SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: June 30,1998
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
State the number of shares outstanding of each of the issuer's common
equity, as of the latest practicable date: 16,393,763 (August 4, 1998)
Transitional Small Business Format: YES NO X
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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 19
RESULTS OF OPERATIONS 20
LIQUIDITY AND CAPITAL RESOURCES 20
PART II-Other Information
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Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
2
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CHEQUEMATE INTERNATIONAL, INC.
Consolidated Financial Statements
June 30, 1998 and March 31, 1998
3
<PAGE>
C O N T E N T S
Independent Accountants' Report............................................... 3
Consolidated Balance Sheets................................................... 4
Consolidated Statements of Operations......................................... 6
Consolidated Statements of Cash Flows......................................... 7
Notes to Consolidated Financial Statements.................................... 9
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 June 30, 1998 and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the three
months ended June 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
August 10, 1998
5
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 20,062 $ 220,840
Accounts receivable - net of allowances
of $155,721 and $115,000 37,897 24,305
Prepaid expenses 11,415 11,259
Inventory (Note 2) 2,655,899 2,684,378
----------------- -----------------
Total Current Assets 2,725,273 2,940,782
----------------- -----------------
PROPERTY AND EQUIPMENT (Note 3) 208,578 200,335
----------------- -----------------
OTHER ASSETS
Organization costs and product rights (Note 1) 2,644,587 2,657,296
Refundable deposits 8,053 8,053
Investments in subsidiaries 3,000 3,000
----------------- -----------------
Total Other Assets 2,655,640 2,668,349
----------------- -----------------
TOTAL ASSETS $ 5,589,491 $ 5,809,466
================= =================
</TABLE>
See the accompanying notes and accountants' report.
6
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,531,445 $ 1,584,576
Related party accounts payable (Note 15) 42,034 42,034
Customer deposits 54,724 54,724
Accrued expenses 41,816 43,339
Income tax payable (Note 1) 500 500
Accrued interest - related party (Note 5) 65,903 65,903
Current portion related party (Note 5) 135,000 156,802
Current portion long-term debt (Note 6) 50,080 50,080
Current portion capital lease (Note 7) 4,989 4,989
----------------- -----------------
Total Current Liabilities 1,926,491 2,002,947
----------------- -----------------
LONG-TERM LIABILITIES
Long-term related party notes payable (Note 5) - -
Long-term debt (Note 6) 8,048 11,976
Capital lease obligations (Note 7) 2,134 2,788
----------------- -----------------
Total Long-Term Liabilities 10,182 14,764
----------------- -----------------
Total Liabilities 1,936,673 2,017,711
----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value 500,000,000 shares
authorized, 16,050,274 and 14,088,650 shares
outstanding, respectively 1,605 1,409
Minority interest - -
Subscribed stock (Note 4) 922,970 4,022,970
Capital in excess of par 18,435,631 14,960,783
Accumulated deficit (15,707,388) (15,193,407)
----------------- -----------------
Total Stockholders' Equity 3,652,818 3,791,755
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,589,491 $ 5,809,466
================= =================
</TABLE>
See the accompanying notes and accountants' report.
7
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the three Months Ended
June 30,
1998 1997
<S> <C> <C>
REVENUES $ 89,748 $ 222,948
COST OF SALES 28,134 67,094
----------------- -----------------
GROSS PROFIT 61,614 155,854
----------------- -----------------
EXPENSES
Selling expenses 129,635 305,949
General and administrative 443,156 813,745
----------------- -----------------
Total Expenses 572,791 1,119,694
----------------- -----------------
OTHER INCOME (EXPENSE)
Interest income - 3,851
Interest expense (2,804) (5,146)
----------------- -----------------
Net Other Expense (2,804) (1,295)
----------------- -----------------
NET (LOSS) BEFORE INCOME TAXES (513,981) (965,135)
INCOME TAX PROVISION - -
----------------- -----------------
NET (LOSS) $ (513,981) $ (965,135)
================= =================
(LOSS) PER SHARE $ (0.03) $ (0.07)
================= =================
AVERAGE NUMBER OF SHARES OUTSTANDING 16,050,274 13,307,341
================= =================
</TABLE>
See the accompanying notes and accountants' report.
