<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
CHEQUEMATE INTERNATIONAL, INC. dba C-3D DIGITAL, INC.
(Exact name of registrant as specified in its charter)
---------------------
Utah 3663 76-0279816
(State or other jurisdiction of (Primary Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
J. Michael Heil
CEO
Chequemate International, Inc.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
Bruce L. Dibb
Jensen, Duffin, Carman, Dibb & Jackson
311 South State Street, Suite 380
Salt Lake City, Utah 84111
(801) 531-6600
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this registration statement becomes effective.
<PAGE>
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee
- ---------------------------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 2,200,000(1) $2.84(2) $6,248,000 $1,737
- -------------------------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of 24,753 $3.64(3) $90,101 $26
1998 Warrant
- -------------------------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of 67,800 $3.54(3) $240,012 $67
1999 Warrant
- -------------------------------------------------------------------------------------------------------------
TOTAL 2,292,553 $6,578,113 $1,830
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to the provisions of paragraph 7(a) of the 1999
Subscription Agreement, which require the registrant to register 200% of
the number of shares issuable upon the conversion of the debentures based
upon the lowest closing bid price of the registrant's stock for the 60
trading days prior to the date of the execution of the 1999 Subscription
Agreement. The lowest closing bid price for the stated period was $2.50
per share.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
Although the conversion of the debentures may take place at any time during
the three year period following the dates of the subscription agreements
entered into by the registrant, this estimated amount is the average of the
bid and asked price as of February 18, 1999 (which is within 5 business
days prior to the date of the filing of this registration statement).
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<PAGE>
(3) The exercise price of the Warrants is used for the purpose of calculating
the amount of the registration fee in accordance with Rule 457(g) under the
Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH A DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
iii
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PROSPECTUS
CHEQUEMATE INTERNATIONAL, INC.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
(801) 322-1111
2,292,553 SHARES OF COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES REGULATORY AGENCY, NOR HAS THE
COMMISSION OR ANY STATE AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This registration is for 2,292,553 shares of the Company's common stock to be
issued pursuant to the exercise of convertible debentures and stock warrant
rights which were sold by the Company by subscription agreements entered on
December 21, 1998 and February 9, 1999. For clarity, the Company will refer
to the December 21, 1998 subscription agreement as the "1998 Subscription
Agreement;" and to the February 9, 1999 subscription agreement as the "1999
Subscription Agreement."
The exact number of shares to be issued pursuant to the debentures will
depend upon the market price of the stock of the Company on the five trading
days prior to any conversion of the debentures. To create a sufficient pool
of registered shares in the event of the conversion of the debentures, the
Company has agreed to register 200% of the number of shares listed in field
C(2) in the table below under Terms of the Offering. If all warrants are
exercised, 92,553 additional shares will be issued. SEE TERMS OF THE
OFFERING.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
The Common Stock of the Company is traded on the NASDAQ over the counter
bulletin board under the symbol CQMT. On February 9, 1999, the last price
for the Common Stock was $3.00 per share.
The date of this Prospectus is February ___, 1999.
<PAGE>
TERMS OF THE OFFERING
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS AT THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
The number of shares to be issued pursuant to the debentures will depend upon
the market price of the stock of the Company on the five trading days prior
to any conversion of each debenture. For illustrative purposes, a range of
shares which may be issued pursuant to the transaction described in this
Prospectus is set forth in the table below. Because the number of shares is
dependent upon a fluctuating market price, it is not possible to state with
certainty the number of shares which may be issued (see "Risk Factors"). The
table provides an historical basis for an estimate of the number of shares
which may be issued. In the 60 trading days prior to the date of the 1999
Subscription Agreement, the market price of the stock of the Company obtained
a high of $3.60 and a low of $2.50. Although the historical record of stock
prices is no assurance of future performance, it creates a reasonable basis
for a range of the possible number of shares which may be issued pursuant to
the debentures.
<TABLE>
<CAPTION>
1 2 3 4
No. of Shares Issued No. of Shares Estimated Total No.
Market If all debentures are If all warrants of Shares which may
Price Fully exercised Are exercised Be issued
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A $3.60 (1) 773,306 (2) 92,553 865,859
B $3.00 (3) 916,667 92,553 1,009,220
C $2.50 (4) 1,100,000 92,553 1,192,553
</TABLE>
(1) The highest closing bid price for the Company's stock for the 60 trading
days prior to the date of the 1999 Subscription Agreement.
(2) The number of shares reflected takes into consideration a maximum
conversion price of $3.54 which creates a floor for the minimum number of
shares which may be issued pursuant to the 1999 Debentures.
(3) The Closing bid price on the day prior to the date of the 1999 Subscription
Agreement.
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(4) The lowest closing bid price for the Company's stock for the 60 trading
days prior to the date of the 1999 Subscription Agreement.
The Company does not intend to employ any sales representatives in this offering
or pay any commissions. Estimated costs of the offering are $41,000 and include
attorney fees, accounting, registration, printing and distribution costs. The
Company will pay all costs of the offering.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement. In addition, the Company is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
quarterly, annum and periodic reports and other information with the
Commission. The Registration Statement, such reports and other information
may be inspected and copies may be obtained, at prescribed rates, at the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549, as well as the following regional offices: 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. The Commission maintains a Website that
contains reports and other information regarding reporting companies under
the Exchange Act, including the Company, at http:// www.sec.gov.
This Prospectus constitutes a part of the Registration Statement. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to
the exhibits relating thereto for further information with respect to the
Company and the Common Stock. Any statements contained herein concerning the
provisions of any documents are not necessarily complete, and reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated by reference into this Prospectus: (i) Annual
Report on Form 10-K for the fiscal year ended March 31, 1998, (ii) Quarterly
Reports of the Company, and amendments thereto, on Form 10-QSB for the
quarters ended June 31, 1998, September 30, 1998 and December 30, 1998; and
(iii) the Company's Form 8-K dated December 23, 1998 relating to the
acquisition of certain assets of Alpha Broadcasting Communications, which are
used in the C-3D Digital III pay-per-view division of the Company. All other
documents and reports filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be made a part hereof from the date of the filing
of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or supersede shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all documents which are incorporated herein by reference (not
including exhibits to such documents, unless such exhibits are
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<PAGE>
specifically incorporated by reference in the document which this Prospectus
incorporates). Requests should be directed to Mr. Steven Anderson, Chief
Financial Officer, at the Company's principal executive offices located at 57
West 200 South, Suite 350, Salt Lake City, Utah 84101, telephone number (801)
322-1111.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The
PSLRA provides a "safe harbor" for such statements to encourage companies to
provide prospective information about themselves so long as such information
is identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. All statements
other than statements of historical fact made in this Prospectus or
incorporated by reference are forward-looking. In particular, the statements
herein regarding the availability of adequate funding and progress in the
development of its various business segments are forward-looking statements.
