-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZRueYDX+u9xMNj2uW+M5kjpaoJ5I+3oxBQL6SzvPTKUIcNSC4CHtbtXoR+ZB1in YfXPeFUTNXVJ2ULTlWRmzg== 0000912057-01-523332.txt : 20010712 0000912057-01-523332.hdr.sgml : 20010712 ACCESSION NUMBER: 0000912057-01-523332 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEQUEMATE INTERNATIONAL INC CENTRAL INDEX KEY: 0000850218 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 760279816 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-15043 FILM NUMBER: 1678528 BUSINESS ADDRESS: STREET 1: 124 FERRY STREET S W CITY: ALBANY STATE: OR ZIP: 97321 BUSINESS PHONE: 3103066666 MAIL ADDRESS: STREET 1: 124 FERRT STREET S W CITY: ALBANY STATE: OR ZIP: 97321 FORMER COMPANY: FORMER CONFORMED NAME: AUTOMATED COMPLIANCE & TRAINING INC DATE OF NAME CHANGE: 19930817 10KSB 1 a2053739z10ksb.txt FORM 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended: March 31, 2001 Commission File Number: 001-15043 CHEQUEMATE INTERNATIONAL, INC. ------------------------------ (Exact name of registrant as specified in its charter) Utah 76-0279816 -------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 124 Point West Boulevard, St. Charles, MO 63301 --------------------------------------------------------- (Address of principal executive offices) (636) 724-1004 -------------------------- (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: $905,070 Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this report and no disclosure will be contained to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part 111 of this Form 10-KSB or any amendment to this Form 10-KSB: [ ] As of July 9, 2001 the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days: $3,723,523. State the number of shares outstanding of each of the issuer's common equity, as of the latest practicable date: 25,680,581 as of July 9, 2001. Transitional Small Business Format: YES / / NO /X/ TABLE OF CONTENTS PART I .............................................................................. 4 ITEM 1 .......................................................................... 4 Forward Looking Statements ................................................... 4 Incorporation Of Certain Documents By Reference .............................. 4 History of the Company ....................................................... 4 Other Information ............................................................ 6 Principal Products and Services .............................................. 7 Patents, Trademarks and Copyrights ........................................... 8 Employees .................................................................... 10 ITEM 2 .......................................................................... 11 Description of Property ...................................................... 11 ITEM 3 .......................................................................... 11 Legal Proceedings ............................................................ 11 ITEM 4 .......................................................................... 11 Submission of Matters to a Vote of Security Holders .......................... 11 PART II ............................................................................. 12 ITEM 5 .......................................................................... 12 Market for Common Equity and Related Stockholder Matters ..................... 12 ITEM 6 .......................................................................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................ 13 ITEM 7 .......................................................................... 19 Financial Statements ......................................................... 19 Independent Auditors Report .................................................. 21 Consolidated Balance Sheets .................................................. 22 Consolidated Statements of Operations ........................................ 24 Consolidated Statements of Stockholders' Equity (Deficit) .................... 26 Consolidated Statements of Cash Flows ........................................ 27 Notes to Consolidated Financial Statements ................................... 29 ITEM 8 .......................................................................... 44 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................................................... 44 PART III ............................................................................ 44 ITEM 9 .......................................................................... 44 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act ............................ 44 Directors .................................................................... 44 Business Experience .......................................................... 45 Committees of the Board of Directors ......................................... 46 Executive Officers ........................................................... 46 Business Experience .......................................................... 47 ITEM 10 ......................................................................... 47 Executive Compensation ....................................................... 47 ITEM 11 ......................................................................... 49 Security Ownership of Certain Beneficial Holders ............................. 49 ITEM 12 ......................................................................... 50 Certain Related Transactions ................................................. 50 ITEM 13 ......................................................................... 51 Exhibits and Reports on form 8K .............................................. 51
2 Exhibits Index ........................................................... 51 SIGNATURES ...................................................................... 52 Exhibit 10.1 - SETTLEMENT AGREEMENT NATIONAL FINANCIAL COMMUNICATIONS .... 53 EXHIBIT 10.2 - AMENDED SETTLEMENT AGREEMENT BH PRODUCTIONS ............... 55 EXHIBIT 10.3 - PROMISSORY NOTE I-O DISPLAY SYSTEMS ....................... 57 EXHIBIT 10.4 - SETTLEMENT AGREEMENT PROGRAMMING SERVICES, INC ............ 58 EXHIBIT 10.5 - ACADEMY ENTERTAINMENT SETTLEMENT .......................... 60
3 PART I ITEM 1 FORWARD LOOKING STATEMENTS This annual filing includes "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The PSLRA provides a "safe harbor" for such statements to encourage companies to provide prospective information about themselves so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. All statements other than statements of historical fact made in this report or incorporated by reference are forward-looking. In particular, the statements herein regarding the availability of adequate funding and progress in the development of its various business segments are forward-looking statements. Forward-looking statements represent management's current expectations and are inherently uncertain. Investors are warned that the Company's actual results may differ significantly from management's expectations and, therefore, from the results discussed in such forward-looking statements. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents and materials filed by the Company with the Commission (File No. 1-15043) are incorporated herein by reference: 1. The Company's Current Report on Form 8-K filed with the Commission on May 26, 2000; 2. The Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000, filed with the Commission on July 14, 2000; 3. The Company's Quarterly Report on Form 10-QSB for the three months ended June 30, 2000, filed with the Commission on August 21, 2000; 4. The Company's Current Report on Form 8-K filed with the Commission on September 14, 2000; 5. The Company's Quarterly Report on Form 10-QSB for the six months ended September 30, 2000, filed with the Commission on November 14, 2000; 6. The Company's Current Report on Form 8-K filed with the Commission on January 9, 2001; 7. The Company's Quarterly Report on Form 10-QSB for the nine months ended December 31, 2000, filed with the Commission on February 14, 2001; 8. The Company's Amendment to its Current Report on Form 8-K dated December 30, 2000, filed with the Commission on February 16, 2001; 9. The Company's Current Report on Form 8-K filed with the Commission on March 2, 2001; 10. The Company's amendment to its Quarterly Report on Form 10-QSB for the nine months ended December 31, 2000, filed with the Commission on March 5, 2001; 11. The Company's Proxy on schedule PRE14A, filed with the Commission on June 14, 2001; All other documents and reports filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this filing shall be deemed to be incorporated by reference in this filing and to be made a part hereof from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference shall be deemed to be modified or superseded for purposes of this document to the extent that a statement contained in the document, or in any subsequently filed document, is deemed to be incorporated by reference or modifies or supersedes the statement. HISTORY OF THE COMPANY The Company was incorporated under the laws of the State of Texas on April 21, 1989 under the name Ainsley Corporation. We issued the initial shares of common stock on April 25, 1989 (inception) and we were 4 organized primarily for the purpose of raising capital to take advantage of potential business opportunities. The name of the Company was later changed to Automated Compliance & Training, Inc. (AC&T), when the Texas corporation was merged with a Utah corporation to make the change to Utah as the state of incorporation. On September 3, 1996, AC&T merged with its wholly owned subsidiary Chequemate International, Inc. (the "Company" or "CMI") and assumed the name of the subsidiary. On April 17, 1997 CMI formed a new wholly owned subsidiary named Chequemate Third Dimension, Inc. The name has since been changed to Chequemate Electronics, Inc. (CE). CE was formed to manufacture and market breakthrough 3D imaging technology that was acquired from Advanced Technology Group, LLC (ATG). On June 23, 1997 an agreement was finalized by which CE obtained the exclusive worldwide license to the 3D technology developed by ATG. On November 12, 1998 we sold the assets associated with the financial service segments of the business to TFL, LLC with its two principals being former Chequemate International employees. Both TFL, LLC and Chequemate International continues to use the name Chequemate International, although we have filed for, and are operating under the fictitious name of C-3D Digital, Inc. On December 8, 1998 we purchased from Alpha Broadcasting Corporation inventory, equipment and contracts to provide pay-per-view television services to 19 hotel properties amounting to roughly 3,000 hotel rooms. The purchase price was $1,000,000 and was accomplished through a combination of 250,000 (pre-split) shares of restricted stock valued at $2.00 each, $60,000.00 cash, and a note for $440,000. On July 2, 1999 we purchased additional equipment and contracts to provide pay-per-view television services to an additional 21 properties. The purchase of these assets was accomplished for the sum of $150,000 cash and 125,000 (pre-split) shares of restricted common stock of the Company. On December 10, 1998 and March 31, 1999, we acquired the debt position of several secured investors in Strata, Inc., a 3D software provider. On June 16, 1999 these debt positions were used to foreclose on the assets and technology previously owned by Strata, Inc. We continue to market the developed software products of Strata. On June 10, 1999, 3D.COM, Inc., was formed under Utah law, and on October 21, 1999, this wholly-owned subsidiary held its organizational meeting. It is management's intention to transfer all the software development and Internet related assets of the Company to this subsidiary. On February 2, 2000, we effected a one-for-four reverse split our outstanding stock. In December, 2000, we consummated a Stock Purchase Agreement between the Company, VisionComm, Inc. ("VCI") and the shareholders of VCI. In connection with the Stock Purchase Agreement, the terms of which are described in detail in a Current Report on Form 8-K filed with the Commission on January 9, 2001, two of the officers and directors of VCI were appointed, in the beginning of February, 2001, as additional members of the board of directors of the Company. On March 15, 2001, we entered into a Master Agreement as amended and re-stated, and then modified and restated on June 13, 2001, which contemplates a private placement to raise up to $3.5 million in return for the Issuance of approximately 43,125,565 Shares to the New Investors, constituting a 51% equity interest in the Company on a fully diluted basis. These newly-issued Shares will have registration rights customary in such issuances as set forth in the Registration Rights Agreements attached to the Proxy Statement filed on June 14, 2001 in Exhibit 99(a) as Schedule 1.3 to the Master Agreement. Under the Master Agreement, the Company can acquire control of Another World and its assets at a later date (the "Acquisition") so that we can benefit from its stereoscopic technologies provided the shareholders of the Company and Another World approve the transaction. The Acquisition will be based on an independent valuation of Another World. Another World has engaged Samil/PricewaterhouseCoopers to perform such independent valuation. 5 We propose to Issue approximately 43,125,565 Shares to approximately 200 New Investors, constituting a 51% equity interest in the Company on a fully diluted basis, in return for $3.5 million. The Issuance will result in a change of ownership and a change of control of the Company. The Board believes the Issuance is in the best interests of the Company and that the Issuance will benefit Shareholder value. The Issuance will be conducted by a private placement under Regulation S of the Securities Act. The New Investors are "non-U.S. Persons" as that term is defined in Regulation S of the Securities Act. We urgently need the $3.5 million cash infusion for our operations, to improve our cash-flow position and to meet some of the continued listing requirements of the American Stock Exchange. We also need the cash infusion to implement our expansion strategy. The $3.5 million cash infusion will help us meet these needs. The Issuance will be made according to a subscription agreement ("Subscription Agreement") attached to the Master Agreement. The Subscription Agreement can be found at the end of Exhibit 99(a) reference is made to the Company's Proxy on schedule PRE14A, filed with the Commission on June 14, 2001. The contemplated private placement with the New Investors who are familiar with our lines of business will provide synergy in terms of technology sharing and transfer to the Company. We intend to use the $3.5 million raised for the following business purposes: $250,000 for repayment of our outstanding debts; $2.5 million for 3D products marketing, sales, development and content distribution, and $750,000 for other working capital purposes. Depending on the actual business needs, the actual use of proceeds may vary from the use mentioned above. Most of the New Investors are shareholders of Another World Inc., a company established under the laws of the Republic of Korea ("Another World"). Based on very preliminary estimates, the New Investors who have overlapping ownership in Another World will together own most of the 43,125,565 Shares that will be issued by the Company in the Issuance. Due to the fact that the private placement has not yet been completed, the exact overlapping ownership information is not available. The New Investors may individually own at least 5% of the Company after the Issuance. The final percentage distribution of beneficial ownership interests in Chequemate among the New Investors may vary depending on the final private placement funding contributions. Reference is made to the Company's Proxy on schedule PRE14A, filed with the Commission on June 14, 2001. OTHER INFORMATION During the months of August and September, we substantially shut down our 24 hour per day television network operation known as C-3D TV. The costs of operations and marketing of our television network operation were prohibitive. We will continue to develop and market 3D products and technology for the PC and TV markets. In November of 2000, Alan Hunter resigned as Secretary of the Company. In approximately the end of October, 2000, Harold Glick resigned as a director of the Company. On November 29, 2000, Chandos Mahon was appointed as the Company's new Chief Operating Officer. Mr. Mahon was engaged in order to facilitate the recent restructuring and broadening of our media resources, and to assist the Company in focusing on consolidation and earnings. For biographical information regarding Mr. Mahon see details in Item # 9. We have entered into an employment agreement dated December 1, 2000, with Mr. Mahon. Under the terms of Mr. Mahon's employment agreement, we originally engaged Mr. Mahon as Chief Operating Officer, and beginning April 1, 2001, Mr. Mahon was elected President/CEO of the Company. For biographical and contract information regarding Mr. Mahon, reference is made to the Company's 10QSB filed on March 5, 2001. In the beginning of January, 2001, William J. Brinkmeier II, and Thomas A. Nix, officers and directors of VisionComm, Inc., were appointed as additional directors of the Company. For biographical information regarding Messrs. Brinkmeier and Nix, see details in Item # 9. 