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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF l934
For the fiscal year ended December 31, 1999 Commission file number 0-25942
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______.
SWWT, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1167603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3492 W. 109th Circle, Westminster, Colorado 80030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 460-8017
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
None Not Applicable
Securities registered pursuant to Section l2(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on April 11, 2000, was approximately $6,091,254. On such date, the
last sale price of registrant's common stock was $4.875 per share.
Indicate number of shares outstanding of each of the registrant's classes
of common stock, as of April 11, 2000.
Class Outstanding on April 11, 2000
Common Stock, par value $.001 per share 3,122,254
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
General
SWWT, Inc., formerly known as SweetWater, Inc. (the "Company" or "SWWT"),
was incorporated in Colorado in March 1991 and re-incorporated in Delaware in
September 1993. The Company's principal office is located at 3492 W. 109th
Circle, Westminster, Colorado 80030 and its telephone number is 303/460-8017.
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 ("Cascade"), 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 $1.2 million. 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 pursue
potential business combination (a "Business Combination") transactions.
During 1999, the Company considered several possible Business Combinations
and conducted negotiations with one potential candidate. The Board of Directors
continuously explores opportunities to effect a Business Combination with a
privately-held business which the Board believes may have significant growth
potential. 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. If a Business
Combination is effected, the success of the Company will depend to a great
extent on the operations, financial condition, management and prospects of the
entity, if any, with which the Company may merge or which it may acquire. As the
Company has not consummated any transaction with a particular business entity,
the specific risks presented by such business cannot be described or assessed at
this time. Such business may involve an unproven product, technology or
marketing strategy, the ultimate success of which cannot be assured and such
business may be in competition with larger, more established firms over which it
will have no competitive advantage. The Company's new business opportunity may
be highly illiquid and could result in a total loss to the Company if the
opportunity is unsuccessful. Given the Company's limited resources, it is
expected that the Company will not be in a position to diversify this risk by
acquiring an interest in more than one business.
Depending on the size and nature of the entity, if any, which may be a
candidate for a potential Business Combination, 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 any 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
2
will be available on terms acceptable to the Company. If the Company issues
additional equity to raise capital or to acquire a new business, the percentage
ownership of the current shareholders could be significantly reduced and an
"ownership change" could occur for tax purposes. An "ownership change" could
adversely affect the Company's ability to use its net operating loss
carryforwards.
Although the Company is subject to regulation under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended,
management believes the Company is not subject to regulation under the
Investment Company Act of 1940, as amended (the "Investment Company Act")
insofar as the Company is not engaged in the business of investing or trading in
securities. In the event the Company engages in business combinations which
result in the Company holding passive investment interests in a number of
entities or in the event the Company is unable to consummate a Business
Combination for a substantial period of time, the Company could be subject to
regulation under the Investment Company Act. In such event, the Company would be
required to register as an investment company, and could incur significant
registration and compliance costs and would be subject to extensive regulation.
Description of Prior Business
Prior to the Sale, the Company was engaged in manufacturing and
distributing portable water filtration and purification devices for outdoor use
(the "Outdoor Business"). Since its inception, the Company engaged primarily in
product development and incurred operating losses resulting in an accumulated
deficit of approximately $11.3 million as of December 31, 1999.
During 1997, the Company reduced its personnel, discontinued its research
and development efforts and initiated a cost containment program to reduce
general and administrative expenses, conserve its cash resources and enable the
Company to concentrate its resources on its Outdoor Business. In July 1997, the
Board reviewed the financial results for the quarter ended June 30, 1997, the
moderate growth rate in the market for the Company's outdoor product in the 1997
selling season, the increased competition within such market, the increased
market share of the Company's principal competitor, and the potential for the
Outdoor Business to generate sufficient revenue to enable the Company to achieve
profitability. The Board then authorized Dillon Read, together with members of
management, to contact entities which they believed may have an interest in
purchasing the Outdoor Business. As a result of such process, the Board approved
the Sale to Cascade which was approved by the shareholders and completed in
February 1998.