Forward-looking statements represent management's current expectations and
are inherently uncertain. Investors are warned that the Company's actual
results may differ significantly from management's expectations and,
therefore, from the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not limited to,
the "Risk Factors" described herein.
THE COMPANY
The Company is a pioneer in bringing virtual reality to computer and
television screens. The Company is pursuing activities in three divisions
designated at C-3D Digital III, 3D.Com and C-3D Realeyes. As described below
under the heading "Recent Developments," the Company anticipates establishing
a fourth division to be known as C-3D Strata. C-3D Digital III is believed
to be the first television network to exclusively offer 3D programming to
satellite dish owners, cable TV subscribers and the patrons of the lodging
industry through a pay-per-view delivery system. 3D.Com is establishing new
entertainment and e-commerce paradigms on the internet. C-3D Realeyes is the
patented hardware technology that turns any TV into a 3D virtual reality
station. The anticipated Strata division is based upon the work of a ten
year pioneer in 3D software, providing technologies for content creation and
internet delivery. These four interconnected components - television, the
web, hardware and software - provide the Company with the critical links
between 3D technology and the consumer. The Company's principal executive
offices are located at 57 West 200 South, Suite 350; Salt Lake City, Utah,
84101, and its telephone number is (801) 322-1111.
5
<PAGE>
RECENT DEVELOPMENTS
CORPORATE NAME CHANGE
The Company has filed in the state of Utah an application to conduct business
under the assumed name of C-3D Digital, Inc. This name is more in keeping
with the Company's focus on its entertainment and communications business
related to 3D technology. At the time of the next meeting of shareholders of
the Company, management contemplates submitting a proposal to amend the
Articles of Incorporation to reflect this new name.
STRATA BUSINESS
During calendar year 1998, management of the Company has been introduced to
Strata, Inc., a St. George, Utah corporation, engaged in software
development. Essentially all of the Strata products are complimentary to the
3-dimensional business applications of the Company and the Company has
examined various strategies to either license or acquire the Strata
technology. In the event the Company is successful in acquiring ownership of
the Strata technology, the Company anticipates (a) incorporating the
technology in its current products and services, and (b) marketing, in a new
division called C-3D Strata, the principal products formerly offered by
Strata, Inc.
Strata, Inc. is one of the early pioneers in 3D software. The Strata tool
line has been used for such well-known projects as the game "MYST"-C-;
television shows like the "'98 MTV Movie Awards"-C-, "Hercules"-C- and
"Xena"-C-; the NBC dancing peacocks; the Warner Bro.'s and Blockbuster web
sites; the films "Contact"-C-, "5th Element"-C-, "Batman Forever"-C-, and
many others. These tools and the Strata development team would provide C-3D
Digital with some of the most advanced 3D technology available and should
enhance C-3D Digital's position in 3D media and technology.
Strata is in the business of providing 3D centric graphical software
applications to professionals and non-professionals alike. The Strata tools
are used to create content for the web, television, feature films, multimedia
and print. Non-professionals use Strata applications for home video, desktop
publishing, visualization and recreation. Strata develops, publishes,
packages, markets, sells and supports these software applications.
The core products offered by Strata, Inc. have been the following:
STUDIOPRO. StudioPro is the premier Strata 3D product and is available for
Apple Macintosh, Windows 98 and NT. StudioPro has a retail price of $1,495
and is available in the US at the "street price" of approximately $950.
StudioPro is used for creating 3D images and animations for the web, video,
movies, print, games and multimedia. StudioPro is well know for being used to
create the graphics for the world's best selling CD-Rom game Myst -C-.
Recently StudioPro has been used on projects such as the Blockbuster Video
Web site, the NBC dancing peacocks and the movie Contact. An upcoming
release will add special stereographic 3D features. StudioPro has an
installed base of approximately 60,000.
VISION 3D. Vision 3D is an entry level 3D product and is based directly on
StudioPro. Vision 3D is presently available only on Apple Macintosh
computers. Vision 3D is priced at $395 retail with a $295 street price.
Vision 3D is used by professionals and non-professionals alike. Vision 3D is
used
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for print, Web, video and multimedia - as well as recreational purposes.
Vision 3D has an installed base of approximately 40,000.
VIDEOSHOP. VideoShop is a professional quality non-linear video editor and
presently runs only on Apple Macintosh computers. VideoShop is priced at
$495 retail with a $395 street price. VideoShop is used primarily for
multimedia, web and desktop video tasks. VideoShop has been bundled on
select Macintosh computers for over five years and has developed an installed
base of well over one million customers through this process.
MEDIAPAINT. MediaPaint is a video painting and effects application.
MediaPaint is available for Apple Macintosh, Windows 98 and NT. MediaPaint
is priced at $695 retail with a $395 street price. MediaPaint is used for
professional projects on the Web, multimedia and broadcast video.
MediaPaint has an installed base of approximately 6,000 users.
On December 10, 1998, the Company purchased for cash the secured position of
Zions Bank, NA in receivables, certain equipment and general intangibles of
Strata, Inc. The general intangibles collateral interest of Zions Bank would
constitute a first lien position in all or some of the Strata technology.
The Company is also negotiating with four additional creditors having secured
interests in the Strata technology (the "Additional Secured Creditors"),
including secured interests in the registered copyrights of Strata, Inc. in
its software intellectual property. The total debt secured by the Additional
Secured Creditors exceeds $3.7 million. Current negotiations contemplate the
issuance of approximately 335,000 shares of restricted Common Stock of the
Company for the acquisition of these secured interests. All of the described
debt is delinquent and the collateral is subject to foreclosure.
Certain other creditors have security interests junior to Zions Bank, and
possibly senior to some of the obligations of the Additional Secured
Creditors. The matter of acquiring all of the technology and copyrights of
Strata, therefore, is subject to further review by the Company. At present,
the Company anticipates acquiring the Strata technology through acquisition
and foreclosure of security interests in the technology. As a result, there
exists a potential risk of adverse claims or redemptive rights.
