<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: December 31, 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: February 9, 1999: 18,326,951
Transitional Small Business Format: YES NO X
----- -----
<PAGE>
TABLE OF CONTENTS
PART I-FINANCIAL STATEMENTS
Item 1. Financial Statements
<TABLE>
<S> <C>
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 23
YEAR 2000 COMPLIANCE 23
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 25-26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 28
Exhibit 10.1 30
Exhibit 10.2 50
Exhibit 10.3 60
</TABLE>
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1998
3
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Consolidated Balance Sheets........................................... 6
Consolidated Statements of Operations................................. 8
Consolidated Statements of Cash Flows................................. 9
Notes to Consolidated Financial Statements........................... 11
</TABLE>
4
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 739,901 $ 220,840
Accounts receivable - net of allowances of $153,446
and $115,000 244,633 24,305
Prepaid expenses 52,561 11,259
Inventory (Note 2) 3,056,630 2,684,378
---------- ----------
Total Current Assets 4,093,725 2,940,782
---------- ----------
PROPERTY AND EQUIPMENT (Note 3) 528,098 200,335
---------- ----------
OTHER ASSETS
Organization costs and product rights (Note 1) 2,499,703 2,657,296
Refundable deposits 290,704 8,053
Investments in subsidiaries 3,000 3,000
---------- ----------
Total Other Assets 2,793,407 2,668,349
---------- ----------
TOTAL ASSETS $7,415,230 $5,809,466
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,112,652 $ 1,584,576
Related party accounts payable (Note 15) 42,034 42,034
Customer deposits -- 54,724
Accrued expenses 86,439 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) 150,000 156,802
Current portion long-term debt (Note 6) 260,074 50,080
Current portion capital lease (Note 7) 25,845 4,989
----------- -----------
Total Current Liabilities 1,743,447 2,002,947
----------- -----------
LONG-TERM LIABILITIES
Long-term debt (Note 6) 1,190,000 11,976
Capital lease obligations (Note 7) -- 2,788
----------- -----------
Total Long-Term Liabilities 1,190,000 14,764
----------- -----------
Total Liabilities 2,933,447 2,017,711
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value 500,000,000 shares
authorized, 17,630,163 and 14,088,650 shares
outstanding, respectively 1,763 1,409
Subscribed stock (Note 4) 2,064,874 4,022,970
Capital in excess of par 19,496,379 14,960,783
Accumulated deficit (17,081,233) (15,193,407)
----------- -----------
Total Stockholders' Equity 4,481,783 3,791,755
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,415,230 $ 5,809,466
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 275,937 $ 351,405 $ 443,313 $ 945,498
COST OF SALES 144,330 226,458 250,575 425,277
------------ ------------ ------------ ------------
GROSS PROFIT 131,607 124,947 192,738 520,221
------------ ------------ ------------ ------------
EXPENSES
Selling expenses 84,448 726,109 299,957 1,412,955
General and administrative 606,811 652,565 1,599,581 2,315,829
------------ ------------ ------------ ------------
Total Expenses 691,259 1,378,674 1,899,538 3,728,784
------------ ------------ ------------ ------------
Loss from Operations (559,652) (1,253,727) (1,706,800) (3,208,563)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on sale of assets - - (165,167) -
Other income - 136,981 - 136,981
Interest income 782 - 782 12,913
Interest expense (9,258) (3,388) (16,641) (14,912)
------------ ------------ ------------ ------------
Total Other Income
(Expense) (8,476) 133,593 (181,026) 134,982
------------ ------------ ------------ ------------
NET LOSS BEFORE INCOME
TAXES (568,128) (1,120,134) (1,887,826) (3,073,581)
INCOME TAX PROVISION - 300 - 300
------------ ------------ ------------ ------------
NET LOSS $ (568,128) $ (1,120,434) $ (1,887,826) $ (3,073,881)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC LOSS PER SHARE $ (0.03) $ (0.08) $ (0.12) $ (0.23)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC AVERAGE NUMBER
OF SHARES OUTSTANDING 16,333,630 13,463,717 16,333,630 13,463,717
