UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended November 30, 2003
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-27773
BANKENGINE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3134518
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
425 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
(Address of principal executive offices, including zip code)
(631) 396-3950
(Registrant's telephone number, including area code)
157 ADELAIDE STREET, SUITE 426
TORONTO, ONTARIO, ON M5H 4E7
(Former address)
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock,
$.001 Par Value, on January 20, 2004, was 19,775,753 shares.
BANKENGINE TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements...............................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Plan of Operation........................19
Item 3. Controls and Procedures...........................................25
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................26
Item 2. Changes in Securities and Use of Proceeds.........................26
Item 3. Defaults Upon Senior Securities...................................26
Item 4. Submission of Matters to a Vote of Security Holders...............26
Item 5. Other Information.................................................26
Item 6. Exhibits and Reports on Form 8-K..................................26
Signatures..................................................................
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other statements of historical facts. These
statements are subject to uncertainties and risks including, but not limited to,
product and service demand and acceptance, changes in technology, economic
conditions, the impact of competition and pricing, government regulation, and
other risks defined in this document and in statements filed from time to time
with the Securities and Exchange Commission. All such forward-looking statements
are expressly qualified by these cautionary statements and any other cautionary
statements that may accompany the forward-looking statements. In addition,
BankEngine Technologies, Inc. disclaims any obligations to update any
forward-looking statements to reflect events of circumstances after the date
hereof.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30, August 31,
------------------------
2003 2003
---- ----
(Unaudited)
Current Assets:
Cash and cash equivalents $ 763 $ 850
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 55,000 $ 55,000
========= =========
Commitments and Contingencies
Stockholders' Deficiency
Common stock $0.001 par value - authorized
50,000,000 shares; 19,275,753
shares issued and outstanding 19,276 19,116
Additional paid-in-capital 489,156 484,556
Accumulated deficit (496,892) (489,544)
Accumulated other comprehensive loss (65,777) (65,778)
Treasury stock, 100,000 shares at cost -- (2,500)
--------- ---------
Total Stockholders' Deficiency (54,237) (54,150)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 763 $ 850
========= =========
See Notes to Consolidated Financial Statements
F-1
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended November 30,
-------------------------------
2003 2002
---- ----
Income from continuing operations $ -- $ --
----------- -----------
Discontinued operations
Loss from telecommunications and software development segments 7,348 8,121
----------- -----------
Loss from discontinued operations 7,348 8,121
----------- -----------
Net loss $ 7,348 $ 8,121
=========== ===========
Net loss per common share-
basic and diluted $ 0.00 $ 0.00
=========== ===========
Weighted average number of
common shares outstanding-
basic and diluted 19,075,753 18,915,753
=========== ===========
See Notes to Consolidated Financial Statements
F-2
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Cumulative
Compre- Other
hensive Additional Compre-
Income Common Stock Treasury Paid-In Retained hensive
(loss) Shares Amount Stock Capital Earnings Income (loss) Total
------------------------------------------------------------------------------------------------------------------------------------
Balance, September 1, 2002 19,015,753 $19,016 (100,000) $ (2,500) $ 454,790 $ (691,002) $ (15,046) $(234,742)
Shares issued for
reduction in
accounts payable 100,000 100 22,400 22,500
Reduction in shareholder
loan as a contribution
of capital 7,366 7,366
Net income $201,458 201,458 201,458
Foreign currency
translation (50,732) (50,732) (50,732)
--------
Comprehensive income $150,726
========
---------- ------- -------- -------- --------- ---------- --------- ---------
Balance, August 31, 2003 19,115,753 19,116 (100,000) (2,500) 484,556 (489,544) (65,778) (54,150)
Treasury stock cancelled (100,000) (100) 100,000 2,500 (2,400) --
Shares issued for
reduction in
accounts payable 60,000 60 1,200 1,260
Shares issued as
consideration
to directors for
services 200,000 200 5,800 6,000
Net loss for the period $ (7,348) (7,348) (7,348)
Foreign currency
translation 1 1 1
--------
Comprehensive loss $ (7,347)
========
---------- ------- -------- -------- --------- ---------- --------- ---------
Balance, November 30, 2003 19,275,753 $19,276 -- $ -- $489,156 $ (496,892) $ (65,777) $ (54,237)
========== ======= ======== ======== ========= ========== ========== =========
See Notes to Consolidated Financial Statements
F-3
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended November 30,
