SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: March 31, 1998
Commission File number: 0-114244
WHITE CLOUD EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
UTAH 84-0959153
- --------------------------------- ------------------------
State or Other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
116 STANYAN, SAN FRANCISCO, CALIFORNIA 94118
- -------------------------------------------------------------------------------
(Address of principal Executive Offices Zip Code)
Registrant's telephone number, including area code: 415-387-3135
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 the filing
requirements for at least the past 90 days.
Yes X No ____
As of March 31, 1998, there were 15,030,245 outstanding shares of common stock,
par value $.0001.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITE CLOUD EXPLORATION, INC.
Consolidated Balance Sheet
(Unaudited)
March 31, December 31
1998 1997
ASSETS
Current Assets
Cash 5,707 59,147
Accounts Receivable 183,066 137,454
Less Allow for Doubtful Accts (58,434) (53,325)
-----------------------------------
130,339 143,276
Inventory 162,000 162,000
-----------------------------------
Total Current Assets 292,339 305,276
Fixed Assets
Property, Plant & Equipment 30,859 17,905
Less accumulated Depreciation (11,753) (5,653)
----------------------------------
Total Fixed Assets 19,106 12,252
Other Assets
Due from member - 27,935
Other Assets - 16,853
---------------------------------
Total Other Assets 0 44,788
=================================
Total Assets $311,445 $362,316
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accrued Expenses 200,000 $200,157
Accounts Payable 331,571 319,983
Interest Payable 23,005 25,668
Due to Stockholders 316,424 307,424
Due to Member 44,349 55,537
Line of Credit 43,377 54,968
Notes Payable 450,000 450,000
----------------------------------
Total Current Liabilities 1,408,727 1,413,737
Stockholders' Equity (Deficit)
Preferred Stock, no par value 10,000,000
shares authorized no shares issued
or outstanding. - -
Common Stock, $0.001 par value,
50,000,000 shares authorized
15,030,245 shares issued and outstanding. 15,030 15,030
Additional Paid in Capital 989,502 989,502
Accumulated Deficit (2,101,814) (2,055,953)
----------------------------------
Total Stockholders' Deficit (1,097,282) (1,051,421)
----------------------------------
Total Liabilities & Stockholders' Deficit $311,445 $362,316
==================================
The accompanying notes are an integral part of this financial statement
<PAGE>
WHITE CLOUD EXPLORATION, INC.
Consolidated Statement of Income and Expense
(Unaudited)
For the three months ended March 31,
1998 1997
----------------------------------
OPERATING REVENUES
Revenues $198,397 ($59,953)
Cost of goods sold 22,972 81,784
----------------------------------
Gross profit 175,426 (141,737)
OPERATING EXPENSES
Royalties - 56,250
Research & development 23,955 621,563
Selling expenses 27,479 950
Professional fees 20,561 7,635
General & Administrative 6,937 6,795
Marketing 1,250 -
Commitment/Loan fees - -
----------------------------------
Total operating expense 80,182 693,193
----------------------------------
OPERATING PROFIT (LOSS) 95,244 (834,929)
OTHER (REVENUES) &
EXPENSES
Interest expense 4,268 5,764
Miscellaneous income (1,691) -
Loss on sale of receivables 138,528 -
----------------------------------
Total other revenues & expenses 141,105 5,764
NET INCOME (LOSS) (45,861) (840,693)
==================================
LOSS PER SHARE
Primary (0.00) (0.06)
Weighted number of shares outstanding 15,030,245 15,030,245
The accompanying notes are an integral part of this financial statement
<PAGE>
WHITE CLOUD EXPLORATION, INC.