In May 1997, the Company entered into an agreement (the "Management
Agreement") with Eric M. Reynolds, Patrick E. Thomas and Jerry L. Cogdill, each
of whom was an executive officer of the Company (collectively, "Management"),
pursuant to which Management agreed to remain with the Company through January
31, 1998, in exchange for certain performance bonuses and a right of first
refusal to purchase the Outdoor Business which would become effective in the
event (i) certain performance targets were met and (ii) the Company elected to
sell such business within a specified period after December 31, 1997. As a
result of the Sale, the three members of Management, as a group, received an
aggregate bonus equal to $523,000. As the determination to sell the Outdoor
Business was made prior to December 31, 1997, the right of first refusal was not
available to Management under the terms of the Management Agreement.
3
Recent Developments
On April 14, 2000, the Company and its wholly owned subsidiary, ENWC
Acquisition, Inc., a Delaware corporation ("ENWC"), entered into a merger
agreement (the "Merger Agreement") with E-Newco, Inc., a Delaware corporation
("E-Newco"), which is attached as an Exhibit 2.1 and is incorporated herein by
reference. Under the terms of the Merger Agreement, the Company will issue
757,772 shares of its convertible preferred stock, par value $0.001 per share
(the "Series B Preferred Stock"), to the stockholders of E-Newco in exchange for
their shares of E-Newco common stock. Under the terms of the Merger Agreement,
E-Newco will merge with ENWC (the "Merger") and will become a wholly owned
subsidiary of the Company. Under the terms of the certificate of designations of
the Series B Preferred Stock, which is attached as Exhibit 3.1 and is
incorporated herein by reference, the Series B Preferred Stock will
automatically convert into an aggregate of 75,777,162 shares of Common Stock
following the approval by the stockholders of the Company of the requisite
increase to the amount of authorized Common Stock and the receipt by the Company
of additional equity financing of at least $15.0 million. The holders of the
Series B Preferred Stock to be issued in connection with the Merger will vote
with the holders of the Common Stock on an as converted basis and will possess
approximately 95.5% of the voting power outstanding after the Merger. Upon
completion of these transactions, but without giving effect to the receipt of
the additional equity financing, the Company will have outstanding approximately
79,347,851 shares of Common Stock, on an as converted and fully diluted basis,
of which the current stockholders of E-Newco will own approximately 95.5%.
If the Company does not receive additional equity financing of at least
$15.0 million within 180 days of the consummation of the transactions
contemplated by the Merger Agreement, 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.
The Company is expected to pay a one-time cash dividend to its pre-Merger
stockholders in an amount equal to the cash on the Company's balance sheet
immediately prior to the effective time of the Merger less expenses related to
the Merger and the settlement of certain claims made in connection with a prior
transaction. See "Item 3 - Legal Proceedings."
In connection with the transactions contemplated by the Merger Agreement,
three of the current directors of the Company will resign as members of the
board of directors of the Company, and Mr. Jon Diamond and two other designees
of E-Newco will become members of the board. In addition, Mr. Diamond will
become the President and Chief Executive Officer of the Company.
Following the completion of the transactions contemplated by the Merger
Agreement, the Company expects that its stockholders will act by written consent
to, among other things, change the name of the Company, increase the authorized
capital stock of the Company, make certain other modifications to the
certificate of incorporation and by-laws of the Company, and make changes to the
composition of the board of directors of the Company.
The transactions contemplated by the Merger Agreement are expected to close
prior to the end of April 2000 and will be subject to customary conditions.
There can be no
4
assurance that the transactions contemplated by the Merger Agreement will
be consummated.
Employees
At December 31, 1999, the Company had one part-time employee.
Item 2. Properties
The Company's administrative offices are located at 3492 W. 109th Circle,
Westminster, Colorado 80030, in space supplied by the Company's Chief Executive
Officer at no cost to the Company.
