SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of Securities Exchange Act of
1934
[ ] Transition Report Under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _____________ to __________________
For Period ended June 30, 2000
Commission File Number 0-26839
SNAP2 CORPORATION
(f/k/a White Rock Enterprises, Ltd.)
(Exact name of registrant as specified in its charter)
NEVADA 88-0407246
(State of Incorporation) (I.R.S. Employer Identification No.)
10641 JUSTIN DRIVE, URBANDALE, IOWA 50322
(Address of Principal Executive Offices) (Zip Code)
(515) 331-0560
(Registrant's telephone number, including area code)
WHITE ROCK ENTERPRISES, LTD., 2600 72ND STREET, URBANDALE, IOWA 50322
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
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As of June 30, 2000, the registrant had 17,856,000 shares of common stock, $.001
par value, issued and outstanding and 10,000 shares of convertible preferred
stock issued and outstanding which are convertible into 10,000,000 shares of
common stock, $.001 par value, on February 28, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
White Rock Enterprises, Ltd.
(n/k/a SNAP2 Corporation)
Balance Sheets (Unaudited)
June 30, 2000 and September 30, 1999
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
--------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 110,058 $ 22,102
Accounts receivable - trade 204,604 126,276
Other current assets 36,123 --
--------- ---------
Total current assets 350,785 148,378
Equipment, net of accumulated depreciation 51,020 20,140
--------- ---------
Total assets $ 401,805 $ 168,518
========= =========
Liabilities and Stockholder's Equity
Accounts payable $ 22,340 $ 87,613
Accrued payroll and related liabilities 17,773 85,554
Accrued interest payable -- 3,713
Deferred maintenance fees 18,702 4,968
Short-term notes payable -- 175,000
--------- ---------
Total current liabilities 58,815 356,848
Long-term debt 224,615 135,000
--------- ---------
Total liabilities 283,430 491,848
Stockholders' equity:
Common stock - $0.001 par value; 50,000,000 shares
Authorized; 17,856,000 shares (June 30, 2000) and
10,000,000 shares (September 30, 1999) issued and
Outstanding. See note 2 17,856 10,000
Convertible preferred stock - $0.001 par value; 20,000,000
Shares authorized; 10,000 shares were issued and outstanding
(June 30, 2000) no shares were outstanding at
September 30, 1999. Shares convert to common
Stock at a ratio of 1,000 shares of common for each share of
Convertible preferred stock on February 28, 2002. See note 2 10 10
Additional paid-in capital 843,448 (8,696)
Retained earnings (deficit) (742,939) (324,644)
--------- ---------
Total stockholders' equity (deficit) 118,375 (323,330)
--------- ---------
Total liabilities and stockholders' equity $ 401,805 $ 168,518
========= =========
</TABLE>
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White Rock Enterprises, Ltd.
(n/k/a SNAP2 Corporation)
Statements of Operations (Unaudited)
For the Three Months Ended June 30, 2000 and 1999
and for the Nine Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Consulting $ 80,562 $ 35,670 $ 287,560 $ 325,015
Software license fees and maintenance 150,349 2,484 382,290 78,724
Other 3,910 -- 3,910 --
------------ ------------ ------------ ------------
Total revenue 234,821 38,154 673,760 403,739
Expenses
Payroll and related benefits 259,483 145,148 604,645 311,825
Software development and consulting 88,397 62,514 270,314 240,575
Travel 26,086 21,015 72,675 62,301
Administration 65,434 13,853 122,570 51,682
Depreciation 5,490 1,500 8,490 4,500
Interest 3,038 -- 13,361 4,948
------------ ------------ ------------ ------------
Total expenses 447,928 244,030 1,092,055 675,831
------------ ------------ ------------ ------------
Loss before provision (benefit)
for income taxes (213,107) (205,876) (418,295) (272,092)
Provision (benefit) for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (213,107) $ (205,876) $ (418,295) $ (272,092)
============ ============ ============ ============
Earnings (loss) per share
Basic earnings (loss) per share $ (0.012) $ (0.021) $ (0.031) $ (0.027)
============ ============ ============ ============
Weighted average shares 17,856,000 10,000,000 13,421,489 10,000,000
============ ============ ============ ============
Diluted earnings (loss) per share $ (0.012) $ (0.021) $ (0.031) $ (0.027)
============ ============ ============ ============
Weighted average shares (See Note 3) 17,856,000 10,000,000 13,421,489 10,000,000
============ ============ ============ ============
</TABLE>
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White Rock Enterprises, Ltd.
