 3.5.6, there is no
pending or threatened litigation against the Company alleging
infringement by the Company of a third party's intellectual
property.
3.6 Contracts. Schedule 3.6 of the Disclosure Schedule lists all
written contracts and other written agreements related to the
Acquired Assets to which any of the Seller and its Subsidiaries is
a party the performance of which will involve consideration in
excess of One Thousand Dollars ($1,000).
3.7 Litigation. Schedule 3.7 of the Disclosure Schedule sets forth
each instance in which any of the Seller (I) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge
related to the Acquired Assets or (ii) is a party to any action,
suit, proceeding, hearing related to the Acquired Assets, except
where the injunction, judgment, order, decree, ruling, action,
suit, proceeding, hearing, or investigation would not have a
material adverse effect on the financial condition of the Acquired
Assets taken as a whole.
4. Representations and Warranties of Buyer. Buyer represents and warrants
to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 4.
4.1 Organization of Buyer. Buyer is a limited liability company duly
organized, validly existing, and in good standing under the laws
of the State of Utah.
4.2 Authorization of Transaction. Buyer has full power and authority
35
<PAGE>
(including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding
obligation of Buyer, enforceable in accordance with its terms and
conditions.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (I) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court
to which Buyer is subject or any provision of its charter or
bylaws [or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Buyer is a party or by
which it is bound or to which any of its assets is subject]. Buyer
does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
4.4 Brokers' Fees. Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the
Seller could become liable or obligated or the effect of which
would reduce Net Income of Buyer in any Contract Period.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
their actions prior to the Closing.
5.1 General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary or advisable in
order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Section 6 below).
5.2 Operation of Business. The Seller will not enter into any
transaction outside the ordinary course of business directly
related to business related to the Acquired Assets.
5.3 Full Access. The Seller will permit representatives of Buyer to
have access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Seller to
inspect the Acquired Assets and certain documents relating
directly to the Acquired Assets as agreed to by Seller. Buyer will
treat and hold any information it receives from Seller in the
course of the reviews contemplated by this Section 5.3 as
confidential (the "Confidential Information") and will not use any
of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason
whatsoever, will return to the Seller all tangible embodiments
(and all copies) of the Confidential Information which are in its
possession.
5.4 Notice of Developments.
5.4.1 The Seller may elect at any time to notify Buyer of any
development causing a breach of any of its representations and
warranties in Section 3 above. Unless Buyer has the right to
terminate this Agreement pursuant to Section 7 below by reason of
the development and exercises that right within the period of ten
(10) business days referred to in Section 7, the written notice
pursuant to this Section 5.4 will be deemed to have amended the
36
<PAGE>
Disclosure Schedule, to have qualified the representations and
warranties contained in Section 3 above, and to have cured any
misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of the development.
5.4.2 Each Party will give prompt written notice to the other Party of
any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and, Section 4
above. No disclosure by any Party pursuant to this Section 5.4,
however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation or breach of
warranty.
6. Conditions to Obligation to Close.
6.1 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following
conditions:
6.1.1 The representations and warranties set forth in Section 3
above shall be true and correct in all material respects
at and as of the Closing Date;
6.1.2 The Seller shall have performed and complied with all of
its covenants hereunder in all material respects through
the Closing;
6.1.3 There shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing
consummation of any of the transactions contemplated by
this Agreement;
6.1.4 All actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and
all certificates, instruments, and other documents
required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to
Buyer.
Buyer may waive any condition specified in this Section 6.1 if it executes a
writing so stating on or prior to the Closing Date.
6.2 Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the
following conditions:
6.2.1 The representations and warranties set forth in Section 4
above shall be true and correct in all respects at and as
of the Closing Date;
6.2.2 Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the
Closing;
6.2.3 There shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing
consummation of any of the transactions contemplated by
this Agreement;
6.2.4 All actions to be taken by Buyer in connection with
37
<PAGE>
consummation of the transactions contemplated hereby and
all certificates, instruments, and other documents
required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to
the Seller.
