SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WATCHOUT! INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
UTAH 0-114244 84-0959153
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
7272 WISCONSIN AVENUE #300
BETHESDA, MARYLAND 20814
Ph# (888) 261-2887
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
SUITE 810, 808 4th AVENUE SW
CALGARY, ALBERTA T2P 3E8
Ph# (403) 269-1010
(ADDRESS AND PRINCIPAL PLACE OF BUSINESS OR INTENDED
PRINCIPAL PLACE OF BUSINESS)
TODD A. VIOLETTE
CHAIRMAN OF THE BOARD
7272 WISCONSIN AVENUE #300
BETHESDA, MARYLAND 20814
Ph# (888) 261-2887
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement for the same offering. [X]
If this is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
Title of each Proposed Amount
Class of securities Amount to be Proposed Maximum Maximum Aggregate of
To be registered Registered offering price offering price registration fee
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 8,562,384
Common Stock 5,000,000 $.30
Common Stock 13,562,384 $4,068,715.20 $1,074.14
-------------------------------------------------------------------------------------------------------------------
Total Registration Fee $1,074.14
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</TABLE>
Notes to Calculation of Registration Fee:
The registration fee was calculated using the market price of our common
equities on the day this document was prepared. Therefore, the fee calculation
was furnished in reference to provisions of Rule 457(o).
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. THE INFORMATION
IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION - [January 12, 2001]
PROSPECTUS
5,000,000 SHARES
[WATCHOUT! LOGO]
COMMON STOCK
This prospectus relates to an aggregate 13,562,384 shares of common stock of
Watchout! Inc., of which 8,562,384 may be offered for sale by persons who have
acquired such shares in certain acquisitions of businesses by us or in certain
other private transactions and 5,000,000 shares which are offered for sale by
the company. We have registered 8,562,384 shares under the Securities Act of
1933 on behalf of the stockholders so that they can sell them in a public
offering or other distribution. We will receive the proceeds from the sale of
the 5,000,000 shares.
Our common stock currently trades on the Over-The-Counter-Bulletin Board under
the symbol "WATC."
SEE "RISK FACTORS" TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING
SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is January __, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary ....................................................................... 1
Risk Factors.............................................................................. 2
Use of Proceeds........................................................................... 10
Determination of Offering Price........................................................... 11
Dilution.................................................................................. 11
Security Ownership of Certain Beneficial Owners and Management............................ 12
Plan of Distribution...................................................................... 13
Legal Proceedings......................................................................... 15
Directors, Executive Officers, Promoters and Control Persons.............................. 16
Selling Security Holders.................................................................. 17
Description of Securities................................................................. 21
Disclosure of Commission Position if Indemnification for Securities Act Liabilities....... 22
Organization Within The Last Five Years................................................... 22
Description of Business................................................................... 23
Management's Discussion and Analysis or Plan of Operation................................. 32
Description of Property................................................................... 33
Certain Relationships and Related Transactions............................................ 33
Market for Common Equity and Related Transactions......................................... 33
Executive Compensation.................................................................... 34
Financial Statements...................................................................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors" and our financial
statements and related notes included elsewhere in this prospectus.
OUR COMPANY
We provide business facilitation services and application services to small and
medium sized businesses. Our application services enable software applications
to be deployed, managed, supported and upgraded from centrally located servers,
rather than on individual desktop computers. The application service market is
expected to grow to over $11.0 billion in 2003. We intend to use our application
services and business facilitation capabilities to grow our business.
We believe that the following factors are driving the growth of our business
facilitation and application services:
- The increasing need for complex software applications, the constant
need to upgrade software applications and the growing demand for
faster software integration and deployment, which necessitate more
centralized information management systems,
- The scarcity of information technology professionals, making it
expensive and difficult for companies to operate and manage software
on their own,
- The decline in telecommunication costs and the increasing availability
of bandwidth, making it less costly to connect remote users to a
central data center,
- The growing demand for remote and shared access to software solutions,
and
- The increasing number of software applications and types of computer
devices requiring integration expertise that is not available to, or
is increasingly expensive for, many companies.
Our goal is to provide our application services and business facilitation
services with speed, simplicity and reliability. By outsourcing all or part of
their information technology needs, our customers can reduce their information
technology staff and focus on their core competencies. Our secure, reliable and
high-performance system for delivering software applications to multiple users
over a variety of hardware systems provides a flexible, cost-effective solution
for our customers.
As of mid November 2000, we began providing integrated Business-to-Business
solutions via the ASP model for large industrial customers in addition to
providing our existing business facilitation services offering to small to
medium companies primarily involved in the Business-to-Consumer (B2C)
marketplace. The B2B market facilitated $177 billion in transactions in 1999,
making it nine-times larger than the B2C market for the same time period.
To support this new initiative, we are negotiating strategic partnerships with
several major corporations whose technology and industry contacts compliment our
vision and would benefit from our proprietary e-commerce package now utilized by
our existing customers. In addition we are actively exploring potential mergers
that would provide strategic components for this indicative.
OUR ADDRESS AND TELEPHONE NUMBER
The address of our principal executive office is 7272 Wisconsin Avenue, Suite
#300, Bethesda, Maryland, 20814. Our telephone number is (888) 261-2887. Our
website address is www.cormaxinc.com. Information contained on our website does
not constitute part of this prospectus and our address should not be used as a
hyperlink to our website.
This prospectus contains trademarks and names of persons other than Watchout!
Inc., which are the property of their respective owners.
1
<PAGE>
THE OFFERING
Common stock outstanding as of January 8, 2001...............12,129,921 shares
Common stock being offered by Selling Stockholders............8,562,384 shares
Common Stock being offered for sale in this prospectus........5,000,000 shares
Common stock outstanding after this offering.................17,895,833 shares
Over The Counter Bulletin Board symbol........................WATC
The total number of shares outstanding after the offering is based on 12,129,921
shares outstanding as of January 08, 2001 and 5,000,000 shares of common stock
offered for sale by this prospectus.
All of the shares that are being offered by selling stockholders and the company
must deliver a copy of this prospectus to persons who buy them. The selling
stockholders will probably sell the shares at prevailing market prices, through
broker-dealers, although they are not required to do so. The selling
stockholders will retain all of the proceeds of their sales, except for
commissions they may pay to broker-dealers. We will not receive any money from
the selling shareholders. The company plans to sell the 5,000,000 shares from
treasury to accredited purchasers.
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING RISK FACTORS CAREFULLY BEFORE INVESTING IN OUR COMMON
STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY RISKS AND
UNCERTAINTIES THAT WE FACE OR THAT MAY AFFECT OUR BUSINESS. IF ANY OF THE RISKS
DESCRIBED BELOW ACTUALLY OCCUR, OUR BUSINESS COULD BE AFFECTED SIGNIFICANTLY.
THIS COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU COULD LOSE
ALL OR PART OF YOUR INVESTMENT YOU PAID FOR OUR COMMON STOCK.
RELATIVE BUSINESS RISKS
OUR BUSINESS HAS LIMITED OPERATING HISTORY AND THERE ARE A LARGE NUMBER OF RISKS
ASSOCIATED WITH OUR BUSINESS IN THE DEVELOPMENTAL STAGES.
2
<PAGE>
Our business is unproven and is in the developmental stages. Our limited
operating history makes it difficult to evaluate our business operations. We
expect to invest significant amounts of money in our operation in research and
development, promoting our company and services, expanding our facilities and
hiring new employees. The risks of a new business include:
- Obtaining a customer base and proving our products and service to be a
cost-effective and reliable choice by our customers.
- The ability to generate revenues that exceed the costs incurred by our
operations.
- We expect to continue incurring significant costs as we acquire new
customers and further develop and implement our products and services.
- We need to develop relationships with both software providers and
software vendors.
- Establishing our name in the market and working towards acquiring a
share in the market.
In addition to the listed risks we will need to raise a substantial amount of
capital to assure that our business plan is successful.
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOWS AND WE EXPECT TO CONTINUE TO
INCUR LOSSES AND EXPERIENCE NEGATIVE CASH FLOWS DURING OUR START UP PERIOD.
We will spend significant amounts on developing and refining our service model
and will continue to incur losses as our business develops. Our business has not
yet generated sufficient revenue to fund our operations without the use of
external financing and other capital pools. We will continue to incur fixed
costs as we expand our business both through marketing and hiring additional
staff members as needed to support our business. We will be investing in
technology, capable personnel and business acquisitions to grow our company. If
we are unable to generate adequate revenue we may not be able to continue to
operate our business, and you could lose your investment.
OUR GROWTH IS DEPENDENT ON THE ACCEPTANCE OF OUTSOURCING INTERNET BASED BUSINESS
AND THE USE OF BUSINESS SERVICE PROVIDING. THE DEMAND FOR OUR SERVICE IS
UNCERTAIN AND WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS TO OPERATE PROFITABLY.
The Application Service Providing (ASP) industry is still in its infancy and has
only started to expand rapidly. Our business services are dependent on the
acceptance of Internet-based business solutions. Some risks involved with the
acceptance of our services are:
3
<PAGE>
- Our customers must have confidence in our ability to provide a private
and secure transaction medium.