Item 3. Legal Proceedings
On March 28, 2000, the Company received a communication making certain
claims with respect to a prior transaction. On April 13, 2000, the Company
entered into an agreement to settle such claims. Under the agreement, the
Company, without admitting liability, will make a one-time payment to the
claimant of $250,000, will reimburse related expenses of the claimant up to
$50,000 and will receive an unconditional release from the claimant. The
payments will be made prior to the closing of the Merger and are a condition
precedent to the consummation of the Merger.
In 1996, the Company received a communication from a patent holder, which
was a competitor of the Company, offering to license such patent to the Company
with respect to an accessory part of two of the Company's products. Although the
Company did not believe the competitor's patent would be upheld if judicially
tested, given the potential costs associated with patent claims, the Company
elected to redesign the accessory part in a manner which it believed should
avoid potential claims with respect to future products sold by the Company.
Although the Company notified the competitor of its actions and has not received
a response thereto, no assurance can be given that a claim for infringement will
not be made against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a stockholders' vote during the last
quarter of the fiscal year ended December 31, 1999.
5
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Trading of the Company's Common Stock has been sporadic and in small
volumes since its initial public offering in January 1994. The Company cannot be
assured that an established public trading market will develop or be sustained.
The Common Stock has been trading in the over-the-counter market under the
symbol "SWWT" since May 14, 1997. The following table sets forth for the periods
indicated the range of high and low bid quotations for the Company's Common
Stock since January 1, 1998 as reported by dealers appearing as market makers on
the OTC Bulletin Board. These quotations represent inter-dealer prices, without
retail mark-up, mark-down or commissions and do not necessarily represent actual
transactions. The Company believes that the number of beneficial owners was at
least 300 as of April 11, 2000.
1999 HIGH LOW
Fourth Quarter 1.7500 0.7500
Third Quarter 1.8125 1.2813
Second Quarter 1.5625 0.2800
First Quarter 0.3125 0.2800
1998
Fourth Quarter 0.3400 0.3100
Third Quarter 0.7200 0.3400
Second Quarter 0.5000 0.5000
First Quarter 1.3700 0.5000
The Company has never paid a dividend and does not anticipate payment of
dividends in the foreseeable future unless in connection with the Merger.
6
Item 6. Selected Financial Data
The selected financial data presented below for the years ended December
31, 1995 through December 31, 1999 are derived from the financial statements of
the Company. No dividends have been paid for any of the periods presented. The
financial data set forth below should be read in conjunction with the financial
information included elsewhere herein and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
Year Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
Statement of Operations Data:
Net Sales $ 0 $ 0 $ 0 $ 0 $ 0
Costs and Expenses:
General & Administrative 128 203 289 628 249
Sales & Marketing - - 56 267 -
Research & Development - - 237 908 -
Operating Income (Loss) (128) (203) (582) (1,803) (249)
Other Income, net 59 62 246 128 29
Net (Loss) from Continuing Operations (69) (141) (336) (1,675) (220)
Net (Loss) from Continuing $ (0.02) $(0.05) $(0.11) $(0.55) $(0.11)
Operations per Common
Share - Basic and Diluted
Weighted Average number of 3,122 3,122 3,094 3,065 1,949
Common shares outstanding (1)
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ----------- ------------ ------------
Balance Sheet Data:
Working Capital $1,167 $ 1,236 $1,372 $ 2,178 $ 5,487
Total Assets 1,195 1,251 1,941 3,309 7,506
Long Term Debt - - - - 208
Total Liabilities 28 15 569 617 616
Accumulated earnings (deficit) (11,276) (11,207) (11,066) (9,742) (5,492)
Stockholders' equity 1,167 1,236 1,372 2,693 6,890
(1) See Note 2 to financial statements for information with respect to the
calculation of share and per share data.
7
Item 7. 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
including herein.
