UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-25942
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SWWT, INC.
(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.)
c/o Oscar Capital Management, 900 Third Ave,
2nd Floor, New York, NY 10022
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(Address of principal executive offices) (Zip Code)
(212) 610-2700
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(Registrant's telephone number, including area code)
N/A
(Former address, if changed since last report)
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 and (2) has been
subject to such filing requirements for the past 90 days.
X Yes No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 3,122,254
shares of common stock, par value $.001 per share, as of October 31, 2000.
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FORM 10-Q
CONTENTS
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Page Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheet as of September 30, 2000........................................
Condensed Statements of Operations for the three months ended September 30, 2000
and for the period from January 7, 2000 (inception) to September 30, 2000............
Condensed Statement of Cash Flows for the period from January 7, 2000 (inception)
to September 30, 2000...............................................................
Notes to Condensed Financial Statements.................................................
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................................
Item 3. Quantitative and Qualitative Disclosures about Market Risk..............................
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K................................................
Signature .............................................................................
Index to Exhibits.......................................................................
Exhibit 27: Financial Data Schedule....................................................
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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SWWT Inc.
Condensed Balance Sheet
September 30, 2000
(Unaudited)
ASSETS
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Cash and cash equivalents $1,459,035
Advance receivable 1,000,000
Prepaid expenses 172,739
Interest receivable 11,822
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Total current assets 2,643,596
Investment 500,000
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Total assets $3,143,596
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued liabilities $620,500
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Total current liabilities 620,500
Series B Preferred Stock, $.001 par value; 1,000,000 shares authorized, 3,485,955
757,772 shares issued and outstanding
Stockholders' deficit:
Common Stock, $.001 par value; 750,000,000 shares authorized,
3,122,254 shares issued and outstanding 3,122
Accumulated deficit (555,026)
Notes receivable (410,955)
Total stockholders' deficit (962,859)
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Total liabilities and stockholders' deficit $3,143,596
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See accompanying notes to condensed financial statements.
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SWWT Inc.
Condensed Statements of Operations
(Unaudited)
Period From
January 7,
Three Months 2000
Ended (Inception) to
September 30, September 30,
2000 2000
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Operating expenses:
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General and administrative $ 246,408 $ 612,460
Total operating expenses 246,408 612,460
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Other income:
Interest income 45,727 60,556
Net loss $(200,681) $(551,904)
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Net loss per share - basic and diluted $(.06) $(.17)
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See accompanying notes to condensed financial statements.
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SWWT Inc.
Condensed Statement of Cash Flows
January 7, 2000 (date of inception) to September 30, 2000
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss $(551,904)
Changes in operating assets and liabilities:
Prepaid expenses (172,739)
Interest receivable (11,822)
Accounts payable and accrued liabilities 370,500
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Net cash used in operating activities (365,965)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment (500,000)
Advance paid (1,000,000)
Net cash used in investing activities (1,500,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 2,825,000
Proceeds from repayment of note receivable 500,000
Cash acquired in the SWWT/E-Newco Merger 740,635
Dividend to pre-Merger stockholders (740,635)
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Net cash provided by financing activities 3,325,000
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Net increase in cash and cash equivalents 1,459,035
Cash and cash equivalents at January 7, 2000 -
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Cash and cash equivalents at September 30, 2000 $1,459,035
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See accompanying notes to condensed financial statements.
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SWWT, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the unaudited interim consolidated financial statements contain all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position and cash flows of the Company for
the period presented.
The results of operations for the period from January 7, 2000 (inception)
to September 30, 2000 are not necessarily indicative of the results to be
expected for any other interim period or for the full year.
For further information, refer to the financial statements and footnotes
thereto for E-Newco, Inc. (E"- Newco") included in the SWWT, Inc. Current
Report on Form 8-K/A as filed on May 15, 2000.
As discussed more fully in Note 2, on April 14, 2000, SWWT, Inc. ("SWWT")
and its newly-formed, wholly owned subsidiary, ENWC Acquisition, Inc.
("ENWC") entered into a merger agreement with E-Newco. The merger was
accounted for as a purchase of SWWT by E-Newco in a "reverse acquisition"
because the existing shareholders of SWWT, prior to the merger, do not have
voting control of the combined entity after the merger. In a reverse
acquisition, the accounting treatment differs from the legal form of the
transaction, as the continuing legal parent company, SWWT, is not assumed
to be the acquiror and the financial statements of the combined entity are
those of the accounting acquiror (E-Newco), including any comparative prior
year financial statements presented by the combined entity after the
business combination. Since SWWT, prior to the merger, was a public
corporation without substantial business operations, no pro-forma
information giving effect to the acquisition is required.
