Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 14 OR 15(D) OF THE EXCHANGE
ACT
For the transition period from__________ to ___________
WATCHOUT! INC.
(Name of Registrant as specified in its charter)
WHITE CLOUD EXPLORATION INC.
---------------------------------------------
(Former Name of Registrant)
Utah 0-114244 84-0959153
------ -------- ----------
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification No.)
7272 Wisconsin Avenue #300, Bethesda, Maryland, 20814
-------------------------------------------------------
(Address and telephone number of principal executive offices)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, (or such
shorter period that the Registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity , as of the latest practicable date: September 30, 2000
------------------
CLASS Outstanding at September 30, 2000
---------------------------- -----------------------------
Common stock $.001 Par Value 49,555,626
<PAGE>
WATCHOUT! INC.
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
<S> <C>
Consolidated Balance Sheets as of 3
June 30, 2000 and Septmebr 30,2000 (Unaudited) and
December 31, 1999
Consolidated Statements of Profit and Loss for the Nine Month
Period Ended September 30, 2000 unaudited)
and for the Twelve Months Ended December 31, 1999 4
Consolidated Statement of Cash Flows
for the Period Ending September 30, 2000
And September 30, 1999 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) as of September 30, 2000 6-8
Management Discussion and Analysis of Financial
Condition and Results of Operations 9
</TABLE>
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Watchout! Inc.
Balance Sheet As of September 30, 2000
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000 December 31, 1999
<S> <C> <C>
Assets
Current Assets
Cash 27,622 143,912 --
Accounts Receivable 37,094 279,890 --
Due from Officer 11,530
Prepaid expense 23,325 2,500
---------- ---------- ----------
Total Current Assets 99,571 426,302 --
========== ========== ==========
Due from Affliate 218,728
========== ========== ==========
Fixed Assets 157,624 4,941
Less Accumulated Depraciation
(22,877)
---------- ---------- ----------
Total Fixed Assets
134,747 4,941 0255
========== ========== ==========
Other Assets
Investments 748,505 3,079,380 (6,100)
Development Costs 56,542
Organization Cost Amortization (7,625) 15,250
Organization Costs 15,250 0255
Investment in Parent 14,130 0255 0255
---------- ---------- ----------
Total Other Assets 819,177 3,518,248 9,150
========== ========== ==========
Total Assets 1,272,223 3,513,307 9,150
========== ========== ==========
LIABILITIES & EQUITY
Liabilites
Current Liabilities
Accounts Payable 841,231 735,420 1,047,270
Due to Shareholders 35,000 35,000 466,445
Notes Payable 250,000 275,000 450,000
---------- ---------- ----------
Total Current Liabilites 1,126,231 1,045,420 1,963,715
========== ========== ==========
Due to Parent 939,741
========== ========== ==========
Shareholders Equity (Deficit)
Additional Paid In Capital 8,447,772 989,502
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
49,555,626 issued and outstanding 49,556 22,435 15,030
Accumulated Deficit (843,305) (5,997,379) (2,959,097)
---------- ---------- ----------
Total Stockholders' Deficit (793,749) 2,472,828 (1,954,565)
---------- ---------- ----------
TOTAL LIABILITES & EQUITY
1,272,223 3,518,248 9,150
========== ========== ==========
</TABLE>
3
<PAGE>
Watchout! Inc
Profit and Loss
As of September 30, 2000
<TABLE>
<CAPTION>
Sept 30, 00 June 30 00 Dec 31, 99
------------ ------------ ----------
<S> <C> <C> <C>
Revenue $ 84,148
Operating Expense
Foreign Exchange Gain (4,544)
Depreciation and Amortization 22,877 1,525 3,050
Bank Charges 721 431
Consulting Fees 169,889 2,720,157
Dues and Subscriptions 11,156 942
Marketing and promotions -- 13,200
Office Expense 45,872 1,704
Payroll expense 151,947 1,028,891
Employee benefits 4,605 950
Professional fees 58,173 162,422 9,080
Rent 55,661
Telephone & Communications 20,353 6,125
