-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHk5l9CjvdpZ4V/gfi75F0R3WslYO3IeJ/eLcO77ofZZDmfAJYniMB8dwbKHIk5J IZw2cmvkGboD0Hu7LFE6ng== 0001072588-00-000038.txt : 20000331 0001072588-00-000038.hdr.sgml : 20000331 ACCESSION NUMBER: 0001072588-00-000038 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATCHOUT INC CENTRAL INDEX KEY: 0000736314 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 840959153 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-11424 FILM NUMBER: 588811 BUSINESS ADDRESS: STREET 1: 20283 STATE ROAD 7 STREET 2: SUITE #400 CITY: BOCA RATON STATE: FL ZIP: 33498 BUSINESS PHONE: 5614829420 MAIL ADDRESS: STREET 1: 1900 N W CORP BLVD STREET 2: SUITE 400 E CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: WHITE CLOUD EXPLORATION INC DATE OF NAME CHANGE: 19920703 10KSB 1 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transitional year ended: December 31, 1999 Commission File number: 0-114244 WATCHOUT! INC. (Exact name of registrant as specified in its charter) WHITE CLOUD EXPLORATION, INC. (Former Name) Utah 84-0959153 State or Other Jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1900 N.W. Corp. Blvd., Suite 400 E, Boca Raton, FL 33431 (Address of principal Executive Offices Zip Code) Registrant's telephone number, including area code: (954) 803-7480 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value per Share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Yes ( ) No (X) State issuer's revenues for its most recent fiscal year. $0 Transitional Small Business Disclosure Format: ( ) Yes (X) No As of December 31, 1999, 15,030,245 shares of common stock were outstanding. The aggregate market value of the Stock held by nonaffiliates was $3,753,199 at December 31, 1999 based on closing price of $.81 per share. Documents incorporated by reference: None Part I Item 1. Business. General - Organization and Reorganization Since its inception in July of 1983 as White Cloud Exploration, Inc. ("the Company"), the Company has been in the developmental stage, while it has attempted to identify suitable mergers, asset or acquisitions of operations. The Company changed its name to WatchOut! Inc. in November, 1998. White Cloud, in March of 1991, entered into a Letter of Intent whereby White Cloud was to acquire 100% of the Stock of American Technology, Inc. ("ATI") in exchange for stock of White Cloud. The merger was cancelled due to accounting difficulties with American Technology, Inc. The Company had no further activities since 1991, and was inactive up until 1997. In April 1997, William C. Meier through his beneficial ownership of WCM Investments, Inc., a Texas corporation ("WCM Investments"), obtained control of Registrant by purchasing on April 17, 1997, 5,010,750 (pre-reverse stock split) shares of Registrant's Common Stock. On May 14, 1997, WCM Investments purchased from Registrant 7,500,000 (pre-reverse stock split) newly-issued shares of Registrant's Common Stock for $7,500 in cash. The 12,510,750 shares were automatically converted into 72,213 shares pursuant to a 173.25 to 1 reverse stock split of Registrant's Common Stock on June 29, 1997, and represented 72.2% of the shares of Common Stock of Registrant outstanding at such time. The Watchout! Agreement was entered into effective May 30, 1997, and the Watchout! Acquisition consummated pursuant thereto effective as of December 29, 1997. Pursuant to the Watchout! Agreement, the shareholders of Watchout! contributed to Registrant 251,354 shares of Watchout's common stock (100%) for an aggregate consideration of 11,296,300 shares of Registrant's common stock. The number of shares of Registrant's common stock issued pursuant to the Watchout! Agreement was determined by reference to the proportionate post-Acquisition equity ownership of Registrant negotiated by the pre-Acquisition Watchout! shareholders, Goldpoint members and Registrant shareholders. Prior to the closing of the Watchout! Acquisition, Watchout! was controlled by Robert Galoob and David Galoob. As a result of the Watchout! Acquisition, Registrant owned 100% of the issued and outstanding shares of Watchout!. Watchout! intended to market worldwide watches and other consumer goods utilizing proprietary colored liquid crystal display technology. Pursuant to an LLC Interest and Asset Contribution Agreement (the "Goldpoint Agreement" and together with the Watchout! Agreement, the "Agreements"), the members (i.e., equity holders) of Goldpoint International, LLC, a Delaware limited liability company ("Goldpoint"), effective as of December 29, 1997, contemporaneously with the closing of the Watchout! Acquisition, received from Registrant 2,140,000 newly-issued shares of Registrant's common stock in exchange for 100% of the membership interests in Goldpoint (the "Goldpoint Acquisition".) The 2,140,000 shares