<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 2000
Commission File Number:01-15043
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.)
330 Washington Boulevard, Suite 507, Marina del Rey, California
90292 (Address of principle executive offices)
(310) 306-6666
(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: November 9, 2000: 12,644,481
Transitional Small Business Format: Yes / / No /X/
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 5
Unaudited Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
LIQUIDITY AND CAPITAL RESOURCES 13
FORWARD LOOKING STATEMENTS 13
PART II - OTHER INFORMATION 13
ITEM 1 - LEGAL PROCEEDINGS 13
ITEM 2 - CHANGES IN SECURITIES 14
ITEM 5 - OTHER INFORMATION 14
ITEM 6 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8 14
</TABLE>
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.
AND SUBSIDIARIES
(dba C3-D Digital)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets ................. 3
Consolidated Statements of Operations ....... 5
Consolidated Statements of Cash Flows ....... 6
</TABLE>
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Unaudited Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 44,866 $ 49,815
Accounts receivable - net allowances of $100,000
and $422,096, respectively 202,346 213,268
Inventory (Note 2) 413,764 727,512
Prepaid expenses 163,141 74,170
---------- ----------
Total Current Assets 824,117 1,064,765
---------- ----------
PROPERTY AND EQUIPMENT (Note 3) 1,509,044 1,428,641
---------- ----------
OTHER ASSETS
Notes receivable 50,000 50,000
Product rights and movie production cost (net) 4,194,839 3,357,899
Refundable deposits 92,866 47,159
---------- ----------
Total Other Assets 4,337,705 3,455,058
---------- ----------
TOTAL ASSETS $6,670,866 $5,948,464
========== ==========
</TABLE>
3
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Unaudited Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 626,944 $ 1,089,974
Short-term obligations -- 1,972,502
Accrued expenses 275,287 376,391
Income tax payable 500 500
Accrued interest payable 3,605 123,605
Current portion long-term debt - related parties 179,000 3,625,787
------------ ------------
Total Current Liabilities 1,085,336 7,188,759
------------ ------------
Total Liabilities 1,085,336 7,188,759
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock $0.0001 par value, 500,000,000 shares
authorized, 12,644,481 and 6,781,669 shares outstanding
at September 30, 2000 and March 31, 2000, respectively 1,264 678
Capital in excess of par 50,639,126 36,900,982
Accumulated deficit (45,054,860) (38,141,955)
------------ ------------
Total Stockholders' Equity 5,585,530 (1,240,295)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 6,670,866 $ 5,948,464
============ ============
</TABLE>
4
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,091,316 $ 842,177 $ 1,209,025 $ 1,609,186
COST OF SALES 240,100 249,105 604,512 582,054
----------- ----------- ----------- -----------
GROSS PROFIT 851,216 593,072 604,513 1,027,132
----------- ----------- ----------- -----------
EXPENSES
Selling expenses 330,753 529,655 1,779,431 1,340,530
General and administrative 1,172,669 1,885,982 5,531,890 3,401,288
----------- ----------- ----------- -----------
Total Expenses 1,503,422 2,415,637 7,311,321 4,741,818
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,462 1,105 15,006 8,586
Interest expense (112,027) (112,027) (221,103) (105,491)
----------- ----------- ----------- -----------
Net Other Expense (109,565) (13,900) (206,097) (96,905)
----------- ----------- ----------- -----------
NET (LOSS) BEFORE INCOME TAXES (761,771) (1,836,465) (6,912,905) (3,811,591)
INCOME TAX PROVISION -- -- -- --
----------- ----------- ----------- -----------
NET (LOSS) $ (761,771) $(1,836,465) $(6,912,905) $(3,811,591)
=========== =========== =========== ===========
BASIC (LOSS) PER SHARE $ (0.08) $ (0.32) $ (0.71) $ (0.67)
=========== =========== =========== ===========
AVERAGE NUMBER OF SHARE
OUTSTANDING 9,713,075 5,719,090 9,713,075 5,691,626
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Unaudited Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(6,912,905) $(3,811,591)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 686,488 262,334
Bad debt expense 50,000 --
Common stock and options issued for interest and services 6,190,075 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (39,078) (180,078)
