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, 1999
Commission File number: 0-114244
WATCHOUT! INC.
(Exact name of registrant as specified in its charter)
WHITE CLOUD EXPLORATION, INC.
(Former Name)
Utah 84-0959153
State or Other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1900 N.W. Corp. Blvd., Suite 400 E, Boca Raton, FL 33431
(Address of principal Executive Offices Zip Code)
Registrant's telephone number, including area code: (954) 803-7480
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.
Yes ( ) No (X)
State issuer's revenues for its most recent fiscal year. $0
<PAGE>
Transitional Small Business Disclosure Format:
( ) Yes (X) No
As of December 31, 1999, 15,030,245 shares of common stock were outstanding. The
aggregate market value of the Stock held by nonaffiliates was $3,753,199 at
December 31, 1999 based on closing price of $.81 per share.
Documents incorporated by reference: None
<PAGE>
Part I
Item 1. Business.
General - Organization and Reorganization
Since its inception in July of 1983 as White Cloud Exploration, Inc. ("the
Company"), the Company has been in the developmental stage, while it has
attempted to identify suitable mergers, asset or acquisitions of operations.
The Company changed its name to WatchOut! Inc. in November, 1998.
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 had no further activities since 1991, and was 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.
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 owned 100% of the
issued and outstanding shares of Watchout!. Watchout! intended 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.
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.
As a result of the Goldpoint Acquisition, Registrant owned 100% of the
outstanding membership interests in Goldpoint LLC. Goldpoint intended to market
fine writing instruments.
Neither WatchOut! Inc. nor Goldpoint was successful in raising capital or
carrying out the business plan adopted. As a result all attempts at operations
were suspended in September 1998, and no further business was attempted in 1998.
Pursuant to a Stock Purchase Agreement effective as of October 9, 1999,
Innovative Cybersystems Corp., a Florida corporation, agreed to purchase
6,376,922 issued and outstanding shares of Registrant's common stock from David
Galoob Robert Galoob, and Archangel Holding Company, LLC. The 6,376,922 shares
represent approximately 42% of the outstanding share sof the common stock of
Registrant on a fully-diluted basis. In addition Innovative has options to
purchase an additional 1,750,00 common shares. Innovative is controlled by Kevin
Waltzer. (See "management" below). In addition, Innovative Cybersystem Corp.
will have options to purchase 1,750,000.
As of the closing, the following persons will own more than 5% of
Registrant's outstanding common stock (n a fully diluted basis):
Innovative Cybersystems Corp. 6,376,922 shares
Innovative Cybersystems also has options for 1,750,000 shares.
The Closing was completed on about February 11, 2000.
Prior to the share purchase, WatchOut! was controlled by Robert Galoob,
David Galoob, and Stephen Petre.
The Company is seeking to acquire interest in Internet related businesses
through an exchange of shares of equity. It may acquire a minority interest in
such businesses. At year end, the Company had established no formal criteria for
determining its acquisition of or participation in any given business.
On November 19, 1999, the Company negotiated a Letter of Intent with
International Mercantile Corp. (known as Micromatix.net) for investment of up to
$500,000 in preferred convertible stock of International by the Company.
Micromatix.net, a Baltimore based company, builds custom configured
desktops, servers, and notebooks using industry standard, branded components for
value added resellers. Our systems are aggressively priced, built to ISO 9002
quality standard with an Internet-based ordered capability and superior custom
service. The Company is dedicated to the value-added reseller (VAR) and does not
market directly to end-users. Micromatix.net will partner with the VAR enabling
them to outsource their assembly logistics and other requirements to
Micromatix.net allowing the reseller to focus on customer service, support, and
other business opportunities.
Micromatix.net's primary business strategy is to become the VAR's choice
for build-to-order PC Systems. The systems can be configured by the reseller
according to the specifications of their customers, thereby giving the VAR
greater control over the entire process, including configuration, delivery
service, and customer relations, VAR's will be able to place orders using
Micromatix.net's state-of-the-art Internet based configurator and order entry
<PAGE>
system. This will provide you with real-time ordering and quoting capabilities,
inventory management, and the ability to track production and shipping status.