represent approximately 14% of the outstanding shares of common stock of Registrant on a fully-diluted basis. Prior to the closing of the Goldpoint Acquisition, Goldpoint was controlled by Mr. Stephen J. Petre. Effective as of December 29, 1997, pursuant to the Agreements, and contemporaneously with the consummation of the Acquisitions, Robert Galoob and David Galoob accepted appointments as directors of Registrant from the prior directors of Registrant, each of whom resigned as directors. As a result of the Goldpoint Acquisition, Registrant owned 100% of the outstanding membership interests in Goldpoint LLC. Goldpoint intended to market fine writing instruments. Neither WatchOut! Inc. nor Goldpoint was successful in raising capital or carrying out the business plan adopted. As a result all attempts at operations were suspended in September 1998, and no further business was attempted in 1998. Pursuant to a Stock Purchase Agreement effective as of October 9, 1999, Innovative Cybersystems Corp., a Florida corporation, agreed to purchase 6,376,922 issued and outstanding shares of Registrant's common stock from David Galoob Robert Galoob, and Archangel Holding Company, LLC. The 6,376,922 shares represent approximately 42% of the outstanding share sof the common stock of Registrant on a fully-diluted basis. In addition Innovative has options to purchase an additional 1,750,00 common shares. Innovative is controlled by Kevin Waltzer. (See "management" below). In addition, Innovative Cybersystem Corp. will have options to purchase 1,750,000. As of the closing, the following persons will own more than 5% of Registrant's outstanding common stock (n a fully diluted basis): Innovative Cybersystems Corp. 6,376,922 shares Innovative Cybersystems also has options for 1,750,000 shares. The Closing was completed on about February 11, 2000. Prior to the share purchase, WatchOut! was controlled by Robert Galoob, David Galoob, and Stephen Petre. The Company is seeking to acquire interest in Internet related businesses through an exchange of shares of equity. It may acquire a minority interest in such businesses. At year end, the Company had established no formal criteria for determining its acquisition of or participation in any given business. On November 19, 1999, the Company negotiated a Letter of Intent with International Mercantile Corp. (known as Micromatix.net) for investment of up to $500,000 in preferred convertible stock of International by the Company. Micromatix.net, a Baltimore based company, builds custom configured desktops, servers, and notebooks using industry standard, branded components for value added resellers. Our systems are aggressively priced, built to ISO 9002 quality standard with an Internet-based ordered capability and superior custom service. The Company is dedicated to the value-added reseller (VAR) and does not market directly to end-users. Micromatix.net will partner with the VAR enabling them to outsource their assembly logistics and other requirements to Micromatix.net allowing the reseller to focus on customer service, support, and other business opportunities. Micromatix.net's primary business strategy is to become the VAR's choice for build-to-order PC Systems. The systems can be configured by the reseller according to the specifications of their customers, thereby giving the VAR greater control over the entire process, including configuration, delivery service, and customer relations, VAR's will be able to place orders using Micromatix.net's state-of-the-art Internet based configurator and order entry system. This will provide you with real-time ordering and quoting capabilities, inventory management, and the ability to track production and shipping status. This platform provides its resellers with a single source for the entire configuration and ordering needs seven days a week, 24 hours a day. "White boxes" are a cost-effective alternative to branded PCs. By purchasing components competitively, employing assembly and providing local delivery, Micromatix.net is able to control its costs. This cost control allows Micromatix.net to offer competitive prices to their customers. The Company is also structured to provide superior service, with rapid response to customer calls, quick access to necessary components, high order fills and on-time accurate shipments. WatchOut!, Inc. has no intention of making Micromatix.net a subsidiary company. Employees and Consultants The Company at fiscal year end had no paid employees, and its President, Kevin Waltzer, and Secretary, Jack R. Russell, serve on an as needed basis. These officers intend to devote only such time as necessary to the business affairs of the Company. Presently, none of the officers receive salaries, however, they are reimbursed for their expenses incurred in their services as officers. There