6 In January, 2001, Mr. Mahon was appointed as our Secretary/Treasurer. On March 1, 2001, Mr. Mahon was appointed President/Chief Executive Officer, to fill the vacancies left by the resignation of J. Michael Heil in such positions. PRINCIPAL PRODUCTS AND SERVICES VISIONCOMM VisionComm, Inc. ("VCI") was founded in 1995 for the purpose of becoming a provider of telecommunications and cable television services to residents of multiple dwelling units (MDUs), hotels and hospitals. VCI's corporate headquarters are located in St. Charles, Missouri. VCI operates through two divisions--the CABLE DIVISION and the PAYPHONE DIVISION. THE CABLE DIVISION is headquartered in Clinton Township, Michigan, a suburb of Detroit. Cable Division Operations is headed by Larry Wilk and Cable Division Sales and Marketing is headed by Tom Nix. Mr. Wilk and Mr. Nix have over 45 years of combined experience in the private cable business. The Cable Division manages a nationwide network of contractors, provides engineering and planning for new installations and customer service for VCI's cable subscribers and oversees all other aspects of the Company's cable business. Subscriber billing and collection are handled at the St. Charles office. VCI's initial cable systems were acquired from United Satellite/USA, Inc., in June of 1996. Today, VCI operates private cable systems in three states (Texas, California and Michigan) and manages two franchise cable systems in Missouri, in total covering 6,000 passings. The following communities are under franchise agreements with VisionComm. These franchise agreements were purchased from Phoenix Communications. All assignments and transfers were obtained. These cable systems need to be built out within the next 16 months per the franchise agreements. Chester Township Charlton Township Vienna Township Weber Township Yates Township Elk Township Sauble Township VCI's PAYPHONE DIVISION is headquartered in St. Charles, Missouri. The Payphone Division is headed by William Brinkmeier, President and a director, who has worked in the private payphone business since 1989, when he and Stan Rojeski, a director of VCI, founded Payphones of America, Inc. From 1989 to 1995 Payphones of America increased its operating payphones to 3,300. In 1996 Payphones of America was sold to PhoneTel Technologies, Inc. Proceeds from the sale were used in the initial funding of VisionComm. In 1995, VisionComm entered into a ten-year contract with Nevada Communications Corp. to provide payphone services to a large Healthcare Corporation's hospitals and healthcare facilities throughout the United States, on an exclusive basis. As of August 2000, VisionComm had installed 1,000 phones in facilities in 18 states. VCI is focusing on the continued growth efforts in the private cable division. The growth, as planned, will encompass both acquisitions and the construction of new cable locations, with VCI's initial concentration on acquisitions. VCI plans to target areas of the country where it has a current presence, as it is believed this will 7 allow for economies of scale. VCI will also seek growth by exploring "Add On" possibilities at its existing properties, such as cable modem services. VCI is currently attempting to sell the Payphone Division, so it may devote its full energies to growing the Cable Division. There can be no assurance VCI will be successful in finding a suitable buyer, or, if a suitable prospective buyer is found, that VCI will be able to negotiate acceptable terms. HOTEL MOVIE NETWORK Another key business segment of Chequemate International is its hotel Pay-Per-View and direct digital television services or "Free to Guest" services, called the Hotel Movie Network. We became involved in this business area through acquisitions from Alpha Broadcasting Corporation. In the acquisitions, we purchased a combination of operating service contracts with additional inventory to outfit hotels for Pay-Per-View and "Free to Guest" services. Our interest in the hotel market is as a focused test market for its 3D technologies and as a stable revenue source. Currently the company delivers television programming to approximately 11,000 hotel rooms. The hotel properties are primarily located in Arizona, California, Idaho, Nevada, New Mexico, Texas, Utah and Washington. 3D.COM DIVISION STRATA SOFTWARE DIVISION On June 16, 1999, We formed the 3D.COM division by completing the process of acquiring the assets and technology previously owned by Strata, Inc., and combining them with the internal web effort of the Company. We then hired former Strata, Inc. employees to support and sell the Strata products. Strata, Inc. was one of the early pioneers in 3D software. The Strata tool line has been used for such well-known projects as the game "MYST"(c); television shows like the "98 MTV Movie (c) Awards" (c),"Hercules" (c) and "Xena" (c); the NBC dancing peacocks; the Warner Bros and Blockbuster web sites; the films "Contact" (c), "5th Element" (c), "Batman Forever" (c), and many others. The core Strata products that will continue to be offered by the Company, are the following: Strata 3DPro(TM). Strata 3DPro is the premier 3D software product of the Company and is available for Apple Macintosh, Windows 98, 2000 and NT. Strata 3DPro is used for creating 3D images and animations for the web, video, movies, print, games and multimedia. Strata 3DPro is well known for being used to create the graphics for the world's best selling CD-Rom game, Myst (c). Recently Strata 3DPro has been used on projects such as the Blockbuster Video Web site, the NBC dancing peacocks and the movie CONTACT. The latest release adds special stereographic 3D features. Strata 3DPro has an installed base of approximately 100,000 users. VideoShop. VideoShop is a professional quality non-linear video editor and presently runs only on Apple Macintosh computers. VideoShop is used primarily for multimedia, web and desktop video tasks. It has been bundled on select Macintosh computers for over five years and has developed an installed base of well over one million customers through this process. MediaPaint(TM). MediaPaint is a video painting and effects application. MediaPaint is available for Apple Macintosh, Windows 98 and NT. MediaPaint is used for professional projects on the Web, multimedia and broadcast video. MediaPaint has an installed base of approximately 6,000 users. PATENTS, TRADEMARKS AND COPYRIGHTS On June 23, 1997, we acquired an exclusive, worldwide and perpetual license to the Realeyes proprietary three-dimensional video technology and subsequently filed U.S. provisional patent application number 60/034,149 8 with regard to aspects of such technology. We have proceeded to file additional patent applications, including a U.S. utility application, Serial No. 08/997,068, with regard to the system and method of synthesizing three-dimensional video from a two-dimensional video source. Patent Cooperation Treaty (PCT) national phase patent applications based upon this technology have been filed in Australia, Brazil, Canada, China, Japan, Europe and Mexico. An International Patent Application under the Patent Cooperation Treaty (PCT) was filed with regard to a system and method for recording and broadcasting three-dimensional video synthesized from a two-dimensional source. All countries that are members of the PCT were designated in this PCT application. On June 16, 1999, we acquired certain copyrights and trademarks relative to the technology and products of its Strata Division. The Company currently owns or licenses the following U.S. and foreign patents:
Patent/Product Application or Country Granted or Filed Year of expiration or Registration No. Renewal - ----------------------- ---------------- ------- ----------------- --------------------- Chequemate 2D to 3D 08/997,068 U.S.A. December 23, 1997 Pending Chequemate 2D to 3D P-19713629-8 Brazil December 24, 1997 Pending Chequemate 2D to 3D 2,276,190 Canada December 24, 1997 Pending Chequemate 2D to 3D 97181060.5 China December 24, 1997 Pending Chequemate 2D to 3D 10-530238 Japan December 24, 1997 Pending Chequemate 2D to 3D 97953466.6 Europe December 24, 1997 Pending Chequemate 2D to 3D 996050 Mexico December 24, 1997 Pending Chequemate Recording and 60/114,264 U.S.A. December 30, 1998 Converted to PCT Broadcasting 3D from 2D PCT/US99/31233 December 30, 1999
The Company currently owns or licenses the following U.S. copyrights:
Copyright/Product Registration No. Country Granted - ----------------- ---------------- ------- ----------------- StrataVISION 3D TX 2,688,747 U.S.A. October 2, 1989 AIM - 3D TXu 507, 718 U.S.A. February 13, 1992
9 The Company currently owns or licenses the following U.S. and foreign trademarks:
Trademark/Product Registration No. Country Granted or Filed Year of expiration or or Serial No. Renewal - ------------------------ ---------------- ------- ----------------- --------------------- C-3D Digital class 38 75/605,796 U.S.A. December 15, 1998 Pending C-3D Digital class 9 75/605,795 U.S.A. December 15, 1998 Pending C-3D class 9 75/605,794 U.S.A. December 15, 1998 Pending C-3D class 38 75/605,904 U.S.A. December 15, 1998 Pending 3D.COM class 42 75/729,813 U.S.A. June 16, 1999 Pending 3D TRAVEL class 38 75/279,982 U.S.A. June 16, 1999 Pending 3D SPORTS class 9 75/729,984 U.S.A. June 16, 1999 Pending 3D SPORTS class 38 75/729,985 U.S.A. June 16, 1999 Pending 3D TRAVEL class 42 75/729,812 U.S.A. June 16, 1999 Pending 3D SPORTS class 25 75/729,811 U.S.A. June 16, 1999 Pending 3D SPORTS class 42 75/729,031 U.S.A. June 16, 1999 Pending STRATAVISION 3D 1,606,234 U.S.A. July 17, 1990 July 17, 2000 STUDIOPRO 1,892,027 U.S.A. May 2, 1995 May 2, 2001 (1) MEDIAPAINT 2,042,281 U.S.A. March 4, 1997 March 4, 2003 (1) POWERING THE CREATIVE 2,098,858 U.S.A. September 23, 1997 September 23, 2003 (1) ENVIRONMENT STRATAVISION TMA404,400 Canada November 6, 1992 November 6, 2007 TELECHARGE 2,241,551 U.S.A. April 27, 1999 April 27, 2009 TELECHARGE SIMPLE ACCESS 2,241,550 U.S.A. April 27, 1999 April 27, 2009
The Company has also licensed other technology regarding its Strata product line that enables the Company to offer certain of its Strata products on the Microsoft Windows 95 (or higher), operating system. - ------------------ (1) Affidavits of Continued Use are due by this date. If filed the trademark will be valid for ten years from the date of grant. If not filed the trademark will expire on this date. EMPLOYEES As of June 29, 2001, the Company and its subsidiaries had 18 full time employees, and 4 consultants. 10 ITEM 2. DESCRIPTION OF PROPERTY The Company occupies leased office space at: 1030 S. Mesa Drive $3000.00 per month 4000 sqf. (10 Year lease started March 2000) Lease 951 Old Country Road Suite 195 Belmont, CA $1100.00 per month 900 sqf. (Month to Month) Lease 5018 Bristol Industrial Way #202 Buford, GA $2200.00 per month 3000 sqf (Lease ends July 31 2001) Leases: St. Charles, Missouri Office, 9600 square feet, $5750.00 per month, Four years remaining on lease. Detroit, Michigan Office, 1800 square feet, $2935.00 per month, 18 months remaining on lease. Grand Prairie, Texas Office, 900 square feet, $842.00 per month, 2 months remaining on lease. ITEM 3. LEGAL PROCEEDINGS On November 14, 2000, the Company and its Chief Executive Officer, J. Michael Heil ("Heil"), were named as defendants in a complaint filed by Trimark Pictures, Inc. ("Trimark"), in the Superior Court for the State of California, County of Los Angeles (TRIMARK PICTURES, INC. V. CHEQUEMATE INTERNATIONAL, INC., D/B/A C-3D DIGITAL, INC., J. MICHAEL HEIL, ET AL.; Case No. SC063992) (the "Trimark complaint"). The Trimark complaint alleges that the Company and Heil breached the terms of a contract between the Company and Trimark dated February 8, 2000 (the "Trimark contract"), by failing to register a total of 100,000 shares of the Company's restricted common stock issued to Trimark pursuant to the terms of the Trimark contract. Under the terms of the Trimark contract, the Company issued to Trimark a total of 100,000 shares of restricted common stock (the "Trimark shares"), and agreed to immediately undertake the registration of the Trimark shares, in exchange for the license to the Company of up to fifty (50) pictures from Trimark's library for digitalization by the Company. The Trimark complaint also asserts a claim for fraud against the Company and Heil, alleging that, prior to execution of the Trimark contract, the Company and Heil made false promises and representations to Trimark concerning the Trimark shares, for the purpose of inducing Trimark into entering into the Trimark contract. Trimark claims substantial damages arising from the alleged breach of contract and misrepresentations, in the amount of $1,650,000. We are currently engaged in settlement discussions with Trimark and we have reached a settlement in general terms and are awaiting proper documentation resolving the entire matter. In the event these discussions are not successful, the Company and Heil intend to vigorously defend this case, raising a number of defenses, including, among other things, issues regarding the consideration received from Trimark; and the actual damages actually suffered by Trimark because of the alleged breach of contract. During the period ending March 31, 2001 we were engaged in restructuring and in focusing on consolidation. In the process of consolidation a number of employees and contractors were released and we are currently engaged with settlement negotiations with many of these employees and contractors. In the event these discussions and negotiations are not successful, we may be faced with additional legal repercussions from these individuals. There may be other ongoing litigation not deemed material by management. For a description of all recent litigation and settlements, reference is made to the Company's quarterly report on Form 10-QSB for the quarter ended December 31, 2000 filed with the Commission on March 12, 2001 and the settlements attachments made hereto. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ending March 31, 2001. 11 PART II ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The stock of the Company is traded on the American Stock Exchange under the symbol DDD. The listing on the American Stock Exchange took place on June 9, 1999. Prior to that date, the Company's stock had been traded on the OTC Bulletin Board under the symbol CQMT of the NASD Stock Market, Inc. As of June 25, 2001, there are approximately 900 shareholders of record of the Company. As of June 25, 2001, the Company had issued and outstanding shares of 25,680,581. The stock of the Company, as of June 25, 2001, closed at $0.19. The NASD Stock Market, Inc. provided the fiscal year 1999 quotations for the Company's stock. The referenced quotations reflect inter-dealer prices without dealer mark-up, markdown or commissions and may not represent actual transactions. These prices have been adjusted to reflect the reverse split of the Company's common stock declared to be effective February 2, 2000. Yahoo! provided the fiscal year 2000 quotations for the Company's stock.