7
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SUMMARY OF THE OFFERING
On December 21, 1998 and on February 9, 1999, the Company entered into the
subscription agreements with the Selling Shareholder pursuant to which the
Company issued a total of eleven units. Each unit is comprised of $250,000 in
aggregate principal amount of 8% Convertible Redeemable Debentures and a
warrant to purchase shares of Common Stock of the Company (the "Units"). For
purposes of clarity, the December 21, 1998 subscription agreement will be
referred to as the "1998 Subscription Agreement", and the debentures and
warrants issued under the 1998 Subscription Agreement will be referred to as
the 1998 Debentures and the 1998 Warrants. The February 9, 1999 subscription
agreement will be referred to as the "1999 Subscription Agreement", and the
debentures and warrants issued under the 1999 Subscription Agreement will be
referred to as the 1999 Debentures and the 1999 Warrants. When the 1998 and
1999 documents are referred to collectively, they will be respectively called
the Subscription Agreements, the Debentures and the Warrants.
Although the terms of the 1998 and 1999 Debentures are nearly identical, the
dates of the Debentures are different as well as the amount of the maximum
conversion price. Similarly, the terms of the Warrants are nearly identical,
except for the number of shares covered by the Warrants, the dates of
exercise and the exercise price.
Pursuant to the 1998 Subscription Agreement, the Company sold to the Selling
Shareholder three Units as of December 21, 1998 consisting of $750,000 in
principal amount of the 1998 Debentures and the 1998 Warrant for 24,753
shares. Shares are obtainable by the Selling Shareholder on conversion of the
1998 Debentures at a conversion price equal to the lesser of eighty percent
(80%) of the average closing bid price of the Common Stock for the five (5)
trading days immediately preceding the conversion date or $3.64 per share.
The 1998 Warrant may be exercised at any time up to December 21, 2001 at an
exercise price of $3.64 per share. Pursuant to the 1999 Subscription
Agreement, the Company sold to the Selling Shareholder eight Units as of
February 9, 1999 consisting of $2,000,000 in principal amount of the 1999
Debentures and the 1999 Warrant for 67,800 shares. Shares are obtainable by
the Selling Shareholder on conversion of the 1999 Debentures at a conversion
price equal to the lesser of eighty percent (80%) of the average closing bid
price of the Common Stock for the five (5) trading days immediately preceding
the conversion date or $3.54 per share. The 1999 Warrant may be exercised at
any time up to February 9, 2002 at an exercise price of $3.54 per share.
The Selling Shareholder acquired the Debentures and the Warrants pursuant to
the Subscription Agreements from the Company for cash. Upon conversion of
the Debentures or exercise of Warrants, the Selling Shareholder may offer for
sale, by use of this Prospectus, the Shares of Common Stock issued under such
Debentures and Warrants.
<TABLE>
<S> <C>
Securities Offered by the Selling Shareholder. . . . . . . . estimated at not more
than 2,292,553 shares
Common Stock
Common Stock Outstanding or
Subscribed for as of February 5, 1999. . . . . . . . . . . . 20,580,659 shares (1)
</TABLE>
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<TABLE>
<S> <C>
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . Any investment in the Shares
offered hereby involves a high
degree of risk. See "Risk
Factors."
</TABLE>
(1) Does not include: (a) the shares issuable upon conversion of the
Debentures which are the subject of the Subscription Agreements or the
Warrants; (b) 444,412 shares of Common Stock issuable upon exercise of stock
options outstanding as of February 5, 1999; or (c) shares of Common Stock
that may be issued under the Company's Incentive Stock Option Plan.
RISK FACTORS
THE FOLLOWING REPRESENTS MANAGEMENT'S VIEW OF THE MORE SIGNIFICANT RISK
FACTORS WHICH SHOULD BE CONSIDERED BY EACH INVESTOR, BUT DOES NOT PURPORT TO
BE A LISTING OF ALL POTENTIAL RISK FACTORS.
- - THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES.
- - THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL
ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING, WITHOUT
LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS,
ESTIMATES, INTENTIONS AND STRATEGIES ABOUT THE FUTURE. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT THEIR ABSENCE DOES NOT
MEAN THE STATEMENT IS NOT FORWARD-LOOKING.
- - THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS PROSPECTUS.
- - THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE.
- - POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS
BEFORE MAKING A DECISIONS TO INVEST IN THE SHARES OFFERED HEREBY.
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A. GENERAL BUSINESS RISKS.
1. DEVELOPMENT STAGE. The Company, by including its surviving
predecessors, was organized April 21, 1989. Since it has not had sustained
profitable operations in any of its market sectors, the Company must be
considered a development stage enterprise with limited prior operating
history. Each investor is advised that, historically, development stage
businesses constitute a greater risk of loss of investment than investment in
a seasoned company.
2. SUCCESS OF PRODUCT AND SERVICES. There is no assurance or warranty
that the contemplated products and services of the Company will be
commercially successful or that the Company's proprietary interest in the
products can be commercially protected through copyrights, patents or other
similar types of applications. The Company is engaged in the development and
marketing of what must be considered as novel and experimental new products
and innovations. Each investor must consider, as a potential risk factor,
the possibility that the investor could invest in this Offering and not
receive any return of investment, or lose his entire investment if the
products are not successfully marketed or otherwise not commercially
successful.
3. COMPETITION. There is substantial competition, both locally and
internationally, in the electronics and media industries in which the Company
engages. No assurance can be made, despite the best efforts of management,
that other companies may not produce competitive programs, services, or
devices at a competitive advantage which could cause the Company to be
commercially unprofitable.
4. GOVERNMENT REGULATION. Various aspects of the industry in which the
Company has engaged or will engage have been subject to government
regulation, such as regulation by the Federal Communications Commission
(FCC), the Federal Trade Commission (FTC), as well as other national and
local governmental agencies. Various changes by regulatory agencies, or the
tax treatment of the Company or its applications, could have significant
impacts upon the Company and its profitability.
5. YEAR 2000 COMPLIANCE. The Company is concerned that the entire
electronics and media industries may be substantially and adversely impacted
by various possible failures of computer systems and programs to properly
adjust to, or account for, the change to the year 2000 relevant to their
computer based operations. It is not possible to project the potential scope
of adverse impacts, if any, but it is believed that such adverse impacts, if
they occur, may be most significant in the broadcast industries which could
directly bear upon the Company's future operations.