-------------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net cash provided by operating activities of continuing operations $ -- $ --
Net loss (7,348) (8,121)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization -- 7,388
Reserve for bad debts -- 41,563
Shares issued to directors as compensation 6,000
Loss on divestiture 1,260
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable -- (137,662)
Decrease in funds held in escrow -- 24,418
(Increase) decrease in prepaid expenses
and other assets -- 1,564
Decrease in accounts payable -- 95,621
--------- ---------
Net cash used in operating activities of discontinued operations (88) 24,771
--------- ---------
Net Cash Used in Operating Activities (88) 24,771
--------- ---------
Cash flows from investing activities:
Proceeds on disposition of property, plant and equipment -- 40,000
Acquisition of property, plant and equipment -- (59,349)
--------- ---------
Net Cash Used in Investing Activities -- (19,349)
--------- ---------
Cash flows from financing activities:
Loan advances from stockholders -- (1,339)
Repayment of loan payable -- (4,876)
--------- ---------
Net Cash Used in Provided by Financing Activities -- (6,215)
--------- ---------
Effect of change in foreign currency rate 1 (252)
--------- ---------
Net decrease in cash (87) (1,045)
Cash - beginning of year 850 59,065
--------- ---------
Cash - end of year $ 763 $ 58,020
========= =========
Supplementary Information:
Cash paid during the year for:
Income taxes $ -- $ --
Interest $ -- $3,659.00
See Note to Consolidated Financial Statements
F-4
BANKENGINE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2002 and 2001
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Bankengine Technologies, Inc. (the "Company" or "BankEngine") was a
long distance telecommunications service provider through its 70% owned
subsidiary, Platinum Telecommunications, Inc. The Company also was in the
business of software development for its new software product, Critical Commerce
Suite, to provide video streaming analysis tools and computer consulting,
through its wholly owned subsidiaries, Critical Commerce Inc., a Delaware
corporation, and Cyberstation Computers and Support, Inc. ("Cyberstation"), a
company operating in Canada. The operations of the Company were predominately in
Canada, however, the financial statements are expressed in U.S. dollars.
The former principal shareholder has sold his common shares to an arms' length
third party and has agreed to acquire the shares of the telecommunication and
software development subsidiaries
BASIS OF PRESENTATION
The consolidated balance sheet as of November 30, 2003, and the
consolidated statements of operations, stockholders' deficiency and cash flows
for the periods presented herein have been prepared by the Company and are
unaudited. In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations, stockholders' deficiency and cash flows for all
periods presented have been made. The information for the consolidated balance
sheet as of August 31, 2003 was derived from audited financial statements.
On January 5, 2001, Callmate Telecom International, Inc. ("Callmate")
acquired all of the issued and outstanding shares of common stock of WebEngine
Technologies, Inc.(WebEngine) in exchange for 12,000,000 common shares of
Callmate in a reverse acquisition. 9,200,000 common shares of Callmate held by
previous shareholders of Callmate were cancelled in exchange for all of the
shares of its subsidiaries which carry on the UK operations of Callmate. The
acquisition by the shareholders of WebEngine of a majority of the shares of
Callmate has been accounted for as a reverse acquisition. As Callmate became
substantially a shell after the removal of the UK operations, no goodwill has
been reflected on this acquisition. Although Callmate is the legal acquirer,
WebEngine is treated as having acquired Callmate for accounting purposes.
Callmate has been accounted for as the successor to WebEngine. Callmate changed
its name to BankEngine Technologies Inc. on March 5, 2001.
WebEngine was incorporated in November 2000 in order to hold the shares
of Cyberstation. The shareholders of Cyberstation became the shareholders of
WebEngine and therefore WebEngine has been considered to be a successor to
Cyberstation. WebEngine has changed its name to Critical Commerce Inc.
The historical financial statements of BankEngine are those of
Cyberstation as the company has been accounted for as the successor to
Cyberstation.
F-5
The estimated income tax costs of the divestiture of the UK operations,
in the amount of $50,000, has been treated as a reduction of the assets acquired
on the acquisition of the shell company;
The acquisition of Callmate, as a reverse acquisition, was reflected as
follows;
Cash - escrow $601,457
Accounts payable (316,000)
Income taxes payable (50,000)
-------
Capital stock issued $235,457
========
The accounts payable assumed on the acquisition of Callmate included
$146,000 for short falls which could have arisen on settlement with a credit
card company. Callmate operated a retail and wholesale telecommunications
operations and permitted payment by its retail customers through credit card
facility. The credit card company held funds on deposit to be applied against
refused credit card charges and agreed that the limit of the Company's liability
is the amount of the security held on hand. The final settlement of the
liability for chargebacks and the receipt of the balance of the funds on deposit
occurred during 2003.
