SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transitional year ended: December 31, 1997
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value per Share
(Title of Class)
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 ( )
Check if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $826,446
<PAGE>
Transitional Small Business Disclosure Format:
__X___ Yes _______ No
As of December 31, 1997, 15,030,245 shares of common
stock were outstanding. The aggregate market value of
the Stock held by nonaffiliates was none at December 31,
1997.
Documents incorporated by reference: None
<PAGE>
Part I
Item 1. Business.
General - Organization and Reorganization
Since its inception in July of 1983, White Cloud
Exploration, Inc. ("White Cloud" or the Company") has
been in the developmental stage, while it has attempted
to identify suitable mergers, asset or acquisitions
of operations.
White Cloud, in March of 1991, entered into a
Letter of Intent whereby White Cloud was to acquire
100% of the Stock of American Technology, Inc. ("ATI")
in exchange for stock of White Cloud. The merger was
cancelled due to accounting difficulties with American
Technology, Inc.
The Company has had no further activities since 1991,
and has been inactive up until 1997.
In April 1997, William C. Meier through his beneficial
ownership of WCM Investments, Inc., a Texas corporation
("WCM Investments"), obtained control of Registrant by
purchasing on April 17, 1997, 5,010,750 (pre-reverse stock
split) shares of Registrant's Common Stock. On May 14, 1997,
WCM Investments purchased from Registrant 7,500,000 (pre-reverse
stock split) newly-issued shares of Registrant's Common
Stock for $7,500 in cash. The 12,510,750 shares were
automatically converted into 72,213 shares pursuant to
a 173.25 to 1 reverse stock split of Registrant's Common
Stock on June 29, 1997, and represented 72.2% of the shares
of Common Stock of Registrant outstanding at such time.
Acquisition of Assets.
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 Registrant
251,354 shares of Watchout's common stock (100%) for
an aggregate consideration of 11,296,300 shares of
Registrant's common stock. The number of shares of
Registrant's common stock issued pursuant to the
Watchout! Agreement was determined by reference to the
proportionate post-Acquisition equity ownership of
Registrant negotiated by the pre-Acquisition Watchout!
shareholders, Goldpoint members and Registrant
shareholders. Prior to the closing of the Watchout!
Acquisition, Watchout! was controlled by Robert Galoob
and David Galoob.
As a result of the Watchout! Acquisition, Registrant
owns 100% of the issued and outstanding shares ofWatchout!.
Watchout! designs, develops and intends to market worldwide
watches and other consumer goods utilizing proprietary colored
liquid crystal display technology.
Pursuant to an LLC Interest and Asset Contribution
Agreement (the "Goldpoint Agreement" and together with
the Watchout! Agreement, the "Agreements"), the members
(i.e., equity holders) of Goldpoint International, LLC,
a Delaware limited liability company ("Goldpoint"),
<PAGE>
effective as of December 29, 1997, contemporaneously with
the closing of the Watchout! Acquisition, received from
Registrant 2,140,000 newly-issued shares of Registrant's common
stock in exchange for 100% of the membership interests in
Goldpoint (the "Goldpoint Acquisition".) The 2,140,000
shares represent approximately 14% of the outstanding shares
of common stock of Registrant on a fully-diluted basis.
Prior to the closing of the Goldpoint Acquisition, Goldpoint
was controlled by Mr. Stephen J. Petre.
It was agreed that after the required Section 14f
Notice to Shareholders, Directors-Messrs. Signer and
Mahanti resigned and the appointment of Messrs. Robert
Galoob and David Galoob became effective. The Notice
was effective on October 17, 1997.
Effective as of December 29, 1997, pursuant to
the Agreements, and contemporaneously with the
consummation of the Acquisitions, Robert Galoob and
David Galoob accepted appointments as directors of
Registrant from the prior directors of Registrant,
each of whom resigned as directors.
The number of shares of Registrant's common stock
issued pursuant to the Goldpoint Agreement was
determined by reference to the proportionate post-
Acquisition equity ownership of Registrant negotiated
by the pre-Acquisition Watchout! shareholders,
Goldpoint members and Registrant shareholders.
As a result of the Goldpoint Acquisition, Registrant
owns 100% of the outstanding membership interests in
Goldpoint LLC. Goldpoint designs and markets fine writing
instruments.
