<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended: March 31, 1998
Commission File Number: 33-38511-FW
CHEQUEMATE INTERNATIONAL, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 76-0279816
-----------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
57 West 200 South, Suite 350; Salt Lake City, Utah 84101
-----------------------------------------------------------
(Address of principal executive offices)
(801) 322-1111
--------------
(Issuer's Telephone Number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. YES __X__ No _____
State issuer's revenues for
Its most recent fiscal year: $1,091,794
As of July 7, 1998, the aggregate market value of the voting stock
held by non-affiliates Computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days: $13,783,460
State the number of shares outstanding of each of the issuer's
common equity, as of the latest practicable date: 16,059,441 (July 7, 1998)
Transitional Small Business Format: YES _____ NO __X__
<PAGE>
The registrant hereby amends Items 6,7,8, 10 and 13.
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
For more detailed financial information, please refer to the Audited
Financial Statements for the periods of March 31, 1998 and 1997. A copy of
these Financial Statements is attached to this Report.
Fiscal year 1998 has been an exciting and adventurous year for CMI
and its subsidiaries. The Company has successfully confronted the challenges
of entering the electronics manufacturing industry while maintaining some
divisions and selling of another. The Company's intent as it moves forward is
to focus on the 3D product due to its huge potential.
With a years experience in manufacturing and selling the 3D product
the Company has been able to gain extensive knowledge about the industry and
the energy and focus it requires to be successful. Feedback from consumers
has shown us areas where we can improve the product and also great hope for
the future as their excitement for the product became evident. Work is
currently taking place that will directly address improvements consumers
would like to see.
The Company has also realized the need to employee management with
more experience and expertise in the fields of consumer electronics and
entertainment. One of these key figures is Joseph Napoli. Mr. Napoli has
extensive experience in the cable and satellite industry and has worked for
companies such as HBO, Time Warner and most recently the Sega Channel. Mr.
Napoli will be key in establishing the 24 hour a day 3D cable station and has
already helped tremendously in the negotiations to have the 3D system
installed in thousands of hotel/motel rooms.
LIQUIDITY AND CAPITAL RESOURCES
The audited financial statements reflect the consolidated financial
position of the Company and its subsidiary entities. As of March 31, 1998,
the Company had current assets of $2,940,782 with current liabilities of
$2,002,947. This represents working capital of $937,835. At March 31, 1997,
the Company had current assets of $398,409 with current liabilities of
$703,670. This represented negative working capital of $305,261.
The change in working capital results in a ratio of current assets
to current liabilities, as of March 31, 1998, of 1.47 as compared to .57 on
March 31, 1997. The
2
<PAGE>
major contributor to current assets is inventory ($2,684,378) which is
primarily made up of C-3D units.
At March 31, 1998, long term liabilities were $14,764 compared to
$145,639 at March 31, 1997, a reduction of $130,875. Long-term debt continued
to decrease because the Company uses equity to fund operations instead of
acquiring more debt.
At March 31, 1998, the Stockholders' equity was $3,791,755 versus
$437,451 at March 31, 1997. This represents an improvement of $3,354,304.
Stockholders' equity increased significantly due to the value placed upon the
3D product rights acquired from Advanced Technology Group, LLC in an equity
transaction.
As part of the agreement with Advanced Technology Group (ATG), the
Company committed as follows: THE COMPANY SHALL IMMEDIATELY CONTINUE TO
PRODUCE THE INITIAL 200 REALEYES PRODUCT UNITS CURRENTLY IN PRODUCTION, [AND]
SHALL FURTHER IMMEDIATELY PRODUCE THE ADDITIONAL 9,800 REALEYES PRODUCT UNITS
PLANNED BY ATG. The Company, in accordance with the agreement and based upon
market projections of ATG, invested capital into inventory. Initial sales of
the units were slower than anticipated. Once the Company realized that
initial sales were falling short of projected sales, production was stopped.
The value of the inventory is unaffected due to the unique 3-D technology and
the increasing marketing of cable programing requiring this product.
The sale of stock to offshore entities continues to be an important
source of capital funding for the Company. As previously reported in Form 8K,
the Company has sold additional shares to offshore entities to raise capital
for the continued operations of the Company. Furthermore, other sources of
capital funding are being pursued to help meet the cash needs of the Company.