The Seller may waive any condition specified in this Section 6.2 if it executes
a writing so stating on or prior to the Closing Date.
7. Termination.
7.1 Termination of Agreement. The Parties may terminate this Agreement
as provided below:
7.1.1 Buyer and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing Date;
7.1.2 Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing Date in
the event Seller has, breached any material
representation, warranty, or covenant contained in this
Agreement in any material respect, Buyer has notified
Seller of the breach, and the breach has continued
without cure for a period of 21 calendar days after the
notice of breach; and
7.1.3 Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing Date (A)
in the event Buyer has breached any material
representation, warranty, or covenant contained in this
Agreement in any material respect, Seller has notified
Buyer of the breach, and the breach has continued without
cure for a period of 21 calendar days] after the notice
of breach or (B) if the Closing Date shall not have
occurred on or before October 15, 1998.
7.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1 above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any
Party to any other Party (except for any liability of any Party
then in breach); provided, however, that the confidentiality
provisions contained in Section 5.4 above shall survive
termination.
8. Miscellaneous.
8.1 Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder.
8.2 Press Releases and Public Announcements. Buyer shall not issue any
press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the
prior written approval of Seller. Seller may make any public
disclosure it believes in good faith is required by applicable law
or any listing or trading agreement concerning its publicly-traded
securities.
8.3 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and
their respective successors and permitted assigns.
38
<PAGE>
8.4 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties
and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
8.5 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns, provided, however, no
Party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written
approval of the other Party, which approval shall not be
unreasonably withheld.
8.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
8.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.8 Notices. All notices, requests, demands, consents and other
communications which are required or may be given under this
Agreement (collectively, the "Notices") shall be in writing and
shall be give by facsimile transmission and, either (I) by
personal delivery against a receipted copy, or (ii) by certified
or registered U.S. mail, postage prepaid, to the following
addresses:
If to Seller: J. Michael Heil, CEO
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
TEL: (801) 322-1111
FAX: (801) 322-1165
If to Buyer: TFL, L.L.C.
Mr. Ken Redding, Manager
119 South Viewcrest Drive
Bountiful, Utah 84010
TEL: (801) 299-8259
FAX: (801) 296-8709
8.9 Arbitration. The parties desire to resolve disputes arising out of
this Agreement without litigation. Accordingly, except for actions to seek
temporary restraining orders or injunctions related to the purposes of this
Agreement, or suit to compel compliance with the dispute resolution provision,
the parties agree to use the following alternative dispute procedure as their
sole remedy with respect to any controversy or claim arising out of or relating
to this Agreement or its breach.
39
<PAGE>
At the written request of a party, each party will appoint a
knowledgeable, responsible representative to meet and negotiate in good faith to
resolve any dispute arising under this Agreement. The parties intend that these
negotiations be conducted by non lawyer, business representatives. The location,
format, frequency, duration and conclusion of these discussions shall be left to
the discretion of the representatives. Upon agreement between the parties, the
representatives may utilize other alternative dispute resolution procedures such
as mediation to assist in the negotiations. Discussions and correspondence among
the representatives for the purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, which shall not be admissible in the arbitration
described below or in any lawsuit without the concurrence of both parties.
Documents identified in or provided with such communications, which are not
prepared for purposes of the negotiations, are not so exempted and may, if
otherwise admissible, be admitted in evidence in the arbitration of lawsuit.
