SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to _______________
Commission file number 0-25942
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SWWT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-1167603
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3492 W. 109th Circle, Westminster, CO 80503
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(Address of principal executive offices) (Zip Code)
(303) 678-0447
------------------------------------------------------------
(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 _____
As of March 31, 1998, 3,122,254 shares of Registrant's Common Stock, par
value $.001 per share, were outstanding.
<PAGE>
SWWT, Inc.
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets-
March 31, 1998 and December 31, 1997......................3
Statements of Operations-
Three months ended March 31, 1998 and 1997................5
Statements of Cash Flows
Three months ended March 31, 1998 and 1997................6
Notes to Financial Statements.............................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................11
Part II. Other Information.................................................13
<PAGE>
SWWT, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,334,197 $ 968,076
Prepaids and other current assets 2,476
Net assets of discontinued operations 970,497
--------------- -----------
Total current assets 1,334,197 1,941,049
Total Assets $1,334,197 $1,941,049
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 49,212 $ 246,464
Accrued salaries and employee benefits 165,620
Accrued loss for disposal of discontinued operations 156,997
Total liabilities $ 49,212 $ 569,081
------------ ----------
COMMITMENTS AND CONTINGENCIES - -
--------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 8,000,000 shares authorized;
3,122,254 and 3,115,918 shares issued and outstanding
at March 31, 1998 and December 31, 1997, after deducting
71,734 and 78,070 shares held in treasury, respectively 3,122 3,116
Additional paid-in capital 12,440,186 12,434,873
Accumulated deficit (11,158,323) (11,066,021)
Total Stockholders' Equity 1,284,985 1,371,968
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,334,197 $ 1,941,049
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets
-3-
<PAGE>
SWWT, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
NET SALES ............................................. $ -- $ --
OPERATING EXPENSES:
Sales and Marketing ................................. 55,910
Research and development ............................ 236,673
General and administrative .......................... 104,862 108,892
----------- -----------
Total operating expenses ..................... 104,862 401,475
INCOME (LOSS) FROM OPERATIONS ......................... (104,862) (401,475)
----------- -----------
OTHER INCOME, NET ..................................... 12,560 10,848
----------- ------------
NET (LOSS) FROM CONTINUING OPERATIONS ................. (92,302) (390,627)
(LOSS) FROM DISCONTINUED OPERATIONS ................... (346,076)
NET (LOSS) ............................................ $ (92,302) $ (736,703)
=========== ============
INCOME (LOSS) PER COMMON SHARE-
BASIC AND DILUTED
Net (loss) ................................... $ (0.03) $ (0.24)
----------- ------------
(Loss) from continuing operations ............ $ (0.03) $ (0.13)
----------- ------------
(Loss) from discontinued operations .......... $ -- $ (0.11)
----------- ------------
WEIGHTED AVERAGE SHARES OUTSTANDING ................... 3,120,142 3,103,025
=========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements
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<PAGE>
SWWT, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (92,302) $ (736,703)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. -- 59,378
Issuance of treasury stock to 401(k) plan ................................. 5,319 7,333
Changes in assets and liabilities:
Accounts receivable ....................................................... -- (257,038)
Inventory ................................................................. -- 116,630
Prepaids and other current assets ......................................... 2,476 2,345
Deposits and other ........................................................ -- 11,056
Accounts payable and accrued liabilities .................................. (197,252) (156,668)
Accrued salaries and other current liabilities ............................ (165,620) (32,148)
Accrued loss for disposal of discontined operations ....................... (156,997) --
----------- -----------
Net cash used in operating activities ....................................... (604,376) (985,815)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment ............................. -- (20,360)
Proceeds from sale of short term investments .............................. -- 440,659
Proceeds from sale of assets, net of costs ................................ 970,497 --
----------- -----------
Net cash provided by investing activities ................................... 970,497 420,299
CASH FLOWS FROM FINANCING ACTIVITIES ........................................ -- --
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................ 366,121 (565,516)
CASH AND CASH EQUIVALENTS, beginning of period .............................. 968,076 1,479,937
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .................................... $ 1,334,197 $ 914,421
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest ............................................. $ -- $ 3,536
=========== ===========
Termination of deferred compensation plan .......................... $ -- $ 12,366
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements
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<PAGE>
SWWT, Inc.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
In the opinion of management, the accompanying unaudited balance sheet,
statements of operations and cash flows contain all adjustments,
consisting only of normal recurring items, necessary to present fairly
the financial position of SWWT, Inc. (the "Company") as of March 31,
1998 and the results of operations and cash flows for the three months
ended March 31, 1998 and 1997.