RESULTS OF OPERATIONS
For the fiscal year 1998, total gross revenue of the Company was
$1,091,794 compared to $776,963 for the previous fiscal year; an increase of
$314,831. Total expenses for fiscal year 1998 increased to $5,208,070 as
compared to $1,974,738 for the previous year. The Company also had to
recognize a large Other Expense in the re-valuation of the 3-D technology.
The result of the incresaed expenses and the large other expense was an
increase in net loss from $1,502,573 in fiscal year 1997 to $8,024,045 in
fiscal year 1998.
In fiscal year ended March 31, 1998, the Company experienced a
substantially higher loss than it had recorded in previous years. The
dramatic
3
<PAGE>
increase was due mainly to acquiring the 2D to 3D technology from the
Advanced Technology Group. As part of the agreement, CMI was required to
invest a significant amount of capital into building the Realeyes 3D Imaging
System. Although the amount invested in inventory is not reflected on the
income statement, it can be seen in the balance sheet in the dramatic
increase in inventory from $185,518 on March 31, 1997 to $2,684,378 on March
31, 1998.
The income statement, however, was also directly affected by other
commitments that came with acquiring the new technology. It was necessary to
hire several new employees to market the new product and to act as support
staff for the new business area. Additional office space had to be leased for
the new employees and other overhead factors related to having more employees
and more office space also increased.
The Company also began a marketing campaign which significantly
increased expenses. This campaign included hiring an advertising agency,
placing adds, and traveling to make contacts and other marketing efforts to
increase the distribution of the new product.
The value of the product rights acquired from the Advanced
Technology Group was originally calculated by assigning a value of $3.00 a
share and multiplying that amount by the 2,000,000 option shares granted to
the owners of Advanced Technology as a condition to the transaction. This
value was employed (minus amortization) for the unaudited financial
statements filed for June 30, 1997, September 30, 1997 and December 31, 1997.
At year end, the valuation was decreased based on actual revenues generated
by the technology. A one time reduction of $3,133,333 was thus booked as on
operating expense.
The loss for the twelve-month period ended March 31, 1998 can be
attributed to increases in both selling and general and administrative
expenses which were associated with the launch of the new C-3D product, along
with the large adjustment which was made to product rights. Action has been
taken to trim expenses until revenue can grow in a more proportional manner.
4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
CHEQUEMATE TECHNOLOGIES, INC.
AND SUBSIDIARIES
(FORMERLY CHEQUEMATE INTERNATIONAL, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
5
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report .......................... 7
Consolidated Balance Sheets ........................... 8
Consolidated Statements of Operations ................. 10
Consolidated Statements of Stockholders' Equity ....... 11
Consolidated Statements of Cash Flows ................. 13
Notes to Consolidated Financial Statements ............ 15
</TABLE>
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Chequemate Technologies, Inc. and Subsidiaries
(Formerly Chequemate International, Inc.)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Chequemate
Technologies, Inc. and Subsidiaries (formerly Chequemate International, Inc.)
