SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1997
Commission File Number: 33-38511-FW
CHEQUEMATE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Utah 76-0279816
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
57 West 200 South, Suite 350; Salt Lake City, Utah 84101
(Address of principal executive offices)
(801) 322-1111
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
State issuer's revenues for
its most recent fiscal year: $776,963
As of June 30, 1997, the aggregate market value of the voting stock held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified
date within the past 60 days: $23,919,454
State the number of shares outstanding of each of the issuer's common
equity, as of the latest practicable date: 13,496,841 (as of 6/30/97)
Transitional Small Business Disclosure Format: YES NO X
TABLE OF CONTENTS
PART I
Item 1. Description of Business 3
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Managements Discussion and Analysis 10
Item 7. Financial Statements 13
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 13
PART III
Item 9. Directors and Executive Officers 13
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial Owners and Management 18
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits and Reports on Form 8-K 21
PART I
Item 1. Description of Business
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. The Company issued its initial shares
of common stock on April 25, 1989 (inception) and was 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), with Utah 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 December 31, 1992, the Company obtained the title and interest in a computer
software product that has application for OSHA compliance and training. The
software is designed to train employees on procedures and tracking of compliance
with OSHA regulations. The software has applications in the medical, dental,
industrial and governmental fields and can be modified for use in other areas.
The Company has also developed and is marketing a preventing sexual harassment
training and management documentation software product known as "Conduct".
On November 15, 1994, The Company acquired all of the outstanding capital stock
of CMI, a marketing company of family and small business finance products.
In addition, the Company purchased Families in Focus, Inc., a Utah
corporation. Chequemate International, Inc. was incorporated under the laws
of the State of Utah in March 1992. CMI, and it's subsidiaries, provide
financial record keeping and money management services to individuals and
small business.
On June 15, 1992, CMI entered into an agreement with its majority owned (51%)
subsidiary Data Control Inc. (DCI) whereby DCI is to perform computer processing
required by CMI for its financial record keeping and money management services.
The agreement stipulates that CMI is not to participate in any profits of DCI
until July 1, 1997.
On September 3, 1996 AC&T merged with its wholly owned subsidiary CMI
and officially changed its name to Chequemate International, Inc. CMI
maintained it's subsidiaries of FIF and DCI as previously outlined.
The Company emphasizes innovation through advanced technology in the
industries of finance, communications and entertainment. It is the objective
of CMI to take workable ideas in technology and intellectual property and
transform them into viable market opportunities in each of the three
industries of focus.
CMI's main focus is on two rapidly growing markets, Small Business
and Independent Contractors. The divisions of finance and communications
provide products that enhance the ability of the small business and
independent contractor to successfully compete in today's marketplace.
CMI provides these financial and communicational products through the us
of cutting edge technology.
The entertainment division will bring an even larger international
flare to the Company. The entertainment division will also focus on the
use of cutting edge technology to produce immediate short-term cash flow
and a sustained long-term cash flow for the Company.
The following breakdown of the three divisions in terms of products
and services, distribution methods and competition will highlight the new
focus of the Company.
Principal Products and Services
Finance
"Changing the financial course of America, one family at a time."
This is the mission statement of the financial arm of the Company, and
statistics seem to support the need for such a change. According to the
U.S. Social Security Department, only two (2%) percent of Americans will
retire financially secure. The rest will rely on some degree of support
from family, charity, friends or the government. With debt overwhelming
the majority of families in the United States, the Company has developed
a powerful and effective financial program enabling individuals, families
and small businesses to take and maintain control of their financial futures.
The Company bases its financial programs on The Four T's - tracking,
targeting, trimming and training. Through its FastrakTM System, the Company
provides a method to quickly and easily track spending and income, generating
monthly reports that pinpoint exactly where each penny was spent. Targets,
or goals, are then set based on spending information, providing the means
and motivation to trim unnecessary expenditures. Finally, the Company
offers educational and training opportunities that build positive spending
and money-management habits, a necessity for long-term financial success.
The Chequemate Financial Manager (CFM) program takes the Fastrak System
a step further by offering a debt restructuring and an accelerated repayment
program. When combined with Fastrak, CFM represents a means to not only get
out of debt (in less than 10 years in most cases, including a mortgage),
but to stay out of debt permanently. The CFM program provides simple, but
powerful tools to assist individuals and families in achieving freedom from
debt, establishment of financial goals, control of financial resources, and
realization of financial freedom.
Data Control, Inc. (DCI), the 51% owned subsidiary of the Company, performs
all computer processing required by the Company for its family and business
finance products, Chequemate Financial Manager, and tax record keeping systems.
Chequemate Tele-Services Inc., a fifty-one percent (51%) owned
subsidiary of the Company, provides automated telephone processing of Visa
and MasterCard credit card purchases through its TelechargeTM system. With
no equipment or software requirements and 24-hour toll free access for the
end user, Telecharge is specifically designed to facilitate payments to small
and home-based businesses, network marketers and sales personnel.
Families in Focus, a wholly owned subsidiary of the Company, markets a program
of self guided activities that enrich and strengthen family life in seven
key areas. Families choose activities specifically designed to strengthen
their ties in the seven areas from the "Families in Focus" manual, a United
Nation's endorsed publication. Through music and instruction in basic social
skills and money management concepts (part of the seven key areas), Elementary
and Junior High School students and their parents are brought together in a
stimulating activity where the parents are introduced to the Chequemate Family
program. The Families in Focus program has been tested and refined over
twenty-two years of practical use.
Communications
Satellites and computers are more and more becoming the foundation
for communications, and the Company is capitalizing on a number of opportunities
presented in the industry.
In a joint venture with HoliCow, Inc., the Company designs and develops
interactive Internet web sites for financial advisors. This venture, Web
Dynamics, provides a web presence that changes content each time the site is
accessed. This turnkey web presence includes helpful tips to make life
easier, weekly articles on financial topics and a series of financial
calculators, enabling the financial advisor to maintain constant
communication with customers.
The Company uses the latest in communication technologies to offer
continuing financial education and support to participants and distributors
of the Fastrak and CFM systems. Through a Satellite network, the Company
regularly broadcasts programs dealing with in-depth financial matters that
arm its viewers with the knowledge and information necessary to get the most
out of a growing network of financial offerings.
Through AC&T (Automated Compliance & Training) Direct, a wholly owned
subsidiary, the Company uses innovative computer teaching technology to
provide instruction on such constantly changing issues as sexual harassment
and Occupational Safety and Health Administration (OSHA) requirements.
AC&T Directs' instructional software packages not only train employees on
these issues (information is updated as related laws change), but also
document compliance with training requirements, providing a solid defense
against the growing number of lawsuits stemming from on-the-job injuries.
Entertainment
In April of 1997, CMI established Chequemate Third Dimension, Inc.
(CTD), a wholly owned subsidiary dedicated to the commercialization of
breakthrough technologies in the entertainment industry. Advanced Technology
Group, LLC is the developer of state-of-the-art 3-D television, which is
currently being manufactured and marketed by CTD. CTD has acquired the
exclusive worldwide license to this 3-D technology.
This revolutionary new system, called Realeyes 3D, is used to show 3-D images
on any television. The system is capable of displaying pre-processed
stereoscopic imagery, or converting two-dimensional media into three-
dimensional images in real time. Realeyes 3D accepts NTSC or PAL compatible
signals from network broadcasts, video game consoles, satellite transmissions,
cable decoders, VCR's, or any video component. After receiving a composite
RCA or S-VHS video input from a signal source, Realeyes 3D digitally processes
the images and displays them in real-time on any standard television. Now,
any television set can transform images from a flat 2-D screen into true 3-D
images.
Distribution Methods
Finance
The CFM program is distributed through a network of CMI independent
representatives. Currently, CMI representatives are located in 19 States
ranging from Hawaii to Florida, and number more than 275. CMI has also
established a network of Regional and Center Managers across the United
States. The current number of established Regions is 19, with over 75
Centers.
Regional and Center Managers and Independent Representatives are
made up of local financial professionals or individuals looking for
an opportunity to provide the best financial management systems available to
the market today. These individuals are committed to changing the financial
course of their clients from indebtedness to financial prosperity.
CMI continues to operate under a written agreement with Safeguard Business
Systems, Inc. in which CMI has adapted Safeguard's one-write Check Writing
System into a vehicle to deliver the CashFlow PLUS system to small businesses.
Safeguard is the leading provider of one-write check systems in North America,
and the Safeguard one-write systems are now being provided through over 800
distributors across the United States, Canada and abroad. CMI is presently
interfacing with selected Safeguard Distributors.
There are two main sources of distribution for the Telecharge program.
The first distribution method is through direct marketing companies and small
and home based business associations. There are over thirteen direct marketing
companies offering the Telecharge program to suppliers and distributors of
their products. The Company is the primary credit card acceptance provider
for this market. This status is a result of aggressive positioning by the
Company through industry association memberships, cooperative vendor
relationships, direct mail campaigns, and telephone solicitations. In
September 1996, the Company became a supplier member of the Direct Selling
Association (DSA). Attendance at the annual convention of the DSA resulted
in contact with over thirty-five (35) representatives of new direct marketing
companies.
In April of 1997, the Company became a registered agent of Cardservice
International, Inc. (CSI). Through this relationship, CSI has agreed to
allow their two thousand (2,000) representatives to market and sell the
Telecharge program. CSI is one of the largest processors of credit card
transactions in the United States. Initial marketing of the Telecharge
program is beginning in July of 1997. Initial response of the CSI
representatives has been extremely positive.
The Families in Focus program is marketed through a non-profit
organization called "Families in Focus". Through a musical presentation,
elementary aged children and their parents are taught the seven basic keys
to family success. The Families in Focus manual is also sold to various
organizations interested in strengthening family relations and family
communication.
Communications
Distribution of the Web Dynamics program is beginning in July of 1997
at the National Convention of Financial Planners in Pennsylvania. Over one
thousand (1,000) representatives of national and local financial planning
institutions will be present at the convention. Those attending the
convention represent 136,000 financial planners nationwide. CMI will use in
house sales representatives to call on the leads generated from the
conference.
Also, two financial planning firms located in Northern California
are currently representing the Web Dynamics and CFM programs to their base
of over 3,000 independent financial planners. These firms represent clients
such as the California State Small Business Association, the California State
Police Association, and various railroad companies located in the Western
United States.