Pursuant to the Agreements, in the event that:
(i) Watchout! or Goldpoint did not provide the
financial information necessary for Registrant to
comply with its obligations to provide such
information in connection with Registrant's filing
obligations under the Securities Exchange Act of 1934,
as amended, or (ii) the closing of the Private
Placement (as defined below) does not occur, the
holders of the majority of Registrant's common stock
outstanding prior to the Acquisition, have the right
but not the obligation to rescind the Watchout!
Acquisition and/or the Goldpoint Acquisition, as the
case may be.
The descriptions contained herein of the
Agreements and the Acquisitions are qualified in their
entirety by reference to the Watchout! Agreement,
dated as of May 30, 1997, by and among Registrant,
Watchout! and the shareholders of Watchout!, and the
Goldpoint Agreement, dated as of May 30, 1997, by and
among Registrant, Goldpoint and the members of
Goldpoint, filed as Exhibits 7.2 and 7.1, respectively,
to Registrant's Form 8-K dated September 24, 1997.
Concurrent with the closing of the Watchout! and
Goldpoint acquisitions and funding of the loans,
referred to hereinabove, the Company has adopted a new
business plan.
<PAGE>
The company owns an exclusive worldwide license
in perpetuity for watches, clocks jewelry and personal
adornment items, with Boit, Inc. Boit Inc. is the
developer and patent holder of a new
technology/consumer product which is the basis for the
WATCHOUT! product line.
Based on the original patent application and now
the issuance of the patent, the company has filed for
protection in all the major European markets as well
as Japan, Taiwan, South Korea, Hong Kong and China.
The Product
WATCHOUT! is the trade name for a product based
on a proprietary, patented technology that transforms
the plain blackon-gray liquid crystal displays found
on all of today's digital watches into a programmable,
moving array of colors, patterns and animated
vignettes. Virtually any color combination and
pattern can be created, doing for the watch what
multimedia software did for the computer. While
primarily aimed at the children's watch industry, the
technology can also be applied to clocks and personal
accessories, most notably, jewelry. Management
believes that the jewelry market may be as large as
the watch market.
WATCHOUT! is an exclusive entry into the
international watch market, estimated at $15 to $20
billion per year. Within this market, fashion watches
are the fastest growing, most visible segment,
accounting for an estimated 20% of total industry
sales. Launched by Swatch in 1983, the category has
revolutionized the way consumers think of watches and
how they buy them.
Character-licensed watches are created using the
image, likeness or logos of popular characters from
movies, television, cartoons, books, sports and well
known consumers brands--and include the classic Mickey
Mouse watch, still selling after 20 years on the
market. Character-licensed watches constitute another
sizable component of the industry and usually sell
through toy outlets.
At the heart of WATCHOUT! is a patented system
combining a color changing LCD with a quartz analog
movement--driven by an off-the-shelf programmable
microprocessor. The patent application was filed in
spring of 1995, and Boit, Inc. (predecessor to
WATCHOUT!) received a U.S. patent in June 1997.
Eighty to ninety percent of all watches in the
fashion watch category are analog watches. Management
believes that this patent, combining a color changing
LCD with an analog movement, should enable the company
to have a competitive edge for at least two years.
This period will enable the company to firmly
establish the brand in the marketplace.
The technology is both inexpensive and easy to
manufacture, comparable to that of standard analog
watch movements. This ease-of-manufacturing will allow
the company to market a cost competitive product, while
facilitating continuity of the product
lines and timely delivery.
<PAGE>
The fashion watch category is generally priced
in the $40 to $150 range at retail. Management will price
WATCHOUT! products in the midpoint of the category,
from $60-$80. Character-licensed watches distributed
through toy outlets will be priced less expensively
at under $20. WATCHOUT! fashion, character-licensed,
and advertising specialty watches will be price-
competitive, while adding a graphical element never
seen on a watch before.
Placement Agreement
On February 5, 1997, Watchout! and Sands
Brothers & Co., Ltd. ("Sands Brothers") entered into
a Selling Agreement pursuant to which Sands Brothers
will act as placement agent in a private placement of
$6,000,000 (at least $3,000,000 of which shall
provide immediately available funds to the issuer at
the closing of the private placement) of equity
securities to be issued by an entity with shares
registered under the Securities Exchange Act of 1934,
as amended (the "Private Placement"). The Agreements
were entered into and the Acquisitions consummated to
facilitate the Private Placement. To date (June 10, 1998)
the Placement has not been funded and there is no
commitment to fund.