Fiscal Year High Closing Price Low Closing Price - ------------------------------ ------------------ ----------------- 2000-1st Quarter (4/99-6/99) 13.50 7.00 2000-2nd Quarter (7/99-9/99) 13.25 6.25 2000-3rd Quarter (10/99-12/99) 12.50 4.00 2000-4th Quarter (1/00-3/00) 18.44 7.25 2001-1st Quarter (4/00-6/00) 8.87 3.12 2001-2nd Quarter (7/00-9/00) 3.93 1.00 2001-3rd Quarter (10/00-12/00) 1.19 0.25 2001-4th Quarter (1/01-3/01) 0.81 0.15
The Company has paid no dividends on common stock during its two most recent fiscal years, and has no present intention to pay dividends in fiscal year 2001. 12 ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fiscal year March 31, 2001 compared to March 31, 2000 (as restated for discontinued operations). In November 2000 the Company determined to discontinue its Strata division. The Company leased its tangible and intangible Strata assets back to a company controlled by the founders of Strata. The lease agreement was for minimal consideration and served as a mechanism for the planned future sale or spin off of Strata as a separate company. Accordingly the operations of Strata are excluded from the operating results of the Company. In December 2000 the Company purchased 100% of VisionComm, Inc. a St. Louis, Missouri based cable television and payphone company. Vision Comm operates on a calendar year end accordingly none of the operations of VisionComm are included in the Company's consolidated financial statements. However the balance sheet of VisionComm is included in the consolidated balance sheet of the Company as of March 31, 2001. The Company's current assets increased by $301,872 from March 31, 2000 to March 31, 2001. The increase is the result of the purchase of VisionComm Inc. and inclusion of its accounts receivable in the Company's current assets. Over the same period total liabilities increased by $4,825,277. This increase was also the result of the purchase of VisionComm and the inclusion of its liabilities in the Company's consolidated financial statements. The purchase of Vision Comm resulted in the creation of $5,335,881 of goodwill and a net increase in fixed assets of $1,080,473. The Company will evaluate the recoverability of its goodwill on at least an annual basis. The net assets of the Company's investment in Strata have been grouped together as discontinued operations. The Company expects to recover its investment in Strata through the sale or spin off of Strata. The Company raised $2,800,000 of capital from the sale of its common stock. The Company also settled stock debt of $4,039,936 for stock. Liquidity and Capital Resources The Company continues to be dependent on investment capital to fund its operations. The Company expects to receive approximately $3,500,000 upon completion of the Another World Private Placement. The Company has also established an equity line of credit but has determined to not make any draws on the line of credit through June 30, 2001. Even upon the completion of the Another World Private Placement the Company will have a deficit in its working capital. There is no assurance that the Company will be able to attract sufficient investment capital to fund its operations. Also the Another World transaction is subject to shareholder approval and certain deadlines. Results of Operations The Company revenues for the year ended March 31, 2000 have been restated to reflect Strata as discontinued operations. The sales of Strata have been removed from the consolidated 13 numbers as have the related operating expenses. Sales for the year ended March 31, 2001 were $905,070 compared to $491,779 for the prior year, an increase of 84%. These sales were the result of the growth of Hotel Movie Network. If the Company had owned VisionComm for all of 2000 sales would have been $3,580,705 on a proforma basis. The Company's gross margin was $379,229 or 42% compared to $262,464 or 53% in the prior year. General and administrative expenses increased by $10,402,239. This increase was primarily the result of shares and options which were issued for services and in settlement of various claims against the Company. The shares and options were valued at their estimated fair value and resulted in an expense of $10,821,527. Fiscal year March 31, 2000 compared to March 31, 1999 The Strata software products generated in excess of $1,800,000 in revenue in the 2000 fiscal year. The Company discontinued the Strata product line in 2001. The hotel pay-per-view segment currently generates roughly $80,000 a month in revenue. This business will serve as an internal test market for providing 3D entertainment to hotel guests. The Company has adapted its 3D technology to work through the hotel pay-per-view system and is seeking additional hotel properties in which to conduct market testing. CURRENT ASSETS
MARCH 31, ----------------------------- 2000 1999 ---------- ---------- Cash $ 49,475 $1,732,199 Accounts receivable - net of allowances of $422,096 and $53,820 in 1999 and 1998, respectively 213,268 197,922 Inventory 727,512 3,115,763 Prepaid expenses 74,170 198,349 ---------- ---------- Total Current Assets 1,064,425 5,244,233 ---------- ----------
Current Assets of the Company are made up of Cash, Accounts Receivable, Inventory and Prepaid expenses. Accounts Receivable reflects only the accounts and new sales for these accounts that have been collected from April 1, 2000 through June 26, 2000. Reserves for all other accounts have been made. The Company has written off the "RealEyes" inventory that it held on the books for the prior year. The Company's inventory is now made up of the following 14 components: INVENTORY
March 31, ----------------------------- 2000 1999 ---------- ---------- Finished goods $ 727,512 $1,035,682 WIP -- 1,076,880 Raw goods -- 1,003,201 ---------- ---------- $ 727,512 $3,115,763 ========== ==========
The finished goods were made up of three components. Inventory used for viewing three dimensional television, software products sold by 3D.COM and units used in the Home Movie Network for installation of the delivery systems in hotels for the pay per view and "free to guest" movies. Prepaid expenses were costs of demonstrations, shows and other promotional activities that are paid in advance. These costs are expensed after the demonstrations, shows or other promotional activities have concluded. PROPERTY AND EQUIPMENT
Net Book Value Accumulated ----------------------------- Cost Depreciation 2000 1999 ---------- ------------ ---------- ---------- Office furniture and fixtures $ 168,465 $ 41,571 $ 126,894 $ 24,320 Machinery and equipment 1,209,061 260,048 949,013 569,488 Hotel pay-per view equipment 470,313 117,579 352,734 -- ---------- ---------- ---------- ---------- Total $1,847,839 $ 419,198 $1,428,641 $ 622,717 ========== ========== ========== ==========
The change in Net Book Value between FY 1999 and FY 2000 is due to purchases of equipment and other personal property. OTHER ASSETS
2000 1999 --------- --------- Notes receivable 50,000 65,000 Product rights 2,548,259 2,534,532 Movie production cost (net) 809,640 Secured interest 1,198,530 Refundable deposits 47,159 15,704 Investments -- 3,000 --------- --------- Total Other Assets 3,455,058 3,816,766 --------- ---------
15 The Company's Note Receivable was the result of a sale of the Chequemate name and business. Refundable deposits were primarily for office space, satellite use and some utility deposits. The Company's most valuable assets were Product rights and Movie production costs. PRODUCT RIGHTS
Net Book Value -------------- Term Cost Amortization 2000 1999 --------- ----------- ------------ ----------- ----------- Product rights 4-5 years $ 3,948,268 $ 1,659,038 $ 2,289,230 $ 2,423,399 Contract/movie rights 2-5 years 324,559 65,530 259,029 111,133 --------- ----------- ----------- ----------- ----------- $ 4,272,827 $ 1,724,568 $ 2,548,259 $ 2,534,532 =========== =========== =========== ===========
Product Rights consisted of the Company's 3D technologies that include the ability to convert 2D products to 3D products, the ability to film with special 3D cameras, the ability to manufacture 3D items with the Strata product line, and rights to certain content that can be converted to 3D products to be distributed through the television channel, video, and DVD. CURRENT LIABILITIES
2000 1999 ---------- ---------- Accounts payable $1,089,974 $ 871,116 Short-term obligations 1,972,502 -- Related party accounts payable 25,292 Accrued expenses 376,391 38,672 Income tax payable 500 500 Accrued interest - related party 79,943 Accrued interest payable 123,605 39,791 Current portion related party 140,000 Current portion long-term debt 3,625,787 227,610 Current portion capital lease -- 13,602 ---------- ---------- Total Current Liabilities 7,188,759 1,436,526 ---------- ----------
The increase in the current liabilities was due to new rules pertaining to notes that will later be paid by the Company's issue of common stock. During the first quarter of 2001 the accounts payable of the Company were significantly reduced. Short-term obligations represent various agreements and commitments for services to be rendered to the Company. These 16 obligations were paid in common stock of the Company after approval by the Board of Directors. The Board approved the agreements and the stock was then issued in the first quarter of 2001. The Company recorded the obligations as a liability pending the issuance of the stock in the first quarter of 2001. This transaction put the Company's capital account into a negative position until the issuance of the stock in the first quarter of 2001. Accrued expenses were payroll taxes owed to the IRS and State of Utah. Arrangements for the payment of these obligations have been made and these debts are in the process of being retired. STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.0001 par value, 500,000,000 shares authorized, 6,781,669 and 5,589,662 shares outstanding at 1999 and 1998, respectively 678 558 Capital in excess of par 36,900,982 24,463,118 Accumulated deficit (38,142,295) (19,406,486) ------------ ------------ Total Stockholders' Equity (Deficit) (1,240,635) 5,057,190 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,948,124 $ 9,683,716 ============ ============
The negative position of the capital account of the Company was the result of booking services of consultants until stock could be issued in the first and second quarters of 2001. It should be noted that during the first quarter of 2001 notes were converted to stock and additional capital was raised that reversed the negative capital position of the company.
