SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB
                Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934
               For the transitional year ended: December 31, 1999

Commission File number:  0-114244

                                 WATCHOUT! INC.
             (Exact name of registrant as specified in its charter)

                          WHITE CLOUD EXPLORATION, INC.
                                 (Former Name)


Utah                                               84-0959153
State or Other Jurisdiction                        (I.R.S. Employer
of incorporation or organization)                  Identification Number)

1900 N.W. Corp. Blvd., Suite 400 E, Boca Raton, FL 33431
(Address of principal Executive Offices   Zip Code)

Registrant's telephone number, including area code:  (954) 803-7480

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

             Common Stock, $.001 Par Value per Share
                        (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                              Yes (X)   No ( )

     Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.

                              Yes ( )   No (X)


State issuer's revenues for its most recent fiscal year. $0


<PAGE>

Transitional Small Business Disclosure Format:

               ( ) Yes     (X) No

As of December 31, 1999, 15,030,245 shares of common stock were outstanding. The
aggregate  market value of  the Stock  held by  nonaffiliates  was $3,753,199 at
December 31, 1999 based on closing price of $.81 per share.

     Documents incorporated by reference:   None


<PAGE>

                                     Part I

Item 1. Business.

General - Organization and Reorganization

     Since its inception in July of 1983 as White Cloud Exploration,  Inc. ("the
Company"),  the  Company  has  been in the  developmental  stage,  while  it has
attempted to identify suitable mergers, asset or acquisitions of operations.

     The Company changed its name to WatchOut! Inc. in November, 1998.

     White  Cloud,  in March of 1991,  entered  into a Letter of Intent  whereby
White  Cloud was to  acquire  100% of the  Stock of  American  Technology,  Inc.
("ATI") in exchange for stock of White Cloud.  The merger was  cancelled  due to
accounting difficulties with American Technology, Inc.

     The Company had no further activities since 1991, and was inactive up until
1997.

     In April 1997,  William C. Meier  through his  beneficial  ownership of WCM
Investments, Inc., a Texas corporation ("WCM Investments"),  obtained control of
Registrant by purchasing on April 17, 1997, 5,010,750  (pre-reverse stock split)
shares of Registrant's Common Stock. On May 14, 1997, WCM Investments  purchased
from  Registrant  7,500,000  (pre-reverse  stock split)  newly-issued  shares of
Registrant's  Common  Stock  for  $7,500 in cash.  The  12,510,750  shares  were
automatically  converted  into 72,213  shares  pursuant to a 173.25 to 1 reverse
stock split of Registrant's Common Stock on June 29, 1997, and represented 72.2%
of the shares of Common Stock of Registrant outstanding at such time.

     The Watchout!  Agreement was entered into  effective May 30, 1997,  and the
Watchout!  Acquisition consummated pursuant thereto effective as of December 29,
1997.  Pursuant  to the  Watchout!  Agreement,  the  shareholders  of  Watchout!
contributed to Registrant  251,354 shares of Watchout's  common stock (100%) for
an aggregate  consideration of 11,296,300  shares of Registrant's  common stock.
The  number  of shares of  Registrant's  common  stock  issued  pursuant  to the
Watchout!   Agreement  was   determined   by  reference  to  the   proportionate
post-Acquisition    equity   ownership   of   Registrant   negotiated   by   the
pre-Acquisition  Watchout!   shareholders,   Goldpoint  members  and  Registrant
shareholders.  Prior to the closing of the Watchout! Acquisition,  Watchout! was
controlled by Robert Galoob and David Galoob.

     As a result of the  Watchout!  Acquisition,  Registrant  owned  100% of the
issued  and  outstanding  shares  of  Watchout!.  Watchout!  intended  to market
worldwide watches and other consumer goods utilizing  proprietary colored liquid
crystal display technology.

     Pursuant  to  an  LLC  Interest  and  Asset  Contribution   Agreement  (the
"Goldpoint   Agreement"   and  together  with  the  Watchout!   Agreement,   the
"Agreements"),  the members (i.e.,  equity holders) of Goldpoint  International,
LLC, a Delaware limited liability company ("Goldpoint"),

<PAGE>

effective  as of December 29,  1997,  contemporaneously  with the closing of the
Watchout! Acquisition, received from Registrant 2,140,000 newly-issued shares of
Registrant's  common stock in exchange for 100% of the  membership  interests in
Goldpoint  (the  "Goldpoint   Acquisition".)   The  2,140,000  shares  represent
approximately  14% of the outstanding  shares of common stock of Registrant on a
fully-diluted  basis.  Prior  to  the  closing  of  the  Goldpoint  Acquisition,
Goldpoint was controlled by Mr. Stephen J. Petre.

     Effective  as of  December  29,  1997,  pursuant  to  the  Agreements,  and
contemporaneously  with the consummation of the Acquisitions,  Robert Galoob and
David Galoob  accepted  appointments  as directors of Registrant  from the prior
directors of Registrant, each of whom resigned as directors.

     As a result  of the  Goldpoint  Acquisition,  Registrant owned  100% of the
outstanding  membership interests in Goldpoint LLC. Goldpoint intended to market
fine writing instruments.