(n/k/a SNAP2 Corporation)
Statements of Cash Flows (Unaudited)
For the Nine Months Ended June 30, 2000 and 1999
2000 1999
--------- ---------
Cash flows from operating activities
Net loss $(418,295) $(272,092)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 8,490 4,500
Deferred income 13,734 7,452
Changes in:
Accounts receivable, trade (78,328) 13,255
Accounts payable and accrued expenses (136,768) 90,680
--------- ---------
Net cash used by operating activities (611,167) (156,205)
Cash flows from investing activities
Purchases of equipment (39,369) (13,670)
Other assets (36,123) --
--------- ---------
Net cash used by investing activities (75,492) (13,670)
Cash flows from financing activities
Distributions to stockholders -- (5,000)
Proceeds from notes payable 100,000 155,000
Repayment of notes payable (185,385) --
Additional paid-in capital 100,000 --
Proceeds from issuance of common stock 760,000 --
--------- ---------
Net cash provided by financing activities 774,615 150,000
--------- ---------
Increase (decrease) in cash and cash equivalents 87,956 (19,875)
Cash and cash equivalents, beginning of period 22,102 33,756
--------- ---------
Cash and cash equivalents, end of period $ 110,058 $ 13,881
========= =========
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White Rock Enterprises, Ltd.
(n/k/a SNAP2 Corporation)
Notes to Financial Statements
For the Three Months Ended June 30, 2000 and 1999
and for the Nine Months Ended June 30, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
These unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and therefore, do not include all disclosures
necessary for a complete presentation of the statements of financial
condition, operations and cash flows in accordance with generally accepted
accounting principles. However, in the opinion of management, all
adjustments for a fair presentation of the financial statements have been
included. Results for interim periods are not necessarily indicative of
results expected for the year.
These financial statements should be read in conjunction with the financial
statements and related notes, which are incorporated by reference in the
Company's Annual Report on Form 10-KSB for the year ended September 30,
1999 and also in conjunction with the financial statements incorporate by
reference for the years ended December 31, 1999 and 1998 on Form 8-K, as
amended.
2. REVERSE ACQUISITION
Effective February 28, 2000, White Rock Enterprises, Ltd. (the Company)
merged with ISES Corporation (ISES), with the Company as the surviving
corporation. At the date of the merger, the Company was a "shell company"
as the Company had no assets or liabilities, had generated no revenues
since inception and had incurred total expenses of only $6,100 since its
inception on October 8, 1998. The merger transaction has been accounted for
as a reverse acquisition. In such a transaction, the operating enterprise
(ISES) is determined to be the acquiring enterprise for financial reporting
purposes. The historical financial statements of ISES are presented as the
historical financial statements of the combined enterprise. The equity of
ISES is presented as the equity of the combined enterprise, however, the
capital stock account of ISES is adjusted to reflect the par value of the
outstanding stock of the Company after giving effect to the number of
shares issued in merger. For periods prior to the merger, the equity of the
combined enterprise is the historical equity of ISES prior to the merger
retroactively restated to reflect the number of shares received in the
merger.
In connection with the merger, the Company provided for the issuance of
10,000,000 shares of common stock and 10,000 shares of convertible
preferred stock for 100% of the outstanding shares of ISES. The convertible
preferred stock automatically converts to 10,000,000 shares of common stock
on February 28, 2002. Also in connection with the merger, an additional
2,200,000 shares of common stock were issued to others in exchange for
locating investors and a commitment to raise $2,000,000 to fund the
Company's working capital needs and general corporate purposes.
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3. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are computed based on the weighted-average common
shares outstanding (plus shares committed to be issued) during the period.
Diluted earnings per share are computed by considering the weighted-average
common shares outstanding (plus shares committed to be issued) and dilutive
potential common shares as a result of conversion features of convertible
preferred stock and outstanding stock options. The effect of convertible
preferred stock and outstanding stock options were not used in the
calculation of diluted earnings per share, as they were anti-dilutive
during the periods shown.