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $ (568,128) $ (1,120,434) $ (1,887,826) $ (3,073,881)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 54,732 96,158 209,296 369,894
(Increase) decrease in accounts
receivable (159,132) (111,481) (258,774) (105,678)
(Increase) decrease in inventory (608,928) 45,983 (372,252) (2,679,991)
(Increase) decrease in prepaid expense (41,753) 58,860 (41,302) (63,186)
(Increase) decrease in deposits (282,651) - (282,651) -
Increase (decrease) in accounts payable (405,902) 136,135 (260,930) 1,357,962
Increase (decrease) in short-term debt 57,724 (225,000) - (300,000)
Increase (decrease) in accrued expenses 879 (78,833) 43,100 (51,754)
Increase (decrease) in customer deposits (54,724) - (54,724) -
Increase (decrease) in income taxes
payable - - - (400)
------------ ------------ ------------ ------------
Net Cash (Used) by Operating
Activities (2,007,883) (1,198,612) (2,906,063) (4,547,034)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Sale of software - 446,058 - 446,058
Equipment purchase (315,898) - (315,898) (74,326)
Investment in subsidiary - (100,000) - (100,000)
------------ ------------ ------------ ------------
Net Cash (Used) by Investing
Activities (315,898) 346,058 (315,898) 271,732
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from common stock 1,818,104 742,121 2,578,926 1,009,929
Proceeds from subscribed stock - - - 3,203,000
Payments of capital leases (5,604) (1,143) (7,054) (6,034)
Proceeds from notes 1,190,000 - 1,190,000 -
Payments of long-term debt (19,778) (25,172) (20,850) (68,341)
------------ ------------ ------------ ------------
Net Cash Provided by Financing
Activities $ 2,982,722 $ 715,806 $ 3,741,022 $ 4,138,554
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
8
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 658,941 $ (136,748) $ 519,061 $ (136,748)
CASH AT BEGINNING PERIOD 80,960 165,536 220,840 165,536
------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 739,901 $ 28,788 $ 739,901 $ 28,788
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
9
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect practices of the software
sales, 3D electronic device 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,
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 nine months ended December
31, 1998 and for the year ended March 31, 1998 amounted to $121,754 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:
<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
---------------------------
March 31, Dec. 31,
Term Cost Amortization 1998 1998
------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Product rights 5 years $ 2,972,167 $ 472,464 $ 2,580,574 $ 2,499,703
Training video 5 years - - 76,722 -
Organization cost 5 years 17,261 17,261 - -
----------- --------- ----------- -----------
$ 2,989,428 $ 489,725 $ 2,657,296 $ 2,499,703
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
10
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 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 $17,000,000 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.
11
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1998
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Finished goods $ 1,610,510 $ 1,238,258
WIP 124,243 124,243
Raw goods 1,321,877 1,321,877
----------- -----------
$ 3,056,630 $ 2,684,378
----------- -----------
----------- -----------
</TABLE>
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 December 31, 1998 and March 31, 1998 are
detailed in the following summary:
<TABLE>
<CAPTION>
Net Book Value
-------------------------------
Accumulated December 31, March 31,
Cost Depreciation 1998 1998
---------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 61,147 $ 36,262 $ 24,885 $ 33,237
Machinery and equipment 594,975 113,270 481,705 161,464
Capital leases 26,877 25,603 1,274 2,707
Leasehold improvements 24,581 4,347 20,234 2,927
---------- ------------ ------------ -----------
Total $ 707,580 $ 179,482 $ 528,098 $ 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
nine months ended December 31, 1998 and the year ended March 31, 1998
amounted to $87,542 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 17,630,163 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.