As discussed in Note 2, on April 5, 2002, the Company through its
wholly-owned subsidiary, Cyberstation, acquired 70% of the issued and
outstanding common stock of Platinum Telecommunications Inc. for the issuance of
1,800,000 common shares of BankEngine Technologies, Inc.
MANAGEMENT INTENTIONS
The Company also has a working capital deficit of approximately $55,000
and a stockholders' deficiency of approximately $54,000 at November 30, 2003.
The former principal shareholder has sold his common shares to an arms' length
third party and has agreed to acquire the shares of the telecommunication and
software development subsidiaries for $2. In addition, the former principal
shareholder has agreed to fund any liability balances in excess of $55,000.
As part of the agreement to fund $55,000 of liabilities, subsequent to
November 30, 2003, the new principle shareholder has advanced funds to pay
liabilities totaling $11,500 and has agreed to settle the balance of the legal
fees through the issuance of 500,000 shares and 100,000 options to acquire
shares of the company at $0.25 per share for a term of 3 years.
The Company's plan of operation for the coming year is to identify and
acquire a favorable business opportunity. The Company does not plan to limit its
options to any particular industry, but will evaluate each opportunity on its
merits. Management does not believe that the Company has sufficient resources to
sustain itself for the fiscal year ending August 31, 2004 and may have to raise
additional funds through the sale of equity or the issuance of debt, as the
Company has no revenues. The Company currently has no plans to raise additional
capital through private placements or public registration of its securities
until a merger or acquisition candidate is identified though it may rely on
loans from shareholders for capital, as required, to maintain its continuous
disclosure requirements.
F-6
On December 18, 2003, the Company entered into a non-binding letter of
intent to acquire all of the issued and outstanding capital stock of Syscan,
Inc., a California corporation, engaged in the design, marketing, and selling of
optical imaging technology products that embody innovative technologies and
maintain a strict adherence to the accepted industry standards. In connection
with the acquisition of the capital stock of Syscan, Inc. the Company has agreed
to issue that number of shares of its common stock to the shareholders of
Syscan, Inc. that represents ninety percent (90%) of the Company's outstanding
shares of common stock on a post-transaction basis. The Company currently has
19,775,753 shares of its common stock outstanding.
The acquisition of Syscan, Inc. is subject to approval of the Company's
board of directors and continued due diligence and there can be no assurance
that the Company's acquisition of Syscan, Inc. will be consummated in the near
future, if at all.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The earnings of the subsidiaries
are included from the date of acquisition for acquisitions accounted for using
the purchase method. All intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. These estimates are reviewed
periodically and as adjustments become necessary, they are reported in earnings
in the period in which they become known.
REVENUE RECOGNITION
The Company's revenues from its telecommunications business is
recognized when the earnings process is complete. This occurs when the services
have been utilized, collection is probable and pricing is fixed or determinable.
The Company provides computer consulting services in a number of areas
including database management, on-line transaction processing and e-mail
capabilities. Revenue is recognized as pre-determined milestones are
accomplished and consulting services delivered.
F-7
FOREIGN CURRENCY
The Company's functional currency is primarily the Canadian dollar. All
assets and liabilities recorded in foreign currencies are translated at the
current exchange rate. Translation adjustments resulting from this process are
charged or credited to other comprehensive income. Revenue and expenses are
translated at average rates of exchange prevailing during the year. Gains and
losses on foreign currency transactions are included in financial expenses.
COMPUTER SOFTWARE DEVELOPMENT
The Company accounts for the cost of developing computer software for
sale as research and development expenses until the technological feasibility of
the product has been established. To date all costs have been expensed. In the
future, After the technological feasibility of the product has been established
at the end of each year the Company will compare any unamortized capital costs
to the net realizable value of the product to determine if a reduction in
carrying value will be warranted.
DEPRECIATION
Property, plant and equipment are recorded at historical cost less
accumulated depreciation. Depreciation is provided using the following annual
rates:
Telecommunication switch - 25% per year on a straight line basis
Furniture and Fixture - 20% declining balance method
Computer Equipment - 30% - declining balance method
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are recorded to reduce deferred tax assets when it is more
likely than not that a tax benefit will not be realized.
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB")
statement No. 131, "Disclosure about Segments of an Enterprise and Related
Information". The Company has considered its operations and has determined that
it operates in two operating segments, software development and telecom, for
purposes of presenting financial information and evaluating performance. As
such, the accompanying financial statements present information in a format that
is consistent with the financial information used by management for internal
use.