- We must prove to our customers that the use of an Internet based
service will be consistent and reliable.
- Failure by any other application service providers to deliver reliable
service to their customers may reflect on us.
- Any incompatibilities that may arise between our existing services and
our customers.
- Industry growth is unpredictable and may not grow at the rate that is
expected in the next few years.
- Our inability to effectively market our services to potential
customers in a cost-effective manner.
If any or all the above risks occur the ASP industry may not continue to be a
profitable venture for new ASP based companies.
THE ABILITY OF OUR MANAGEMENT TEAM TO ADDRESS OUR MARKET AND FACILITATE THE
GROWTH OF OUR COMPANY SUCCESSFULLY.
Our success in the industry is dependent on our ability to implement our service
strategy and manage it appropriately. Our continuous growth will place
significant demands on our management team. If we are unable to manage the
expansion of our operations we may not be able to grow at a pace that will
enable us to gain success in the market. In order to successfully manage our
growth we must
- Expand our employee base and train our support staff effectively to
meet the demands of our growth.
- Expanding our infrastructure to meet service demands.
- Improve our financial and operational resources.
If these issues are not addressed our growth may not be substantial enough to
support more demanding financial conditions and operating results will be
adversely affected.
OUR QUARTERLY OPERATING REVENUE MAY DEVIATE SIGNIFICANTLY, CAUSING THE PRICE OF
OUR COMMON STOCK TO FLUCTUATE.
Our quarterly revenues may be unpredictable and may cause significant volatility
in the price of our common stock. There is a very good chance that our operating
results will fall below expected values of the shareholders and analysts. Some
of the factors which might cause the common stock price to fluctuate may
include:
- Rising costs of expanding our operations.
- The ability to acquire new customers and maintain effective
relationships with our existing ones.
- The amount of capital expenditure needed and the timing at which it is
required.
- Fixed costs of software licensing or cost of application use and
deployment.
4
<PAGE>
- Our ability to sign our customers to multi-year contracts.
- The introduction of new business services.
- Fluctuation of competitors pricing and/or changing our own pricing.
- The length of time necessary to set-up, implement and establish a
connection with our customers.
- The ability to recruit, train and maintain highly skilled employees in
all areas of expertise.
The factors listed above are some of the elements that cause fluctuations and
unpredictable changes in common stock price.
WE MAY REQUIRE ADDITIONAL INVESTMENT CAPITAL TO FUND OUR OPERATIONS AND ASSIST
IN FINANCING OUR GROWTH. IF WE ARE UNABLE TO DO SO UNDER ACCEPTABLE TERMS THIS
COULD AFFECT THE OPERATING RESULTS OF OUR COMPANY.
If we require additional funding to help facilitate growth we may have to incur
extra debt. Another option is our ability to sell equity in our company. If we
raise money through this modality there is a risk of price fluctuation in our
common stock price. In addition, the new issuance of securities may cause
dilution and loss of percentage of ownership. If we do not obtain financing
through acceptable terms this may affect future growth or expansion.
WE MUST BE ABLE TO EVOLVE AND GROW WITH CHANGING TECHNOLOGY AS THE INDUSTRY
DIVERSIFIES.
Technology in this industry is rapidly changing for both computer hardware and
software including upgrades to existing systems. Rapidly changing technology
will always pose a risk to our industry. If we are unable to meet the demands of
our customers technological needs our competitiveness will be diminished
considerably. Several factors need to be considered when responding effectively
to changing technology:
- The need for the industry's leading technical expertise to ensure any
new technology can be integrated properly.
- Have on-going performance evaluation to ensure our services succeed
industry standards and our existing services remain reliable.
- As the needs of our customers change we must provide new applications
and services.
With technology changing so rapidly the risk of not being able to change with
all our customers needs in a timely fashion is a concern. If our services do not
meet the needs of changing technology this could affect the operational results
of our services.
WE ARE DEPENDENT ON SOFTWARE AND HARDWARE VENDORS TO PROVIDE US WITH APPLICATION
SERVICES AND PRODUCTS. IF ANY VENDOR FAILS TO DELIVER PRODUCTS OR SERVICES THIS
COULD ADVERSELY AFFECT OUR BUSINESS.
5
<PAGE>
Our business is dependent on software and hardware vendors to supply us with
application software and necessary hardware for delivery of our service. Our
license agreements with these vendors are for varied periods of time, if our
agreements with these parties are disrupted for any reason this could affect our
ability to offer our services. Some of the risks involved with vendor
relationships:
- If the ability to license a product from a vendor becomes prohibited
by the vendor.
- If we change vendors from which we license our service software this
may disrupt our service offerings.
- If any of the vendors we deal with experienced financial difficulty
this could affect the availability of the software.
- If new product offerings are not compatible with existing service
packages.
All of these risks may present a possible disruption of our application services
and may stop some of the availability of our products. Changes in services may
require substantial time and expense to integrate new service requirements.
ACQUISITIONS BY OUR COMPANY MAY PRESENT A RISK TO OUR BUSINESS.
If the right investments present themselves, growth through acquisition may
occur. If we are successful in making an acquisition there are always risks
associated with investment. These associated risks may affect our operation of
business:
- Our acquisitions may lead us in a new direction of business that we
were previously not experienced in.
- We may encounter barriers when trying to integrate any new business
into our existing operations.
- The acquisition price may be a greater cost than the value presented
with the acquisition itself.
- Our business process may be disrupted by the acquisition diverting
management's attention away from the core of our business.
- We may have difficulties identifying prospective acquisitions and
acquiring them under favorable terms.
- We may be unable to retain management and key personnel of the
acquired business.
- A change in management may create interpersonal difficulties with the
acquired company's existing employees.
- There may be unforeseen liabilities that may not have been clear at
the time of acquisition.
With any acquisition debt may be incurred as well as securities issued to pay
for the acquisition which may present dilution of the common stock for the
original shareholders.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD AFFECT ANY
COMPETITIVE ADVANTAGE WE HAVE ESTABLISHED IN THE INDUSTRY. THIS MAY HAVE ADVERSE
AFFECTS ON OUR FINANCIAL CONDITION AS WELL AS THE OPERATIONS OF OUR COMPANY.
6
<PAGE>
There is no assurance that the integrity of our intellectual property can be
maintained. There is no way to entirely protect our intellectual property from
third-party development of competitive products and services. Misappropriation
of our intellectual property is protected to the best of our ability, although
as the industry expands there is a greater risk associated with trying to
protect our intellectual property.
INFRINGEMENT CLAIMS AGAINST OUR COMPANY, EVEN WITHOUT MERIT CAN HAVE ADVERSE
AFFECTS ON THE COURSE OF OUR BUSINESS.
Other companies may claim that our service and product offerings infringe on
their proprietary rights. Any infringement claim, even without merit can consume
time and can be very costly causing delays in our ability to efficiently operate
our business. Infringement claims can cause the issuance of large licensing fees
and royalty fees.
THE SERVICES WE PROVIDE WILL BE ADVERSELY AFFECTED BY ANY SECURITY RISKS
PERCEIVED BY OUR CUSTOMERS.
The secure transmission of confidential information is an essential part of our
service. We will provide substantial investment to ensure that the highest
levels of security are in place to avoid any breach of security. Although the
highest standards will be met we cannot guarantee that our security is
impenetrable.
THE SUCCESS OF OUR COMPANY IS DEPENDENT ON OUR ABILITY TO RECRUIT AND MAINTAIN
QUALITY PERSONNEL.
Our future success is highly dependent on our ability to attract and retain
highly skilled executive officers, IT support personnel, sales and marketing
members. The risk of one of our competitors recruiting one of our trained
employees could affect the operation of our company. Qualified IT support is
currently in high demand and hard to retain, without highly skilled individuals
we will not be able to maintain the service standards required by our customers.
IF WE FAIL TO MEET OUR CONTRACTUAL OBLIGATION FOR OUR SERVICES, OUR CUSTOMERS
MAY BE ENTITLED TO FREE SERVICES OR CREDIT FOR SERVICE.
We provide our customers a guaranteed service fulfillment. If we fail in any way
to meet the service levels we have promised, our customers are entitled to
credit for free services. If we continue to provide unacceptable service levels,
our customers retain the right to cancel their service agreement with us.
7
<PAGE>
THE PRICE OF OUR COMMON STOCK MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS DUE TO
VARIOUS MARKET CONDITIONS.
The market price of our common stock may fluctuate causing market volatility for
several reasons:
- General market conditions can cause significant fluctuations in our
stock price.
- Volatility of our competitors stock in the market may affect the value
of our stock price.
- Earning estimates by analysts may fluctuate and may change the market
conditions.
- Expansion in the form of acquisition or news relative to the industry.
- Various changes in information technology and application services.
- New product announcement and deployment.
OUR COMMON STOCK PRICE COULD BE AFFECTED BY AN INCREASE NUMBER OF SHARES BEING
AVAILABLE.
Sales of our common stock in large quantities could adversely affect the price
of the stock and could also hinder our ability to raise capital through
additional equity financing.
INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
OF THEIR PURCHASE.
Investors in common stock will pay an assessed per share price that will exceed
the net tangible price per share of the security causing dilution of their
investment.
INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF WATCHOUT! INC.'S
STOCK DUE TO FEDERAL PENNY STOCK REGULATIONS.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of
1934, as amended. Because Watchout!'s securities constitute a "penny stock"
within the meaning of the rules, the rules would apply to Watchout! and its
securities. The rules may further affect the ability of owners of Watchout!'s
shares of stock to sell their securities in any market that may develop for
them. There may be a limited market for penny stocks, due to the regulatory
burdens on broker-dealers. The market among dealers may not be active. Investors
in penny stocks often are unable to sell stock back to the dealer that sold them
the stock. The mark ups or commissions charged by the broker-dealers may be
greater than any profit a seller may make. Because of large dealer spreads,
investors may be unable to sell the stock immediately back to the dealer at the
same price the dealer sold the stock to the investor. In some cases, the stock
may fall quickly in value. Investors may be unable to reap any profit from any
sale of the stock, if they can sell it at all.
8
<PAGE>
Shareholders should be aware that, according to the Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include:
- Control of the market for the security by one or a few broker-dealers
that are often related
- To the promoter or the Issuer;
- Manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
- "Boiler room" practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
- Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
- The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent
investor losses.
NOTES REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
significant risks and uncertainties. The forward-looking statements can be
identified by phrases and statements that include: "may", "anticipate",
"could", "believe", "estimate", "intend", "plan", "project", "predict",
"will". These or similar statements or expressions have been used to
predict a future strategy that we may or may not attain. You should not
rely on forward-looking statements. You should rely on information
contained in the prospectus when making an educated decision about whether
you should make an investment in our common stock. We feel it is important
to share our expectations on the direction our company is taking. There are
many factors we have predicted that we may not be able to control or
accurately predict. Before making an investment decision with our company
you should take all risk factors into consideration found in the section
entitled "Risk Factors" and elsewhere in this prospectus that outline
adverse conditions that may affect the operation of our business.
9
<PAGE>
USE OF PROCEEDS
From the proceeds of the sale of shares of common stock offered by us, we expect
to receive net proceeds of approximately $1,500,000 for 5,000,000 shares at a
public offering of $0.30 per share after deducting all offering expenses
incurred.
We intend to use the net proceeds of this offering to:
- Discharge previously incurred debt;
- Expansion of the operations of Wirelesson.com Ltd;
- Increase working capital and general growth of our corporation;
- To attract and retain key employees needed to facilitate growth of our
sales and marketing;
- Expand our service offerings and solution infrastructure;
- Expand and enhance our IT expertise and technical management;
- To obtain rights and product licenses to expand our service offerings;
- To provide us with the ability to use our common stock as an
acquisition tool to pursue opportunities and expand our operations;
- To establish marketplace visibility and enhance our credibility;
- To help finance any future debt we may need to incur to expand and
grow our business;
- To expand necessary hardware to support our customer base as it is
needed;
The proportions of this offering have not been specified or allocated,
therefore, we cannot estimate the amounts to be used for each purpose. The
timing at which the proceeds are needed is not known at this time and will vary
depending on our course of business. Factors to be considered depend on the
amount generated from the offering, our company revenues and market response to
our services. Pending the use of our net proceeds as for the above purposes, our
intent is to invest the net-proceeds of this offering in short-term,
investment-grade, interest-bearing securities.
10
<PAGE>
DETERMINATION OF OFFERING PRICE
Watchout! Inc. arbitrarily determined the price of the Common Shares of Stock in
this Offering. The offering price is not an indication of, and is not based
upon, the actual value of Watchout! The offering price bears no relationship to
the book value, assets or earnings of Watchout!, or any other recognized
criteria of value. The offering price should not be regarded as an indicator of
the future market price of the securities.
DILUTION
The net tangible book value of common stock as of September 30, 2000 was
$595,326 or approximately $0.12 per share after giving effect to the proposal to
certain creditors. Net tangible book value per share represents the amount of
our stockholders' equity adjusted for the creditor proposal, less intangible
assets, divided by the number of shares of common stock outstanding.
Net tangible book value dilution per share represents the difference between the
following:
(1) the amount paid per share by purchasers of common stock in this
offering, and
(2) the adjusted net tangible book value per share of purchasers of common
stock in this offering immediately after completion of this offering and
after giving effect to the creditor proposal.
After giving effect to the sale of 5,000,000 shares of common stock in this
offering, our adjusted net tangible book value as of September 30, 2000, based
on the offering price of $0.30 per share, was $2,095,326 or $0.12 per share of
common stock. This represents an immediate increase in net tangible book value
of $0.07 per share to existing stockholders and an immediate dilution of net
tangible book value of $0.18 per share to new investors.
The following table illustrates this dilution:
Public offering price per share of common stock.........................$0.30
Net tangible book value per share of common stock as of
September 30, 2000 prior to offering....................................$0.05
Net increase in net tangible book value per share of
common stock attributable to cash payment from this offering............$0.07
Pro forma net tangible book value per share as of September
30, 2000 after giving effect to the offering............................$0.12
Immediate dilution per share to new investors...........................$0.18
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER PERCENT OF CLASS
<S> <C> <C> <C>
Class A Common Todd Violette 500,000 2.79%
6805 Pyramid Way,
Columbia MD 21044
and
108 Hampshire Grove NW,
Calgary AB
Class A Common Cavalcade of Sports 3,439,000 19.2%
Networks Inc.
7272 Wisconsin Ave #300,
Bethesda, Maryland
Class A Common Shawn Clarke 350,000 1.95%
167 Edgeridge View NW,
Calgary AB
Class A Common Dan Meikleham 500,000 2.79%
115 Lake Mead Cres. SE,
Calgary AB
</TABLE>
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PLAN OF DISTRIBUTION
We are registering the shares of common stock offered for sale by this
prospectus on behalf of the selling stockholders. As used in this section,
"selling stockholders" includes donees, pledgees, distributees, transferees or
other successors-in-interest, including, without limitation, their respective
affiliates and limited or general partners, all of which are referred to as a
group below as transferees, or certain counter-parties to derivative
transactions with the selling stockholders or transferees. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. We will pay all costs, expenses and
fees in connection with the registration of the shares. The selling stockholders
will pay all brokerage commissions, underwriting discounts, commissions,
transfer taxes and other similar selling expenses, if any, associated with the
sale of the shares of common stock by them.
Shares of common stock may be sold by the selling stockholders from time to time
in one or more types of transactions (which may include block transactions) on
Nasdaq or on any other market on which our common stock may from time to time be
trading, in the over-the-counter market, in privately-negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of such shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, fixed prices, varying prices determined at the
time of sale or at negotiated prices. The selling stockholders will have the
sole discretion not to accept any purchase offer or make any sale of shares if
they deem the purchase price to be unsatisfactory at any particular time. Such
transactions may or may not involve brokers or dealers. To the best of our
knowledge, none of the selling stockholders have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of shares of common stock offered by
this prospectus; however, the selling stockholders may enter into agreements,
understandings or arrangements with an underwriter or broker-dealer regarding
the sale of their shares in the future.
The selling stockholders may effect such transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals, or other agents. Such broker-dealers or other
agents may receive compensation in the form of discounts, concessions, or
commissions from the selling stockholders and/or the purchasers of shares of
common stock for whom such broker-dealers or other agents may act as agents or
to whom they sell as principal, or both (which compensation as to a particular
broker-dealer or other agent might be in excess of customary commissions).
Market makers and block purchasers purchasing the shares will do so for their
own account and at their own risk. It is possible that a selling stockholder
will attempt to sell shares of common stock in block transactions to market
makers or other purchasers at a price per share, which may be below the market
price. There can be no assurance that all or any part of the shares offered
hereby will be sold by the selling stockholders.
The selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions with respect to the shares. In connection with
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<PAGE>
these transactions, broker-dealers or other financial institutions may engage in
short sales of the shares in the course of hedging the positions they assume
with the selling stockholders. The selling stockholders may also sell the shares
short and redeliver the shares to close out the short positions. The selling
stockholders may also enter into option or other transactions with
broker-dealers of other financial institutions, which require the delivery to
the broker-dealer or other financial institutions of the shares. The selling
stockholders may also loan or pledge the shares to a financial institution or a
broker-dealer and the financial institution or the broker-dealer may sell the
shares loaned or upon a default the financial institution or the broker-dealer
may effect sales of the pledged shares.
The selling stockholders and any brokers, dealers or agents that participate in
connection with the sale of shares of common stock might be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and any
commissions received by such brokers, dealers or agents and any profit on the
resale of the shares sold by them while acting as principals might be deemed to
be underwriting discounts or commissions under the Securities Act. We have
agreed to indemnify some of the selling stockholders against certain
liabilities, including liabilities arising under the Securities Act. The selling
Stock holders may agree to indemnify any agent, dealer, broker-dealer or
underwriter that participates in transactions involving sales of the shares of
common stock offered pursuant to this prospectus against certain liabilities,
including liabilities arising under the Securities Act.