12
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1998
NOTE 4 - STOCKHOLDERS' EQUITY (Continued)
The Company continued the subscription of Regulation S stock in the
current period. 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
$2,064,874 for the sale of approximately 2,200,000 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 December 31, 1998 and March 31,
1998 are detailed in the following summary:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Note payable to Chairman; due on demand, with
an interest rate of 10.4%. $ 150,000 $ 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 150,000 156,802
Less: current portion (150,000) (156,802)
------------ ------------
Long-term portion $ - $ -
------------ ------------
------------ ------------
</TABLE>
Maturities of the related party notes payable are as follows:
<TABLE>
<S> <C>
Period ending December 31, 1998 $ 150,000
1999 -
---------
Total $ 150,000
---------
---------
</TABLE>
13
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1998
NOTE 6 - LONG-TERM DEBT
Notes payable as of December 31, 1998 and March 31, 1998 are detailed
in the following summary:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Note payable to a company; due in monthly
payments of $19,000, which includes interest
at 6%, unsecured. $ 210,994 $ -
Note payable to a company; due May 1, 2000,
option to convert to common stock, interest
at 10%, unsecured. 440,000 -
Convertible 8% debenture; due December 21, 2001.
Interest due quarterly, unsecured. 750,000 -
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 1,450,074 62,056
Less: current portion (260,074) (50,080)
------------ ------------
Long-term portion $ 1,190,000 $ 11,976
------------ ------------
------------ ------------
</TABLE>
Maturities of long-term debt are summarized below:
<TABLE>
<S> <C>
Period ending December 31, 1999 $ 260,074
2000 440,000
2001 750,000
2002 -
2003 -
------------
Total $ 1,450,074
------------
------------
</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
December 31, 1998 and March 31, 1998:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Equipment $ 26,877 $ 26,877
Less: accumulated depreciation (25,603) (24,170)
------------ ------------
Net property under capital lease $ 1,274 $ 2,707
------------ ------------
------------ ------------
</TABLE>
14
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1998
NOTE 7 - LEASES (Continued)
At December 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 December 31,
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 (6,327)
----------
Capital lease obligations payable long-term $ -
----------
----------
</TABLE>
Rental expense for the years ended December 31, 1998 amounted
to $95,262.
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Interest paid $ 16,641 $ 18,478
Interest received $ - $ 24,152
Income taxes paid $ - $ 400
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
For the nine months ending December 31, 1998 and March 31, 1998, the
Company incurred the following non-cash investing and financing
activities.
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Capital lease obligations incurred $ - $ -
Issuance of stock and options for
services rendered $ - $ 651,517
</TABLE>
15
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 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 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).
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.
On December 8, 1998, the Company entered into an asset purchase
agreement to acquire certain assets of Alpha Broadcasting
Communications. The assets consist mainly of inventory and equipment.
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 December 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.
16
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 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
----------------------------- ----------------------------
December 31, March 31,
----------------------------- ----------------------------
1998 PRICE 1998 PRICE
---------- ------------ --------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Options Granted:
Beginning of year 354,800 $ 3.50-7.00 354,800 $ 3.50-7.00
Additional granted 2,024,753 .01 - 3.64 2,000,000 .01
---------- ---------
End of year 2,379,553 2,354,800
---------- ---------
---------- ---------
Options Exercised:
Beginning of year 283,242 .01-3.50 100 3.50
Additional exercised 971,364 .01 283,142 .01
Expired - - -
---------- ---------
End of year 1,254,506 283,242
---------- ---------
---------- ---------
Options Outstanding at
End of Year 1,125,047 2,071,558
---------- ---------
---------- ---------
</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 option 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.
17
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
December 31, 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 December 31, 1998 and
March 31, 1998 was $42,034 and $42,034, respectively.
NOTE 16 - 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.
18
<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 nine month period ending December 31, 1998. A
copy of these Financial Statements are included in Item 1 of this report.
The Company's business strategy is based on leveraging its patented
3D technology. In 1997 the Company acquired the exclusive rights to a digital
imaging system that allows the creation of 3D images on any television. The
system is capable of displaying pre-processed stereoscopic imagery, or
converting two-dimensional media into three-dimensional images in real time.
The 3D Imaging System accepts NTSC or PAL compatible signals from network
broadcasts, video game consoles, satellite transmissions, video input from a
signal source, VCR's or any video component. After receiving a composite
input from a signal source, the system digitally processes the images and
displays them in real time on any standard television.