as of March 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended March
31, 1998, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Chequemate Technologies, Inc. and Subsidiaries (formerly Chequemate
International, Inc.) as of March 31, 1998 and 1997 and the consolidated
results of their operations and their cash flows for the years ended March
31, 1998, 1997 and 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 12 to the consolidated financial statements, the Company has suffered
recurring losses which raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to this matter are also
described in Note 12. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
June 23, 1998
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31,
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 220,840 $ 165,536
Accounts receivable - net of allowances of $115,000
and $7,520 in 1998 and 1997, respectively 24,305 38,852
Inventory (Note 2) 2,684,378 185,518
Prepaid expenses 11,259 8,503
---------------- ----------------
Total Current Assets 2,940,782 398,409
---------------- ----------------
PROPERTY AND EQUIPMENT (Note 3) 200,335 454,174
---------------- ----------------
OTHER ASSETS
Organization costs and product rights (Note 1) 2,657,296 415,610
Note receivable - 7,514
Refundable deposits 8,053 8,053
Investments 3,000 3,000
---------------- ----------------
Total Other Assets 2,668,349 434,177
---------------- ----------------
TOTAL ASSETS $ 5,809,466 $ 1,286,760
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
8
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,584,576 $ 174,865
Related party accounts payable (Note 16) 42,034 19,413
Short term debt (Note 15) - 300,000
Customer deposits 54,724 -
Accrued expenses 43,339 103,552
Income tax payable (Note 1) 500 400
Accrued interest - related party (Note 5) 65,903 65,903
Current portion related party (Note 5) 156,802 -
Current portion long-term debt (Note 6) 50,080 33,533
Current portion capital lease (Note 7) 4,989 6,004
------------ ------------
Total Current Liabilities 2,002,947 703,670
------------ ------------
LONG-TERM LIABILITIES
Long-term related party notes payable (Note 5) - 90,000
Long-term debt (Note 6) 11,976 46,834
Capital lease obligations (Note 7) 2,788 8,805
------------ ------------
Total Long-Term Liabilities 14,764 145,639
------------ ------------
Total Liabilities 2,017,711 849,309
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 500,000,000 shares
authorized, 14,088,650 and 13,117,84 shares outstanding
at 1998 and 1997, respectively 1,409 1,312
Minority interest - 100,000
Subscribed stock (Note 4) 4,022,970 270,000
Capital in excess of par 14,960,783 7,235,501
Accumulated deficit (15,193,407) (7,169,362)
------------ ------------
Total Stockholders' Equity 3,791,755 437,451
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,809,466 $ 1,286,760
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
9
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Sales - products $ 1,091,794 $ 776,963 $ 382,137
------------ ------------ ------------
COST OF SALES
Product, supplies and materials 849,919 291,072 167,566
------------ ------------ ------------
GROSS PROFIT 241,875 485,891 214,571
------------ ------------ ------------
EXPENSES
Impairment of product rights (Note 14) (3,133,333) - -
Bad debts 138,259 6,465 5,627
Selling expenses 1,639,806 630,207 539,123
General and administrative 3,430,005 1,338,066 1,486,948
------------ ------------ ------------
Total Expenses 8,341,403 1,974,738 2,031,698
------------ ------------ ------------
OPERATING (LOSS) (8,099,528) (1,488,847) (1,817,127)
OTHER INCOME (EXPENSE)
Interest income 24,152 7,018 -
Interest expense (18,478) (20,344) (61,588)
Gain on sale of equipment 70,309 - -
------------ ------------ ------------
Total Other Income (Expense) (75,983) (13,326) (61,588)
------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES (8,023,545) (1,502,173) (1,878,715)
INCOME TAX PROVISION (Note 18) 500 400 300
------------ ------------ ------------
NET INCOME (LOSS) $ (8,024,045) $ (1,502,573) $ 1,879,015
------------ ------------ ------------
------------ ------------ ------------
EARNINGS (LOSS) PER SHARE $ (0.59) $ (0.12) $ (0.15)
------------ ------------ ------------
------------ ------------ ------------
AVERAGE NUMBER OF
SHARES OUTSTANDING 13,568,845 12,891,947 12,208,526
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
10
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total Capital
Shares Common in Excess
Issued Stock of Par
----------- ----------- -----------
<S> <C> <C> <C>
Balance, March 31, 1995 11,738,700 $ 1,174 $ 2,548,545
Shares becoming free trading - - -
Shares issued through stock
offering 833,570 83 2,599,917
Shares issued in exchange for
services 6,000 1 29,999
Subscribed stock - - -
- -
Shares issued for debt 87,783 9 307,234
250,000 shares donated to the
Company and reissued - - 200,000
Net loss - - -
----------- ----------- -----------
Balance, March 31,1996 12,666,053 1,267 5,685,695
----------- ----------- -----------
Shares becoming free trade - - -
Minority interest - - -
Shares issued through