The OSHA compliance software package ("Safety & Health Plus") along with the
preventing sexual harassment training software program ("Conduct") are
marketed through AC&T Direct, a wholly owned subsidiary of the Company.
AC&T Direct was incorporated January 1995 and assumed the operations and
marketing of both software product lines. AC&T Direct is working with
several national associations for marketing the two products to Medical,
Dental, Mortuaries and Industrial users. The products are also marketed
through trade associations, government agencies and directly to businesses.
AC&T Direct continues to develop and market its product under a patent
license from Harding and Harris Behavioral Research Inc. The patented
process provides for a method of automated indexing of OSHA compliance
software as developed by the Company. The preferred embodiments of the
patent are disclosed in the United States patent application designated as
file #501,011 and filed September 9, 1992 in the United States patent office
as serial #4,611,289.
Entertainment
Distribution of the initial units of the Realeyes 3D product began
July 10, 1997 with an initial shipment of four hundred units. Approximately
2,100 units are projected for manufacturing and shipping in the following
week, with weekly production runs of 2,500 projected to commence July 21,
1997. Initial orders of the Realeyes 3D product stand at approximately 2,500
units. The Company will send out an order form mailing to over 13,000 customers
who have responded to the Realeyes product and are waiting for shipping to
begin.
Future distribution of this product will be through conventional
retail and wholesale outlets in the United States, Canada and Asia.
A distribution agreement with Telemedia Latinoamericana S.A. for South
America has been formalized and will include distribution throughout all of
South America and much of Central America.
Another distribution Agreement has been signed for Russia with Russia
California Associates. Other Agreements are under negotiation in Europe and
Asia. Inquires have been received by the Company from several direct
marketing companies. Currently, the Company has not formalized plans to
market through direct marketing outlets.
Status of Publicly Announced Products or Service
AC&T Direct has released the full Beta test of the windows version of the
Safety and Health plus product. Beta tests of the product will be used in
various associations that the AC&T Directs services throughout the country.
Publication of the book called "The Four Laws of Debt Free Prosperity" has
continued throughout fiscal year 1997 and through the beginning of fiscal
year 1998. The book is now being published in paper back, and is the center
of a weekly radio show called "Principles with Promise" which airs nationwide
on Sunday mornings from 9:00 am to 10:00 am MST. Mark VanWagoner hosts the
show.
Sales of the book for the first year of publication have exceeded the
expectations of the Company and can be found in many bookstore chains across
the country and into Canada. The Company is currently negotiating the rights
for a foreign publisher on the rights to a Spanish version of the book.
Competition
Finance
CMI has spent four years developing a finance system of individual
and small business services. The Company feels after years of research and
development there is no other company or system that provides the broad range
of financial services offered by CMI. There are computer based software
packages that will provide an after point of purchase or month end
reconciliation, but none applies the point of purchase principles of financial
management, behavioral change and discipline created by CMI's Fastrak system.
Communications
The computer software which AC&T Direct markets is part of an industry
characterized by rapid growth and intense competition. While pricing is
still the principal method of competition, service and quality are important
ancillary competitive considerations.
At present, the financial professional market segment is rapidly moving
toward creating an Internet presence and increasing communication with
clients via the Internet. Up to this point in time, the source of obtaining
an internet presence has been through standard internet presence providers,
providing a general, static web page; which market is highly competitive.
Conversely, the Web Dynamics product approaches the broad opportunity in the
financial community with a very focused and unique approach to providing an
Internet presence. This direction centers in on the specific needs of the
financial related market. Web Dynamics will provide the financial
professional with a site that dynamically changes, offers the utmost in
professional image and provides client focused tools and information all
while providing the professional with the capability of customizing key
areas of the site right at their fingertips. The Company has not seen any
competitive product offering to the financial professional marketplace.
Entertainment
At present, the Company has not found a similar technology in the
marketplace or ready to be manufactured. Other companies are
developing 3D technologies that are cost prohibitive and not mass marketable.
Management of the Company has visited and viewed 3D technologies of Sony,
Sanyo, Sharp and Phillips, and have not found 3D technology that can compete
against Realeyes 3D in the following four categories:
1) Eye dominance: The Realeyes product allows viewers to adjust
their pair of glasses based on eye dominance. Eye dominance
capability allows the viewer to see 3D images without side effects
such as eyestrain or headaches. The Realeyes product is the only
developed or marketable product that incorporates eye dominance
technology.
2) Depth Adjustment: The Realeyes product allows the
viewers to adjust the level of depth they see on the television set.
The 3D products being developed do not allow any adjustment of the
depth of the picture. This makes it extremely difficult for multiple
viewers to find a comfortable amount of depth.
3) Compatibility: Currently developed 3D technologies require
a special system or television set. The Realeyes 3D product is
compatible with any television set, and can be viewed with the NTSC
and PAL broadcasting signals.
4) Cost: Current 3D systems developed and ready for manufacturing
are cost prohibitive for a mass market. These systems cost two to three
times more expensive then the Realeyes 3D product.
The Realeyes product is currently without competition. The product is
currently being manufactured and shipped. This gives the Company first
mover advantages in market penetration and name recognition. Mass
marketing of the product will begin in August of 1997.
Patents and Trademarks
In connection with its business operations, the Company will depend upon certain
patents, trademarks, or licenses with respect to the conduct of its business.
At present, AC&T Direct has licensed a patent for indexing information from
Harding and Harris Behavioral Research, Inc, and CMI has patented the three
digit code and design elements of its CFM programs. The Company has filed
trademark applications with the U.S. Patent & Trademark Office as follows:
ITEM: REGISTRATION DATE:
Automated Compliance & Training with Design September 26, 1995
Chequemate August 15, 1995
Chequemate International with Design August 22, 1995
Chequemate International August 29, 1995
Provisional Patent on Licensed intellectuals
property on Realeyes product May, 1997
Taxtutor May 25, 1993
CASHFLOW Plus September 1, 1995
Lighthouse Design September 29, 1995
Safety and Health Plus and Design September 29, 1995
Conduct Preventing Sexual Harassment September 29, 1995
Employees
As of June 30, 1997, the Company and its subsidiaries had 20 full time
employees.
Item 2. Description of Property
The Company occupies leased office space at 57 West 200 South, Suite 350,
301 & 302, Salt Lake City, Utah. The Company offices comprise of 7,921
square feet and are leased at a monthly base rental of $8,479. The Company
also occupies space for its fulfillment division at 545 West 500 South,
Suite 140 Bountiful, Utah. The office space is 3,879 square feet, and is
leased at a monthly base rental of $2,223. The Company also occupies space
for its Teleservices subsidiary at 10300 North Central Express Way Suite 170,
Dallas, Texas. The office space is 7,844 square feet, and is leased at
a monthly base rental of $7,844. The Company also occupies space for
Chequemate Third Dimension, Inc. at 459 West 9160 South Sandy, Utah. The
office space is a shared space with the Company's rentable square feet at
791 at a price of $1,800 per month.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceeding. To the knowledge
of the Company, no director, officer or affiliate of the Company, or owner
of record or beneficial owner of the voting securities of the Company, or
any security holder of the Company, is engaged in any proceeding which is
adverse to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders for the
fourth quarter of fiscal year 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The stock of the Company is traded on the OTC Bulletin Board (OTCBB)
of the NASD Stock Market, Inc. The OTCBB symbol for the Company is
CQMT. As of June 30, 1997, there were approximately 771 shareholders
of record of the Company. As of June 30, 1997, the Company had issued
and outstanding shares, and paid subscriptions for shares, in an
aggregate amount of 14,666,851. Actual trading volume of the stock of
the Company in the most recent fiscal year has increased over previous
years. Non-U.S. investors hold a material portion of the stock of the
Company. The stock of the Company, as of July 11, 1997, was quoted at
$6.00 bid and $6.25 ask.
During fiscal year 1994, the Company became listed in the Moody's OTC Industrial
Manual and in the Moody's OTC Unlisted Manual. These listings enable the
stock of the Company to be traded in a significant number of jurisdictions
in the United States. The Company is continuing to file quarterly and annual
reports with the United States Securities and Exchange Commission in order
to comply with commission regulations and to make available current public
information regarding the Company.
The NASD Stock Market, Inc provided the fiscal year 1997 quotations for the
Company's stock. The referenced quotations reflect inter-dealer prices
without dealer retail mark-up, markdown or commissions and may not represent
actual transactions.
Price Range of Common Stock
Fiscal Year High Bid Price Low Bid Price
1996 - 1st Quarter(4/95-6/95) 7.50 6.625
1996 - 2nd Quarter (7/95-9/95) 7.50 7.00
1996 - 3rd Quarter (10/95-12/95) 7.00 6.25
1996 - 4th Quarter (1/96-3/96) 7.75 6.00
1997 - 1st Quarter (4/96 - 6/96) 7.25 6.625
1997 - 2nd Quarter (7/96 - 9/96) 7.00 6.25
1997 - 3rd Quarter (10/96 - 12/96) 7.00 5.75
1997 - 4th Quarter (1/97 - 3/97) 6.25 3.50
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
1997.
Item 6. Management's Discussion and Analysis.
General
For more detailed financial information, please refer to the Audited Financial
Statements for the periods of March 31, 1997 and 1996. A copy of these
Financial Statements is attached to this Report.
The Company and its subsidiaries have faced a variety of opportunities and
challenges during fiscal 1997, including congressional and federal budget
reforms, marketing opportunities, and product enhancements. The Company
has continued to research various marketing strategies to market its products
and to effectively implement the information gained from its pilot programs.
As a result of the pilot and the test marketing programs of several
marketing strategies in fiscal year 1997, the Company has refined its approach
to its main markets of Small Businesses and Independent Contractors.
The Company discovered a need for small business owners and independent
contractors to accept credit cards to compete with more established retail
and wholesale outlets. In order to meet the needs of the market, CMI
purchased QPD and the rights to the Telecharge program. The Telecharge
program allows small businesses and independent contractors easy access to
credit card processing without meeting stringent and overburdensome
restrictions and regulations. As a result of a strong focus on customer
satisfaction, QPD has maintained an industry low one third of one percent as
a charge back rate.
The purchase of QPD and the Telecharge product brought new clients,
associations and direct marketing companies as customers. As a result of
the purchase, it became necessary for the Company to contract with an outside
processor to provide the backend processing for the Telecharge program.