Bridge Financing
Pursuant to agreements between Sands Brothers
and Watchout!, Sands Brothers agreed to arrange
bridge financing for Watchout! to use as working
capital during the period between execution of the
Agreements and consummation of the Private Placement.
Pursuant to such agreements, Sands Brothers arranged
the loans described below.
On September 3, 1997, Registrant issued
Promissory Notes in the amounts of $50,000 to Raymond
J. Larkin and $150,000 to Watchout!-Goldpoint
Partners, L.P., an entity which is not otherwise an
affiliate of Registrant, Watchout! or Goldpoint. The
loaned funds were then made available to Watchout!
and Goldpoint as working capital to fund their
respective business operations until the Acquisitions
and Private Placement are consummated. In connection
with such loans, Mr. Larkin and Watchout!-Goldpoint
Partners, L.P., Sands Brothers and Mark Hollo were
issued Warrants to purchase 75,000, 225,000, 25,000
and 25,000 shares of Registrant's common stock,
respectively, at $.01 per share.
On September 19, 1997, Watchout! issued
Promissory Notes in the amounts of $166,000 and
$84,000 to John Bader and Wayne E. Williams,
respectively. The loaned funds were then made
available to Watchout! and Goldpoint to be used as
working capital for their respective business
operations. Robert Galoob and David Galoob have
jointly and severally guaranteed $100,000 of the
foregoing loans. Each of the foregoing Notes are
secured by an Assignment of Contract Rights and
related Security Agreement. Upon consummation of the
Private Placement, Messrs. Bader and Williams are
entitled to be issued Warrants to purchase 166,000
and 84,000 shares of Registrant's common stock,
respectively, at $.10 per share.
<PAGE>
Employees and Consultants
The Company at fiscal year end had no paid employees,
and its President, Robert Galoob, Vice President Stephen
Petre, and Secretary, David Galoob serve on an as
needed basis. These officers intend to devote only
such time as necessary to the business affairs of the
Company.
Presently, none of the officers receive
salaries, however, they are reimbursed for their
expenses incurred in their services as officers.
There is no provision for any additional bonuses or
benefits. The Company anticipates that in the near
future it may enter into employment agreements with
its officers. Although Directors do not receive
compensation for their services they may be
reimbursed for expenses incurred in attending Board
meetings.
Item 2. Properties.
The Company maintains its corporate office at
116 Stanyan, San Francisco, California 94118 under an
informal arrangement with the Company's President.
This space is deemed adequate for the immediate
future.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal
proceedings. Item 4. Submission of Matters to a Vote
of Security Holders.
No matters were submitted to a vote of security
holders within the year covered by this report,
through solicitation of proxies or otherwise. A
Notice pursuant to Section 14f was filed on October
6, 1997, and sent to shareholders within 3 days
thereafter.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The outstanding registered securities of White
Cloud Exploration, Inc. are not now presently traded
on any exchange.
Common Stock Common Stock
1997 Bid High Bid Low
____________________________________________________
1st Quarter no quote no quote
2nd Quarter no quote no quote
3rd Quarter no quote no quote
4th Quarter no quote no quote
<PAGE>
Common Stock Common Stock
1996 and 1995 Bid High Bid Low
____________________________________________________
1st Quarter no quote no quote
2nd Quarter no quote no quote
3rd Quarter no quote no quote
4th Quarter no quote no quote
The Company anticipates its shares will trade
over the counter by market makers who have not as yet
quoted a specific bid or ask price. Quotations, if
made, represent only prices between dealers and do
not include retail markups, markdowns or commissions
and accordingly, may not represent actual transactions.
The Company estimates that as of December 31, 1997,
there are approximately 219 record stockholders of the
Company's shares.
No dividends have been declared or paid by the
Company and presently intends to retain all future
earnings, if any, to finance the expansion and
development of its business.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Change in Accounting Year
The Company acquired new assets and business
operations of Goldpoint and Watchout! in the last
half of 1997 and in order to match fiscal years with
these operations the Registrant changed its year end
to December 31, 1997, resulting in transitional
accounting for a six month period ended December 31,
1997. All discussions hereinafter are based upon
calendar year accounting for the combined operations.
During fiscal year 1997, the Company continued
to be a development stage entity. Its total revenues
were $826,446 and it had $59,147 cash capital at year
end.