This platform provides its resellers with a single source for the entire
configuration and ordering needs seven days a week, 24 hours a day.
"White boxes" are a cost-effective alternative to branded PCs. By
purchasing components competitively, employing assembly and providing local
delivery, Micromatix.net is able to control its costs. This cost control allows
Micromatix.net to offer competitive prices to their customers. The Company is
also structured to provide superior service, with rapid response to customer
calls, quick access to necessary components, high order fills and on-time
accurate shipments. WatchOut!, Inc. has no intention of making Micromatix.net a
subsidiary company.
Employees and Consultants
The Company at fiscal year end had no paid employees, and its President,
Kevin Waltzer, and Secretary, Jack R. Russell, 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 1900 N.W. Corp. Blvd., Suite
400 E, Boca Raton, FL 33431, under an informal arrangement with the Company's
President. This space is deemed adequate for the immediate future.
Item 3. Legal Proceedings.
The Company was not a party to any pending legal proceedings. It settled a
lawsuit with Boit, Inc., the licensor of the watch technology prior to year end.
The resolution to terminated the license due to certain defaults. It would not
have a material effect since the Company has abandoned the business plan which
would have used the watch technology.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters was submitted to a vote of security holders within the year
covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The outstanding registered securities of the Company were quoted on the
OTCBB during the year.
Common Stock Common Stock
1999 Bid High Bid Low
____________________________________________________
1st Quarter .125 .0
2nd Quarter .125 .0
3rd Quarter .125 .0
4th Quarter 4.00 .125
Common Stock Common Stock
1998 Bid High Bid Low
____________________________________________________
1st Quarter no quote no quote
2nd Quarter no quote no quote
3rd Quarter no quote no quote
4th Quarter .125 .125
<PAGE>
Common Stock Common Stock
1997 and 1996 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 continue to trade in the over the
counter market. Quotations represent only prices between dealers and do not
include retail markups, markdowns or commissions and accordingly, may not
represent actual transactions. As of December 31, 1999, there are approximately
230 record stockholders of the Company's shares, not including shareholders
represented by "street name" holders.
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.
Financial Condition and Changes in Financial Condition
No revenue producing business operations were conducted by the company in
1999. No revenues were generated in the fiscal year 1999. The Company at year
end December 31, 1999, had no cash compared with $580 in cash at December 31,
1998. 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. The Company had no business at year end.
<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 no cash at 1999 year end and no current assets at
December 31, 1999.
Total liabilities for 1999 (which were all due) were $1,963,715 for a
deficit of ($1,963,715) in the ratio of liabilities to current assets.
The company was critically deficient in capital and needs cash to commence
effective operations. No source of such funds had been identified at year end,
and it would have to occur through debt or stock sales.
Results of Operations for twelve month period ended December 31, 1999 compared
to December 31, 1998
The Company had no revenues in 1999. The Company had expense of operations
of $12,130 and interest accruals of $34,068 for total expense of $46,198 for the
year. In 1998, the Company incurred 602,833 in expenses with no income. The
Company had a net loss of ($46,198) for 1999 and ($602,833) in 1998.
Results of Operations for twelve month period ended December 31, 1998 Compared
to 1997
In the year ended December 31, 1999, the Company had no revenues and
incurred operating expenses totaling $602,833. In calendar year 1997 the
combined entities' net revenues were $340,679. As of December 31, 1998, the
Company had no material commitments for capital expenditures.
In the year ended December 31, 1998, the Company incurred $98,746 in
general and administrative expenses compared with $201,328 in 1997. In the
fiscal year ended December 31, 1998, the Company incurred an operating loss of
($602,833) compared to a loss of ($731,582) in 1997. Net loss for 1998 was
($856,901) or ($.06) per share compared to a net loss for 1997 of ($968,502) or
($.06) on a fully diluted basis.
The Company had a loss on sale of inventory and receivables of ($162,000)
in 1998 and ($238,254) in 1997. Interest expense (accrued) was $92,063 in 1998
compared to $36,612 in 1997.
For furture periods, the Company expects the trend of net losses to
continue until a business can be achieved which generates revenue to cover
operations.
