<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, 1999
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.)
330 Washington Boulevard, Suite 507; Marina Del Rey, Ca 90292
-------------------------------------------------------------
(Address of principal executive offices)
(310) 305-3659
--------------
(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: 23,866,834 (October 25,
1999)
Transitional Small Business Format: YES NO X
----- -----
<PAGE>
PART II
<TABLE>
<S> <C>
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report .......................................... 3
Consolidated Balance Sheets ........................................... 4
Consolidated Statements of Operations ................................. 6
Consolidated Statements of Stockholders' Equity ....................... 7
Consolidated Statements of Cash Flows ................................. 8
Notes to Consolidated Financial Statements ........................... 10
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Chequemate International, Inc. and Subsidiaries
(dba C3-D Digital)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Chequemate
International, Inc. and Subsidiaries (dba C3-D Digital) as of March 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended March 31, 1999, 1998 and 1997.
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 International, Inc. and Subsidiaries (dba C3-D Digital) as of
March 31, 1999 and 1998 and the consolidated results of their operations and
their cash flows for the years ended March 31, 1999, 1998 and 1997 in
conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
June 30, 1999
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,732,199 $ 220,840
Accounts receivable - net of allowances of $53,820
and $115,000 in 1999 and 1998, respectively 197,922 24,305
Inventory (Note 2) 3,115,763 2,684,378
Prepaid expenses 198,349 11,259
------------ ------------
Total Current Assets 5,244,233 2,940,782
------------ ------------
PROPERTY AND EQUIPMENT (Note 3) 622,717 200,335
------------ ------------
OTHER ASSETS
Notes receivable 65,000 -
Organization costs and product rights (Note 1) 2,534,532 2,657,296
Secured interest (Note 15) 1,198,530 -
Refundable deposits 15,704 8,053
Investments 3,000 3,000
------------ ------------
Total Other Assets 3,816,766 2,668,349
------------ ------------
TOTAL ASSETS $ 9,683,716 $ 5,809,466
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 871,116 $ 1,584,576
Related party accounts payable (Note 16) 25,292 42,034
Customer deposits - 54,724
Accrued expenses 38,672 43,339
Income tax payable (Note 18) 500 500
Accrued interest - related party (Note 5) 79,943 65,903
Accrued interest payable 39,791 -
Current portion related party (Note 5) 140,000 156,802
Current portion long-term debt (Note 6) 227,610 50,080
Current portion capital lease (Note 7) 13,602 4,989
------------ ------------
Total Current Liabilities 1,436,526 2,002,947
------------ ------------
LONG-TERM LIABILITIES
Long-term debt (Note 6) 3,190,000 11,976
Capital lease obligations (Note 7) - 2,788
------------ ------------
Total Long-Term Liabilities 3,190,000 14,764
------------ ------------
Total Liabilities 4,626,526 2,017,711
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 500,000,000 shares
authorized, 22,358,646 and 14,088,650 shares
outstanding at 1999 and 1998, respectively 2,236 1,409
Capital in excess of par 24,461,440 18,983,753
Accumulated deficit (19,406,486) (15,193,407)
------------ ------------
Total Stockholders' Equity 5,057,190 3,791,755
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,683,716 $ 5,809,466
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Sales - products $ 682,760 $ 1,091,794 $ 776,963
------------ ------------ ------------
COST OF SALES
Product, supplies and materials 631,132 849,919 291,072
------------ ------------ ------------
GROSS MARGIN 51,628 241,875 485,891
------------ ------------ ------------
EXPENSES
Impairment of product rights (Note 14) - 3,133,333 -
Bad debt expense 53,820 138,259 6,465
Selling expenses 851,339 1,639,806 630,207
General and administrative 3,074,839 3,430,005 1,338,066
------------ ------------ ------------
Total Expenses 3,979,998 8,341,403 1,974,738
------------ ------------ ------------
OPERATING LOSS (3,928,370) (8,099,528) (1,488,847)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss from discontinued operations (40,859) - -
Interest income 11,265 24,152 7,018
Interest expense (93,779) (18,478) (20,344)
Gain (loss) on sale of equipment (160,836) 70,309 -