Financial Condition and Changes in Financial Condition
All revenue producing business operations were
conducted by the entities acquired in the year ended
December 31, 1997. No revenues were generated in the
fiscal year 1997 or 1996 directly by White Cloud
Exploration, Inc., however, with the acquisition of
the assets of Watchout! and Goldpoint and the
operations thereof, the recast of the combined
business entities reflects the combined financial
conditions of the now acquired businesses of
Watchout! and Goldpoint. The Company at year end
December 31, 1997, had $59,147 in cash compared with
$13,961 in cash at December 31, 1996. The Company at
fiscal year end needed cash infusions from
shareholders to provide capital, or loans from any
sources, for advancement of its business ventures.
<PAGE>
Liquidity and Capital Assets.
The Company's primary source of liquidity since
inception has been from funds raised during its
initial capitalization and from shareholder advances
and loans. The company had $59,147 cash at 1997 year
end, and $13,961 cash at previous year end and
current assets of $305,276 at December 31, 1997 and
$14,975 at December 31, 1996.
Total liabilities for 1997 (which were all due) were
$1,413,737 for a deficit of ($1,108,461) in the ratio
of liabilities to current assets.
The company is critically deficient in capital
to market or produce products and needs an estimated
$1,000,000 to even commence effective operations. No
source of such funds has been identified and it would
have to occur through debt or stock sales.
Results of Operations for twelve month period ended December 31, 1997 Compared
to 1996
In the year ended December 31, 1997, the Company
had revenues of $826,446 and incurred operating
expenses totaling $1,072,261. In calendar year 1996
the combined entities' revenues were $386,034. As of
December 31, 1997, the Company had no material
commitments for capital expenditures.
In the year ended December 31, 1997, the
Company incurred $201,328 in general and
administrative expenses compared with $96,669 in
1996. In the fiscal year ended December 31, 1997,
the Company incurred an operating loss of ($731,582)
compared to a loss of ($766,217) in 1996. Net loss for
1997 was ($968,502) or ($.06) per share compared to a
net loss for 1996 of ($895,058) or ($.08) on a fully
diluted basis.
Results of Operations - Prior Years
The Company's combined operations when combined
through December 31, 1995, did not generate revenues,
although in 1995, $89,966 in start up expenses and
research were incurred resulting in an operating loss
of $89,966 in 1995. Registrant, prior to acquiring
the Watchout! and Goldpoint businesses, had no
revenues or operations since 1991. Reference is made
to the 10-KSB filed for the period ended June 30,
1997.
Item 7. Financial Statements and Supplemental Data.
Attached hereto and filed as part of this Form
10-KSB are the financial statements required by
Regulation SB. Please refer to pages F-1 through F-8.
Item 8. Changes in and Disagreements on Accounting and Financial Disclosure.
In connection with audits of two most recent fiscal
years and any interim period preceding resignation, no
disagreements exist with any former accountant on any
matter of accounting principles or practices, financial
<PAGE>
statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the
satisfaction of the former accountant would have
caused him to make reference in connection with his
report to the subject matter of the disagreement(s).
The principal accountant's report on the
financial statements for any of the past two years
contained no adverse opinion or a disclaimer of
opinion nor was qualified as to uncertainty, audit
scope, or accounting principles except for the "going
concern" qualification.
For Fiscal Year 1992 and thereafter the Company
engaged as its Auditor Michael B. Johnson & Co.
There were no disagreements as to any matter of
accounting practice or principles, financial
statement disclosure or auditing scope or procedure,
with any prior accountant.
Part III
Item 9. Directors and Executive Officers of the Registrant and Compliance
with Section 16(a).
Identification of Directors and Executive Officers of the Company
The directors and executive officers of the
Company, their age, positions held in the Company,
and duration as such, were as follows as of end of
the fiscal year:
Name Age Position Since
Robert Galoob 45 President/Director 12/97
David Galoob 48 Secretary/Treasurer/Director 12/97
Stephen Petre 42 Vice President 12/97
Business Experience
The following is a brief account of the business
experience during the past five years of the former
officer/directors at the end of the period, indicting
their principal occupation and employment during that
period, and the name and principal business of the
organization in which such occupation and employment
were carried out.
Robert Galoob obtained a B.S. from the
University of California at Berkeley in 1975. He was
President and Director of Robert Galoob, Inc. from
1989 to 1995. From 1995 to present he has been
President and a Director of Galoob Enterprises, Inc.
now known as Watchout!, Inc.