     Neither  WatchOut!  Inc. nor Goldpoint was successful in raising capital or
carrying out the business plan  adopted.  As a result all attempts at operations
were suspended in September 1998, and no further business was attempted in 1998.

     Pursuant to a Stock  Purchase  Agreement  effective  as of October 9, 1999,
Innovative  Cybersystems  Corp.,  a  Florida  corporation,  agreed  to  purchase
6,376,922 issued and outstanding shares of Registrant's  common stock from David
Galoob Robert Galoob,  and Archangel Holding Company,  LLC. The 6,376,922 shares
represent  approximately  42% of the  outstanding  share sof the common stock of
Registrant  on a  fully-diluted  basis.  In addition  Innovative  has options to
purchase an additional 1,750,00 common shares. Innovative is controlled by Kevin
Waltzer.  (See "management"  below). In addition,  Innovative  Cybersystem Corp.
will have options to purchase 1,750,000.

     As of  the  closing,  the  following  persons  will  own  more  than  5% of
Registrant's outstanding common stock (n a fully diluted basis):

     Innovative Cybersystems Corp. 6,376,922 shares

     Innovative Cybersystems also has options for 1,750,000 shares.

     The Closing was completed on about February 11, 2000.

     Prior to the share  purchase,  WatchOut!  was  controlled by Robert Galoob,
David Galoob, and Stephen Petre.

     The Company is seeking to acquire interest in Internet  related  businesses
through an exchange of shares of equity.  It may acquire a minority  interest in
such businesses. At year end, the Company had established no formal criteria for
determining its acquisition of or participation in any given business.

     On  November  19,  1999,  the  Company  negotiated  a Letter of Intent with
International Mercantile Corp. (known as Micromatix.net) for investment of up to
$500,000 in preferred convertible stock of International by the Company.

     Micromatix.net,   a  Baltimore  based  company,  builds  custom  configured
desktops, servers, and notebooks using industry standard, branded components for
value added resellers.  Our systems are aggressively  priced,  built to ISO 9002
quality standard with an Internet-based  ordered  capability and superior custom
service. The Company is dedicated to the value-added reseller (VAR) and does not
market directly to end-users.  Micromatix.net will partner with the VAR enabling
them  to  outsource   their  assembly   logistics  and  other   requirements  to
Micromatix.net allowing the reseller to focus on customer service,  support, and
other business opportunities.

     Micromatix.net's  primary  business  strategy is to become the VAR's choice
for  build-to-order  PC Systems.  The systems can be  configured by the reseller
according  to the  specifications  of their  customers,  thereby  giving the VAR
greater  control  over the entire  process,  including  configuration,  delivery
service,  and  customer  relations,  VAR's  will be able to place  orders  using
Micromatix.net's  state-of-the-art  Internet based  configurator and order entry


<PAGE>


system. This will provide you with real-time ordering and quoting  capabilities,
inventory  management,  and the ability to track production and shipping status.
This  platform  provides  its  resellers  with a single  source  for the  entire
configuration and ordering needs seven days a week, 24 hours a day.

     "White  boxes"  are  a  cost-effective   alternative  to  branded  PCs.  By
purchasing  components  competitively,  employing  assembly and providing  local
delivery,  Micromatix.net is able to control its costs. This cost control allows
Micromatix.net  to offer competitive  prices to their customers.  The Company is
also  structured to provide  superior  service,  with rapid response to customer
calls,  quick  access to  necessary  components,  high order  fills and  on-time
accurate shipments.  WatchOut!, Inc. has no intention of making Micromatix.net a
subsidiary company.

Employees and Consultants

     The Company at fiscal year end had no paid  employees,  and its  President,
Kevin  Waltzer,  and  Secretary,  Jack R. Russell,  serve on an as needed basis.
These  officers  intend to devote only such time as  necessary  to the  business
affairs of the Company.

     Presently,  none  of the  officers  receive  salaries,  however,  they  are
reimbursed for their expenses  incurred in their services as officers.  There is
no provision for any  additional  bonuses or benefits.  The Company  anticipates
that in the  near  future  it may  enter  into  employment  agreements  with its
officers. Although Directors do not receive compensation for their services they
may be reimbursed for expenses incurred in attending Board meetings.

Item 2. Properties.

     The Company maintains its corporate office at 1900 N.W. Corp. Blvd.,  Suite
400 E, Boca Raton, FL 33431,  under an informal  arrangement  with the Company's
President. This space is deemed adequate for the immediate future.

Item 3. Legal Proceedings.

     The Company was not a party to any pending legal proceedings.  It settled a
lawsuit with Boit, Inc., the licensor of the watch technology prior to year end.
The resolution to terminated the license due to certain  defaults.  It would not
have a material  effect since the Company has  abandoned the business plan which
would have used the watch technology.

Item 4.  Submission of Matters to a Vote of Security Holders.

     No matters was  submitted  to a vote  of security  holders  within the year
covered by this  report.


                                     Part II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.


     The  outstanding  registered  securities  of the Company were quoted on the
OTCBB during the year.