F-8
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share are computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share are computed by dividing net
earnings by the weighted average number of common shares and potential common
shares outstanding during the year. Potential common shares used in computing
diluted earnings per share relate to stock options and warrants which, if
exercised, would have a dilutive effect on earnings per share. Options
previously outstanding have been cancelled and therefore the possible shares to
be issued are -0- and 600,000 for the quarters ended November 30, 2003 and 2002,
respectively. During the quarter ended November 30, 2002 potential common shares
outstanding were omitted from the calculation of loss per share as the effect
would be antidilutive.
GOODWILL AND OTHER INTANGIBLES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" ("SFAS 141"), and No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 141 changes the accounting for
business combinations, requiring that all business combinations be accounted for
using the purchase method and that intangible assets be recognized as assets
apart from goodwill if they arise from contractual or other legal rights, or if
they are separate or capable of being separated from the acquired entity and
sold, transferred, licensed, rented or exchanged. SFAS 141 was effective for all
business combinations initiated after June 30, 2001. SFAS 142 specifies the
financial accounting and reporting for acquired goodwill and other intangible
assets. Goodwill and intangible assets that have indefinite useful lives are not
amortized but rather they are tested at least annually for impairment unless
certain impairment indicators are identified. This standard was effective for
fiscal years beginning after December 15, 2001.
SFAS 142 requires that the useful lives of intangible assets acquired
on or before June 30, 2001 be reassessed and the remaining amortization periods
adjusted accordingly. Previously recognized intangible assets deemed to have
indefinite lives are tested for impairment. Goodwill recognized on or before
June 30, 2001, has been tested for impairment as of the beginning of the fiscal
year in which SFAS 142 was initially applied and, after considering the results
of an independent valuation and appraisal, management concluded that no
impairment was indicated.
Upon adoption of this standard, the Company allocated its goodwill and
other intangibles to its telecommunications unit.
Other intangibles primarily include customer lists in connection with
the Company's telecommunications activity. Amounts assigned to these intangibles
are based on independent appraisals. Other intangibles are being amortized over
24 months. The intangible asset was written down to $-0- during the second
quarter of fiscal 2003.
F-9
For the Three Months
Ended November 30,
---------------------
2003 2002
--------- ------
Reported net loss $7,348 $8,121
Addback: Goodwill amortization
(net of income tax) -- --
------ ------
Adjusted net loss 7,348 8,121
====== ======
Basic and diluted loss per share:
Reported net loss $ -- $ --
Addback: Goodwill amortization -- --
------ ------
Adjusted net loss $ -- $ --
====== ======
STOCK BASED COMPENSATION
The Company accounts for equity-based compensation issued to
employees in accordance with Accounting Principles Board ("ABP") Opinion No. 25
"Accounting for Stock Issued to Employees". ABP No. 25 requires the use of the
intrinsic value method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at the measurement date over the amount
an employee must pay to acquire the stock. The Company makes disclosures of pro
forma net earnings and earnings per share as if the fair-value-based method of
accounting had been applied as required by SFAS No. 123 "Accounting for
Stock-Based Compensation-Transition and Disclosure" and SFAS 148 Accounting for
Stock Based Compensation - Transition and disclosures. To date no options have
been granted.
The Company accounts for equity-based compensation to non-employees
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. Management believes that adopting this statement
will not have a material effect on the Company's results of operations or
financial position.
F-10
In November 2002, the FASB issued FASB Interpretation No. 45
(FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, and interpretation of
FASB Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34.
FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company adopted FIN 45 on November 1, 2003. The adoption
of FIN 45 did not have a material impact on the Company's results of operations
or financial position.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
addresses consolidation by business enterprises of variable interest entities.
In general, a variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
A variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. The objective of Interpretation No. 46
is not to restrict the use of variable interest entities but to improve
financial reporting by companies involved with variable interest entities. Until
now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of Interpretation No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period beginning after June
15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company does not have any variable interest
entities, and, accordingly, adoption is not expected to have a material effect
on the Company.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
150 establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning the Company's interim period commencing July 1, 2003. SFAS 150 is to
be implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFA 150
and still existing at the beginning of the interim period of adoption. The
adoption of SFAS 150 did not have a significant effect on the company's
financial statement presentation or disclosures.
F-11
2. INVESTMENT IN PLATINUM TELECOMMUNICATIONS INC.
On April 5, 2002, the Company through its subsidiary Cyberstation,
acquired 70% of the issued and outstanding stock of Platinum Telecommunications
Inc. ("Platinum") for the issuance of 1,800,000 common shares of BankEngine
Technologies Inc. The Company acquired Platinum, a long distance
telecommunications service provider, in order to reenter the telecommunications
industry. The accordingly, are not presented herein.