The Company is now launching the first television network to
exclusively offer 3D programming to satellite dish owners, cable TV
subscribers and hotel guests through a pay-per-view delivery system. The
Company's 3D network was launched by SpaceNet to the C-Band satellite market
in January of 1999. C-Band satellite subscribers utilize the large satellite
dishes, whereas Direct to Home or "DTH" subscribers utilize much smaller
dishes. The 3D channel will be both a subscriber and advertiser supported
television network. The Company's strategy is to become a premier niche
television channel utilizing its proprietary technology. 3D programming will
be geared toward television viewers who are looking for a new level of
entertainment. Content for the channel will be a combination of modified
two-dimensional material, and original and acquired 3D material. The 3D
channel should prove attractive to cable stations and DTH carriers since they
share in the monthly subscription fee. As the number of subscribers grows,
the network will be positioned to generate advertising revenue.
The Company has chosen to penetrate the C-Band market first because
it can be done quickly and inexpensively while meeting the pent-up demand of
C-Band owners for more programming. This market has an estimated subscriber
base of more than 2 million customers. These customers have made a
significant investment in the eight to twelve foot satellite dish needed to
receive television reception. As an industry, C-Band technology is still the
most widely used delivery method to transmit and receive television
programing to cable operators in the U.S.
The second phase of the roll out strategy is focused on cable TV.
With over 65 million subscribers, the cable industry is the largest of the
four television entertainment broadcast mediums. With a limited ability to
increase the number of homes passed, cable operators are always looking for
new programming niches to increase their revenue base. The Company has begun
discussions with several Multiple Systems Operators (MSO's).
The third phase of the roll out is focused on the 7.6 million Direct
to Home (DTH) subscribers that use the 18 to 24 inch dish and receiver
systems. The DTH market has been in existence for a relatively short period
but has enjoyed very strong growth. This growth is expected to continue as
DTH offers a very attractive alternative to cable. It offers more television
programming, an acceptable installation process, is priced competitively, has
better picture and
19
<PAGE>
audio quality, more pay-per-view options and specialized "niche" channels.
The Company is in the process of evaluating the most favorable digital
platform for its launch.
The fourth phase will be focused on the lodging industry. By
differentiating programming and offering a unique 3D television viewing
option, the Company believes that lodging properties will increase
pay-per-view buy rates simply through consumer curiosity.
The Company has been able to successfully begin the implementation
of its business plan during the past quarter. Some of the key elements of the
business plan which have already been accomplished were securing the
satellite space segment and uplink service, opening an Los Angeles office to
help in the production and acquisition of 3D content, and securing
advertising to help promote the new 3D channel. An informational piece has
already been produced to explain the new 3D channel and how people can
subscribe and obtain the proper equipment. This show which lasts
approximately 30 minutes will be shown on our own network and can also be
placed as advertisements on other broadcast networks. The satellite space
that has been secured for the broadcasting of our channel is located on GE
Spacenet 3R, Transponder 5. The programming is expected to include a wide
variety of choices including action and horror movies, sporting events,
nature shows, animation, travel and documentary, and many others.
For the quarter ended December 31, 1998, the Company generated
revenues of $275,937 approximately 51% of total revenues came from sales
related to the 3D Imaging System. Five percent of revenues was from the newly
acquired hotel pay-per-view business and 44% of revenue from acting as a
re-seller of 3D graphic software. In addition to these sources of revenue,
the Company also anticipates future revenues to come from subscribers to the
3D network, contracts with cable and satellite providers, and advertising
revenue.
The Company was also able to successfully close the asset purchase
from Alpha Broadcasting which provided the assets to immediately step into
the hotel pay-per-view business. This not only gives the Company new source
of revenue, but also another distribution channel for its 3D technology.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED DECEMBER 31, 1998 AND 1997
Gross Revenue
For the quarter ended December 31, 1998, total gross revenue of the
Company was $275,937 compared to $351,405 for the quarter ended December 31,
1997; a decrease of $75,468. However, revenues increased by nearly $200,000
when compared to the quarter which ended September 30, 1998. The reason for
this sudden climb is an increase in sales from the 3D Imaging as well as new
sources of revenue from the hotel pay-per-view business and the re-selling of
graphic 3D software.