               Common Stock   Common Stock
1999           Bid High       Bid Low
____________________________________________________
1st Quarter     .125          .0
2nd Quarter     .125          .0
3rd Quarter     .125          .0
4th Quarter    4.00           .125


               Common Stock   Common Stock
1998           Bid High       Bid Low
____________________________________________________
1st Quarter    no quote       no quote
2nd Quarter    no quote       no quote
3rd Quarter    no quote       no quote
4th Quarter    .125           .125

<PAGE>

               Common Stock   Common Stock
1997 and 1996  Bid High       Bid Low
____________________________________________________

1st Quarter    no quote       no quote
2nd Quarter    no quote       no quote
3rd Quarter    no quote       no quote
4th Quarter    no quote       no quote


     The Company  anticipates  its shares will continue to trade in the over the
counter  market.  Quotations  represent only prices  between  dealers and do not
include  retail  markups,  markdowns or  commissions  and  accordingly,  may not
represent actual transactions.  As of December 31, 1999, there are approximately
230 record  stockholders  of the Company's  shares,  not including  shareholders
represented by "street name" holders.

     No  dividends  have been  declared  or paid by the  Company  and  presently
intends to retain all future  earnings,  if any,  to finance the  expansion  and
development of its business.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

Financial Condition and Changes in Financial Condition

     No revenue producing  business  operations were conducted by the company in
1999.  No revenues were  generated in the fiscal year 1999.  The Company at year
end December 31, 1999,  had no cash  compared  with $580 in cash at December 31,
1998. The Company at fiscal year end needed cash infusions from  shareholders to
provide  capital,  or loans from any sources,  for  advancement  of its business
ventures. The Company had no business at year end.

<PAGE>

Liquidity and Capital Assets.

     The Company's  primary  source of liquidity  since  inception has been from
funds raised during its initial capitalization and from shareholder advances and
loans.  The  company  had no cash at 1999  year  end and no  current  assets  at
December 31, 1999.

     Total  liabilities  for 1999  (which  were all due) were  $1,963,715  for a
deficit of ($1,963,715) in the ratio of liabilities to current assets.

     The company was critically  deficient in capital and needs cash to commence
effective  operations.  No source of such funds had been identified at year end,
and it would have to occur through debt or stock sales.


Results of Operations  for twelve month period ended  December 31, 1999 compared
to December 31, 1998

     The Company had no revenues in 1999.  The Company had expense of operations
of $12,130 and interest accruals of $34,068 for total expense of $46,198 for the
year. In 1998,  the Company  incurred  602,833 in expenses  with no income.  The
Company had a net loss of ($46,198) for 1999 and ($602,833) in 1998.

Results of Operations for twelve month period ended December 31, 1998 Compared
to 1997

     In the year ended  December  31,  1999,  the Company  had no  revenues  and
incurred  operating  expenses  totaling  $602,833.  In  calendar  year  1997 the
combined  entities' net revenues  were  $340,679.  As of December 31, 1998,  the
Company had no material commitments for capital expenditures.

     In the year ended  December  31,  1998,  the  Company  incurred  $98,746 in
general and  administrative  expenses  compared  with  $201,328 in 1997.  In the
fiscal year ended December 31, 1998,  the Company  incurred an operating loss of
($602,833)  compared  to a loss of  ($731,582)  in  1997.  Net loss for 1998 was
($856,901) or ($.06) per share  compared to a net loss for 1997 of ($968,502) or
($.06) on a fully diluted basis.

     The Company had a loss on sale of inventory and  receivables  of ($162,000)
in 1998 and ($238,254) in 1997.  Interest expense  (accrued) was $92,063 in 1998
compared to $36,612 in 1997.

     For  furture  periods,  the  Company  expects  the  trend of net  losses to
continue  until a business  can be  achieved  which  generates  revenue to cover
operations.

Item 7. Financial Statements and Supplemental Data.

     Attached  hereto and filed as part of this Form  10-KSB  are the  financial
statements required by Regulation SB. Please refer to pages F-1 through F-8.

Item 8. Changes in and Disagreements on Accounting and Financial Disclosure.

     In  connection  with audits of two most recent fiscal years and any interim
period preceding resignation,  no disagreements exist with any former accountant
on any matter of accounting principles or practices, financial

<PAGE>

statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the  satisfaction of the former  accountant would have caused him to
make  reference  in  connection  with his  report to the  subject  matter of the
disagreement(s).

     The principal  accountant's  report on the financial  statements for any of
the past two years  contained no adverse  opinion or a disclaimer of opinion nor
was qualified as to uncertainty,  audit scope, or accounting  principles  except
for the "going concern" qualification.

     For Fiscal  Year 1992 and  thereafter  the  Company  engaged as its Auditor
Michael  B.  Johnson  & Co.  There  were no  disagreements  as to any  matter of
accounting practice or principles,  financial  statement  disclosure or auditing
scope or procedure, with any prior accountant.

                                    Part III

Item 9. Directors and Executive  Officers of the Registrant and Compliance  with
Section 16(a).