The investment has been accounted for by the purchase method as
follows;
Consideration $18,000
Costs of acquisition 10,000
------
Total investment 28,000
Share of net assets acquired 2,738
---------
Intangible asset acquired $25,262
=========
The intangible assets acquired representing contracts and client
lists are being amortized over a 24 month period from the date of acquisition.
As the re-organization of the telecommunications activities has not been
completed to date, the balance of the intangible asset has been written off
during the three months ended May 31, 2003. See Note 1 of Notes to Consolidated
Financial Statements.
3. CAPITAL STOCK
a) AUTHORIZED
50,000,000 common stock with a $.001 par value
b) COMMON STOCK
The Company had issued and outstanding 14,315,893 common stock at the
time of the reverse acquisition in January 2001. As detailed in Note 1, the
Company issued 12,000,000 common shares to the shareholders of WebEngine. A
total of 9,200,000 shares were cancelled in exchange for the removal of the UK
operations in January 2001.
As indicated in Note 2, the Company issued on April 5, 2002, 1,800,000
common stock for a 70% interest in Platinium Telecommunications Inc.
Shares outstanding prior to the
reverse acquisition 14,315,753
Issued to shareholders of WebEngine 12,000,000
Cancelled for UK operations (9,200,000)
----------
Shares outstanding, August 31, 2001 17,115,753
Shares issued in consideration of services 200,000
Shares issued in consideration for accounts payable 160,000
Acquisition of 70% interest in Platinium
Telecommunications Inc. 1,800,000
----------
Shares outstanding, November 30,, 2003 19,275,753
==========
F-12
During the second quarter of 2002, the Company agreed to issue 100,000
shares in consideration of services to be provided to the Company. In the third
quarter, the Company reacquired the shares as the services were not rendered and
the shares are reflected as treasury stock. These shares were cancelled in this
quarter.
The company issued 200,000 shares at the end of November 2003 as
consideration for services rendered by directors of the company. The amount of
$6,000 has been reflected as the fair value of the shares issued. The company
issued 60,000 shares as consideration for accounts payable in the current
quarter. The amount of $1,260 has been reflected as the fair value of the shares
upon issuance.
Subsequent to November 30, 2003, the company issued 500,000 shares to
its legal counsel as indicated in note 1 under Management Intentions.
4. STOCK OPTIONS
(a) On April 5, 2002, the Company issued 600,000 options exercisable at $0.10
per share, the fair market value at the date of grant. The options have a 5 year
term and were issued in consideration of consulting services to be rendered by
the principal of Platinum Telecommunications Inc. and are exercisable
immediately. The estimated fair value of the options on the date of grant using
the Black-Scholes option pricing model is $5,000, based on a risk free interest
rate of 4.65%, an expected volatility of 200%, an expected life of 5 years and
no dividend yield and has been expensed in the quarter ended May 31, 2002. The
weighted - average fair value of the options issued during the year was $.008.
As of August 31, 2003, these options have been cancelled.
(b) In May 17, 2002, the shareholders of the Company approved the adoption of
the Company's 2002 Stock Option Plan. The plan provides for the issuance of
2,000,000 options with the following terms and conditions.
The plans are administrated by the Board of Directors, which
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of common stock to be issued upon the exercise of the options and the
option exercise price.
The maximum term of the plan is ten years and options may be granted
to officers, directors, consultants, employees, and similar parties who provide
their skills and expertise to the Company.
Options granted under the plans have a maximum term of ten years and
shall be at an exercise price that may not be less than 85% of the fair market
value of the common stock on the date of the grant. Options are non-transferable
and if a participant ceases affiliation with the company for a reason other than
death or permanent and total disability, the participant will have 90 days to
exercise the option subject to certain extensions. In the event of death or
permanent and total disability, the option holder or their representative may
exercise the option within 1 year.
F-13
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the company become available again for
issuance under the plans, subject to applicable securities regulation. The plans
may be terminated or amended at any time by the Board of Directors.
5. CONTINGENCIES AND COMMITMENTS
The Company has signed a lease commitment for office space in Toronto,
Canada which expires on April 30, 2004 for its corporate head office. The
Company is responsible for monthly rent of approximately $1,100. The company
vacated the premises during 2003 and the landlord has agreed that no rent is
payable.
