SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of Securities Exchange Act of
1934
[ ] Transition Report Under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to
___________________
For Period ended December 31, 2000
Commission File Number 0-26839
SNAP2 CORPORATION
(f/k/a White Rock Enterprises, Ltd.)
------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0407246
- ------------------------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
10641 JUSTIN DRIVE, URBANDALE, IOWA 50322
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(515) 331-0560
--------------
(Registrant's telephone number, including area code)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of December 31, 2000, the registrant had 17,856,000 shares of common stock,
$.001 par value, issued and outstanding and 10,000 shares of convertible
preferred stock issued and outstanding which are convertible into 10,000,000
shares of common stock, $.001 par value, on February 28, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
2
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SNAP2 Corporation
Balance Sheets
(Unaudited)
December 31, September 30,
2000 2000
----------- -------------
Assets
Cash and cash equivalents $ 42,403 $ 18,956
Accounts receivable 126,053 127,279
----------- -----------
Total current assets 168,456 146,235
Equipment, net of accumulated depreciation 72,539 76,833
Other assets 3,375 4,760
----------- -----------
Total assets $ 244,370 $ 227,828
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Accounts payable $ 162,070 $ 56,390
Accrued payroll and related liabilities 65,155 36,339
Accrued royalty 6,000 3,750
Accrued interest payable 2,804 --
Deferred income 24,984 9,343
Line of credit 141,000 --
Current portion of long-term debt 19,172 21,445
----------- -----------
Total current liabilities 421,185 127,267
Long-term debt 205,443 203,170
----------- -----------
Total liabilities 626,628 330,437
----------- -----------
Stockholders' equity:
Common stock - $0.001 par value; 50,000,000 shares
authorized; 17,856,000 shares issued and outstanding 17,856 17,856
Convertible preferred stock - $0.001 par value; 20,000,000
Shares authorized; 10,000 shares issued and outstanding
Shares convert to common stock at a ratio of 1,000 shares
of common for each share of convertible preferred stock
on February 28, 2002. (note 2) 10 10
Additional paid-in capital 1,332,608 1,188,858
Accumulated deficit (1,715,082) (1,291,683)
Unearned compensation (17,650) (17,650)
----------- -----------
Total stockholders' deficit (382,258) (102,609)
----------- -----------
Total liabilities and stockholders' equity $ 244,370 $ 227,828
=========== ===========
3
SNAP2 Corporation
Income Statements (Unaudited)
For the Three Months Ended December 31, 2000 and 1999
2000 1999
----------- -----------
Revenue
License fees $ 33,200 $ 86,448
Consulting 205,069 140,624
Maintenance 14,359 4,984
----------- -----------
Total revenue 252,628 232,056
----------- -----------
Expenses
Payroll 374,143 140,364
Payroll taxes 21,251 5,871
Employee health insurance 17,136 8,192
Employer 401(k) contribution 13,000 --
Software development and consulting 86,411 77,402
Administration 87,252 7,616
Interest 6,898 5,895
Travel 42,789 30,045
Marketing 4,942 2,336
Miscellaneous 3,321 570
Equipment and office rent 13,105 4,521
Depreciation 5,779 1,500
----------- -----------
Total expenses 676,027 284,312
----------- -----------
Net loss $ (423,399) $ (52,256)
=========== ===========
Earnings (loss) per share
Net loss per share -
Basic and diluted $ (0.02) $ (0.01)
=========== ===========
Weighted average shares (note 3)
Basic and diluted 17,856,000 10,000,000
=========== ===========
4
SNAP2 Corporation
Statements of Cash Flows (Unaudited)
For the Three Months Ended December 31, 2000 and 1999
2000 1999
--------- ---------
Cash flows from operating activities
Net loss $(423,399) $(52,256)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 5,779 1,500
Deferred income 15,641 5,016
Gain on disposal of assets -- 2,671
Changes in:
Accounts receivable, trade 1,226 (12,641)
Accounts payable and accrued expenses 139,550 48,183
--------- --------
Net cash used by operating activities (261,203) (7,527)
--------- --------
Cash flows from investing activities
Purchases of equipment (1,485) --
Other assets 1,385 (15,260)
--------- --------
Net cash used by investing activities (100) (15,260)
--------- --------
Cash flows from financing activities
Checks disbursed in excess of amounts on deposit -- 685
Proceeds from line of credit 141,000 --
Additional paid-in capital from investors (note 2) 143,750 --
--------- --------
Net cash provided by financing activities 284,750 685
--------- --------
Increase (decrease) in cash and cash equivalents 23,447 (22,102)
Cash and cash equivalents, beginning of period 18,956 22,102
--------- --------
Cash and cash equivalents, end of period $ 42,403 $ --
========= ========
5
SNAP2 Corporation
Notes to Financial Statements
For the Three Months Ended December 31, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
These unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and therefore, do not include all disclosures
necessary for a complete presentation of the statements of financial
condition, operations and cash flows in accordance with generally accepted
accounting principles. However, in the opinion of management, all
adjustments for a fair presentation of the financial statements have been
included. Results for interim periods are not necessarily indicative of
results expected for the year.