Because the selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, the selling stockholders will be subject to the
prospectus delivery requirements of the Securities Act and the rules promulgated
thereunder and they may be subject to certain statutory liabilities under the
Securities Act, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Securities Exchange Act. In addition,
the selling stockholders and any other person participating in the offering will
be subject to applicable provisions of the Securities Exchange Act and the rules
and regulations thereunder, including Regulation M under the Securities Exchange
Act, which may limit the timing of purchases and sales. These restrictions may
affect the marketability of the common stock and the ability of any person to
engage in market-making activities with respect to the common stock.
Any shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act, may be sold under Rule 144 rather
than under the terms of this prospectus. In addition, subject to applicable
state and foreign laws, the selling stockholders may sell their common stock
outside the United States pursuant to Rules 903 and 904 of Regulation S under
the Securities Act.
To comply with the securities laws of certain jurisdictions, the shares of
common stock offered by this prospectus may need to be offered or sold only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the shares of common stock may not be offered or sold unless they
have been registered or qualified for sale or an exemption is available and
complied with.
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<PAGE>
If a selling stockholder notifies us that any material arrangement has been
entered into with a broker-dealer for the sale of shares of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker, dealer or underwriter, we will file a supplement to
this prospectus, if required, pursuant to Rule 424(b) under the Securities Act.
In addition, to the extent required, we will amend or supplement this prospectus
to disclose other material arrangements regarding the plan of distribution.
LEGAL PROCEEDINGS
(1) We are subject to a lawsuit filed by John Bader, 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 judgement
seeks approximately $263,396.06 plus 10% interest per Annum from the
date of judgement until paid to John Bader, $135,745.61 plus 10%
interest per annum from the date of judgement until paid to Wayne E.
Williams and $1,386,250 plus 10% interest per annum from date of
judgement until paid to Jagi Capital Group, Inc. The damages are 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. We have retained
council in Tarrant County, Texas to have the judgement vacated.
Management's intent is to fight the judgement.
(2) We have entered into a settlement agreement with Philip Doublet
relating to Action No. 0001-10222 in the Court of Queens Bench of
Alberta, Judicial District of Calgary, Canada. Within the settlement we
shall pay Philip Doublet $45,000 U.S. in three equal installments on
December 20, 2000, January 20,2001, and February 20, 2001. We also
delivered to Philip Doublet a share certificate for 300,000 shares of
Watchout! Inc. on December 20, 2000. The share certificate shall be in
the name of Philip Doublet and/or his assignor. We have agreed to apply
for registration of the shares in this Registration Statement to be
filed with the United States Securities and Exchange Commission.
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<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
TERM OF OFFICE
Todd Violette......30 Chairman of The Board September 2000-Present
Shawn Clarke.......34 Chief Executive Officer September 2000-Present
Bernhard Wieser....32 Chief Technology Officer November 2000-Present
Dan Meikleham......56 Controller September 2000-Present
Mr. Todd Violette, Chairman of the Board
----------------------------------------
Mr. Violette is an experienced International Businessman with a thorough
understanding of global public markets. He received his formal education from
the University of Maryland, College Park with a Bachelor of Arts in Behavioral
and Social Sciences. After gaining experience in the banking field, Mr. Violette
focused his attention on financing and the development of start-up corporations.
Mr. Shawn Clarke, Chief Executive Officer
-----------------------------------------
Mr. Clarke has a B.Sc. in Computer Science from the University of Lethbridge and
over 12 years experience in the development and implementation of leading edge
IT solutions. His diverse skills in project planning, design, implementation and
management for IT projects have allowed him to manage complex projects to
successful completion on time and on budget. His strong interpersonal skills
have allowed him to work well with clients, senior management, business users
and technical staff.
Mr. Bernhard Weiser, Chief Technical Officer
--------------------------------------------
Bernhard Weiser graduated from the University of Calgary with a double major in
Computer Science and Classical History and Civilization. Bernhard has more than
ten years of cross platform software development experience. For the past five
years, he has been president of Octavian Micro Development Inc., a software
company offering consulting services to scientific and engineering companies,
specializing in Internet, middleware and component technologies. Previously,
Bernhard worked for the AND Group Ltd./Rainbow Technologies Ltd. on automated,
electronic software distribution. Bernhard has published numerous articles
related to engineering and technology.
Mr. Dan Meikleham, Controller
-----------------------------
After serving as a Royal Marine Commando from 1961 to 1963 Dan attended
Scotland's Anniesland College of Further Education and obtained Advanced Level
Diplomas for Mathematics, English Literature and Physics. He then won an annual
British-wide competition in math and obtained a position as a Government
Scientist at the National Engineering Laboratory. From 1969 to 1972, Dan
attended The Central College of Commerce and Distribution to further his
education and refocus his career on the insurance industry. In 1973, Dan
emigrated from Scotland to Canada and, after working for a major international
consulting firm, he established Meikleham & Associates in 1983 and served as a
consultant to privately held corporations.
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<PAGE>
SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND
OF BENEFICIAL OF NATURE OF
TITLE OF CLASS OWNER BENEFICIAL OWNER PERCENT OF CLASS
<S> <C> <C>
Class A Common Todd A Violette 500,000 2.79%
6805 Pyramid Way,
Columbia MD 21044
Class A Common Dan Meikleham 500,000 2.79%
115 Lake Mead Cresc. SE
Calgary, AB
Class A Common Shawn Clarke 350,000 1.95%
167 Edgeridge View NW,
Calgary AB
Class A Common Philip Doublet 300,000 1.67%
85 Panorama Hills Grove
NW Calgary AB
Class A Common Terry Downs 200,000 1.11%
517 14th Ave. NE
Calgary, AB
Class A Common Cavalcade of Sports 3,439,000 19.2%
Networks Inc.
7272 Wisconsin Ave #300,
Bethesda, Maryland
Class A Common Baker Reese 800,000 4.47%
Panama City, Panama
Class A Common Promark 500,000 2.79%
419 South 2nd Street
#300 Philadelphia, PA
Class A Common Donna Charland 10,000 .056%
2827 Cedar Ridge Dr. SW
Calgary AB
Class A Common Erin Moroz 10,000 .056%
301, 706 15 Ave SW
Calgary AB
Class A Common Ross Burke 10,000 .056%
1320 16th Ave SW Calgary
AB
Class A Common Chris Knox 10,000 .056%
Suite 55 Lynnridge
Village S.E.
Calgary, AB
17
<PAGE>
Class A Common Deneen Tedeschini 10,000 .056%
411 17th Ave NW
Calgary AB
Class A Common Rick Shykora 25,000 0.14%
303 1732 9A Street SW
Calgary AB
Class A Common John Williams 25,000 0.14%
707 1540 29th Street
Calgary AB
Class A Common Sean White 30,000 0.17%
B208 3615 49 St NW
Calgary AB
Class A Common West Canadian Oil & Gas 150,000 0.84%
Inc.
1000, 736-6th Ave SW
Calgary AB
Class A Common Richard Greene 150,000 0.84%
2455 Sunrise Blvd
Fort Lauderdale FL
Class A Common Farber & Klein 37,000 0.20%
20283 State Road #7,
Boca Raton FL
Class A Common Alliance Equities 300,000 1.67%
12147 NW 9 Drive Coral
Springs, FL
Class A Common American Arbitration 4,593 .025%
Assoc.
1633 Broadway Floor 10,
New York NY
Class A Common Barbara Frankel 35,000 0.19%
840 Powell St. San
Francisco, CA
Class A Common Samuel G Davis & 4,773 .026%
Associates Inc.
PO BOX 449, Purdys NY
Class A Common Comyns, Smith, McCleary 40,000 0.22%
LLP
3470 Mount Diablo Blvd
Suite A310 Lafayette CA
Class A Common DCI, Inc. 9,800 .054%
15301 W 109th Street,
Lenexa KS
18
<PAGE>
Class A Common Gilbert International 12,500 0.69%
Inc.
330 South Stiles St.
Linden NJ
Class A Common Karen Shao 22,893 0.13%
1779 Parmly Rd Mohegan
Lake, NY
Class A Common Mortimer Gershman 20,000 0.11%
60 Woodcrest Dr.
Morristown, NJ
Class A Common Thomas J Irvine or 86,250 0.48%
Caroline Irvine, trustee
of the Thomas J Irvine
Revocable Trust, dated
December 19, 1997
21670 Frontenac Court,
Boca Raton FL
Class A Common Len Dorfman 200,000 1.11%
14252 SW McFarland Blvd.
Tigard, ON
Class A Common Northwest Etch 4,663 .026%
Technology, Inc.
2601 South Hood Street,
Tacoma WA
Class A Common Creditor Pool 1 765,912 4.28%
</TABLE>
Notes to Selling Shareholder:
(1) On October 10, 2000 Watchout! made a proposal to certain of its
creditors, to which a total of $1,389,075 was owed, to issue a total of
1,389,075 shares in satisfaction of the indebtedness. Creditors to
which $623,163 is owed have accepted the Company's proposal and 623,163
shares are being registered and are shown as Creditor Pool on the
schedule of shares being registered.
The Selling SECURITY HOLDERS (or pledges, donees, transferees or successors in
interest) may sell all or a portion of the respective Selling SECURITY HOLDERS'
Securities held by them from time to time while the registration statement of
which this Prospectus is a part remains effective. The aggregate proceeds to the
Selling SECURITY HOLDERS from the sale of the respective Selling SECURITY
HOLDERS' Securities offered by the Selling SECURITY HOLDERS hereby will be the
prices at which such securities are sold, less any commissions. There is no
assurance that the Selling SECURITY HOLDERS will sell any or all of the Selling
SECURITY HOLDERS' Securities offered hereby.