In April 1997, CMI became a registered agent of Cardservice International,
Inc. a partner of First Data Corporation. The transfer over to Cardservice
has now taken place and the Telecharge program is gaining acceptance in new
markets previously unavailable. The current financial statements of the
Company reflect the purchase price and operating expenses associated with QPD
and Telecharge.
In order to provide additional products and services to independent
financial advisors, the Company expanded its debt eliminator program to
include its money management system, debt restructuring and a bill paying
system. This new program, called the Chequemate Financial Manager, created
a unique combination of products to eliminate a client's debt, manage income
and expenses, and increase savings. For the fourth quarter of fiscal 1997
and the first quarter of fiscal 1998, the Company has invested capital in
the development of the CFM program. During the first quarter of fiscal 1998,
the Company began to market the CFM program through a network of independent
representatives and agents of the Company.
The Company has also developed the Web Dynamics product to provide
the financial advisor with a tool that will enable the participating
financial advisor an interactive resource to enhance financial analysis,
client recruitment, product advertising, and event planning and advertising.
This product required initial capital from the Company for hardware
components and software programs to develop the interactive capabilities and
rapid expansion.
During the fourth quarter of fiscal 1997, the Company was presented an
opportunity to purchase the Realeyes 3D product. The developers of the
technology had perfected a prototype unit, but were unable to fund further
development and manufacturing of the product. CMI was positioned to provide
capital to fund the purchase and initial manufacturing of the product.
The Company raised $3,000,000 to fund initial production of the units and
issued restricted stock to the members of the ATG, LLC for the license of
the intellectual property and worldwide rights to manufacture and market
the Realeyes 3D product and other related technologies. The Company
anticipates the need for additional capital to fund rapid growth and
manufacturing and additional advancement of 3D technology.
Liquidity and Capital Resources
The audited financial statements reflect the consolidated financial position
of the Company and its subsidiary entities. March 31, 1996, totals have
also been consolidated. As of March 31, 1997, the Company had current assets
of $398,409 with current liabilities of $703,670. This represents negative
working capital of $305,261. At March 31, 1996, current assets were $175,767
with current liabilities of $243,929, which represented negative working
capital of $68,162.
The change in working capital results in a ratio of current assets to current
liabilities, as of March 31, 1997, of .57 as compared to .72 on March 31,
1996. This change is primarily due to the acquisition of QPD. The amount
of installment payments credited to current liabilities in the twelve-month
period ending March 31, 1998 is $300,000.
At March 31, 1997, long term liabilities were $145,639 compared to $182,301
at March 31, 1996, a reduction of $36,662. This reduction was accomplished
by payments toward the CEDO loan and decreasing the long term related party
note. Also, the Company was able to fund operations without incurring
additional long-term debt.
At March 31, 1997, the Stockholders' equity was $437,451 versus $120,173 at
March 31, 1996. This represents an improvement of $317,278 over fiscal year
1996.
The sale of stock to offshore entities continues to be an important source
of capital funding for the Company. As previously reported in Form 8K, the
Company has sold additional shares to offshore entities to raise capital
for the continued operations of the Company and the acquisitions of QPD and
the capital infusions into CTD, its wholly owned subsidiary, for the
development of the 3D products. It is anticipated the Company will
continue to draw on this source of funding for initial stocking of
inventory of the Realeyes product for the second quarter of fiscal 1998.
Results of Operations
For the fiscal year 1997, total gross revenue of the Company was $776,963
compared to $382,137 for the previous fiscal year; an increase in gross
revenue of $394,826. Total expenses for fiscal year 1997 decreased by
$56,960 compared to fiscal year 1996. The combination of increased revenue
and decreased expenses resulted in a reduction of net loss from $1,879,015
in fiscal year 1996 to $1,502,573 in fiscal year 1997.
The loss for the twelve-month period ended March 31, 1997 is mainly attributed
to the purchase of QPD and the development and test marketing costs of the
CFM program. Also, associated costs for the development of the Web Dynamics
product were incurred during the fourth quarter of fiscal 1997. These
expense were one time expenses and the Company was able to fund these
capital expenditures without assuming short or long term debt.
Item 7. Financial Statements.
Attached to this report are the audited financial statements of the
Company for the periods ending March 31, 1997 and 1996.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
The Company has no disagreement with its accountants on the
accounting and financial disclosures contained in this Form 10-KSB
report. As of January 31, 1996 the company changed accountants from
the firm of Kartchner & Hunt to the firm of Jones, Jensen & Company in order
to maintain the services of the CPA in charge of the auditing of the Company
for the past three years. This change in accounting firms was previously
reported in the February 14, 1996 Form 10-QSB report of the Company for
the third quarter of fiscal year 1996.
PART III
Item 9. Directors and Executive Officers
The following table contains certain information concerning the nominees for
the Board of Directors of the Company.
Name and Principle First Became Shares of % of Common
Occupation or Employment Age a Director Common Stock Stock Outstanding
Benefically
Own
Blaine Harris 58 1994 2,595,371 19%
CEO and President of the
Company. Elected as an
officer of the Company
in 1994
Harold P. Glick 55 1995 528,962 3.9%
Partner in the real
estate company of Moore
Warfield & Glick.
Robert E. Warfield 56 1995 1,000,000 7.4%
Partner in the real
estate company of Moore
Warfield & Glick.
Chuck Coonradt 53 1996 11,000 *
Chairman and CEO of the
Game of Work, Inc. a
management consulting
firm
Lavar M. Butler 64 1995 35,000 *,1
Senior VP of the Company
Elected as an officer of
the Company in 1995
Bert Alvey 45 Proposed 321,429 *
President Chequemate Director
Third Dimension, Inc.
*This Director owns less than three percent (3%) of the total issued and
outstanding shares.
1 Mr. Butler's 35,000 shares are shares which he has the right to acquire
within sixty days pursuant to options granted through May 31, 1997.
Business Experience
Blaine Harris. Chairman, Director, CEO and President. Mr. Harris is an
alumnus of Idaho State University, where he majored in Business and Marketing.
Mr. Harris has extensive experience in real estate with his primary focus
being commercial and residential project development. From 1986 to 1991, he
served as Chief Executive Officer and Chairman of the Board of Directors of
Help-U-Sell, Inc. and was involved with Help-U-Sell as a partner of Conquest
Management, a Utah partnership, which managed and owned a 49% interest in Help-
U-Sell. During his administration, Help-U-Sell grew form 118 franchises to
650 plus franchises and was listed as the fastest growing real estate
franchising organization in the country. In 1991, the Help-U-Sell parent
company, Mutual Benefit Life, was taken over by the New Jersey State
Insurance Regulators and its subsidiaries were liquidated, including Help-U-
Sell, Inc. In 1991, Mr. Harris formulated and began development of Chequemate
International, Inc. Mr. Harris is also a Director of Fountain Fresh Inc.
Lavar Butler. Director and Senior Vice President. Mr. Butler has a BS
degree in Industrial Management. Mr. Butler spent 25 years as a General
Manager, Vice President and President while managing manufacturing and
marketing companies in Utah, Indiana, England and California prior to
joining AC&T in the spring of 1992.
Harold P. Glick. Director. Mr. Glick received his BS degree in Accounting
from the University of Maryland in 1965 and became a Certified Public
Accountant the following year. Mr. Glick successfully built and managed a
family-owned retail business prior to joining Mr. Robert Warfield as a
partner in the real estate Company of Moore, Warfield and Glick. Additionally,
since 1988, Mr. Glick has been a regional owner of Help-U-Sell Real Estate
in Virginia, Maryland, Washington D.C. and Delaware. Mr. Glick served as
President of the Greater Ocean City, Maryland, Board of Realtors in 1988, is
a member of the Advisory Board of Nations Bank and serves on the Maryland
Governor's Economic Development Committee.
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 17 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.
Chuck Coonradt. Director. Mr. Coonradt is Chairman of the Board and CEO of
The Game of Work, a Utah-based corporation engaged in providing management
and personnel training for its corporate clients in the fields of goal-setting
and profit improvement. Clients of the firm include Quaker Oats, Wendy's,
The Chicago Tribune, First Interstate Bank, Dow Chemical and Pepsi-Cola.
Bert Alvey. Proposed Director, President of Chequemate Third Dimension, Inc.
Mr. Alvey graduated from the University of Utah with a BS degree in Journalism
and Mass Communications in Telecommunications (Radio and Television
Broadcasting). Sixteen years of experience in the audio/video field through
sales, marketing and management of A/V products to consumers. Professional
video sales to Television Broadcasters, State Government Agencies, Boards of
Education, School Districts, Universities, Hospitals and Healthcare Agencies,
Production Houses, Military and Federal Government Facilities in the
intermountain area.
Organizational skills and discipline gained through eight years of military
service as a Naval Aviator. Ranked one out of twenty-five graduates Naval
Flight Training, selected to "Commodores List" for superior performance in
all facets of primary flight training, and "Student of the week" upon completion
of primary flight training. Graduate of Naval Fighter Weapons School (Top
Gun) designated air combat adversary instructor. Responsible for personnel
placement and administratively coordinating over 110 men and women and 100
million dollars worth of aircraft and parts. Gained money management skills
as a securities assistant manager for First Security Bank. Mr. Alvey was the
former President of the ATG group through the research and development stage
of the Realeyes product.
Executive Officers
The following table outlines the executive officers of the Company.
This table does not include those officers that serve as Directors.
Name Age Positions Held Current Term of
Office or Directorship
and period of Service
Ken Redding 34 Executive Vice President Current Term August 1996-
August 1997. Service since
November 1994
Greg L. Popp 28 Secretary / Treasurer Current Term June 1996
and C.O.O. CMI - August 1997.
Service since June 1996
John Garrett 55 VP , Financial Advisor Current Term June 1996-
to the President June 1997.
Service since May 1996
Kent Summers 36 President AC&T Direct Current Term August 1996-
August 1997. Service since
May 1995
Business Experience
Kenneth D. Redding. Executive Vice President. Mr. Redding is an alumnus
of California Sate University, Sacramento where he majored in Business
Administration and Marketing. From 1985 to 1992, Mr. Redding was involved
in the ownership and operation of several Help-U-Sell real estate franchise
offices throughout Northern California. Mr. Redding is the son-in-law of
Blaine Harris.
Greg L. Popp. Secretary / Treasurer and Assistant Operations Officer.
Mr. Popp graduated from the University of Utah with a BS degree in finance.