The Company does not believe it internally has any computer program,
systems or configurations which are not presently conformed to the year 2000
(Y2K) standards, but adverse impacts could easily result from various media
companies with whom or through which the Company intends to engage in
business. Since this risk cannot realistically be measured, each prospective
investor should consider this as an unknown and undetermined risk factor.
See further discussion of Y2K compliance and issues under "Managements'
Discussion and Analysis of Financial Conditions" in the incorporated Form
10-QSB report of the Company for the quarter ended December 31, 1998.
B. PARTICULAR RISKS OF THIS OFFERING.
1. OPERATING LOSSES. As you will note from the financial statements
for the Company, the Company, to date, has a net operating loss from limited
sales. While start up companies frequently
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have operating losses, each investor should consider the absence of profits
as a risk factor. Further, the auditors have reserved an opinion as to
whether the Company may be deemed a "going concern."
2. ARBITRARY OFFERING PRICE. The Offering price of the Company's stock
has been arbitrarily determined and does not purport to represent any
intrinsic value or net worth of the Company.
3. NEW PRODUCTS AND CONCEPTS. The new product applications and
services of the Company do not have an established or proven market share.
As a consequence, there can be no assurance or warranty that the Company will
be commercially successful in its attempts to produce and market the new
products or services. Moreover, even if fully protected, there is no
absolute assurance that the Company will be successful in its marketing
efforts for the new products and services, that a market demand will be
created for such new products or services, or that it may not have inherent
defects or problems making it unsuitable for the purposes intended. All of
these must be considered as risk factors for the Company in attempting to
develop and market new products and services.
4. SUBSTANTIAL DILUTION. Investors in this Offering will incur an
immediate and substantial dilution (the amount by which the value of the
share is reduced from the purchase price of the share) to the value of their
shares. In the event the Company is required to raise subsequent capital for
its products or operations, it is probable that shares will be sold on terms
different than offered herein, and investors may incur subsequent dilutions,
both as to the value of their shares and in voting control. Dilution will
also result from the exercise of option rights at prices below the price at
which the shares are issued in this Offering.
5. OPTIONS AND OTHER PRIVATE PLACEMENT. There are options granted to
management and other parties which would afford such holders the right to
potentially acquire shares at prices which may be below the market price for
the Company's shares or less than the price at which shares are to be sold
pursuant to this Registration. To the extent such options are exercised, or
subsequent registrations completed, such transactions may constitute
additional "dilution" to existing shareholders and will, in all events,
result in a diminution of control.
6. MINORITY STATUS. Investors acquiring shares in this Offering must
understand that they will acquire a minority position as to voting control.
That is, other shareholders will continue to hold the majority of the issued
and outstanding shares; and, thereby, control the Company.
7. LACK OF ADEQUATE CAPITALIZATION. The funds being raised in the
concurrent Regulation "S" offerings, the recently completed convertible
debenture Private Placement offerings resulting in this registration and
other anticipated registrations may not adequately fund the intended business
purposes and products, and subsequent funding may not be available. The
Company currently has limited assets or net worth. See the incorporated
Financial Statements of the Company.
8. REGISTRATION RIGHTS. The investors in the recently completed
convertible debenture private placement offerings have the right to require
the Company to register their shares acquired in the offering. As a result,
the Company will incur considerable expense in completing an anticipated
registration for those shares as converted. Further, the registration of
these shares will create more free trading stock which could depress the
future market price of the Company's shares for investors in this offering.
11
<PAGE>
9. CONTINUING SERVICES OF MANAGEMENT. While the CEO and other officers
intend to serve the Company on a full-time basis, there is no assurance or
warranty that the present management may not retire, resign, or otherwise
disengage at some future date, resulting in the risk factors inherent in a
change of management to a start-up Company. Further, the Company may need to
acquire other full-time officers or employees.
10. COMPENSATION OF MANAGEMENT. At present, management is being paid
substantial compensation from capital. As a result, a significant portion of
other offering proceeds may be used to pay salaries before there are
sufficient revenues to fully cover salaries and other compensation.
11. SECURITY INTERESTS IN STRATA TECHNOLOGY AND ASSETS. The Company
anticipates acquiring the Strata technology through acquisition and
foreclosure of security interests in the technology. As a result, there
exists a potential risk factor of adverse claims or redemptive rights to this
technology. The Company has analyzed these potential risks through its legal
counsel and does not deem such risks to be significant.
12. CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL. There are no
preemptive rights (generally the right to participate in new share offerings
in proportion to your existing stock percentage) in connection with the
shares of Common Stock. Cumulative voting (the right to cast all votes a
shareholder may have in electing the Board for one director) in the election
of directors is not permitted. Accordingly, the holders of a majority of the
shares of Common Stock present in person or by proxy, will be able to elect
all of the Company's Board of Directors.
13. NON-ARM'S LENGTH TRANSACTION. The number of shares of Common Stock
issued to certain present shareholders of the Company for cash and property
and the price thereof was arbitrarily determined and may not be considered
the product of arm's length transactions.
14. LITIGATION. As disclosed in the incorporated reports of the
Company, the Company or its subsidiaries have been engaged in certain
litigation which results in ongoing expenditures and may result in financial
obligations for the subsidiaries of the Company. The Chairman of the Company
is also named as a defendant in one of the actions. The most significant
litigation has been settled and requires the Company to make monthly payments
of forty thousand dollars each for the months of February through September
of 1999.
15. DILUTIVE AND OTHER EFFECTS OF SUBSCRIPTION AGREEMENTS. While the
Subscription Agreements have helped provide the Company with financing, the
sale of the Units and the issuance of shares pursuant to the conversion of
the Debentures and the exercise of the Warrants will have a dilutive impact
on other stockholders of the Company. As a result, the Company's net income
(loss) per share could be materially decreased in future periods, and the
market price of the Common Stock could be materially and adversely affected.
In addition, the Common Stock that may be issued in such events will be
issued at a discount to the then-prevailing market price of the Common Stock.