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
Kevin Waltzer 32 President/Director 11/99
John J. Russell 60 Secretary/CFO/Director 11/99
Michelle Long 45 Director 11/99
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.
<PAGE>
Kevin Waltzer, age 32, President and proposed Director (subject to
compliance with Section 14f). Mr. Waltzer graduated from Boston University with
an undergraduate degree in Political Science (1990). Mr. Waltzer has been a
self0employed equities trader for the past seven years, using proprietary market
trend systems. He served as a Director for and consultant to The Human Works,
Inc., September - December 1998. Mr. Waltzer was a founding partner and Director
and executive of Eco-Aire Company, Inc., a company holding multiple patents for
evolutionary air and water purification techniques from 1996 to 1998. He was a
founding partner and an original investor in Tradescape.com, a Manhattan based
securities trading firm, in 1996. He sold his interest in 1999. He formed
Innovative Cybersystems, Inc. in 1999 and is President and a Director and
principal shareholder.
Jack J. Russell, age 60, Director, CEO, CFO, graduated from Drexel
University with a BS in accounting. He has accomplished advanced studies at
American College, Bryn Mawr, PA. He received a CHFC designation in 1990 and a
CLU designation in 1993. He is a Charter member of the Professional Achievement
in Continuing Education Program. Mr. Russell is involved with the American
Institute of Certified Public Accountants where he is a member of the Tax
Division and the Personal Financial Planning Division. He has recently worked as
a financial planner/business consultant for Glen Mills Financial Services, Inc.
where he specialized in financial planning, personal and corporate tax returns,
corporate financing, and management systems. From 1994 to 1995, he headed an
18-month project to turn around a manufacturing company located in the Mid-West.
As CEO of Glas-Kraft, Inc., from 1982 to 1988 he turned the company around and
negotiated the sale of the company. As a CEO of Eastern Coated Papers, Ltd. from
1983 to 1988 Mr. Russell arranged acquisition and working capital needs with a
combination of Canadian and U.S. banks. The company was returned to a positive
cash flow, and he negotiated the sale of the company. From 1978 to 1982, he was
CFO of Gentech, Inc., he established a sophisticated direct costing system. He
helped Gentech, Inc. acquire a significant subsidiary through a cash tender
offer. At Titan Industries, Inc., from 1972 to 1978, he handled all aspects of
the Annual Report and SEC reporting. Mr. Russell also established consolidation
and reporting controls for over 91 subsidiaries. In order to improve the state
of the company, he assisted in the sell-off of several unprofitable and/or
incompatible subsidiaries. When he was CFO of SmithKline Laboratories - Branson
Instruments Division, 1969 to 1972, he served on a five man executive committee
responsible for strategic direction of the company. Mr. Russell is a Director
and shareholder of Innovative Cybersystems, Inc. founded in October 1999.
<PAGE>
Michelle Long, age 45, proposed Director (subject to compliance with
Section 14f). Ms. Long studied Mathematics at the University of Helsinki,
Finland and obtained her undergraduate degree in Finance from the University of
Cincinnati in 1978 and holds an MBA in Finance from Xavier University. Michelle
holds LUTCF, RHU, ChFC, and CFP designations. Ms. Long is registered with NASD
as an Investment Advisor and General Securities Principal. She currently heads
Quest Financial Group, the Greater Cincinnati Branch of United Planners'
Financial Services of America.
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.
Item 10. Executive Compensation.
The Company accrued a total of no compensation to the executive officers as
a group for services contributed to the Company in all capacities during the
period ended December 31, 1999. No one executive officer received, or has
accrued for his benefit, in excess of $60,000 for the year. No cash bonuses were
or are to be paid to such persons.
<PAGE>
The Company does not have any employee incentive stock option plans.