Travel 41,523 61,296
------------ ------------ ----------
Total Operating Expense 578,233 3,997,643 12,130
------------ ------------ ----------
Net Operating Income (loss) (494,085) (12,130)
Other Income (expense)
Forgiveness of debt -- 959,460
Interest -- 34,066
------------ ------------ ----------
Loss on Recapitalization (349,220)
Total Other Income (expense) (349,220) 959,460 34,066
------------ ------------ ----------
Net Income (Loss) (843,305) (3,038,183) (46,196)
============ ============ ==========
Weighted Average Common Share 49,555,626 22,435,245 15,030,245
============ ============ ==========
Income (loss) Per Share $ (0.02) $ (0.14) $ (0.00)
============ ============ ==========
</TABLE>
4
<PAGE>
Watchout Inc
Statement of Cash Flow
As Of September 30, 2000
<TABLE>
<CAPTION>
Sept 30,00 Dec 31,99
---------- -------
<S> <C> <C>
Net Income (loss) for the Period (843,305) (46,198)
Depreciation and Amortization 22,877
3,050
---------- -------
CASH USED IN OPERATING ACTIVITES (820,428)
Increase in accounts payable and accrued liabilities 841,231 (42,568)
Increase in prepaid expense (23,325)
Increase in account receivable (48,624)
---------- -------
Net cash provided (used) by operating activities (51,146) (580)
---------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of investments (748,505)
Purchase of Office equipment (157,625)
Development Cost (56,545)
Investment in Parent Company (14,130)
Investment in Affliate (218,728)
---------- -------
Net cash used in investing activities (1,195,533)
---------- -------
CASH FLOW FROM FINANCING
Assumption of debt instruments 285,000
Proceeds from Common Stock 49,560
Advance from Parent 939,741
---------- -------
Net cash from finanicng activites 1,274,301
---------- -------
Net increase (decrease) in cash and cash equivalents 27,622 (580)
---------- -------
cash at the beginning of the period -- 580
Cash at the end of the period 27,622 0
========== =======
</TABLE>
5
<PAGE>
WATCHOUT! INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
NOTE 1-Organization and summary of Significant Accounting Policies:
Organization
The company was incorporated July 22, 1983 under the laws of Utah for the
purpose of obtaining, capital to seek potentially profitable business
opportunities. Since inception, the Company has been engaged in organizational
activities. In 1997, the Company acquired two entities: Watchout, a California
Corporation, and Goldpoint International, a limited liability company. In
November of 1998, the corporation changed it's name to Watchout!, Inc.
On September 1, 2000 the company acquired Cormax Business Solutions Ltd., an
Alberta, Canada, Incorporated Company in a transaction accounted for as a
recapitalization. The recapitalization was effected through the issue of
25,100,000 common shares of the company, constituting approximately 50.24%of the
shares after the acquisition, in exchange for all the outstanding shares of
Cormax Business Solutions LTD.
As a result of the application of the accounting principles governing
recapitalization, Cormax is treated as the acquiring or continuing entity for
the financial accounting purposes.
The recapitalization of Cormax was affected through the issuance of stock, by
Cormax in exchange for the net tangible assets of the company, valued at fair
value, which approximates the company's historical costs. As a result the
consolidated financial statements will be deemed to be a continuation of Cormax
historical financial statements.
The Company's fiscal year end is December 31.
Pursuant to a stock exchange agreement between the Company and Cavalcade of
Sports Network, Inc., a Nevada Corporation, ("Cavalcade"), the Company acquired
from Cavalcade all the issued and outstanding shares of common stock of Cormax
Business Solutions Ltd., an Alberta Canada company. As a result of the
agreement, the shareholders of Cavalcade acquired ownership of a majority of the
issued and outstanding shares of common stock of the Company.