is no provision for any additional bonuses or benefits. The Company anticipates that in the near future it may enter into employment agreements with its officers. Although Directors do not receive compensation for their services they may be reimbursed for expenses incurred in attending Board meetings. Item 2. Properties. The Company maintains its corporate office at 1900 N.W. Corp. Blvd., Suite 400 E, Boca Raton, FL 33431, under an informal arrangement with the Company's President. This space is deemed adequate for the immediate future. Item 3. Legal Proceedings. The Company was not a party to any pending legal proceedings. It settled a lawsuit with Boit, Inc., the licensor of the watch technology prior to year end. The resolution to terminated the license due to certain defaults. It would not have a material effect since the Company has abandoned the business plan which would have used the watch technology. Item 4. Submission of Matters to a Vote of Security Holders. No matters was submitted to a vote of security holders within the year covered by this report. Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The outstanding registered securities of the Company were quoted on the OTCBB during the year. Common Stock Common Stock 1999 Bid High Bid Low ____________________________________________________ 1st Quarter .125 .0 2nd Quarter .125 .0 3rd Quarter .125 .0 4th Quarter 4.00 .125 Common Stock Common Stock 1998 Bid High Bid Low ____________________________________________________ 1st Quarter no quote no quote 2nd Quarter no quote no quote 3rd Quarter no quote no quote 4th Quarter .125 .125 Common Stock Common Stock 1997 and 1996 Bid High Bid Low ____________________________________________________ 1st Quarter no quote no quote 2nd Quarter no quote no quote 3rd Quarter no quote no quote 4th Quarter no quote no quote The Company anticipates its shares will continue to trade in the over the counter market. Quotations represent only prices between dealers and do not include retail markups, markdowns or commissions and accordingly, may not represent actual transactions. As of December 31, 1999, there are approximately 230 record stockholders of the Company's shares, not including shareholders represented by "street name" holders. No dividends have been declared or paid by the Company and presently intends to retain all future earnings, if any, to finance the expansion and development of its business. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial Condition and Changes in Financial Condition No revenue producing business operations were conducted by the company in 1999. No revenues were generated in the fiscal year 1999. The Company at year end December 31, 1999, had no cash compared with $580 in cash at December 31, 1998. The Company at fiscal year end needed cash infusions from shareholders to provide capital, or loans from any sources, for advancement of its business ventures. The Company had no business at year end. Liquidity and Capital Assets. The Company's primary source of liquidity since inception has been from funds raised during its initial capitalization and from shareholder advances and loans. The company had no cash at 1999 year end and no current assets at December 31, 1999. Total liabilities for 1999 (which were all due) were $1,963,715 for a deficit of ($1,963,715) in the ratio of liabilities to current assets. The company was critically deficient in capital and needs cash to commence effective operations. No source of such funds had been identified at year end, and it would have to occur through debt or stock sales. Results of Operations for twelve month period ended December 31, 1999 compared to December 31, 1998 The Company had no revenues in 1999. The Company had expense of operations of $12,130 and interest accruals of $34,068 for total expense of $46,198 for the year. In 1998, the Company incurred 602,833 in expenses with no income. The Company had a net loss of ($46,198) for 1999 and ($602,833) in 1998. Results of Operations for twelve month period ended December 31, 1998 Compared to 1997 In the year ended December 31, 1999, the Company had no revenues and incurred operating expenses totaling $602,833. In calendar year 1997 the combined entities' net revenues were $340,679. As of December 31, 1998, the Company had no material commitments for capital expenditures. In the year ended December 31, 1998, the Company incurred $98,746 in general and administrative expenses compared with $201,328 in 1997. In the fiscal year ended December 31, 1998, the Company incurred an operating loss of ($602,833) compared to a loss of ($731,582) in 1997. Net loss for 1998 was ($856,901) or ($.06) per share compared to a net loss for 1997 of ($968,502) or ($.06) on a fully diluted basis. The Company had a loss on sale of inventory and receivables of ($162,000) in 1998 and ($238,254) in 1997. Interest expense (accrued) was $92,063 in 1998 compared to $36,612 in 1997. For furture periods, the Company expects the trend of net losses to continue until a business can be achieved which generates revenue to cover operations. Item 7. Financial Statements and Supplemental Data. Attached hereto and filed as part of this Form 10-KSB are the financial statements required by Regulation SB. Please refer to pages F-1 through F-8. Item 8. Changes in and Disagreements on Accounting and Financial Disclosure. In connection with audits of two most recent fiscal years and any interim period preceding resignation, no disagreements exist with any former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of the former accountant would have caused him to make reference in connection with his report to the subject matter of the disagreement(s). The principal accountant's report on the financial statements for any of the past two years contained no adverse opinion or a disclaimer of opinion nor was qualified as to uncertainty, audit scope, or accounting principles except for the "going concern" qualification. For Fiscal Year 1992 and thereafter the Company engaged as its Auditor Michael B. Johnson & Co. There were no disagreements as to any matter of accounting practice or principles, financial statement disclosure or auditing scope or procedure, with any prior accountant. Part III Item 9. Directors and Executive Officers of the Registrant and Compliance with Section 16(a). Identification of Directors and Executive Officers of the Company The directors and executive officers of the Company, their age, positions held in the Company, and duration as such, were as follows as of end of the fiscal year: Name Age Position Since Kevin Waltzer 32 President/Director 11/99 John J. Russell 60 Secretary/CFO/Director 11/99 Michelle Long 45 Director 11/99 Business Experience The following is a brief account of the business experience during the past five years of the former officer/directors at the end of the period, indicting their principal occupation and employment during that period, and the name and principal business of the organization in which such occupation and employment were carried out. Kevin Waltzer, age 32, President and proposed Director (subject to compliance with Section 14f). Mr. Waltzer graduated from Boston University with an undergraduate degree in Political Science (1990). Mr. Waltzer has been a self0employed equities trader for the past seven years, using proprietary market trend systems. He served as a Director for and consultant to The Human Works, Inc., September - December 1998. Mr. Waltzer was a founding partner and Director and executive of Eco-Aire Company, Inc., a company holding multiple patents for evolutionary air and water purification techniques from 1996 to 1998. He was a founding partner and an original investor in Tradescape.com, a Manhattan based securities trading firm, in 1996. He sold his interest in 1999. He formed Innovative Cybersystems, Inc. in 1999 and is President and a Director and principal shareholder. Jack J. Russell, age 60, Director, CEO, CFO, graduated from Drexel University with a BS in accounting. He has accomplished advanced studies at American College, Bryn Mawr, PA. He received a CHFC designation in 1990 and a CLU designation in 1993. He is a Charter member of the Professional Achievement in Continuing Education Program. Mr. Russell is involved with the American Institute of Certified Public Accountants where he is a member of the Tax Division and the Personal Financial Planning Division. He has recently worked as a financial planner/business consultant for Glen Mills Financial Services, Inc. where he specialized in financial planning, personal and corporate tax returns, corporate financing, and management systems. From 1994 to 1995, he headed an 18-month project to turn around a manufacturing company located in the Mid-West. As CEO of Glas-Kraft, Inc., from 1982 to 1988 he turned the company around and negotiated the sale of the company. As a CEO of Eastern Coated Papers, Ltd. from 1983 to 1988 Mr. Russell arranged acquisition and working capital needs with a combination of Canadian and U.S. banks. The company was returned to a positive cash flow, and he negotiated the sale of the company. From 1978 to 1982, he was CFO of Gentech, Inc., he established a sophisticated direct costing system. He helped Gentech, Inc. acquire a significant subsidiary through a cash tender offer. At Titan Industries, Inc., from 1972 to 1978, he handled all aspects of the Annual Report and SEC reporting. Mr. Russell also established consolidation and reporting controls for over 91 subsidiaries. In order to improve the state of the company, he assisted in the sell-off of several unprofitable and/or incompatible