These discounted sales could have an immediate adverse effect on the market
price of the Common Stock. The Debentures and the Warrants contain provisions
that attempt to protect against dilution to the holders, such as by
adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of certain events, such as a merger, stock split or
reverse stock split, stock dividend or recapitalization. These protections,
if effective, could increase the dilution to existing stockholders.
12
<PAGE>
16. NO FORESEEABLE DIVIDENDS. The Company has not paid dividends on
its Common Stock and does not anticipate paying dividends on its Common Stock
in the foreseeable future.
17. ABILITY TO ISSUE SHARES WITHOUT SHAREHOLDER APPROVAL. The Company
has the ability to issue shares of preferred and Common Stock without
shareholder approval. The issuance of such shares could have a deterrent
effect upon third parties attempting to take control of the Company.
C. SECURITIES RISK FACTORS.
1. LIMITED MARKET. Each prospective investor in this offering should
understand that the Company has very limited trading markets and no assurance
can be given that the price of the stock may not be at risk or effected by
the completion of this registration, or that the price will be the same as
currently quoted. Further, because the markets are very thinly traded, any
additional shares issued by the Company may have significant impacts upon
those markets.
2. PRESENT SEC REVIEW STANDARDS. The Company has been informed through
its counsel that the SEC is currently critically reviewing various offering
types with subsequent registration rights, such as this convertible debenture
offering. In various popular financial literature, an offering type similar
to the Company's present debenture offering (with preferred registration
rights and based upon a formula for conversion with warrants), have been
described as "toxic convertible" offerings. While not prohibited by the SEC,
each investor should clearly understand that the SEC will most likely
critically review any type of offering of this nature. Such review and
comments may cause unanticipated and unusual delays in the clearance of any
subsequent registration rights or any subsequent offerings by the Company.
Moreover, this type of offering may be subject to a higher level of
administrative review and potential administrative actions or investigations
by the Securities and Exchange Commission.
3. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES. The
Common Stock is subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
adversely affect the ability of broker-dealers to sell the Common Stock and
may adversely affect the ability of purchasers in this offering to sell any
of the Shares in the secondary market.
4. SHARES ELIGIBLE FOR FUTURE SALE. Sale of substantial amounts of the
Company's Common Stock in the public market, or the prospect of such sales,
could materially and adversely affect the market price of the Common Stock.
As of February 5, 1999, the Company had outstanding 20,580,659 shares of
Common Stock (including shares which were subject to paid subscription
agreements, but not yet issued), warrants to purchase 92,553 shares of Common
Stock and debentures convertible into an indeterminate number of shares of
Common Stock pursuant to the 1998 and 1999 Subscription Agreements. In
addition, as of such date, the Company had vested options to purchase 51,000
shares of Common Stock under its Incentive Stock Option Plan (the "Stock
Option Plan") and 444,412 shares pursuant to non-qualified option plans. All
of the share purchased under the Stock
13
<PAGE>
Option Plan are available for sale in the public market, subject in some
cases to volume and other limitations.
A substantial number of the Company's presently outstanding shares of Common
Stock are "restricted" securities and may be sold in compliance with Rule 144
or Regulation S adopted under the Securities Act, if certain requirements are
met. Rule 144 essentially provides that after one year from the date of
acquisition, a person, including affiliates of the Company (or persons whose
shares are aggregated), may sell an amount up of to one percent (1%) of the
issued and outstanding shares of Common Stock of the Company within any three
month period, provided that certain current public information about the
Company is available. A person who has not been an affiliate of the Company
(or persons whose shares are not to be aggregated for the purpose of the
resale of the securities), who has owned restricted shares of Common Stock
for at least two years is entitled to sell such shares under Rule 144 without
regard to any of the limitations described above. Therefore, in each three
month period after the date of this offering, a significant number of shares
of Common Stock could be sold under Rule 144 by each person having held the
securities for at least one year. Also, any shares of Common Stock currently
held by non-residents of the United States may be sold after a one-year
holding period subject to the same volume restrictions as Rule 144 under
Regulation S. Investors should be aware of the possibility that sales under
Rule 144 or shares issued pursuant to Regulation S may, in the future, have a
depressing effect on the price of the Common Stock.
5. EFFECT UPON MARKET PRICE OF SHARES TO BE ISSUED UPON CONVERSION. In
conjunction with the Subscription Agreements, the Company issued to the
Selling Shareholder eleven Units, comprised of the Debentures and the
Warrants. The Selling Shareholder may convert the Debentures into Shares of
Common Stock at a conversion price equal to the lesser of eighty percent
(80%) of the average closing bid price of the Common Stock for the five
trading days immediately preceding the date the Debentures are presented for
conversion or a fixed dollar amount per share as provided in the Debentures.
The 1998 Warrant entitles the Selling Shareholder to purchase 24,753 shares
of Common Stock of the Company at a price of $3.64 per share and the 1999
Warrant entitles the Selling Shareholder to purchase 67,800 shares of Common
Stock of the Company at a price of $3.54 per share. The Warrants are
exercisable at any time during te three years following their issuance to the
Selling Shareholder.
Under the foregoing conversion formula for the Debentures, the number of
shares of Common Stock issuable upon conversion will increase if the market
price of the Common Stock decreases. The Company cannot determine accurately
the number of Shares which may be issued to the holders of the Debentures as
such number is based upon the market price of the Common Stock prior to the
conversion date.
To the extent the Selling Shareholder converts a portion of the Debentures
and then sells the shares of Common Stock received upon conversion, the
market price of the Common Stock may decrease even further due to the
additional shares in the market which would allow the Selling Shareholder to
convert other portions of the Debentures into greater amounts of Common Stock
and further depress the price of the Common Stock. There may also be an
incentive for debenture holders to decrease the price of the Company's stock
which should be considered an additional risk factor.
Sales in the public market of substantial amounts of Common Stock, including
sales of Shares issued upon conversion of the Debentures and exercise of the
Warrants, or the perception that such sales
14
<PAGE>
could occur, could depress prevailing market prices for the Common Stock. The
existence of the Debentures and the Warrant and any other options, debentures
or warrants may prove to be a hindrance to future equity financing by the
Company. Further, the holders of such debentures, warrants and options may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company.
USE OF PROCEEDS
The Selling Shareholder will receive all of the proceeds from the sale
of the Common Stock offered hereby. The Company will not received any of the
proceeds from such sale.