stock offering 450,788 44 1,546,307
Shares issued for services 1,000 1 3,499
Subscribed stock - - -
Net loss - - -
----------- ----------- -----------
Balance, March 31, 1997 13,117,841 1,312 7,235,501
Subscribed stock - - -
Shares issued through stock offering 379,000 38 994,962
Shares issued for cash 315,142 31 76,105
Shares issued in exchange for services 256,667 26 387,474
Shares issued for debt 20,000 2 85,494
Option issued for compensation - - 81,247
Options issued for rights - - 6,000,000
Acquisition of minority interest - - 100,000
Net loss - - -
----------- ----------- -----------
Balance, March 31, 1998 14,088,650 $ 1,409 $14,960,783
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
11
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Stockholders' Equity (Continued)
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
Accumulated Subscribed Minority Stockholders'
Deficit Stock Interest Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, March 31, 1995 $ (3,787,774) $ 850,000 $ - $ (388,055)
Shares becoming free trading - - - -
Shares issued through stock offering - (850,000) - 1,750,000
Shares issued in exchange for services - - - 30,000
Subscribed stock - 100,000 - 100,000
Shares issued for debt - - - 307,243
250,000 shares donated to the Company
and reissued - - - 200,000
Net loss (1,879,015) - - (1,879,015)
------------ ------------ ------------ ------------
Balance, March 31, 1996 (5,666,789) 100,000 - 120,173
------------ ------------ ------------ ------------
Shares becoming free trade - - - -
Minority interest - - 100,000 100,000
Shares issued through stock offering - (100,000) - 1,446,351
Shares issued for services - - - 3,500
Subscribed stock - 270,000 - 270,000
Net loss (1,502,573) - - (1,502,573)
------------ ------------ ------------ ------------
Balance, March 31, 1997 (7,169,362) 270,000 100,000 437,451
Subscribed stock - 4,756,720 - 4,756,720
Shares issued through stock offering - (995,000) - -
Shares issued for cash - (8,750) - 67,386
Shares issued in exchange for services - - - 387,500
Shares issued for debt - - - 85,496
Option issued for compensation - - - 81,247
Options issued for rights - - - 6,000,000
Acquisition of minority interest - - (100,000) -
Net loss (8,024,045) - - (8,024,045)
------------ ------------ ------------ ------------
Balance, March 31, 1998 $(15,193,407) $ 4,022,970 $ - $ 3,791,755
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
12
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended March 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,024,045) $(1,502,573) $(1,879,015)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization 427,575 62,183 78,496
Depreciation 70,209 41,549 31,887
Bad debt expense 107,480 4,602 4,646
Reduction in product rights valuation 3,133,333 - -
Common stock and options issued for services
rendered 651,517 - 47,327
(Increase) decrease in:
Accounts receivable (92,933) 9,546 (7,466)
Prepaid expenses (2,756) (1,859) (6,644)
Inventory (2,498,860) (101,637) 39,191
Note receivable - - (8,894)
Deposits 7,514 2,862 1,065
Increase (decrease) in:
Accounts payable 1,448,879 94,038 (61,411)
Accrued interest payable - (7,000) 3,421
Customer deposits 54,724 - -
Short-term note payable (300,000) - -
Accrued expenses (60,213) 81,056 (15,646)
Income taxes payable 100 400 -
----------- ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (5,077,476) (1,316,833) (1,773,043)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets 375,000 - -
Purchase/development of intangibles - (222,706) -
Equipment purchases (194,392) (101,121) (23,076)
Collection on notes receivable - 1,380 -
----------- ----------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 180,608 (322,447) (23,076)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,071,234 1,549,851 2,800,000
Subscribed stock 3,752,970 170,000 (750,000)
Minority interest - 100,000 -
Issuance of notes payable 135,000 - -
Payments made on notes payable (7,032) (45,415) (255,720)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 4,952,172 $ 1,774,436 $ 1,794,280
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
13
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 55,304 $135,156 $ (1,839)
CASH AT BEGINNING OF YEAR 165,536 30,380 32,219
-------- -------- --------
CASH AT END OF YEAR $220,840 $165,536 $ 30,380
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
14
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect practices of the software
sales and services industries and conform to generally accepted
accounting principles. Certain prior year amounts have been
reclassified to be consistent with the March 31, 1998 presentation. The
following policies are considered to be significant:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Families in Focus, Inc., AC&T Direct,
AC&T, Chequemate Third Dimension, Inc. and Chequemate Tele-Services,
Inc. All significant intercompany accounts and transactions have been
eliminated.
REVENUE RECOGNITION
Revenue is recognized on an accrual basis upon deliver of the software
or product. Revenue consists of software sales, product sales, license
fees, and monthly service fees.