Identification of Directors and Executive Officers of the Company

     The directors and executive  officers of the Company,  their age, positions
held in the  Company,  and  duration  as such,  were as follows as of end of the
fiscal year:

     Name           Age            Position                           Since
Kevin Waltzer       32             President/Director                 11/99
John J. Russell     60             Secretary/CFO/Director             11/99
Michelle Long       45             Director                           11/99

Business Experience

     The following is a brief account of the business experience during the past
five years of the former  officer/directors at the end of the period,  indicting
their principal  occupation and employment during that period,  and the name and
principal  business of the  organization in which such occupation and employment
were carried out.


<PAGE>


     Kevin  Waltzer,  age  32,  President  and  proposed  Director  (subject  to
compliance with Section 14f). Mr. Waltzer  graduated from Boston University with
an  undergraduate  degree in Political  Science  (1990).  Mr. Waltzer has been a
self0employed equities trader for the past seven years, using proprietary market
trend  systems.  He served as a Director for and  consultant to The Human Works,
Inc., September - December 1998. Mr. Waltzer was a founding partner and Director
and executive of Eco-Aire Company,  Inc., a company holding multiple patents for
evolutionary air and water  purification  techniques from 1996 to 1998. He was a
founding partner and an original investor in  Tradescape.com,  a Manhattan based
securities  trading  firm,  in 1996.  He sold his  interest  in 1999.  He formed
Innovative  Cybersystems,  Inc.  in 1999 and is  President  and a  Director  and
principal shareholder.

     Jack  J.  Russell,  age 60,  Director,  CEO,  CFO,  graduated  from  Drexel
University  with a BS in accounting.  He has  accomplished  advanced  studies at
American  College,  Bryn Mawr, PA. He received a CHFC  designation in 1990 and a
CLU designation in 1993. He is a Charter member of the Professional  Achievement
in  Continuing  Education  Program.  Mr.  Russell is involved  with the American
Institute  of  Certified  Public  Accountants  where he is a  member  of the Tax
Division and the Personal Financial Planning Division. He has recently worked as
a financial planner/business  consultant for Glen Mills Financial Services, Inc.
where he specialized in financial planning,  personal and corporate tax returns,
corporate  financing,  and management  systems.  From 1994 to 1995, he headed an
18-month project to turn around a manufacturing company located in the Mid-West.
As CEO of Glas-Kraft,  Inc.,  from 1982 to 1988 he turned the company around and
negotiated the sale of the company. As a CEO of Eastern Coated Papers, Ltd. from
1983 to 1988 Mr. Russell  arranged  acquisition and working capital needs with a
combination of Canadian and U.S.  banks.  The company was returned to a positive
cash flow, and he negotiated the sale of the company.  From 1978 to 1982, he was
CFO of Gentech,  Inc., he established a sophisticated  direct costing system. He
helped  Gentech,  Inc.  acquire a significant  subsidiary  through a cash tender
offer. At Titan  Industries,  Inc., from 1972 to 1978, he handled all aspects of
the Annual Report and SEC reporting. Mr. Russell also established  consolidation
and reporting  controls for over 91 subsidiaries.  In order to improve the state
of the  company,  he assisted in the  sell-off  of several  unprofitable  and/or
incompatible subsidiaries.  When he was CFO of SmithKline Laboratories - Branson
Instruments Division,  1969 to 1972, he served on a five man executive committee
responsible  for strategic  direction of the company.  Mr. Russell is a Director
and shareholder of Innovative Cybersystems, Inc. founded in October 1999.


<PAGE>


     Michelle  Long,  age 45,  proposed  Director  (subject to  compliance  with
Section  14f).  Ms. Long  studied  Mathematics  at the  University  of Helsinki,
Finland and obtained her undergraduate  degree in Finance from the University of
Cincinnati in 1978 and holds an MBA in Finance from Xavier University.  Michelle
holds LUTCF, RHU, ChFC, and CFP  designations.  Ms. Long is registered with NASD
as an Investment Advisor and General Securities  Principal.  She currently heads
Quest  Financial  Group,  the  Greater  Cincinnati  Branch of  United  Planners'
Financial Services of America.

     Directors of the Company  hold office until the next annual  meeting of the
shareholders and until their successors have been elected and qualified.

     Officers of the Company are elected by the Board of  Directors at the first
meeting after each annual  meeting of the Company  shareholders  and hold office
until their death, or until they shall resign or have been removed from office.

Section 16(a) Reporting Delinquencies

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
own more than 10% of a registered class of the Company's equity  securities,  to
file reports of ownership  and changes in ownership of equity  securities of the
Company with the Securities  and Exchange  Commission.  Officers,  directors and
greater-than  10%  shareholders  are  required by the  Securities  and  Exchange
Commission  regulation  to furnish the Company with copies of all Section  16(a)
filings.

Item 10. Executive Compensation.

     The Company accrued a total of no compensation to the executive officers as
a group for services  contributed  to the Company in all  capacities  during the
period ended  December 31,  1999.  No one  executive  officer  received,  or has
accrued for his benefit, in excess of $60,000 for the year. No cash bonuses were
or are to be paid to such persons.

<PAGE>

     The Company does not have any employee incentive stock option plans.