From 1990 until 1995, he was employed by the law firm of Callister, Duncan &
Nebeker. During this time he was involved in creating and maintaining a new
compensation package for senior and associate level attorneys, quarterly and
annual reports to the executive committee and board of directors, and assisting
the firm administrator in general administrative tasks. In January 1995,
Mr. Popp joined Automated Compliance & Training as the assistant controller.
In August 1995, Mr. Popp became the VP of Operations of the Company and in
March 1996 he was elected by the Board of Directors as the Secretary /
Treasurer.
John Garrett. Vice President, Financial Advisor to the President.
Mr. Garrett received his BS degree in finance from Brigham Young University
in 1967. He also graduated from Pacific Coast Banking School, University
of Washington in 1983. He has 15 years executive management experiences
in banking and was a founder and executive officer of First Beverly Bank,
Beverly Hills California. He has developed, owned and/or managed a variety
of financial, manufacturing and industrial businesses over the past 20 years.
Kent Summers. President of AC&T Direct. Mr. Summers has a BS degree in
Marketing Education and a Masters degree in Business Education from Utah
State University. From 1987 until 1992, he was employed by Morton Thiokol
and the Thiokol Corporation Space Operations in Brigham City, Utah. In this
capacity, he was engaged in management education, safety and human resources
functions. From 1992 until 1994 Mr. Summers was the manager of the quality
management and safety department of Beehive Clothing Mills in Salt Lake City,
Utah. This assignment involved responsibilities for OSHA Compliance. In 1994,
he created a start-up computer based training company known as ASKESIS
Corporation. This company developed computer based training as a multi-media
database computer product for inventory control.
Item 10. Executive Compensation
The table set forth on the following page contains information about the
remuneration received and accrued during fiscal years 1996 and 1997 from
the Company and its subsidiaries by the Chief Executive Officer and each of
the most highly compensated executive officers of the Company.
Name and Principal Fiscal Year Salary($) Bonus($) All Other
Position Annual Compensation
Blaine Harris, CEO 1997 $100,000 $1,015 $2,443
$100,000 $355 $24,174*
Lavar Butler, Pres 1997 $60,000 $650 $2,166
1996 $59,583 $379 $2,400
Ken Redding, Exec VP 1997 $54,000 $585 $3,249
1996 $54,000 $379 $1,662
John Garrett, VP 1997 $48,370 $390 $1,642
1996 $0.00 $0.00 $0.00
Kent Summers, Pres. 1997 $50,000 $541 $4,413
AC&T Direct 1996 $45,833 $271 $3,689
The following chart shows the stock options that were granted to any
executive officer of the Company during the last completed fiscal year.
Name and Principal Position Total Options Granted Total Options Vested
Blaine Harris, CEO 70,000 35,000
Lavar Butler, President 70,000 35,000
Ken Redding, Executive VP 70,000 28,000
Greg L. Popp, Sec. / Tres. 70,000 14,000
John Garrett, Vice President 70,000 7,000
Kent Summers, President 40,000 8,000
Other Executive Officers(2) 60,000 15,000
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The table on the following page sets forth certain information as of June
30, 1997 with respect to each person who owns of record, or is known to the
Company to beneficially own, more than 5% of the outstanding shares of Voting
Common Stock, and the beneficial ownership of such securities by each officer
and director who owns any stock, and by all officers and directors as a group.
The original directors and officers of the Company, whose aggregate share
holdings are now less than three percent of the total shares outstanding,
may be deemed to have been promoters of the Company.
Name and Address of Amount and Nature of Percent of currently issued
Beneficial Owner Ownership of Voting Stock and Subscribed Common Stock
Blaine Harris 2,595,3712 17.7%
57 West 200 South Direct Ownership
Suite 350 Salt Lake
City, Utah 84101
Robert Warfield 1,000,000 6.8%
10481 Golf Course Road Direct Ownership
Ocean City, MD 21842
Don Christensen 816,617 5.6%
10225 Kensington Direct Ownership
Parkway Apt. 616
Kensington, MD 20895
Harold P. Glick 528,962 3.6%
10706 Piney Island Direct Ownership
Drive Bishopville,
MD 21842
Chuck Coonradt 11,0002 *3
3797 W. Blacksmith Road Direct Ownership
Park City, Utah 84060
Ken Redding 28,0002 *3
57 West 200 South Direct Ownership
Suite 350, Salt Lake
City, Utah 84101
Lavar Butler 35,000 *2 *3
57 West 200 South Direct Ownership
Suite 350, Salt Lake
City, Utah 84101
Greg L. Popp 14,000*2 *3
57 West 200 South, Direct Ownership
Suite 350,
Salt Lake City,
Utah 84101
Kent Summers 8,000*2 *3
57 West 200 South, Direct Ownership
Suite 350, Salt Lake
City, Utah 84101
Officers and Directs 4,220,333 28.8%
as a group (8)
The Company knows of no arrangements, including any pledge by any person
of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions.
In calendar year 1992, the limited liability company ( the "LLC") of John C.
Wilkinson, a former director of the Company, received a CEDO grant for the
development of the Compliance Software. Of this amount, the LLC loaned
$120,000 to the Company. In fiscal year 1993, the Company borrowed $30,000
from WAC Research, Inc. (WAC). Donald M. Wood, then a member of the board
of directors of the Company, was an officer, director and shareholder of WAC.
The $30,000 loan from WAC was paid in May of 1993. In a restructuring of
the financial obligations of the Company, the Company paid $200,000 of
expenses for the LLC of Mr. Wilkinson, satisfying the $120,000 loan to the
Company by the LLC and resulting in a net payable of the LLC to the Company
of $78,890 as of the end of fiscal year 1993. As of April, 1993, the Company
loaned to the LLC an additional $30,043. The LLC and John Wilkinson executed
a promissory note reflecting the foregoing transactions, resulting in an
obligation of the LLC and John Wilkinson to the Company, at that time, in
the total amount of $108,933. This note was an unsecured demand note
bearing interest at the rate of 10%. On April 29, 1993, the LLC was dissolved.
Pursuant to such dissolution, all assets and liabilities of the LLC were
distributed to the members of the LLC. Therefore, the promissory note was
considered to be the obligation of Mr. Wilkinson. As of October 30, 1994,
other advances had been made pursuant to the transaction and the principal
balance of such loan was $151,202. This amount was canceled in exchange for
Mr. Wilkinson's return of his 290,000 shares of the stock of the Company at
the time of the CMI acquisition.
Pursuant to the authorization of the board of directors in their December 31,
1992 directors' meeting, the Company issued 2,000,000 shares of Non-Voting
Common Stock of the Company. These shares reflected certain rights of
conversion to Voting Commons Stock. Subsequently, 1,000,000 of the Non-
Voting Common Stock shares were canceled. Of the remaining shares, 500,000
were issued to John C. Wilkinson, an officer and director of the Company and
500,000 were issued to WAC Research, Inc., a Utah corporation. Donald M.
Wood, the former Chairman of the board of directors of the Company, was an
officer, director and shareholder of WAC and is deemed to be a beneficial
owner of such shares. Mr. Wilkinson and WAC executed Non-Voting Stock
Shareholder's Agreements principally relating to the conversion rights of
the stock. These transactions were effective as of January 8, 1993. The
non-voting shares were issued as consideration for certain management,
marketing and consulting services rendered by the shareholders. On March 31,
1993, the board of directors of the Company authorized the conversion of
such stock to Voting Common Stock. In conjunction with the CMI acquisition,
Mr. Wood, Mr. Wilkinson, and their transferees returned a total of
1,820,425 shares of stock to the Company for cancellation.
During fiscal year 1995, Mr. Hal Glick, Bob Warfield and Oxford International
Management Inc., three principal shareholders of the Company including two
directors, loaned $273,140 to the Company. On March 29, 1996, these loans
plus accrued interest were exchanged for 87,783 shares of restricted common
stock of the Company. The exchange price for these shares was $3.50 per
share.
Prior to March 31, 1994, Blaine Harris, CEO of the Company and president of
its wholly owned subsidiary Chequemate International, Inc., loaned $215,000
to CMI. During fiscal year 1995, this loan was paid down to $93,000.
Subsequently, Mr. Harris loaned an additional $200,000 to the Company.
This loan was paid in full in September 1995. The balance of $93,000,
owing on the first loan referred to in this paragraph, bears interest at 12%
and matures December 31, 1998.
Blaine Harris, CEO and Chairman of the board and a principal shareholder of
the Company, and Don Christensen, a Director of Chequemate International,
Inc. and shareholder of the Company, have an agreement with the Company to
receive a monthly fee based upon a certain client base of Chequemate
International. During fiscal year 1996, their compensation under this
agreement was less than $1,000.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Audited Financial Statements as of March 31, 1997 and 1996 are
incorporated herein by this reference.
(b) Reports Filed on Form 8-K
During fiscal year covered by this Form 10-KSB report, the Company
filed the attached contract on form 8-K.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ Blaine Harris Date
Blaine Harris - CEO
By /s/ Greg L. Popp Date
Greg L. Popp - Secretary
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Blaine Harris Chief Executive
Blaine Harris Officer and Director Date
/s/ Lavar Butler President and
Lavar Butler Director Date
/s/ Harold P. Glick Director
Harold P. Glick Date
/s/ Robert E. Warfield Director
Robert E. Warfield Date
/s/ Chuck Coonradt Director
Chuck Coonradt Date
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Financial Statements
March 31, 1997 and 1996
C O N T E N T S
Independent Auditors' Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Stockholders' Equity (Deficit) 7
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Chequemate International, Inc.