There are no plans pursuant to which cash or non-cash compensation was paid
or distributed during the last fiscal year, or is proposed to be paid or
distributed in the future, to the executive officers of the Company. No other
compensation not described above was paid or distributed during the last fiscal
year to the executive officers of the Company. There are no compensatory plans
or arrangements, with respect to any executive office of the Company, which
result or will result from the resignation, retirement or any other termination
of such individual's employment with the Company or from a change in control of
the Company or a change in the individual's responsibilities following a change
in control.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Name and Fiscal Salary Bonus Other Annual Restriced Securities
Principal Year ($) ($) Compensation Stock Underlying
Position ($) Awards Options/SARs
($) (#)
Kevin Waltzer 1997 0 0 0 0 0
President 1998 0 0 0 0 0
1999 0* 0 0 0 0
John J. Russell 1997 0 0 0 0 0
Secretary/ 1999 0 0 0 0 0
CFO 1999 0 0 0 0 0
1998 0 0 0 0 0
Michelle Long, 1997 0 0 0 0 0
Vice President 1998 0 0 0 0 0
1999 0* 0 0 0 0
Robert Galoob, 1997 0 0 0 0 0
President
(resigned Oct. 1998 0 0 0 0 0
1999)
1999 0* 0 0 0 0
David Galoob, 1997 0 0 0 0 0
Secretary
(resigned Oct. 1998 0 0 0 0 0
1999)
1999 0* 0 0 0 0
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR
value (None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
<PAGE>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of officers who are also Directors which compensation
is listed in Summary Compensation Table of Executives)
<TABLE>
<CAPTION>
Name Annual Meeting Consulting Number of Number of
Retainer Fees ($) Fees/Other Shares (#) Securities
Fees ($) Fees ($) Underlying
Options/SAR
(#)
<S> <C> <C> <C> <C> <C>
Robert Galoob, 0 0 0 0 0
Director
David Galoob, 0 0 0 0 0
Director
Kevin Waltzer 0 0 0 0 0
Director
Michelle Long 0 0 0 0 0
Director
John J. Russell 0 0 0 0 0
Director
</TABLE>
Item 11. Security Ownership of Management and Beneficial Owners.
As of December 31, 1999, 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 Robert Galoob, (1) 3,505,461 23.3%
116 Stanyan
San Francisco, CA
Common David Galoob (2) 3,505,461 23.3%
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 Archangel(3)
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
Common Kevin Waltzer(5) 6,376,922 42%
Persident/Director (w/ options 8,126,922) 54%
2865 S. Eagle Road
Newton, PA 18940
Common Michelle Long(5) 6,376,922 42%
Director (w/ options 8,126,922) 54%
3135 Hulbert Avenue
Erlanger, KY 41018
Common John J. Russell(5) 6,376,922 42%
Secretary/CFO (w/ options 8,126,922) 54%
9781 Horseshoe Lane
Aurora, Indiana 47001
All Officers and 6,376,922 42%
Directors as a Group (w/ options 8,126,922) 54%
(3 Persons)
(1) 2,445,961 shares are under contract to purchase by Innovative Cybersystems
Corp. which is beneficially owned by Directors, Michelle Long, Kevin Waltzer,
John J. Russell (sale closed in February 2000).
(2) 2,445,961 shares are under contract to Innovative Cybersystems Corp. (Sale
closed in February 2000).
(3) 1,485,000 shares under a Share Purchase contract to Innovative Cybersystems
Corp. (sale closed in February 2000).
(4) John J. Russell resigned in January 2000.
(5) Through Innovative Cybersystems Corp., this person is benefical owner of
6,376,922 shares Plus has options on an additional 1,750,000 shares.
Item 12. Certain Relationships and Related Transactions.
Pursuant to a Stock Purchase Agreement on October 2, 1999 Innovative
Cybersystems Corp., a Florida corporation, (Innovative) agreed to purchase
6,376,922 issued and outstanding shares of Registrant's common stock from Robert
Galoob, David Galoob, and Archangel Holding Company, LLC. The 6,376,922 shares
represent approximately 42% of the outstanding shares of the common stock of
Registrant on a fully-diluted basis. In addition, Innovative has options to
purchase an additional 1,750,000 common shares from David Galoob and Robert
Galoob. Innovative Cybersystems Corp. is controlled by Kevin Waltzer and John J.
Russell.
As of the closing of the Purchase, the following persons will own more than
5% of Registrant's outstanding common stock (on a fully diluted basis):
<PAGE>
Innovative Cybersystems Corp. 6,376,922 shares -42% (Innovative
Cybersystems also has options for 1,750,000 shares which when combined would
total 54% of the Company's outstanding stock.)