6. DISCONTINUED OPERATIONS
The Company has been attempting to restructure its telecommunication
and software development activities. The Company has decided that the best
course of action is to cease its telecommunications and software development
operations and has been actively seeking a merger to diversify its operations.
In a contract signed December 9, 2003, the former principal shareholder of the
Company agreed to sell 9,615,000 common shares to an arms' length party and also
agreed to acquire the shares of Platinium Telecommunications and Cyberstation,
subsidiaries for the amount of $2. The agreement provides that liabilities are
limited to $55,000 and any excess will be funded by the vending shareholder. The
impact of the sale of the shares of Platinium and Cyberstation and the
settlement of debts in excess of $55,000 will result in an estimated gain on
divestitures which was reflected in the year ended August 31, 2003.
The discontinued operations generated sales of Nil and $389,834 in the quarters
ended November 30, 2003 and November 30, 2002 respectively and an operating loss
of $ 88 for 2003 and an operating loss of $ 8,121 for 2002.
The liabilities of discontinued operations are reflected at their estimated
settlement amount to the company of $ 55,000. Assets related to discontinued
operations are recorded at their estimated net realizable value of $nil.
7. TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS
The Company had sales to four individual customers in excess of 10% of
consolidated net sales for the three months ended November 30, 2002 as follows:
The amount and percentages of the Company's consolidated sales were $105,800
(27%), $81,900 (21%), $75,000 (19%), and $ 38,800 (10%).
Cost of sales includes purchases from three suppliers in excess of 10%
of consolidated cost of sales for the three months ended November 30, 2002 as
follows: The amounts and percentages of the Company's consolidated cost of sales
were $128,700 (43%), $49,400 (17%), and $30,700 (10%).
The loss of any of these customers or suppliers could have a material
adverse effect on the Company's results of operations, financial position and
cash flows.
F-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Form 10-QSB.
This filing contains forward-looking statements. The words "anticipated,"
"believe," "expect, "plan," "intend," "seek," "estimate," "project," "will,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations, future capital expenditures, and future net cash flow. Such
statements reflect the Company's current views with respect to future events and
financial performance and involve risks and uncertainties, including, without
limitation, general economic and business conditions, changes in foreign,
political, social, and economic conditions, regulatory initiatives and
compliance with governmental regulations, the ability to achieve further market
penetration and additional customers, and various other matters, many of which
are beyond the Company's control. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove to be incorrect,
actual results may vary materially and adversely from those anticipated,
believed, estimated, or otherwise indicated. Consequently, all of the
forward-looking statements made in this filing are qualified by these cautionary
statements and there can be no assurance of the actual results or developments.
Callmate Telecom International, Inc. ("Callmate") acquired WebEngine
Technologies International, Inc. ("WebEngine") pursuant to a Share Purchase
Agreement effective as of January 5, 2001. Callmate acquired all 12,000,000
shares of common stock of WebEngine in a share exchange, which exchange was
effected on a one-for-one basis. The transaction was reported on a Form 8-K
filed with the Securities and Exchange Commission (the "SEC") on January 16,
2001. Subsequent thereto, Callmate changed its name to BankEngine Technologies,
Inc. (the "Company") as reported on Schedule 14C. The Company filed the
Definitive 14C on March 5, 2001.
The Company determined to move away from the telecom business in the UK due to
the increased competitiveness in this sector internationally and growing
indebtedness. The trend internationally, and especially in the UK, in the
telecom sector is for consolidation and competition from transnational
corporations continues to be fierce. Many competitors have since ceased
operations.
On April 2, 2002, Cyberstation Computers and Support Inc., an Ontario
corporation ("Cyberstation") and wholly owned subsidiary of the Company, entered
into a Common Stock Purchase Agreement (the "Agreement") by and among Platinum
Telecommunications, Inc. ("Platinum") and Mr. Zeeshan Saeed (the "Seller").
Pursuant to the Agreement, Cyberstation acquired seventy percent (70%) of the
issued and outstanding shares of common stock of Platinum (the "Platinum
Shares") in consideration for 1,800,000 shares of common stock of the Company,
par value $0.001 per share. The Platinum Shares were acquired from the Seller,
by whom Platinum was immediately before closing of the Agreement wholly owned.
The Agreement was effective as of April 5, 2002. The transaction was negotiated
on an arms-length basis. Neither the Company nor Cyberstation had any
affiliation with Platinum or any of its officers or directors.