------------ ------------ ------------
Total Other Income (Expense) (284,209) 75,983 (13,326)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (4,212,579) (8,023,545) (1,502,173)
INCOME TAX PROVISION (Note 18) 500 500 400
------------ ------------ ------------
NET LOSS $ (4,213,079) $ (8,024,045) $ (1,502,573)
============ ============ ============
BASIC LOSS PER SHARE $ (0.23) $ (0.59) $ (0.12)
============ ============ ============
FULLY DILUTED LOSS PER SHARE $ (0.23) $ (0.59) $ (0.12)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 17,984,186 13,568,845 12,891,947
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Total Capital Total
Shares Common in Excess Accumulated Stockholders'
Issued Stock of Par Deficit Equity
---------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31,1996 12,666,053 $ 1,267 $ 5,785,695 $ (5,666,789) $ 120,173
Shares issued through
stock offering 450,788 44 1,816,307 -- 1,546,351
Shares issued for services 1,000 1 3,499 -- 3,500
Subscribed stock -- -- -- -- 270,000
Net loss -- -- -- (1,502,573) (1,502,573)
---------- --------- ----------- ------------ -------------
Balance, March 31, 1997 13,117,841 1,312 7,605,501 (7,169,362) 437,451
Shares issued through
stock offering 379,000 38 4,756,682 -- 4,756,720
Shares issued for cash 315,142 31 67,355 -- 67,386
Shares issued in exchange
for services 256,667 26 387,474 -- 387,500
Shares issued for debt 20,000 2 85,494 -- 85,496
Option issued for
compensation -- -- 81,247 -- 81,247
Options issued for rights -- -- 6,000,000 -- 6,000,000
Net loss -- -- -- (8,024,045) (8,024,045)
---------- --------- ----------- ------------ -------------
Balance, March 31, 1998 14,088,650 1,409 18,983,753 (15,193,407) 3,791,755
Shares issued through
stock offering 6,085,430 609 3,770,925 -- 3,771,534
Shares issued for assets 583,333 58 1,532,942 -- 1,533,000
Shares issued for cash 371,800 37 3,681 -- 3,718
Correction of an error 50,000 5 -- -- 5
Shares issued in exchange
for services 1,094,810 109 43,338 -- 43,447
Shares issued for debt 84,623 9 126,801 -- 126,810
Net loss -- -- -- (4,213,079) (4,213,079)
---------- --------- ----------- ------------ -------------
Balance, March 31, 1999 22,358,646 $ 2,236 $24,461,440 $(19,406,486) $ 5,057,190
=========== ========= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,213,079) $ (8,024,045) $ (1,502,573)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization 314,873 427,575 62,183
Depreciation 79,599 70,209 41,549
Loss on sale of assets 160,836 - -
Allowance for bad debts 53,820 107,480 4,602
Reduction in product rights valuation - 3,133,333 -
Common stock and options issued for services rendered 448,547 651,517 -
(Increase) decrease in:
Accounts receivable (227,437) (92,933) 9,546
Prepaid expenses (187,090) (2,756) (1,859)
Inventory 275,246 (2,498,860) (101,637)
Note receivable (530,530) - -
Deposits (7,651) 7,514 2,862
Increase (decrease) in:
Accounts payable (730,202) 1,448,879 94,038
Accrued interest payable 53,831 - (7,000)
Customer deposits (54,724) 54,724 -
Short-term note payable - (300,000) -
Accrued expenses (4,667) (60,213) 81,056
Income taxes payable - 100 400
------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (4,568,628) (5,077,476) (1,316,833)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets - 375,000 -
Purchase or development of intangibles (128,021) - (222,706)
Equipment purchases (198,736) (194,392) (101,121)
Collection on notes receivable - - 1,380
------------ ------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (326,757) 180,608 (322,447)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 3,502,167 4,824,204 1,719,951
Minority interest - - 100,000
Issuance of notes payable 3,043,409 135,000 -
Payments made on notes payable (138,832) (7,032) (45,415)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 6,406,744 $ 4,952,172 $ 1,774,436
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
8
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 1,511,359 $ 55,304 $ 135,156
CASH AT BEGINNING OF YEAR 220,840 165,536 30,380
------------ ------------ ------------
CASH AT END OF YEAR $ 1,732,199 $ 220,840 $ 165,536
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
9
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect practices of the
software sales, 3-D electronic devices and services industries and
conform to generally accepted accounting principles. Certain prior
year amounts have been reclassified to be consistent with the
March 31, 1999 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, Chequemate Electronic, Inc.,