ORGANIZATION COSTS AND PRODUCT RIGHTS
Organization and production costs have been capitalized and amortized
over five years using a straight line method. The total amortization of
organizational and production costs for the twelve months ended March
31, 1998, 1997 and 1996 amounted to $427,575, $62,183 and $78,496,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost with depreciation and
amortization computed on the straight line method. Property and
equipment are depreciated over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Office equipment 5
Office furniture 5-7
Machinery and equipment 5
Leasehold improvements 3-5
Capital leases 3-5
</TABLE>
ORGANIZATION COSTS AND PRODUCT RIGHTS
<TABLE>
<CAPTION>
Net Book Value
----------------------------
Term Cost Amortization 1998 1997
-------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Product rights 5 years $2,972,167 $ 391,593 $2,580,574 $ 88,141
Goodwill 15 years - - - 96,865
Trademark 15 years - - - 49,722
Client list 15 years - - - 49,722
Training video 5 years 260,007 183,285 76,722 128,724
Organization cost 5 years 17,261 17,261 - 2,436
-------- ---------- ---------- ---------- ----------
$3,249,435 $ 592,139 $2,657,296 $ 415,610
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Intangibles sold in 1998 are shown at zero cost.
15
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE
Earnings per share are calculated using a weighted average for common
stock and common stock equivalents.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and cash on deposit with banks.
INCOME TAXES
The Company's tax basis is the same as the Company's financial
statement basis. The Company has net operating loss carryforwards of
approximately $12,100,000 available to offset future federal and state
income tax through 2013. The Company has not recorded a tax benefit
attributable to the carryforwards because realization of such benefit
cannot be assured.
COMPUTER SOFTWARE COSTS
The Company classifies the costs of planing, designing and establishing
the technological feasibility of computer software product as software
development costs and charges those costs to expense when incurred.
Costs incurred for duplicating computer software from product masters,
documentation and training materials and packaging costs are
capitalized as inventory and charged to cost of sales when revenue is
recognized. Costs of maintenance and customer support are charged to
expense when costs are incurred.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Finished goods $1,238,258 $ 185,518
WIP 124,243 -
Raw goods 1,321,877 -
---------- ----------
$2,684,378 $ 185,518
---------- ----------
---------- ----------
</TABLE>
The Company inventories are stated at the lower of cost or market,
using the first-in, first-out (FIFO) method.
16
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 1998 and 1997 are detailed in
the following summary:
<TABLE>
<CAPTION>
Net Book Value
Accumulated ---------------------------------
Cost Depreciation 1998 1997
------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 64,398 $ 31,161 $ 33,237 $ 30,575
Software - - - 295,000
Machinery and equipment 270,704 109,240 161,464 117,790
Capital leases 26,877 24,170 2,707 7,024
Leasehold improvements 4,581 1,654 2,927 3,785
------------- ---------------- --------------- ----------------
Total $ 366,560 $ 166,225 $ 200,335 $ 454,174
------------- ---------------- --------------- ----------------
------------- ---------------- --------------- ----------------
</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
years ended March 31, 1998, 1997 and 1996 amounted to $70,209, $41,549
and $31,887, respectively. Assets sold in 1998 are shown at zero cost.
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000,000 shares of common stock,
par value $.0001. Currently the Company has issued 14,088,650 shares of
common stock.
During the period from April 1993 through March 1997, the Company
issued 1,387,226 shares of common stock pursuant to a private
placement. These shares were offered under Regulation S to non U.S.
persons and can be exchanged for free trading stock within 40 days
after the closing of the offering.
The Company continued the placement of Regulation S stock in the
current year and issued 379,000 shares to non U.S. persons. The
Company's plans are to continue placing stock through private
placements to fund the growth requirements of the Company. As part of
the private placement, the Company received $4,031,720 for the sale of
approximately 1,344,000 shares of common stock. The Company has
accounted for the transaction as subscribed stock until the stock could
be issued.