These financial statements should be read in conjunction with the financial
statements and related notes, which are incorporated by reference from the
Company's Annual Report on Form 10-KSB for the year ended September 30,
2000.
2. REVERSE ACQUISITION
Effective February 28, 2000, White Rock Enterprises, Ltd. (n/k/a SNAP2
Corporation) (the Company) merged with ISES Corporation (ISES), with the
Company as the surviving corporation. At the date of the merger, the
Company was a "shell company" as the Company had no assets or liabilities,
had generated no revenues since inception and had incurred total expenses
of $6,100 since its inception on October 8, 1998. The merger transaction
has been accounted for as a reverse acquisition. In such a transaction, the
operating enterprise (ISES) is determined to be the acquiring enterprise
for financial reporting purposes. The historical financial statements of
ISES are presented as the historical financial statements of the combined
enterprise. The equity of ISES is presented as the equity of the combined
enterprise, however, the capital stock account of ISES is adjusted to
reflect the par value of the outstanding stock of the Company after giving
effect to the number of shares issued in the merger. For periods prior to
the merger, the equity of the combined enterprise is the historical equity
of ISES prior to the merger retroactively restated to reflect the number of
shares received in the merger.
In connection with the merger, the Company provided for the issuance of
10,000,000 shares of common stock and 10,000 shares of convertible
preferred stock for 100% of the outstanding shares of ISES. The convertible
preferred stock automatically converts to 10,000,000 shares of common stock
on February 28, 2002. Also in connection with the merger, an additional
2,200,000 shares of common stock were issued to others in exchange for
locating investors and a commitment to raise $2,000,000 to fund the
Company's working capital needs and general corporate purposes. As of
December 31, 2000, $570,610 had been received and recorded as additional
paid in capital.
6
3. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are computed based on the weighted-average common
shares outstanding during the period.
Diluted earnings per share are computed by considering the weighted-average
common shares outstanding and dilutive potential common shares as a result
of conversion features of convertible preferred stock and exercise of
outstanding stock options. The effect of convertible preferred stock and
outstanding stock options were not used in the calculation of diluted
earnings per share, as they were anti-dilutive during the periods shown.
4. STOCK OPTIONS
During the three months ended December 31, 2000, the Company issued
employee stock options for 40,000 shares of common stock and also granted
stock options for an additional 92,500 shares to employees who have met
certain length of employment requirements. The options will be exercisable
in conformity with a stock option plan that was approved by the Board of
Directors and a majority of the shareholders of the Company on March 15,
2000. Stock options are generally granted at fair value and vest over a
four-year period. The plan is more restrictive for any options granted to
shareholders owning in excess of ten percent of outstanding common stock.
No options were exercised during the period. The Company has outstanding
options for 527,500 shares of common stock at December 31, 2000.
5. NOTES PAYABLE
The Company has entered into a $200,000 bank line of credit agreement. The
line of credit is collaterlized by real property owned by a stockholder,
matures November 10, 2001 and bears interest at the bank's commercial base
interest rate. During the quarter ended December 31, 2000, the Company
borrowed $141,000 under this line.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
The discussion in this Report on Form 10-Q-SB contains forward-looking
statements that have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on current expectations, estimates and projections about the Company's
business, based on management's current beliefs and assumptions made by
management. Words such as "expects", "anticipates", "intends", "believes",
"plans", "seeks", "estimates" and similar expressions or variations of these
words are intended to identify such forward-looking statements. Additionally,
statements that refer to the Company's estimated or anticipated future results,
sales or marketing strategies, new product development or performance or other
non-historical facts are forward-looking and reflect the Company's current
perspective based on existing information. These statements are not guarantees
of future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual results and
outcomes may differ materially
7
from what is expressed or forecasted in any such forward-looking statements.