Effective August 1, 2000, SWWT filed an Amended and Restated Certificate of
Incorporation increasing the number of authorized shares of common stock
from 8,000,000 to 750,000,000 and preferred stock from 7,000,000 to
50,000,000 (of which 1,000,000 shares have been designated as Series B
Preferred Stock (as defined below)).
2. MERGER WITH E-NEWCO
On April 14, 2000, SWWT and its newly formed, wholly owned subsidiary, ENWC
entered into a merger agreement (the "Merger Agreement") with E-Newco. In
accordance with the terms of the Merger Agreement, SWWT issued 757.772
shares of its newly designated Series B Convertible Preferred Stock (the
"Series B Preferred Stock"), to the stockholders of E-Newco in exchange for
each share of E-Newco common stock. On April 24, 2000, the stockholders of
E-Newco exchanged all 1,000 shares of issued and outstanding common stock
of E-Newco at that date for an aggregate of 757,772 shares of Series B
Preferred Stock. E-Newco merged with ENWC (the "Merger") and became a
wholly owned subsidiary of SWWT. The terms of the Series B Preferred Stock
provide for automatic conversion into an aggregate of 75,777,162 shares of
common stock, of the Company following the approval by the stockholders of
the Company of the requisite increase to the amount of authorized common
stock (which became effective on August 1, 2000) and the receipt by the
Company of additional equity financing of at least $15 million. The holders
of the Series B Preferred Stock vote with the holders of the common stock
on an as converted basis and possess approximately 95.5% of the voting
power of the Company. Upon completion of the Merger, but without giving
effect to the receipt of additional equity financing, the Company has
79,347,851 shares of common stock outstanding, on an as converted, fully
diluted basis.
If the Company does not receive additional equity financing of at least $15
million within 180 days of the consummation of the Merger (October 21,
2000), the holders of the common stock may elect to cause the Company to
redeem the outstanding shares of Series B Preferred Stock at a redemption
price equal to a pro- rata portion of the Company's cash balance, if any,
at the date of redemption. As a result, the Series B Preferred Stock has
been excluded from stockholders' equity. See "Item 6 - Subsequent Events".
In May 2000, the Company paid a one-time cash dividend to its pre-Merger
stockholders equal to $740,635. The dividend payment consisted of the cash
on SWWT's balance sheet immediately prior to the consummation of the Merger
less expenses related to the Merger and the settlement of certain claims.
3. INVESTMENTS
On March 16, 2000, the Company used advances received on the issuance of
its common stock to purchase an exchangeable demand promissory note and a
stock purchase warrant for $300,000, which are exchangeable into and
exercisable for shares of capital stock of SchoolNet, Inc., a Delaware
corporation, upon the occurrence of certain events. During the three months
ended September 30, 2000, an additional $200,000 was invested in SchoolNet
on similar terms. At September 30, 2000, this investment is carried at cost
which approximates fair value.
4. RELATED PARTY TRANSACTIONS
On March 23, 2000, the Company's CEO issued a $500,000 note receivable
payable on demand to the Company in connection with the purchase of 133.83
shares of E-Newco common stock. Interest accrues at the greater of (i) 6%
or (ii) the applicable federal mid-term rate. On September 14, 2000, the
Company's CEO repaid the principal outstanding on the note.
Restricted Common Stock
Effective April 8, 2000, the Company issued 110 shares of E-Newco
restricted common stock for a purchase price of $410,955 to the Company's
CEO in accordance with a Restricted Stock Purchase Agreement. The purchase
price was established based on the fair market value at the date of grant.
These shares were issued subject to certain conditions, and transfer and
other restrictions. The restricted stock vests over a three year period.
Concurrent with the execution of his employment agreement, the Company's
CEO issued to the Company a $410,955 promissory note receivable. The note
bears interest at a rate of 6% per year and the principal plus interest are
due on the earlier of 7 years, termination of employment, or breach of the
agreement governing the restricted shares. The proceeds from the note
receivable were used to purchase the 110 shares of restricted common stock
of E-Newco. The CEO pledged to the Company an interest in the restricted
shares of the Company's common stock as security for the promissory note.