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<PAGE>
The Selling SECURITY HOLDERS' Securities may be sold by the Selling SECURITY
HOLDERS in transactions on the Over-The-Counter Bulletin Board, in negotiated
transactions, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices or through the writing of options on
the Selling SECURITY HOLDERS' Securities. The Selling SECURITY HOLDERS may elect
to engage a broker or dealer to effect sales in one or more of the following
transactions: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Selling SECURITY HOLDERS' Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, brokers and dealers engaged by the Selling SECURITY HOLDERS
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling SECURITY HOLDERS in amounts to
be negotiated (and, if such broker-dealer acts as agent for the purchaser of
such Selling SECURITY HOLDERS' Securities, from such purchaser). Broker-dealers
may agree with the Selling SECURITY HOLDERS to sell a specified number of such
Selling SECURITY HOLDERS' Securities at a stipulated price per Selling Security
Holder's Security, and to the extent that such broker-dealer is unable to do so,
acting as agent for the Selling SECURITY HOLDERS to purchase as principal any
unsold Selling SECURITY HOLDERS' Securities at the price required to fulfill the
broker-dealer commitment to the Selling SECURITY HOLDERS. Broker-dealers who
acquire Selling SECURITY HOLDERS' Securities as principal may thereafter resell
such Selling SECURITY HOLDERS' Securities from time to time in transactions
(which may involve crosses and block transaction and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Selling SECURITY HOLDERS' Securities
commissions as described above.
The Selling SECURITY HOLDERS and any broker-dealers or agents that participate
with the Selling SECURITY HOLDERS in sales of the Selling SECURITY HOLDERS'
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agent and any profit on the
resale of the Selling SECURITY HOLDERS' Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
The Company will pay all expenses incidental to this offering and sale of the
Selling SECURITY HOLDERS' Securities to the public other than selling
commissions and fees.
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<PAGE>
DESCRIPTION OF SECURITIES
Authorized stock
The company is authorized to issue 50,000,000 common shares issued with a par
value of $.001 per share.
Common stock
We currently have 12,129,921 shares of common stock outstanding. All outstanding
shares of common stock are duly authorized, validly issued, fully paid and
non-assessable.
Holders of common stock are entitled to receive dividends, when and if declared
by the board of directors, out of funds legally available for that purpose and
to share ratably in our net assets upon liquidation, after provision has been
made for each class of stock, if any, having preference over the common stock.
Holders of common stock are entitled to one vote per share on all matters
requiring a vote of shareholders. Since the common stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of common stock voting for the election of
directors can elect all of the directors whose terms expire that year, if they
choose to do so. Holders of common stock do not have preemptive or other rights
to subscribe for additional shares, nor are there any redemption or sinking fund
provisions associated with the common stock.
Rule 144
In general, under Rule 144 as currently in effect, a person who has beneficially
owned restricted securities for at least one year, including persons who may be
deemed our "affiliates", would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the number of
shares of common stock then outstanding or the average weekly trading volume of
the common stock on all exchanges and/or reported through the automated
quotation system of a registered securities association during the four calendar
weeks immediately preceding the SEC filing with respect to such sale. Manner of
sale provisions, notice requirements and the availability of current public
information about us also apply to these sales. These limitations apply to both
restricted and unrestricted shares held by persons who are our affiliates. If a
person is not deemed to have been our affiliate at any time during the 90 days
immediately preceding the sale, he or she may sell his or her restricted shares
under Rule 144(k) without regard to the limitations described above if at least
two years have elapsed since the later of the date the shares were acquired from
us or from our affiliate. This paragraph summarizes Rule 144 and is not intended
to be a complete description of it.
Transfer agent
The transfer agent and registrar for our stock is Securities Transfer Corp.,
Dallas, Texas.
21
<PAGE>
INTEREST OF NAMED EXPERTS AND COUNSEL
The financial statements of the Company as of December 31, 1999 have been
included in the Registration Statement in reliance on the audit reports of
Michael Johnson, CPA, independent certified public accountants, given on the
authority of such firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Watchout!'s Articles of Incorporation provide that it must indemnify its
directors and officers to the fullest extent permitted under Utah state law
against all liabilities incurred by reason of the fact that the person is or was
a director or officer of Watchout! or a fiduciary of an employee benefit plan,
or is or was serving at the request of Watchout! as a director or officer, or
fiduciary of an employee benefit plan, of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify Watchout!'s Directors
and Officers from all costs and expenses of liability incurred by them in
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with Watchout!. Pursuant to Utah state law, a
corporation may indemnify a director, provided that such indemnity shall not
apply on account of: (a) acts or omissions of the director finally adjudged to
be intentional misconduct or a knowing violation of law; (b) unlawful
distributions; or (c) any transaction with respect to which it was finally
adjudged that such director personally received a benefit in money, property, or
services to which the director was not legally entitled.
ORGANIZATION WITHIN THE LAST FIVE YEARS
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 its 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.
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.
22
<PAGE>
DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
Watchout! Is a Business Facilitator that offers complete business solutions for
small to medium sized emerging growth companies primarily in the
Business-to-Consumer (B2C) marketplace. Watchout! provides its clients with
immediate access to world-class business tools and expertise. Watchout! offers
scalable products and services that eliminate the need for extensive
infrastructure modifications growing companies are challenged to implement and
maintain. These services are provided to its clients by utilizing an Application
Service Provider (ASP) Model.
In addition to the (B2C) Business Facilitation Services offered to our small to
medium size clients, Watchout!, also provides integrated Business-to-Business
(B2B) solutions for large industrial clients. These B2B solutions are based on
the same underlying e-commerce technology that is used to service Watchout!'s
B2C customers. The Management of Watchout! sees this extension of the company's
technology into this far larger marketplace as strategic business initiative for
the company.
The advancement of technology and the growth of the Internet during the past
several years have enabled companies of all sizes to enter the global
marketplace. Originally, many organizations felt they had the internal expertise
and resources required to establish and grow a new company in a dynamic and
competitive market. However, many companies now recognize the need to seek
outside guidance in order to become competitive and ensure that all internal
resources are focused on the companies' core business processes.
MARKET ANALYSIS
We believe the application service and business facilitation industry is being
driven by several key factors:
High per-use cost of applications is a major reason the ASP industry is very
appealing to small and medium sized companies. These costs are significant even
for large companies and out of reach for most medium sized companies.
The Budget impact of application services are compelling for the average company
due to the fact that the costs affect the operating budget not the capital
budget.
Scarce IT resources are driving the costs up for even marginal talent to fill
needed IT positions. As well, it is costly and time consuming to train your own
staff and this adds the risk of someone else hiring your ingrown talent.
There is an ever-increasing need for faster, more predictable implementation of
IT services. Application services can implement a resource team of IT
specialists to ensure your needs are fulfilled in a cost effective, efficient
manner. By having a team of IT specialists focusing on applications and core
capabilities this directly contributes to the success of the organization.
23
<PAGE>
Although the ASP industry is relatively new, it is growing and evolving daily.
Leading industry analysts IDC, DataQuest, Yankee Group predict that by 2003 the
ASP industry sales will be $23.4, $22.7 and $17.0 Billion dollars respectively.
Industry players have predicted that 35% of sales will focus on medium sized
accounts and 15% will be focused on small accounts in the ASP market. As well,
Forrester Research estimates that there are 300,000 emerging small to medium
sized enterprises in the U.S. with revenues between $40 million and $500
million. The ASP industry is anticipated to facilitate $2.71 trillion in
e-commerce sales transactions by the year 2004, representing 37% of the overall
business-to-business, e-commerce market. The B2B marketplace, an ASP market
segment addressed by Watchout!'s integration solutions for large industrial
customers, facilitated $177 billion (USD) in transactions in 1999 and is
expected to grow rapidly.
Watchout! will provide hosting services that enable business to establish an
Internet presence. The U.S. hosting market is forecast to experience substantial
growth, with revenue projections of $2.1 billion in 1999 to more than $9.3
billion in 2004, according to Dataquest Inc. In 1999, U.S. hosting represented 6
percent of the $34.5 billion U.S. management services market. By 2004, hosting
will account for 13 percent of the $69.2 billion management services market.
We believe that there are vast opportunities for a company entering the Business
facilitation and application service industry. By implementing new services and
integrating new end-to-end service strategies, we will provide improved business
processes from multiple partners, adding value for our customers.
WATCHOUT! SOLUTIONS
We have identified the key areas that a web enabled business operating system
must address and satisfy. Some of the key benefits of our solutions are:
TURNKEY SOLUTIONS FOR E-BUSINESS. We provide access to all the tools owned by
big business. We handle all of the business processes, technology management and
IT support to enable end-to-end business success. Watchout! ensures the right
solutions are put in place and modified as a company requires it.
LOWER COST OF OWNERSHIP. By using the Watchout! Application service model,
companies are able to reduce their total IT investment. This allows the company
to personalize their needs and eliminates paying for upgrade costs, as expansion
is needed. The lower costs increase the ability to deliver service to every
employee's desktop.