subsidiaries. When he was CFO of SmithKline Laboratories - Branson Instruments Division, 1969 to 1972, he served on a five man executive committee responsible for strategic direction of the company. Mr. Russell is a Director and shareholder of Innovative Cybersystems, Inc. founded in October 1999. Michelle Long, age 45, proposed Director (subject to compliance with Section 14f). Ms. Long studied Mathematics at the University of Helsinki, Finland and obtained her undergraduate degree in Finance from the University of Cincinnati in 1978 and holds an MBA in Finance from Xavier University. Michelle holds LUTCF, RHU, ChFC, and CFP designations. Ms. Long is registered with NASD as an Investment Advisor and General Securities Principal. She currently heads Quest Financial Group, the Greater Cincinnati Branch of United Planners' Financial Services of America. Directors of the Company hold office until the next annual meeting of the shareholders and until their successors have been elected and qualified. Officers of the Company are elected by the Board of Directors at the first meeting after each annual meeting of the Company shareholders and hold office until their death, or until they shall resign or have been removed from office. Section 16(a) Reporting Delinquencies Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership of equity securities of the Company with the Securities and Exchange Commission. Officers, directors and greater-than 10% shareholders are required by the Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) filings. Item 10. Executive Compensation. The Company accrued a total of no compensation to the executive officers as a group for services contributed to the Company in all capacities during the period ended December 31, 1999. No one executive officer received, or has accrued for his benefit, in excess of $60,000 for the year. No cash bonuses were or are to be paid to such persons. The Company does not have any employee incentive stock option plans. There are no plans pursuant to which cash or non-cash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future, to the executive officers of the Company. No other compensation not described above was paid or distributed during the last fiscal year to the executive officers of the Company. There are no compensatory plans or arrangements, with respect to any executive office of the Company, which result or will result from the resignation, retirement or any other termination of such individual's employment with the Company or from a change in control of the Company or a change in the individual's responsibilities following a change in control. SUMMARY COMPENSATION TABLE OF EXECUTIVES Name and Fiscal Salary Bonus Other Annual Restriced Securities Principal Year ($) ($) Compensation Stock Underlying Position ($) Awards Options/SARs ($) (#) Kevin Waltzer 1997 0 0 0 0 0 President 1998 0 0 0 0 0 1999 0* 0 0 0 0 John J. Russell 1997 0 0 0 0 0 Secretary/ 1999 0 0 0 0 0 CFO 1999 0 0 0 0 0 1998 0 0 0 0 0 Michelle Long, 1997 0 0 0 0 0 Vice President 1998 0 0 0 0 0 1999 0* 0 0 0 0 Robert Galoob, 1997 0 0 0 0 0 President (resigned Oct. 1998 0 0 0 0 0 1999) 1999 0* 0 0 0 0 David Galoob, 1997 0 0 0 0 0 Secretary (resigned Oct. 1998 0 0 0 0 0 1999) 1999 0* 0 0 0 0 Option/SAR Grants Table (None) Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value (None) Long Term Incentive Plans - Awards in Last Fiscal Year (None) DIRECTOR COMPENSATION FOR LAST FISCAL YEAR (Except for compensation of officers who are also Directors which compensation is listed in Summary Compensation Table of Executives)
Name Annual Meeting Consulting Number of Number of Retainer Fees ($) Fees/Other Shares (#) Securities Fees ($) Fees ($) Underlying Options/SAR (#) Robert Galoob, 0 0 0 0 0 Director David Galoob, 0 0 0 0 0 Director Kevin Waltzer 0 0 0 0 0 Director Michelle Long 0 0 0 0 0 Director John J. Russell 0 0 0 0 0 Director
Item 11. Security Ownership of Management and Beneficial Owners. As of December 31, 1999, there were 15,030,245 common shares issued and outstanding. The following table sets forth information, as of Fiscal year end, with respect to the beneficial ownership of the Company's $.001 par value common stock by each person known by the Company to be the beneficial owner of more than five percent of the outstanding common stock, and by current officers and directors of the Company. Stock Title Name and Address Amount of Beneficial Percentage of Class Of Beneficial Owner Ownership of Class Common Robert Galoob, (1) 3,505,461 23.3% 116 Stanyan San Francisco, CA Common David Galoob (2) 3,505,461 23.3% 116 Stanyan San Francisco, CA Common Mark Hollo 1,820,000 12.1% c/o Sands Brothers 90 Park Avenue New York, NY 10016 Common Archangel(3) Holding Company, LLC 1,580,000 10.5% 7 Park Avenue White Plains, NY 10603 Common Martin