Such risks and uncertainties include those set forth herein below under "Risk
Factors That May Affect Future Results of Operations" as well as previous public
filings with the Securities and Exchange Commission. The discussion of the
Company's financial condition and results of operations should also be read in
conjunction with the financial statements and related notes included in Item 1
of this quarterly report. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Overview
SNAP2 Corporation (f/k/a White Rock Enterprises, Ltd.) is a software product
developer and software service provider for embedded systems including set-top
boxes (STB) for interactive television, in-flight entertainment systems (IFE)
for passenger aircraft and Internet appliances for the consumer electronics
market. The Company's activities to date have consisted of:
- Entering into an active services agreement with Microsoft Corporation
WebTV to provide embedded software services for its Internet enabled,
set-top box.
- Continuing support, integration and deployment of its Airsoft Travel
Kit Games software product on the following airlines:
- Air France
- Delta Air Lines
- Aer Lingus
- LanChile
- AOM French Airlines
- Airtours
- Entering into software license agreements with airlines that generate
recurring revenue on the anniversary date of the license when extended
by the airline. The Company's Airsoft Travel Kit Games is installed and
flying on 115 wide-body aircraft worldwide.
- Partnering with Sun Microsystems and ICTV to demonstrate SNAP2
interactive television, Java-technology based software for JavaTV(TM)at
the Western Cable Show 2000.
- Demonstrating SNAP2 Internet appliance software technologies with Wind
River Systems at the Embedded Systems Conference West 2000.
- Expanding the research and development staff to grow software service
capacity and continue development of SNAP2 intellectual property
product assets for embedded systems.
- Expanding its engineering, sales and marketing staff to address the
Interactive Television, Internet Appliance, In-Flight Entertainment and
Embedded Systems markets.
8
Management. The Company's management positions are now held by:
Rick Grewell (42) -- President and CEO
Steve Johnson (40) -- Vice President of Marketing
Antony Hoffman (39) -- Vice President of Research and Development
Mark Malinak (40) -- Vice President of Sales
The Company's directors are Messrs. Grewell, Johnson, Hoffman, Malinak, Dean
Davis and Mike Hennel (42). In addition, Stephen Dukes (47) is a nominee for a
position on the Board of Directors and it is anticipated that he will be elected
at the Company's Annual Meeting scheduled for February 22, 2001. Mr. Davis' term
as a director will expire at that time.
Operations. The Company operates from its new headquarters located at 10641
Justin Drive, Des Moines, Iowa 50322. The Company is traded on the
over-the-counter bulletin board (OTCBB) using the trading symbol SSNP. In
addition to its offices in Des Moines, the Company has a home sales office in
Austin, Texas and an affiliation with engineering and graphic designers in
Toronto, Canada. The combined three locations develop and market software
products and service the industries targeted by the Company.
Products. The Company markets software applications for the IFE and interactive
television markets. Its SNAP2 Travel Kit software targets IFE systems
manufactured by Rockwell Collins, Matsushita Avionics and Sony Trans Com. The
Travel Kit is comprised of digital information and entertainment software that
airline passengers can access from video displays at their passenger seats while
traveling. The complete Travel Kit consists of destination information, language
training and games and customized airline information. The package can be sold
as a complete package or as individual components. The Company has sold packages
of Travel Kit Games to Air France, Delta Air Lines, LanChile, Airtours, Aer
Lingus and AOM French airlines. The Company has licensed destination information
and language training from Lonely Planet Publishing based in Australia. SNAP2
Travel Kit Games are created, copyrighted, owned and licensed by the Company.