(Increase) decrease in inventory 313,748 (153,130)
(Increase) decrease in prepaid expense (88,971) (73,279)
(Increase) decrease in deposits (45,707) --
Increase (decrease) in accounts payable (463,030) 425,035
Increase (decrease) in accrued expenses (101,104) 110,332
Increase (decrease) in accrued interest (205,000) (39,791)
----------- -----------
Net Cash (Used) by Operating Activities (615,484) (3,40,168)
----------- -----------
CASH FLOWS FORM INVESTING ACTIVITIES
Purchase of fixed assets (238,465) (138,437)
----------- -----------
Net Cash (Used) by Investing Activities (238,465) (138,437)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock -- 1,499,405
Proceeds from debt 849,000 500,000
Payments of capital leases -- (15,289)
Payments of long-term debt -- (59,746)
----------- -----------
Net Cash Provided by Financing Activities 849,000 1,924,370
----------- -----------
NET INCREASE (DECREASE) IN CASH (4,949) (1,674,235)
CASH AT BEGINNING OF PERIOD 49,815 1,732,199
----------- -----------
CASH AT END OF PERIOD $ 44,866 $ 57,964
=========== ===========
</TABLE>
6
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Unaudited Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash Flow Information:
Interest paid $ 34,581 $ 72,277
Income taxes paid $ 500 $ 500
Non-Cash Investment and Financing Activities:
Issuance of stock and options for interest
and services rendered $7,431,968 $1,006,349
Issuance of stock for assets $ 850,650 $ 150,000
Issuance of stock for debt $1,300,000 $ --
</TABLE>
7
<PAGE>
CHEQUEMATE INTERNATIONAL, INC.A ND SUBSIDIARIES
(dba C3-D Digital)
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements presented are those of Chequemate
International, Inc. and its wholly-owned subsidiary. Chequemate
International, Inc. is presently engaged in the business of centric
graphical software applications, hotel pay-per-view services and cable
channel services.
In the opinion of management, the unaudited financial statements reflect
all adjustments, consisting only of normal recurring accruals necessary for
a fair presentation of (a) the consolidated statements of operations for
the six month period ended September 30, 2000 and 1999, (b) the
consolidated financial position at September 30, 2000 and (c) the
consolidated statements of cash flows for the three month period ended
September 30, 2000 and 1999. The accounting policies followed by the
Company are set forth in the Notes to the Consolidated Financial Statements
of the Company for the fiscal year ended March 31, 2000. The results of
operations for interim periods are not necessarily indicative of the result
to be expected for the full year.
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include
all of the footnotes required to be presented for complete financial
statements. The accompanying financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods presented.
The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read
or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these financial statements should be read in conjunction
with the audited financial statements and the related notes thereto
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on July 14, 2000.
REVENUE RECOGNITION
Revenue is recognized on an accrual basis upon deliver of the software or
product, or as customers view pay-per-view items. Revenue consists of
software sales, product sales, license fees, and monthly hotel pay-per-view
fees.
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 furniture 5-7
Machinery and equipment 5
</TABLE>
8
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
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.
<TABLE>
<CAPTION>
For the Six Months Ended
September 30, 2000
------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss $(6,912,905) 9,713,075 $ (0.71)
=========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
September 30, 1999
------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss $(3,811,591) 5,691,626 $ (0.67)
=========== =========== =======
</TABLE>
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
$23,000,000 available to offset future federal and state income tax through
2020. The Company has not recorded a tax benefit attributable to the
carryforwards because realization of such has been offset by a valuation
allowance for the same amount.
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.