Sands 910,000 6% c/o Sands Brothers 90 Park Avenue New York, NY 10016 Common Steven Sands 910,000 6% c/o Sands Brothers 90 Park Avenue New York, NY 10016 Common Kevin Waltzer(5) 6,376,922 42% Persident/Director (w/ options 8,126,922) 54% 2865 S. Eagle Road Newton, PA 18940 Common Michelle Long(5) 6,376,922 42% Director (w/ options 8,126,922) 54% 3135 Hulbert Avenue Erlanger, KY 41018 Common John J. Russell(5) 6,376,922 42% Secretary/CFO (w/ options 8,126,922) 54% 9781 Horseshoe Lane Aurora, Indiana 47001 All Officers and 6,376,922 42% Directors as a Group (w/ options 8,126,922) 54% (3 Persons) (1) 2,445,961 shares are under contract to purchase by Innovative Cybersystems Corp. which is beneficially owned by Directors, Michelle Long, Kevin Waltzer, John J. Russell (sale closed in February 2000). (2) 2,445,961 shares are under contract to Innovative Cybersystems Corp. (Sale closed in February 2000). (3) 1,485,000 shares under a Share Purchase contract to Innovative Cybersystems Corp. (sale closed in February 2000). (4) John J. Russell resigned in January 2000. (5) Through Innovative Cybersystems Corp., this person is benefical owner of 6,376,922 shares Plus has options on an additional 1,750,000 shares. Item 12. Certain Relationships and Related Transactions. Pursuant to a Stock Purchase Agreement on October 2, 1999 Innovative Cybersystems Corp., a Florida corporation, (Innovative) agreed to purchase 6,376,922 issued and outstanding shares of Registrant's common stock from Robert Galoob, David Galoob, and Archangel Holding Company, LLC. The 6,376,922 shares represent approximately 42% of the outstanding shares of the common stock of Registrant on a fully-diluted basis. In addition, Innovative has options to purchase an additional 1,750,000 common shares from David Galoob and Robert Galoob. Innovative Cybersystems Corp. is controlled by Kevin Waltzer and John J. Russell. As of the closing of the Purchase, the following persons will own more than 5% of Registrant's outstanding common stock (on a fully diluted basis): Innovative Cybersystems Corp. 6,376,922 shares -42% (Innovative Cybersystems also has options for 1,750,000 shares which when combined would total 54% of the Company's outstanding stock.) Prior to the share purchase, the company was controlled by Robert Galoob, David Galoob, and Stephen Petre (through Archangel Holding Company, LLC). Part IV Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following exhibits and financial statement schedules are filed as exhibits to this Report: 1. Financial Statements of the Registrant are included under Item 8 hereof. 2. Financial Statement Schedules - None 3. Exhibits: Exhibit # Description Location 3.1 Articles of Incorporation Exhibit to Annual Report on Form 10K for Fiscal Year ended June 30, 1986 3.2 Bylaws of Registrant Exhibit to Annual Report on Form 10K for Fiscal Year ended June 30, 1986 3.3 Amendment to Articles of Exhibit to Form 8-K filed Incorporation December 14, 1998 10.1 Share Purchase Agreement Exhibit to Form 8-K filed March 2000 10.2 Letter of Intent - Inter- Exhibit to Form 8-K filed national Mercantile Corp. March 2000 27.1 Financial Data Schedule Attached (b) Reports on Form 8-K. Incorporated by reference. 8-K filed October 22, 1999 8-K filed October 27, 1999 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant had duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of ____________________, State of _________________ on this _____ day of March, 2000. WatchOut! Inc. /s/ Kevin Waltzer By: ________________________________ President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date - ---------------------- Director -------------------- Kevin Waltzer WATCHOUT!, INC. Financial Statements For the Year Ended December 31, 1999 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Watchout!, Inc. We have audited the accompanying balance sheets of Watchout!, Inc., as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of Watchout!, Inc., as of December 31, 1999 and 1998, and the results of their operations and cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred net losses of $2,959,097. At December 31, 1999 current liabilities exceed current assets by $ 1,963,715. As discussed in Note 3, conditions exist which raise substantial doubt about the Company's ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Denver, Colorado March 15, 2000 F-1