Prior to the share purchase, the company was controlled by Robert Galoob,
David Galoob, and Stephen Petre (through Archangel Holding Company, LLC).
<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
3.3 Amendment to Articles of Exhibit to Form 8-K filed
Incorporation December 14, 1998
10.1 Share Purchase Agreement Exhibit to Form 8-K filed
March 2000
10.2 Letter of Intent - Inter- Exhibit to Form 8-K filed
national Mercantile Corp. March 2000
27.1 Financial Data Schedule Attached
(b) Reports on Form 8-K.
Incorporated by reference.
8-K filed October 22, 1999
8-K filed October 27, 1999
<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
____________________, State of _________________ on this _____ day of March,
2000.
WatchOut! Inc.
/s/ Kevin Waltzer
By: ________________________________
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
- ---------------------- Director --------------------
Kevin Waltzer
<PAGE>
WATCHOUT!, INC.
Financial Statements
For the Year Ended December 31, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Watchout!, Inc.
We have audited the accompanying balance sheets of Watchout!, Inc., as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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. These 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial positions of Watchout!, Inc., as of
December 31, 1999 and 1998, and the results of their operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses of $2,959,097. At December 31, 1999 current
liabilities exceed current assets by $ 1,963,715. As discussed in Note 3,
conditions exist which raise substantial doubt about the Company's ability to
continue as a going concern unless it is able to generate sufficient cash flows
to meet its obligations and sustain its operations. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Denver, Colorado
March 15, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT!, INC.
BALANCE SHEETS
DECEMBER 31,
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Current Assets
Cash $ - $ 580
-------------- ---------------
Total Current Assets - 580
-------------- ---------------
Property, Plant and Equipment - -
Less Accumulated Depreciation - -
-------------- ---------------
Total Property and Equipment - -
-------------- ---------------
Other Assets
Organization Costs 15,250 15,250
Less Accumulated Amortization (6,100) (3,050)
-------------- ---------------
Total Other Assets 9,150 12,200
-------------- ---------------
TOTAL ASSETS $ 9,150 $ 12,780
============== ===============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities
Accrued Expenses $571,281 $537,213
Accounts Payable 475,989 475,989
Due to Stockholders 466,445 457,945
Notes Payable 450,000 450,000
-------------- ---------------
Total Current Liabilities 1,963,715 1,921,147
-------------- ---------------
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 shares issued and outstanding 15,030 15,030
Additional Paid in Capital 989,502 989,502
Accumulated Deficit (2,959,097) (2,912,899)
-------------- ---------------
Total Stockholders' Deficit (1,954,565) (1,908,367)
-------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 9,150 $ 12,780
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT!, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
REVENUES: $ - $ -
OPERATING EXPENSES:
Royalties - 56,250
Research & Development - 48,048
Selling Expenses - -
Professional Fees 8,500 122,051
Management Fees 580 -
Consulting Fees - 94,792
General & Administrative 3,050 98,746
Marketing - 1,251
Commitment/Loan Fees - 181,695
--------------- ---------------
Total Operating Expenses 12,130 602,833
--------------- ---------------
OPERATING (LOSS) (12,130) (602,833)
--------------- ---------------
OTHER REVENUES & EXPENSES:
Interest Expense (34,068) (92,063)
Loss on Sale of Receivables/Inventory - (162,000)
--------------- ---------------
Total Other Revenues and Expenses (34,068) (254,063)
--------------- ---------------
NET (LOSS) $ (46,198) $(856,896)
=============== ===============
Weighted Average Common Shares 15,030,245 15,030,245
Loss Per Share $ (0.00) $ (0.06)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
WATCHOUT!, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Retained Total
Common Stock Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
-------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1997 15,030,245 $ 15,030 $ 989,502 $(2,056,003) $(1,051,471)
Net Loss for year ended - - - (856,896) (856,896)
---------- -------- --------- ------------ ------------
Balance - December 31, 1998 15,030,245 15,030 989,502 (2,912,899) (1,908,367)
---------- -------- --------- ------------ ------------
Net Loss for year ended - - - (46,198) (46,198)
---------- -------- --------- ------------ ------------
Balance - December 31, 1999 15,030,245 $ 15,030 $ 989,502 $(2,959,097) $(1,954,565)
========== ======== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