The Company continues to be dependant upon investment dollars to
maintain operations. Due to this dependance on outside investment some
concerns as to the Company's ability to continue as a going concern have been
raised. Although no guarantee can be made, the Company is confident in its
business plan and the potential for its products and believes it will be able
to attract the necessary investment dollars to continue operations and
growth. The
20
<PAGE>
Company is also very aware of the necessity to quickly develop a greater
revenue stream to help tide the dependance on outside groups. Steps which
have been taken to help increase the Company's revenue were the purchases of
the Alpha Broadcasting assets and Strata technology, which both have had a
consistent revenue stream during the quarter. The Company is also actively
marketing its core 3D products. This includes marketing the Realeyes Imaging
System to individual consumers and to distributors, both domestically and
internationally; as well as negotiating with cable television providers to
offer our channel as another option to their customers. The Company foresees
revenue increasing as cable providers start offering the channel to their
customers and can share in the monthly subscription revenue. Additionally,
equipment sales will increase since subscribers will need to purchase the
equipment to view the 3D channel.
The Company continued to rely heavily on cash flows from financing
activities during the quarter ended December 31, 1998. The two major
components to cash flow from financing activities for the quarter were
Proceeds from Common Stock and Proceeds from Notes. The Proceeds from notes
is easily identifiable in two separate transactions. The first, was a
convertible debenture agreement entered into with Augustine Funding in the
amount of $750,000. This debenture will in all likelihood be converted to
stock at a later time according to the terms of the agreement. The second
portion of Proceeds from notes relates to the acquisition of Alpha
Broadcasting assets. A total value of the purchase was placed at $1,000,000.
The proceeds given to Alpha Broadcasting in the transaction were three fold.
First, a $60,000 cash payment. Second, 250,000 shares of restricted stock
valued for this transaction at $2.00. And third, a note for $440,000 payable
in 18 months. Monthly interest payments at an annual percentage rate of 10%
are to be made for the 18 months. At the end of 18 months Alpha has the
option to convert the note to common stock at the price of $2.00 or to
receive cash. The Proceeds from common stock consisted mainly of $1,137,500
received through Regulation S agreements with non U.S. persons and the
$500,000 value placed on shares given to Alpha Broadcasting as part of that
purchase.
Net cash used by operations was high for the quarter as the Company
used much of the cash received to decrease payables and to make necessary
deposits on satellite space and uplink services. The increase in receivables
was due to acquiring the rights to Strata Inc. receivables from Zions Bank, a
secured investor in Strata, Inc. The increase in inventory was due to
inventory purchased as part of the Alpha Broadcasting transaction. This also
relates to the net cash used by investing activities, because the vast
majority of equipment purchased during the quarter was from the Alpha
Broadcasting acquisition.
Gross Profit
The Company experienced a gross profit for the quarter ended
December 31, 1998 of $131,607 compared to gross profit of $124,947 for the
quarter ended December 31, 1997. The increase can be attributed to better
profit margins from the pay-per-view business and 3D software along with more
sales from the 3D imaging system.
21
<PAGE>
Operating Expenses
General and Administrative along with Selling expenses for the
quarter ending December 31, 1998 were $691,259 compared to $1,378,674 for the
same quarter last year; a decrease of $687,415. 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 December 31, 1998 was
$568,128 a decrease of $552,306, when compared to the $1,120,434 loss for the
quarter ended December 31, 1997. The improvement is due to a slight increase
in gross profit and considerable decrease in expenses. The large decrease in
expenses and the corresponding improvement in the net loss is due to the
strategic decision to dispose of the financial services segment of the
corporation. It is anticipated that expenses will increase to support the new
3D channel and provide more marketing dollars. It is expected that this
increase in expenses will be offset however by an increasing revenue stream.
COMPARISON OF NINE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
Gross Revenue
For the nine month period ended December 31, 1998, total gross
revenue of the Company was $443,313 compared to $945,498 for the nine month
period ended December 31, 1997; a decrease of $502,185. The lower revenue
number can be in part attributed to revenue which was lost due to selling the
financial services segment of the corporation. This action however was
successful in cutting expenses and focusing efforts on the 3D technology.
During the quarter just ended, the new revenue sources related to 3D
technology have taken hold and started to significantly replace any revenue
that was lost.