4. STOCK OPTIONS
During the three months ended June 30, 2000, the Company issued employee
stock options for 200,000 shares of common stock and has committed to grant
future stock options for an additional 50,000 shares to employees meeting
certain length of employment requirements. The options will be exercisable
in conformity with a stock option plan that was approved by the Board of
Directors and a majority of the shareholders of the Company on March 15,
2000. Stock options are generally granted at fair value and vest over a
four-year period. The plan is more restrictive for any options granted to
shareholders owning in excess of ten percent of outstanding common stock.
No options were exercised during the period. The Company has outstanding
options for 275,000 shares of common stock at June 30, 2000.
5. INCOME TAXES
ISES, the acquired company, was an S corporation for income tax purposes
and as such, was not subject to federal income tax. Any taxable income or
loss generated by ISES flowed through the corporation to its stockholders.
White Rock Enterprises, Ltd. had no significant taxable income or loss
prior to the merger. No provision for a tax benefit relating to losses
incurred subsequent to the merger date has been recorded due to substantial
uncertainty as to the ultimate realization of a tax benefit from the
losses.
6. NOTE PAYABLE
During the quarter ended June 30, 2000, the Company borrowed $100,000 from
the Iowa Department of Economic Development. Note payments are due on a
semi-annual basis beginning June 1, 2001. The annual note payment will be
equal to 1.5% of prior year gross revenues until a repayment amount of
$200,000 has been reached. The note is unsecured.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
The discussion in this Report on Form 10-Q-SB contains forward-looking
statements that have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on current expectations, estimates and projections about the Company's
business, based on management's current beliefs and assumptions made by
management. Words such as "expects", "anticipates", "intends", "believes",
"plans", "seeks", "estimates" and similar expressions or variations of these
words are intended to identify such forward-looking statements. Additionally,
statements that refer to the Company's estimated or anticipated future results,
sales or marketing strategies, new product development or performance or other
non-historical facts are forward-looking and reflect the Company's current
perspective based on existing information. 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 and
outcomes may differ materially from what is expressed or forecasted in any such
forward-looking statements. Such risks and uncertainties include those set forth
herein below under "Risk Factors That May Affect Future Results of Operations"
as well as previous public filings with the Securities and Exchange Commission.
The discussion of the Company's financial condition and results of operations
should also be read in conjunction with the financial statements and related
notes included in Item 1 of this quarterly report. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
Change of Business Name and Trading Symbol
Since its last report, the Company has changed its name and principal executive
offices from White Rock Enterprises, Ltd., 2600 72nd Street, Urbandale, Iowa
50322 to SNAP2 Corporation, 10641 Justin Drive, Urbandale, Iowa 50322. The name
change became effective on July 12, 2000 upon the filing of an amendment to the
Company's Certificate of Incorporation with the Secretary of State of the State
of Nevada. Simultaneously therewith, the Company changed its over-the-counter
Bulletin Board symbol to SSNP. A discussion of these changes is set forth in the
Company's Form 8K which was filed with the Securities and Exchange Commission on
July 11, 2000.
The purpose of the name change is to clarify any market confusion arising from
the White Rock Enterprises, Ltd. merger with ISES Corporation earlier in the
year and to give the Company a new image and identity in its involvement in the
growing digital interactive television and in-flight entertainment markets.
Overview
SNAP2 Corporation (f/k/a White Rock Enterprises, Ltd.) is a software product
developer and software service provider for in-flight entertainment systems
(IFE) for passenger aircraft and interactive set-top boxes (STB) for interactive
television. The Company's activities to date have consisted of:
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- Developing the Airsoft Travel Kit software product which includes
destination information, language training, games and airline
information for IFE systems.
- Licensing and installing the Airsoft Travel Kit Games on international
and domestic airlines with IFE equipped aircraft.
- Providing interactive television set-top box manufacturers with
professional software design, programming and graphic design services.
- Research and development strategies to productize ISES (n/k/a SNAP2
Corporation) intellectual property assets for interactive television.
- Contracting with interactive television suppliers to support
promotional efforts of their related products.
- Expanding its engineering, sales and marketing staff to address the
STB and IFE markets.
Management. The Company's management positions are now held by:
Rick Grewell (42) -- President and CEO
Steve Johnson (40) -- Vice President of Marketing
Antony Hoffman (39) -- Vice President of Research and Development
Mark Malinak (39) -- Vice President of Sales
The Company's directors are Messrs. Grewell, Johnson, Hoffman, Malinak, Dean
Davis (26) and Mike Hennel (41).