WATCHOUT!, INC. BALANCE SHEETS DECEMBER 31, ASSETS 1999 1998 - ------ ---- ---- Current Assets Cash $ - $ 580 -------------- --------------- Total Current Assets - 580 -------------- --------------- Property, Plant and Equipment - - Less Accumulated Depreciation - - -------------- --------------- Total Property and Equipment - - -------------- --------------- Other Assets Organization Costs 15,250 15,250 Less Accumulated Amortization (6,100) (3,050) -------------- --------------- Total Other Assets 9,150 12,200 -------------- --------------- TOTAL ASSETS $ 9,150 $ 12,780 ============== =============== LIABILITIES & STOCKHOLDERS' DEFICIT Current Liabilities Accrued Expenses $571,281 $537,213 Accounts Payable 475,989 475,989 Due to Stockholders 466,445 457,945 Notes Payable 450,000 450,000 -------------- --------------- Total Current Liabilities 1,963,715 1,921,147 -------------- --------------- Stockholders' Equity (Deficit) Preferred Stock, no par value 10,000,000 shares authorized, no shares issued or outstanding - - Common Stock, $.001 par value, 50,000,000 shares authorized, 15,030,245 shares issued and outstanding 15,030 15,030 Additional Paid in Capital 989,502 989,502 Accumulated Deficit (2,959,097) (2,912,899) -------------- --------------- Total Stockholders' Deficit (1,954,565) (1,908,367) -------------- --------------- TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 9,150 $ 12,780 ============== ===============
The accompanying notes are an integral part of these financial statements. F-2
WATCHOUT!, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 1998 ---- ---- REVENUES: $ - $ - OPERATING EXPENSES: Royalties - 56,250 Research & Development - 48,048 Selling Expenses - - Professional Fees 8,500 122,051 Management Fees 580 - Consulting Fees - 94,792 General & Administrative 3,050 98,746 Marketing - 1,251 Commitment/Loan Fees - 181,695 --------------- --------------- Total Operating Expenses 12,130 602,833 --------------- --------------- OPERATING (LOSS) (12,130) (602,833) --------------- --------------- OTHER REVENUES & EXPENSES: Interest Expense (34,068) (92,063) Loss on Sale of Receivables/Inventory - (162,000) --------------- --------------- Total Other Revenues and Expenses (34,068) (254,063) --------------- --------------- NET (LOSS) $ (46,198) $(856,896) =============== =============== Weighted Average Common Shares 15,030,245 15,030,245 Loss Per Share $ (0.00) $ (0.06) =============== ===============
The accompanying notes are an integral part of these financial statements. F-3
WATCHOUT!, INC. STATEMENTS OF STOCKHOLDERS' EQUITY Additional Retained Total Common Stock Paid-In Earnings Stockholders' Shares Amount Capital (Deficit) Equity -------- --------- ------------ ---------- ------------- Balance - December 31, 1997 15,030,245 $ 15,030 $ 989,502 $(2,056,003) $(1,051,471) Net Loss for year ended - - - (856,896) (856,896) ---------- -------- --------- ------------ ------------ Balance - December 31, 1998 15,030,245 15,030 989,502 (2,912,899) (1,908,367) ---------- -------- --------- ------------ ------------ Net Loss for year ended - - - (46,198) (46,198) ---------- -------- --------- ------------ ------------ Balance - December 31, 1999 15,030,245 $ 15,030 $ 989,502 $(2,959,097) $(1,954,565) ========== ======== ========= ============ ============
The accompanying notes are an integral part of these financial statements. F-4
WATHOUT!, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 1998 -------------- -------------- Cash Flows From Operating Activities: Net Loss $(46,198) $(856,896) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,050 - Services performed in exchange for common stock - - Changes in asset and liabilities: (Decrease) in inventories - 162,000 (Decrease) in accounts receivable - 84,129 Increase in accounts payable 8,500 156,006 Increase in accrued liabilities 34,068 301,210 -------------- -------------- Net Cash Used in Operating Activities (580) (153,551) -------------- -------------- Cash Flows From Investing Activities: Equipment purchases - - Increase in other assets - - -------------- -------------- Net Cash Used in Investing Activities - - -------------- -------------- Cash Flows From Financing Activities: Proceeds from notes payable - 150,521 Payments on short-term debt - (55,537) Proceeds from issuance of common stock - - -------------- -------------- Net Cash Provided by Financing Activities - 94,984 -------------- -------------- Net (Decrease) in Cash (580) (58,567) Cash and Cash Equivalents - Beginning of Period 580 59,147 -------------- -------------- Cash and Cash Equivalents - End of Period $ - $ 580 ============== ============== Supplemental disclosure of cash flow information: Interest paid $ - $ 11,063 ============== ============== Taxes paid $ - $ - ============== ==============
The accompanying notes are an integral part of these financial statements. F-5 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. 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 ======== 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. EX-27 2 FDS --
5 12-MOS DEC-31-1999 DEC-31-1999 0 0 0 0 0 0 0 0 9150 1963715 0 0 0 15030 (1969595) 9150 0 0 0 0 12130 0 34068 (46198) 0 (46198) 0 0 0 (46198) (.00) (.00)
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