If the negotiations do not resolve the dispute within sixty (60) days
after the initial written request, the disputes shall be submitted to binding
arbitration by a single arbitrator pursuant to the Commercial Arbitration Rules
of the American Arbitration Association. A party may demand such arbitration in
accordance with procedures set out in those rules. Discovery shall be controlled
by the arbitrator and shall be permitted to the extent set out in this
paragraph. Each party may submit in writing to a party, and that party shall
respond, to a maximum of any combination of thirty-five (35) (none of which may
have subplots) of the following: interrogatories, demands to produce documents,
and requests for admission. Each party is also entitled to take the oral
deposition of one individual of the other party. Additional discovery may be
permitted upon mutual agreement of the parties. The parties shall contract with
the arbitrator to commence the arbitration hearing within sixty (60) days of the
demand for arbitration. The arbitration shall be held in the City of Salt Lake
City, Utah, United States of America. The Arbitration shall control the
scheduling so as to process the matter expeditiously. The parties may submit
written brief. The parties shall require the arbitrator to rule on the dispute
by issuing a written opinion within thirty (30) days after the close of the
hearings. The times specified in this paragraph may be extended upon a showing
of good cause. Judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction.
Each party shall bear its own cost of these procedures. A party seeking
discovery shall reimburse to the responding party the costs of production of
documents (to include search time and reproduction costs). The parties shall
equally split the fees of the mediation and the arbitration.
8.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. Seller may consent to any such amendment at any time prior to the
Closing with the prior authorization of its board of directors. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
8.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
40
<PAGE>
the validity or enforce ability of the remaining terms and provisions hereof or
the validity or enforce ability of the offending term or provision in any other
situation or in any other jurisdiction.
8.12 Expenses. Each of Buyer and Seller will bear its own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
8.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
8.14 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
*****
[Remainder of Page Intentionally Left Blank]
41
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
CHEQUEMATE INTERNATIONAL, INC.
By: /s/ J. Michael Heil
--------------------
J. Michael Heil, CEO
TFL, L.L.C.
By: /s/ Kenneth Dean Redding
------------------------
Kenneth Dean Redding
Manager
42
<PAGE>
Exhibit A
Assets Inventory List
Furniture, Fixtures, and Equipment
<TABLE>
<CAPTION>
Make Asset Description Serial # Model #
- ---- ----------------- -------- -------
<S> <C> <C> <C>
Name:Chequemate International
Three (3) Trademarks
Chequemate
Chequemate International
Chequemate International Logo
Patent Des.353,835
3M Overhead Projector 453985 9050
Apple Printer SR refurbished Personal Laser Writer
Apple Monitor CY33421T152
RCA TV 437210837 T20005BK
Apple CPU Quadra 610
Vertical Storage Cabinet
Chequemate Coin Plaque
Pull Out File Cabinet