WATHOUT!, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(46,198) $(856,896)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,050 -
Services performed in exchange for common stock - -
Changes in asset and liabilities:
(Decrease) in inventories - 162,000
(Decrease) in accounts receivable - 84,129
Increase in accounts payable 8,500 156,006
Increase in accrued liabilities 34,068 301,210
-------------- --------------
Net Cash Used in Operating Activities (580) (153,551)
-------------- --------------
Cash Flows From Investing Activities:
Equipment purchases - -
Increase in other assets - -
-------------- --------------
Net Cash Used in Investing Activities - -
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from notes payable - 150,521
Payments on short-term debt - (55,537)
Proceeds from issuance of common stock - -
-------------- --------------
Net Cash Provided by Financing Activities - 94,984
-------------- --------------
Net (Decrease) in Cash (580) (58,567)
Cash and Cash Equivalents - Beginning of Period 580 59,147
-------------- --------------
Cash and Cash Equivalents - End of Period $ - $ 580
============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ - $ 11,063
============== ==============
Taxes paid $ - $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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.
The Company's fiscal year end is December 31.
Cash and Cash Equivalents:
For purposes 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 expenses when incurred.
Use 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 amount 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.
Income Taxes
No provisions have been made for income taxes. As of December 31, 1999, the
company had net operating loss (NOL) carryforwards for federal income tax
purposes of approximately $2,959,047. These net operating losses may be used to
offset future taxable income. Unused carryforwards will expire in 2014.
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - Organization and Summary of Significant Accounting Policies;
(Continued)
Income Taxes:
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards 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 statement carrying amounts and
the tax basis of existing assets and liabilities.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $2,959,097 for federal income tax purposes. These carryforwards,
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 - Notes Payable:
Following is a summary of notes payable at December 31, 1999
Note Payable to individual, 12%, unsecured, due on demand $200,000
Note Payable to individual, 12%, unsecured, due on demand 166,000
Note Payable to individual, 12%, unsecured, due on demand 84,000
--------
$450,000
========
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 3 - Going Concern:
The Company has incurred net losses of $2,959,097. As of December 31, 1999,
current liabilities exceeded current assets by $1,963,715. In view of these
matters, the future success of the Company is likely to be dependent 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.
NOTE 4 - Related Party Transactions:
The Company has entered into loan agreements with its executive officers for
reimbursements of expenses of operations by the Company. The amounts outstanding
on the shareholders' loans total $466,445 at December 31, 1999. These loan
agreements are unsecured and non-interest-bearing.
NOTE 5 - SUBSEQUENT EVENTS:
a) Gill & Associates, a collection agency for Office Depot has threatened
a collection suit for approximately $17,000.
b) Boit, Inc. filed suit to resolve the technology license for the
Company's watch products. The Company settled the suit and relinquished
the license in the summer of 1999.
c) Len Dorfman has filed suit for fees owed totaling $96,000.
d) In October 1999, the major shareholders of the Company agreed to sell
control totaling over 8 million shares, including options, to
Innovative Cybersystems Corp. which intends to engage in new business.
The Agreement requires settlement of certain debts and renegotiations
of all other debt as a condition of the Agreement. It also requires
cancellation of all warrants.
e) The Company is negotiating to cancel the Sands Brothers selling
Agreement to settle any claims by Sands Brothers for a Mutual Release.
f) Bader-Williams Loan: The Company is renegotiating the loan which is in
default to provide a fixed amount and new payment terms.
g) Watchout/Goldpoint Loan: The Company is renegotiating the loan which is
in default, to provide a fixed amount and new payment terms.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9150
<CURRENT-LIABILITIES> 1963715
<BONDS> 0
0
0
<COMMON> 15030
<OTHER-SE> (1969595)
<TOTAL-LIABILITY-AND-EQUITY> 9150
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34068
<INCOME-PRETAX> (46198)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46198)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