(Formerly Automated Compliance & Training, Inc.)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Chequemate
International, Inc. (formerly Automated Compliance & Training, Inc.), a Utah
Corporation, as of March 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
the years ended March 31, 1997, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Chequemate International, Inc. (formerly Automated Compliance & Training, Inc.)
as of March 31, 1997 and 1996, and the results of their consolidated
operations and their consolidated cash flows for the years ended March 31,
1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
Jones, Jensen & Company
June 14, 1997
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Balance Sheets
ASSETS
March 31,
1997 1996
CURRENT ASSETS
Cash $ 165,536 $ 30,380
Accounts receivable - 38,852 54,862
net of allowances of $7,520 and $8,085
in 1997 and 1996, respectively
Inventory (Note 2) 185,518 83,881
Prepaid expenses 8,503 6,644
Total Current Assets 398,409 175,767
PROPERTY AND EQUIPMENT (Note 3) 454,174 93,533
OTHER ASSETS
Organization costs and product rights(Note 1) 415,610 254,294
Note receivable 7,514 8,894
Refundable deposits 8,053 10,915
Investments 3,000 3,000
Total Other Assets 434,177 277,103
TOTAL ASSETS $ 1,286,760 $ 546,403
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31,
1997 1996
CURRENT LIABILITIES
Accounts payable $ 174,865 $ 100,240
Related party accounts payable (Note 16) 19,413 -
Short term debt (Note 15) 300,000 -
Accrued expenses 103,552 22,495
Income tax payable (Note 1) 400 -
Accrued interest - related party (Note 5) 65,903 72,903
Current portion related party (Note 5) - -
Current portion long-term debt (Note 6) 33,533 30,963
Current portion capital lease (Note 7) 6,004 15,370
Current portion office lease obligation - 1,958
Total Current Liabilities 703,670 243,929
LONG-TERM LIABILITIES
Long-term related party notes payable (Note 5) 90,000 93,000
Long-term debt (Note 6) 46,834 80,574
Capital lease obligations (Note 7) 8,805 8,727
Total Liabilities 849,309 426,230
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.0001 par value, 500,000,000 shares
authorized, 13,117,841 and 12,666,053 shares outstanding
at 1997 and 1996, respectively 1,312 1,267
Minority interest 100,000 -
Subscribed stock (Note 4) 270,000 100,000
Capital in excess of par 7,235,501 5,685,695
Accumulated deficit (7,169,362) (5,666,786)
Total Stockholders' Equity (Deficit) 437,451 120,173
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,286,760 $ 546,403
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Statements of Operations
For the Years Ended March 31,
1997 1996 1995
REVENUES
Sales - products $ 776,963 $ 382,137 $ 407,622
COST OF SALES
Product, supplies and materials 291,072 167,566 155,381
GROSS PROFIT 485,891 214,571 252,241
EXPENSES
Bad debts 6,465 5,627 439
Selling expenses 630,207 539,123 454,824
Software development - - 120,711
General and administrative 1,338,066 1,486,948 1,354,984
Total Expenses 1,974,738 2,031,698 1,930,958
OPERATING (LOSS) (1,488,847) (1,817,127) (1,678,717)
OTHER INCOME (EXPENSE)
Interest income 7,018 - 2,585
Interest expense (20,344) (61,588) (65,097)
Loss on sale of equipment - - (8,373)
Total Other Income (Expense) (13,326) (61,588) (70,885)
(LOSS) BEFORE INCOME TAXES (1,502,173) (1,878,715) (1,749,602)
INCOME TAX PROVISION 400 300 369
NET INCOME (LOSS) $ (1,502,573) $ (1,879,015) $ (1,749,971)
EARNINGS (LOSS) PER SHARE $ (0.12) $ (0.15) $ (0.25)
AVERAGE NUMBER OF
SHARES OUTSTANDING 12,891,947 12,208,526 7,110,732
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended March 31, 1997, 1996 and 1995
Free Total Capital
Restricted Trading Shares Common in Excess
Shares Shares Issued Stock of Par
Balance, March 31, 1994 2,632,400 1,817,100 4,450,100 $ 445 $1,667,455
Expenses of related party
paid by the Company - - - - -
Shares acquired from
related party receivable - (290,000) (290,000) (29) -
Shares acquired for cash
and cancelled (10,000) (200,000) (210,000) (21) (30,979)
Shares acquired before
business combination (510,000) (810,425)(1,320,425) (132) -
Shares issued in business
combination 8,744,025 - 8,744,025 874 402,135
Shares issued through
stock offering - 355,000 355,000 36 509,934
Shares issued for company - 10,000 10,000 1 -
Shares becoming free trading(2,074,500)2,074,500 - - -
Subscribed stock - - - - -
Net loss - - - - -
Balance, March 31, 1995 8,781,925 2,956,775 11,738,700 1,174 2,548,545
Shares becoming free trading(47,000) 47,000 - - -
Shares issued through stock
offering 833,570 - 833,570 83 2,599,917
Shares issued in exchange for
services 6,000 - 6,000 1 29,999
Subscribed stock - - - - -
Shares issued for debt 87,783 - 87,783 9 307,234
250,000 shares donated to the
Company and reissued - - - - 200,000
Net loss - - - - -
Balance, March 31,1996 9,662,278 3,003,775 12,666,053 1,267 5,685,695
Shares becoming free trading(682,590) 682,590
Minority interest - - - - -
Shares issued through
stock offering 450,788 - 450,788 44 1,546,307
Shares issued for services 1,000 - 1,000 1 3,499
Subscribed stock - - - - -
Net loss - - - - -
Balance, March 31, 1997 9,431,476 3,686,365 13,117,841 $1,312 $7,235,501
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
For the Years Ended March 31, 1997, 1996 and 1995
Related
Party Total
Stockholders' Accum Subscribed Minority
Receivable Deficit Stock Interest Equity
Balance, March 31, 1994 $ (91,690) $(1,886,762)$ - $ - $(310,552)
Expenses of related party
paid by the Company (59,512) - - - (59,512)
Shares acquired from related
party receivable 151,202 (151,173) - - -
Shares acquired for cash
and cancelled - - - - (31,000)
Shares acquired before
business combination - 132 - - -
Shares issued in business
combination - - - - 403,009
Shares issued through
stock offering - - - - 509,970
Shares issued for company - - - - 1
Shares becoming free trading
Subscribed stock - - 850,000 - 850,000
Net loss - (1,749,971) - -(1,749,971)
Balance, March 31, 1995 - (3,787,774) 850,000 - (388,055)
Shares becoming free trading - - - - -
Shares issued through stock
offering - - (850,000) - 1,750,000
Shares issued in exchange
for services - - - - 30,000
Subscribed stock - - 100,000 - 100,000
Shares issued for debt - - - - 307,243
250,000 shares donated to
the Company and reissued - - - - 200,000
Net loss - (1,879,015) - -(1,879,015)
Balance, March 31, 1996 - (5,666,789) 100,000 - 120,173
Shares becoming free trade - - - - -
Minority interest - - - 100,000 100,000
Shares issued through
stock offering - - (100,000) - 1,446,351
Shares issued for services - - - - 3,500
Subscribed stock - - 270,000 - 270,000
Net loss - (1,502,573) - -(1,502,573)
Balance, March 31, 1997 $ - $ (7,169,362)$ 270,000 $ 100,000 $ 437,451
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended March 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,502,573) $(1,879,015) $(1,749,971)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Amortization 62,183 78,496 4,142
Depreciation 41,549 31,887 18,787
Bad debt expense 4,602 4,646 439
Non-cash expense - 47,327 44,354
(Increase) decrease in:
Accounts receivable 9,546 (7,466) 46,148
Prepaid expenses (1,859) (6,644) -
Inventory (101,637) 39,191 12,958
Note receivable - (8,894) -
Deposits 2,862 1,065 -
Increase (decrease) in:
Accounts payable 94,038 (61,411) 23,377
Accrued interest payable (7,000) 3,421 69,482
Accrued expenses 81,056 (15,646) 11,006
Income taxes payable 400 - 200
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (1,316,833) (1,773,043) (1,519,078)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets - - 4,343
Purchase/development of intangibles (222,706) - (148,341)
Equipment purchases (101,121) (23,076) (29,271)
Advances on notes receivable - - (19,616)
Collection on notes receivable 1,380 - -
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (322,447) (23,076) (192,885)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,549,851 2,800,000 809,979
Acquisition stock - - (31,000)
Subscribed stock 170,000 (750,000) 850,000
Minority interest 100,000 - -
Issuance of notes payable - - 312,500
Payments made on notes payable (45,415) (255,720) (212,610)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES $ 1,774,436 $1,794,280 $1,728,869
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Consolidated Statements of Cash Flows
For the Years Ended March 31,
1997 1996 1995
NET INCREASE (DECREASE)IN CASH $ 135,156 $ (1,839) $ 16,906
CASH AT BEGINNING OF YEAR 30,380 32,219 15,313
CASH AT END OF YEAR $ 165,536 $ 30,380 $ 32,219
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect practices of the software sales
and services industries and conform to generally accepted accounting
principles. Certain prior year amounts have been reclassified to be
consistent with the March 31, 1997 presentation. The following policies
are considered to be significant:
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries Families in Focus, Inc., AC&T Direct, AC&T and Chequemate
Tele-Services, Inc. All significant intercompany accounts and transactions
have been eliminated.
Revenue recognition
Revenue is recognized on an accrual basis upon deliver of the software or
product. Revenue consists of software sales, license fees, and monthly
service fees.
Organization and production costs
Organization and production costs have been capitalized and amortized over
five years using a straight line method. The total amortization of
organizational and production costs for the twelve months ended March 31, 1997
and 1996 amounted to $62,183 and $78,496, respectively.
Property and equipment
Property and equipment are stated at cost with depreciation and amortization
computed on the straight line method. Property and equipment are depreciated
over the following estimated useful lives:
Years
Office equipment 5
Office furniture 5-7
Machinery and equipment 5
Leasehold improvements 3-5
Capital leases 3-5
Intangible assets
Net Book Value
Term Cost Amortization 1997 1996
Product rights 5 years $ 105,500 $ 17,359 $ 88,141 $ 95,708
Goodwill 15 years 97,406 541 96,865 -
Trademark 15 years 50,000 278 49,722 -
Client list 15 years 50,000 278 49,722 -
Training video 5 years 260,007 131,283 128,724 152,895
Organization cost 5 years 17,261 14,825 2,436 5,691
$580,174 $ 164,564 $415,610 $ 254,294
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share
Earnings per share are calculated using a weighted average for common stock and
common stock equivalents.
Cash flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and cash on deposit with banks.
Income taxes
The Company's tax basis is the same as the Company's financial statement
basis. The Company has net operating loss carryforwards of approximately
$7,100,000 available to offset future federal and state income tax through
2010. The Company has not recorded a tax benefit attributable to the
carryforwards because realization of such benefit cannot be assured.
Computer software costs
The Company classifies the costs of planing, designing and establishing the
technological feasibility of computer software product as software development
costs and charges those costs to expense when incurred. Costs incurred for
duplicating computer software from product masters, documentation and
training materials and packaging costs are capitalized as inventory and
charged to cost of sales when revenue is recognized. Costs of maintenance
and customer support are charged to expense when costs are incurred.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period
Actual results could differ from those estimates.