Gross Profit
Gross profit for the nine month period ended December 31, 1998 was
$192,738 compared to gross profit of $520,221 for the nine months ended
December 31, 1997. Much like the revenue, gross profit over the nine month
period is lower due to the strategic decisions which took place.
Operating Expenses
General and Administrative expenses for the nine month period ended
December 31, 1998 were $1,599,581 compared to $2,315,829 for the same nine
month period last year; a decrease of $716,248. 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 nine month period ended December 31,
1998 was $1,887,826 a decrease of $1,185,755, when compared to the $3,073,881
loss for the nine month period ended December 31, 1997. The improvement is
due to decreases in expenses related to the disposed financial services
segment of the corporation rather than increased revenue and gross profit.
22
<PAGE>
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. A
convertible debenture agreement was executed during December for $750,000 and
second debenture agreement was executed on February 9, 1999 for $2,000,000.
The Company is required to register shares under the convertible debenture
agreements executed in December and February. The Company also continues to
receive capital from its Regulation S agreements with non-U.S. persons at
rate of $400,000 a month.
As part of the agreement with Advanced Technology 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 ADVANCED TECHNOLOGY. 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. This in turn has resulted in there being no change in raw
materials between March 31, 1998 and December 31,1998 because production to
finish the first 10,000 has not become necessary. The raw materials reflected
in inventory are still in good condition and can be used to produce the
Realeyes Product which uses the Company's core technology.
At December 31, 1998, the Company had current assets of $4,093,725
and current liabilities of $1,743,447 resulting in net working capital of
$2,350,278 and a current ratio of 2.35. This is an increase of $1,412,443
from the Company's working capital of $937,835 as of March 31, 1998. The
Company's total liabilities as of December 31, 1998 were $2,933,447, an
increase of $915,736, when compared to total liabilities as of March 31,
1998. This increase is due to the note payable to Alpha Broadcasting related
to the asset acquisition and to the debenture agreement reached during the
quarter.
Significant increases took place in several of the balance sheet
accounts during the quarter ended December 31, 1998. These included increases
in Cash, Accounts Receivables, Prepaid Expenses, Inventory, Property and
Equipment, and Refundable Deposits. The increase in Cash is due to the
investment dollars which were received to help fund the new business plan
which is currently being implemented. The increase in Accounts Receivables
was mainly due to the Strata receivables purchased from Zions Bank. The
Prepaid expenses increased as the Company paid for certain operating expenses
in advance, namely legal expenses and rent for the new Los Angeles office.
Inventory increased also due to transactions involving Strata, Inc. and Alpha
Broadcasting. The inventory purchased as part of the Alpha transaction was
valued at $653,297 and the Company has made an investment of $64,929 in
Strata inventory so that it could act as a re-seller of their product. The
large increase in equipment is due to the Alpha Broadcasting acquisition and
$326,542 worth of equipment purchased in the agreement. The equipment from
Alpha Broadcasting relates to machinery previously installed in hotels to
provide the pay-per-view service to the various rooms. The large increase in
refundable deposits was due to $225,000 deposited with Spacelink, Inc. to
gain access to satellite space on Spacenet 3, and
23
<PAGE>
$50,000 deposited with Geosynchronous, Inc. to provide uplink service
(transmission from Earth's surface to the particular satellite).
The Company will be making many material capital expenditures in the
coming months. Among these are monthly payments totally $100,000 to rent
satellite space and broadcast the Company's channel signal to the satellite.
Other expenditures will be made in acquiring and developing content to
broadcast the Company's cable channel. Expenditures for content will include
licensing fees for movie rights, and equipment and production costs to film
content generated internally. Increased marketing expenditures are also
planned to make the general public and also cable providers aware of the
equipment and services available from the Company. These expenditures will
include advertisements in cable magazines, commercials placed on cable
television, and attending shows and conferences related to the industry.
The Company has retained the services of Coleman Capital Partners to
help meet future capital needs. As discussed in Item 5 of the 10-QSB the
Company did complete a second convertible debenture with Augustine Fund L.P.
in February for $2,000,000 and is hopeful the similar deals can be reached as
further capital becomes necessary. The Company has also received an
additional $500,000 through its Regulation S offering since the filing of the
most recent 10-QSB, however, there is no future plan to continue receiving
capital through this kind of offering.