Families in Focus, Inc., AC&T Direct, AC&T 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 organization and production costs for the years
ended March 31, 1999, 1998 and 1997 amounted to $314,873, $427,575
and $62,183, 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 1999 1998
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Product rights 4-5 years $ 3,093,087 $ 669,688 $ 2,423,399 $ 2,580,574
Contract/movie
rights 2 years 129,022 17,889 111,133 76,722
Organization cost 5 Years 17,261 17,261 - -
--------- ----------- ------------ ----------- -----------
$ 3,134,610 $ 695,436 $ 2,534,532 $ 2,657,296
=========== ============ =========== ===========
</TABLE>
10
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ORGANIZATION COSTS AND PRODUCT RIGHTS (Continued)
The Company evaluates the recoverability of intangibles and
reviews the amortization period on an annual basis. Several
factors are used to evaluate intangibles. Including, but not
limited to, management's plans for future operations, recent
operating results and projected, undiscounted cash flows.
BASIC LOSS PER SHARE
Basic loss per share is calculated using a weighted average for
common stock.
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 $19,000,000 available to offset future federal
and state income tax through 2014. 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.
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.
ADVERTISING
The Company follows the policy of charging the costs of
advertising to expense as 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.
11
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CHANGE IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" during the year ended March
31, 1999. In accordance with SFAS No. 128, diluted earnings per
share must be calculated when an entity has convertible
securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted
earnings (loss) per share is to show (on a pro forma basis) per
share earnings or losses assuming the exercise or conversion of
all securities that are exercisable or convertible into common
stock and that would either dilute or not affect basis of EPS. As
permitted by SFAS No. 128, the Company has retroactively applied
the provisions of this new standard by showing the fully diluted
loss per common share for all years presented.
The Company adopted Statement of Financial Accounting Standards
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
requires the Company to determine compensation costs for the
Company's stock option plans and other stock awards in accordance
with the fair value based method prescribed in SFAS No. 123. The
Company recognized approximately $405,100 and $-0- of a
stock-based compensation expense for the years ended March 31,
1999 and 1998, respectively.
The Company also adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" during
the year ended March 31, 1999, SFAS No. 130 established standards
for reporting and display of comprehensive income (loss) and its
components (revenues, expenses, gains and losses) in a full set of
general purpose financial statements. This statement requires that
an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a
balance sheet. The adaption of SFAS 130 had no material effect on
the Company's financial statements.
PRIOR PERIOD RECLASSIFICATION
Certain 1998 balances have been reclassified to conform to the
presentation of the 1999 consolidated financial statements.
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Finished goods $ 1,035,682 $ 1,238,258
WIP 1,076,880 124,243
Raw goods 1,003,201 1,321,877
----------- -----------
$ 3,115,763 $ 2,684,378
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
12
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 2 - INVENTORY (Continued)
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 March 31, 1999 and 1998 are detailed
in the following summary:
<TABLE>
<CAPTION>
Net Book Value
Accumulated -------------------------
Cost Depreciation 1999 1998
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Office furniture and fixtures $ 62,427 $ 38,107 $ 24,320 $ 33,237
Machinery and equipment 739,541 170,053 569,488 161,464
Capital leases 29,895 2,990 26,905 2,707
Leasehold improvements 4,581 2,577 2,004 2,927
--------- ------------ ---------- ----------
Total $ 836,444 $ 213,727 $ 622,717 $ 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 years ended March 31, 1999, 1998 and 1997 amounted to $79,599,
$70,209 and $41,549, respectively.