NOTE 2 - INVENTORY
The Company inventories are stated at the lower of cost or market, using the
first-in, first-out (FIFO) method.
March 31, March 31,
1997 1996
Finished goods $ 185,518 $ 83,881
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 1997 and 1996 are detailed in the
following summary:
Accumulated Net Book Value
Cost Depreciation 1997 1996
Office furniture and
fixtures $ 52,007 $ 21,432 $ 30,575 $ 24,169
Software 300,000 5,000 295,000 -
Machinery and
equipment 177,487 59,697 117,790 45,063
Capital leases 26,877 19,853 7,024 20,378
Leasehold
improvements 4,581 796 3,785 3,923
Total $ 560,952 $ 106,778 $ 454,174 $ 93,533
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 March 31, 1997 and
1996 amounted to $41,549 and $31,887, respectively.
NOTE 4 - STOCKHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue 500,000,000 shares of common stock, par
value $.0001. Currently the Company has issued 13,117,841 shares of common
stock.
During the period from April 1993 through March 1996 the Company issued
1,008,226 shares of common stock pursuant to a private placement. These
shares were offered under Regulation S to non U.S. persons and can be
exchanged for free trading stock within 40 days after the closing of the
offering.
The Company continued the placement of Regulation S stock in the current
year and issued 450,688 shares to non U.S. persons. The Company's plans
are to continue placing stock through private placements to fund the growth
requirements of the Company. As part of the private placement, the Company
received $270,000 for the sale of 80,000 shares of common stock. The Company
has accounted for the transaction as subscribed stock until the stock could
be issued.
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 5 - RELATED PARTIES
Notes payable to related parties as of March 31, 1997 and 1996 are detailed
in the following summary:
1997 1996
Note payable to CEO; due in monthly
interest installments of $930 with an
interest rate of 12%; due December 31,
1998; unsecured; accrued interest of
$65,903 is due at September 15, 1997 $ 90,000 $ 93,000
Total related party notes payable 90,000 93,000
Less: current portion - -
Long-term portion $ 90,000 $ 93,000
Maturities of the related party notes payable are as follows:
Period ending March 31, 1998 $ 90,000
1999 -
Total $ 90,000
NOTE 6 - LONG-TERM DEBT
Notes payable as of March 31, 1997 and 1996 are detailed in the following
summary:
1997 1996
Note payable to a company; due in monthly
installments of $3,244 which includes
interest at 8%; due July, 1999, unsecured $ 80,367 $ 111,537
Total long-term debt 80,367 111,537
Less: current portion (33,533) (30,963)
Long-term portion $ 46,834 $ 80,574
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 6 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are summarized below:
Period ending March 31, 1998 $ 33,533
1999 36,316
2000 10,518
2001 -
Total $ 80,367
NOTE 7 - LEASES
All noncancelable leases with an initial term greater than one year have
been categorized as capital or operating leases in conformity with the
definitions in Financial Accounting Standards Board Statement No. 13,
"Accounting for Leases".
The following analysis represents property under capital lease at
March 31, 1997 and 1996.
1997 1996
Equipment $ 26,877 $ 33,295
Less: accumulated depreciation (19,853 ) (12,917 )
Net property under capital lease $ 7,024 $ 20,378
At March 31, 1997 the Company is liable under the terms of noncancelable
leases for the following minimum lease commitments:
Capital Operating
Leases Leases
Period ended March 31,
1998 $ 8,020 83,186
1999 4,228 82,673
2000 2,561 86,799
2001 - 91,137
later years - 62,737
Total minimum lease payments 14,809
Less: interest 3,370
Present value of net minimum
lease payment 14,809
Less: current portion 6,004
Capital lease obligations
payable long-term $ 8,805
Rental expense for the years ended March 31, 1997 and 1996 amounted to
$86,094 and $90,305, respectively.
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 8 - CASH FLOW AND NON CASH INVESTING AND FINANCING ACTIVITIES
Cash flow information
March 31, March 31,
1997 1996
Interest paid $ 24,230 $ 21,197
Interest received $ 2,585 $ -
Income taxes paid $ 300 $ 300
Non-cash investing and financing activities
For the years ending March 31, 1997 and 1996, the Company incurred the
following non-cash investing and financing activities.
March 31, March 31,
1997 1996
Capital lease obligations incurred $ - $ 6,418
Issuance of stock for services rendered $ 1,100 $ 30,000
Conversion of debt to equity $ - $ 307,243
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 investments with high quality financial institutions. At times such
investments may be in excess of the FDIC insurance limit.
NOTE 10 - RIGHTS TO SOFTWARE PRODUCT
The Company obtained all the rights associated with the sexual harassment and
OSHA compliance software through assuming third party debt associated with
development of the product.
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 11 - ACQUISITIONS
On February 27, 1997, the Company established Chequemate Tele-Services, Inc.
(CTS) along with another individual and received fifty-one percent (51%) of
the company. CTS then entered into an asset purchase agreement to acquire
all of the assets of Quality Products Distribution, Inc. The assets
consisted mainly of credit card processing software and certain intangibles.
NOTE 12 - SUMMARY OF SELECTED FINANCIAL INFORMATION
The following is a summary of selected financial information for the years
ended March 31, 1997, 1996 and 1995.
1997 1996 1995
Other Financial Data:
Working capital (deficit) $(300,699) $ (59,269) $ (156,702)
Property & equipment 454,174 93,533 95,572
Total Assets 1,291,324 546,403 646,529
Long-term debt 145,639 173,574 654,718
Stockholders' equity (deficit)442,013 120,173 (387,933)
Book value per share .03 .01 (.04)
Other Information:
Shares outstanding at period end 13,117,841 12,666,053 11,738,700
Stockholders' of record (reported by
stock transfer agent) 1,149 739 398
Number of employees at period end 28 14 18
NOTE 13 - COMMON STOCK OPTIONS
Effective May 17, 1995 the stockholders approved an Incentive Stock Option
Plan granting to key employees options to purchase Company common stock over
a ten year period, at the fair market value at time of grant. The aggregate
number of common shares of the Company which may be granted under the plan
is 800,000 shares. The plan expires on March 23, 2004.
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 13 - COMMON STOCK OPTIONS (Continued)
Activity regarding stock options is summarized as follows:
Number of Shares
1997 1996
Options Granted:
Beginning of year 154,800 103,300
Additional granted 200,000 31,500
End of year 354,800 154,800
Options Exercised:
Beginning of year - -
Additional exercised 100 -
Expired - -
End of year 100 -
Options Outstanding at End of Year - -
Option prices range from $6.25 to $7.00 per share. Options price for
regional directors and executive officers is $3.50 per share.
The Company granted several stock options to various individuals for
service performed or for future services. The option price for the
services performed was stated at $5.00 per share on 14,000 shares.
The option price granted on future services was the lower of the bid
price or $7.50 per share on 100,000 shares.
NOTE 14 - SUBSEQUENT EVENTS
In May of 1997, the Company formed the wholly-owned subsidiary Chequemate
Third Dimension, Inc, (CTD). CTD then entered into an agreement to
acquire technology relating to certain intellectual property from
Advanced Technology Group, LLC. The agreement called for CMI to
contribute to CTD three million dollars within sixty (60) days of
signing. In addition, the agreement requires the Company to establish
a non-qualified stock option for certain members of the LLC. The
non-qualified stock option plan provides various individuals the
option to acquire 2,500,000 shares of stock at a grant price of $0.01
per share.
NOTE 15 - SHORT TERM DEBT
On February 27, 1997, the Company, through its subsidiary Chequemate
Tele-Services, Inc. (CTS) purchased certain intangible assets (see
Note 11 - Acquisitions). As part of the purchase, the Company is
obligated to pay $300,000 through monthly installments starting in
June 1997 and ending in December 1997.
CHEQUEMATE INTERNATIONAL, INC.
(Formerly Automated Compliance & Training, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company owes certain officers and directors royalties from the
revenue of book sales. In addition, the Company owes a major shareholder
royalties on active users of the Chequemate product. The total amount
owing to these individuals as of March 31, 1997 was $19,413.00.
NOTE 17 - MARKETING DEVELOPMENT AGREEMENT
In December, the Company entered into a venture with an individual to
enhance and improve its marketing capacity as well to strengthen its
in-house administrative capacity. The Company has incurred monthly
expenses of approximately $10,000 on this venture. The alliance between
the parties indicates that the individual will earn 50% of all net profits
directly generated from revenues generate specifically and exclusively by
this agreement. Upon termination of this alliance the specific revenues
will revert back to the individual.
EXHIBIT B
LICENSE AGREEMENT
This License Agreement (the "Agreement") is dated June _23_, 1997 and
is by and between the following Parties:
ATG: Advanced Technology Group, L.L.C.
459 West 9160 South
Sandy, UT 84070
CTD: Chequemate Third Dimension, Inc.
57 West 200 South, Suite 350
Salt Lake City, UT 84101
RECITALS
WHEREAS, ATG and Chequemate International, Inc. ("CMI") have entered into
an "Agreement Regarding Chequemate Third Dimension, Inc." effective
May 15, 1997 (hereinafter referred to as the "CMI Agreement") pursuant
to which ATG agreed to enter into this Agreement with CTD.
WHEREAS, the Parties desire that ATG disclose to CTD the Realeyes
Technology known to ATG;
WHEREAS, the Parties desire that ATG license the Realeyes Intellectual
Property to CTD in the area of 3D Effects Applications; and
WHEREAS, CTD shall pay a license fee and royalty to ATG.
NOW, THEREFORE, the Parties agree as follows:
SECTION 1 - DEFINITIONS
"3D" shall mean three dimensional.
"2D" shall mean two dimensional.
"3D Effects Applications" shall mean methods, processes, applications,
apparatus and products for electronically converting 2D video information
or signals, regardless of the storage or transmission medium, to produce a
simulated 3D picture or image. Without limiting the generality of the p
receding sentence, the phrase "3D Effects Applications" includes, but is not
limited to: methods, processes, applications, apparatus and products for pr
oviding a simulated 3D visual environment from 2D information, data or signals;
methods, processes, applications, apparatus and products for converting an
entire 2D video image or signal to a simulated 3D format; methods, processes,
applications, apparatus and products for converting 2D video from any standard
source (e.g., NTSC, HDTV and similar or equivalent standards) to a 3D picture
or image that is displayable on any standard CRT television or CRT projector;
and methods, processes, applications, apparatus and products for converting
2D video information, data or signals to a simulated 3D image, picture or
display utilizing time shifting, pixel shifting and/or frame delay techniques.