EASE OF APPLICATION DELIVERY. Applications can be delivered rapidly without
sacrificing the quality of the business solution. Business solutions can be
delivered office-wide in minutes, entire e-commerce platforms in days, and
integrated enterprise resource planning (ERP's) solutions can be completed in
weeks. The speed of delivery is key to the value of Watchout!'s services.
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<PAGE>
SCALABILITY. This is the ability of a company to expand without the growing
pains of expanding and upgrading all their IT resources. Watchout! provides all
upgrades and expansions necessary to run a customer's business effectively.
IT SERVICE AND SUPPORT. Reduces the difficulties of finding in-house staff for
support and service. This in-turn saves a customer time and money, alleviating
the unnecessary problems of maintaining staff.
FOCUS. By using Watchout! for your business facilitation needs, a customer can
run its business more effectively. Watchout! enables a customer to focus on the
core of its business allowing us to use our expertise to provide all the
customer's e-business needs.
MANAGEMENT SERVICES. Watchout! has analyzed and identified the key areas that a
business must address and satisfy. The major modules are:
- Order taking: The ability to make secure business transactions with
customized order forms to achieve product fulfillment.
- Distribution/Logistics: All applications can be delivered rapidly
without sacrificing the quality of the business solutions.
- Marketing/Sales: We will help our clients business achieve product and
service recognition.
- Management Systems: We provide business development to help incubate
start-up e-commerce companies. We can provide all the services and
support necessary to build the infrastructure for a customer.
- Closed Network Genealogy Solutions: We integrate the technology
necessary to support back-end e-commerce databasing and processing for
multilevel marketing genealogy models.
BUSINESS FACILITATION AND DEVELOPMENT. Our business is structured to help small
to medium sized companies launch their e-business and provide all the
requirements necessary for them to achieve successful growth. We will supply
these companies with all the infrastructure, service and support needed to
facilitate their development and growth.
REAL-TIME DECISSION SUPPORT SYSTEMS. As part of our offering to large industrial
customers Watchout!'s real-time decision support systems provide complete
end-to-end automation of critical business processes. By obtaining real-time
operational data from the field and combining it with enterprise corporate data,
Watchout! is able to provide key information to users, both internal and
external, as well as facilitating collaboration that is key to the B2B process.
25
<PAGE>
THE WATCHOUT! STRATEGY
Our objective is to offer the key services that make us a leader in the ASP
Industry. The key elements of our service strategy are:
ACHIEVE A TECHNOLOGICAL ADVANTAGE IN THE MARKETPLACE. We plan to establish a
leadership role in the ASP industry through continuous research and development
of the latest industry technologies. We are focusing our efforts on customizing
our services to cater to our customers needs to assist them to operate at
maximum efficiency.
LEVERAGE OUR APPLICATION SERVICE MODEL. We will level the playing field by
giving businesses of all sizes access to the most sophisticated and reliable
technology available, at an affordable price. The basic identity of our
service-focused products will continuously evolve through an ongoing integration
of computer systems, protocols, software applications and business processes to
incubate and develop our clients business.
LOWERING THE COST OF OWNERSHIP. Through the use of our application service
model, companies should be able to lower their total IT and high start-up costs.
By eliminating this internal investment we will provide the corporation with a
customized service that can be provided quickly and can grow with the companies
needs for expansion.
EXPANDING OUR SERVICES. By providing a full spectrum of e-business solutions we
will evolve with our customers, working to fulfill all their service and support
requirements.
STRATEGIC ALLIANCES. With such a vast array of services, capabilities and
competencies required to be successful, strategic alliances are essential. We
intend on expanding our software relationships to expand our range of service
offerings. As well by working with other Application service providers and
software companies, we can offer a much larger choice of software platforms.
CUSTOMER SERVICE AND SUPPORT. We will provide top-notch help desk services to
assess any problems and address the customer needs quickly and efficiently. We
aim to provide the highest quality of support and customer service to ensure
that all of our clients are satisfied.
SERVICES
As an application service provider, our principal service consists of providing
our customers with access to applications via the Internet and/or dedicated
bandwidth. Watchout!'s clients connect to application servers installed at
Watchout! hosting center supported by our technical professionals. Our
infrastructure of computing provision, support and maintenance services provide
all businesses with the same advantages of a dedicated IT department without the
high staffing costs. This allows customers to focus their attention and budgets
on their core business. The strategy of creating and offering outsourced on-line
business services is a sound and timely one. The ability to host "high-end"
technology intensive web sites that interface with any company's legacy system
is a focus of our business. The basic identity of these service-focused products
will continuously evolve through an ongoing integration of computer systems,
protocols, software applications, and business processes. As a company's sales
system needs to develop and expand with growth so will their "web enabled sales
system".
26
<PAGE>
WATCHOUT! APPLICATION SERVICES
ASP Services
As an application service provider we supply software applications on a
subscription basis. We integrate, manage and support all applications provided
to the customer's legacy system. Various types of applications can be chosen to
best suit the company's e-business requirements. The monthly subscription price
is based on the number of users and the type of service modules required. The
services provided are customized for each business requirements, budget and
technical needs. All service and support requirements are provided through our
hosting centers. Our customers come to us to outsource their "intranet
infrastructure" requirements for new standards, procedures and protocols in
order to simplify common online business processes. These processes include
order taking, distribution / logistics, marketing / sales, accounting / banking,
public relations / investor relations, management systems, and multilevel
marketing genealogy and is delivered in a secure environment utilizing the
latest in website appeal and technology. Watchout! is designed to integrate
software offerings from software and hardware vendors as well as build
partnerships with multiple ASP companies to provide a broad spectrum of software
platforms.
Hosting Services
Our goal is to provide the most efficient service and support, 24 hours a day, 7
days a week. We can manage and provide support to any of the customers software
applications, infrastructure requirements or security management issues. Our
hosting services include:
CUSTOMER SERVICE AND SUPPORT OPERATIONS. We provide our customers with acess to
service support from trained IT experts who can help the customer with any
software support issues.
APPLICATION MONITORING AND MAINTENANCE. The ability to monitor the application
services allows us to upgrade, modify and test our products. We incorporate and
release the product when we have established a compatible, stable format that
suits the needs of the client.
INFRASTRUCTURE MAINTENANCE. Our customers' data will be held at Watchout!
hosting center on secure servers. Our infrastructure is designed in a way that
many companies can share the same hosting environment, yet maintain secure data
transfer and storage.
HOSTING CENTER AND NETWORK MANAGEMENT.
Our technologically advanced hosting centers can provide our customers with
dedicated bandwidth access. We have designed our network architecture to support
multiple networks and offer our customers a range of connectivity choice.
27
<PAGE>
OUR PROFESSIONAL SERVICES
To fulfill the distinct requirements of our customers we will be able to provide
application services on a large number of operating systems and platforms. This
delivers a secure and reliable modality for delivering services to multiple
users. Our services include in house integration of leading edge software
combined with implementation and on-going service and support for a fixed
monthly fee.
We offer our service from our office in Calgary, Canada. This location has
security systems as well as a continuous supply of power and on-site power
back-up capabilities. Performance and security will be constantly monitored to
ensure our infrastructure avoids any interruption and maintains all service
integrity. Connectivity can be achieved to our servers through several portals.
Our customers can access all software applications via the Internet as well as
dial-up access through phone lines worldwide. We provide 24/7 security and
surveillance for both physical and technical applications. As well, our
customers' security is enhanced when their servers are located in a different
physical location from their place of business.
OUR STRATEGIC ALLIANCES
We are in the process of establishing relationships with some of the industry
leading software providers whose applications play an essential role in every
day business. We are establishing ourselves in the industry and proving
ourselves to be a worthy partner for a corporation. Our intention is to form
partnerships with a broad spectrum of companies that will enable us to be a
total service provider. We are establishing ourselves with:
Leading Software venders
Integration Infrastructure Software Companies
Network Infrastructure Providers
Research and Development Corporations
Other ASP Companies and Service Integrators
OUR TECHNOLOGY
- Our technology platforms will enable deployment of software
applications, integration and personalization of the applications
provided.
- We continue to implement technology that enables us to customize and
upgrade the hosted applications we provide.
- We have developed technology that allows us to deliver applications to
our customers on an effective multi-user platform.
28
<PAGE>
- We have developed configuration management software that enables us to
modify applications and track the functionality requirements of our
customers. We have a database of modifications and solutions that can
be applied to any of our customers' applications to deploy fast, cost
effective customization.
- Our best-of-breed software applications provide our customers leading
edge solutions through a secure network located at our data hosting
center. Our technology is continuously evolving to allow integration
with every application to increase functionality and efficiency.
INTELLECTUAL PROPERTY
Intellectual property is important to our business. We will rely on a
combination of copyright, trademark, and confidentiality procedures and
contractual provisions to protect our intellectual property. We have no patented
technology, and patented technology is not material to our business.
We enter into agreements with many of our employees giving us proprietary rights
to certain technology these employees develop while we employ them. We cannot
assure that a court will enforce these agreements. In addition, we may be
inadequately protected against the use of technology employees develop who have
not entered into such agreements.