REVENUES 2000 1999 1998 ----------- ----------- ----------- Sales - products $ 2,914,421 $ 682,760 $ 1,091,794 ----------- ----------- ----------- COST OF SALES Product, supplies and materials 4,502,165 631,132 849,919 ----------- ----------- ----------- GROSS MARGIN (LOSS) (1,587,744) 51,628 241,875 ----------- ----------- -----------
Sales showed a substantial gain over the prior two years. The sales gains were due to the sale of the Strata software and Home Movie Network. The increase in the cost of sales for the year over prior years was due largely to the write-off of the "RealEyes" inventory. The Company's auditors have recommended and the Company is in agreement with the concept of reserving for inventory obsolescence each quarter to eliminate future possibilities of such write-offs. 17 EXPENSES
2000 1999 1998 ---------- ---------- ---------- Impairment of product rights -- 3,133,333 Bad debt expense 487,221 53,820 138,259 Selling expenses 1,102,186 851,339 1,639,806 General and administrative 15,170,567 3,074,839 3,430,005 ---------- ---------- ---------- Total Expenses 16,759,974 3,979,998 8,341,403 ---------- ---------- ----------
The Company's customers had previously been stable over the years, but this year several of the Company's customers either filed petitions in bankruptcy or changed their methods of distribution due to the Internet. As a result, the Company has reserved for such contingencies in the future. Selling expenses were up from last year as the result of activities in getting the cable channel started and the 3D.COM Internet portal open. General and administrative expenses increased due to consultant activities in the creation of new content, consultant activities in aiding the Company in obtaining additional capital, and the issuance to employees of options to encourage their loyalty to the Company. OTHER INCOME (EXPENSE) Gain on forgiveness of debt 29,375 -- Loss from discontinued operations -- (40,859) -- Interest income 13,470 11,265 24,152 Interest expense (430,436) (93,779) (18,478) Gain (loss) on sale of equipment -- (160,836) 70,309 ------------ ------------ ------------ Total Other Income (Expense) (387,591) (284,209) 75,983 ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (18,735,309) (4,212,579) (8,023,545) INCOME TAX PROVISION 500 500 500 ------------ ------------ ------------ NET LOSS $(18,735,809) $ (4,213,079) $ (8,024,045) ============ ============ ============ BASIC LOSS PER SHARE $ (3.09) $ (0.94) $ (2.37) ============ ============ ============ FULLY DILUTED LOSS PER SHARE $ (3.09) $ (0.94) $ (2.37) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,064,075 4,496,046 3,392,211 ============ ============ ============
Interest expense on the debt that was to be converted to Company stock was the reason for the increase in other expense and income area. 18 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (DBA C3-D DIGITAL) CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND 2000 19 C O N T E N T S Independent Auditors' Report .................................. 21 Consolidated Balance Sheets ................................... 22 Consolidated Statements of Operations ......................... 24 Consolidated Statements of Stockholders' Equity (Deficit) ..... 26 Consolidated Statements of Cash Flows ......................... 27 Notes to Consolidated Financial Statements .................... 29
20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Chequemate International, Inc. and Subsidiaries (dba C3-D Digital) St. Charles, Missouri We have audited the accompanying consolidated balance sheets of Chequemate International, Inc. and Subsidiaries (dba C3-D Digital) as of March 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended March 31, 2001, 2000 and 1999. 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 did not audit the financial statements of VisionComm, Inc., a consolidated subsidiary, which statements reflect total assets and revenue constituting 21% and 0%, respectively in March 31, 2001, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for VisionComm, Inc., is based solely on the report of the other auditors. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, 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, 2001 and 2000 and the consolidated results of their operations and their cash flows for the years ended March 31, 2001, 2000 and 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Chequemate International, Inc. and Subsidiaries (dba C3-D Digital) will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, certain conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. HJ & Associates, LLC Salt Lake City, Utah July 3, 2001 21 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Balance Sheets ASSETS
March 31, ---------------------------- 2001 2000 ----------- ----------- CURRENT ASSETS Cash $ 20,328 $ 49,815 Accounts receivable - net of allowances of $231,217 and $422,096 in 2001 and 2000, respectively 615,337 213,268 Employee advances 11,700 -- Inventory (Note 2) 698,379 727,512 Prepaid expenses 20,893 74,170 ----------- ----------- Total Current Assets 1,366,637 1,064,765 ----------- ----------- PROPERTY AND EQUIPMENT (Note 3) 2,229,321 1,148,848 ----------- ----------- OTHER ASSETS Net assets of discontinued operations (Note 14) 752,224 988,312 Goodwill (Note 21) 5,335,881 -- Notes receivable 35,178 50,000 Movie production cost and product rights (net) 3,664,586 2,649,380 Refundable deposits 3,986 47,159 Investments 84,000 -- ----------- ----------- Total Other Assets 9,875,855 3,734,851 ----------- ----------- TOTAL ASSETS $13,471,813 $ 5,948,464 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 22 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, ------------------------------- 2001 2000 ------------ ------------ CURRENT LIABILITIES Accounts payable $ 1,418,541 $ 1,089,974 Short-term obligations (Note 19) -- 1,972,502 Accrued expenses 1,694,691 376,391 Income tax payable (Note 16) 500 500 Accrued interest payable 133,176 123,605 Current portion long-term debt (Note 6) 2,276,222 3,625,787 Deferred income 93,765 -- ------------ ------------ Total Current Liabilities 5,616,895 7,188,759 ------------ ------------ LONG-TERM LIABILITIES Long-term debt - related party (Note 5) 1,187,919 -- Long-term debt (Note 6) 5,209,222 -- ------------ ------------ Total Long-Term Liabilities 6,397,141 -- ------------ ------------ Total Liabilities 12,014,036 7,188,759 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $0.0001 par value, 500,000,000 shares authorized, 20,686,292 and 6,781,669 shares outstanding at 2001 and 2000, respectively 2,068 678 Capital in excess of par 57,169,680 36,900,982 Accumulated deficit (55,713,971) (38,141,955) ------------ ------------ Total Stockholders' Equity (Deficit) 1,457,777 (1,240,295) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 13,471,813 $ 5,948,464 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 23 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Statements of Operations
For the Years Ended March 31, -------------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ REVENUES Sales - products $ 905,070 $ 491,779 $ 682,760 ------------ ------------ ------------ COST OF SALES Product, supplies and materials (Note 2) 525,841 229,315 631,132 ------------ ------------ ------------ GROSS MARGIN 379,229 262,464 51,628 ------------ ------------ ------------ EXPENSES Bad debt expense 58,987 46,180 53,820 Selling expenses 224,661 416,047 851,339 General and administrative 15,266,450 4,864,211 3,074,839 ------------ ------------ ------------ Total Expenses 15,550,098 5,326,438 3,979,998 ------------ ------------ ------------ OPERATING LOSS (15,170,869) (5,063,974) (3,928,370) ------------ ------------ ------------ OTHER INCOME (EXPENSE) Gain on forgiveness of debt -- 29,375 -- Interest income 14,442 13,470 11,265 Interest expense (277,823) (118,058) (93,779) Gain (loss) on sale of equipment -- -- (160,836) ------------ ------------ ------------ Total Other Income (Expense) (263,381) (75,213) (243,350) ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (15,434,250) (5,139,187) (4,171,720) INCOME TAX PROVISION (Note 17) 500 500 500 ------------ ------------ ------------ NET LOSS FROM OPERATIONS (15,434,750) (5,138,687) (4,171,220) DISCONTINUED OPERATIONS (2,137,266) (13,596,782) (40,859) ------------ ------------ ------------ NET LOSS $(17,572,016) $(18,735,469) $ (4,212,079) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 24 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Statements of Operations
For the Years Ended March 31, ------------------------------------------------------- 2001 2000 1999 -------------- ------------- ------------- BASIC LOSS PER SHARE Continued operations $ (1.31) $ (0.85) $ (0.93) Discontinued operations (0.18) (2.24) (0.01) -------------- ------------- ------------- $ (1.49) $ (3.09) $ (0.94) ============== ============= ============= FULLY DILUTED LOSS PER SHARE Continuing operations $ (1.31) $ (0.85) $ (0.93) Discontinued operations (0.18) (2.24) (0.01) -------------- ------------- ------------- $ (1.49) $ (3.09) $ (0.94) ============== ============= ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,659,403 6,064,075 4,496,046 ============== ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 25 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Statements of Stockholders' Equity (Deficit) For the Years Ended March 31, 2001, 2000 and 1999
Total Total Capital Stockholders' Shares Common in Excess Accumulated Equity Issued Stock of Par Deficit (Deficit) ---------- ------ ----------- ------------ ------------ Balance, March 31, 1998 3,522,162 $ 352 $18,984,810 $(15,193,407) $ 3,791,755 Shares issued through stock offering 1,521,358 152 3,771,382 -- 3,771,534 Shares issued for assets 145,833 15 1,532,985 -- 1,533,000 Shares issued for cash 92,950 9 3,709 -- 3,718 Correction of an error 12,500 1 4 -- 5 Shares issued in exchange for services 273,703 27 43,420 -- 43,447 Shares issued for debt 21,156 2 126,808 -- 126,810 Net loss -- -- -- (4,213,079) (4,213,079) ---------- ------ ----------- ------------ ------------ Balance, March 31, 1999 5,589,662 558 24,463,118 (19,406,486) 5,057,190 Conversion of debt to stock 646,113 64 3,768,546 -- 3,768,610 Stock for services 415,846 42 3,678,699 -- 3,678,741 Stock for cash 87,501 9 3,491 -- 3,500 Options for services 6,250 1 59,374 -- 59,375 Stock for secured interest 5,000 1 80,357 -- 80,358 Stock for assets 31,250 3 320,310 -- 320,313 Issuance of options/warrants below market value -- -- 4,527,087 -- 4,527,087 Old certificate/new rounding 47 -- -- -- -- Net loss -- -- -- (18,735,469) (18,735,469) ---------- ------ ----------- ------------ ------------ Balance, March 31, 2000 6,781,669 678 36,900,982 (38,141,955) (1,240,295) Shares issued for assets 703,250 70 1,826,055 -- 1,826,125 Shares issued for cash 788,732 79 2,799,921 -- 2,800,000 Shares issued for services 6,078,798 608 6,240,780 -- 6,241,388 Shares issued for debt conversion 3,833,743 383 4,039,553 -- 4,039,936 Issuance of shares / options below market value -- -- 4,580,139 -- 4,580,139 Shares issued for subsidiary 2,500,000 250 782,250 -- 782,500 Net loss -- -- -- (17,572,016) (17,572,016) ---------- ------ ----------- ------------ ------------ Balance, March 31, 2001 20,686,192 $2,068 $57,169,680 $(55,713,971) $ 1,457,777 ========== ====== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 26 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Statements of Cash Flows
For the Years Ended March 31, ------------------------------------------------- 2001 2000 1999 ------------ ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(17,572,016) $(18,735,469) $(4,213,079) Adjustments to reconcile net loss to net cash used by operating activities: Amortization 785,622 1,053,376 314,873 Depreciation 171,900 295,431 79,599 Loss on sale of assets -- -- 160,836 Bad debt expense 58,987 368,276 53,820 Forgiveness of debt -- (29,375) -- Common stock and options issued for services rendered 8,967,025 8,345,561 448,547 (Increase) decrease in: Accounts receivable (461,056) (383,622) (227,437) Prepaid expenses 53,277 124,179 (187,090) Inventory 29,133 2,388,251 275,246 Note receivable 14,822 60,000 (530,530) Refundable deposits 43,173 (31,455) (7,651) Investment -- 3,000 -- Increase (decrease) in: Employee advances (11,700) -- -- Accounts payable 328,567 193,566 (730,202) Accrued interest payable 9,571 3,871 53,831 Deferred income 93,765 -- (54,724) Short-term obligations -- 1,972,502 -- Accrued expenses 3,829,351 337,719 (4,667) ------------ ------------ ----------- NET CASH USED BY OPERATING ACTIVITIES (3,659,579) (4,034,189) (4,568,628) ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase or development of intangibles -- (230,807) (128,021) Equipment purchases (502,268) (908,440) (198,736) ------------ ------------ ----------- NET CASH USED BY INVESTING ACTIVITIES (502,268) (1,139,247) (326,757) ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 1,612,081 3,500 3,502,167 Issuance of notes payable 1,419,360 3,550,000 3,043,409 Issuance of common stock - related party 1,187,919 -- -- Payments made on notes payable (87,000) (62,448) (138,832) ------------ ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 4,132,360 $ 3,491,052 $ 6,406,744 ------------ ------------ -----------
The accompanying notes are an integral part of these consolidated financial statements. 27 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Consolidated Statements of Cash Flows (Continued)
For the Years Ended March 31, ------------------------------------------- 2001 2000 1999 -------- ----------- ---------- NET INCREASE (DECREASE) IN CASH $(29,487) $(1,682,384) $1,511,359 CASH AT BEGINNING OF YEAR 49,815 1,732,199 220,840 -------- ----------- ---------- CASH AT END OF YEAR $ 20,328 $ 49,815 $1,732,199 ======== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 28 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company's accounting policies reflect practices of the Centric graphical software applications, hotel pay-per-view provides hotels customers with visual recreational services, the cable television channel provides 3D viewing for subscribers and the hardware units sells the units required for viewing 3D movies and videos and conform to generally accepted accounting principles. The following policies are considered to be significant: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries 3D.COM and VisionComm, 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, or as customers view pay-per-view items. Revenue consists of software sales, product sales, license fees, and monthly hotel pay-per-view fees. PROPERTY AND EQUIPMENT Property and equipment are stated at cost with depreciation and amortization computed on the straight line method. Property and equipment are depreciated over the following estimated useful lives:
Years ----- Office furniture 5-7 Machinery and equipment 5-7
MOVIE PRODUCTION COST AND PRODUCT RIGHTS
Net Book Value --------------------------- Term Cost Amortization 2001 2000 --------- ------------- ------------ ----------- ----------- Product rights 4-5 years $ 3,094,045 $ 2,132,143 $ 961,902 $ 2,390,351 Contract/movie rights 2-5 years 294,537 294,537 -- 259,029 Production cost 5 years 2,725,725 990,906 1,734,819 -- Cable production 10 years 1,326,386 358,521 967,865 -- ----------- ----------- ----------- ----------- $ 7,440,693 $ 3,776,107 $ 3,664,586 $ 2,649,380 =========== =========== =========== ===========
Product rights have been capitalized and amortized over five years using a straight line method. The total amortization expense for the years ended March 31, 2001, 2000 and 1999 amounted to $1,748,763, $1,053,376, and $314,873, respectively. 29 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PRODUCT RIGHTS (Continued) The Company reviews the recoverability of intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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.