The term "3D Effects Applications" shall not include methods, processes,
applications, apparatus or products for producing 3D images, picture or
displays from 3D video information. As used herein, the phrase "3D video
information" refers to video information, data or signals captured through
or with the use of specialized 3D multilens (e.g., stereoscopic) cameras.
"Other Applications" shall mean methods, processes, applications, apparatus
and products other than 3D Effects Applications.
"3D Video Industry" means businesses and persons involved in the research,
development or commercialization of methods, processes, applications,
apparatus and/or products relating to 3D video images or to 3D Effects
Applications.
"Realeyes Product" shall mean any and all 3D Effects Applications of ATG,
in any and all stages of development, in the possession of ATG as of June
16, 1997.
"Realeyes Technology" shall mean any and all technology, inventions,
technical information, computer programs (including source code and object
code), scientific or technical data, know-how, research, developments,
product plans, product information, product component information, product
formulae, ideas, processes, designs, drawings, and works of authorship which
are applicable to or in the area of any of the Realeyes Product and which
are known to ATG or the Principals as of June 16, 1997.
"Realeyes Intellectual Property" shall mean any and all patent rights, trade
secret rights, copyrights, trademarks, and other intellectual property under
any and all state, federal and foreign laws in and to the Realeyes Product,
Realeyes Technology and/or the Realeyes Proprietary Information.
"Improvements" shall mean any 3D Effects Applications and inventions in the
area of 3D Effects Applications which are acquired, made or invented by ATG
or any of the Principals after June 16, 1997, including any improvements
which ATG or any of the Principals may make to the Realeyes Product after
June 16, 1997.
"Improvements Intellectual Property" shall mean any and all patent rights,
trade secret rights, copyrights, trademarks, and other intellectual property
rights under any and all state, federal and foreign laws in and to the
Improvements.
"Licensed Intellectual Property" shall mean Realeyes Intellectual Property
and Improvements Intellectual Property which are owned or controlled by ATG.
"Realeyes Business Information" means any and all of ATG's business
information, financial information, customer lists, supplier lists,
marketing strategies and plans, and other information of ATG (but excluding
Realeyes Technology) and which are known to ATG as of June 16, 1997.
"Realeyes Proprietary Information" shall mean any and all Realeyes Technology
and Realeyes Business Information that is not generally known to the public
or to others in the 3D Video Industry.
The "Principals" shall mean Bert Alvey, Andre Peterson, Jonathan Neville,
Amber Davidson, Boyd Fenn, Stan Fenn, John Bartholemew, Loran Swensen,
Jerry Coleman, Carlos Bullos, and Merl Prince.
"CTD Product" shall mean any and all 3D Effects Applications made, sold or
commercialized by or for CTD or its sublicensees. "CTD Product" will also
include any Realeyes Product made, sold or commercialized by CTD or its
sublicensees.
"CTD Product unit" shall mean a CTD Product which includes any of the
proprietary chip sets of the Realeyes Product or any successor chip set(s).
If any such CTD Product unit has more than one remote control unit or more
than two pair of shutterglasses, then the additional remote control units
and additional shutterglasses shall not be deemed part of the CTD Product
unit.
SECTION 2 - LICENSE
2.1 Grant. ATG hereby exclusively licenses to CTD any and all Licensed
Intellectual Property owned or controlled by ATG (the "License"). The scope
and exclusivity of the License are limited to 3D Effects Applications. No
rights or licenses to Other Applications are granted by ATG to CTD. If any
of the intellectual property within the Licensed Intellectual Property
licensed to CTD applies to 3D Effects Applications and to Other Applications,
then such intellectual property is exclusively licensed under the License to
CTD for 3D Effects Applications, but reserved by ATG (i.e., not included in
the License) for Other Applications.
2.2 Worldwide and Perpetual. The License is worldwide and perpetual,
unless terminated for the failure of CTD to meet its royalty or other
obligations under this License Agreement or for the failure of CMI to meet
its obligations under the CMI Agreement. It is understood that although the
License is characterized as perpetual, it will cease to include Licensed
Intellectual Property as such Licensed Intellectual Property expires or
terminates (e.g., when a patent expires at the end of its term).
2.3 Disclosure. ATG will disclose (to the extent it has not already done
so) to CTD all material Realeyes Technology and material ATG Business
Information known to ATG or the Principals. This disclosure shall be made
and facilitated through the Principals as consultants or employees of CTD.
This disclosure will also include the transfer by ATG to CTD of ATG's
prototypes, drawings, proprietary chips, and written documentation relating
to the Realeyes Product.
2.4 Sublicenses. CTD may grant sublicenses under the License, but CTD
must ensure that the sublicensees respect this License Agreement.
2.5 Termination. The License may be terminated at any time by ATG if CTD
breaches its royalty obligations or other obligations under this Agreement
or CMI breaches the CMI Agreement, and CTD or CMI (whichever is applicable)
does not cure such breach within 30 of written notice thereof. Termination
of the License shall not limit or affect the other legal and equitable
remedies available to ATG for any breach by CTD or CMI. In addition, the
License shall automatically be terminated in the event (a) CMI fails to make
its scheduled capital contribution payments as provided in paragraphs 3.1
and 5.1 of the CMI Agreement; (b) CMI rescinds th transaction as provided in
paragraph 5.2 of the CMI Agreement; or (c) there is a "Failure to Close" as
defined in paragraph 14 of the CMI Agreement.
2.6 Effect of Termination. Following termination of the License, ATG
shall have no further obligation or liability under this Agreement, and CTD
and its licensees and sublicensees shall have no rights under the License or
this Agreement.
2.7 Reservation of Rights. Rights not expressly granted to CTD under
this Agreement are reserved by ATG.
SECTION 3 - INTELLECTUAL PROPERTY
3.1 Third Party Infringement. In the event of any infringement by a
third party of any portion of the Licensed Intellectual Property, CTD shall
promptly inform ATG of such infringement. Either Party, or the Parties
acting together, shall have the right, at their own expense, to take all
legitimate steps to halt such infringement. Subject to receiving advice
from experienced patent counsel, either party may prosecute an infringement
claim and may request the other party to become a party to the proceedings
and to provide reasonable assistance, and the other party shall do so,
provided that the requesting party agrees to reimburse the other party for
costs and expenses the other party may incur at the requesting party's
request. If successful, any recovery shall inure to the exclusive benefit
of the party prosecuting the claim. If both CTD and ATG elect to prosecute
the claim, CTD and ATG shall mutually cooperate and assist one another,
share equally in the costs and expenses of prosecuting the claim, and share
equally any recovery.
3.2 Control of Patent Applications and Patents.
(a) With respect to patent applications and patents licensed hereunder
which claim any invention in the area of 3D Effects Applications invented
by any employee of ATG or any of the Principals on or before June 16, 1997
the following shall apply: (a) such patent applications and patents will
be owned by ATG and will be licensed to CTD as part of the License under
this License Agreement, and (b) CTD will pay for all costs and expenses of
such patent applications and patents incurred on or after June 16, 1997
(including the preparation, filing, prosecution, maintenance and enforcement
thereof, and the attorneys' fees, patent agents' fees, and government fees
incurred in connection therewith), (c) such patents and patent
applications and the preparation, filing, prosecution, maintenance and
enforcement thereof, shall be controlled by CMI and by legal counsel
designated by CMI. The only relevant patent application or patent held by
ATG or its Principals is the patent application identified in Exhibit A.
ATG does not guarantee that CTD will be successful in obtaining a patent
from such application.
(b) After June 16, 1997, CTD shall have the right to have patent
applications claiming the Realeyes Technology, Realeyes Products and/or
Improvements filed in those countries where CTD in its sole discretion,
deems advisable in view of its commercial operations. ATG and its
Principals agree to execute or cause to be executed all documents necessary
or desirable for the purpose of applying for and obtaining patents thereon.
All such applications will be owned by ATG and will be licensed to CTD as
part of the Licensed Intellectual Property under this License Agreement.
CTD shall control the prosecution of all such patent applications, but shall
provide or cause to be provided to ATG a copy of all correspondence to and
from the patent authorities relating to such patent applications, so as to
afford ATG sufficient time to comment and advise. The costs associated with
the preparation, filing and prosecution of such patent applications by CTD or
at CTD's request, as well as the expense incurred by CTD or ATG in
prosecuting and in obtaining and maintaining such applications and patents,
shall be paid by CTD.
(c) After June 16, 1997, ATG may, at ATG's expense and option, file
patent applications directed to the Realeyes Technology and/or Improvements
in any country in which CTD elects not to seek patent protection thereon,
provided that all such patent applications filed by ATG shall be deemed to
be included within the Licensed Intellectual Property and licensed to CTD
hereunder without additional cost or expense. ATG shall advise CTD of the
filing of each such patent application. CTD and its Principals shall
execute or cause to be executed all documents necessary or desirable for the
purpose of applying for and obtaining patents thereon. All such applications
filed by ATG will be owned by ATG.
(d) CTD shall have no right to control any patents or patent applications
claiming inventions or subject matter outside the scope of 3D Effects
Applications. This subsection (d) applies only to patents and patent
applications under which rights are licensed to CTD under this Agreement.
However, if a licensed patent or licensed patent application does not claim
an invention or subject matter outside the scope of 3D Effects Applications,
then CTD will control such patent or patent application as provided in (a),
(b) and (c) above.
SECTION 4 - LICENSE FEE AND ROYALTY
4.1. License Fee. CTD shall pay to ATG the sum of $400,000 within fifteen
(15) days after CTD shall have received the proceeds from the sale of the
first 10,000 units of the CTD Product (including units sold by CTD's
licensees or sublicensees). CTD shall use reasonable efforts to achieve
said sale of 10,000 units.