17
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 5 - RELATED PARTIES
Notes payable to related parties as of March 31, 1998 and 1997 are
detailed in the following summary:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Note payable to CEO; due on demand, with an
interest rate of 10.4% $ 135,000 $ -
Note payable to CEO; due in monthly interest installments of $930
with an interest rate of 12%; due December 31, 1998; unsecured;
accrued interest of $65,903 is due 21,802 90,000
--------- ---------
Total related party notes payable 156,802 90,000
Less: current portion (156,802) -
--------- ---------
Long-term portion $ - $ 90,000
--------- ---------
--------- ---------
</TABLE>
Maturities of the related party notes payable are as follows:
<TABLE>
<S> <C> <C>
Period ending March 31, 1998 $ 156,802
1999 -
---------
Total $ 156,802
---------
---------
</TABLE>
NOTE 6 - LONG-TERM DEBT
Notes payable as of March 31, 1998 and 1997 are detailed in the
following summary:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured $ 62,056 $ 80,367
-------- --------
Total long-term debt 62,056 80,367
Less: current portion (50,080) (33,533)
-------- --------
Long-term portion $ 11,976 $ 46,834
-------- --------
-------- --------
</TABLE>
18
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 6 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are summarized below:
<TABLE>
<S> <C> <C>
Period ending March 31, 1998 $ 50,080
1999 11,976
2000 -
2001 -
2002 -
---------
Total $ 62,056
---------
---------
</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".
The following analysis represents property under capital lease at March
31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Equipment $ 26,877 $ 26,877
Less: accumulated depreciation (24,170) (19,853)
-------- --------
Net property under capital lease $ 2,707 $ 7,024
-------- --------
-------- --------
</TABLE>
At March 31, 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 March 31,
1999 $ 5,520 $ 184,649
2000 3,561 166,941
2001 - 146,169
2002 - 31,368
later years - -
----------------- -----------------
Total minimum lease payments 9,081 529,127
Less: interest (1,304)
-----------------
Present value of net minimum lease payment 7,777
Less: current portion (4,989)
-----------------
Capital lease obligations payable long-term $ 2,788
-----------------
-----------------
</TABLE>
Rental expense for the years ended March 31, 1998, 1997 and 1996
amounted to $187,961, $86,094 and $90,305, respectively.
19
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
CASH FLOW INFORMATION
<TABLE>
<CAPTION>
March 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Interest paid $18,478 $24,230
Interest received $24,152 $ 2,585
Income taxes paid $ 400 $ 300
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
For the years ending March 31, 1998 and 1997, the Company incurred the
following non-cash investing and financing activities.
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Capital lease obligations incurred $ - $ -
Issuance of stock and options for
services rendered $ 651,517 $ -
</TABLE>
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 with high quality financial
institutions. At times such cash accounts 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).
20
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 11 - ACQUISITIONS
On February 27, 1997, the Company established Chequemate Tele-Services,
Inc. (CTS) along with another individual and received fifty-one percent
(51%) of the company. CTS then entered into an asset purchase agreement
to acquire all of the assets of Quality Products Distribution, Inc. The
assets consisted mainly of credit card processing software and certain
intangibles. In November of 1997, the Company sold the processing
software and related intangibles.
NOTE 12 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has incurred losses from
its inception through March 31, 1998. The Company does not have an
established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern. It is the intent of the
Company to seek additional financing through private placements of its
common stock.
Management has formulated a plan to seek additional financing from
outside investors and through Reg. S offerings to non U.S. persons.
Management is proceeding with a merger with a U.S. company to better
enhance marketing of its `3-D' product. In addition, the Company is
seeking a joint venture with a national hotel chain to use its `3-D'
technology.
NOTE 13 - COMMON STOCK OPTIONS
Effective May 17, 1995, the stockholders approved an Incentive Stock
Option Plan granting to key employees options to purchase Company
common stock over a ten year period, at the fair market value at time
of grant. The aggregate number of common shares of the Company which
may be granted under the plan is 800,000 shares. The plan expires on
March 23, 2004.
21
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 13 - COMMON STOCK OPTIONS (Continued)
Activity regarding stock options is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------------------------------------------
1998 Price 1997 Price
--------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Options Granted:
Beginning of year 354,800 $ 3.50 - 7.00 154,800 $ 6.25 - 7.00
Additional granted 2,000,000 .01 200,000 3.50
--------- -------
End of year 2,354,800 354,800
--------- -------
--------- -------
Options Exercised:
Beginning of year 100 3.50 - -
Additional exercised 283,142 .01 100 3.50
Expired - - - -
--------- -------
End of year 283,242 100
--------- -------
--------- -------
Options Outstanding at End
of Year 2,071,558 354,700
--------- -------
--------- -------
</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
additional options granted exercise 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 required
CMI to meet certain promises and conditions. One of the main conditions
required of CMI was the contribution of three million dollars within
sixty (60) days of signing. Another condition required CMI to establish
a non-qualified stock option granting 2,000,000 shares of common stock
to certain members of the LLC.