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000,000 shares of common
stock, par value $.0001. As of March 31, 1999, the Company has
issued 22,358,646 shares of common stock.
The Company continued the placement of Regulation S stock in the
year ended March 31, 1999 and issued 2,729,526 shares to non U.S.
persons. The Company's plans are to continue placing common stock
through private placements to fund the growth requirements of the
Company.
The accompanying notes are an integral part of
these consolidated financial statements.
13
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 5 - RELATED PARTIES
Notes payable to related parties as of March 31, 1999 and 1998 are
detailed in the following summary:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to CEO; due on demand, with an
interest rate of 10.4%; unsecured; accrued
interest of $79,943 is due on demand. $ 140,000 $ 135,000
Note payable to CEO; unsecured, due in monthly
interest installments of $930 with an interest rate
of 12%; due December 31, 1998. - 21,802
----------- -----------
Total related party notes payable 140,000 156,802
Less: current portion (140,000) (156,802)
----------- -----------
Long-term portion $ - $ -
============ ===========
</TABLE>
Maturities of the related party notes payable are as follows:
<TABLE>
<S> <C>
Period ending March 31, 2000 $ 140,000
2001 -
----------
Total $ 140,000
==========
</TABLE>
NOTE 6 - LONG-TERM DEBT
Notes payable as of March 31, 1999 and 1998 are detailed in the
following summary:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured. $ 53,907 $ 62,056
Convertible debentures to a company; due
December 22, 2001, which includes interest
at 8%. 750,000 -
Convertible debentures to a company; due
February 22, 2002, which includes interest at 8%. 2,000,000 -
----------- -----------
Balance Forward $ 2,803,907 $ 62,056
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
14
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 6 - LONG-TERM DEBT (Continued)
<TABLE>
<S> <C> <C>
Balance Forward $ 2,803,907 $ 62,056
Note payable to a company; due June 8, 2000,
interest at 10% due monthly, secured by
equipment and inventory. 440,000 -
Note payable to a company; unsecured, due in
monthly installments of $19,654, which includes
interest at 6%; due October 1999. 173,703 -
----------- -----------
Total long-term debt 3,417,610 62,056
Less: current portion (227,610) (50,080)
----------- -----------
Long-term portion $ 3,190,000 $ 11,976
=========== ===========
</TABLE>
Maturities of long-term debt are summarized below:
<TABLE>
<S> <C>
Period ending March 31, 2000 $ 227,610
2001 440,000
2002 2,750,000
2003 -
2004 -
------------
Total $ 3,417,610
============
</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, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Equipment $ 29,895 $ 26,877
Less: accumulated depreciation (2,990) (24,170)
----------- -----------
Net property under capital lease $ 26,905 $ 2,707
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
15
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 7 - LEASES (Continued)
At March 31, 1999, 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,
2000 $ 22,744 $ 147,099
2001 - 113,987
2002 - 76,687
2003 - -
later years - -
----------- ----------
Total minimum lease payments 22,744 $ 337,773
==========
Less: interest 9,142
-----------
Present value of net minimum lease payment 13,602
Less: current portion 13,602
-----------
Capital lease obligations payable long-term $ -
</TABLE>
Rental expense for the years ended March 31, 1999, 1998 and 1997
amounted to $135,580, $187,961 and $86,094, respectively.
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
CASH FLOW INFORMATION
<TABLE>
<CAPTION>
March 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest paid $ 34,535 $ 18,478 $ 24,230
Income taxes paid $ 500 $ 400 $ 300
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
For the years ending March 31, 1999 and 1998, the Company incurred
the following non-cash investing and financing activities.
<TABLE>
<CAPTION>
March 31,
--------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Capital lease obligations incurred $ 29,895 $ - $ -
Issuance of stock and options for services
rendered $ 448,547 $ 651,517 $ -
Issuance of stock for assets $ 1,533,000 $ - $ -
Increase in debt for assets $ 440,000 $ - $ -
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
16
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 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 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement to maintain a satellite
transponder and uplink for broadcasting its three dimensional
cable channel. The agreement requires the Company to make monthly
payments of $100,000 to retain these services.