General
On February 6, 1998, the Company completed the sale of substantially all of
its assets to Cascade. The selected financial data for the years ended December
31, 1995 through December 31, 1998, have been restated under Accounting
Principles Board Opinion No. 30, as a result of the execution of the Asset
Purchase Agreement and shareholder approval obtained on February 5, 1998. 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 this Form 10-K.
Results of Operations
1999 Compared to 1998 - Continuing Operations
Net loss from continuing operations decreased from a loss of $141,000 or
$0.05 per share, to a loss of $69,000 or $0.02 per share in 1998 and 1999,
respectively. The decreased loss was primarily due to reduced operating expenses
as a result of the sale of substantially all the assets of the Company and
reduction in the salary of the one part-time employee, which were partially
offset by increased legal expenses in connection with a potential Business
Combination.
1998 Compared to 1997 - Continuing Operations
Net loss from continuing operations decreased from a loss of $336,000 or
$0.11 per share, to a loss of $141,000 or $0.05 per share in 1997 and 1998,
respectively. The decreased loss was primarily due to reduced operating expenses
as a result of the sale of substantially all the assets of the Company.
1998 Compared to 1997 - Discontinued Operations
Net loss on discontinued operations decreased 100% from a loss of $849,000
or $0.27 per share in 1997 to zero in 1998 as a result of the disposal of
discontinued operations in February 1998 and the recognition of a 1998 loss on
disposal of discontinued operations of $157,000 in the year ended December 31,
1997.
8
Liquidity and Capital Resources
Cash and cash equivalents and short term investments decreased by 1% from
$1,251,000 at December 31, 1998 to $1,192,000 at December 31, 1999, due to the
loss from continuing operations.
Since its inception, the Company has been engaged primarily in product
development and has incurred operating losses resulting in an accumulated
deficit of approximately $11.3 million as of December 31, 1999. Operating losses
increased in 1996 as a result of the Company's efforts to develop a water
filtration and purification device for the home use market. The Company
suspended its efforts to manufacture and market this product, reduced its
personnel and initiated a cost containment program designed to reduce general
and administrative costs, and conserve its cash reserves. In April 1997, the
Company sold the plans, designs and technology associated with the home use
product and realized net proceeds of approximately $210,000. In February 1998,
the Company sold the Outdoor Business, which represented substantially all of
its assets, to Cascade and realized proceeds of $1,633,425. Immediately after
the closing of the Sale and payment of related and retained liabilities, the
Company's assets were approximately $1.4 million.
The Company plans to use its cash to pay ongoing general and administrative
expenses, which are anticipated to be minimal, and to pursue potential Business
Combination transactions. Depending on the size and nature of the entity, if
any, which may be a candidate for a potential Business Combination, 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.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
The Company is not exposed to market risk related to changes in interest
rates. The Company does not use derivative financial instruments.
9
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SWWT, Inc.:
We have audited the accompanying balance sheets of SWWT, INC. (formerly
SweetWater, Inc.) (a Delaware corporation) as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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. Those 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 position of SWWT, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 21, 2000, (except with respect to
the matters described in note 8,
as to which the date is April 14, 2000).
10
SWWT INC.
BALANCE SHEETS
December 31,
1999 1998
ASSETS
Cash and cash equivalents $1,191,670 $ 1,251,257
Prepaids and other current assets 3,000 -
--------- ---------
Total assets $1,194,670 $ 1,251,257
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 27,689 $ 15,424
------- ------
Total liabilities 27,689 15,424
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 8,000,000 shares authorized; 3,122,254 and
3,122,254 shares issued and outstanding at December 31, 1999 and 1998,
after deducting 71,734 and 71,734
shares held in treasury, respectively 3,122 3,122
Additional paid-in capital 12,440,186 12,440,186
Accumulated deficit (11,276,327) (11,207,475)
------------ ------------
Total stockholders' equity 1,166,981 1,235,833
------------ ------------
Total liabilities and stockholders' equity $ 1,194,670 $ 1,251,257
============ ============
The accompanying notes to financial statements are an integral part of these
balance sheets.