The unaudited financial statements presented herein have been prepared
in accordance with Securities and Exchange Commission regulations and
do not include all the information and note disclosures required by
generally accepted accounting principles. These financial statements
should be read in conjunction with the audited financial statements and
notes thereto contained in the Company's annual report on Form 10-K for
the year ending December 31, 1997. The balance sheet as of December 31,
1997 and the statement of operations have been restated under
Accounting Principles Board Opinion No. 30 as a result of the execution
of the Sale Agreement and shareholder approval of the Sale which was
obtained on February 5, 1998.
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" as of January 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The
adoption of this statement had no impact on the Company's financial
statements.
2. BUSINESS
--------
The Company was incorporated in Colorado in March 1991 and
re-incorporated in Delaware in September 1993. Prior to February 1998,
the Company was engaged in the manufacture and sale of portable water
filtration and purification devices. On February 6, 1998, the Company
sold substantially all of its assets to Cascade Designs, Inc., a
Washington corporation, pursuant to an Asset Purchase Agreement dated
as of October 21, 1997 for a purchase price of $1,633,425 in cash (the
"Sale"). As a result of the Sale, the Company's only significant asset
is cash and cash equivalents of approximately $1.3 million, after
payment of expenses related to the Sale and management and severance
bonuses. The Company has no further operating business, and has reduced
its management and administrative staff to one part-time employee. The
Company plans to use its cash to pay ongoing general and administrative
expenses, which are anticipated to be minimal, and to seek acquisition
candidates. The Board of Directors is exploring opportunities to effect
an acquisition whether by merger, exchange or issuance of capital
stock, acquisition of assets, or other similar business combination. As
the Company competes for desirable acquisition candidates with a large
number of entities with significantly greater financial resources and
technical expertise than the Company, the Company cannot be assured
that it will succeed in its efforts to conclude a business combination.
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<PAGE>
3. INCOME TAXES
------------
SFAS No. 109 requires recognition of deferred tax assets for the
expected future effects of all deductible temporary differences, loss
carryforwards and tax credit carryforwards. Deferred tax assets are
then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not, based on
current circumstances, are not expected to be realized. The Company has
determined that under SFAS 109, any previously unrecognized tax
benefits do not satisfy the realization criteria set forth therein.
Therefore, a valuation allowance has been recorded against the entire
net deferred tax asset.
4. NET LOSS PER COMMON SHARE
-------------------------
Net loss per common share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during
each period presented. At March 31, 1998 and 1997, options on no shares
and 25,834 shares, respectively, have been treated as outstanding
common stock equivalents.
5. PROFIT SHARING PLAN AND TRUST
-----------------------------
Pursuant to the Company's 401(k) Profit Sharing Plan and Trust (the
"401(k) Plan"), which was established effective January 1, 1995, the
Company agreed to contribute matching contributions in the form of
Company common stock at the rate of 50% of the first 8% of employees
salary deferral. Under the 401(k) Plan, the Company may also elect to
make discretionary contributions. Employees vest in Company
contributions over six years of service with the Company. Forfeitures
of the unvested prorated portion are allocated to the remaining
employees in the plan proportionately, based upon current years
compensation.
Effective February 28, 1998, the plan has been terminated and a request
for determination letter is pending approval with the Internal Revenue
Service.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
None.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains, in addition to historical
information, forward-looking statements. The forward-looking statements were
prepared on the basis of certain assumptions which relate, among other things,
to the estimated expenses of the Company. Even if the assumptions on which the
projections are based prove accurate and appropriate, the actual results of the
Company's operations in the future may vary widely from the forward-looking
statements included herein.