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 "00" 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 third party 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.
24
<PAGE>
The Company presently believes that with modifications to existing
software and conversions to new software for those systems which may be
affected by 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," "anticipates," "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 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 1. Legal Proceedings
As reflected in the Form 10-KSB report of the Company for the fiscal
year ending March 31, 1998, Chequemate International, Inc. was named as a
defendant in litigation filed by BH Productions, Inc. Dba Ignite Advertising.
The litigation was filed to recover the costs of certain advertising services
rendered for Chequemate's wholly owned subsidiary, Chequemate Technologies,
Inc. This obligation had been listed in the accounts payable section of the
financial statements of the Company and is an acknowledged debt. In December
1998, the Company entered into a complete settlement of this litigation and
has agreed to make ten monthly payments of forty thousand dollars each to
satisfy this obligation. The December 1998 and January 1999 payments have
been made pursuant to the settlement agreement.
As also referenced in the most recent Form 10-KSB report of the
Company, the Company's subsidiary, Chequemate Tele-Services, Inc., has been
named in litigation regarding a disputed lease obligation. The Chairman of
the Company has also been named as a defendant by reason of a written
guarantee given to the landlord of the subject lease. The defendants have
responded to the litigation and Chequemate Tele-Services has asserted
counterclaims against the landlord. The Dallas County Texas District Court
has ordered mediation in the matter. A date for the mediation hearing has not
been set as of the date of this amended report.
25
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Set forth in the table below is a summary of all securities sold by
the Company between January 1, 1998 and May 31, 1999, without registering the
securities under the Securities Act of 1933. Substantially all of the
described transactions have previously been reported in the quarterly reports
of the Company filed with the SEC. This table is meant to be a complete
restatement of such transactions for the period indicated.
<TABLE>
<CAPTION>
Date Title and amount of Consideration Class of persons to
Securities sold whom sold
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A 2/10/98 7,000 shares Consulting services U.S. Investor
common stock
- ---------------------------------------------------------------------------------------------------------
B 2/27/98 20,000 shares satisfaction of U.S. Investor
common stock payable of issuer
- ---------------------------------------------------------------------------------------------------------
C 2/ /98 200,000 shares consulting services U.S. Investor
common stock
- ---------------------------------------------------------------------------------------------------------
D 4/24/98 to 106,668 shares exercise of assigned U.S. investor
7/22/98 common stock options
- ---------------------------------------------------------------------------------------------------------
E 6/2/98 20,000 shares employee bonus and Corporate officer
common stock consulting services
- ---------------------------------------------------------------------------------------------------------
F 7/21/98 40,000 shares consulting services Consultant
common stock
- ---------------------------------------------------------------------------------------------------------
G 8/26/98 to 587,791 shares $422,500 U.S. investors
11/6/98 common stock
- ---------------------------------------------------------------------------------------------------------
H 10/26/98 9,754 shares payment of book U.S. investor
common stock royalties
- ---------------------------------------------------------------------------------------------------------
I 12/8/98 250,000 shares Alpha asset Selling corporation
common stock acquisition
- ---------------------------------------------------------------------------------------------------------
J 12/15/98 10,000 shares consulting services U.S. investor
common stock
- ---------------------------------------------------------------------------------------------------------
K 12/21/98 8% convertible $ 750,000 U.S. investor
debentures
- ---------------------------------------------------------------------------------------------------------
L 12/21/98 warrant for Unexercised with a U.S. investor
24,753 shares $3.64 strike price
- ---------------------------------------------------------------------------------------------------------
M 12/21/98 200,000 shares consulting services Consultant
common stock
- ---------------------------------------------------------------------------------------------------------
N 10/5/98 to 675,000 shares $337,500 Foreign investors
11/2/98 common stock
- ---------------------------------------------------------------------------------------------------------
26
<PAGE>
- ---------------------------------------------------------------------------------------------------------
O 11/30/98 to 800,000 shares $400,000 Foreign investors
12/23/98 common stock
- ---------------------------------------------------------------------------------------------------------
P 1/25/99 to 700,000 shares $700,000 Foreign investors
3/25/99 common stock
- ---------------------------------------------------------------------------------------------------------
Q 2/9/99 8% convertible $2,000,000 U.S. investor
debentures
- ---------------------------------------------------------------------------------------------------------
R 2/9/99 warrant for Unexercised with a U.S. investor
67,800 shares $3.54 strike price
- ---------------------------------------------------------------------------------------------------------
S 3/31/99 333,333 shares Strata acquisition U.S. investors
common stock of secured interests
- ---------------------------------------------------------------------------------------------------------
T 4/15/99 55,000 shares Consulting services Foreign consultant
common stock
- ---------------------------------------------------------------------------------------------------------
U 4/23/99 warrant for 300,000 Unexercised with strike U.S. investor
shares prices of $3.50, $4.50
and $5.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Sales of Equity Securities Pursuant to Regulation S
The sales reflected in transactions N, O, P and T were made 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 resales of the securities are to be
made 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.