4.2 Royalty. CTD shall pay to ATG, in any month where more than 2,500
units of the CTD Product are sold by CTD and its licensees and sublicensees,
2% of the gross profits of CTD from (a) the sales proceeds received by CTD
from the sale of the CTD Product units; (b) the sales proceeds received by
CTD from the sale of the CTD proprietary chip sets to be installed in
television sets; and (c) the royalties received from licensees and
sublicensees of the Licensed Intellectual Property. This royalty shall be
paid within 30 days of the end of each month. Gross profit shall be the net
sales price of the units, less returns, and less cost of goods sold without
any allocation of general and administrative overhead, determined in
accordance with GAAP, applied on a consistent basis.
4.3 United States Dollars. All references to "Dollars" or $ in this
Agreement mean dollars of the United States of America. All payments to
ATG under this Agreement shall be in lawful money of the United States of
America. To the extent that any sales proceeds or royalties on which the
royalty payable to ATG is based are received by CTD in a form other than
U.S. dollars, then a reasonable and current foreign exchange rate shall be
used for conversion to U.S. dollars.
4.4 Taxes. In the event that any taxes are payable on or are withheld
from the license fee or royalties or other payments to ATG under this
Agreement, then CTD shall pay such taxes and shall ensure that ATG receives
the full amounts stated herein. This does not apply to ATG's incomes taxes.
4.5 Monthly Reports. Within 30 days of the end of each month, CTD shall
provide ATG with a written report stating the number of CTD Product units
sold during the month.
4.6 Records. CTD shall keep true and accurate records, files and books
of account containing all the data reasonably required for the full
computation and verification of the amounts to be paid hereunder, the
information to be given in the reports and statements provided for herein,
and any other normal and reasonable records necessary to verify and
substantiate performance of CTD's hereunder. ATG, or its designated
representative, shall have access to the books and records of CTD during
normal business hours for the purpose of determining or confirming all
billings and payments made hereunder, and verifying and substantiating the
performance of CTD's obligations hereunder. CTD shall retain all such
records, files and books of account for a period of at least five years
after their preparation.
4.7 Interest. Any payments under this Agreement not made by CTD in full
when due shall thereafter bear interest on the unpaid balance (including
accrued but unpaid interest) at the rate of one and one-half percent (1.5%)
per month or the highest rate allowed by applicable law, whichever is lower.
SECTION 5 - WARRANTIES, DISCLAIMER, LIMITATION ON LIABILITY AND
INDEMNIFICATION
5.1 Warranty. ATG warrants that as of the date of this Agreement it
does not have actual knowledge that any Realeyes Product infringes any
patent or intellectual property of a third party. The fact that ATG may
use in a Realeyes Product a patented component that includes a patent
marking shall not, in and of itself, constitute a breach of the foregoing
warranty. ATG warrants that no third party has communicated to ATG any
allegation of such infringement, except as disclosed on Exhibit C to this
Agreement. Within five days of the execution of the License Agreement,
ATG will give to CMI copies of any patent search results and other
intellectual property investigations, if any, conducted by or for ATG
relating to 3D Effects Applications. To the best of ATG's actual knowledge
and belief, the licensed Realeyes Intellectual Property is not being
infringed upon by any other person or entity. To the best of ATG's actual
knowledge and belief, no event has occurred which permits, or upon the
giving of notice or the passage of time would permit, revocation or
termination of any of the Realeyes Intellectual Property prior to the
expiration of its normal term. To the best of ATG's actual knowledge and
belief, no event has occurred, either upon the giving of notice or the
passage time, which invalidates or may invalidate any of the Realeyes
Intellectual Property prior to the expiration of its normal term.
To the best of ATG's actual knowledge and belief, none of the Realeyes
Intellectual Property is subject to any outstanding order, decree, judgement,
stipulation, or agreement restricting the scope or use thereof.
5.2 Knowledge. When any warranty or representation is made as to the
"knowledge," "knowledge and belief" or "actual knowledge" of ATG, the
knowledge referred to shall be that of the Principals.
5.3 No Warranty of Noninfringement. There is no express or implied
warranty of noninfringement except as expressly stated above in Section 5.1.
It is the responsibility of CTD to conduct such patent searches and
intellectual property investigations in the United States and elsewhere as
CTD deems appropriate. The risk of patent and intellectual property
infringement is borne by CTD and its licensees and sublicensees. There
is no guarantee or warranty of patentability.
5.4 Disclaimer. ATG MAKES NO REPRESENTATION, WARRANTY OR GUARANTEE,
EXPRESS, IMPLIED OR BY OPERATION OF LAW, TO CTD OR CMI, NOT EXPRESSLY SET
FORTH IN THIS AGREEMENT OR THE CMI AGREEMENT. ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT ARE DISCLAIMED AND EXCLUDED BY ATG.
5.5 Indemnification - By CTD. Provided that all of the warrantees of
ATG are true and correct as of the date hereof and further provided that
ATG has not materially breached this Agreement, CTD shall indemnify ATG
and its directors, officers, shareholders, employees and representatives
against, and hold them harmless from, any and all claims, liabilities,
demands, damages, expenses and losses arising out of any use, sale or
other disposition of any CTD Product made or sold by CTD or its licensee
or sublicensee.
SECTION 6 - GENERAL PROVISIONS
6.1 Attorneys' Fees. In the event of any litigation or arbitration
between the Parties, the prevailing Party shall be entitled to recover from
the nonprevailing Party any and all costs, including reasonable attorneys'
fees, incurred by the prevailing Party. Such relief shall be in addition
to any other relief, award or damages to which the prevailing Party may be
entitled.
6.2 Severability. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision(s) had never
been contained herein; provided that such invalid, illegal or unenforceable
provision(s) shall first be curtailed, limited or eliminated to the extent
necessary to remove such invalidity, illegality or unenforceability with
respect to the applicable law as it shall then be applied.
6.3 Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of Utah. Any litigation or arbitration
between the Parties relating to this Agreement or its subject matter shall
be conducted exclusively in Utah.
6.4 Final Agreement. This Agreement constitutes the final and complete
agreement between the Parties concerning the subject matter of this Agreement
and supersedes all prior agreements, understandings, negotiations, letters
of intent and discussions, written or oral, between the Parties with respect
thereto. Any modification, revision or amendment of this Agreement shall
not be effective unless made in a writing executed by all of the affected
Parties.
6.5 Waiver. Any waiver of, or promise not to enforce, any right under
this Agreement shall not be enforceable unless evidenced by a writing signed
by the Party making said waiver or promise.
6.6 Headings. The headings in this Agreement are for the purpose of
convenience only and shall not limit, enlarge or affect any of the covenants,
terms, conditions or provisions of this Agreement.
6.7 Language. The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party.
6.8 Notices. All notices, requests, consents, demands and other
communications under this Agreement must be in writing and shall be sent to
the Parties at their addresses as set forth at the beginning of this
Agreement, or to such other person and place as any Party may designate for
itself by notice to the other Party.
6.9 Force Majeure. No Party shall be liable to the other Party for any
failure of (or delay in performance of) its obligations hereunder due to any
cause or circumstance which is beyond its reasonable control including, but
without limiting the generality of the foregoing, any such failure or delay
that is caused by strike, lockout, labor shortage, unavailability of
personnel, equipment or parts, fire, explosion, shipwreck, act of God or the
public enemy, war, riot, interference by the military or governmental
authorities, or compliance with the laws of the United States or with the
laws or orders of any applicable government authority.
6.10 Assignments. CTD has neither the right nor the power to assign this
Agreement or any rights hereunder without first obtaining the written consent
of ATG. ATG shall not unreasonably withhold consent if the assignment is
to a person or entity who delivers to ATG a written acceptance of this
Agreement and CTD's obligations thereunder.
6.11 Relationships. CTD is not a partner, joint venturer, agent or
representative of ATG.
6.12 Export Act. CTD hereby warrants and certifies that no part of
Realeyes Product, Realeyes Technology or Improvements shall be made
available or exported by CTD or any of its licensees or sublicensee to any
country in contravention of any law or regulation of the United States,
including the Export Administration Act of 1979 and regulations relating
thereto. This Agreement and ATG's obligations hereunder are subject to
such laws and regulations.
6.13 Execution. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument. The individuals
signing below represent that they are duly authorized to do so by and on
behalf of the Party for whom they are signing.
6.14 Conflicts. To the extent that any provision of this Agreement
conflicts with any rights or obligations of the parties hereto under the
provisions of paragraphs 1 or 2 of the Restated Agreement Regarding
Chequemate Third Dimension, Inc. (effective May 15, 1997), the provisions
of this Agreement shall be controlling.
AGREED TO AND ACCEPTED BY:
Chequemate Third Dimension, Inc. ("CTD")
By: __/s/ A. C. Alvey________________
Title: __President_____________________
Advanced Technology Group, L.L.C. ("ATG")
By: ___Andre Peterson______________
Title: ___Member and Manager_________
licenR2.635
EXHIBIT A
PATENTS
U.S. Patent Application Ser. No.60/034149 (Provisional Application)
Title: "Method and System for Converting Two Dimensional Video imagery to
Three Dimensional Video Imagery" or "Two Dimensional to Three Dimensional
Stereoscopic Television Converter"
Filing Date: December 27, 1996
1 This amount includes a payment of $17,174 in deferred compensation from
previous fiscal years.
2 Includes shares which these individuals have the right to acquire within
sixty days pursuant to options granted through May 31, 1997 in the following
amounts; Harris 35,000; Redding 28,000; Butler 35,000; Popp 14,000, Summers
8,000, Coonradt 6,000 (Mr. Coonradt currently owns 1,000 shares).
3 Less than one percent (1%).
The accompanying notes are an integral part of these financial
statements.
37
39
40
The accompanying notes are an integral part of these financial
statements.
41
48
License Agreement - Page 59
See the accompanying notes and accountants' report.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 165,536 30,380
<SECURITIES> 0 0
<RECEIVABLES> 38,852 54,862
<ALLOWANCES> 0 0
<INVENTORY> 185,518 83,881
<CURRENT-ASSETS> 398,409 175,767
<PP&E> 454,174 93,533
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,286,760 546,403
<CURRENT-LIABILITIES> 703,670 243,929
<BONDS> 0 0
<COMMON> 1,312 1,267
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,286,760 546,403
<SALES> 776,963 382,137
<TOTAL-REVENUES> 776,963 382,137
<CGS> 291,072 167,566
<TOTAL-COSTS> 1,974,738 2,031,698
<OTHER-EXPENSES> 13,326 61,588
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,502,173) (1,878,715)
<INCOME-TAX> 400 300
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,502,573) (1,879,015)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (.12) (.15)
</TABLE>