The Company has also licensed Tetris(R) game content from Blue Planet Software,
San Francisco, California for use in its In-Flight Tetris(TM) game for in-flight
entertainment. The game suite consists of 18 assorted board, card, arcade,
children's games and games of chance. The Company's products are sold on a
royalty-based model that generates revenue at the time of customer contract
execution and provides annual revenues for continued use of the software. IFE
products have been sold to airlines and to IFE equipment manufacturers. The
Company is porting these games to interactive television STBs targeting
interactive cable and telephone networks.
The Company plans to broaden its software product offering for the interactive
television market and the Internet appliance market. The Company intends to sell
interactive television and Internet appliance software products to original
equipment manufacturers, technology providers and network operators in these
markets. Services and Revenues. The Company is staffed with software engineers
experienced in software design and programming for emerging embedded computer
systems and digital graphic artists experienced in graphical user interfaces and
display for consumer electronic applications. The Company has provided embedded
software services to Motorola, Microsoft, and Canal+ for
9
interactive television and Internet appliances. For IFE, the Company has
provided services to Rockwell Collins and to the airlines that required graphics
customization for their SNAP2 Travel Kit Games.
The Company emphasizes embedded software services for revenue generation and
strategic positioning of developing intellectual property for the interactive
television, Internet appliance and embedded systems markets.
Through December 31, 2000, the Company's revenues were derived from license fees
and renewals of its SNAP2 Travel Kit Games for the IFE market and software and
engineering services provided to interactive television equipment manufacturers
and technology providers. The Company's IFE revenues were comprised of two
types: (i) license fees from airlines for Airsoft Travel Kit Game products
previously sold; and (ii) OEM initial product sales to IFE equipment
manufacturers for SNAP2 Travel Kit Game products.
The Company intends to derive the primary portion of its revenue growth through
Company software services. The Company intends to continue engaging in
engineering services with original equipment manufacturers (OEMs), network
operators and technology providers. The service engagements are strategic to the
Company as it provides licensing opportunities for software product and product
development.
The Company continues to collect revenues from its IFE products. Revenue is
collected on execution of the software product license and is subject to renewal
fees on each anniversary date of the agreement thereafter. The Company plans to
continue distributing products directly to end users as well as to OEMs who
bundle and resell the Company's products to end users.
Expenses. Expenses consist primarily of payroll and related costs, third-party
consulting, other professional services and travel. The Company has licensed
In-Flight TetrisTM from Blue Planet Software and incurs licensing costs for each
copy inventoried for or distributed to the IFE market. The Company has also
licensed travel information from Lonely Planet Publishing and incurs licensing
costs for copies distributed to the IFE market.
Results of Operations
Since the inception of ISES Corporation (now the Company), it has been engaged
primarily in the business of developing and licensing software products and
providing engineering software and graphic design services. Accordingly,
historical results of operations are not indicative of and should not be relied
upon as an indicator of future performance.
All revenue and expenses disclosed in this report for the period ended December
31, 1999 were generated by ISES Corporation. The Company had no revenue prior to
the merger with ISES Corporation and minimal costs and expenses. As a result,
the consolidated comparative data represents the comparison of the Company's
results for the period ended December 31, 2000 with revenue, costs and expenses
of ISES Corporation for the same period in the previous year.
10
Three Months Ended December 31, 2000 and 1999
Revenues
Total revenues increased 9% to $253,000 for the three months ended December 31,
2000, compared to $232,000 for the three months ended December 31, 1999. The
increase was related to an increase in engineering service revenues. Engineering
service fees represented 81% of revenues versus 19% for software license fees
and maintenance. During the three months ended December 31, 2000, transactions
with Microsoft, LanChile, Motorola, Air France and Aer Lingus accounted for 75%,
10%, 7%, 5% and 3%, respectively of the Company's total revenues.
Expenses
Total costs increased 138% to $676,000 for the three months ended December 31,
2000, compared to $284,000 for the three months ended December 31, 1999. The
increase was related to payroll and related costs, added software development
costs and other administrative costs needed to support increased business and
anticipated future growth. The Company believes that costs and expenses will
continue to increase as it attempts to expand operations (including product
development) and sales and marketing efforts.
Payroll and Related Benefits. Payroll and related benefits increased 176% to
$426,000 for the three months ended December 31, 2000 from $154,000 for the
three months ended December 31, 1999 reflecting costs associated with the
Company's expansion in research and development.