Apple Color Laser Writer BCGM3036 12/660PS
Chequemate Coin Plaque
Apple Monitor BCGM1296
Apple CPU Quadra 630
Mitsubishi Monitor 401008277 FFY77055KTK
Apple Monitor CY4290UM252
Apple Server F12494V2718 Quadra 700
HP Laser Jet Printer C3916A HP Laser Jet 5
HP Laser Jet IIIsi 33419A
Relisys Monitor 10006128
Texas CPU IPLBG45 BG45-AP5VM
Data Fox CPU 0004415 MPC2100C-1D
Epson Printer 4002033962 LQ-870
Executive Desk Chair CA-27270
NEC Monitor 6032102414 MultiSync C400
Apple CPU TY6392DZ8FD 7200/120
10Base T Ethernet Hub 9712043221 SOHO-5/A
Ascend Pipeline modem 7327016 P75-1UBRI
Logicode Modem 33Y 816563 2814XV-C
File Cabinet/Regular
File Cabinet/Legal
Wood File Cabinet
HP Fax Machine SG778F30QQ 300
Executive Chair
Micron Laptop Computer 5109640552669NBK001221-00
Princeton Monitor 1162049504 E070
43
<PAGE>
Richter CPU 0232453
Iomega Zip Drive RBCH21HAM5 2100PC
Sharp LCD Projector 703314876 XG-NV20
MPS Server 4333046093568
HP Printer 3107J76538 Laser Jet 3
HP Printer USCC532977 Laser Jet 4L
Sharp Computer Projector 2AU07408 QA-1150
Apple Printer AB0001586 Laser Writer Plus
Apple Monitor BCGM1212
Apple CPU Quadra 605
File Cabinet 4 drawer/Regular
File Cabinet 4 drawer/Regular
Conference Table
Copier Stand
Xerox Copier 5018
Texas CPU IPLB645-AP5VM
Sceptre Monitor 6KR450 S450
RCA TV 351220434 T13000BK
Sceptre Monitor 6KR450 S450
Executive Chair
Desk
Texas CPU IPLBG45-AP5VM
Sceptre Monitor GKR450 S450
Micron Laptop Computer
Micron Laptop Computer
</TABLE>
Custom Software:
Custom Commission Payout and Database Management
Register Processing
Money Management Report Printing
CFM Report Generator
Product Inventory (As of June 30, 1998)
Description Quantity on Hand
- ----------- ----------------
Applications-CashFlow PLUS 3,251
Applications-Coach 380
Applications-Family Bsns Pol & Procedures 12,352
Applications-Family Bsns w/o Pol & Proc 9,963
Applications-Family Finance 5,681
Applications-Master Trainer 1,495
Applications-Master Trnr Pol & Procedures 1,495
Audio-American Dream w/comp 905
44
<PAGE>
Audio-American Dream w/o comp 279
Audio-Chairman's Message 10/96 18,356
Audio-Million 1,859
Brochure Kit Cover 470
Brochures-CF+ 3,002
Brochures-CFM 1,540
Brochures-Clock 32,381
Brochures-CMI Bridge 12,325
Brochures-Dynamic Web 5,725
CF+ (Large) Complete Kits (New) 13
CF+ (Large) Journal & Envelope Pkgs 458
CF+ (Large) Peg Board 242
CF+ (Large) Peg Board & Inserts 42
CF+ (Large) Sample Booklets 4
CF+ (PS3) Complete Kits (New) 7
CF+ (PS3) Journal & Envelope Pkgs 258
CF+ (PS3) Peg Board 226
CF+ (PS3) Sample Booklets 63
CF+ Check Order Forms 51
CF+ Clear Pocket 213
CF+(Safeguard) Boxes 352
CFM-Binder Insert Sets (New Version) 35
CFM-Binder Insert Sets (Old Version) 58
CFM-Complete Binder 0
CFM-Complete Kits 2
CFM-Sample Analysis (as of 8/4/97) 6
CFM-Sheet Protectors 84
CFM/Flip Chart Binder 598
Check Register Covers (black) 3,201
Check Registers (97-98) 5,623
CMI Gold Coin 105
Coach-Complete Kits 0
Coach-Savings Program/Marketing Guide 198
Coach-Savings/Investment Form 298
Coach-Welcome Letter 142
DCI Return Envelope (CF+) 1,771
DCI Return Envelopes (Fastrak) 10,420
Debt Eliminator Packet 41
Debt Eliminator Samples 529
Debt Eliminator Worksheets 830
Estate Planner Binder 273
Estate Planner Educational Supplements 0
Estate Planner Inserts 0
Estate Planners-Complete 34
Fam Bsns/Fam Fin Quick Start Guides 697
Family Business Dialog (6/21/96 version) 336
45
<PAGE>