Consolidated Statement of Cash Flows
(Unaudited)
Quarter Ended
March 31
1998 1997
----------------------
Cash flows from
Operating Activities
Net income (loss) (45,861) 39,621
Depreciation & amortization
(Increase) decrease in Accts Receivable (40,503) (168,002)
(Increase) decrease in Inventory 0 (7,980)
(Decrease) increase in Accrued Expenses (157) (231)
(Decrease) increase in Accts Payable 11,588 (40,269)
(Decrease) increase in Interest Payable (2,663) 0
Net cash flows used for Operating Activities (77,596) (176,861)
Cash flows from investing activities
(Purchase) sale of Fixed Assets (12,954) (15,768)
(Purchase) sale of Other Assets 50,889 124,166
-------------------------
Total cash used for investing 37,935 108,398
Cash flows from financing activities
(Decrease) increase in Due to Stockholders 9,000 67,500
(Decrease) increase in Due to Member (11,188) 12,884
(Decrease) increase in Line of Credit (11,591) (34,007)
(Decrease) increase in Notes Payable 0 0
Additional capital invested 0 8,610
-------------------------
Total cash from financing activities (13,779) 54,987
Increase (Decrease) in cash (53,440) (13,476)
-------------------------
Cash and cash equivalents -
beginning of period 59,147 13,961
-------------------------
Cash and cash equivalents -
end of period 5,707 485
=========================
The accompanying notes are an integral part of this financial statement
<PAGE>
WHITE CLOUD EXPLORATION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
MARCH 31, 1998
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDER'S
COMMON STOCK CAPITAL DEFICIT EQUITY
----------------------------------------------------------
Shares Amount
Balance at
December 31, 1994 56,710 $57 $75,925 ($102,487) ($26,505)
Issuance of common
stock for cash 156,000 156 77,844 78,000
Net loss for year ended
Dec 31, 1995 (89,906) (89,906)
----------------------------------------------------------
Balance at
December 31, 1995 212,710 213 153,769 (192,393) (38,411)
Issuance of common
stock for cash 14,362 14 342,986 343,000
Capital contribution 250,000 250,000
Net loss for year
ended Dec 31, 1996 (895,058) (895,058)
-----------------------------------------------------------
Balance at
December 31, 1996 227,072 227 746,305 (1,087,451) (340,919)
Issuance of common
stock for cash - - - - -
Capital contribution 250,000 250,000
Issuance of common
stock for services
& repayment of debt to
related party 43,290 43 7,457 7,500
Issuance of common
stock in conjunction
with merger 14,759,883 14,760 (14,760)
Net loss for year
ended Dec 31, 1997 (968,502) (968,502)
-----------------------------------------------------------
Balance at
December 31, 1997 15,030,245 15,030 989,502 (2,055,953) (1,051,421)
Net loss for quarter
March 31, 1998 (45,861) (45,861)
-----------------------------------------------------------
Balance at
March 31, 1998 15,030,245 $15,030 989,502 ($2,101,814) ($1,097,282)
===========================================================
The accompanying notes are an integral part of this financial statement
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization- White Cloud Exploration, Inc. (the Company) was incorporated in
the State of Utah on July 22, 1983, for the purpose of obtaining capital to seek
potentially profitable business opportunities. Since inception, the Company has
been engaged in organizational activities. The Company acquired two entities,
Watchout, a California Corporation, and Goldpoint International, a limited
liability company. White Cloud Exploration, Inc. changed its year-end from June
30 to December 31.
The Watchout Agreement was entered into effective May 30, 1997, and the Watchout
Acquisition consummated pursuant thereto effective as of December 29, 1997.
Pursuant to the Watchout Agreement, the shareholders of Watchout contributed to
the company all of Watchout's common stock for an aggregate consideration of
11,296,300 shares of the company common stock. The company owns 100% of the
issued and outstanding shares of Watchout. Watchout designs, develops, and
intends to market worldwide watches and other consumer goods utilizing
proprietary colored liquid crystal display technology.
The Goldpoint Agreement entered into contemporaneously with the Watchout
Agreement and the Goldpoint Acquisition was considered contemporaneously with
the consummation of the Watchout acquisition. Pursuant to the Goldpoint
Agreement, the members of Goldpoint contributed to the company an aggregate of
100% of the equity interests in Goldpoint for an aggregate consideration of
2,140,000 shares of the company's common stock. As a result of the Goldpoint
Acquisition, the company owns 100% of the outstanding membership interests in
Goldpoint. Goldpoint designs and markets fine writing instruments.
2. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization-Watchout, a California corporation, is a development stage
enterprise engaged in the development of fashion watches. Watchout plans to
develop, manufacture and sell watches and personal accessories worldwide.
Goldpoint International, LLC, A Delaware limited liability company, designs and
markets fine writing instruments.
Property and Equipment- Property and equipment are stated at cost. Depreciation
is computed using the double-declining balance method over estimated useful
lives of 5 years.
Other Assets- Other assets consists of organizational costs and trademarks which
have been capitalized and are being amortized over 5 and 40 years, respectively,
using the straight-line method.
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
Research and Development- Research and development costs are expensed when
incurred.
Income Taxes- No provision have been made for income taxes. As of December 31,
1997, the company had net operating loss (NOL) carryforwards for federal income
tax purposes of approximately $2,055,900. These net-operating losses may be used
to offset future taxable income. Unused carryforwards will expire in 2012.
Uses of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported activities during the reporting period. Actual
results may differ from those estimates.