For the Year Ended March 31, 2001 -------------------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount ------------ ------------ --------- $(17,433,468) 11,659,403 $ (1.49) ============ ========== ========
For the Year Ended March 31, 2000 -------------------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount ------------ ------------ --------- $(18,735,469) 6,064,075 $ (3.09) ============ ========== ========
For the Year Ended March 31, 1999 -------------------------------------------------- Loss Shares Per Share (Numerator) (Denominator) Amount ------------ ------------ --------- $ (4,213,079) 4,496,046 $ (0.94) ============ ========== ========
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 $32,000,000 available to offset future federal and state income tax through 2021. 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. 30 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to the Consolidated Financial Statements March 31, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PRODUCTION 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. CHANGE IN ACCOUNTING PRINCIPLES The Company has adopted the provisions of FASB Statement No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities, (an amendment of FASB Statement No. 133.)" Because the Company had adopted the provisions of FASB Statement No. 133, prior to June 15, 2000, this statement is effective for all fiscal quarters beginning after June 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. The Company has adopted the provisions of FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125.)" This statement provides accounting and reporting standard for transfers and servicing of financial assets and extinguishments of liabilities. Those standards are based on consistent application of a financial- components approach that focuses on control. Under that approach, the transfer of financial assets, the Company recognized the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of this principle had no material effect on the Company's consolidated financial statements. 31 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to the Consolidated Financial Statements March 31, 2001 and 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CHANGE IN ACCOUNTING PRINCIPLES (Continued) The Company has adopted the provisions of FIN 44 "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25.)" This interpretation is effective July 1, 2000. FIN 44 clarifies the application of Opinion No. 25 for only certain issues. It does not address any issues related to the application of the fair value method in Statement No. 123. Among other issues, FIN 44 clarifies the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and accounting for an exchange of stock compensation awards in a business combination. The adoption of this principle had no material effect on the Company's consolidated financial statements. PRIOR PERIOD RECLASSIFICATION Certain 2000 and 1999 balances have been reclassified to conform to the presentation of the 2001 consolidated financial statements. NOTE 2 - INVENTORY
March 31, ------------------------- 2001 2000 -------- -------- Finished goods $698,379 $727,512 WIP -- -- Raw goods -- -- -------- -------- $698,379 $727,512 ======== ========
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. During the year ended March 31, 2000, the Company recognized approximately $2.5 million in markdown of inventory attributable to a decision to restructure an activity. The amount is recorded in cost of sales. 32 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment as of March 31, 2001 and 2000 are detailed in the following summary:
Net Book Value Accumulated -------------------------- Cost Depreciation 2001 2000 ---------- ------------ ---------- ---------- Office furniture and fixtures $ 148,815 $ 57,078 $ 91,737 $ 126,894 Machinery and equipment 982,263 449,000 533,263 949,013 Hotel pay-per view equipment 470,313 211,641 258,672 352,734 Telephone and fixtures 2,157,608 831,820 1,325,788 -- Leasehold improvements 21,049 1,188 19,861 -- ---------- ---------- ---------- ---------- Total $3,780,048 $1,550,727 $2,229,321 $1,428,641 ========== ========== ========== ==========
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, 2001, 2000 and 1999 amounted to $392,128, $205,471 and $79,599, 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, 2001, the Company has issued 20,512,631 shares of common stock. On February 2, 2000, the Company authorized a 1:4 reverse stock split. The consolidated financial statements have been retroactively restated to reflect the reverse stock split. NOTE 5 - RELATED PARTIES Notes payable to related parties as of March 31, 2001 and 2000 are detailed in the following summary:
2001 2000 ---------- -------- Note payable to CEO; with an interest rate of 10.4%; unsecured; accrued interest of $79,943 is due on demand $ -- $140,000 Convertible notes payable to officers and directors, with an interest rate of 8%, accrued interest of $24,022, due April 30, 2002 1,187,919 -- ---------- -------- Total related party notes payable 1,187,919 140,000 Less: current portion -- (140,000) ---------- -------- Long-term portion $1,187,919 $ -- ========== ========
33 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 5 - RELATED PARTIES (Continued) Maturities of the related party notes payable are as follows: Period ending March 31, 2002 $ 1,187,919 2003 -- ----------- Total $ 1,187,919 ===========
NOTE 6 - LONG-TERM DEBT Notes payable as of March 31, 2001 and 2000 are detailed in the following summary:
2001 2000 ---------- ------- Note payable to a company; due in monthly installments of $3,244 which includes interest at 8%; due on demand, unsecured $ 49,287 $48,287 Convertible notes payable to various individuals with an interest rate of 8%, accrued interest of $32,600 due April 30, 2002 1,612,081 -- Notes payable to a Company with monthly payments ranging from $450 to $17,931 and quarterly payments up to $42,099, with interest rates ranging from 12% to 14%, with maturities at various dates through January 2007. The notes are secured by equipment 3,081,235 -- Notes payable to a Company, payable in monthly installments of $423 including interest at 12.5% through November 2003 12,365 -- Note payable to a Company, unsecured, payable in weekly installments of $1,521, including interest at 12% through October 2001 63,570 -- Notes payable to a Company, unsecured, payable in monthly installments of $2,260 including interest at 9% through November 1, 2005 211,906 -- ---------- ------- Balance Forward $5,030,444 $48,287 ---------- -------
34 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 6 - LONG-TERM DEBT (Continued)
2001 2000 ----------- ----------- Balance Forward $ 5,030,444 $ 48,287 Note payable to a Company, unsecured, payable in monthly installments of interest only, calculated at 9% annually, through the due date of the principal balance at April 30, 2002 1,260,000 -- Notes payable to a former stockholders with monthly payments of interest only at 10% to 10.5% annually, through the due date of the principal balances at July 2001 356,000 -- Promissory notes to various companies; April 1, 2001, which includes interest at 12%, secured by tangible and intangible assets -- 3,050,000 Note payable to an individual, due December 20, 2001, with interest at 8% 300,000 -- Notes payable to various entities, due on demand, interest at 8% 139,000 -- Note payable to a company; due on demand, interest at 10% due monthly, secured by equipment and inventory 400,000 440,000 Note payable to a company; unsecured, due on demand, includes interest at 10% -- 87,500 ----------- ----------- Total long-term debt 7,485,444 3,625,787 Less: current portion (2,276,222) (3,625,787) ----------- ----------- Long-term portion $ 5,209,222 $ -- =========== ===========
35 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 6 - LONG-TERM DEBT (Continued) Maturities of long-term debt are summarized below: Period ending March 31, 2002 $ 2,276,222 2003 3,781,371 2004 466,176 2005 359,120 2006 and thereafter 602,555 ----------- Total $ 7,485,444 ===========
NOTE 7 - LEASES At March 31, 2001, the Company is liable under the terms of non-cancelable leases for the following minimum lease commitments:
Operating Leases --------- Period ended March 31, 2002 $ 105,000 2003 107,400 2004 107,400 2005 109,800 2006 75,300 later years 129,600 --------- Total minimum lease payments $ 634,500 =========
Rental expense for the years ended March 31, 2001, 2000 and 1999 amounted to $421,098, $135,860 and $135,580, respectively. NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES CASH FLOW INFORMATION
March 31, --------------------------------- 2001 2000 1999 -------- ------ ------- Interest paid $268,352 $2,134 $34,535 Income taxes paid $ 500 $ 500 $ 500
36 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES (Continued) NON-CASH INVESTING AND FINANCING ACTIVITIES For the years ending March 31, 2001, 2000 and 1999, the Company incurred the following non-cash investing and financing activities.
March 31, ------------------------------------------- 2001 2000 1999 ----------- ---------- ---------- Capital lease obligations incurred $ -- $ -- $ 29,895 Issuance of stock and options for services rendered $10,821,527 $8,345,561 $ 448,547 Issuance of stock for assets $ 2,800,000 $ 510,313 $1,533,000 Increase in debt for assets $ -- $ -- $ 440,000 Issuance of stock for debt $ 4,039,936 $3,768,610 $ -- Issuance of stock for subsidiary $ 782,500 $ -- $ --
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 is a defendant in one pending litigation. On November 14, 2000, the Company and its Chief Executive Officer, J. Michael Heil ("Heil"), were named as defendants in a complaint filed by Trimark Pictures, Inc. ("Trimark"). The Trimark complaint alleges that the Company and Heil breached the terms of a contract between the Company and Trimark dated February 8, 2000, by failing to register a total of 100,000 shares of the Company's restricted common stock issued to Trimark. Trimark claims substantial damages arising from the alleged breach of contract and misrepresentations, in the amount of $1,650,000. The Company is currently engaged in settlement discussions with Trimark and have reached a settlement in general terms and are awaiting proper documentation resolving the entire matter. In the event these discussions are not successful, the Company and Heil intend to vigorously defend this case, raising a number of defenses, including, among other things, issues regarding the consideration received from Trimark; and the actual damages actually suffered by Trimark because of the alleged breach of contract. In December 2001, the Company entered into five employment agreements with certain key personnel. The agreements provided compensation arrangements including non-qualified stock options to acquire common stock of the Company. The term of the agreements were for thirty-six months. 37 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 11 - ACQUISITIONS In August 2000, the Company purchased several film libraries to supplement the 3-D TV operations. The film libraries were purchased to be converted to a 3-D format. The Company issued 703,250 shares of its common stock for the film libraries which are included in its film production costs. 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, 2001. The Company does not have an established source of revenues sufficient to cover its operating costs. Management has formulated a plan to raise additional funding through stock issuances and increase in debt. In addition, the Company's projected revenues from the establishment of its VisionComm subsidiary, the expansion of its cable and hotel activities, and the completion of its pending private placement with Another World, would provide sufficient capital for operations. NOTE 13 - COMMON STOCK AND WARRANTS Effective May 17, 1995, the stockholders approved a 1994 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. 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:
Number of Shares ----------------------------------------------------------- 2001 Price 2000 Price --------- ------------ --------- ------------- Options Granted: Beginning of year 2,516,704 $.04 - 28.00 201,987 $ 0.04 Additional granted 784,522 .04 - 2.00 2,314,717 0.04 - 28.00 Canceled (799,037) .04 - 28.00 -- -- --------- ------------ --------- ------------- End of year 2,502,189 2,516,704 ========= =========
38 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 13 - COMMON STOCK AND WARRANTS (Continued)
Number of Shares ----------------------------------------------------------- 2001 Price 2000 Price --------- ------------ --------- ------------- Options Exercised: Beginning of year 87,501 $.04 - 28.00 56,251 $ 0.04 Additional exercised 600,000 .04 31,250 0.04 Expired -- -- -- -- --------- ------------ --------- ------------- End of year 687,501 87,501 ========= ========= Options Outstanding at End of Year 1,814,688 2,429,203 ========= =========
To retain, attract and compensate key individuals, the Company during the fiscal year granted several stock options to various individuals. These options are convertible into approximately 2,233,000 shares and range from $0.04 to $28.00 per post-split share. In addition, the Company granted options for services performed at $8.00 per post-split share. In December 2000, the Company granted an officer and director options to acquire 600,000 shares of common stock from $0.04 to $2.00. In May 2000, the Company granted options to former employees to acquire 184,500 shares of common stock at $0.04 per share. As part of the VisionComm, Inc. acquisition, the Company issued warrants to the sellers to purchase 2,800,000 shares of common stock at $1.00 per share. The warrants are immediately exercisable and expire in April 2002. The Company estimates the fair value of each stock option and warrant at the grant date by using the Black-Scholes pricing model. The following assumptions were used: risk-free interest rate of 5%, two and one-half year expected life, 91 to 120% expected volatility, and no expected dividends. Accordingly, the Company recognized compensation cost of approximately $4,500,000 associated with these options. NOTE 14 - DISCONTINUED OPERATIONS 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. These assets are associated with centric graphical software applications. In June 1999, the Company foreclosed upon Strata and acquired the collateralized assets of Strata. The Company recorded these assets under APB 16 and recognized fixed assets of approximately $364,000 and an intangible of approximately $834,000. 39 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 14 - DISCONTINUED OPERATIONS (Continued) In November of 2000, the Company entered into several agreements with a Utah corporation to allow the corporation to use the "Strata" assets until an agreement could be reached regarding selling the assets or combining them with the corporation's assets and merging them into a separate entity with the Company obtaining an ownership in the new entity. Subsequent to year-end, the Company is still pursuing resolving this issue with the Utah corporation. The Company believes that the possibility of a new agreement not to be concluded is remote. Should a new agreement not be concluded the value of the assets would be significantly impaired. Therefore, under FASB 5 the Company feels that there is only a remote chance that the uncertainties will give rise to a contingency. The total net assets and liabilities were $752,224 and $215,146, respectively. During the fiscal year, the Company ceased operation of its cable channel and 3-D unit segments. The following is a summary of the loss from discontinued operations resulting from the elimination of these operations. The financial statements have been retroactively restated to reflect this event. No tax benefit has been attributed to the discontinued operations.