In conducting its due diligence on the stock exchange agreement, Cavalcade
became aware of certain transactions that were not reflected in the 10QSB
reports filed by Watchout! Inc. for the quarterly periods ended Mar 31, 2000 and
June 30, 2000. The accompanying financial statements reflect indebtedness that
was forgiven pursuant to an agreement that became effect February 11, 2000;
transactions that took place through a corporation which was acquired by
Wacthout! Inc.; and additional debt incurred in the first Six Months 0f 2000;
and debt retired through the issuance of shares of the company and debt
forgiveness.
Cash and Cash Equivalents:
For the purpose of the statement of cash flows, cash and cash equivalents
include cash in banks and money market accounts.
Research & Development
Research and development costs are capitalized.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amount of 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.
Income Taxes
No provisions have been made for income taxes. As of December 31, 1999, the
company had net operating loss (NOL) carryfowards for federal income tax
purposes of approximately $2,959,047. These operating losses may be used to
offset future taxable income. Unused carryfowards will expire in 2014.
6
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
NOTE 1- Organization and Summary of Significant Accounting Policies: (Continued)
Income Taxes:
The Financial Accounting Standards Board (FASB) has issued Statement of
Financials Accounting Standard Number 109 ("SFAS 109"), "Accounting for Income
Taxes", which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statements carrying amounts
and the tax basis of existing assets and liabilities.
At December 31, 1999, the company had net operating loss carryfowards of
approximately $2,959,097 for federal income tax purposes. The carryfowards, if
not utilized to offset taxable income will expire at the end of the indicated
years:
2009 $ 102,487
2010 89,956
2011 895,058
2012 968,502
2013 856,896
2014 46,198
----------
$2,959,097
==========
There was no provision or benefit for income taxes in fiscal 1999.
NOTE 2-Investments:
The company made investment totaling $679,380 during the period February 11 to
April 15, 2000 in WirelessOn.com, a Canadian wireless communication company.
This represents an eight percent (8%) ownership in WirelessOn.com.
7
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
The company made an investment in Micromatix.net. Two payments of $150,000 were
made in exchange for 483,000 shares in Micromatix.net. Micromatix.net is a
publicly traded company, traded on the OTCBB under the symbol "IMTL". On August
8, 2000 the board of directors of Micromatix.net approved a 7-1 reverse split
and is now traded under the OTCBB symbol " IMTE". Publicly traded stocks are
valued at market effective September 30, 2000.
On February 25, 2000 the company entered into an agreement to make an investment
in MJAC Communications(MJAC). In consideration for 2,500,000 shares of
restricted stock, Watchout! was to receive a 51% ownership stake in MJAC. MJAC
holds the marketing and licensing rights to become a level one Internet Service
Provider in the greater Washington DC area. The Investment closed on February 8,
2000 and the parties subsequently agreed to terminate the agreement on June 20,
2000.
NOTE 3- Notes Payable:
Following is a summary of notes payable at September 30, 2000
Note Payable to individual, 12%, unsecured due on demand 166,000
Note Payable to individual, 12%, unsecured, due on demand 84,000
--------
$250,000
========
NOTE 4 - Going Concern:
The company has incurred net operating losses of $494,045. As of September
30,2000, current liabilities exceeded current assets by $1,063,660. In view of
these matters, the future success of the Company is likely to depend on its
ability to obtain additional capital and its ability to attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations.
8
<PAGE>
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL
CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION CONTAINED IN THIS REPORT CONTAINS
"FORWARD-LOOKING STATEMENTS" THAT INVOLVE RISK AND UNCERTAINTIES. THESE
STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD" OR "ANTICIPATES" OR THE NEGATIVE
THEREOF OR SIMILAR EXPRESSIONS OR BY DISCUSSIONS OF STRATEGY. THE CAUTIONARY
STATEMENTS MADE IN THIS REPORT SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS REPORT.
Results of Operations.
The Company has not been profitable this year and has revenue of
$84,148. The Company anticipates that it will continue to be dependent upon
obtaining
additional equity investment, and loans from its shareholders. Net losses
decreased from $3,038,183 to $494,045. The most significant expenses incurred
during the quarter ending September 30, 2000 were consulting fee of $169,889
payroll expense of $151,947 professional fees of $58,173, Rent $55,661. There
were no corresponding expenses for the same period last year as the Company was
dormant and conducted no operations.