3. RELATED PARTY TRANSACTIONS
Watchout has recorded unsecured, non-interest-bearing amounts due to
stockholders for the reimbursement of expenses. There are no specific repayment
terms; however, these amounts are expected to be repaid within 12 months of the
balance sheet date.
Watchout has also recorded $70,000 in amounts due to stockholders. The amounts
are payable on demand at an interest rate of 5.81%. A shareholder, WCM
Investments, Inc., had a consulting agreement in which 1,150,000 shares of White
Cloud Exploration were issued in 1997.
4. CHANGES IN CONTROL
Effective December 29, 1997 White Cloud Exploration acquired 100% of the
outstanding common stock of Watchout and 100% of the limited liability interests
in Goldpoint International, LLC in exchange for 11,296,300 and 2,140,000 shares
of White Cloud Exploration restricted common stock.
5. COMMITMENTS AND CONTINGENCIES
License Agreement- On September 21, 1995 Watchout entered into a license
agreement with an unrelated third party for the use of patents and technical
knowledge. The agreement provides for minimum payments for the first four years
through September 1999, totaling $915,000, which may be offset by the payment of
royalties as a percentage of sales. The agreement may be canceled at any time,
without cause, by Watchout, with 60 days notice and with no further liability.
In addition to expense reimbursements of $20,000,minimum payments in the amount
of $225,000 and $296,250 have been made for 1997 and 1996, respectively, and are
reported as royalties in the accompanying Statement of Operations.
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
Investment by Distribution- Watchout entered into an agreement with a
distributor on July 21, 1996. The agreement provides that the distributor invest
$500,000 - $250,000 as a cash payment to Watchout and $250,000 to be made
available to Watchout for use in Hong Kong, oversees production, quality
assurance/quality control and establish a $150,000 standby letter of credit. In
exchange, Watchout will issue the distributor 4% of the common stock outstanding
as of the date of the agreement, grant distribution rights in Southeast Asia
(except Japan), pay 9% commission based on the factory store costs of the
product, and grant the right to open Watchout retail stores in all of Southeast
Asia. The agreement will remain in effect for a minimum of four years or until
the distributor's investment of $500,000 is earned through commissions.
Consulting Agreement- On November 15, 1996, Watchout entered into an agreement
which requires payment of $150,00 in finder's fees to be made to an independent
consultant, plus 2% of the amount accepted under a placement agreement but not
to exceed $250,000. In addition, the consultant earned compensation consisting
of 1,150,000 shares of White Cloud Exploration, Inc.
Placement Agreement- On February 5, 1997, Watchout entered into an agreement
with a placement agent to secure additional capital or financing in the minimum
amount of $6,000,000. The agreement requires Watchout to pay commissions to the
placement agent equal to 10% of the additional capital or financing received and
a non-accountable expense allowance equal to 3% of the additional capital or
financing. In addition, Watchout is partially responsible for certain expenses
incurred by the placement agent upon closing. In 1996, commitment fees paid to
the placement agent amounted to $20,000. No fees were paid in 1997 under this
agreement.
As a condition of the agreement, the placement agent reserved the right of first
refusal to underwrite or place any future public or private sales of debt or
equity securities of Watchout, including those involving any principal
stockholders of the Watchout through November 19, 1999.
Watchout has also agreed to pay the placement agent a 5% finder's fee in the
event that they are party to any merger, acquisition or joint venture introduced
directly or indirectly by the placement agent.
In connection with the placement agreement, the Board of Directors issued
3,639,925 shares of common stock to the placement agent for $500. The shares may
be repurchased on a pro rata basis if $6,000,000 is not raised pursuant to the
terms of the aforementioned agreement.
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Warrants- In connection with the loan agreements dated September 19, 1997,
Watchout agreed to pay finder's fees to a third party. The agreement requires
payment of finder's fees in the form of $32,500 at the closing of the loans and
250,000 stock warrants with an exercise price of $.10 a share expiring on
December 19, 2000. Payment of the finder's fees had not been made as of the
balance sheet date, however, the $32,500 fee has been accrued at December 31,
1997. The warrants are to be issued when and if the private placement described
previously under Placement Agreement is consummated.
In connection with the loans arranged for by Sands Brothers & Co., Ltd. ("Sands
Brothers"), White Cloud Exploration has agreed to issue stock warrants to
Raymond J. Larkin, Watchout-Goldpoint Partners, L.P., Sands Brothers and Mark
Hollo totaling 75,000, 225,000, 25,000 and 25,000 shares respectively, with an
exercise price of $.01 a share, expiring on September 3, 2000.