David Galoob, attended college at City College
of San Francisco, University of Oklahoma and
University of Southern California. From 1970 to 1991
he was employed Lewis Galoob Toys, Inc. in various
management positions including President, CEO, and
Chairman of the Board. He retired in 1991. From
1991 to 1996, we was co-president and co-chairman of
the board of the original San Francisco toymakers.
<PAGE>
Stephen J. Petre, Goldpoint founder, President
and CEO since 1996. Mr. Petre has 19 years of
business experience including extensive major
account, international sales and marketing
management, in addition to international sourcing.
Under Mr. Petre's direct management, including
product development and packaging innovation,
Goldpoint carved out an important niche in the super
store market, dominated by internationally known fine
writing brand names. Mr. Petre will be the executive
vice president, with responsibility for both
WATCHOUT! and Goldpoint brands. Mr. Petre attended
the University of Denver, and received a BSBA 1978.
Directors of the Company hold office until the
next annual meeting of the shareholders and until
their successors have been elected and qualified.
Officers of the Company are elected by the Board
of Directors at the first meeting after each annual
meeting of the Company shareholders and hold office
until their death, or until they shall resign or have
been removed from office.
Section 16(a) Reporting Delinquencies
Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), requires the
Company's officers and directors, and persons who own
more than 10% of a registered class of the Company's
equity securities, to file reports of ownership and
changes in ownership of equity securities of the
Company with the Securities and Exchange Commission.
Officers, directors and greater-than 10%
shareholders are required by the Securities and
Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) filings.
The following persons did not file reports under Section
16(a) during the most recent fiscal year:
Name Number of late Known failures
reports to file forms
Robert Galoob 1 Annual Form 5
David Galoob 1 Annual Form 5
Stephen Petre 1 Annual Form 5
<PAGE>
Item 10. Executive Compensation.
The Company accrued a total of $39,250
compensation to the executive officers as a group for
services contributed to the Company in all capacities
during the period ended December 31, 1997. No one
executive officer received, or has accrued for his
benefit, in excess of $60,000 for the year. No cash
bonuses were or are to be paid to such persons.
The Company does not have any employee incentive
stock option plans.
There are no plans pursuant to which cash or non-
cash compensation was paid or distributed during the
last fiscal year, or is proposed to be paid or
distributed in the future, to the executive officers
of the Company. No other compensation not described
above was paid or distributed during the last fiscal
year to the executive officers of the Company. There
are no compensatory plans or arrangements, with
respect to any executive office of the Company, which
result or will result from the resignation,
retirement or any other termination of such
individual's employment with the Company or from a
change in control of the Company or a change in the
individual's responsibilities following a change in
control.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Name and Fiscal Salary Bonus Other Annual Restriced Securities
Principal Year ($) ($) Compensation Stock Underlying
Position ($) Awards Options/SARs
($) (#)
Robert Galoob 1995 0 0 0 0 0
President 1996 0 0 0 0 0
1997 0* 0 0 0 0
David Galoob 1995 0 0 0 0 0
Secretary/ 1996 0 0 0 0 0
Treasurer 1997 0* 0 0 0 0
Stephen Petre, 1995 0 0 0 0 0
Vice President 1996 0 0 0 0 0
1997 0* 0 0 0 0
*accrued compensation of $39,250 total
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR
value (None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
<PAGE>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
NONE
Item 11. Security Ownership of Management and Beneficial Owners.
As of December 31, 1997, there were 15,030,245
common shares issued and outstanding. The
following table sets forth information, as of
Fiscal year end, with respect to the
beneficial ownership of the Company's $.001 par
value common stock by each person known by the
Company to be the beneficial owner of more than
five percent of the outstanding common stock, and by
current officers and directors of the Company.
Stock Title Name and Address Amount of Beneficial Percentage
of Class Of Beneficial Owner Ownership of Class
Common WCM Investments, Inc. 1,017,116 6.7%
2350 Airport Freeway #660
Bedford, TX 76022
Common Robert Galoob, 3,141,823 20.9%
President & Director
116 Stanyan
San Francisco, CA
Common David Galoob 3,781,823 25.2%
Secretary and Director
116 Stanyan
San Francisco, CA
<PAGE>
Common Mark Hollo 1,820,000 12.1%
c/o Sands Brothers
90 Park Avenue
New York, NY 10016
Common Arch Angel
Holding Company, LLC 1,580,000 10.5%
7 Park Avenue
White Plains, NY 10603
Common Martin Sands 910,000 6%
c/o Sands Brothers
90 Park Avenue
New York, NY 10016
Common Steven Sands 910,000 6%
c/o Sands Brothers
90 Park Avenue
New York, NY 10016
All Officers and 8,503,646 56.6%
Directors as a Group
(3 Persons)
(1) WCM Investments, Inc. is beneficially owned by William C. Meier.