March 31, ------------------------------ 2001 2000 ----------- ------------ NET SALES $ 362,446 $ 268,478 ----------- ------------ OPERATING EXPENSES Operating cost 2,262,891 13,384,554 Depreciation and amortization 236,821 480,706 ----------- ------------ Total Operating Expenses 2,499,712 13,865,260 ----------- ------------ LOSS BEFORE INCOME TAXES (2,137,266) (13,596,782) INCOME TAXES -- -- ----------- ------------ LOSS FROM DISCONTINUED OPERATIONS $(2,137,266) $(13,596,782) =========== ============
NOTE 15 - RELATED PARTY TRANSACTIONS The Company pays certain officers and directors royalties from the revenue of book sales. In addition, the Company pays a major shareholder royalties on active users of the Chequemate product. The total amount owing to these individuals as of March 31, 2001 and 2000 was $-0- and $-0-, respectively. The Company has several notes payable to certain members of the Board of Directors (see Note 5). 40 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 16 - PROVISION FOR INCOME TAXES The provision for income taxes for the years ended March 31, 2001 and 2000 consists of the following:
Current Deferred Total ------- -------- ----- Year ended March 31, 2001 U.S. Federal $ -- $ -- $ -- State and local 500 -- 500 ---- ---- ---- $500 $ -- $500 ==== ==== ==== Year ended March 31, 2000 U.S. Federal $ -- $ -- $ -- State and local 500 -- 500 ---- ---- ---- $500 $ -- $500 ==== ==== ====
Income tax expense was $500 for each of the years ended March 31, 2001, 2000 and 1999, respectively, and differed from the amounts computed by applying the combined U.S. Federal and Utah State income tax rate of 38 percent to loss from operations before provision for income taxes and extraordinary item as a result of the following:
2001 2000 ----------- ----------- Computed "expected" benefit $(6,624,000) $(7,215,000) State tax payable 500 500 Increase (reduction) in income taxes resulting from: Change in valuation allowance for deferred tax assets 3,745,274 4,778,892 Non-deductible expenses 2,878,726 2,436,108 ----------- ----------- Income Tax Provision $ 500 $ 500 =========== ===========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at March 31, 2001 and 2000 are presented below: Deferred tax assets: Net operating loss carryforwards Total deferred tax assets $ 16,617,048 $ 12,871,774 Less valuation allowance (16,617,048) (12,871,774) ------------ ------------ Net Deferred Tax Assets $ -- $ -- ============ ============
41 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 17 - SUBSEQUENT EVENTS On March 15, 2001, the Company entered into a Master agreement as amended and restated, and then modified and restated on June 13, 2001, which contemplates a private placement to raise up to $3.5 million in return for the issuance of approximately 43,125,565 shares to the new investors, constituting a 51% equity interest in the Company on a fully diluted basis. These newly-issued shares will have registration rights customary in such issuances as set forth in the Registration Rights Agreements attached to the Proxy Statement filed on June 14, 2001 in Exhibit 99(a) as Schedule 1.3 to the Master Agreement. Under the Master Agreement, the Company can acquire control of Another World and its assets at a later date (the "Acquisition") so that they Company can benefit from its stereoscopic technologies provided the shareholders fo the Company and Another World approve the transaction. The Acquisition will be based on an independent valuation of Another World. Another World has engaged Samil-PricewaterhouseCoopers to perform such independent valuation. NOTE 18 - SEGMENT INFORMATION The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Financial information with respect to the reportable segments follows:
Centric Hotel Graphical Pay-Per-View Total ----------- ------------ ----------- Revenue from external customer $ 129,805 $ 775,265 $ 905,070 Depreciation and amortization 1,111,171 1,029,720 2,140,891 Operating cost 12,970,170 1,090,211 20,312,843 Segment loss 13,951,536 1,344,666 15,296,202
NOTE 19 - SHORT TERM OBLIGATIONS The Company entered into various agreements and commitments for services to be rendered to the Company. These obligation were paid in common stock of the Company after approval by the Board of Directors. During the year ended March 31, 2001, the Board approved some of the agreements and the stock was then issued. The Company recorded the obligations as a liability pending the issuance of the stock. 42 CHEQUEMATE INTERNATIONAL, INC. AND SUBSIDIARIES (dba C3-D Digital) Notes to Consolidated Financial Statements March 31, 2001 and 2000 NOTE 20 - BUSINESS COMBINATION On December 30, 2000, the Company acquired all of the outstanding shares of VisionComm, Inc., a telecommunication and cable television provider to multiple dwelling units. The total acquisition cost was $7,800,000 which consisted of the issuance of 2,500,000 shares of common stock and a note for $2,800,000. The excess of the total acquisition cost over the fair value of the net assets acquired of $5,335,881 is being amortized over 5 years by the straight-line method. The acquisition has been accounted for as a purchase and results of operations of VisionComm, Inc., since the date of acquisition, are included in the consolidated financial statements. Unaudited pro forma consolidated results of operations for the years ended March 31, 2001 and 2000 as though Vision.Comm had been acquired as of April 1, 1999 follow:
2001 2000 ------------ ------------ Sales $ 3,580,705 $ 5,764,558 Net loss (18,471,947) (19,730,923) Loss per share (1.58) (3.25)
43 ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE In fiscal year ending March 31, 2001 there were no changes in or disagreements with accountant and financial disclosure. PART III ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Based solely upon our review of forms 3, 4 and 5, and amendments thereto furnished to us during fiscal year ending March 31, 2001, the following indivdual were found to be delinquent in complying with Section 16(a) of the exchange act. Bob Warfield John Bartholomew For each of these persons, we have been unable to determine the exact number of late reports, the exact number of transactions that were not reported on a timely basis and the exact number of failures to file the required item per Section 16(a) of the exchange act. DIRECTORS
Name and Principal Occupation Age First Shares of Common Percentage of or Employment Became a Stock Common stock Director Beneficially Owned Outstanding - ----------------------------- --- ---------- ------------------ ------------- William J. Brinkmeier 51 Feb., 2001 1,185,414 4.62% Vice-President, Chequemate International, Inc. Thomas Nix 53 Feb., 2001 428,315 1.67% Vice-President, Chequemate, International, Inc. Robert E. Warfield 61 1995 250,000 0.97% Partner in the real estate company of Moore Warfield & Glick Andre Peterson 48 1998 250,885 (1) 0.98% VP of Marketing and Chief Marketing Officer of Cogito Incorporated John Bartholomew 42 1998 259,060 (2) 1.01% General Manager of the Kaizen Group
44 Daniel Thompson 50 1999 125,000 (3) 0.05% J. Michael Heil * 46 ? 1,105,000 (3) 4.31% * Mr Heil resigned as CEO 3/1/01
- ------------------ (1) This amount includes 30,000 shares available under unexercised options. (2) This amount includes 34,285 shares available under unexercised options. (3) This amount consists of shares available under unexercised options. BUSINESS EXPERIENCE William J. Brinkmeier. Director. Mr. Brinkmeier is one of the Founders, President and the Chairman of the Board of VisionComm, Inc. VisionComm, Inc. was formed by Mr. Brinkmeier, Mr. Rojeski, Mr. Nix and Mr. Wilk in 1995 with the mission of becoming a leading provider of cable and telecommunication services to multi-family developments hospitals and hotels. Mr. Brinkmeier is the former President of Payphones of America, Inc., a nationwide provider of pay telephone service. Mr. Brinkmeier and Mr. Rojeski founded Payphones of America, Inc. in 1989. From 1989 to 1996, Payphones of America, Inc. increased its' installed base to over 3300 payphones. In 1996, Mr. Brinkmeier and his partner sold Payphones of America, Inc. to the largest private provider of pay telephones in the United States. Thomas A. Nix. Director and Chairman of the Board. Mr. Nix is the Executive Vice President - Cable Division. In this capacity, Mr. Nix is responsible for all of the Cable Division's sales and marketing activities. Mr. Nix has involved in the private cable industry for over sixteen years. Mr. Nix was a co-founder of Datavision in 1982. Datavision was one of the first publicly held companies to provide security systems for multi-dwelling units. Mr.Nix and his sales team secured contracts for over 150,000 units. In 1985, Mr. Nix founded Data Cablevision, which was one of the first providers of private cable television equipment and services in the United States. As President of Data Cablevision, Mr. Nix secured private cable contracts for in excess of 22,000 passings. In addition, he secured contracts to provide pay-per-view and free to guest cable services to over 16,000 hotel rooms. From 1988 to 1995, Mr. Nix provided consulting, advisory and brokerage services to the private cable industry. In addition, Mr. Nix has acquired and operated private cable systems throughout the United States. Robert E. Warfield. Director. Mr. Warfield has a BS Degree in Economics from Western Maryland College. He has an extensive background in real estate and regional sales management with the Weyerhaeuser Corporation. Mr. Warfield first became licensed in real estate in 1962, and in 1975 started Warfield Real Estate. He has been in the real estate and development business in Ocean City, Maryland since 1971. For the past 18 years Mr. Warfield has been President of Moore, Warfield and Glick, Inc., with real estate sales over $100 million and rentals of $12 million. Additionally, since 1988, Mr. Warfield has been a regional owner of Help-U-Sell Real Estate in Virginia, Maryland, Washington D.C. and Delaware. Mr. Warfield currently serves on the Board of Directors of Atlantic General Hospital and Ocean City Golf and Yacht Club. He has also served as a director of Second National Service Corp., and Salisbury School. Andre Peterson. Director. Mr. Peterson is an alumnus of Brigham Young University, where he majored in Business Management. He is currently the Vice President of Marketing and Chief Marketing Officer for Cogito Incorporated, a software technology development company. He was the VP of Marketing and a Partner of The Kaizen Group, a marketing and development group for start-up software from 1996 to 1998. He served as the President of Enhanced Simulation Marketing from 1994 through 1996, marketing a newly patented motion simulator for the entertainment industry. He was the VP of Marketing for WordPerfect Corporation and Novell 45 Corporation from 1983 to 1994. Mr. Peterson was responsible for all aspects of sales and marketing for WordPerfect, taking sales from one million in 1983, to over seven hundred million in 1994. Prior to working for WordPerfect, Mr. Peterson was a member of the White House Staff for four years. John V. Bartholomew. Director. Mr. Bartholomew has a BS degree in Computer Science from Brigham Young University. He has extensive experience in the application of technology in computers and complex systems. He has been involved in the management of technology sales and marketing for more than a decade with such companies as WordPerfect and Novell. He is the General Manager of The Kaizen Group, a consulting organization for technology companies with such customers as Microsoft, NetVision, PowerQuest, LogicalNet and Cogito, a knowledge based software solutions provider. Daniel R. Thompson. Director. Since January of 1984, Mr. Thompson has served as president of Creative Entertainment Services, a multifaceted entertainment agency specializing in product placement, promotional advertising, closed captioning sponsorships, program sponsorships and distribution. He also serves as an officer of Creative Television Marketing of Los Angeles, California and as a director of Creative Promotional Marketing of Boston, Massachusetts. J. Michael Heil. CEO. Mr. Heil has over 17 years experience in the satellite and television business. Mr. Heil was formerly president of Skylink America, Inc. and Satellite Cinema, successfully launching five digital video pay-per-view networks. During his tenure in these businesses, he developed the business to $20 million in annual revenue and over 150,000 subscribers. He was the Director of Operations for Comsat Video Enterprises, and Chairman and CEO of Television Entertainment Network, Inc., a Canadian hotel pay-per-view company. COMMITTEES OF THE BOARD OF DIRECTORS Robert E. Warfield serves as the sole voting member of the Compensation Committee of the board of directors. Andre Peterson serves as the Chairman of the Audit Committee, with John Bartholomew as a member. The Compensation Committee has been charged with the responsibility of evaluating and establishing compensation for the management of the Company and the grant of corporate stock options. The Audit Committee has been charged with the responsibility of communicating with the auditors of the Company, and evaluating the accounting controls, functions and systems of the Company. EXECUTIVE OFFICERS The following table outlines the executive officers of the Company.
Name Age Position Held Current Term of Office and period of Service - ---- --- ------------- -------------------------------------------- J. Michael Heil * 45 CEO September 1998 to 3/1/01 * Mr. Heil resigned as CEO 3/1/01 D. Alan Hunter * 46 Secretary February 2000 to 10/6/00 * Mr. Hunter resigned as Secretary 10/6/00 Chandos Mahon 43 President/CEO March 2001 to present William J. Brinkmeier 51 Vice-President December 2000 to present Thomas A. Nix 53 Vice-President December 2000 to present Lawrence J. Wilk 49 Vice-President December 2000 to present Frank Friedlein, Jr. 50 Controller December 2000 to present
46 BUSINESS EXPERIENCE Chandos Mahon. President & CEO. Mr. Mahon, born June of 1958, the son of successful film producer and director Barry Mahon, has over twenty (20) years of experience in the television, film and telecommunications industries. From approximately 1997 to 1999, he was the President, Chief Executive Officer, and principal shareholder, of Programming Services, Inc., a closely-held corporation founded by Mr. Mahon, which was engaged in satellite programming and satellite telecommunications. From approximately 1993 to 1998, Mr. Mahon served as the Executive Vice President and general manager of Network One (N1), a 24 hour cable and broadcast network. Mr. Mahon was responsible for creation, implementation and management of the entire business plan. Prior to joining N1, Mr. Mahon worked in various executive roles with CBS Productions, Columbia Pictures Television and Imagine Films, where he supervised features and television production both nationally and internationally. Mr. Mahon has over 20 major production credits to his name. Mr. Mahon provides his management expertise to all areas of the C-3D plan, including, management, operations, finance, sales and marketing. William J. Brinkmeier. Vice-President. (See business experience above) Thomas A. Nix. Vice-President. (See business experience above) Lawrence J. Wilk. Vice-President. Mr. Wilk is the Vice President of VisionComm's cable operations. In this capacity, Mr. Wilk is responsible for all aspects of VisionComm's cable operations. Mr. Wilk has been involved in the private cable industry for over sixteen years. Among his many accomplishments, Mr. Wilk participated in the engineering and implementation of the first digital compression technology utilized in connection with Viacom's and Scientific Atlanta's network groups. From 1990 to 1995, Mr. Wilk was Vice President of Engineering at United Satellite / America, Inc. At USA, Mr. Wilk implemented a variety of operational restructuring programs encompassing engineering, maintenance and personnel requirements for the company's 31 cable systems located throughout the United States. Mr. Wilk increased revenue to USA through a variety of methods including construction upgrades, renegotiating existing contractor agreements and utilization of spare parts inventory. From 1993 to 1995, Mr. Wilk was director of Engineering for Telecable Communications Corp., a privately held company providing cable services to the hospitality industry. Frank Friedlein, Jr. Controller. Mr. Friedlein joined VisionComm in July 1998 as its' V.P. / Chief Financial Officer. In this capacity Mr. Friedlein is responsible for all accounting, budgeting, bank relations and M.I.S. activities. From 1993 to 1998 Mr. Friedlein was employed by the Vernon L. Goedecke Companies Group. In 1998 Mr. Friedlein was Vice-President / CFO of the parent Company Vernon L. Goedecke. 1996 to 1997 Mr. Friedlein was Vice-President / Controller of New Buffalo Corporation an importer of consumer (Do it Yourself) hand tools. 1993 to 1996 Mr. Friedlein was Manager of Operation for Spirit of St. Louis Software Company. Mr. Friedlein is a graduate of St. Louis University with a degree in accounting. ITEM 10 EXECUTIVE COMPENSATION The table set forth below contains information about the remuneration received and accrued during fiscal years 2000 and 2001 from the Company and its subsidiaries by the Chief Executive Officer and each of the most highly compensated executive officers of the Company. 47
Name and Principal Fiscal Year Salary ($) Bonus ($) Restricted Stock Securities Position Award(s) Underlying Options - ------------------ ----------- ---------- --------- ---------------- ---------- J. Michael Heil 2001 $169,400 $ 0 $ 0 $ 0 CEO and Chairman 2000 $184,800 $ 0 $ 0 $ 0 1999 $100,000 $ 6,299 $ 0 $ 0 D. Alan Hunter 2001 $ 56,500 $ 0 $ 0 $ 0 Secretary 2000 $ 84,000 $ 0 $ 0 $ 0 1999 $ 0 $ 0 $ 0 $ 0 Chandos Mahon 2001 $ 0 $ 0 $125,000 $600,000 CEO & President 2000 $ 0 $ 0 $ 0 $ 0 William J Brinkmeier 2001 $ 0 $ 0 $ 33,336 $ 0 Vice-President 2000 $ 0 $ 0 $ 0 $ 0 Thomas A. Nix 2001 $ 0 $ 0 $ 33,336 $ 0 Vice-President 2000 $ 0 $ 0 $ 0 $ 0 Lawrence J. Wilk 2001 $ 0 $ 0 $ 33,336 $ 0 Vice-President 2000 $ 0 $ 0 $ 0 $ 0 Frank Friedlein, Jr. 2001 $ 0 $ 0 $ 30,000 $ 0 Controller 2000 $ 0 $ 0 $ 0 $ 0
The following chart shows the stock options that were granted to executive officers of the Company during the last completed fiscal year.