9
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
September 30, March 31,
2000 1999
------------- --------
<S> <C> <C>
Finished goods $413,764 $727,512
-------- --------
$413,764 $727,512
======== ========
</TABLE>
The Company inventories are stated at the lower of cost or market, using
the first-in, first-out (FIFO) method. Inventories consist mainly of
components related to the 3-D electronic devices product and pay-per-view
operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2000 and March 31, 2000 are
detailed in the following summary:
<TABLE>
<CAPTION>
Net Book Value
Accumulated --------------------------
Cost Depreciation 9-30-2000 3-31-2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 196,759 $ 52,910 $ 143,849 $ 126,894
Machinery and equipment 1,275,682 349,159 926,523 949,013
Hotel pay-per view equipment 582,918 144,246 438,672 351,734
---------- ---------- ---------- ----------
Total $2,055,359 $ 546,315 $1,509,044 $1,428,641
========== ========== ========== ==========
</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 six months ended
September 30, 2000 and the year ended March 31, 2000 amounted to $155,602
and $205,471, respectively.
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000,000 shares of common stock, par
value $.0001. As of September 30, 2000, the Company has issued 12,644,481
shares of common stock. On February 2, 2000, the Company authorized a 1:4
reverse stock split. The consolidated financial statements have been
retroactively restated to reflect the reverse stock split.
10
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
NOTE 5 - LONG-TERM DEBT
Notes payable as of September 30, 2000 and March 31, 2000 are detailed in
the following summary:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------ ----------
(Unaudited)
<S> <C> <C>
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured $ -- $ 48,287
Promissory notes to various companies;
April 1, 2001, which includes interest at 12%,
secured by tangible and intangible assets -- 3,050,000
Note payable to a company; due June 8, 2000,
interest at 10% due monthly, secured by
equipment and inventory -- 440,000
Note payable to related individuals 179,000 --
Note payable to a company; unsecured, due in
monthly installments of $19,654, which includes
interest at 6%; due October 1999 -- 87,500
---------- ----------
Total long-term debt 179,000 3,625,787
Less: current portion (179,000) 3,625,787
---------- ----------
Long-term portion $ -- $ --
========== ==========
</TABLE>
Maturities of long-term debt are summarized below:
<TABLE>
<S> <C>
Period ending September 30, 2001 $ 179,000
2002 --
2003 --
2004 --
2005 --
---------
Total $ 179,000
=========
</TABLE>
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
September 30, 2000 and December 31, 1999
Changes in Financial Condition
The balance of current assets at September 30, 2000 was $829,111 compared to a
balance of $7,188,759 at December 31, 1999. The balance of current liabilities
were $1,085,626 and $7,188,759 for the same periods respectively. The resulting
current ratio and September 30, 2000 is .8:1. The current ratio at March 31,
2000 was .2:1.
The decrease of current liabilities at September 30, 2000 over March 31, 2000 is
due primarily to the conversion of short-term and long-term debt to common stock
from $5,598,289 to $179,000 a decrease of $5,489,289 or 97%.
The decrease in current assets at September 30, 2000 includes a decrease in
inventory from $727,572 at March 31, 2000 to $413,764 at September 30, 2000 a
decrease of $313,748 of 43%.
The balance of accounts payable at September 30, 2000 is $626,944 and at March
31, 2000 is $1,069,974 The decrease of $443,030 or 41% is due primarily to the
repayment of accounts payable from the cash proceeds of related party loans.
Results of Operations
For the six months ended September 30, 2000 and September 30, 1999
Sales for the six months ended September 30, 2000 were $1,209,025 compared to
$1,609,186 for the same period in 1999, resulting in an decrease of $400,161 or
25%. Cost of goods sold for the six months ended September 30, 2000 was $604,512
or 50% of sales, compared to $582,054 or 36% of sales for 1999. Gross margin was
$604,573 or 50% of sales and $1,027,152 or 64% of sales for the same period
respectively.
Operating expenses include primarily depreciation and amortization expenses and
general and administrative expenses. Depreciation and amortization expenses for
the six months ended September 30, 2000 was $686,488. Selling, general and
administrative expenses were $7,311,321 or 605% of sales, for the six months
ended September 30,2000 and $4,741,818 or 295% of sales for the same period in
1999, resulting in an increase of $2,571,503 or 54%. The increase is due to
primarily to financing costs of the convertible debt.