     There are no plans pursuant to which cash or non-cash compensation was paid
or  distributed  during  the last  fiscal  year,  or is  proposed  to be paid or
distributed in the future,  to the executive  officers of the Company.  No other
compensation not described above was paid or distributed  during the last fiscal
year to the executive  officers of the Company.  There are no compensatory plans
or  arrangements,  with respect to any  executive  office of the Company,  which
result or will result from the resignation,  retirement or any other termination
of such individual's  employment with the Company or from a change in control of
the Company or a change in the individual's  responsibilities following a change
in control.

                    SUMMARY COMPENSATION TABLE OF EXECUTIVES


Name and          Fiscal   Salary  Bonus  Other Annual  Restriced   Securities
Principal         Year     ($)     ($)    Compensation  Stock       Underlying
Position                                  ($)           Awards      Options/SARs
                                                        ($)         (#)
Kevin Waltzer     1997     0       0      0             0           0

President         1998     0       0      0             0           0

                  1999     0*      0      0             0           0


John J. Russell   1997     0       0      0             0           0

Secretary/        1999     0       0      0             0           0

CFO               1999     0       0      0             0           0

                  1998     0       0      0             0           0

Michelle Long,    1997     0       0      0             0           0

Vice President    1998     0       0      0             0           0

                  1999     0*      0      0             0           0

Robert Galoob,    1997     0       0      0             0           0
President
(resigned Oct.    1998     0       0      0             0           0
1999)
                  1999     0*      0      0             0           0


David Galoob,     1997     0       0      0             0           0
Secretary
(resigned Oct.    1998     0       0      0             0           0
1999)
                  1999     0*      0      0             0           0


Option/SAR Grants Table (None)
Aggregated  Option/SAR Exercises in Last Fiscal Year an  FY-End Option/SAR
value (None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)

<PAGE>

     DIRECTOR COMPENSATION FOR LAST FISCAL YEAR

(Except for  compensation of officers who are also Directors which  compensation
is listed in Summary Compensation Table of Executives)

<TABLE>
<CAPTION>

Name                Annual         Meeting        Consulting          Number of      Number of
                    Retainer       Fees ($)       Fees/Other          Shares (#)     Securities
                    Fees ($)                      Fees ($)                           Underlying
                                                                                     Options/SAR
                                                                                     (#)
<S>                 <C>            <C>            <C>                 <C>            <C>

Robert Galoob,      0              0              0                   0              0
Director

David Galoob,       0              0              0                   0              0
Director

Kevin Waltzer       0              0              0                   0              0
Director


Michelle Long       0              0              0                   0              0
Director


John J. Russell     0              0              0                   0              0
Director


</TABLE>

Item 11. Security Ownership of Management and Beneficial Owners.

As of  December  31,  1999,  there  were  15,030,245  common  shares  issued and
outstanding.  The following table sets forth information, as of Fiscal year end,
with respect to the beneficial ownership of the Company's $.001 par value common
stock by each  person  known by the Company to be the  beneficial  owner of more
than five percent of the outstanding  common stock,  and by current officers and
directors of the Company.

Stock Title     Name and Address             Amount of Beneficial   Percentage
of Class        Of Beneficial Owner          Ownership              of Class

Common          Robert Galoob, (1)           3,505,461              23.3%
                116 Stanyan
                San Francisco, CA

Common          David Galoob (2)             3,505,461              23.3%
                116 Stanyan
                San Francisco, CA

<PAGE>

Common          Mark Hollo                   1,820,000              12.1%
                c/o Sands Brothers
                90 Park Avenue
                New York, NY  10016

Common          Archangel(3)
                Holding Company, LLC         1,580,000              10.5%
                7 Park Avenue
                White Plains, NY  10603

Common          Martin Sands                 910,000                6%
                c/o Sands Brothers
                90 Park Avenue
                New York, NY  10016

Common          Steven Sands                 910,000                6%
                c/o Sands Brothers
                90 Park Avenue
                New York, NY  10016

Common          Kevin Waltzer(5)             6,376,922              42%
                Persident/Director           (w/ options 8,126,922) 54%
                2865 S. Eagle Road
                Newton, PA  18940

Common          Michelle Long(5)             6,376,922              42%
                Director                     (w/ options 8,126,922) 54%
                3135 Hulbert Avenue
                Erlanger, KY  41018

Common          John J. Russell(5)           6,376,922              42%
                Secretary/CFO                (w/ options 8,126,922) 54%
                9781 Horseshoe Lane
                Aurora, Indiana  47001

                All Officers and             6,376,922              42%
                Directors as a Group         (w/ options 8,126,922) 54%
                (3 Persons)

(1) 2,445,961  shares are under contract to purchase by Innovative  Cybersystems
Corp.  which is beneficially  owned by Directors,  Michelle Long, Kevin Waltzer,
John J. Russell (sale closed in February 2000).

(2) 2,445,961 shares are under contract to Innovative  Cybersystems  Corp. (Sale
closed in February 2000).

(3) 1,485,000 shares under a Share Purchase contract to Innovative  Cybersystems
Corp. (sale closed in February 2000).

(4) John J. Russell resigned in January 2000.

(5) Through  Innovative  Cybersystems  Corp.,  this person is benefical owner of
6,376,922 shares Plus has options on an additional 1,750,000 shares.