Software Development and Consulting. Software development and consulting costs
increased 12% to $86,000 for the three months ended December 31, 2000 from
$77,000 for the three months ended December 31, 1999, reflecting an increase in
product development.
Administrative and Other Expenses. Administrative and other expenses increased
215% to $164,000 for the three months ended December 31, 2000 from $52,000 for
the three months ended December 31, 1999. The increase is reflective of
associated costs of the Company's growth and professional services fees incurred
for reporting activities of a public company
Liquidity and Capital Resources
The Company requires working capital to fund its operations. The Company expects
to continue to experience losses from operations and negative cash flows for at
least the next twelve month period. Effective February 28, 2000 (the date of
filing of a Certificate of Merger with the Nevada Secretary of State), the
Company merged with ISES Corporation with the Company as the surviving
corporation. The merger was arranged for the Company by Investment Capital
Corporation and Pursuit Capital LLC, venture capital firms located in
Scottsdale, Arizona in accordance with understandings these entities reached
with ISES Corporation to raise capital in private transactions. According to
their agreement, these entities were to raise $2,000,000 to fund the Company's
post-merger research and development, marketing and overall expansion. Pursuant
to and in consideration of this arrangement and the identification of the
potential merger as an investment opportunity, the Company issued 2,200,000
shares of its $.001 par value per share common stock to these entities
11
and/or their designees. During the fiscal quarter ended March 31, 2000 these
entities conducted a private placement on behalf of the Company and raised
$760,000, the proceeds of which have been given to the Company. For these funds,
the Company issued an additional 760,000 shares of its $.001 per share common
stock. These entities are obligated to provide the Company with an additional
$2,000,000 in equity (without further issuance of equity securities by the
Company) of which $570,610 has been received by the Company as of December 31,
2000 leaving a balance of $1,429,390 to be provided by these entities. None of
such shares of common stock was or will be registered under the Securities Act
of 1933, as amended. Management of the Company is currently negotiating with
these entities regarding their obligation to provide the additional funding.
The proceeds of the private placement and of the additional capital resources to
be provided by the venture capital firms, if any, are being and will be used for
working capital and general corporate purposes, including expansion of sales and
marketing efforts, increases in research and development activities, any
licensing and acquisition of new technologies and legal and accounting expense
incurred as a result of the merger and relating to the Company's ongoing
business.
Since incorporation, ISES (the Company's predecessor in interest pursuant to the
merger) has experienced various levels of losses and negative cash flow from
operations and notwithstanding the merger, expects to experience negative cash
flows in the foreseeable future. In addition, the
Company may need to raise additional capital and there can be no assurance the
merged Company will be able to obtain additional financing on favorable terms,
if at all. If additional capital cannot be obtained on acceptable terms, if and
when needed, the Company may not be able to further develop or enhance its
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, any of which could have a material
adverse effect on the Company's business.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
In addition to the other risk factors contained herein and within other filings
with the Securities and Exchange Commission, the Company believes the following
additional risk factors should be taken into consideration in evaluating its
business:
The Company Expects to Incur Operating and Net Losses
The Company has a limited operating history, has incurred significant losses in
the past year and, at December 31, 2000, had an accumulated stockholders'
deficit of $382,258. To date, the Company has recognized growing revenue,
however; its ability to generate revenue is subject to substantial uncertainty.
The Company expects to incur significant additional losses and continued
negative cash flow from operations in 2001 and it may never become profitable.
The Company expects to incur significant sales and marketing, research and
development and general and administrative expenses. The Company will need to
generate significant revenues to achieve profitability and positive operating
cash flows. Even if profitability and positive operating cash flow are achieved,
the Company may not be able to achieve, sustain or increase profitability or
positive operating cash flow on a quarterly or annual basis.