8
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (513,981) $ (965,135)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 28,070 118,360
(Increase) decrease in accounts receivable (13,592) 4,402
(Increase) decrease in inventory 28,429 (1,053,281)
(Increase) decrease in prepaid expense (154) (116,750)
Increase (decrease) in accounts payable (53,131) 569,585
Increase (decrease) short-term debt (21,756) (25,000)
Increase (decrease) in accrued expenses (1,523) (4,966)
Increase (decrease) in accrued interest - -
Increase (decrease) in income taxes payable - 400
---------------- ----------------
Net Cash (Used) by Operating Activities (547,638) (1,472,385)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchase (23,602) (154,309)
Investment in subsidiary - (100,000)
---------------- ----------------
Net Cash (Used) by Investing Activities (23,602) (254,309)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock 375,044 -
Proceeds from subscribed stock - 3,296,500
Payments of capital leases (654) (3,095)
Payments of long-term debt (3,928) (18,135)
Payment on office lease obligations - -
---------------- ----------------
Net Cash Provided by Financing Activities $ 370,462 $ 3,275,270
---------------- ----------------
</TABLE>
See the accompanying notes and accountants' report.
9
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended
June 30,
1998 1997
NET INCREASE IN CASH $ (200,778) $ 1,548,576
CASH AT BEGINNING PERIOD 220,840 165,536
---------------- ----------------
CASH AT END OF PERIOD $ 20,062 $ 1,714,112
================ ================
See the accompanying notes and accountants' report.
10
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 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 three
months ended June 30, 1998 and for the year ended March 31, 1998
amounted to $12,941 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, June 30,
Term Cost Amortization 1998 1998
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Product rights 5 years $ 2,972,167 $ 391,593 $ 2,580,574 $ 2,580,574
Goodwill 15 years - - - -
Trademark 15 years - - - -
Client list 15 years - - - -
Training video 5 years 260,007 195,994 76,722 64,013
Organization cost 5 years 17,261 17,261 - -
------------- ------------- -------------- -------------- --------------
$ 3,249,435 $ 604,848 $ 2,657,296 $ 2,644,587
============= ============== ============== ==============
</TABLE>
Intangibles sold in 1998 are shown at zero cost.
11
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
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 $15,700,000 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.
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
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CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
NOTE 2 - INVENTORY
June 30, March 31,
1998 1998
(Unaudited)
Finished goods $ 1,209,779 $ 1,238,258
WIP 124,243 124,243
Raw goods 1,321,877 1,321,877
----------------- ---------------
$ 2,655,899 $ 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 June 30, 1998 and March 31, 1998 are
detailed in the following summary:
<TABLE>
<CAPTION>
Net Book Value
Accumulated June 30, March 31,
Cost Depreciation 1998 1998
------------- ---------------- -------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 63,448 $ 33,657 $ 29,791 $ 33,237
Machinery and equipment 275,256 121,872 153,384 161,464
Capital leases 26,877 24,170 2,707 2,707
Leasehold improvements 24,581 1,885 22,696 2,927
------------- ---------------- --------------- ----------------
Total $ 391,112 $ 181,584 $ 208,578 $ 200,335
============= ================ =============== ================
</TABLE>
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 three months ended June 30, 1998 and the year ended March 31,
1998 amounted to $15,129 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
16,050,274 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.
13
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
NOTE 4 - STOCKHOLDERS' EQUITY (Continued)
The Company continued the placement of Regulation S stock in the
current period and issued 1,526,735 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 $922,970 for the
sale of approximately 461,000 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 June 30, 1998 and March 31,
1998 are detailed in the following summary:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
<S> <C> <C>
Note payable to CEO; due on demand, with an
interest rate of 10.4%. $ 135,000 $ 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 $65,903 is due. - 21,802
----------------- -----------------
Total related party notes payable 135,000 156,802
Less: current portion (135,000) (156,802)
----------------- -----------------
Long-term portion $ - $ -
================= =================
Maturities of the related party notes payable are as follows:
Period ending June 30, 1998 $ 135,000
1999 -
-----------------
Total $ 135,000
=================
</TABLE>
14
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
NOTE 6 - LONG-TERM DEBT
Notes payable as of June 30, 1998 and March 31, 1998 are detailed
in the following summary:
<TABLE>
<CAPTION>
June 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 $ 58,128 $ 62,056
----------------- -----------------
Total long-term debt 58,128 62,056
Less: current portion (50,080) (50,080)
----------------- -----------------
Long-term portion $ 8,048 $ 11,976
================= =================
Maturities of long-term debt are summarized below:
Period ending June 30, 1998 $ 50,080
1999 8,048
2000 -
2001 -
2002 -
-----------------
Total $ 58,128
=================
</TABLE>
NOTE 7 - LEASES
All noncancellable 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
June 30, 1998 and March 31, 1998:.