Item 12. Certain Relationships and Related Transactions.

     Pursuant  to a Stock  Purchase  Agreement  on  October  2, 1999  Innovative
Cybersystems  Corp.,  a Florida  corporation,  (Innovative)  agreed to  purchase
6,376,922 issued and outstanding shares of Registrant's common stock from Robert
Galoob,  David Galoob, and Archangel Holding Company,  LLC. The 6,376,922 shares
represent  approximately  42% of the  outstanding  shares of the common stock of
Registrant on a  fully-diluted  basis.  In addition,  Innovative  has options to
purchase an  additional  1,750,000  common  shares from David  Galoob and Robert
Galoob. Innovative Cybersystems Corp. is controlled by Kevin Waltzer and John J.
Russell.

     As of the closing of the Purchase, the following persons will own more than
5% of Registrant's outstanding common stock (on a fully diluted basis):


<PAGE>


     Innovative   Cybersystems   Corp.   6,376,922   shares   -42%   (Innovative
Cybersystems  also has options for 1,750,000  shares which when  combined  would
total 54% of the Company's outstanding stock.)

     Prior to the share  purchase,  the company was controlled by Robert Galoob,
David Galoob, and Stephen Petre (through Archangel Holding Company, LLC).


<PAGE>



                                     Part IV

Item  13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  The following exhibits and financial statement schedules are filed as
exhibits to this Report:

1. Financial Statements of the Registrant are included under Item 8 hereof.

2. Financial Statement Schedules - None

3. Exhibits:

Exhibit #        Description                   Location
3.1              Articles of Incorporation     Exhibit to Annual Report
                                               on Form 10K  for  Fiscal
                                               Year ended June  30, 1986

3.2              Bylaws of Registrant          Exhibit to Annual Report
                                               on Form 10K  for  Fiscal
                                               Year ended June  30, 1986

3.3              Amendment to Articles of      Exhibit to Form 8-K filed
                 Incorporation                 December 14, 1998

10.1             Share Purchase Agreement      Exhibit to Form 8-K filed
                                               March 2000

10.2             Letter of Intent - Inter-     Exhibit to Form 8-K filed
                 national Mercantile Corp.     March 2000

27.1             Financial Data Schedule       Attached

(b) Reports on Form 8-K.

     Incorporated by reference.

     8-K filed October 22, 1999

     8-K filed October 27, 1999


<PAGE>

                                   Signatures

Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the Registrant had duly caused this Report to be signed on
its  behalf  by the  undersigned  thereunto  duly  authorized,  in the  city  of
____________________,  State of  _________________  on this  _____ day of March,
2000.

WatchOut! Inc.

     /s/ Kevin Waltzer
By:  ________________________________
     President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been  signed by the  following  persons in the  capacities  and on the dates
indicated.

     Signature           Title                    Date


----------------------   Director                 --------------------
Kevin Waltzer


<PAGE>

                                 WATCHOUT!, INC.

                              Financial Statements

                      For the Year Ended December 31, 1999


<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Watchout!, Inc.



We have  audited the  accompanying  balance  sheets of  Watchout!,  Inc.,  as of
December  31,  1999  and  1998,  and  the  related   statements  of  operations,
stockholders'  equity,  and cash flows for the years then ended. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  positions  of  Watchout!,  Inc.,  as of
December 31, 1999 and 1998,  and the results of their  operations and cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company has incurred net losses of $2,959,097.  At December 31, 1999 current
liabilities  exceed  current  assets by $  1,963,715.  As  discussed  in Note 3,
conditions exist which raise  substantial  doubt about the Company's  ability to
continue as a going concern unless it is able to generate  sufficient cash flows
to meet its obligations and sustain its operations.  The financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.



Denver, Colorado
March 15, 2000


                                      F-1

<PAGE>

<TABLE>
<CAPTION>


                                          WATCHOUT!, INC.
                                           BALANCE SHEETS
                                            DECEMBER 31,




ASSETS                                                                         1999             1998
------                                                                         ----             ----
<S>                                                                           <C>              <C>
Current Assets
  Cash                                                                               $ -            $ 580
                                                                           --------------  ---------------
Total Current Assets                                                                   -              580
                                                                           --------------  ---------------

Property, Plant and Equipment                                                          -                -
  Less Accumulated Depreciation                                                        -                -
                                                                           --------------  ---------------
  Total Property and Equipment                                                         -                -
                                                                           --------------  ---------------

Other Assets
  Organization Costs                                                              15,250           15,250
  Less Accumulated Amortization                                                   (6,100)          (3,050)
                                                                           --------------  ---------------
Total Other Assets                                                                 9,150           12,200
                                                                           --------------  ---------------

TOTAL ASSETS                                                                     $ 9,150         $ 12,780
                                                                           ==============  ===============

LIABILITIES & STOCKHOLDERS' DEFICIT

Current Liabilities
  Accrued Expenses                                                              $571,281         $537,213
  Accounts Payable                                                               475,989          475,989
  Due to Stockholders                                                            466,445          457,945
  Notes Payable                                                                  450,000          450,000
                                                                           --------------  ---------------
Total Current Liabilities                                                      1,963,715        1,921,147
                                                                           --------------  ---------------