27
<PAGE>
(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 Company , 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.
(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.
All Regulation S sales were to non-U.S. persons, including private investment
firms. Stock certificates for a portion of the shares purchased in the
Regulation S transactions have not, as yet, been issued to the purchasers of
the stock. However, full cash payment for the shares has been received by the
Company on or before the dates indicated in the table.
Sales of Equity Securities Pursuant to Regulation D
Transactions A and B, F through I, K through M, Q through S, and U
constitute private placement transactions under Regulation D. The private
placement transactions were variously made for the asset acquisition
transactions described below, for services rendered to the Company, for the
cancellation of debt of the Company, or for cash.
Prior to the date of this report, the Company issued its 8%
Convertible Debentures due December 21, 2001 in the face amount of $750,000,
and its 8% Convertible Debentures due February 9, 2002 in the face amount of
$2,000,000 (transactions L and R). These debentures were issued in private
placements on December 21, 1998 and February 9, 1999 respectively. Both
private placements were made to a single accredited investor. An aggregate of
$165,000 was paid as a finders fee for the combined transactions.
On December 8, 1998(transaction J), the Company entered into an
Asset Purchase Agreement to purchase certain assets of Coast Communications,
Inc., a Nevada corporation doing business as Alpha Broadcasting
Communications. Pursuant to the Asset Purchase Agreement, the Company has
issued 250,000 shares of its restricted
28
<PAGE>
common stock to the selling entity, which is an accredited investor.. Further
details of the described transaction, including a discussion of the balance
of the consideration to be paid for the assets, are included in the Form 8-K
report of the Company dated December 23, 1998 and filed with the SEC.
Shares issued pursuant to transactions C, D, E and J were believed
by management of the Company to be registered transactions or were believed
to qualify for registration on Form S-8, and were not sold as restricted
securities pursuant to an exemption from registration. The Form S-8
registration statements which were filed by the Company at the time of the
issuance of these shares may not have been applicable to the shares issued or
the transaction pursuant to which the shares were issued.
All U.S. investors are believed to be accredited investors, as
defined in Rule 501(a) of Regulation D.
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/ J. MICHAEL HEIL
- -----------------------------------
J. MICHAEL HEIL DATE JULY 2, 1999
CHIEF EXECUTIVE OFFICER -----------------
/s/ STEVE ANDERSON
- -----------------------------------
STEVE ANDERSON DATE JULY 2, 1999
CHIEF FINANCIAL OFFICER -----------------
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 739,901
<SECURITIES> 0
<RECEIVABLES> 398,079
<ALLOWANCES> 153,446
<INVENTORY> 3,056,630
<CURRENT-ASSETS> 4,093,725
<PP&E> 528,098
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,415,230
<CURRENT-LIABILITIES> 1,743,447
<BONDS> 0
0
0
<COMMON> 1,763
<OTHER-SE> 4,481,783
<TOTAL-LIABILITY-AND-EQUITY> 7,415,230
<SALES> 275,937
<TOTAL-REVENUES> 275,937
<CGS> 144,330
<TOTAL-COSTS> 691,259
<OTHER-EXPENSES> 782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,258
<INCOME-PRETAX> (568,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,128)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