(2) Arch Angel Holding Co, LLC is beneficially owned by Stephen Petre,
Vice President.
Item 12. Certain Relationships and Related Transactions.
There were no transactions or series of
transactions for the fiscal year, to which the
Company is a party, in which the amount exceeds
$60,000, and in which, to the knowledge of the
Company, any director, executive director,
nominee, five percent stockholder or any member
of the immediate family of any of the foregoing
persons, have or will have a direct or
indirect material interest, except as follows:
1. WCM Investments, Inc. beneficially owned by
William C. Meier contributed $7,500 in cash and
other consideration to the Company in May 1997
for issuance of 7,500,000 shares of common stock,
pre-reverse split. By virtue of this transaction
WCM became the owner of 72% of the then outstanding
common stock of the registrant when combined with
other holdings.
2. 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
<PAGE>
Watchout! Agreement, the shareholders of Watchout!
contributed to Registrant 100% of Watchout's
common stock for an aggregate consideration of
11,296,300 shares of Registrant's common stock.
Prior to the closing of the Watchout! Acquisition,
Watchout! was controlled by Robert Galoob and
David Galoob. Robert Galoob received 3,141,823
shares of common stock of registrant. David Galoob
received 3,781,823 shares of common stock of
registrant.
3. Pursuant to a LLC Interest and Asset
Contribution Agreement (the "Goldpoint Agreement"
and together with the Watchout! Agreement, the
"Agreements"), the members (i.e., equity holders) of
Goldpoint International, LLC, a Delaware limited
liability company ("Goldpoint"), effective as of
December 29, 1997, contemporaneously with the closing
of the Watchout! Acquisition, received from Registrant
2,140,000 newly-issued shares of Registrant's common
stock in exchange for 100% of the membership interests in
Goldpoint (the "Goldpoint Acquisition", and together with
the Watchout! Acquisition, the "Acquisitions"). The
2,140,000 shares represent approximately 14% of the
outstanding shares of common stock of Registrant on
a fully-diluted basis. Prior to the closing of the
Goldpoint Acquisition, Goldpoint was controlled by
Stephen J. Petre. Through Arch Angel Holding
Company, LLC, Mr. Petre controls 1,580,000
shares of the Registrant.
4. On September 3, 1997, the Company entered
into a loan arrangement with certain parties or
loans totaling $200,000 to the Company. The
Company advanced such monies to Watchout! in
furtherance of its Agreement of May 30, 1997. The
loans were funded by:
(a) An 18% Senior note issued by
the Company to Raymond Larkin in the
amount of $50,000 due September 3,
1998, in full with interest.
(b) An 18% Senior note issued by
the Company to Watchout!-Goldpoint
Partners for $150,000 due September 3,
1998, in full with interest.
(c) In addition, the Company granted
warrants to purchase common shares at
$.01/share as an inducement to the
lenders to make the loans. The options
expire on September 3, 2002. The
warrants are to Raymond J. Larkin
for 75,000 shares and to Watchout!
Goldpoint partners for 225,000
share
(d) Further, the Company granted
warrants to purchase 25,000 shares
each to Mark Hollo and Sands
Brothers & Co. The warrants are
exercisable at $.01 per share on or
before September 3, 2002.
(e) The Company, in a separate
transaction related to the Watchout!
Agreement, agreed to issue warrants to
purchase a total of 250,000
common shares of the Company @ $.10
per share exercisable two years from
September 19, 1997. The warrants are
to be issued to John Bader and Wayne E.
Williams for 166,000 and 84,000,
respectively.
5. In October 1997, 1,150,000 shares of common stock were
issued to WCM Investments, Inc. in consideration of services in
accomplishing the Watchout! and Goldpoint acquisitions.
<PAGE>
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following exhibits and financial statement schedules are filed as
exhibits to this Report:
1. Financial Statements of the Registrant are included under Item 8 hereof.
2. Financial Statement Schedules - None
3. Exhibits:
Exhibit # Description Location
3.1 Articles of Incorporation Exhibit to Annual Report
on Form 10K for Fiscal
Year ended June 30, 1986
3.2 Bylaws of Registrant Exhibit to Annual Report
on Form 10K for Fiscal
Year ended June 30, 1986
27.1 Financial Data Schedule Attached
(b) Reports on Form 8-K.