Operations. The Company operates from its new headquarters located at 10641
Justin Drive, Des Moines, Iowa 50322. The Company was previously located at 2600
72nd Street and moved to its expanded facilities on May 23, 2000 to accommodate
its growth and development. The Company is registered with the SEC as SNAP2
Corporation and is traded on the over-the-counter bulletin board: OTCBB:SSNP. In
addition to its offices in Des Moines, the Company also has a sales office in
Austin, Texas and an affiliation with an engineering and graphic design office
in Toronto, Canada. The combined three offices develop and market software
products and services for IFE systems and STB for interactive television created
by the Company.
Products. The Company markets software applications for the IFE and interactive
television markets. Its Airsoft Travel Kit software targets IFE systems
manufactured by Rockwell Collins, Matsushita Avionics and Sony Trans Com. The
Travel Kit is comprised of digital information and entertainment software that
airline passengers can access from video displays at their passenger seats while
traveling. The complete Travel Kit consists of destination information, language
training and games and customized airline information. The package can be sold
as a complete package or as individual components. The Company has sold packages
of Travel Kit games to Air France, Delta Air Lines, Airtours and AOM French
airlines. The Company has licensed destination information and language training
from Lonely Planet Publishing based in Australia. Airsoft Travel Kit Games are
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<PAGE>
created, copyrighted, owned and licensed by the Company. The Company has also
licensed Tetris(R) game content from Blue Planet Software, San Francisco,
California for use in its In-Flight Tetris(TM) game for in-flight entertainment.
The game suite consists of 18 assorted board, card, arcade, children's games and
games of chance. The Company is porting these games to interactive television
STBs targeting interactive cable and telephone networks. The Company plans to
broaden its software product offering for both the interactive television market
and IFE markets. The Company's products are sold on a royalty based model that
generates revenue at the time of customer contract execution and provides annual
revenues for continued use of the software. IFE products have been sold to
airlines and to IFE equipment manufacturers. The Company intends to sell
interactive television software products to cable and telephone network
operators and STB manufacturers.
Services. The Company is staffed with software engineers experienced in software
design and programming for emerging embedded computer systems and digital
graphic artists experienced in graphical user interfaces and display for
consumer electronic applications. The Company has provided development services
to airlines, IFE equipment manufacturers and digital STB manufacturers to
support product development, promotion and deployment. The Company has
established and maintained a services relationship with Motorola's Multimedia
Systems Division supplying graphic and user interface design, software
programming and integration services in support of Motorola's StreamasterTM
digital STB architecture. Motorola Multimedia Systems Division is part of the
Imaging and Entertainment Solutions group within the Motorola Semiconductor
Products Sector (SPS).
Revenues. Through June 30, 2000, the Company's revenues were derived from
license fees and renewals of its Airsoft Travel Kit Games for the IFE market and
software and engineering services provided to interactive television equipment
manufacturers and technology providers. The Company's IFE revenues were
comprised of two types: (i) license fees from airlines for Airsoft Travel Kit
Game products previously sold; and (ii) OEM initial product sales to IFE
equipment manufacturers for Airsoft Travel Kit Game products. Air France,
Airtours International, Delta Air Lines, AOM French airlines and Rockwell
Collins are currently using the Company's software products on deployed IFE
equipped aircraft. The Company also receives engineering service fees from
interactive television STB manufacturer Motorola and technology provider Canal+
US Technologies. License fees, where the Company does not anticipate incurring
significant additional support costs, are recognized at the time of sale.
Maintenance fees from the Company's software products are recognized (based on
software license fee at time of license commencement or renewal) ratably over
the term of the maintenance contract. Engineering service fees are recognized
using the invoice amount for labor hours. Fees from installation services are
recognized as services are provided.
The Company intends to derive the primary portion of its revenues through
Company software product sales. Revenue is collected on execution of the
software product license and is subject to renewal fees on each anniversary date
of the agreement thereafter. The Company plans to continue distributing products
directly to end users as well as to original equipment manufacturers (OEMs) who
bundle and resell the Company's products to end users. The Company intends to
continue deriving engineering service fee revenues from both end users and OEMs
as those activities represent an immediate revenue stream and presents the
Company with product licensing opportunities with the OEMs and their customers.