The Company has been considering whether, and if so how, to reorganize its
telecommunications and software development businesses, while remaining open to
entering into a business combination. In December 2003, the Company sold all of
its interest in Platinum Telecommunications, which was its only source of
revenue, as well as all of its shares of CyberStation. In connection with the
sale of such shares, the purchaser assumed approximately $384,000 in liabilities
and received a minimal amount of assets from the Company. Included in the
liabilities assumed by the purchaser was a loan of $120,000 made by such
purchaser to the Company. This will result in a gain on the divestitures. The
impact of the divestiture has been reflected in the financial statements for the
year ending August 31, 2003. The sale of the Platinum shares and the
Cyberstation shares was made to Joseph J. Alves, our Chief Executive Officer.
Mr. Alves agreed to sell all of his shares of common stock of the Company on
December 9, 2003 to an unaffiliated third party.
For the quarter ended November 30, 2003, the company has substantially no
transactions other than the issuance of shares to directors as compensation for
a total cost of $6,000 and the loss on divestiture of discontinued operations
resulting from the settlement of accounts payable for shares in the amount of
$1,260.
PLAN OF OPERATION
The Company's plan of operation for the coming year is to identify and acquire a
favorable business opportunity. The Company does not plan to limit its options
to any particular industry, but will evaluate each opportunity on its merits.
Management does not believe that the Company has sufficient resources to sustain
itself for the fiscal year ending August 31, 2004 and may have to raise
additional funds through the sale of equity or the issuance of debt, as the
Company has no revenues. The Company currently has no plans to raise additional
capital through private placements or public registration of its securities
until a merger or acquisition candidate is identified though it may rely on
loans from shareholders for capital, as required, to maintain its continuous
disclosure requirements.
On December 18, 2003, the Company entered into a non-binding letter of intent to
acquire all of the issued and outstanding capital stock of Syscan, Inc., a
California corporation. In connection with the acquisition of the capital stock
of Syscan, Inc. the Company has agreed to issue that number of shares of its
common stock to the shareholders of Syscan, Inc. that represents ninety percent
(90%) of the Company's outstanding shares of common stock on a post-transaction
basis. The Company currently has 19,775,753 shares of its common stock
outstanding.
The acquisition of Syscan, Inc. is subject to approval of the Company's board of
directors and continued due diligence and there can be no assurance that the
Company's acquisition of Syscan, Inc. will be consummated in the near future, if
at all.
Syscan Inc. was founded in Silicon Valley in 1995 to develop and manufacture a
new generation of CIS (CMOS-Complimentary Metal Oxide Silicon) imaging sensor
devices. During the late 1990's, the company established many technical
milestones and was granted numerous patents based on their linear imaging
technology (Contact Image Sensors). Syscan's patented CIS and mobile imaging
scanner technology provides very high quality images but at extremely low power
consumption, allowing it to manufacture very compact scanners in a form ideally
suited for the mobile computer user who needs to scan documents while away from
their office.
This "enabling" technology is found in a variety of applications such as
documents management, ID card and passport security scanners, bank note/check
verification, business card readers, scanning 2D bar codes and optical mark
readers used in lottery terminals. Syscan has grown to be one of the largest OEM
- private label manufacturers of mobile scanning systems for a large number of
major brands such as PENTAX, COREX, VISIONEER, DATACOLOR, SCANSOFT, NORTEK and
OMRON. Syscan's vertically integrated design and manufacturing model allows
rapid time-to-market for these leading companies. Syscan's manufacturing is
completed at an affiliated China-based facility which provides a low-cost
manufacturing base for these industrial and consumer products.
In 2002, Syscan began to design a line of innovative new products targeted
toward the flat-panel display market. These products dramatically improved the
video image quality on LCD displays implementing advanced digital image
processing and display control techniques. Much of the technology within these
display imaging products have commonality with the linear imaging devices,
providing strong technical overlap of personnel and resources. This new display
control technology creates a tremendous value point in the flat-panel television
entertainment and video-centric markets, which Syscan intends to target.
ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED IN 2003
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations and costs associated with the retirement of tangible long-lived
assets. The Company adopted SFAS No. 143 on September 1, 2001. The adoption of
SFAS 143 did not have a material impact on the Company's results of operations
or financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
Accounting Principles Board No. 30 "Reporting Results of Operations". This
statement also requires sales-leaseback accounting for certain lease
modifications that have economic effects that are similar to sales-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. This statement will be effective for the Company for the year
ending December 31, 2003. Management believes that adopting this statement will
not have a material effect on the Company's results of operations or financial
position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. Adoption of this Statement
is required with the beginning of fiscal year 2003. The Company has not yet
completed the evaluation of the impact of adopting this Statement.