The Company is the defendant in a pending lawsuit. The ultimate
outcome of this litigation is unknown at the present time.
Accordingly, no provision for any liability that might result has
been made in the accompanying financial statements. In the opinion
of management, the existing litigation is not considered to be
material in relation to the Company's financial position.
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.
In December 1998, the Company purchased assets to supplement the
hotel movie pay-per- view operations. The assets included existing
contracts with several hotels to provide pay- per-view movies. The
Company issued 250,000 shares of common stock, a convertible note
and cash for the assets.
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, 1999. The
Company does not have an established source of revenues sufficient
to cover its operating costs. It is the intent of the Company to
seek additional financing through private placements of its common
stock.
The accompanying notes are an integral part of
these consolidated financial statements.
17
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 12 - GOING CONCERN (Continued)
Management has formulated a plan to raise additional funding
through stock issuances and increase in debt. In addition, the
Company's projected increase in revenue from the establishment of
its three dimensional cable channel will provide sufficient
capital for operations. Subsequent to year end, the Company had
raised approximately $966,000 through common stock and debt
issuances.
NOTE 13 - COMMON STOCK AND WARRANTS
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.
The convertible debentures entered into by the Company carry
warrants allowing the debtor to acquire stock. The convertible
debentures of $750,000 are in $250,000 incremental units and carry
warrants equal to 24,753 shares per unit, with an exercise price
of $3.64 per share. The convertible debentures of $2,000,000 are
in $250,000 increments and carry warrants equal to 8,475 shares
per unit.
Activity regarding stock options is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------------------------
1999 Price 1998 Price
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Options Granted:
Beginning of year 2,354,800 $ .01 - 7.00 354,800 $ 3.50 - 7.00
Additional granted 64,000 .01 - 3.64 2,000,000 .01
Canceled (252,800) 3.50-7.00 - -
--------- ----------
End of year 2,166,000 2,354,800
========= ==========
Options Exercised:
Beginning of year 283,242 $ .01 - 7.00 100 3.50
Additional exercised 1,074,810 .01 283,142 .01
Expired - - - -
--------- ----------
End of year 1,358,052 283,242
========= ==========
Options Outstanding at End
of Year 807,948 2,071,558
========= ==========
</TABLE>
Option prices range from $0.01 to $7.00 per share. In May 1997,
the Company granted 2,000,000 common stock options to the owners
of the intellectual property for $0.01 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 4,000 shares.
The accompanying notes are an integral part of
these consolidated financial statements.
18
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 14 - ACQUISITION OF TECHNOLOGY
In May of 1997, the Company formed the wholly-owned subsidiary,
Chequemate Electronic, Inc. (formerly Chequemate Third Dimension,
Inc,) (CEI). CEI then entered into an agreement to acquire
technology relating to certain intellectual property from Advanced
Technology Group, LLC (LLC). Pursuant to the agreement, the
Company contributed to CEI three million dollars within sixty (60)
days of signing. In addition, the Company established a
non-qualified stock option for certain members of the LLC.
In May 1997, the Company granted 2,000,000 common stock options to
the owners of ATG in exchange for the exclusive rights to
specified intellectual property. Under APB 17, the transactions
were 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. At
March 31, 1999, the Company's projected cash inflows from this
technology exceeded the carry value of the asset.
NOTE 15 - ACQUISITION OF SECURED INTEREST
In December 1998, the Company purchased from a financing
institution the secured interest on a line of credit against
Strata, Inc. (Strata). The Company continued to advance credit to
Strata and as of March 31, 1999 have recorded a note receivable of
$465,530. Also, on March 31, 1999, the Company obtained the secure
interests of several other promissory notes held by several
investors against Strata by exchanging stock for the notes. The
Company exchanged 333,333 shares, at $3.00 per share, of common
stock for the notes. The above notes hold a secured interest in
the tangible assets, accounts receivable, intellectual property
and other assets of Strata. Strata is in the business of providing
3D centric graphical software applications. Subsequent to year
end, the Company foreclosed upon Strata and acquired all of the
assets of Strata.