DETERMINATION OF OFFERING PRICE
The Common Stock offered by this Prospectus may be offered for sale by the
Selling Shareholder from time to time in transactions on the over-the-counter
market, in negotiated transactions, or otherwise, or by a combination of
these methods, at fixed prices which may be changed, at market prices at the
time of sale, at prices related to market prices or at negotiated prices. As
such, the offering price is indeterminate as of the date of this Prospectus.
See "Plan of Distribution."
SELLING SHAREHOLDER
The Selling Shareholder is the holder of the Debentures and the Warrants. The
Shares are obtainable on conversion of the Debentures and exercise of the
Warrants. The Selling Shareholder acquired the Debentures and Warrants for
cash pursuant to the Subscription Agreements with the Company. The following
table sets forth certain information regarding ownership of the Debentures
and Warrants as of February 1, 1999 and the number of Shares that may be
offered for the account of the Selling Shareholder or their transferees or
distributees from time to time upon conversion of the Debentures and exercise
of the Warrant.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Offered Shares Beneficially Owned
Name Before Offering /(1)/ for Sale After Offering /(1)/
- ---------------- -------------------------- -------------- -------------------------
No. of Percent No. of Shares Percent
Shares /(1)/ /(2)/ /(2)/
------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Augustine Fund, L.P. 2,292,553 9.99% -0- -0-
</TABLE>
- -------------------
(1) The Selling Shareholder is deemed to beneficially own the shares of
Common Stock into which the Debentures held by it are convertible and the
shares of Common Stock issuable upon exercise the Warrants. As discussed in
greater detail in the Terms of the Offering Section of this Prospectus, the
number of shares of stock which may be issued upon the conversion of the
Debentures is dependent upon the market price of the stock of the Company on
the five trading days prior to the conversion of each separate Debenture.
The number of shares listed in the table above is the total of (a) the 92,553
shares which may be acquired pursuant to the Warrants, and (b) the 2,200,000
shares which may be acquired by the Selling Shareholder pursuant to the
Debentures and which are being registered
15
<PAGE>
pursuant to the Form S-3 registration statement, of which this Prospectus is
a part. The 2,200,000 shares referred to represents a computed 200% of the
number of shares which would be issued if the conversion price on all
Debentures was $2.50 per share. This per share price was the lowest closing
bid price of the Company's stock during the arbitrarily selected period of
the 60 trading days prior to the date of the 1999 Subscription Agreement, and
may have no relationship to the market price of the Company's stock at the
conversion dates of any of the Debentures.
(2) Total shares of Common Stock outstanding for the purpose of this
percentage calculation includes the Common Stock into which the Debentures
are convertible and the 92,553 shares issuable upon exercise of the Warrant
but does not include 444,412 shares of Common Stock issuable on exercise of
outstanding stock options or shares of Common Stock that may be granted under
the Company's Incentive Stock Option Plan.
The Selling Shareholder has not had any material relationship with the
Company, or any of its affiliates, within the past three years.
The Selling Shareholder has represented to the Company that it purchased the
Units for its own account for investment only and not with a view towards the
public sale or distribution thereof, except pursuant to sales registered
under the Securities Act or exemptions therefrom. In recognition of the fact
that the Selling Shareholder, even though purchasing the Units for
investment, may wish to be legally permitted to sell its Shares when its
deems appropriate, the Company agreed with the Selling Shareholder to file
with the Commission under the Securities Act the Registration Statement with
respect to the sale of the Shares from time to time in transactions in the
over-the-counter market, in privately negotiated transactions, or through a
combination of such methods of sale, and has agreed to prepare and file such
amendments and supplements to the Registration Statement as may be necessary
to keep the Registration Statement effective until the Shares are no longer
required to be registered for the sale thereof by the Selling Shareholder.
The natural persons who control the Selling Shareholder are John Porter,
Brian Porter and Thomas Duszynski. In the event the registration of
additional shares are necessary, the Company has agreed to prepare and file
such additional registration statements as may be necessary to allow the
Selling Shareholder to sell all of the Shares.
PLAN OF DISTRIBUTION
All of the Shares offered hereby may be sold from time to time by the Selling
Shareholder, or by its pledgees, donees, distributees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Shareholder
may be effected from time to time in transactions in the over-the-counter
market, or on one or more other securities markets and exchanges, in
privately negotiated transactions, or through a combination of such methods
of sale, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices. The Selling Shareholder may effect the above-mentioned
transactions by selling the Shares directly to purchasers, acting as
principals for their own accounts, or by or through broker-dealers acting as
agents for the Selling Shareholder, or to broker-dealers who may purchase
Shares as principals and thereafter sell such Shares from time to time in
transactions on any exchange or market on which such securities are listed or
quoted, as applicable, in negotiated transactions, through a combination of
such methods of sale, or otherwise. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholder and/or the purchasers of the Shares for whom such
broker-dealer may act as agents or to whom they may sell as principals,
16
<PAGE>
or both (which compensation as to a particular broker-dealer may be in excess
of customary commissions). Any broker-dealer may act as a broker-dealer on
behalf of the Selling Shareholder in connection with the offering of certain
of the shares by the Selling Shareholder. None of the proceeds from the sale
of the Shares by the Selling Shareholder will be received by the Company. In
addition, any of the Shares that qualify for sale pursuant to Rule 144
promulgated under the Securities Act may be sold in transactions complying
with such Rule, rather than pursuant to this Prospectus.
The Company has the right to suspend use of this Prospectus for a discrete
period of time under certain circumstances.
To the extent required, the amount of the Shares to be sold, purchase prices,
public offering prices, the names of any agents, dealers or underwriters, and
any applicable commissions or discounts with respect to a particular offer
will be set forth by the Company in a Prospectus Supplement accompanying this
Prospectus or, if appropriate, a post-effective amendment to the Registration
Statement.
The Selling Shareholder may be deemed to be a statutory underwriter under the
Securities Act. Also any broker-dealers who act in connection with the sale
of the Shares hereunder may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by them
and profit on any resale of the Shares as principal may be deemed to be
underwriting discounts and commissions under the Securities Act. The Company
has agreed to bear all expenses (other than selling commissions and fees and
stock transfer taxes) in connection with the registration and sale of the
Shares being offered by the Selling Shareholder. The Company has agreed to
indemnify the Selling Shareholder against certain liabilities, including
liabilities under the Securities Act.