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Cost of Revenues. The cost of product sales consists primarily of related costs
for research and development personnel to modify and integrate existing product
software for each customer. The majority of the Company's products have been
created and copyrighted by ISES Corporation (its predecessor in interest
pursuant to the merger which was effective February 28, 2000). The Company has
licensed In-Flight TetrisTM from Blue Planet Software and incurs licensing costs
for each copy inventoried for or distributed to the IFE market. The Company has
also licensed travel information from Lonely Planet Publishing and incurs
licensing costs for copies distributed to the IFE market. Cost of services
consists primarily of direct engineering labor and materials associated with
arrangements to provide engineering services.
Research and Development. The Company's research and development expenses
include costs associated with its engineering and operations departments,
including personnel costs, allocated facilities-related expenses and payments to
third-party consultants. The Company expects research and development expenses
will increase in the future as additional personnel are hired to support
anticipated growth.
Sales and Marketing. The Company's sales and marketing expenses include
salaries, commissions, travel related costs and promotional costs. The Company
expects its sales and marketing expenses to increase as the Company attempts to
promote awareness of the Company and its products through tradeshows,
conferences and direct marketing, establishing new facilities and hiring new
personnel. Sales and marketing expenses will also increase as the Company
develops and expands its relationships with third party technology providers.
General and Administrative. General and administrative expenses include
administrative and executive personnel costs, allocated facilities-related
expenses and other administrative costs. The Company expects that general and
administrative expenses will increase in the future as the Company hires
additional personnel and incurs costs related to the anticipated growth in
business and cost of operating as a public company.
Results of Operations
Since the inception of ISES Corporation (now the Company), it has been engaged
primarily in the business of developing and licensing software products and
providing engineering software and graphic design services. Accordingly,
historical results of operations are not indicative of and should not be relied
upon as an indicator of future performance.
All revenue and the majority of the costs and expenses disclosed in this report
were generated by ISES Corporation. The Company had no revenue prior to the
merger with ISES Corporation and minimal costs and expenses. As a result, the
consolidated comparative data represents the comparison of ISES revenue, costs
and expenses for the same period in the previous year.
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Three Months Ended June 30, 2000 and 1999
Revenues
Total revenues increased 515% to $234,000 for the three months ended June 30,
2000, compared to $38,000 for the three months ended June 30, 1999. The increase
was related to an increase in product license revenues and license updates.
Product license fees represented 64% of revenues versus 34% for engineering
service fees. During the three months ended June 30, 2000, transactions with
Delta Airlines, Motorola and AOM accounted for 53%, 34% and 7%, respectively of
the Company's total revenues.
Costs and Expenses
Total costs increased 84% to $448,000 for the three months ended June 30, 2000,
compared to $244,000 for the three months ended June 30, 1999. The increase was
related to payroll and related costs, added software development costs and other
administrative costs needed to support increased business and anticipated future
growth. The Company believes that costs and expenses will continue to increase
as it attempts to expand operations (including product development) and sales
and marketing efforts.
Payroll and Related Benefits. Payroll and related benefits increased 79% to
$259,000 for the three months ended June 30, 2000 from $145,000 for the three
months ended June 30, 1999 reflecting costs associated with the Company's
expansion in sales, and research and development.
Software Development and Consulting. Software development and consulting costs
increased 41% to $88,000 for the three months ended June 30, 2000 from $63,000
for the three months ended June 30, 1999, reflecting an increase in third party
consulting.
Other Expenses. Other expenses increased 377% to $74,000 for the three months
ended June 30, 2000 from $15,000 for the three months ended June 30, 1999. The
increase is reflective of associated costs of the Company's growth.
Nine Months Ended June 30, 2000 and 1999
Revenues
Total revenues increased 67% to $674,000 for the nine months ended June 30,
2000, compared to $404,000 for the nine months ended June 30, 1999. The increase
was related to an increase in product license revenues and license updates.
Product license fees represented 57% of revenues versus 43% for engineering
service fees. During the nine months ended June 30, 2000, transactions with
Motorola, Delta Airlines, Canal+ U.S. Technologies, Airtours International,
Rockwell Collins and AOM accounted for 40%, 19%, 13%, 12%, 12% and 2%,
respectively of the Company's total revenues.
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Costs and Expenses
Total costs increased 62% to $1,092,000 for the nine months ended June 30, 2000,
compared to $676,000 for the nine months ended June 30, 1999. The increase was
related to merger administrative costs, sales commission costs and added
software development costs needed to support increased business and anticipated
future growth. The Company believes that costs and expenses will continue to
increase as it attempts to expand operations (including product development) and
sales and marketing efforts.