General
On February 6, 1998, the Company completed the sale of substantially
all of its assets to Cascade Designs, Inc. for a purchase price of $1,633,425 in
cash (the "Sale"). As a result of the Sale, the Company's only significant asset
is cash and cash equivalents of approximately $1.3 million, after payment of
expenses related to the Sale and management and severance bonuses. The Company
has no further operating business, and has reduced its management and
administrative staff to one part-time employee. The Company plans to use its
cash to pay ongoing general and administrative expenses, which are anticipated
to be minimal, and to seek acquisition candidates.
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's Financial
Statements and the Notes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 1997.
Results of Operations
Three months ended March 31, 1998 and 1997 - Continuing Operations
Net loss from continuing operations decreased by $298,325 from a loss
of $390,627 or $.13 per share for the three months ended March 31, 1997 to a
loss of $92,302 or $.03 per share for the three months ended March 31, 1998
primarily as a result of the 1997 expenses relating to the Company's efforts to
develop a home use product in 1997. The Company suspended such efforts and sold
the assets associated with the home use product in the second quarter of 1997.
Sales and marketing expense decreased 100% from $55,910 to zero, research and
development expenses decreased 100% from $236,673 to zero, and general and
administrative expense decreased 4% from $108,892 to $104,862 in the three
months ended March 31, 1997 and 1998, respectively. Other income increased 15%
from $10,848 to $12,560, in the three months ended March 31, 1997 and 1998,
respectively.
Three Months ended March 31, 1998 compared to 1997 - Discontinued Operations
Loss on discontinued operations decreased 100% from $346,076 or $.11
per share to zero for the three months ended March 31, 1997 and 1998,
respectively, as a result of the disposal of the discontinued operations in
February 1998 and the recognition of 1998 loss on disposal of discontinued
operations of $157,000 in the year ended December 31, 1997.
Liquidity and Capital Resources
Cash and cash equivalents increased by 37% to $1,334,197 at March 31,
1998 primarily due to the sale of substantially all of the Company's assets in
February 1998.
The Company plans to use its cash to pay ongoing general and
administrative expenses, which are anticipated to be minimal, and to seek
acquisition candidates. Depending on the size and nature of the entity, if any,
which maybe acquired, the Company may utilize cash, equity, debt or a
combination thereof to increase the amount of capital available for a business
combination or to finance the operation of the acquired business. Although the
Company believes additional capital may be required, the necessity for and the
amount and nature of any future borrowings or other financings by the Company
will depend on numerous considerations including the Company's capital
requirements, its perceived ability to service such debt and prevailing
conditions in the financial markets and the general economy. No assurance can be
made that additional capital will be available on terms acceptable to the
Company.
-8-
<PAGE>
PART II OTHER INFORMATION
Items 1-2 None
Item 3 None
Item 4 None
Item 5. Other Information
Item 6 Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K - A report on Form 8-K was filed on
February 19, 1998; an amended report on Form 8-K was filed
on April 21, 1998.
(B) Exhibits
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SweetWater, Inc.
(Registrant)
Dated: May 15, 1998 By: /s/ Patrick E. Thomas
---------------------
Patrick E. Thomas President,
Vice President of Finance
and Administration, Chief
Financial Officer (principal
financial officer and chief
accounting officer)
-9-
<PAGE>
EXHIBIT INDEX
Exhibit Exhibit Description Page(s) of this Form
Number
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,334,197
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,334,197
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,334,197
<CURRENT-LIABILITIES> 49,212
<BONDS> 0
0
0
<COMMON> 3,122
<OTHER-SE> 1,281,863
<TOTAL-LIABILITY-AND-EQUITY> 1,334,197
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 104,862
<OTHER-EXPENSES> (12,560)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (92,302)
<INCOME-TAX> 0
<INCOME-CONTINUING> (92,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92,302)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