Name/Position Total Percentage of total Total Exercise Expiration Position Options granted to employees Options Price Date Granted in fiscal year Vested ($/share) - ------------- ------- -------------------- ------- --------- ---------- Chandos Mahon - CEO Total 600,000 100% Detail 12/01/00 100,000 100,000 $0.04 12/31/10 12/01/00 100,000 0 $0.50 12/31/10 12/01/00 100,000 0 $0.50 12/31/10 12/01/00 100,000 0 $0.50 12/31/10 12/01/00 50,000 0 $1.00 12/31/10 12/01/00 50,000 0 $1.00 12/31/10 12/01/00 50,000 0 $2.00 12/31/10 12/01/00 50,000 0 $2.00 12/31/10
48 The following table reflects the number of unexercised options that are exercisable and unexercisable at the end of fiscal year 2001.
Name Shares Value No. of Securities Value of unexercised in- Acquired Realized Underlying the-money options at On Exercise ($) Unexercised Options FY-End ($) (#) at FY-End (#) exercisable/unexercisable exercisable/unexercisable - --------------- ----------- -------- ----------------------- ------------------------ J. Michael Heil 125,000 $166,875 150,000 / 0 $0 / $0 D. Alan Hunter 25,000 $ 33,375 0 / 0 $0 / $0 Chandos Mahon 100,000 $ 22,000 0 / 500,000 $0 / $0
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS The following table sets forth as of June 8, 2001 certain information regarding the beneficial ownership of the Common Stock of the Company by (a) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (b) each director of the Company and the executive officers of the Company and (c) all directors and executive officers of the Company as a group. Unless otherwise indicated, each beneficial owner possesses sole voting and dispositive power with respect to the shares listed in this table.
Name Amount and Nature of Percentage of Beneficial Ownership Class - --------------------------- -------------------- ------------- William J. Brinkmeier II(1) 1,185,414 4.62% Michael J. Heil(2) 1,105,000 4.31% Chandos Mahon(3) 660,857 2.58% Thomas A. Nix(4) 428,315 1.67% Lawrence J. Wilk(5) 383,066 1.49%
49 Frank Friedlein, Jr(6) 297,996 1.16% John V. Bartholomew(7) 259,060 1.01% Andre H. Peterson(8) 250,885 0.98% Robert E. Warfield(9) 250,000 0.97% Daniel Thompson(10) 125,000 0.05% Alan Hunter(11) 25,300 1.01% Total 4,970,893 18.85%
(1) Mr. Brinkmeier is a director of the Company. His address is 124 Point West Blvd., St. Charles, MO 63301. (2) Mr. Heil is a director of the Company. His address is 124 Ferry Street SW, Albany, OR 97321. (3) Mr. Mahon is CEO and President of the Company. His beneficial ownership interest includes 100,000 shares underlying options. His address is: 10336 Variel Ave., Chatsworth, CA 91311. (4) Mr. Nix, is a director of the Company and is Chairman of the Board of Directors. His address is 36380 Garfield Rd So. 7, Clinton Twp, MI, 48035 (5) Mr. Wilk is an officer of the Company. His address is 36380 Garfield Rd So. 7, Clinton Twp, MI, 48035. (6) Mr. Friedlein is the Controller of the Company. His address is 124 Point West Blvd., St. Charles, MO 63301. (7) Mr. Bartholomew is a director of the Company. His beneficial ownership interest includes 10,000 shares underlying options. His address is 291 E. 950 South, Orem, Utah, 84058. (8) Mr. Peterson is a director of the Company. His beneficial ownership interest includes 6250 shares underlying options. His address is 2091 East 950 South, Orem, Utah, 84058. (9) Mr. Warfield is a director of the Company. His address is 5700 Coastal Highway, Ocean City, MD 21842. (10) Mr. Thompson is a director of the Company. His beneficial ownership interest includes 125,000 shares underlying options. His address is 31636 Blue Meadow Lane, Westlake Village, CA 91361 (11) Mr. Hunter was Secretary of the Company from February 3, 2000 to October 6, 2000. His address is 17221 Palisades Circle, Pacific Palisades, CA 90272. ITEM 12 CERTAIN RELATED TRANSACTIONS In November of 2000, the former chairman of the Company entered into a Lease and License Agreement with Corastar, Inc., a Nevada corporation ("Corastar") on behalf of the Company, giving Corastar the right to market the Company's 3 dimensional graphic software and the related trade mark "Strata" known as the Strata Asset. Ken Bringhurst is the President of 3D.COM, Inc., a division of Chequemate International, Inc. (3D.COM), Gary Bringhurst is a Vice President of 3D.COM and Dennis Derrick is a Vice President of 3D.COM and collectively are substantial owners of Corastar. The Company is investigating the execution of the subject agreement to determine if it has been properly approved by the Company and whether there is conflict of interest involved. Therefore, the Company cannot attest to the validity of the subject agreement at present. The Company and Corastar are currently negotiating an arrangement regarding the Strata assets. However we cannot guarantee whether the negotiation will be successful. The Company has no other related transactions to report this year. 50 ITEM 13 EXHIBITS AND REPORTS ON FORM 8K EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Restated Articles of Incorporation. Incorporated by reference from Form 8-A (Film No. 99636119) filed by the Company with the Commission on May 27, 1999. 3.2 By-Laws. Incorporated by reference from Form 8-A (Film No. 99636119) filed by the Company with the Commission on May 27, 1999. 4 Specimen Common Stock Certificate. Incorporated by reference from Form 8-A (Film No. 99636119) filed by the Company with the Commission on May 27, 1999. 10.1 SETTLEMENT AGREEMENT NATIONAL FINANCIAL 10.2 AMENDED SETTLEMENT AGREEMENT BH PRODUCTIONS 10.3 PROMISSORY NOTE I-O DISPLAY SYSTEMS 10.4 SETTLEMENT AGREEMENT PROGRAMMING SERVICES, INC. 10.5 ACADEMY ENTERTAINMENT SETTLEMENT
51 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEQUEMATE INTERNATIONAL, INC. JULY 6, 2001 /s/ Chandos Mahon ---------------------------------- CHANDOS MAHON PRESIDENT AND CEO CHEQUEMATE INTERNATIONAL, INC. JULY 6, 2001 /s/ Andre Peterson ---------------------------------- ANDRE PETERSON DIRECTOR AND PRINCIPAL ACCOUNTING OFFICER 52 EX-10.1 2 a2053739zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 - SETTLEMENT AGREEMENT NATIONAL FINANCIAL COMMUNICATIONS This Settlement Agreement ("Settlement"), is made and entered into this 1st day of June, 2001 by and between Chequemate International, Inc., a Utah corporation, ("Chequemate"), and National Financial Communications Corp., a Massachusetts corporation ("NFC") upon the following premises: A. On September 1, 1999, Chequemate and NFC entered into a Consulting Agreement (the "Agreement"), under the terms of which Chequemate was to engage NFC to render to Chequemate, public relations and other services for a monthly fee plus expenses. As of the current date, Chequemate owes NFC $71,259.52 in unpaid fees and expenses. This Settlement is being entered into for the purpose of settling all outstanding monies due NFC from Chequemate. B. The parties have agreed to enter into this Settlement and both NFC and Chequemate agree to waive and release any claim it may have against Chequemate upon receipt of payment in full. NOW, THEREFORE, upon these premises and for good and valuable consideration, the adequacy of which is hereby acknowledged, the parties agree that, in settlement of this matter and to terminate any further actions by NFC, Chequemate shall pay NFC the sum of $71,259.52, payable as follows: 1. In consideration of the Settlement, Chequemate agrees to immediately issue to NFC 250,000 shares of Chequemate's restricted common stock (the "Shares"), under Rule 144, which all shares shall be Due as of the day of this Settlement Agreement. All shares shall be received by NFC no later than July 30, 2001. The shares shall be registered in a Registration Statement to be filed with the SEC, which registration shall be no later than September 15, 2001. For a period of thirty days after the effective date of the registration statement, (the "Sale Period"), NFC will communicate to Chequemate the dollar amount recovered during the Sale Period of the sale of the 250,000 shares. If NFC does not recover the full $71,259.52 owed by Chequemate, additional free trading shares will be issued to NFC. The calculation to determine the number of additional shares to be issued to NFC will be: The dollar amount not recovered by NFC from the sale of the initial 250,000 shares, divided by the previous five day trade average from the date of the calculation, equaling the number of shares issued to NFC. The date of the calculation shall begin at the conclusion of the Sale Period. Prior to the sale, NFC shall attempt to secure an Opinion Letter from its counsel, or Chequemate shall provide the same, stating that the shares of common stock under Rule 144, are free trading, which Opinion Letter, if valid, will be paid for by Chequemate. NFC will then sell the shares under Rule 144. 2. Chequemate shall have until September 15, 2001, to make an initial filing of a registration statement with the U.S. Securities and Exchange Commission ("SEC"), to include the shares in paragraph 1 above, for registration. Thereafter, Chequemate agrees to exercise its best efforts to prepare such amendments to the registration statement, and to diligently undertake such additional work as may be necessary to appropriately respond to the comments of the staff of the SEC, and to completely and accurately update the registration statement in all material respects, as of a recent practicable date, to attempt to obtain effectiveness of the registration statement as soon as reasonably practicable. NFC understands and acknowledges that Chequemate is unable to make any covenants or representations as to the effective date of the registration statement with the SEC. 3. Chequemate shall have the right to pay all or a portion of this settlement with a cash payment in the form of certified funds prior to the effective date of the registration or subsequent to NFC selling any shares or balance of shares, by giving 3 day notice to NFC. 4. In consideration of the undertaking set forth in paragraph 1 or 2 above, NFC agrees to waive and release any claim it may have against Chequemate for failure to fulfill its obligations and hereby release Chequemate from all penalties and obligations as set forth in the Agreement or any subsequent judgment which waiver and release shall not be effective until full payment is received. 5. Chequemate and NFC each agree to provide each other with such information and documentation, as may be reasonably requested in connection with the registration statement(s) and other filings with the SEC, including without limitation, the Opinion Letter. 53 6. Regardless of whether the merger is approved, Chequemate shall file the S3 Registration documents with the SEC on or before September 15, 2001 in order for NFC to sell the initial 250,000 shares as free trading stock, and issue additional free trading stock as needed to fully satisfy its obligation to NFC. 7. In the event that Chequemate fails to make payment in full, NFC reserves the right to pursue collection of the balance. IN WITNESS WHEREOF, the parties to this Settlement have duly executed it as of the date and year first above written. CHEQUEMATE INTERNATIONAL, INC. - ------------------------------- By: Chandos Mahon Its: President / CEO National Financial Communications Corp. - ------------------------------- By Its: 54 EX-10.2 3 a2053739zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 - AMENDED SETTLEMENT AGREEMENT BH PRODUCTIONS This Amended Settlement Agreement ("Amendment"), is made and entered into this 27th day of February, 2001, by and between Chequemate International, Inc., a Utah corporation, ("Chequemate"), and, BH Productions, ("BH"), a Illinois Corporation, upon the following premises: C. On February 2, 2000, Chequemate and BH entered into a Settlement Agreement (the "Settlement"), under the terms of which Chequemate was to pay a balance due of $90,000.00 with monthly payment of $10,000.00 for the term ending October, 2000. This Amendment is being entered into for the purpose of amending the Settlement and settling any subsequent judgement. D. The parties have agreed to enter into this Amendment and BH agrees to waive and release any claim it may have against Chequemate . NOW, THEREFORE, upon these premises and for good and valuable consideration, the adequacy of which is hereby acknowledged, the parties agree that, in settlement of this matter and to terminate any further actions by BH, Chequemate shall pay BH the sum of $40,217, payable as follows: 8. In consideration of this Amendment, Chequemate agrees to immediately issue to BH, 80,434 shares of Chequemates's restricted common stock (the "Shares"). The Shares shall have a gross value of $40,217, based on a market value of $0.50 per share, subject to adjustments as set forth in this paragraph. If on the date which is five (5) business days following the date Chequemate's registration statement, described in paragraph 2 below, is declared effective by the SEC (the "repricing date"), the average closing bid price of the Company's common stock, as reported by the American Stock Exchange, for the five (5) business days prior to the repricing date, is less than $0.50 per share, the Company shall issue to BH the number of additional shares necessary for BH to receive a total value of $40,217, based on such average closing bid price for such five (5) day period. However, in no event shall BH receive shares in excess of a total of 100,000 shares at the repricing date. 9. Chequemate shall have 180 days from the date of execution of this Settlement, to make an initial filing of a registration statement with the U.S. Securities and Exchange Commission ("SEC"), to include the shares in paragraph 1 above, for registration. Thereafter, Chequemate agrees to exercise its best efforts to prepare such amendments to the registration statement, and to diligently undertake such additional work as may be necessary to appropriately respond to the comments of the staff of the SEC, and to completely and accurately update the registration statement in all material respects, as of a recent practicable date, to attempt to obtain effectiveness of the registration statement as soon as reasonably practicable. BH understands and acknowledges that Chequemate is unable to make any covenants or representations as to the effective date of the registration statement with the SEC. 10. Chequemate shall issue an additional 26,810 shares under rule 144 for any further liquidated damages compensation. The Shares shall have a gross value of $8,043 based on a market value of $0.30 per share. 