Offers or sales of the Shares have not been registered or qualified under the
laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to
engage in market activities with respect to such Shares. In addition and
without limiting the foregoing, the Selling Shareholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of
any of the Shares by the Selling Shareholder. The foregoing may affect the
marketability of the Shares.
There can be no assurance that the Selling Shareholder will sell any or all
of the Shares offered by them hereunder.
17
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is presently authorized to issue 500,000,000 shares of its Common
Stock. As of February 5, 1999, there were 20,580,659 shares issued,
outstanding and subscribed for shares. The holders of Common Stock are
entitled to one vote per share on each matter submitted to a vote at any
meeting of shareholders. Shares of Common Stock do not carry cumulative
voting rights and, therefore, a majority of the outstanding shares of Common
Stock will be able to elect the entire Board of Directors. If they do so,
minority shareholders would not be able to elect any members to the Board of
Directors.
Shareholders of the Company have no preemptive rights to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject
to redemption and carries no subscription or conversion rights. In the event
of liquidation of the Company, the shares of Common Stock are entitled to
share equally in corporate assets after satisfaction of all liabilities. The
Shares, when issued, will be fully paid and non-assessable.
WARRANTS
The 1998 Warrant will entitle the holder to purchase 24,753 shares of Common
Stock at a price of $3.64 per share. The Warrant is exercisable at any time
beginning on December 21, 1998 and ending on December 21, 2001. The shares of
Common Stock underlying the Warrant, when issued upon exercise of the Warrant
in whole or in part, will be fully paid and nonassessable.
The 1999 Warrant will entitle the holder to purchase 67,800 shares of Common
Stock at a price of $3.54 per share. The Warrant is exercisable at any time
beginning on February 9, 1999 and ending on February 9, 2002. The shares of
Common Stock underlying the Warrant, when issued upon exercise of the Warrant
in whole or in part, will be fully paid and nonassessable.
DEBENTURES
The 8% Redeemable Convertible Debentures, are convertible at any time after
the effective date of the Registration Statement. The conversion price for
the 1998 Debentures is the lesser of eighty percent (80%) of the average
closing bid price of the Common Stock for the five (5) trading days prior to
the date on which the Debentures are presented for conversion or $3.64 per
share. The conversion price for the 1999 Debentures is the lesser of eighty
percent (80%) of the average closing bid price of the Common Stock for the
five (5) trading days prior to the date on which the Debentures are presented
for conversion or $3.54 per share.
The Debentures and the Warrants contain provisions that protect the holder
against dilution by adjustment of the exercise price. Such adjustments will
occur in the event, among others, of a merger, stock split or reverse stock
split, stock dividend or recapitalization. The holder of the Debenture and
the Warrant will not possess any rights as a shareholder of the Company until
such holder converts the Debenture or exercises the Warrants.
18
<PAGE>
For the life of the Debentures and the Warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership of the shares of Common Stock issuable
upon conversion of the Debentures or the exercise of the Warrants. The
Warrant holder may be expected to exercise the Warrants at a time when the
Company would, in all likelihood, be able to obtain any needed capital by an
offering of Common Stock on terms more favorable than those provided for by
the Warrants. Furthermore, the terms on which the Company could obtain
additional capital during the life of the Warrants may be adversely affected.
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION'S POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law. Insofar as
indemnification for liabilities under the Securities Act may be permitted to
directors, officers or controlling persons of the Company pursuant to the
Company's Articles of Incorporation, as amended, by-laws and Utah law, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, deemed to be unenforceable by the Commission.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for the
Company by Bruce L. Dibb, P.C.; Salt Lake City; Utah.
EXPERTS
The consolidated financial statements of the Company contained herein for the
year ended March 31, 1998, have been audited by Jones, Jensen & Co. as set
forth in their report thereon (which contains an explanatory paragraph
describing conditions that raise substantial doubt about the Company's
ability to continue as a going concern as described in Note 1 to the
consolidated financial statements included therein). Such consolidated
financial statements are contained herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
19
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
<TABLE>
<CAPTION>
- ----------------------
TABLE OF CONTENTS PAGE
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . 4
Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Summary of the Offering. . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Offering Price . . . . . . . . . . . . . . . . . . . . 15
Selling Shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . 18
Limitation on Liability and Disclosure of Commission Position on
Indemnification For Securities Act Liabilities. . . . . . . . . . . 19
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2,292,553 SHARES OF
COMMON STOCK
CHEQUEMATE INTERNATIONAL, INC.
P R O S P E C T U S
February __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions, will be paid by the Company. Such expenses are estimated as
follows:
<TABLE>
<S> <C>
Registration fee . . . . . . . . . . . . $ 6,930
Legal fees and expenses . . . . . . . . . $ 30,000
Accounting fees and expenses . . . . . . $ 3,000
Miscellaneous . . . . . . . . . . . . . . $ 1,070
--------
Total . . . . . . . . . . . . . . . . . $ 41,000
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation provide that the Company must
indemnify each of its directors and officers, to the fullest extent permitted
under the Utah Revised Business Corporation Act against all liabilities
incurred by reason of the fact that the person is or was a director or
officer of the Company or a fiduciary of an employee benefit plan, or is or
was serving at the request of the Company as a director or officer, or
fiduciary of an employee benefit plan, of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify the Company's
directors and officers from all costs and expenses of liability incurred by
them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
4.1 Subscription Agreement between the Company and Augustine Fund, LP
dated as of December 21, 1998. (Incorporated by reference from
Form 8-K (Film No. 98774706) filed by the Company with the
Commission on December 23, 1998).
4.2 Subscription Agreement between the Company and Augustine Fund, LP
dated as of February 9, 1999. (Incorporated by reference from Form
10-QSB (Film No. 99541584) filed by the Company with the Commission
on February 16, 1999).
4.3 Form of 1998 Debentures. (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission on
December 23, 1998).
4.4 Form of 1998 Warrant. (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission on
December 23, 1998).
4.5 Form of 1999 Debentures. Incorporated by reference from Form 10-QSB
(Film No. 99541584) filed by the Company with the Commission on
February 16, 1999).
4.6 Form of 1999 Warrant. Incorporated by reference from Form 10-QSB
(Film No. 99541584) filed by the Company with the Commission on
February 16, 1999).