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
<S> <C> <C>
Equipment $ 26,877 $ 26,877
Less: accumulated depreciation (24,170) (24,170)
----------------- -----------------
Net property under capital lease $ 2,707 $ 2,707
================= =================
</TABLE>
15
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
NOTE 7 - LEASES (Continued)
At June 30, 1998, the Company is liable under the terms of
non-cancelable leases for the following minimum lease commitments:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
Period ended June 30,
1999 $ 4,866 $ 184,649
2000 3,561 166,941
2001 - 146,169
2002 - 31,368
later years - -
----------------- ---------------
Total minimum lease payments 8,427 529,127
Less: interest (1,304)
-----------------
Present value of net minimum lease payment 7,123
Less: current portion (4,989)
-----------------
Capital lease obligations payable long-term $ 2,134
=================
</TABLE>
Rental expense for the years ended June 30, 1998 amounted to $47,542.
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
Cash flow information
June 30, March 31,
1998 1998
(Unaudited)
Interest paid $ 2,804 $ 18,478
Interest received $ - $ 24,152
Income taxes paid $ - $ 400
Non-cash investing and financing activities
For the three months ending June 30, 1998 and March 31, 1998, the
Company incurred the following non-cash investing and financing
activities.
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
<S> <C> <C>
Capital lease obligations incurred $ - $ -
Issuance of stock and options for
services rendered $ - $ 651,517
</TABLE>
16
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CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
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.
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.
17
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
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:
<TABLE>
<CAPTION>
Number of Shares
June 30, March 31,
1998 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
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 - -
================= =================
</TABLE>
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.
18
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and March 31, 1998
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 June 30, 1998
and 1997 was $42,034 and $19,413, 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.
Item 2: Management's Discussion and Analysis of Financial condition and Results
of Operation
General
For more detailed financial information, please refer to the
Unaudited Financial Statements for the periods of June 30, 1998 and March 31,
1998. A copy of these Financial Statements are included in Item 1 of this
report.
During the first quarter of the Company's last fiscal year ended
March 31, 1998, the Company acquired an exclusive, worldwide and perpetual
license to certain proprietary three dimensional video technology, which has
been developed under the name Realeyes 3D Video and C-3D Video (the "3D Imaging
System").. During the first quarter of the current fiscal year the Company
continues to focus its efforts to further develop and market the 3D Imaging
System. Activities related to the marketing and development of the 3D Imaging
System include recruiting and training key personnel, contacting potential
customers and negotiating potential purchase order contracts or license
agreements, and raising capital through the sale of equity for the purpose of
funding the Company's operations, research, development and marketing efforts.
The Company's research and development engineers continue to investigate
additional options and enhancements to the 3D Imaging System.
For the quarter ended June 30, 1998, the Company generated
revenues of $89,748, approximately 30% of total revenues, from the sale of its
products related to the 3D imaging system. The first broadcast over the Home
Shopping Network (HSN) took place as scheduled on July 25, 1998 and orders for
89 units were recived in just 8 minutes of airtime. Feedback from HSN has been
positive and future broadcasts are likely. The Company's ability to implement
the development and marketing of the 3D Imaging System will directly and
significantly impact the Company's future results of operations, which may cause
the Company's future earnings and stock price to undergo significant volatility,
particularly on a quarterly basis.