September 24, 1997 Incorporated by reference.
December 29, 1997 Incorporated by reference.
(c) Notice to Shareholders under SEC 14(f) filed October 6, 1997.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or
15(d) of the Securities and Exchange Act of 1934,
the Registrant had duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized, in the city of San Francisco, State of
California on this 9th day of June, 1998.
White Cloud Exploration, Inc.
By: /s/Robert Galoob
Robert Galoob, President
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed by
the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/Robert Galoob President June 9, 1998
Robert Galoob Director
/s/David Galoob Secretary June 9, 1998
David Galoob Director
<PAGE>
Michael B. Johnson & Co., P.C. (A
Professional Corporation)
Certified Public Accountants
9175 East Kenyon Avenue, Suite
#100 Denver, Colorado 80237
Michael B. Johnson C.P.A. (303)796-0099
Member: A.I.C.P.A.
Colorado Society of C.P.A.'s
REPORT OF INDEPENDENT AUDITORS
Board of Directors
White Cloud Exploration
We have audited the accompanying consolidated
balance sheets of White Cloud Exploration, Inc. as
of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial
statements are the responsibility of the company's
management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statements
presentation. We believe that our audits provide a
reasonable basis for our opinion.
Because we were not engaged until after year end and
did not observe the year end physical inventory and
it was not practicable to extend our auditing
procedures to enable us to express, and we do not
express, an opinion on the inventory.
Except for the item mentioned above, in our opinion,
the consolidated financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of White Cloud
Exploration, Inc. at December 31, 1997 and 1996, and
the consolidated results of its operations and its
cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally
accepted accounting principles.
Denver, CO
April 30, 1998
F1
<PAGE>
WHITE CLOUD EXPLORATION, INC.
BALANCE SHEET
DECEMBER 31
1997 1996
ASSETS
Current Assets
Cash $59,147 13,961
Accounts Receivable 137,454 20,260
Less Allowance for doubtful accounts (53,325) (19,246)
143,276 14,975
Inventory 162,000 -
Total Current Assets 305,276 14,975
Property, plant and equipment 17,905 6,470
Less accumulated depreciation (5,653) (1,294)
Total property, plant and equipment-net 12,252 5,176
Due from member 27,935 101,015
Other Assets 16,853 20,101
Total Assets $362,316 $141,267
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Acccrued Expenses $200,157 231
Accounts Payable 319,983 253,101
Interest Payable 25,668 -
Due to Stockholders 307,424 122,408
Due to Factor 55,537 72,439
Line of Credit 54,968 34,007
Notes Payable 450,000 -
Total Liabilities 1,413,737 482,186
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, no par value
10,000,000 shares authorized,
no shares issued or outstanding. - -
Common Stock $.001 par value,
50,000,000 shares authorized,
15,030,245 & 227,000 shares issued
and outstanding. 15,030 227
Additional Paid in Capital 989,502 746,305
Accumulated Deficit (2,055,953) (1,087,451)
Total Stockholders' Deficit (1,051,421) (340,919)
Total Liabilities & Stockholders'
Deficit $362,316 $141,267
The accompanying notes are an integral part of this financial statement.
F2
<PAGE>
[CAPTION]
<TABLE>
WHITE CLOUD EXPLORATION, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
DECEMBER 31, 1997
TOTAL
ADDITIONAL ACCUMULATED STOCKHOLDERS
COMMON STOCK PAID-IN CAPTIAL DEFICIT EQUITY
Shares Amount
<S> <C> <C> <C> <C> <C>
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) (895,508)
Balance at December
31, 1996 227,072 227 746,305 (1,087,451) (340,919)
Issuance of common
stock for cash - - - - -
Capital contribution - - 250,500 - 250,500
Issuance of common
stock for services
&
repayment of debt
to a relate 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)
The accompanying notes are an integral part of this financial statement.
F3
</TABLE>
<PAGE>
[CAPTION]
<TABLE>
WHITE CLOUD EXPLORATION, INC.