12
<PAGE>
For the three months ended September 30, 2000 and September 30, 1999
Sales for the three months ended September 30, 2000 were $1,091,316 compared to
$842,177 for the same period in 1999, resulting in an increase of $249,139 or
30%. Cost of goods sold for the three months ended September 30, 2000 was
$240,100 or 22% of sales, compared to $249,105 or 30% of sales for 1999. Gross
margin was $857,216 or 78% of sales and $573,572 or 70% of sales for the same
periods respectively.
Operating expenses include primarily depreciation and amortization expense and
general and administrative expenses. Depreciation and amortization expense for
the three months ended September 30, 2000 was $377,435. Selling, general and
administrative expenses were $1,546,184 or 142% of sales, for the three months
ended September 30, 2000 and $2,415,637 or 287% of sales for the same period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to be dependent on investment capital to fund its
operations. This can be no assurance that the Company will continue to be able
to attract sufficient investment capital to fund its operations. The Company
established an equity line of credit but has determined to not make any draws on
the line of credit through November 15, 2000.
FORWARD LOOKING STATEMENTS
This filing includes "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The SLRA
provides a "safe harbor" for such statements to encourage companies to provide
prospective information about themselves so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements other
than statements of historical fact made in this report or incorporated by
reference are forward-looking. In particular, the statements herein regarding
the availability of adequate funding and progress in the development of its
various business segments are forward-looking statements. Forward-looking
statements represent management's current expectations and are inherently
uncertain. Investors are warned that the Company's actual results may differ
significantly from management's expectations and, therefore, from the results
discussed in such forward-looking statements.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On June 22, 1998 a suit was filed against Chequemate International, Inc. in the
District Court for the Northern District of Illinois Eastern Division. The
plaintiff, BH Productions, Inc., d/b/a Ignite Advertising is seeking payment
remaining under a contract for advertising services entered into in October
1997. The case was settled, and the Company is making monthly payments of
$10,000. There are four payments remaining under the settlement
13
<PAGE>
agreement. The liability is reflected in the financial statements.
The Company has been named as a defendant in litigation entitled Rocky Mountain
Employee Benefits, Inc. vs. Chequemate International, Inc., Case No. 990912557,
Third Judicial District Court of Salt Lake County, Utah. This suit was filed on
December 30, 1999, and is for damages for an alleged breach by the Company of a
lease for commercial property. Settlement negotiations are in progress. The
Company's maximum exposure is estimated to be approximately $100,000 (present
value of balance of lease.)
The Company has been named as a defendant in litigation entitled Transwestern
American Plaza II, L.L.C. vs. Chequemate International, Inc., Case No.
990903164, Third Judicial District Court of Salt Lake County, Utah. This suit
was filed on or about March 23, 1999, and is for damages for an alleged breach
of a lease for commercial property. Settlement negotiations are in progress. The
Company's maximum exposure is estimated to be approximately $100,000 (present
value of balance of lease.)
There may be other ongoing litigation not deemed material by management.
ITEM 2 - CHANGES IN SECURITIES
Set forth in the table below is a summary of all securities sold by the Company
through the month of June in calender year 2000 (without registering the
securities under the Securities Act of 1933), and which have not been previous
reported in the SEC filings of the Company.
<TABLE>
<CAPTION>
Date Title and amount of Consideration
Securities sold
<S> <C> <C>
9/12/2000 86,605 shares of $137,702 worth of
common stock consulting
</TABLE>
This transaction constituted a private placement under Regulation D. The private
placement transaction was made for services rendered to the Company and the
investor is believed to be an accredited investor, as defined in Rule 501 (a) of
Regulation D.
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
14
<PAGE>
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 hereunto duly authorized on the 14th day of November, 2000.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ J. Michael Heil
---------------------------
J. Michael Heil
Chairman and CEO
By /s/ Andre Peterson
---------------------------
Andre Peterson
Director and Principal Accounting Officer
15