Because the Company's efforts have been primarily focused on the
development and marketing of its 3D Imaging System, the Company is considering
disposing of its non-technology related businesses. The Company has entered into
discussions with a potential purchaser of the assets of the Company's financial
services business, but has not entered into any definite agreement with any
potential purchaser. The financial services division of the Company generated
revenue of approximately $63,000 for the quarter ended June 30, 1998. A sale of
the assets attributable to the financial services business of the Company will
immediately reduce revenues of the Company. The Company intends to continue its
marketing efforts with respect to its 3D Imaging System in order to offset a
decrease in revenues as a result of a potential sale of the financial services
assets. There can be no assurance that the Company will be able to successfully
complete the proposed sale of the financial services assets on terms acceptable
19
<PAGE>
to the Company, or that increased marketing efforts of its 3D Imaging System
will result in sales sufficient to offset any decrease in revenues as a result
of the potential sale of the Company's financial services assets.
Results of Operations
Comparison of Quarters Ended June 30, 1998 and 1997
Gross Revenue
For the quarter ended June 30, 1998, total gross revenue of the
Company was $89,748 compared to $222,948 for the quarter ended June 30, 1997; a
decrease of $133,200. The decrease in revenue was primarily due to decreased
revenue generation from the financial services division and elimination of the
credit card processing division which was sold during the third quarter of last
fiscal year. The 3D Imaging System was still in prototype form during the first
quarter of last fiscal year and thus had not accounted for any revenue.
Gross Profit
Gross profit for the quarter ended June 30, 1998 was $61,614
compared to $155,854 for the quarter ended June 30, 1997. The decrease can be
directly related to the decrease in revenue since the gross profit percentage
remained constant (within 2%).Future gross profit and gross profit percentage
can not be assured due to fluctuations in pricing and cost of materials.
Operating Expenses
General and Administrative Expenses for the quarter ended June 30,
1998 decreased by $370,589 when compared to the same quarter last year. The
decrease can be attributed mainly to two factors. First, the closing down of an
unprofitable office in Texas which was related to the financial services of the
business. And second, reorganization and cost cutting efforts being implemented
by the Company. Selling expenses also decreased in comparing the two quarters.
This decrease was $176,314 and can be attributed to the same factors that caused
the decrease in general and administrative expenses.
Net Loss
The Company's net loss for the quarter ending June 30, 1998 was
$513,981, a decrease of $451,154, when compared to the $965,135 loss for the
quarter ended June 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
securities. Substantial expenses continue to be incurred related to the
research, development, production, marketing, selling and advertising of its 3D
Imaging System. The Company intends to continue to seek the lowest cost capital
available to it. Accordingly, it may continue to with its current private
placements and Reg S agreements or seek to obtain funding from other sources.
There can be no assurance that the Company will be able to obtain financing for
its operations or that it will be able to obtain capital on terms acceptable to
it.
At June 30, 1998, the Company had current assets of $2,725,273 and
current liabilities of $1,926,491 resulting in net working capital of $798,782
and a current ratio of 1.4. This is a decrease of $139,053 from the Company's
working capital of $937,835 as of March 31, 1998. This decrease in working
capital is primarily a result of the decrease in cash. The cash decrease is a
result of the Company's use of the cash to reduce current liabilities and to
fund operational expenses. During the three month period the Company utilized
approximately $547,638 in cash primarily to fund the operations of the Company
and to reduce liabilities. The Company's total liabilities as of June 30, 1998
were $1,936,673, a decrease of $81,038, when compared to total liabilities as of
March 31, 1998.
Part II - Other Information
20
<PAGE>
Item 5. Other Information
Sales of Equity Securities Pursuant to Regulation S
During the quarter the Company received $375,000 pursuant to
Regulation S subscription agreement with Non U.S. persons. The price per share
under the agreement is $1.25. See form 8-K dated March 30, 1998 previously filed
with the SEC for more details.
Sales of Equity Securities Pursuant to Regulation D
The Company has also received $175,000 pursuant to a Reg D
offering which was also disclosed in the 8-K dated March 30, 1998. The price per
share under the agreement is $1.25.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(21) Subsidiaries of the Registrant
AC&T Direct, Inc.: Organized in the State of Utah
Families in Focus, Inc. : Organized in the State of Utah
Chequemate Tele-Services, Inc.: Organized in the State of Utah
Chequemate Electronics, Inc.: Organized in the State of Utah
Data Control, Inc. : Organized in the State of Utah
(b) Reports on Form 8-K
None during the Quarter
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
Dated: August 13, 1998 By:
Marci Redding, Secretary
Dated: August 13, 1998 By:
John Garrett, C.F.O.
21
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