STATEMENT OF OPERATION
YEARS ENDED DECEMBER 31
1997 1996 1995
<S> <C> <C> <C>
OPERATING REVENUES
Revenues $826,446 $386,034 $-
Costs of goods sold 485,767 237,610 -
Gross profit 340,679 148,424 -
OPERATING EXPENSES
Royalties 225,000 372,500 -
Research &
development 260,359 183,673 84,432
Selling expenses 23,117 52,312 -
Professional fees 112,851 77,994 -
Management fees 115,321 - -
Consulting fees 31,930 77,419 4,000
General &
administrative 201,328 96,669 1,534
Marketing 7,855 34,074 -
Commitment/Loan fees 94,500 20,000 -
Total operating expense 1,072,261 914,641 89,966
OPERATING PROFIT
(LOSS) (731,582) (766,217) (89,966)
OTHER REVENUES &
EXPENSES
Interest Expense (36,612) (923) -
Miscellaneous income 37,946 (25) 60
Loss on sale of
receivables (238,254) (127,893) -
Total other revenues
& expenses (236,920) (128,841) 60
NET INCOME (LOSS) $(968,502) $(895,058) $(89,906)
LOSS PER SHARE
Primary (0.06) (0.09) (0.01)
Fully diluted (0.06) (0.08) (0.01)
The accompanying notes are an integral part of this financial statement.
F4
</TABLE>
<PAGE>
[CAPTION]
<TABLE>
WHITE CLOUD EXPLORATION, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(968,502) $(895,058) $(89,906)
Adjustment to reconcile net loss
to net cash used in operating
activities:
Depreciation & amoritization 7,607 4,344 -
Common stock issued in exchange
for services 43 - -
Expenses paid by stockholder
as capital contribution 88,500 - -
Changes in operating assets and
liabilities:
Accounts receivable (83,115) (1,014) -
Accounts payable and accrued expenses 266,808 226,277 -
Interest payable 25,668 - -
Net cash used in operating acitivities (662,991) (665,451) (89,906)
INVESTING ACTIVITIES
Purchase of equipment (11,435) (6,470) -
Purchase of organizational costs - - (15,250)
Purchase of trademarks - (7,901) -
(Advances) payments to/from member 73,080 (101,015) -
Net cash provided by investing activities 61,645 (115,386) (15,250)
FINANCING ACTIVITIES
Advances from stockholders 185,016 122,408 -
Proceeds (payments) from/to factor (16,902) 72,439 -
Proceeds from line of credit 20,961 34,007 -
Proceeds from notes payable 450,000 - -
Proceeds from issuance of stock 7,457 421,000 -
Capital contributions - 142,000 108,000
Net cash provided by financing activities 646,532 791,854 108,000
Net increase (decrease) in cash
and cash equivalents 45,186 11,017 2,844
Cash and cash equivalents at
beginning of year 13,961 2,944 100
Cash and cash equivalents at end of year $59,147 $13,961 $2,944
SUPPLEMENTAL CASH FLOW
Interest Paid $33,949 $923 $-
Taxes Paid $1,050 $1,600 $-
The accompanying notes are an integral part of this financial statement.
F5
</TABLE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. Golpoint
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.
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 has a
consulting agreement in which 1,250,000 shares of
White Cloud Exploration can be earned.
F6
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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.
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 will earn compensation
consisting of 1,250,000 shares of White Cloud
Exploration at the close of the stock placement
agreement.
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 nonaccountable 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 passed a resolution to issue 69,868
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.
F7
<PAGE>
WHITE CLOUD EXPLORATION, INC.
NOTES TO FINANCIAL STATEMETNS
DECEMBER 31, 1997
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 in 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.
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.
F8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSITIONAL PERIOD FINANCIAL STATEMENTS DATED April 30, 1998 for year ended
12/31/97 - of Michael B. Johnson & Co., P.C.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 59,147
<SECURITIES> 0
<RECEIVABLES> 137,454
<ALLOWANCES> (53,325)
<INVENTORY> 162,000
<CURRENT-ASSETS> 305,276
<PP&E> 17,905
<DEPRECIATION> (5,653)
<TOTAL-ASSETS> 362,316
<CURRENT-LIABILITIES> 1,413,737
<BONDS> 0
0
0
<COMMON> 15,030
<OTHER-SE> (1,066,451)
<TOTAL-LIABILITY-AND-EQUITY> 362,316
<SALES> 826,446
<TOTAL-REVENUES> 0
<CGS> 485,767
<TOTAL-COSTS> 485,767
<OTHER-EXPENSES> 1,072,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (731,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> (731,582)
<DISCONTINUED> 0
<EXTRAORDINARY> (238,254)
<CHANGES> 0
<NET-INCOME> (986,502)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