Under APB 17, the agreement was recorded using the fair market value of
the stock upon the date of the grant, which was determined to be $3.00
per share based upon the current trading value of the stock and the
time delay before the shares could be exercised. At March 31, 1998, the
Company's projected cash flows indicated that the recoverability of the
asset may be impaired. Revaluation of the projected cash flow
associated with this technology was determined to be approximately
$2,500,000. Under FASB 121 an adjustment of $3,133,333 for impairment
of the asset was recognized.
22
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 15 - SHORT TERM DEBT
On February 27, 1997, the Company, through its subsidiary Chequemate
Tele-Services, Inc. (CTS) purchased certain intangible assets (see Note
11 - Acquisitions). As part of the purchase, the Company is obligated
to pay $300,000 through monthly installments starting in June 1997 and
ending in December 1997.
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company owes certain officers and directors royalties from the
revenue of book sales. In addition, the Company owes a major
shareholder royalties on active users of the Chequemate product. The
total amount owing to these individuals as of March 31, 1998 and 1997
was $42,034 and $19,413, respectively.
NOTE 17 - MARKETING DEVELOPMENT AGREEMENT
In December 1996, the Company entered into a venture with an individual
to enhance and improve its marketing capacity as well to strengthen its
in-house administrative capacity. The Company has incurred monthly
expenses of approximately $10,000 on this venture. The alliance between
the parties indicates that the individual will earn 50% of all net
profits directly generated from revenues created specifically and
exclusively by this agreement. Upon termination of this alliance, the
specific revenues will revert back to the individual.
NOTE 18 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended March 31, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------------------ ----------------- -----------------
<S> <C> <C> <C>
Year ended March 31, 1998
U.S. Federal $ - $ - $ -
State and local 500 - 500
------------------ ----------------- -----------------
$ 500 $ - $ 500
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Year ended March 31, 1997
U.S. Federal $ - $ - $ -
State and local 400 - 400
------------------ ----------------- -----------------
$ 400 $ - $ 400
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>
23
<PAGE>
CHEQUEMATE TECHNOLOGIES, INC. AND SUBSIDIARIES
(Formerly Chequemate International, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 18 - PROVISION FOR INCOME TAXES (Continued)
Income tax expense was $500 and $400 for each of the years ended March
31, 1998 and 1997, respectively, and differed from the amounts computed
by applying the U.S. Federal income tax rate of 34 percent to loss from
operations before provision for income taxes and extraordinary item as
a result of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computed "expected" benefit $(2,728,005) $ (510,740)
Increase (reduction) in income taxes resulting from:
Change in valuation allowance for deferred
tax assets 2,722,639 500,863
Non-deductible expenses 4,866 9,477
----------- -----------
$ 500 $ 400
----------- -----------
----------- -----------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1998 are presented below:
Deferred tax assets:
Net operating loss carryforwards
Total gross deferred tax assets $ 4,114,000
Less valuation allowance (4,114,000)
-----------
Net deferred tax assets $ -
-----------
-----------
</TABLE>
24
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company does not have any disagreement with its accountants on
the accounting and financial disclosures contained in this Form 10-KSB report.