Stockholders' Equity (Deficit)
  Preferred Stock, no par value 10,000,000 shares
     authorized, no shares issued or outstanding                                       -                -
  Common Stock, $.001 par value, 50,000,000 shares
     authorized, 15,030,245 shares issued and outstanding                         15,030           15,030
  Additional Paid in Capital                                                     989,502          989,502
  Accumulated Deficit                                                         (2,959,097)      (2,912,899)
                                                                           --------------  ---------------
Total Stockholders' Deficit                                                   (1,954,565)      (1,908,367)
                                                                           --------------  ---------------

TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT                                        $ 9,150         $ 12,780
                                                                           ==============  ===============
</TABLE>


The accompanying notes are an integral part of these financial statements.

                                      F-2

<PAGE>

<TABLE>
<CAPTION>


                                WATCHOUT!, INC.
                            STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,





                                                                  1999                   1998
                                                                  ----                   ----

<S>                                                              <C>                    <C>
REVENUES:                                                               $ -                    $ -

OPERATING EXPENSES:
 Royalties                                                                -                 56,250
 Research & Development                                                   -                 48,048
 Selling Expenses                                                         -                      -
 Professional Fees                                                    8,500                122,051
 Management Fees                                                        580                      -
 Consulting Fees                                                          -                 94,792
 General & Administrative                                             3,050                 98,746
 Marketing                                                                -                  1,251
 Commitment/Loan Fees                                                     -                181,695
                                                             ---------------        ---------------
   Total Operating Expenses                                          12,130                602,833
                                                             ---------------        ---------------

OPERATING (LOSS)                                                    (12,130)              (602,833)
                                                             ---------------        ---------------

OTHER REVENUES & EXPENSES:
 Interest Expense                                                   (34,068)               (92,063)
 Loss on Sale of Receivables/Inventory                                    -               (162,000)
                                                             ---------------        ---------------
  Total Other Revenues and Expenses                                 (34,068)              (254,063)
                                                             ---------------        ---------------

NET (LOSS)                                                        $ (46,198)             $(856,896)
                                                             ===============        ===============

Weighted Average Common Shares                                   15,030,245             15,030,245

Loss Per Share                                                      $ (0.00)               $ (0.06)
                                                             ===============        ===============

</TABLE>


The accompanying notes are an integral part of these financial statements.

                                      F-3


<PAGE>

<TABLE>
<CAPTION>



                                                    WATCHOUT!, INC.
                                           STATEMENTS OF STOCKHOLDERS' EQUITY





                                                                            Additional         Retained            Total
                                                  Common Stock               Paid-In           Earnings        Stockholders'
                                              Shares          Amount         Capital           (Deficit)           Equity
                                             --------       ---------      ------------        ----------      -------------
<S>                                            <C>             <C>            <C>               <C>                <C>
Balance - December 31, 1997                    15,030,245      $ 15,030       $ 989,502         $(2,056,003)       $(1,051,471)

Net Loss for year ended                                 -             -               -            (856,896)          (856,896)
                                               ----------      --------       ---------         ------------       ------------
Balance - December 31, 1998                    15,030,245        15,030         989,502          (2,912,899)        (1,908,367)
                                               ----------      --------       ---------         ------------       ------------
Net Loss for year ended                                 -             -               -             (46,198)           (46,198)
                                               ----------      --------       ---------         ------------       ------------
Balance - December 31, 1999                    15,030,245      $ 15,030       $ 989,502         $(2,959,097)       $(1,954,565)
                                               ==========      ========       =========         ============       ============

</TABLE>


The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>



                                                     WATHOUT!, INC.
                                                STATEMENTS OF CASH FLOWS
                                            FOR THE YEARS ENDED DECEMBER 31,



                                                                         1999                      1998
                                                                     --------------            --------------
<S>                                                                       <C>                      <C>
Cash Flows From Operating Activities:
          Net Loss                                                        $(46,198)                $(856,896)
          Adjustments to reconcile net loss to net cash
           used in operating activities:
           Depreciation and amortization                                     3,050                         -
           Services performed in exchange for common stock                       -                         -
           Changes in asset and liabilities:
            (Decrease) in inventories                                            -                   162,000
            (Decrease) in accounts receivable                                    -                    84,129
            Increase in accounts payable                                     8,500                   156,006
            Increase in accrued liabilities                                 34,068                   301,210
                                                                     --------------            --------------
          Net Cash Used in Operating Activities                               (580)                 (153,551)
                                                                     --------------            --------------

Cash Flows From Investing Activities:
          Equipment purchases                                                    -                         -
          Increase in other assets                                               -                         -
                                                                     --------------            --------------
          Net Cash Used in Investing Activities                                  -                         -
                                                                     --------------            --------------

Cash Flows From Financing Activities:
          Proceeds from notes payable                                            -                   150,521
          Payments on short-term debt                                            -                   (55,537)
          Proceeds from issuance of common stock                                 -                         -
                                                                     --------------            --------------
          Net Cash Provided by Financing Activities                              -                    94,984
                                                                     --------------            --------------