Our efforts to protect our intellectual property may not be adequate. We may
need to commence lawsuits from time to time to protect our intellectual
property.
Our competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In the future, litigation may
be necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. Any such litigation
could be time-consuming and costly.
In order to safeguard the flow of personal information over the Internet, we
intend to offer our customers various forms of encryption technology. Regulatory
authorities regulate the export of this technology and could require a license
or other authorization. There is no guarantee that we would be able to obtain
such a license. There is no guarantee that we will be able to obtain the
necessary permission to engage in our contemplated activities.
SALES AND MARKETING
The main goal of our sales professionals will be to provide personalized
responsive service to help assess the service needs of our prospective clients.
We plan to expand our sales team to cover all major U.S. and Canadian markets.
Our sales teams target will be focused on the small to medium sized
corporations, which presents a very strong market opportunity. Our sales team
will work synergistically with our IT support team to ensure our customers'
needs are met with the highest standards. We are actively pursuing business with
companies that will include affiliate programs, ISP and ad agency referral
programs, advertising, promotions, trade shows and sales trips. The series of
open standard web-enabled products and services that we are developing will be
aimed at both the business-to-business and the business-to-consumer markets.
29
<PAGE>
To address large industrial clients, Watchout! is entering into channel partner
agreements with large integration organizations with dominant market presence in
specific industries and geographical territories. These channel partners provide
front line sales of Watchout!'s B2B integration solutions and Watchout! provides
the technical sales support personnel required to define and provide the
solutions necessary.
The marketing and distribution model is structured as a business service as
opposed to a business product. Our marketing strategy is focused on achieving
product and service recognition. We plan to actively market our services through
direct advertising such as magazines, billboard advertisement, nationally
syndicated financial information networks, tradeshows, mail, targeted e-mail and
web based communication portals. We will also deploy our marketing focus on the
strategic alliances that we have established. These strategic alliances will
share sales leads, service arrangements and joint presentations promoting both
our company and the products we provide. More importantly we will be
representing ourselves on our experience and in-depth knowledge of the industry.
The experience of our executive officers and key employees will be instrumental
to our success. With our expertise we will personally consult to each of our
potential clients and determine the solutions that best address their business
needs. At this point we can begin to personalize the services needed to maintain
the steady growth of their business.
COMPETITION
The ASP industry is currently a very competitive industry that is based on
service functionality, performance and quality of the service, scalability,
price, name recognition and security provided. Our direct competition includes
other ASP companies, Internet Service Providers, telecommunication companies and
software and hardware suppliers and Internet Portals.
Application Service Providers: Usinternetworking, Breakaway Solutions,
Interliant, Corio, Applicast and NaviSite. All of which provide similar services
and focus on companies of all sizes.
Internet Service Providers: MCI Worldcom, Concentric Network, Exodus
communications, GTE Internetworking, Frontier Corporation, PSInet, UUNet
Technologies. These companies provide web hosting services, Internet access and
software application delivery on a similar subscription basis.
Telecommunication Companies: These companies provide Internet access services
and because they have such a strong presence in the market it will become more
desirable for these financial giants to bundle software application service with
their connectivity.
30
<PAGE>
Software and Hardware Suppliers: Microsoft, Oracle Corporation, J.D. Edwards,
Siebel, PeopleSoft and IBM. There is a good chance that these software and
hardware companies will enter the outsourcing arena themselves, if they have not
already. The two are already working together to offer more combined services.
System Integrators: PricewaterhouseCoopers, Taglogix, Siebel Systems and
Electronic Data Systems. These companies are professional consulting companies
that offer software integration services. These companies are considered direct
competition because they supply integrated software and hardware bundles with
services similar to ASP companies.
Due to the competitive nature of the ASP industry any of the potential
competitors could form alliances to gain a larger share in the market. Some
services that are currently offered could be discontinued if our competition
decides to outsource their own proprietary software.
OUR EMPLOYEES
As of January 8, 2001 we have 7 full time employees and 5 consultants.
AVAILABLE INFORMATION AND REPORTS TO SECURITIES HOLDERS
Watchout! has filed with the Securities and Exchange Commission a registration
statement on Form SB-2 with respect to the common shares of stock offered by
this prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to Watchout! and its common
stock, see the registration statement and the exhibits and schedules thereto.
Any document Watchout! files may be read and copied at the Commission's Public
Reference Room located at 450 Fifth Street N.W., Washington D.C. 20549, and the
public reference rooms in New York, New York, and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Watchout!'s filings with the Commission are also available to
the public from the Commission's website at http://www.sec.gov.
31
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
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, and rent of $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.
32
<PAGE>
DESCRIPTION OF PROPERTY
Watchout! Inc. maintains office space of approximately 2,200 Square feet in
Calgary, Alberta, Canada. The address is #810, 808 4th Avenue S.W. Postal Code
T2P 3E8. The lease at these premises expires April 30, 2002. The monthly lease
payments are $1,700 Cdn per month with no extra operating expenses. The
sublandlord agrees to provide: heat, light, electrical power, air conditioning,
and other utilities used in the normal activities of an office. Watchout! has
purchased all its equipment to date. Watchout! feels that the premises have been
adequate to date. There are no intentions of renovating our existing premise.
According to the landlord we carry adequate insurance as well our floor is
secured with an alarm system.
Watchout! also leases office space on a month-to-month basis located in
Bethesda, Maryland, U.S.A. The address is #310, 7272 Wisconsin Avenue, 20814.
The monthly lease payments are $1,500 USD per month plus operating expenses that
may be subject to change. The lease is a month-to-month sublease that can be
terminated by either party with a written 30-day notice.
As we expand our staff and services we will require a larger accommodation to
house our employees and equiptment in the near future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No director, executive officer or nominee for election as a director of
Watchout!, and no owner of five percent or more of Watchout! outstanding shares
or any member of their immediate family has entered into or proposed any
transaction in which the amount involved exceeds $60,000.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of high and low bid closing quotations
for our common stock for each quarter within the last year. These quotes were
provided by the Over-The-Counter Bulletin Board, and reflect inter dealer prices
without retail mark-up, mark down or commission and may not represent actual
transactions. From the period of December 30, 1999 to October 15, 2000 our
common stock traded under the trading symbol "WTCH". As of October 16, 2000
Watchout! completed a 10-1 reverse stock split at which time the trading symbol
was changed to "WATC". The high and low closing sales prices are as follows:
Closing Bid
-----------
Period High Low
------ ---- ---
December 30, 1999 to March 31, 2000 $4.875 $ 0.531
April 1, 2000 to June 30, 2000 $1.875 $ 0.344
July 1, 2000 to September 30, 2000 $0.50 $ 0.11
October 1, 2000 to December 29, 2000 $0.468 $ 0.046
On January 8, 2001, the last reported sales price of our common stock was $0.37.
As of January 8, 2001 there were 12,129,921 shares of our common stock issued
and outstanding and approximately 236 shareholders of record of our common
stock.
33
<PAGE>
EXECUTIVE COMPENSATION
The table below summarizes all compensation awarded to, earned by, or paid to
our executive officers by any person for all services rendered in all capacities
to us for the fiscal year ended December 31, 2000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Name Year Restricted Securities LTIP All Other
Principle Salary Bonus Other Annual Stock Underlying Payouts Compensation
Position ($) ($) Compensation Award(s) Options/SARs ($) ($)
-------- ------- ------ ------------ -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Todd A
Violette 81,000 USD 0 0 0 0 0 CDN$
Chairman
Shawn
Clarke 63,000 USD 0 0 0 0 0 CDN$
CEO
Bernhard
Weiser 63,000 USD
CTO
Dan 54,000 USD 0 0 0 0 0 CDN$
Meikleham
Controller
</TABLE>
34
<PAGE>
FINANCIAL STATEMENTS
Contents
Report of Independent Auditors....................................... F-1
Balance Sheets 1999, 1998, 1997...................................... F-2
Profit and Loss 1999, 1998 and 1997.................................. F-3
Statement of Cash Flow 1999, 1998 and 1997........................... F-4
Notes to Financial Statements........................................ F-5
Balance Sheet as of September 30, 2000............................... F-8
Profit and Loss as of September 30, 2000............................. F-9
Statement of Cash Flow as of September 30, 2000...................... F-10
Notes to Financial Statements........................................ F-11
<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.
Michael Johnson
Denver, Colorado
March 15, 2000
F-1
<PAGE>
Watchout! Inc.