5. NET LOSS PER SHARE
Three Months Period from
Ended January 7, 2000
September 30, (inception) to
2000 September 30,
2000
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Numerator for basic and
diluted loss per share:
Net loss $(200,681) $(551,904)
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Denominator for basic and
diluted loss per share ---
weighted average shares 3,122,254 3,122,254
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Basic and diluted net loss per
share $(.06) $(.17)
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Diluted loss per share for the three months ended September 30, 2000 and
for the period from January 7, 2000 (inception) to September 30, 2000, does
not include the effect of options and warrants outstanding to purchase
448,435 shares of common stock, respectively, as the effect of their
inclusion is antidilutive.
6. SUBSEQUENT EVENTS
As previously reported in a Current Report on Form 8-K filed with the SEC
on October 23, 2000, pursuant to the terms of the Certificate of
Designations of the Series B Preferred Stock, the holders of the Common
Stock of the Company were entitled to elect to exercise the right to
optionally redeem the Series B Preferred Stock under the terms of Section
VII of the Certificate of Designations. The election was to be taken by
means of a class vote of the holders of the Common Stock (without
participation by holders of the Series B Preferred Stock voting on an
as-converted basis or otherwise) taken within twenty days of October 21,
2000.
If the holders of the common stock elected to exercise the redemption
right, SWWT would be required to pay a redemption price per share equal to
the quotient obtained by dividing (x) the cash and cash equivalents balance
held by the Company on October 21, 2000, by (y) the number of shares of
Series B Preferred Stock outstanding on such date.
As previously reported in a Current Report on Form 8-K filed with the SEC
on November 13, 2000, on November 9, 2000, the Company received an action
by written consent signed by the holders of a majority of the outstanding
shares of its Common Stock notifying the Company that, pursuant to the
terms of the Certificate of Designations of the Series B Preferred Stock,
such holders elect to exercise the right to optionally redeem the Series B
Preferred Stock under the terms of Section VII of the Certificate of
Designations.
The Company is currently considering its response to this notice,
including, without limitation, an analysis of the legality of the
redemption under applicable law. Under Section VII of the Certificate of
Designations of the Series B Preferred Stock, the legality of the
redemption is a condition to the exercise of the right to redeem the Series
B Preferred Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had no operations for the period ended March 31, 2000. In the
quarter ended September 30, 2000, the Company incurred a net loss of
$200,681 or $.06 per share. General and administrative costs of $246,408
principally related to payroll expense and insurance expense. Offsetting
these costs was other income of $45,727 principally related to interest
income from the notes receivable and short-term cash investment.
For the period ended September 30, 2000, the Company incurred a net loss of
$551,904, or $.17 per share. General and administrative costs of $612,460
principally related to payroll expenses, insurance expense, and
professional fees. Offsetting these costs was other income of $60,556
principally related to interest income from the notes receivable and
short-term cash investment.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in investing activities for the period from January 7, 2000
(inception) through September 30, 2000 was $1,500,000 which consisted of
the purchase of an exchangeable demand promissory note and a stock purchase
warrant of SchoolNet, Inc. and an advance to DigaFuel, Inc., a Delaware
corporation. The Company is currently engaged in discussions with DigaFuel
regarding the correct characterization of this cash advance. Cash provided
by financing activities for the period from January 7, 2000 (inception)
through September 30, 2000 was $3,325,00 which consisted of the proceeds
from the issuance of common stock. The Company has working capital of
$2,023,096 at September 30, 2000.
As of September 30, 2000, the Company believes that existing cash balances
together with expected additional equity financing will be sufficient to
finance the Company's currently anticipated working capital requirements
and capital expenditure requirements for at least the next twelve months.
However, if the Series B Preferred Stock is redeemed by the Company under
the terms of the Certificate of Designations related thereto, the Company's
cash balances will be eliminated. In this case, the Company will be
required to seek additional financing which may include borrowings or the
sale or issuance of equity or debt securities. There can be no assurance
that the Company will be successful in obtaining sufficient additional
funds on terms that it will consider acceptable. Failure to raise
sufficient funds would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Notes to
Condensed Financial Statements (Unaudited) - Item 6 - Subsequent Events".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
SWWT, INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SWWT, INC.
(REGISTRANT)
By /s/ Jonathan V. Diamond
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Name: Jonathan V. Diamond
Title: President, Chief Executive
Officer, and Secretary
(Principal Financial Officer)
Date: November 20, 2000
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INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
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27 Financial Data Schedule.