Net (Decrease) in Cash                                                        (580)                  (58,567)

Cash and Cash Equivalents - Beginning of Period                                580                    59,147
                                                                     --------------            --------------

Cash and Cash Equivalents - End of Period                                      $ -                     $ 580
                                                                     ==============            ==============



          Supplemental disclosure of cash flow information:

          Interest paid                                                        $ -                  $ 11,063
                                                                     ==============            ==============
          Taxes paid                                                           $ -                       $ -
                                                                     ==============            ==============

</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-5

<PAGE>


                                 WATCHOUT!, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999


NOTE 1 - Organization and Summary of Significant Accounting Policies:

Organization

The  Company  was  incorporated  July 22,  1983  under  the laws of Utah for the
purpose  of  obtaining,   capital  to  seek  potentially   profitable   business
opportunities.  Since inception,  the Company has been engaged in organizational
activities.  In 1997, the Company acquired two entities:  Watchout, a California
Corporation,  and  Goldpoint  International,  a limited  liability  company.  In
November of 1998, the corporation changed it's name to Watchout!, Inc.

The Company's fiscal year end is December 31.

Cash and Cash Equivalents:

For purposes of the statement of cash flows,  cash and cash equivalents  include
cash in banks and money market accounts.

Research & Development

Research and development costs are expenses when incurred.

Use of Estimates:

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported  activities during the reporting period.  Actual results may differ
from those estimates.

Income Taxes

No  provisions  have been made for income  taxes.  As of December 31, 1999,  the
company  had net  operating  loss (NOL)  carryforwards  for  federal  income tax
purposes of approximately $2,959,047.  These net operating losses may be used to
offset future taxable income. Unused carryforwards will expire in 2014.


<PAGE>


                                 WATCHOUT!, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999


NOTE  1  -  Organization  and  Summary  of  Significant   Accounting   Policies;
(Continued)

Income Taxes:

The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial Accounting  Standards Number 109 ("SFAS 109"),  "Accounting for Income
Taxes",  which  requires  a change  from the  deferred  method  to the asset and
liability  method of accounting for income taxes.  Under the asset and liability
method,  deferred  income  taxes  are  recognized  for the tax  consequences  of
"temporary  differences" by applying  enacted  statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.

At December  31,  1999,  the Company had net  operating  loss  carryforwards  of
approximately  $2,959,097 for federal income tax purposes.  These carryforwards,
if not utilized to offset taxable income will expire at the end of the indicated
years:

                          2009                                   $ 102,487
                          2010                                      89,956
                          2011                                     895,058
                          2012                                     968,502
                          2013                                     856,896
                          2014                                      46,198
                                                                ----------
                                                                $2,959,097
                                                                ==========

There was no provision or benefit for income taxes in fiscal 1999.

NOTE 2 - Notes Payable:

Following is a summary of notes payable at December 31, 1999

Note Payable to individual, 12%, unsecured, due on demand              $200,000

Note Payable to individual, 12%, unsecured, due on demand               166,000

Note Payable to individual, 12%, unsecured, due on demand                84,000
                                                                       --------
                                                                       $450,000
                                                                       ========


<PAGE>


                                 WATCHOUT!, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999


NOTE 3 - Going Concern:

The Company has  incurred  net losses of  $2,959,097.  As of December  31, 1999,
current  liabilities  exceeded  current assets by  $1,963,715.  In view of these
matters,  the future  success of the  Company is likely to be  dependent  on its
ability to obtain additional capital and its ability to attain future profitable
operations.  There can be no assurance  that the Company will be  successful  in
obtaining  such  financing,  or that it will  attain  positive  cash  flow  from
operations.

NOTE 4 - Related Party Transactions:

The Company has entered into loan  agreements  with its  executive  officers for
reimbursements of expenses of operations by the Company. The amounts outstanding
on the  shareholders'  loans total  $466,445 at December  31,  1999.  These loan
agreements are unsecured and non-interest-bearing.

NOTE 5 - SUBSEQUENT EVENTS:

a)       Gill & Associates,  a collection agency for Office Depot has threatened
         a collection suit for approximately $17,000.

b)       Boit,  Inc.  filed  suit to  resolve  the  technology  license  for the
         Company's watch products. The Company settled the suit and relinquished
         the license in the summer of 1999.

c)       Len Dorfman has filed suit for fees owed totaling $96,000.

d)       In October 1999, the major  shareholders  of the Company agreed to sell
         control  totaling  over  8  million  shares,   including  options,   to
         Innovative  Cybersystems Corp. which intends to engage in new business.
         The Agreement  requires  settlement of certain debts and renegotiations
         of all other debt as a condition  of the  Agreement.  It also  requires
         cancellation of all warrants.

e)       The  Company  is  negotiating  to  cancel  the Sands  Brothers  selling
         Agreement to settle any claims by Sands Brothers for a Mutual Release.

f)       Bader-Williams  Loan: The Company is renegotiating the loan which is in
         default to provide a fixed amount and new payment terms.

g)       Watchout/Goldpoint Loan: The Company is renegotiating the loan which is
         in default, to provide a fixed amount and new payment terms.