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: September 30, 1999
Commission File number: 0-114244
WATCHOUT!, INC.
(Exact name of registrant as specified in its charter)
formerly WHITE CLOUD EXPLORATION, INC.
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 September 30, 1999, there were 15,030,245 outstanding shares of common
stock, par value $.0001.
<PAGE>
PART 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
WATCHOUT!, INC.
BALANCE SHEET
(Unaudited)
September 30, December 31
1999 1998
ASSETS
<S> <C> <C>
Current Assets
Cash - 580
Accounts Receivable - -
Less Allow for Doubtful Accts - -
--------------------------------------------
0 580
Inventory - -
--------------------------------------------
Total Current Assets 0 580
Property, Plant & Equipment - -
Less accumulated Depreciation - -
--------------------------------------------
Total Property and Equipment 0 0
Other Assets
Due from member - -
Organization Costs 15,250 15,250
Less Accumulated Amortization (5,337) (3,050)
--------------------------------------------
Total Other Assets 9,912 12,200
=====================================================
TOTAL ASSETS $9,912 $12,780
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accrued Expenses $537,213 $537,213
Accounts Payable 475,989 475,989
Due to Stockholders 457,945 457,945
Notes Payable 499,500 450,000
--------------------------------------------
Total Current Liabilities 1,970,647 1,912,147
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 issued and outstanding 15,030 15,030
Additional Paid in Capital 989,502 989,502
Accumulated Deficit (2,967,736) (2,912,899)
--------------------------------------------
Total Stockholders' Deficit (1,963,204) (1,908,367)
--------------------------------------------
Total Liabilities & Stockholders' Deficit $9,912 $12,780
============================================
</TABLE>
The accompanying notes are an integral part of this financial statement
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT!, INC.
STATEMENT OF OPERATIONS
For the three months ended September 30,
(UNAUDITED)
1998 1999
OPERATING REVENUES
<S> <C> <C>
Revenues (40,189) -
Cost of goods sold 53,898 -
------------------- ---------------
Gross profit (94,087) 0
OPERATING EXPENSES
Royalties - -
Research & Development 48,048 -
Selling Expenses (2,024) -
Professional Fees 47,110 -
General & Administrative 101,830 -
Bad Debt Expense 125,399 -
------------------- ---------------
Total operating expenses 320,363 0
OPERATING PROFIT (LOSS) (414,450) 0
(LOSS)S)
OTHER (REVENUES) &
EXPENSES
Interest expense 4,281 16,500
Miscellaneous income (16) -
Loss on sale of receivables - -
------------------- ---------------
Total other revenues & expenses 4,265 16,500
NET INCOME (LOSS) (418,715) (16,500)
=================== ===============
LOSS PER SHARE
Primary (0.03) (.00)
Weighted number of shares outstanding 15,030,245 15,030,245
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT!, INC.
STATEMENT OF OPERATIONS
For the nine months ended September 30,
(UNAUDITED)
1998 1999
OPERATING REVENUES
<S> <C> <C>
Revenues 132,959 -
Cost of goods sold 141,929 -
------------------- ---------------
Gross profit (8,970) 0
OPERATING EXPENSES
Royalties 56,250 -
Research & Development 48,048 -
Selling Expenses 1,250 -
Professional Fees 51,797 -
General & Administrative 198,950 -
Bad Debt Expense 125,399 -
------------------- ---------------
Total operating expenses 481,695 0
OPERATING PROFIT (LOSS) (490,665) 0
(LOSS)S)
OTHER (REVENUES) &
EXPENSES
Interest expense 5,899 49,500
Miscellaneous income (16) -
Loss on sale of receivables (13,129) -
------------------- ---------------
Total other revenues & expenses 7,245) 49,500
NET INCOME (LOSS) (483,420) (49,500)
=================== ===============
LOSS PER SHARE
Primary (0.03) (.00)
Weighted number of shares outstanding 15,030,245 15,030,245
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT! INC.
STATEMENT OF CASH FLOWS
Nine months ended September 30,
(UNAUDITED)
1998 1999
OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) (483,420) -
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation & Amortization (198) -
Common stock issued in exchange for services
Changes in operating assets and liabilities
(Increase) Decrease in Accounts Receivable 26,669 -
(Increase) Decrease in Inventory - -
Increase (Decrease) in Accounts Payable 307,892 -
Increase (Decrease) in Interest Payable (2,663) 49,500
---------------- ---------------
Net cash used in operating activities 331,700 49,500
INVESTING ACTIVITIES
(Purchase) Sale of Equipment 197 -
----------------
Net cash provided by investing activities 197 0
FINANCING ACTIVITIES
Advances (payments) from/to Stockholder 204,772 -
Proceeds (payments) from/to factor - -
Proceeds (payments) from/to line of credit (110,505) -
Proceeds (payments) from/to notes payable - -
Proceeds (payments) from/to Member - -
Proceeds from issuance of stock - -
Capital contributions - -
---------------- ---------------
Net cash provided by financing activities 94,267 0
Net increase (decrease) in cash and cash
equivalents (57,256) -
Cash and cash equivalents at beginning of period 59,147 -
---------------- ---------------
Cash and cash equivalents at end of period 1,891 0
================ ===============
</TABLE>
The accompanying notes are an integral part of this financial statement
<PAGE>
WATCHOUT!, 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. In November 1998 the Company changed it's name to Watchout!,
Inc.