Payroll and Related Benefits. Payroll and related benefits increased 95% to
$605,000 for the nine months ended June 30, 2000 from $312,000 for the nine
months ended June 30, 1999 reflecting research and development, marketing and
administrative employee expansion in Des Moines, Iowa and establishing a sales
office in Austin, Texas.
Software Development and Consulting. Software development and consulting
expenses increased 12% to $270,000 for the nine months ended June 30, 2000 from
$241,000 for the nine months ended June 30, 1999.
Other Expenses. Other expenses increased 136% to $144,000 for the nine months
ended June 30, 2000 from $61,000 for the nine months ended June 30, 1999
reflecting associated costs of the Company's growth.
Liquidity and Capital Resources
The Company requires working capital to fund its operations. The Company expects
to continue to experience losses from operations and negative cash flows for at
least the next twelve month period. Effective February 28, 2000 (the date of
filing of a Certificate of Merger with the Nevada Secretary of State), the
Company merged with ISES Corporation with the Company as the surviving
corporation. The merger was arranged for the Company by Investment Capital
Corporation and Pursuit Capital LLC, venture capital firms located in
Scottsdale, Arizona in accordance with understandings these entities reached
with ISES Corporation to raise capital in private transactions. According to
their agreement, these entities were to raise $2,000,000 to fund the Company's
post-merger research and development, marketing and overall expansion. Pursuant
to and in consideration of this arrangement and the identification of the
potential merger as an investment opportunity, the Company issued 2,200,000
shares of its $.001 par value per share common stock to these entities and/or
their designees. During the fiscal quarter ended March 31, 2000 these entities
conducted a private placement on behalf of the Company and raised $760,000, the
proceeds of which have been given to the Company. For these funds, the Company
issued an additional 760,000 shares of its $.001 per share common stock. The
current understanding of the parties obligates these venture capital entities to
provide additional funding of $1,240,000 (without the issuance of any additional
shares of stock by the Company) on or before August 28, 2000 (i.e., six months
after the merger became effective) of which $100,000 was received by the Company
as of June 30, 2000.
The proceeds of the private placement and of the additional capital resources to
be provided by the venture capital firms are being and will be used for working
capital and general corporate purposes, including expansion of sales and
marketing efforts, increases in research and development activities,
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any licensing and acquisition of new technologies and legal and accounting
expense incurred as a result of the merger and relating to the Company's ongoing
business.
Since incorporation, ISES (the Company's predecessor in interest pursuant to the
merger) has experienced various levels of losses and negative cash flow from
operations and notwithstanding the merger, expects to experience negative cash
flows in the foreseeable future. In addition, the Company may need to raise
additional capital and there can be no assurance the merged Company will be able
to obtain additional financing on favorable terms, if at all. If additional
capital cannot be obtained on acceptable terms, if and when needed, the Company
may not be able to further develop or enhance its products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements, any of which could have a material adverse effect on the Company's
business.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
In addition to the other risk factors contained herein and within other filings
with the Securities and Exchange Commission, the Company believes the following
additional risk factors should be taken into consideration in evaluating its
business:
The Company Expects to Incur Operating and Net Losses
The Company has a limited operating history, has incurred significant losses in
the past year and, at June 30, 2000, had an accumulated deficit of $743,000. To
date, the Company has recognized growing revenue, however, its ability to
generate revenue is subject to substantial uncertainty. The Company expects to
incur significant additional losses and continued negative cash flow from
operations in 2000 and it may never become profitable. The Company expects to
incur significant sales and marketing, research and development and general and
administrative expenses. The Company will need to generate significant revenues
to achieve profitability and positive operating cash flows. Even if
profitability and positive operating cash flow are achieved, the Company may not
be able to achieve, sustain or increase profitability or positive operating cash
flow on a quarterly or annual basis.
The Company's Limited Operating History and the Emerging Market for Interactive
Television and In-Flight Entertainment Systems Make Its Future Financial Results
Unpredictable
The Company's business and prospects depend on the development and market
acceptance of interactive television and the growth of aircraft in-flight
entertainment systems. The Company's future revenue prospects are subject to a
high degree of uncertainty. Currently, it derives revenues evenly from in-flight
entertainment software license fees and interactive television engineering
service fees. In the future, however, the Company intends to generate revenue
primarily from software license fees particularly in the emerging market of
interactive television while maintaining modest growth in the in-flight
entertainment market. The market for interactive television software is new,
unproven and subject to rapid technology change. This market may never develop
or may develop at a slower rate than anticipated. In addition, the Company's
success in marketing the Company as a supplier of interactive television
application software is dependent upon developing and maintaining
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relationships with industry-leading computer and consumer electronics
manufacturers, network operators and Internet content providers. There is
already competition in the market to provide interactive television software.