In January 2003, the FASB issued SFAS No. 148, Accounting for Stock -Based
Compensation - Transition and Disclosures. This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financial statements about the effects
of stock-based compensation. The transitional guidance and annual disclosure
provisions of this Statement is effective for the August 31, 2003 financial
statements. The interim reporting disclosure requirements will be effective for
the company's May 31, 2003 10-QSB.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and interpretation of FASB
Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company will adopt FIN 45 on September 1, 2003. The
adoption of FIN 45 is not expected to have a material impact on the Company's
disclosure requirements.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities," which addresses
consolidation by business enterprises of variable interest entities. In general,
a variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A
variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. The objective of Interpretation No. 46
is not to restrict the use of variable interest entities but to improve
financial reporting by companies involved with variable interest entities. Until
now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of Interpretation No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period beginning after June
15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company does not have any variable interest
entities, and, accordingly, adoption is not expected to have a material effect
on the Company.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has not entered into any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on its financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
ITEM 3. CONTROLS AND PROCEDURES
Based on an evaluation as of the date of the end of the period covered by this
Form 10-QSB, our Chief Executive Officer/Acting Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as required by Exchange Act Rule 13a-15.
Based on that evaluation, our Chief Executive Officer/Acting Chief Financial
Officer concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
Changes in Internal Controls
There were no significant changes in our internal controls over financial
reporting that occurred during the quarter ended November 30, 2003 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On December 17, 2003, Joseph P. Alves resigned as chief executive
officer of the Company. Mr. Alves is still chairman of our board of directors.
Effective December 22, 2003, Michael J. Xirinachs was appointed as the Company's
chief executive officer.
On December 18, 2003, the Company entered into a non-binding letter of
intent to acquire all of the issued and outstanding capital stock of Syscan,
Inc., a California corporation. In connection with the acquisition of the
capital stock of Syscan, Inc. the Company has agreed to issue that number of
shares of its common stock to the shareholders of Syscan, Inc. that represents
ninety percent (90%) of the Company's outstanding shares of common stock on a
post-transaction basis. The Company currently has 19,775,753 shares of its
common stock outstanding.
The acquisition of Syscan, Inc. is subject to approval of the Company's
board of directors and continued due diligence and there can be no assurance
that the Company's acquisition of Syscan, Inc. will be consummated in the near
future, if at all.
Syscan Inc. was founded in Silicon Valley in 1995 to develop and manufacture a
new generation of CIS (CMOS-Complimentary Metal Oxide Silicon) imaging sensor
devices. During the late 1990's, the company established many technical
milestones and was granted numerous patents based on their linear imaging
technology (Contact Image Sensors). Syscan's patented CIS and mobile imaging
scanner technology provides very high quality images but at extremely low power
consumption, allowing it to manufacture very compact scanners in a form ideally
suited for the mobile computer user who needs to scan documents while away from
their office.
This "enabling" technology is found in a variety of applications such as
documents management, ID card and passport security scanners, bank note/check
verification, business card readers, scanning 2D bar codes and optical mark
readers used in lottery terminals. Syscan has grown to be one of the largest OEM
- private label manufacturers of mobile scanning systems for a large number of
major brands such as PENTAX, COREX, VISIONEER, DATACOLOR, SCANSOFT, NORTEK and
OMRON. Syscan's vertically integrated design and manufacturing model allows
rapid time-to-market for these leading companies. Syscan's manufacturing is
completed at an affiliated China-based facility which provides a low-cost
manufacturing base for these industrial and consumer products.
In 2002, Syscan began to design a line of innovative new products targeted
toward the flat-panel display market. These products dramatically improved the
video image quality on LCD displays implementing advanced digital image
processing and display control techniques. Much of the technology within these
display imaging products have commonality with the linear imaging devices,
providing strong technical overlap of personnel and resources. This new display
control technology creates a tremendous value point in the flat-panel television
entertainment and video-centric markets, which Syscan intends to target.
ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8- K
(a) Exhibits
Exhibit 31. Rule 13a-14(a)/15d-14(a) Certification.
Exhibit 32.1 Certification by the Chief Executive Officer/Acting Chief Financial
Officer Relating to a Periodic Report Containing Financial Statements.*
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the period covered by this
report.
* The Exhibit attached to this Form 10-QSB shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to liability under that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BankEngine Technologies, Inc.
Dated: January 20, 2004 By: /S/ MICHAEL J. XIRINACHS
--------------------------
Joseph Alves
Name: Michael J. Xirinachs
Title: Chief Executive Officer