The Company has no business or revenues at September 30, 1999. The subsidiaries
are no longer operating.
2. General and Summary of Significant Accounting Policies
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.
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. There are no specific repayment terms; however, these amounts are
expected to be repaid within 12 months of the balance sheet date.
4. Changes in Control
Not Applicable
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
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. The licensor
filed suit to rescind the license, due to non-payment. The case has been settled
and the license abandoned.
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.
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.
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.
The Placement Agreement was terminated in October 1999.
<PAGE>
WATCHOUT!, 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>
WATCHOUT!, 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 September 30, 1999
current liabilities exceed current assets by $1,970,647, and total liabilities
exceed total assets by $1,960,735.
In view of these matters, realization of any 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.
<PAGE>
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations for the three month period ended September 30, 1999
compared to the same period in 1998.
No operations were conducted by the Company in the quarter period ended
September 30, 1999, and no revenues were achieved. On a consolidated basis,
after the acquisition of Goldpoint and Watchout! subsidiaries, the Company had
revenues in the third quarter of 1998 of ($40,189) as compared to the same
period in 1999 of $0. The cost of goods sold in the three month period in 1998
was $53,898 and for the same period in 1999 was $0. The gross profit (loss) for
the 1998 third quarter period was ($94,087) compared to $0 for the 1999 period.
The Company incurred operating expenses for the three month period of
$320,363 in 1998 compared to $0 in the same period in 1999. The Company recorded
a net operating loss of $(414,450) for the 1998 period as compared to $0 for the
same period in fiscal year 1999. The net income (loss) for the 3 month period in
1998 was ($418,715) compared to ($16,500) in 1999. The Company losses will
continue until a business can be achieved and profitable operations are
achieved. While the Company is seeking capital sources for investment, there is
no assurance that capital sources can be found. The loss per share for the 1998
third quarter was ($.05) compared to ($.004) in the third quarter of 1999.
Results of Operations for the nine month period ended September 30, 1999
compared to the same period in 1998.
No operations were conducted by the Company in the nine month period
ended September 30, 1999, and no revenues were achieved. On a consolidated
basis, after the acquisition of Goldpoint and Watchout! subsidiaries, the
Company had revenues in the first nine months of 1998 of $132,959 as compared to
the same period in 1999 of $0. The cost of goods sold in the period in 1998 was
$141,929 and for the same period in 1999 was $0. The gross profit for the 1998
period after a "returns and allowances deduction" of $195,294 was ($8,970)
compared to $0 for the 1999 period.
The Company incurred operating expenses for the nine month period of
$481,695 in 1998 compared to $0 in the same period in 1999. The Company recorded
a net operating loss of ($490,665) for the 1998 nine month period as compared to
a $0 operating loss for the same period in fiscal year 1999. The net income
(loss) for the period in 1998 was ($483,420) compared to ($49,500) in 1999. The
Company losses will continue until business can be achieved and until profitable
operations are achieved. While the Company is seeking capital sources for
investment, there is no assurance that capital sources can be found. The loss
per share for the 1998 nine month period was ($.03) compared to ($.004) in the
same period in 1999.
<PAGE>
Liquidity and Capital Resources
The Company had no cash capital at the end of the period. The Company
will be forced to make private placements of stock in order to fund any
operations. No assurance exists as to the ability to make private placements of
stock. The Company has significant current liabilities of $1,970,647 which
exceed current assets by approximately $1,960,000. The Company is in default on
notes totaling $450,000, although no demand for payment has been issued.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings -
In July 1998, Boit Incorporation, the LCD technology licensor,
filed suit in San Diego, California Superior Court, about
registrants relationship with its agent in Hong Kong, Camke
Development Ltd. The allegation was that Camke was in reality
a third party licensee and not actually a manufacturing agent
and distributor for South East Asia. Boit also claimed that
Registrant breached the license contract by not yet having
products in the marketplace and seeks cancellation of the
contract. The lawsuit has been settled and the license
abandoned in this quarter.
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.
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 September 30, 1999. (incorporated by reference)
None.
<PAGE>
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: November 10, 1999
WATCHOUT!, INC.
/s/ Kevin Waltzer
by: --------------------------------
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9912
<CURRENT-LIABILITIES> 1970647
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1978234)
<TOTAL-LIABILITY-AND-EQUITY> 9912
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49500
<INCOME-PRETAX> (49500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (49500)
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