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, 1999
and 1998 was $25,292 and $42,034, 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
as 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.
The accompanying notes are an integral part of
these consolidated financial statements.
19
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 18 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended March 31, 1999
and 1998 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
--------- -------- ---------
<S> <C> <C> <C>
Year ended March 31, 1999
U.S. Federal $ - $ - $ -
State and local 500 - 500
$ 500 $ - $ 500
Year ended March 31, 1998
U.S. Federal $ - $ - $ -
State and local 500 - 500
$ 500 $ - $ 500
</TABLE>
Income tax expense was $500 and $500 for each of the years ended
March 31, 1999 and 1998, 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>
1999 1998
------------- -------------
<S> <C> <C>
Computed "expected" benefit $ (1,552,274) $ (2,728,005)
Increase (reduction) in income taxes resulting from:
Change in valuation allowance for deferred
tax assets 1,542,774 2,722,639
Non-deductible expenses 9,000 4,866
------------- -------------
Income tax provision $ 500 $ 500
============= =============
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at March 31, 1999
are presented below:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
Total deferred tax assets $ 5,656,774 $ 4,114,000
Less valuation allowance (5,656,774) (4,114,000)
------------- -------------
Net deferred tax assets $ - $ -
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
20
<PAGE>
CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES
(dba C3-D Digital)
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
NOTE 19 - SUBSEQUENT EVENTS
Subsequent to year end, the Company acquired assets to enhance its
hotel pay-per-view operations by issuing 125,000 shares of common
stock and $150,000 of cash. The Company increased its debt
position by borrowing an additional $500,000 in convertible
debentures.
The accompanying notes are an integral part of
these consolidated financial statements.
21
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION PAGE
--- ----------- ----
<S> <C> <C>
23 Consent of Jones, Jensen & Co....................................... 24
24 Power of Attorney (Incorporated by reference from initial
Form 10-KSB, film No. 99664721, filed by the Company with
the Commission on July 15, 1999)
27 Financial Data Schedule (for SEC use only).......................... 25
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
22
<PAGE>
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.
/s/ J. Michael Heil Date January 13, 2000
- ------------------------------------- ----------------
J. Michael Heil
Chief Executive and Financial Officer
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.
/s/ J. Michael Heil January 13, 2000
- --------------------------------------
J. Michael Heil, Chairman of the Board
and Principal Accounting Officer
/s/ J. Michael Heil, for January 13, 2000
- --------------------------------------
John Bartholomew, Director
January 13, 2000
- --------------------------------------
Hal Glick, Director
/s/ J. Michael Heil, for January 13, 2000
- --------------------------------------
Andre Peterson, Director
/s/ J. Michael Heil, for January 13, 2000
- --------------------------------------
Robert E. Warfield, Director
/s/ Daniel R. Thompson January 13, 2000
- --------------------------------------
Daniel R. Thompson, Director
23
<PAGE>
EXHIBIT 23
Consent of Jones, Jensen & Company
We hereby consent to the use of our audit report dated June 30, 1999 in this
Form 10-KSB of Chequemate International, Inc. for the year ended March 31, 1999,
which is part of this Form 10-KSB and all references to our firm included in
this Form 10-KSB.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
January 12, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,732,199
<SECURITIES> 0
<RECEIVABLES> 251,742
<ALLOWANCES> (53,820)
<INVENTORY> 3,115,763
<CURRENT-ASSETS> 5,244,233
<PP&E> 622,717
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,683,716
<CURRENT-LIABILITIES> 1,436,526
<BONDS> 0
0
0
<COMMON> 2,236
<OTHER-SE> 5,057,190
<TOTAL-LIABILITY-AND-EQUITY> 9,683,716
<SALES> 682,760
<TOTAL-REVENUES> 682,760
<CGS> 631,132
<TOTAL-COSTS> 3,979,998
<OTHER-EXPENSES> (284,209)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,779
<INCOME-PRETAX> (4,212,579)
<INCOME-TAX> 500
<INCOME-CONTINUING> (4,171,720)
<DISCONTINUED> (40,859)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,213,079)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