The Company can book revenues by acquiring a majority or wholly owned
interest in a company that has revenues or by selling its interest in a minority
owned entity at a profit. The Company is now principally focused upon the
location of additional strategic alliances and acquisition targets. While the
Company presently has no wholly or majority owned subsidiaries that have
earnings, management believes that the Company will book revenues during the
next six months. However, no assurances can be given in this regard.
9
<PAGE>
5. Leases
On April 1, 2000, the Cormax Business Solutions LTD entered into a
two-year sub-lease for office located in Calgary, Alberta. The space
approximately 2,200 square feet, and the base monthly rent is approximately
$1,700. In June 2000, the Cormax Business Solutions LTD enter into a
month-to-month lease located at 7272 Wisconsin Ave, #300, Bethesda, MD 20814.
The rent is $1,500 per month.
As of September 30, 2000, the mailing address is
Cormax Business Solutions LTD
7272 Wisconsin Ave #300
Bethesda, MD 20814
301-941-1993
or
Cormax Business Solutions LTD
810-808 4thAve SW
Calgary, Alberta T2P 3E8
403-269-1010
403-269-2346 FAX
Liquidity and Capital Resources
December 13, 1999 as compared to September 30, 2000.
Total cash and cash equivalents as of June 30, 1999 were $143,912 as
compared to $27,622 as of September 30, 2000. Investments decreased from
$3,079,380 as of June 30, 2000 to $748,505 in September 30, 2000 reflecting the
cancellation of the MJAC acquisition. Accounts payable and accrued liabilities
increased from $735,420 to $841,231 as a result of normal business operations.
Amounts due stockholders remained at $35,000. Notes payable Decreased from $
275,000 to $250,000.
Until the Company increases its revenues and can operate profitably, it
will continue to be dependent upon new equity financing, loans from its
shareholders and others to remain viable. No assurances are given that the
Company will obtain revenues, will be profitable thereafter or that it can
continue to fund its operations. Current liabilities continue to exceed current
assets. Demand for payment by our creditors could force us to seek bankruptcy
protection.
10
<PAGE>
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings: We are subject to a lawsuit filed by John Baker,
Wayne E. Williams and Jagi Capital Group, Inc. against the company and others in
the District Court of Tarrant County, Texas. (Case No. 48-183154-00). The suit
seeks approximately $350,000 in damages in connection with the alleged failure
to repay certain loans and pay a finder's fee. The allegations relate to events
that transpired before current management took control of the Company. The
Company is investigating the allegations and underlying facts and is currently
discussing the settlement of the matter with the plaintiffs who filed the
lawsuit. No assurance is given that the Company will be able to amicably settle
the matter. If the matter proceeds to trial, an adverse ruling could have a
materially detrimental effect on the company.
We are subject to a lawsuit filed by Philip Doublet against the company and
others in the Province of Alberta. The suit seeks $3,000,000 in damages in
connection with the alleged wrongful termination from Cavalcade of Sports
Network Inc., which Cormax Business Solutions Ltd. was a subsidiary. Mr. Doublet
was President and Officer of Cavalcade of Sports Network Inc., and was under
contract for five days. The Company is defending against the suit. No assurance
is given that the Company will be able to amicably settle the matter. If the
matter proceeds to trial, an adverse ruling could have a materially detrimental
effect on the company.
Item 2. Change in Securities:
During this quarter ended September 30, 2000, a total of 27,120,381
shares of common stock were issued by the Company to acquire Cormax Business
Solutions LTD, and pay various consultants pursuant to an S-8 Registration
Statement. September 27, 2000 the Board of Director authorized a 10-1 reverse
split on the stock, which became effective October 13, 2000.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Watchout! Inc.
BY: /s/ Todd Violette
--------------------------------
Todd Violette, President
Dated: This 20th day of November 2000.