11. Chequemate shall have the right to pay all or a portion of this settlement with a cash payment prior to the effective date of the registration or subsequent to BH selling any shares or balance of shares, by giving 3 day notice to BH, and BH agrees to return the number of shares equal to the cash payment. 12. BH agrees that it will not sell, in any one week, shares of common stock that constitutes more than 10% of Chequemates's weekly trade volume average as reported by The American Stock Exchange for the previous week. 13. Additionally, on the closing of this settlement, Chequemate will provide BH with a note in the full-negotiated value of $40,217. This note will stay in effect until BH receives the gross value of $40,217 in stock based on the repricing formula outlined in paragraph 1 above. At such time, the note will be canceled in full. 14. In consideration of the undertaking set forth in paragraph 1 - 6 above, BH agrees to waive and release any claim it may have against Chequemate for failure to fulfill its Settlement obligation and hereby release Chequemate from all penalties and obligations as set forth in the Settlement or any subsequent judgement. 55 15. BH agrees to provide Chequemate with such information and documentation, as may be reasonably requested in connection with the registration statement(s) and other filings with the SEC. IN WITNESS WHEREOF, the parties to this Settlement have duly executed it as of the date and year first above written. CHEQUEMATE INTERNATIONAL, INC. - ---------------------------------- By: Chandos Mahon Its: Chief Executive Officer BH Productions, Inc. - --------------------------------- By Its: 56 EX-10.3 4 a2053739zex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 - PROMISSORY NOTE I-O DISPLAY SYSTEMS CHEQUEMATE INTERNATIONAL, INC., individually and doing business as C3D DIGITAL, INC. ("C3D DIGITAL"), for valuable consideration already received, promises to pay I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., doing business as RAZOR DIGITAL MEDIA, in accordance with the provisions of this Promissory Note ("Note"), the principal amount of four hundred thousand dollars ($400,000), plus simple interest on the unpaid principal amount at the rate of ten (10%) percent per annum from the date set forth below, until paid. The entire principal amount and accrued interest is to be paid in full no later than DECEMBER 1, 2001. In the event that C3D DIGITAL fails to make payment when due hereunder, and such default is not cured within five days of notice of such default given by I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA, to C3D DIGITAL, this Note shall immediately become due and payable in the full amount of principal then unpaid, together with all accrued and unpaid interest thereon, which full amount owing on default shall be $540,000 plus interest at a rate of 10% per year. The principal and interest thereon shall be payable to I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA, at 1370 Willow Road, Menlo Park, CA 94025. CHEQUEMATE INTERNATIONAL, INC., individually and dba C3D DIGITAL, INC., may pay the aforesaid sums by making payment in C3D DIGITAL stock which is publicly traded on the American Stock Exchange exchange, at the value of the closing price of said exchange on the date the shares are delivered in payment, or $0.27 per share, whichever is lowest, which price per share times the number of shares paid will equal $400,000 plus interest at a rate of 10% per year from the date of execution of this note. This stock payment will be fully unrestricted, registered "free trading" stock on or before December 1, 2001. The parties agree that these shares will be made part of a standard subscription agreement, and the subscription agreement will be executed in order for registration right to be effective. Additionally, 100,000 shares will be issued at a value of $.027 per share, to I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA as compensation for attorney fees, court costs, and all other expenses incurred by I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA in settlement of these issues. This stock payment will be fully unrestricted, registered "free trading" stock on or before December 1, 2001. The parties agree that these shares will be made part of a standard subscription agreement, and the subscription agreement will be executed in order for registration right to be effective. I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA, and C3D DIGITAL have entered into a Stipulation for Entry of Judgment regarding C3D DIGITAL's obligations under this Note. In the event of: 1. Default in the payment of this Note; OR 2. If the stock payment option is chosen by C3D DIGITAL AND the stock is not fully unrestricted, registered "free trading" stock on or before December 1, 2001; upon five days written notice to C3D DIGITAL and if such default is not cured with five days of notice of default, I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., dba RAZOR DIGITAL MEDIA, may file the Stipulation for Entry of Judgment with the court. In the event that the indebtedness represented by this Note is not paid when due, C3D DIGITAL promises to pay costs of collection and suit; including attorneys fees. CHEQUEMATE INTERNATIONAL, INC., individually and d.b.a. C3D DIGITAL, INC., will prepare and the parties will sign a release of all claims regarding and arising out of the matter entitled I-O DISPLAY SYSTEMS, LLC and ILIXCO, INC., doing business as RAZOR DIGITAL MEDIA, v. CHEQUEMATE INTERNATIONAL, INC., individually and d.b.a. C3D DIGITAL, INC., San Mateo County Superior Court Case # ________________. IN WITNESS WHEREOF, CHEQUEMATE INTERNATIONAL, INC., individually and dba C3D DIGITAL, INC., has caused this Note to be signed in its name and on its behalf by its duly authorized officer: Dated: May 3, 2001 CHEQUEMATE INTERNATIONAL, INC. dba C3D DIGITAL, INC. By: ----------------------------- 57 EX-10.4 5 a2053739zex-10_4.txt EXHIBIT 10.4 EXHIBIT 10.4 - SETTLEMENT AGREEMENT PROGRAMMING SERVICES, INC. This Settlement Agreement ("Settlement"), is made and entered into this 19th day of March, 2001, by and between Chequemate International, Inc., a Utah corporation, ("Chequemate"), and, Programming Services, Inc., a Nevada corporation ("PSI"), upon the following premises: E. On November 1, 1999 Chequemate and PSI entered into an Asset Purchase, Bill Of Sale, Promissory Note, and Security Agreement (the "Sale"), under the terms of which Chequemate was to purchase a complete beta SP post production editing system, along with office equipment and office systems, for a total purchase price of $144,000. Per the agreement Chequemate was to make 12 monthly payments of $12,000 with the last payment due November 2000. This Settlement is being entered into for the purpose of satisfying all agreements, notes, and balances regarding the purchase of PSI assets. F. The parties agree on August 4, 2000 the last payment was made leaving an unpaid balance of $ 68,000 G. The parties have agreed to enter into this Settlement and PSI agrees to waive and release any claim it may have against Chequemate . NOW, THEREFORE, upon these premises and for good and valuable consideration, the adequacy of which is hereby acknowledged, the parties agree that, in settlement of this matter and to terminate any further actions by PSI, Chequemate shall pay PSI the sum of $68,000 payable as follows: 16. In consideration of the Settlement, Chequemate agrees to immediately issue to PSI, 404,761 shares of Chequemates's restricted common stock (the "Shares") ($68,000 x 1.25 = $85,000 / 5day average of $0.21 = 404,761). The Shares shall have a gross value of $85,000, based on a market value of $0.21 per share, subject to adjustments as set forth in this paragraph. If on the date which is five (5) business days following the date Chequemate's registration statement, described in paragraph 2 below, is declared effective by the SEC (the "repricing date"), the average closing bid price of the Company's common stock, as reported by the American Stock Exchange, for the five (5) business days prior to the repricing date, is less than $0.21 per share, the Company shall issue to PSI the number of additional shares necessary for PSI to receive a total value of $85,000, based on such average closing bid price for such five (5) day period. However, in no event shall PSI receive shares in excess of a total of 500,000 shares at the repricing date. 17. Chequemate shall have 180 days from the date of execution of this Settlement, to make an initial filing of a registration statement with the U.S. Securities and Exchange Commission ("SEC"), to include the shares in paragraph 1 above, for registration. Thereafter, Chequemate agrees to exercise its best efforts to prepare such amendments to the registration statement, and to diligently undertake such additional work as may be necessary to appropriately respond to the comments of the staff of the SEC, and to completely and accurately update the registration statement in all material respects, as of a recent practicable date, to attempt to obtain effectiveness of the registration statement as soon as reasonably practicable. PSI understands and acknowledges that Chequemate is unable to make any covenants or representations as to the effective date of the registration statement with the SEC. 18. Chequemate shall have the right to pay all or a portion of this settlement with a cash payment prior to the effective date of the registration or subsequent to PSI selling any shares or balance of shares, by giving 3 day notice to PSI. 19. PSI agrees that it will not sell, in any one week, shares of common stock that constitutes more than 10% of Chequemates's weekly trade volume average as reported by The American Stock Exchange for the previous week. 20. Additionally, until the registration as set forth in paragraph 1 & 2 above is complete, the note executed by Chequemate in favor of PSI will stay in effect until PSI receives the gross value of $85,000 in stock based on the repricing formula set forth in paragraph 1 & 2 above. At such time, the note will be canceled and considered paid in full. 21. In consideration of the undertaking set forth in paragraph 1 & 2 above and at the closing of the registration set forth in paragraph 1 & 2 above, PSI agrees to waive and release any claim it may have against Chequemate for failure to fulfill its asset purchase obligation and will thereby release Chequemate from all penalties and obligations as set forth in the Sale agreements. 58 22. PSI agrees to provide Chequemate with such information and documentation, as may be reasonably requested in connection with the registration statement(s) and other filings with the SEC. IN WITNESS WHEREOF, the parties to this Settlement have duly executed it as of the date and year first above written. CHEQUEMATE INTERNATIONAL, INC. - ---------------------------------- By: Chandos Mahon Its: Chief Executive Officer Programming Services, Inc. - --------------------------------- By Its: 59 EX-10.5 6 a2053739zex-10_5.txt EXHIBIT 10.5 EXHIBIT 10.5 - ACADEMY ENTERTAINMENT SETTLEMENT ACADEMY ENTERTAINMENT,INC. - -------------------------------------------------------------------------------- 59 WESTMINSTER AVE. BERGENFIELD, N.J 07621 PHONE: (201) 385-8139 FAX: (201) 385-8196 E-MAIL: AlanMAcademy@aol.com www.academyentertainment.net May 30, 2001 Mr. Bill Brinkmeier C-3D 124 Point West Blvd. St. Charles, MO 63301 (636)947-6488 Dear Bill: As per our conversation, here is our settlement of the Contract Agreement dated November 3rd, 1999. C-3D will issue 75,000 shares of Chequemate rule 144 stock to Academy Entertainment, Inc. in the name of Alan Miller. C-3D will attempt to include those shares in the S-3 registration within 120 days of the closing of the merger agreement with Another World based in Korea. C-3D will make best efforts to deliver to Academy Entertainment the physical certificates within 4 weeks from the date of this Agreement. ------------------------ -------------------------- For: C-3D For: Academy Entertainment, Inc. 60 -----END PRIVACY-ENHANCED MESSAGE-----