6. LINE OF CREDIT
A promissory note to Goldpoint International, LLC of $54,968 payable with
interest 60 days from the date of each cash advance under a letter of credit
issued by Opal Trade Corporation. Interest accrues at a rate of 4% over the
prime rate designated by Chemical Bank. This note is collateralized by the
assets of the company.
7. LOAN PAYABLE
( a ) Two 18% promissory notes of $150,000 and $50,000 due September 3, 1998.
These notes are considered Senior and have priority in right of payment over all
indebtedness of the company.
( b ) A 12% promissory note of $166,000 payable to John Bader in one payment of
principal and interest due on demand or at the time of first funding of a
private placement of stock in the amount of $6,000,000 by Watchout. All sums
past due shall bear interest at 18% from their maturity date. Collateral
security includes the first $1.32 per unit production proceeds upon the sale of
certain products.
( c ) A 12% promissory note of $84,000 payable to Wayne Williams in one payment
of principal and interest due on demand or at the time of first funding of a
private placement of stock in the amount of $6,000,000 by Watchout. All sums
past due shall bear interest at 18% from their maturity date. Collateral
security includes priority assignment of contract rights to the next $0.68 per
unit in production proceeds, second only to the $1.32 per unit assigned to John
Bader from proceeds from certain products.
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
8. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
company as a going concern. However the company has sustained substantial
operating losses in recent years. In addition, the company has used substantial
amounts of working capital in its operations. Further, at December 31, 1997
current liabilities exceed current assets by $1,108,461, and total liabilities
exceed total assets by $1,051,421.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
company, which in turn is dependent upon the company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to revise the company's operating
and financial requirements provide the opportunity for the company to continue
as a going concern.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
On a consolidated basis, after the acquisition of Goldpoint and
Watchout! subsidiaries, the Company had revenues in the first quarter of 1998 of
$198,397 as compared to the same period in 1997 of ($59,953). The cost of goods
sold in the three month period in 1998 was $22,572 and for the same period in
1997 was $81,784. The gross profit for the 1998 period was $175,426 compared to
($141,737) for the 1997 period.
The Company incurred operating expenses for the three month period of
$80,182 in 1998 compared to $693,193 in the same period in 1997. The Company
recorded a net operating profit of $95,244 for the 1998 period as compared to a
($934,929) operating loss for the same period in fiscal year 1997. The net
income (loss) for the 3 month period in 1998 was ($45,861) compared to
($840,693) in 1997. The losses were due to start up expenses and research and
development costs for the production of Watchout! and Goldpoint products. The
Company losses will continue until more revenue from sales can be achieved.
While the Company is seeking capital sources for investment, there is no
assurance that capital sources can be found. The loss per share for the 1998
first quarter was nominal compared to ($.06) in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had nominal cash capital at the end of the period. The
Company will be forced to make private placements of stock in order to fund
operations continuance. No assurance exists as to the ability to make private
placements of stock. It had accounts receivable (net) of about $123,000 and
inventory of $162,000 as its assets. The Company has significant current
liabilities of $1,408,727 which exceed current assets by approximately
$1,100,000. The Company is in default on notes in the amounts of $166,000 and
$84,000, although no demand for payment has been issued.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in securities - None.
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None.
<PAGE>
Item 6. Exhibits and reports on Form 8-K
(a) The following are filed as Exhibits to this Quarterly
Report. The numbers refer to the Exhibit Table of
Item 601 of Regulation S-K:
None.
(b) Reports on Form 8-K filed during the three months
ended March 31, 1997. (incorporated by reference)
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Dated: July 30, 1998
WHITE CLOUD EXPLORATION, INC.
by:/s/Robert Galoob
-----------------------------
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,707
<SECURITIES> 0
<RECEIVABLES> 183,066
<ALLOWANCES> (58,434)
<INVENTORY> 162,000
<CURRENT-ASSETS> 292,339
<PP&E> 30,859
<DEPRECIATION> (11,753)
<TOTAL-ASSETS> 311,445
<CURRENT-LIABILITIES> 1,408,727
<BONDS> 0
0
0
<COMMON> 15,030
<OTHER-SE> (1,112,312)
<TOTAL-LIABILITY-AND-EQUITY> 311,445
<SALES> 198,397
<TOTAL-REVENUES> 198,397
<CGS> 22,972
<TOTAL-COSTS> 175,426
<OTHER-EXPENSES> 80,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (0)
<INCOME-PRETAX> (45,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,861)
<EPS-PRIMARY> (0)
<EPS-DILUTED> (0)
</TABLE>