Companies such as Liberate, Intellocity, Microsoft, and AOL have established a
market presence and have significantly greater financial, marketing and
technical resources than the Company. These companies who offer interactive
television application software may capture a larger portion of the market than
the Company. Any failure to establish relationships with interactive television
equipment manufacturers and network operators will have a material adverse
effect on the Company's business and prospects.
The Company's Business is Dependent Upon the Successful Deployment of Digital
Set Top Boxes for Interactive Television and the In-Flight Entertainment Systems
Targeted by the Company
The Company's software products target specific interactive television and
in-flight entertainment systems and the opportunity to generate revenue can be
directly related to the number and the timing of systems deployed. It is the
Company's intent to pursue and support the most popular system platforms for
these markets. If the platforms targeted fail to establish significant and
timely deployment in the market it will have a material adverse effect on the
Company's business and prospects.
The Company Faces Competition from Companies with Significantly Greater
Financial, Marketing, and Technical Resources
The markets for interactive television and in-flight entertainment systems are
competitive. Companies that offer competing software applications and services
for interactive television include Liberate, Intellocity, Microsoft, AOL and
others. These entities each have a larger customer base, a greater number of
applications, and greater brand recognition, market presence and financial,
marketing and distribution resources than the Company. Other companies that
offer competing software applications and services for in-flight entertainment
include Nintendo, Infogrames, Tenzing, and Intergame some of which have a larger
customer base, a greater number of applications, and greater brand recognition,
market presence and financial, marketing and distribution resources than the
Company. As a result, the Company will have difficulty increasing the number of
design "wins" for its products and services.
The Company May Not Be Able to Respond to the Rapid Technological Change in the
Markets in Which It Competes
The Company currently participates in markets which are subject to:
o rapid technology change;
o frequent product upgrades and enhancements;
o changing customer requirements for new products and features; and
o multiple, competing and evolving industry standards.
The introduction of the software applications targeting interactive television
and in-flight entertainment containing new technologies and the emergence of new
industry standards could render
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the Company's products less desirable or obsolete. In particular, the Company
expects that changes in the operating system environment including client and
server middleware will require it to rapidly evolve and adapt its products to be
competitive. As a result, the life cycle of each release of the Company's
products is difficult to estimate. To be competitive, the Company will need to
develop and release new products and upgrades that respond to technological
changes or evolving industry standards on a timely and cost-effective basis.
There can be no assurance that the Company will successfully develop and market
these types of products and upgrades or that the Company's products will achieve
market acceptance. If the Company fails to produce technologically competitive
products in a timely and cost-effective manner, its business and results of
operations could suffer materially.
Volatility of Stock Price
The market price of the Company's common stock is likely to fluctuate in the
future. The Company believes that various factors, including quarterly
fluctuations in results of operations, announcements of new products or partners
by the Company or by its competitors, changes in interactive television and
in-flight entertainment markets in general, or general economic, political and
market conditions may significantly affect the market price of its common stock
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
The Company currently is not aware of any pending legal proceedings to which it
is a party or to which any of its property is subject. The Company currently is
not aware that any governmental authority is contemplating any proceedings
against the Company or its property.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the merger of ISES with and into the Company, the Acquisition
Agreement and Plan of Merger (previously filed as Exhibit 1.1 to the Company's
Current Report on Form 8-K filed March 1, 2000) provided for the issuance of (i)
10,000,000 shares of common stock and (ii) 10,000 shares of convertible
preferred stock which are automatically convertible into 10,000,000 shares of
common stock of the Company two (2) years after the Closing Date of the Merger
which was February 28, 2000.