12
The Company's Limited Operating History and the Emerging Market for Interactive
Television and In-Flight Entertainment Systems Make Its Future Financial Results
Unpredictable
The Company's business and prospects depend on the development and market
acceptance of interactive television and the growth of aircraft in-flight
entertainment systems. The Company's future revenue prospects are subject to a
high degree of uncertainty. Currently, it derives revenues evenly from in-flight
entertainment software license fees and interactive television engineering
service fees. In the future, however, the Company intends to generate revenue
primarily from software license fees particularly in the emerging market of
interactive television while maintaining modest growth in the in-flight
entertainment market. The market for interactive television software is new,
unproven and subject to rapid technology change. This market may never develop
or may develop at a slower rate than anticipated. In addition, the Company's
success in marketing the Company as a supplier of interactive television
application software is dependent upon developing and maintaining relationships
with industry-leading computer and consumer electronics manufacturers, network
operators and Internet content providers. There is already competition in the
market to provide interactive television software. Companies such as Liberate,
Intellocity, Microsoft, and AOL have established a market presence and have
significantly greater financial, marketing and technical resources than the
Company. These companies who offer interactive television application software
may capture a larger portion of the market than the Company. Any failure to
establish relationships with interactive television equipment manufacturers and
network operators will have a material adverse effect on the Company's business
and prospects.
The Company's Business is Dependent Upon the Successful Deployment of Digital
Set Top Boxes for Interactive Television and the In-Flight Entertainment Systems
Targeted by the Company
The Company's software products target specific interactive television and
in-flight entertainment systems and the opportunity to generate revenue can be
directly related to the number and the timing of systems deployed. It is the
Company's intent to pursue and support the most popular system platforms for
these markets. If the platforms targeted fail to establish significant and
timely deployment in the market it will have a material adverse effect on the
Company's business and prospects.
The Company Faces Competition from Companies with Significantly Greater
Financial, Marketing, and Technical Resources
The markets for interactive television and in-flight entertainment systems are
competitive. Companies that offer competing software applications and services
for interactive television include Liberate, Intellocity, Microsoft, AOL and
others. These entities each have a larger customer base, a greater number of
applications, and greater brand recognition, market presence and financial,
marketing and distribution resources than the Company. Other companies that
offer competing software applications and services for in-flight entertainment
include Nintendo, Infogrames, Tenzing, and Intergame some of which have a larger
customer base, a greater number of applications, and greater brand recognition,
market presence and financial, marketing and distribution resources than the
13
Company. As a result, the Company will have difficulty increasing the number of
design "wins" for its products and services.
The Company May Not Be Able to Respond to the Rapid Technological Change in the
Markets in Which It Competes
The Company currently participates in markets that are subject to:
o rapid technology change;
o frequent product upgrades and enhancements;
o changing customer requirements for new products and features; and
o multiple, competing, and evolving industry standards
The introduction of the software applications targeting interactive television
and in-flight entertainment containing new technologies and the emergence of new
industry standards could render the Company's products less desirable or
obsolete. In particular, the Company expects that changes in the operating
system environment including client and server middleware will require it to
rapidly evolve and adapt its products to be competitive. As a result, the life
cycle of each release of the Company's products is difficult to estimate. To be
competitive, the Company will need to develop and release new products and
upgrades that respond to technological changes or evolving industry standards on
a timely and cost-effective basis. There can be no assurance that the Company
will successfully develop and market these types of products and upgrades or
that the Company's products will achieve market acceptance. If the Company fails
to produce technologically competitive products in a timely and cost-effective
manner, its business and results of operations could suffer materially.
Volatility of Stock Price
The market price of the Company's common stock is likely to fluctuate in the
future. The Company believes that various factors, including quarterly
fluctuations in results of operations, announcements of new products or partners
by the Company or by its competitors, changes in interactive television and
in-flight entertainment markets in general, or general economic, political and
market conditions may significantly affect the market price of its common stock
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
The Company currently is not aware of any pending legal proceedings to which it
is a party or to which any of its property is subject. The Company currently is
not aware that any governmental authority is contemplating any proceedings
against the Company or its property.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the merger of ISES with and into the Company, the Acquisition
Agreement and Plan of Merger (previously filed as Exhibit 1.1 to the Company's
Current Report on Form 8-K filed
14
March 1, 2000) provided for the issuance of (i) 10,000,000 shares of common
stock and (ii) 10,000 shares of convertible preferred stock which are
automatically convertible into 10,000,000 shares of common stock of the Company
two (2) years after the Closing Date of the Merger which was February 28, 2000.