PART III
ITEM 10. EXECUTIVE COMPENSATION
The table set forth below contains information about the
remuneration received and accrued during fiscal years 1997 and 1998 from the
Company and its subsidiaries by the Chief Executive officer and each of the
most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
- --------------------------- ---------------- -------------------- --------------------- --------------------
NAME AND PRINCIPAL FISCAL YEAR SALARY ($) BONUS ($) ALL OTHER ANNUAL
POSITION COMPENSATION
- --------------------------- ---------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Blaine Harris, CEO 1998 $100,000 $1,457 $10,000
1997 $100,000 $1,015 $2443
1996 $100,000 $355 $24,174(1)
- --------------------------- ---------------- -------------------- --------------------- --------------------
Lavar Butler, Senior VP 1998 $60,000 $1,491 $1,083
1997 $60,000 $ 585 $2,166
1996 $60,000 $379 $1,083
- --------------------------- ---------------- -------------------- --------------------- --------------------
Ken Redding, Executive VP 1998 $54,000 $1,491 $0
1997 $54,000 $585 $3,249
1996 $54,000 $379 $2,041
- --------------------------- ---------------- -------------------- --------------------- --------------------
Marci Redding, 1998 $42,000 $1,491 $0
Secretary/Treasurer 1997 $42,000 $455 $1,750
1996 $42,000 $379 $0
- --------------------------- ---------------- -------------------- --------------------- --------------------
Albert Alvey, President 1998 $110,000 $0 $0
(CE) 1997 $0 $0 $0
1996 $0 $0 $0
- --------------------------- ---------------- -------------------- --------------------- --------------------
John Garrett, CFO 1998 $54,000 $1,491 $875
1997 $48,370 $390 $1,642
1996 $0 $0 $0
- --------------------------- ---------------- -------------------- --------------------- --------------------
</TABLE>
- --------------------
(1) This amount includes a payment of $17,174 in deferred compensation from
previous fiscal years.
25
<PAGE>
The following chart shows the stock options that were granted to any
executive officer of the Company prior to the end of the fiscal year ended
March 31, 1998.
<TABLE>
<CAPTION>
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
NAME AND PRINCIPAL TOTAL PERCENTAGE TOTAL OPTIONS EXERCISE EXPIRATION DATE
POSITION OPTIONS OF TOTAL VESTED PRICE
GRANTED OPTIONS GRANTED ($/SHARE)
TO EMPLOYEES
IN FISCAL YEAR
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Blaine Harris 70,000 10.2% 42,000 $6.32 12/16/2006
CEO
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
Ken Redding 70,000 10.2% 35,000 $5.75 12/16/2006
Executive VP
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
Marci Redding 70,000 10.2% 35,000 $5.75 12/16/2006
Secretary
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
John Garrett 70,000 10.2% 14,000 $5.75 12/16/2006
Vice President
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
Other Executive 60,000 8.8% 21,000 $5.75 12/16/2006
Officers (2)
- ------------------------ ------------ ------------------- --------------- ------------------ ----------------
</TABLE>
The following table reflects the number of unexercised options which
are exercisable and unexercisable at the end of fiscal year 1998. None of the
executive officers exercised any options in the fiscal year ending March 31,
1998.
<TABLE>
- ---------------------------------------- ------------------------------------- -------------------------------------
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
NAME OF OFFICER EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Blaine Harris 42,000/28,000 $0/$0
- ---------------------------------------- ------------------------------------- -------------------------------------
Ken Redding 35,000/35,000 $0/$0
- ---------------------------------------- ------------------------------------- -------------------------------------
Marci Redding 35,000/35,000 $0/$0
- ---------------------------------------- ------------------------------------- -------------------------------------
John Garrett 14,000/56,000 $0/$0
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
ITEM 13. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
No. Description Page
--- ----------- ----
<S> <C> <C>
23 Consent of Jones, Jensen & Company............28
</TABLE>
26
<PAGE>
(a) SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHEQUEMATE INTERNATIONAL, INC.
<TABLE>
<S> <C>
By /s/ Terrell A. Lassetter, Sr. for Date July 2, 1999
----------------------------------------------- ---------------
J. Michael Heil - CEO
By /s/ Steve Anderson Date July 2, 1999
----------------------------------------------- ---------------
Steve Anderson - CFO
</TABLE>
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C>
By /s/ Terrell A. Lassetter, Sr. for July 2, 1999
----------------------------------------------- ---------------
Blaine Harris Director Date
By /s/ Terrell A. Lassetter, Sr. for July 2, 1999
----------------------------------------------- ---------------
Harold P. Glick, Director Date
By /s/ Terrell A. Lassetter, Sr. for July 2, 1999
----------------------------------------------- ---------------
Robert E. Warfield, Director Date
</TABLE>
27
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS'
We hereby consent to the use of our audit report dated June 23, 1998 in this
amended Form 10KSB of Chequemate International, Inc. for the year ended March
31, 1998, which is part of this Form 10KSB and all references to our firm
included in this amended Form 10KSB.
/s/ Jones, Jensen & Company
---------------------------------------
Jones, Jensen & Company
Salt Lake City, Utah
July 6, 1999
28