Balance Sheets 1999, 1998, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash -- 580 59,147
Accounts Receivable -- -- 137,454
Less Allowance for Doubtful Accounts -- -- (53,325)
Inventory -- -- 162,000
---------- ---------- ----------
Total Current Assets -- 580 305,276
========== ========== ==========
Due from Affiliate -- -- --
========== ========== ==========
Fixed Assets
Property Plant and Equipment -- -- 17,905
Less Accumulated Depreciation -- -- (5,653)
---------- ---------- ----------
Total Fixed Assets -- -- 12,252
========== ========== ==========
Other Assets
Due from Officer -- -- 27,935
Organization Cost 15,250 15,250 16,853
Less Accumulated Amortization (6,100) (3,050) --
Investment in Parent -- -- --
---------- ---------- ----------
Total Other Assets 9,150 12,200 44,788
========== ========== ==========
Total Assets 9,150 12,780 362,316
========== ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accrued Expenses 571,281 537,213 225,825
Accounts Payable 475,989 475,989 319,983
Due to Shareholders 466,445 457,945 307,424
Due to Factor -- -- 55,537
Line of Credit -- -- 54,968
Notes Payable 450,000 450,000 450,000
---------- ---------- ----------
Total Current Liabilities 1,963,715 1,921,147 1,413,737
========== ========== ==========
Shareholders Equity (Deficit)
Additional Paid In Capital 989,502 989,502 989,502
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 15,030 15,030 15,030
Accumulated Deficit (2,959,097) (2,912,899) (2,055,953)
---------- ---------- ----------
Total Stockholders' Deficit (1,954,565) (1,908,367) (1,051,421)
---------- ---------- ----------
TOTAL LIABILITES & EQUITY
9,150 12,780 362,316
========== ========== ==========
</TABLE>
F-2
<PAGE>
Watchout! Inc
Profit and Loss
1999,1998 and 1997
<TABLE>
<CAPTION>
Jan - Dec 1999 Jan - Dec 1998 Jan - Dec 1997
-------------- -------------- --------------
OPERATING REVENUES
<S> <C> <C> <C>
Revenue $ -- -- 826,446
Cost of Goods Sold -- -- (485,767)
------------ ------------ ------------
GROSS PROFIT -- -- 340,679
------------ ------------ ------------
OPERATING EXPENSES
Royalties 56,250 225,000
Research Development 48,048 260,359
Selling Expenses -- 23,117
Depreciation and Amortization 3,050 3,050 --
Bank Charges -- -- --
Consulting Fees -- 94,792 31,930
Dues and Subscriptions -- --
Marketing and promotions -- 1,251 7,855
Office Expense --
Payroll expense --
Employee benefits --
Professional fees 8,500 122,051 112,851
Rent --
Telephone & Communications --
Travel --
Management Fees 580 -- 115,321
General & Administrative 3,050 95,696 201,328
Commitment/Loan Fees -- 181,695 94,500
------------ ------------ ------------
Total Operating Expense 12,130 602,833 1,072,261
------------ ------------ ------------
Net Operating Income (loss) (12,130) (602,833) (731,582)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Miscellaneous Income -- -- 37,946
Forgiveness of debt -- -- --
Interest (34,068) (92,063) (36,612)
Loss on Sale of Receivables/Inventory -- (162,000) (238,254)
Loss on Re-capitalization -- -- --
------------ ------------ ------------
Total Other Income (expense) (34,068) (254,063) (236,920)
------------ ------------ ------------
Net Income (Loss) (46,198) (856,896) (968,502)
============ ============ ============
Weighted Average Common Share 15,030,245 15,030,245 15,030,245
============ ============ ============
Income (loss) Per Share $ (0.00) $ (0.06) $ (0.06)
============ ============ ============
</TABLE>
F-3
<PAGE>
Watchout Inc
Statement of Cash Flow
1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITES
Net Income (loss) for the Period $ (46,198) (856,896) (968,502)
Depreciation and Amortization 3,050 -- 7,607
Common Stock Issued in Exchange for Services -- -- 43
Expenses Paid by Stockholder as Capital Contribution -- -- 88,500
Changes in Operating Assets and Liabilities:
Inventory -- 162,000 --
Accounts payable and Accrued Liabilities 8,500 156,006 266,808
Accrued Expenses 34,068 301,210 25,668
Account Receivable -- 84,129 (83,115)
--------- --------- ---------
Net cash provided (used) by operating activities (580) (153,551) (662,991)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment -- -- (11,435)
(Advances) Payments to /from Member -- -- 73,080
--------- --------- ---------
Net cash used in investing activities -- -- 61,645
--------- --------- ---------
CASH FLOW FROM FINANCING
Advances from Stockholders -- 150,521 185,016
Proceeds from Factor -- (55,537) (16,902)
Proceeds from Short Term Debt -- -- 20,961
Proceeds from Common Stock -- -- 7,457
Proceeds from Notes Payable -- -- 450,000
--------- --------- ---------
Net cash from financing activities -- 94,984 646,532
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (580) (58,567) 45,186
Cash at the beginning of the period 580 59,147 13,961
--------- --------- ---------
Cash at the end of the period $ -- 580 59,147
--------- --------- =========
SUPPLEMENTAL CASHFLOW
Interest Paid $ -- $ 11,063 $ 10,924
--------- --------- ---------
Taxes Paid $ -- $ -- $ 1,050
--------- --------- ---------
</TABLE>
F-4
<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.
F-5
<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
========
F-6
<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.
F-7
<PAGE>
Watchout! Inc.
Balance Sheet As of September 30, 2000
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000 December 31, 1999
------------------ ------------ -----------------
<S> <C> <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>
F-8
<PAGE>
Watchout! Inc
Profit and Loss
As of September 30, 2000
<TABLE>
<CAPTION>
Sept 30, 00 June 30 0 0 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>
F-9
<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>
F-10
<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.
F-11
<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.
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.
F-12
<PAGE>
WATCHOUT!, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
NOTE 2-Investments: (continued)
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.
NOTE 5 - Subsequent Events
1. On October 10, 2000 the Company made a proposal to certain of its
creditors, To which a total amount of 1,389,075 was owed to issue a
total of 1,389,075 shares in satisfaction of its indebdtedness.
Creditors to which $623,163 is owed have accepted the Company's
proposal. Creditors owed a total of $765,912 have yet to accept the
Company's proposal and a total of 765,912 shares are reserved for
issuance to such creditors.
2. On December 29, 2000 the Company entered into a letter of intent to
acquire 92% of the common shares of Wirelesson.com Ltd. The Company
presently holds 8% of Wirelesson.com's common shares. Wirelesson is a
provider of advances internet and networking solutions delivering high
speed reliable internet connections. Its wholly owned subsidiary
Expanded Solutions Systems Inc. provides consultation, hardware,
software and services to build advanced technology solutions. The
letter of intent provides that Watchout! will issue 1.0 million of its
common shares to acquire the shares of Wirelesson that it does not
currently hold; would provide employee contract to two key employees of
wirelesson. In addition Watchout! will be obligated to pay the two key
employees of Wirelesson a bonus of $100,000 Cdn each and to issue them
shares of watchout! with a market value of $1.8 million if certain
revenue and profit figures are reached by Wirelesson. In connection
with the acquisition of the shares of Wirelesson, Watchout! is
obligated to pay a commission of $100,000 on or before July 1, 2001.
F-13
<PAGE>
================================================================================
PROSPECTUS
5,000,000 SHARES
[WATCHOUT! LOGO]
COMMON STOCK
SUBJECT TO COMPLETION - [January 12, 2001]
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's corporate policy provides that a director of the Registrant
shall not be liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director, to the fullest extent permitted by
Utah law. The policy also provides that the Registrant may indemnify anyone who
is or was an officer, director or employee of the Registrant (or who is or was
an officer, director or employee of any other enterprise at the request of the
Registrant), to the fullest extent permitted by Utah Law.
Insofar as indemnification for liabilities arising under the Securities Act,
Indemnification may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing section. The Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 27. EXHIBITS
All exhibits were previously filed unless otherwise noted.
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
10.3* Lease of Watchout! Inc.'s office in Calgary, Alberta
10.4* Lease of Watchout! Inc.'s office in Bethesda, Maryland
10.5* Consulting Agreement between Watchout! Inc. and West Canadian
Oil & Gas Inc.
10.6* Letter of Intent to Acquire Wirelesson.com Ltd. And Expanded
Systems Solutions Inc.
10.7* Service Contract between Watchout! Inc and Eyewear Online Inc.
10.8* Loan Agreement between Watchout! Inc. and Grupo Gia.
27.1* Financial Data Schedule
------------
* Filed herewith.
II-1
<PAGE>
ITEM 28. UNDERTAKINGS
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution (iv) For
determining liability under the Securities Act, treat
each post-effective amendment as a new registration
statement of the securities offered, and the offering
of the securities at that time to be the initial bona
fide offering.
(v) File a post-effective amendment to remove from
registration any of the securities that remain unsold
at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commissions such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Calgary,
Province of Alberta on January 11, 2001.
WATCHOUT!, INC.
By: /s/ Todd A Violette
-------------------------------
Todd A Violette, Chairman of The Board
II-3
<PAGE>
EXHIBIT INDEX
-------------
All exhibits were previously filed unless otherwise noted.
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
10.3* Lease of Watchout! Inc.'s office in Calgary, Alberta
10.4* Lease of Watchout! Inc.'s office in Bethesda, Maryland
10.5* Consulting Agreement between Watchout! Inc. and West Candaian
Oil & Gas Inc.
10.6* Letter of Intent to Acquire Wirelesson.com Ltd. And Expanded
Systems Solutions Inc.
10.7* Service Contract between Watchout! Inc and Eyewear Online Inc.
10.8* Loan Agreement between Watchout! Inc. and Grupo Gia.
27.1* Financial Data Schedule
------------
* Filed herewith.