An additional 2,200,000 shares of common stock were issued to various designees
of Investment Capital Corporation and Pursuit Capital, LLC in connection with
the merger, in exchange for the commitment of these entities to raise $2,000,000
to fund working capital needs and general corporate purposes, including, but not
limited to, expansion of sales and marketing efforts, research and development
activities, licensing of new technology and payment of additional legal and
accounting services occasioned by the merger of the Company and ISES. These
entities conducted a private placement of the Company's $.001 par value common
stock during the fiscal quarter ended March 31, 2000 and raised $760,000, in
consideration of which the Company issued an additional 760,000 shares of its
common stock. These entities are obligated to provide the Company with an
additional $2,000,000 in equity (without further issuance of equity securities
by the Company) of which $570,610 has been received by the Company as of
December 31, 2000 leaving a balance of $1,429,390 to be provided by these
entities. None of such shares of common stock or preferred stock was or will be
registered under the Securities Act of 1933, as amended. The funds received have
been used for working capital. Management of the Company is currently
negotiating with these venture capital entities regarding their obligation to
provide the additional funding.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
There has been no material default or any material arrearage or delinquency by
the Company of the type to be reported under this item.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
The Company does not believe there is any information to report under this item.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Articles of Incorporation, as amended (Incorporated by
reference to the Company's 10-KSB for the fiscal year ended
September 30, 2000)
3.2 Bylaws, as amended (Incorporated by reference to the
Company's 10-KSB for the fiscal year ended September 30,
2000)
15
10.1 Consulting Agreement dated February 25, 1999 between ISES
Corporation and Trivia Mania (Incorporated by reference to
the Company's 10-QSB for the period ended March 31, 2000)
10.2 Copyright and Trademark License and Distribution Agreement
dated September 30, 1999 between The Tetris Company, L.L.C.
and ISES Corporation (Incorporated by reference to the
Company's 10-QSB for the period ended March 31, 2000)
10.4 Investment Capital Corporation - Letter agreement regarding
Merger of White Rock Enterprises Ltd. and ISES Corporation
(Incorporated by reference to the Company's 10-QSB for the
period ended March 31, 2000)
10.5 Investment Capital Corporation - Memo regarding proposed new
capital structure of White Rock Enterprises, Ltd. reflecting
the merger (Incorporated by reference to the Company's 10-QSB
for the period ended March 31, 2000)
10.6 In-Flight Entertainment Software License Agreement dated
March 31, 1999 between Airtours International Airways,
Limited and ISES Corporation (Incorporated by reference to
the Company's 10-QSB for the period ended March 31, 2000)
10.7 Content License Agreement dated November 15, 1999 between
Lonely Planet Publications Pty. Ltd. and ISES Corporation
(Incorporated by reference to the Company's 10-QSB for the
period ended March 31, 2000)
10.8 License and Distribution Agreement dated October 1, 1999
pursuant to which ISES Corporation appoints Licensee-Rockwell
Collins, Inc. and End User-Air France (Incorporated by
reference to the Company's 10-QSB for the period ended March
31, 2000)
10.12 First Amendment to SNAP2 Corporation Stock Option Plan
(Amending Stock Option Plan previously filed as Exhibit 10.12
to the Company's 10-QSB for the period ended June 30, 2000
and incorporated herein by reference) (Incorporated by
reference to the Company's Form 10-KSB for the year-ended
September 30, 2000)
10.13 In-Flight Entertainment Software License Agreement for Delta
Air Lines, Inc. dated as of April 26, 2000 (Incorporated by
reference to the Company's 10-QSB for the period ended June
30, 2000)
10.15 In-Flight Entertainment Software License Agreement by AOM
dated as of April 27, 2000 (Incorporated by reference to the
Company's 10-QSB for the period ended June 30, 2000)
*10.16 In-Flight Entertainment Software License Agreement by
LanChile dated as of October 6, 2000
*10.17 Software Services Agreement dated as of October 24, 2000
between Microsoft and SNAP2.
16
*10.18 In-Flight Entertainment Software License Agreement for Aer
Lingus dated as of October 30, 2000
*Filed herewith
(b) Report on Form 8-K:
A report on Form 8-K describing a change in the Company's
independent auditors was filed on December 20, 2000.
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SNAP2 CORPORATION
Date: February 14, 2001 By: /s/ Dean R. Grewell
--------------------------------
Dean R. Grewell, III, President
18