An additional 2,200,000 shares of common stock were issued to various designees
of Investment Capital Corporation and Pursuit Capital, LLC in connection with
the merger, in exchange for the commitment of these entities to raise $2,000,000
to fund working capital needs and general corporate purposes, including, but not
limited to, expansion of sales and marketing efforts, research and development
activities, licensing of new technology and payment of additional legal and
accounting services occasioned by the merger of the Company and ISES. These
entities conducted a private placement of the Company's $.001 par value common
stock during the fiscal quarter ended March 31, 2000 and raised $760,000, in
consideration of which the Company issued an additional 760,000 shares of its
common stock. These entities are obligated to provide the Company with an
additional $1,240,000 in equity (without further issuance of equity securities
by the Company) of which
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$100,000 was received by the Company as of June 30, 2000. None of such shares of
common stock or preferred stock was or will be registered under the Securities
Act of 1933, as amended.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
There has been no material default or any material arrearage or delinquency by
the Company of the type to be reported under this item.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An amendment to the Certificate of Incorporation of the Company changing the
Company's name to SNAP2 Corporation was approved by the consent of a majority of
the shareholders and the directors of the Company on June 14, 2000. A majority
of the shareholders of the Company consented to the adoption of the Company's
Stock Option Plan on March 15, 2000.
ITEM 5: OTHER INFORMATION
The Company does not believe there is any information to report under this item.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Consulting Agreement dated February 25, 1999 between ISES
Corporation and Trivia Mania (Incorporated by reference to
the Company's 10QSB for the period ended March 31, 2000)
10.2 Copyright and Trademark License and Distribution Agreement
dated September 30, 1999 between The Tetris Company, L.L.C.
and ISES Corporation (Incorporated by reference to the
Company's 10QSB for the period ended March 31, 2000)
10.3 License Agreement and Software Development Agreement dated
as of November 2, 1999 and November 22, 1999, respectively,
between CANAL+ and ISES Corporation (Incorporated by
reference to the Company's 10QSB for the period ended March
31, 2000)
10.4 Investment Capital Corporation - Letter agreement regarding
Merger of White Rock Enterprises Ltd. and ISES Corporation
(Incorporated by reference to the Company's 10QSB for the
period ended March 31, 2000)
10.5 Investment Capital Corporation - Memo regarding proposed new
capital structure of White Rock Enterprises, Ltd. reflecting
the merger (Incorporated by reference to the Company's 10QSB
for the period ended March 31, 2000)
10.6 In-Flight Entertainment Software License Agreement dated
March 31, 1999 between Airtours International
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Airways, Limited and ISES Corporation (Incorporated by
reference to the Company's 10QSB for the period ended March
31, 2000)
10.7 Content License Agreement dated November 15, 1999 between
Lonely Planet Publications Pty. Ltd. and ISES Corporation
(Incorporated by reference to the Company's 10QSB for the
period ended March 31, 2000)
10.8 License and Distribution Agreement dated October 1, 1999
pursuant to which ISES Corporation appoints
Licensee-Rockwell Collins, Inc. and End User-Air France
(Incorporated by reference to the Company's 10QSB for the
period ended March 31, 2000)
10.9 Software Development Agreement dated December 4, 1998
between Motorola, Inc. and International Systems
Entertainment Software, Inc. (Incorporated by reference to
the Company's 10QSB for the period ended March 31, 2000)
10.10 ISES Statement of Work for Motorola Application User
Interfaces (Exhibit C) dated June 25, 1999 (Incorporated by
reference to the Company's 10QSB for the period ended March
31, 2000)
10.11 Professional Services Agreement dated March 27, 2000 between
"Client" and Icon Laboratories and related Statement of Work
(Incorporated by reference to the Company's 10QSB for the
period ended March 31, 2000)
10.12 Stock Option Plan
10.13 In-Flight Entertainment Software License Agreement for Delta
Air Lines, Inc. dated as of April 26, 2000
10.14 ISES Statement of Work for the Motorola Streamaster User
Interface Stallone V1.1 dated as of April 28, 2000
10.15 In-Flight Entertainment Software License Agreement by AOM
dated as of April 27, 2000
(b) (i) An amendment to the Form 8-K filed March 1, 2000 filing was filed
on May 19, 2000 in order to present certain historical financial
information, including without limitation, (a) unaudited proforma
combined balance sheet as of December 31, 1999; (b) unaudited proforma
combined summaries of operations for year ended September 30, 1999 and
quarter ended December 31, 1999.
(ii) A report on 8-K describing the Company's name change and OTCBB
symbol change was filed on July 11, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SNAP2 CORPORATION
Date: August 2, 2000 By: /s/ Dean R. Grewell, III
---------------------------------
Dean R. Grewell, III, President
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