5.1 Opinion of Bruce L. Dibb, P.C.
23.1 Consent of Jones, Jensen & Company
23.2 Consent of Bruce L. Dibb, P.C. (included in Exhibit 5.1).
24.1 Powers of Attorney (included in this Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Salt Lake City, Utah, on February 23, 1999.
CHEQUEMATE INTERNATIONAL, INC.
By /s/ Terrell A. Lassetter, for
---------------------------------
J. Michael Heil
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Terrell A. Lassetter, for February 23, 1999
- ------------------------------------
Blaine Harris, Chairman of the Board
/s/ Terrell A. Lassetter, for February 23, 1999
- ------------------------------------
John Bartholomew, Director
February __, 1999
- ------------------------------------
Chuck Coonradt, Director
/s/ Terrell A. Lassetter, for February 23, 1999
- ------------------------------------
Hal Glick, Director
/s/ Terrell A. Lassetter, for February 23, 1999
- ------------------------------------
Andre Peterson, Director
/s/ Terrell A. Lassetter, for February 23, 1999
- ------------------------------------
Robert E. Warfield, Director
/s/ Steven Anderson February 23, 1999
- ------------------------------------
Steven Anderson, Chief Financial Officer
and Principal Accounting Officer
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
4.1 Subscription Agreement between the Company and Augustine Fund, LP
dated as of December 21, 1998. (Incorporated by reference from
Form 8-K (Film No. 98774706) filed by the Company with the
Commission on December 23, 1998).
4.2 Subscription Agreement between the Company and Augustine Fund, LP
dated as of February 9, 1999 (Incorporated by reference from
Form 10-QSB (Film No. 99541584) filed by the Company with the
Commission on February 16, 1999).
4.3 Form of 1998 Debentures (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission on
December 23, 1998).
4.4 Form of 1998 Warrant (Incorporated by reference from Form 8-K
(Film No. 98774706) filed by the Company with the Commission on
December 23, 1998).
4.5 Form of 1999 Debentures (Incorporated by reference from Form 10-QSB
(Film No. 99541584) filed by the Company with the Commission on
February 16, 1999).
4.6 Form of 1999 Warrant (Incorporated by reference from Form 10-QSB
(Film No. 99541584) filed by the Company with the Commission on
February 16, 1999).
5.1 Opinion of Bruce L. Dibb, P.C. . . . . . . . . . . . . . . . . . . . II-6
23.1 Consent of Jones, Jensen & Co. . . . . . . . . . . . . . . . . . . . II-7
23.2 Consent of Bruce L. Dibb, P.C. (included in Exhibit 5.1)
24.1 Powers of Attorney (included in this Registration Statement).. . . . II-8
- -------------------------------------
</TABLE>
II-5
<PAGE>
EXHIBIT 5.1
Opinion and Consent of Bruce L. Dibb P.C.
Bruce L. Dibb P.C.
311 South State St. Suite 380
Salt Lake City, Ut. 84111
February 16, 1999
Chequemate International, Inc.
57 West 200 South, Suite 350
Salt Lake City, Utah 84101
Gentlemen:
The undersigned has acted as counsel for Chequemate International, Inc.
dba C-3D Digital, Inc. (the "Company") in connection with a registration
statement on Form S-3 of the Company (the "Registration Statement"), filed
with the Securities and Exchange Commission (the "Commission") pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), pertaining to
the registration of shares of common stock, par value $0.0001 per share, of
the Company (the "Shares"), which are underlying the Convertible Debentures
and the Warrants, as described in the 1998 and 1999 subscription agreements
(collectively the "Subscription Agreements") as referred to in the
Registration Statement.
In connection with this opinion, the undersigned has considered such
questions of law as the undersigned has deemed necessary as a basis for the
opinions set forth below, and has examined or otherwise is familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
the following: (i) the Registration Statement; (ii) the Articles of
Incorporation and Bylaws, as amended, of the Company, as currently in effect;
(iii) certain resolutions of the Board of Directors of the Company relating
to the Subscription Agreements and other transactions contemplated by the
Registration Statement; and (iv) such other documents as the undersigned has
deemed necessary or appropriate as a basis for the opinions set forth below.
In his examination, the undersigned has assumed the genuineness of all
signatures, the authenticity of all documents submitted to the undersigned as
originals, the conformity to original documents of all documents submitted to
the undersigned as certified or photostatic copies and the authenticity of
the originals of such copies. As to any facts material to this opinion that
the undersigned did not independently establish or verify, the undersigned
has relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, the undersigned is of the opinion that the
Shares to be sold by the Selling Shareholder, as described in the
Registration Statement, will have been duly authorized for issuance and that
when sold, issued, paid for and delivered in the manner contemplated by the
Registration Statement, the Shares will be validly issued, fully paid and
nonassessable.
The law covered by this opinion is limited to the law of the State of
Utah, without regard to the principles of conflicts of laws thereof, and
based upon and limited to the laws and regulations in effect as of the date
hereof. The undersigned assumes no obligation to update the opinions set
forth herein.
The undersigned hereby consents to the filing of this opinion with the
Commission as Exhibit 5.1 to the Registration Statement. In giving this
consent, the undersigned does not thereby admit that the undersigned is
within the category of persons whose consent is required under Section 7 of
the Securities Act, or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Bruce L. Dibb P.C.
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated June 23, 1998, on Form 10-KSB for Chequemate International, Inc. for
the year ended March 31, 1998. We also consent to the incorporation and to
the reference to us under the heading "Experts" in the Registration Statement.
/s/ Jones, Jensen and Company
-----------------------------
Certified Public Accountants
II-7
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Terrell A. Lassetter Sr. as attorney-in-fact with full power of
substitution, to execute in the name and on the behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all
post-effective amendments, and any related rule 462(b) Registration
Statements and any amendment thereto.
Signature Title
/s/ J. Michael Heil Chief Executive Officer
- ------------------------
J. Michael Heil
/s/ Blaine Harris Chairman of the Board of Directors
- ------------------------
Blaine Harris
/s/ John Bartholomew Director
- ------------------------
John Bartholomew
Director
- ------------------------
Chuck Coonradt
/s/ Hal Glick Director
- ------------------------
Hal Glick
/s/ Andre Peterson Director
- ------------------------
Andre Peterson
/s/ Robert E. Warfield Director
- ------------------------
Robert E. Warfield
/s/ Steven Anderson Chief Financial Officer
- ------------------------ and Principal Accounting Officer
Steven Anderson
II-8