Family Business Instruction/Welcome Ltr 424
Family Business Kits-Complete 0
Family Business Marketing Guide 10/96 876
Family Business Sample Applications 936
Family Business Training Kit 0
Family Finance Complete Kits 2
Family Success Kit Boxes w/family pict. 3,249
Family Success Kit Boxes w/o family pict. 15
Family Success Kit Complete (Old) 346
Flip Chart (Complete Binder) 145
Flip Chart-Training Presentation 242
Four Laws Book on Audio Tape 3,874
Four Laws Book-Empty Jacket 1,206
Four Laws Book (Hard Back) 7,098
Four Laws Book (Paper Back) 10,319
Four Laws-Bsns Reply Insert Card 710
Four Laws-Sampler w/Bounce Back 24
Four Laws-Sampler w/o Bounce Back 7,965
Goal & Goal Card Sets (Complete) 185
Goal & Obstacle Card Sets (Complete) 233
Goal Card Sets w/o Holders 3,051
Goal Card Sleeves (Empty) 1,520
Goal Card-Singles 641
Instant Target Control Pack 327
Newsletter-March 1997 55
Obstacle Cards-Singles 662
Order Form-Client Product Supply 8
Order Form-CtrMgr Product Supply 325
Pen & Pencil Sets 67
Pen Sets 261
Planner Size Registers 395
Policies & Procedures (2/20/96) 1,039
QuadTrak Facilitator Manual 12
QuadTrak Tape Set 212
QuadTrak Workbook 194
Reference Guide-CF+ 0
Reference Guide-Fastrak 1,554
Referral Forms (MTerry Kit) 206
Sample Register-Fastrak 4,476
Sample Reports-Money Mgmt 385
Service & Fees Price List 1,365
Shipping Boxes (1 Coach Kit-Extra Small) 292
Shipping Boxes (1 Fam Bsns Kit Per Box-Small) 318
Shipping Boxes (2 Fam Bsns Kit Per Box-Med) 200
Shipping Boxes (4 Fam Bsns Kit Per Box-Lrg) 107
Standard Code List-CF+ 1,271
46
<PAGE>
Standard Code List-Fastrak 314
Storage Binder Envelopes 1,823
Storage Binder Sub-Assembly (w/o Zipper Bag) 4
Storage Binder Tab Sets 353
Storage Binder Tab/Env Sets (Shrinkwrapped) 125
Storage Binder Tab/Env/Wrksht Sets (wrapped) 969
Storage Binders-Empty 4,159
Video Sleeves-Faces of Debt 4,313
Video Sleeves-Fastrak 0
Video Sleeves-Passport to Wealth 3,149
Video-Estate Planner w/sleeve 244
Video-Faces of Debt w/sleeve 232
Video-Fastrak Training (w/o sleeve) 25
Video-Fastrak Training (w/sleeve) 1,332
Video-Finance & Futures 3 min w/sleeve 637
Video-Finance & Futures 8 min w/sleeve 349
Video-Passport to Wealth 8 min w/sleeve 86
Video-Passport to Wealth 8 min w/o sleeve 785
Video-Satellite Broadcast #1 20
Video-Satellite Broadcast #2 31
Video-Satellite Broadcast #3 9
Video-Satellite Broadcast #4 2
Video-Satellite Broadcast #5 2
Video-Satellite Broadcast #6 9
Video-Satellite Broadcast #7 204
Worksheet-Business Target 679
Worksheet-Customized Code 2,253
Worksheet-Customized Code Instructions 2,103
Worksheet-Performance Overview 577
Worksheet-Sample Code List (FTrak Kit) 1,263
Worksheet-Sample Register (FTrak Kit) 655
Zipper Bags-Complete (Not in Kit) 24
Zipper Bags-Empty 1,108
47
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 80960
<SECURITIES> 0
<RECEIVABLES> 278181
<ALLOWANCES> 154234
<INVENTORY> 2450702
<CURRENT-ASSETS> 2666417
<PP&E> 174054
<DEPRECIATION> 0
<TOTAL-ASSETS> 5380537
<CURRENT-LIABILITIES> 1977614
<BONDS> 0
0
0
<COMMON> 1696
<OTHER-SE> 3401585
<TOTAL-LIABILITY-AND-EQUITY> 5380537
<SALES> 77628
<TOTAL-REVENUES> 77628
<CGS> 78111
<TOTAL-COSTS> 636560
<OTHER-EXPENSES> 165167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4579
<INCOME-PRETAX> (806789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (806789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (806789)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