11
SWWT, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------------------------------
1999 1998 1997
---- ---- ----
NET SALES
$ - $ - $ -
OPERATING EXPENSES:
Sales and marketing 55,910
Research and development 236,673
General and administrative 127,874 203,918 289,429
----------- ------------ ------------
Total operating expenses 127,874 203,918 582,012
----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS (127,874) (203,918) (582,012)
----------- ------------ ------------
OTHER INCOME (EXPENSE)
Gain on sale of technology and fixed assets - - 202,497
Interest income 59,022 62,464 46,870
Interest expense and other - - (3,536)
----------- ------------ ------------
59,022 62,464 245,831
----------- ------------ ------------
NET INCOME (LOSS) FROM CONTINUING (68,852) (141,454) (336,181)
OPERATIONS
(LOSS) FROM DISCONTINUED OPERATIONS - - (848,872)
(LOSS) FROM DISPOSAL OF DISCONTINUED
OPERATIONS, including provision of $50,000 for
operating losses during period prior to completion
of sale - - (156,997)
NET (LOSS) $ (68,852) $ (141,454) $ (1,342,050)
=========== ============ ============
INCOME (LOSS) PER COMMON SHARE-
BASIC AND DILUTED
(Loss) from continuing operations $ (.02) $ (0.05) $ (0.11)
(Loss) from discontinued operations - - (0.27)
(Loss) from disposal of discontinued - - (0.05)
operations
----------- ------------ ------------
Net (loss) $ (.02) $ (0.05) $ (0.43)
=========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,122,254 3,121,726 3,094,330
=========== ============ ============
The accompanying notes to financial statements are an integral part of these
financial statements.
12
SWWT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock Additional
------------------- Deferred Paid-in Accumulated
Shares Amount Compensation Capital Deficit Total
------ ------ ------------ ---------- ---------- -----
BALANCES, December 31, 1996 3,067,382 $3,068 $(12,366) $12,425,783 $ (9,723,971) $2,692,514
Common stock issued to 401(k) Plan 50,871 50 -- 21,594 -- 21,644
Treasury stock purchase from a stockholder, at
cost (2,335) (2) -- (138) -- (140)
Unearned balance of deferred compensation -- -- 12,366 (12,366) -- --
Net loss -- -- -- -- (1,342,050) (1,342,050)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1997 3,115,918 3,116 -- 12,434,873 (11,066,021) 1,371,968
Common stock issued to 401(k) Plan 6,336 6 -- 5,313 -- 5,319
Net loss -- -- -- -- (141,454) (141,454)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1998 3,122,254 3,122 -- 12,440,186 (11,207,475) 1,235,833
Net Loss -- -- -- -- (68,852) (68,852)
-------- ----- ------ --------- ---------- ---------
BALANCES, December 31, 1999 3,122,254 $3,122 $ -- $12,440,186 $(11,276,327) $1,166,981
========= ===== ======= ========== ============ =========
The accompany notes to financial statements are an integral part of these
statements.
13
SWWT, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------------------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(68,852) $(141,454) $ (1,342,050)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization - - 174,783
Gain on sale of technology and fixed assets - - (202,497)
Issuance of treasury stock to 401(k) Plan - 5,319 21,644
Accrued loss for disposal of discontinued
operations - (156,997) 156,997
Changes in assets and liabilities-
Prepaids and other current assets (3,000) 2,476 48,812
Accounts payable and accrued liabilities 12,265 (231,040) (246,892)
Accrued salaries and employee benefits - (165,620) 72,638
Net change in operating assets of discontinued
operations - - 171,294
------- -------- ----------
Net cash used in operating activities (59,587) (687,316) (1,145,271)
------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets related to discontinued
operations - - (36,183)
Proceeds from sale of technology - - 229,074
Proceeds from sales of short-term investments - - 440,659
Proceeds from sale of assets, net of costs - 970,497 -
------- -------- ----------
Net cash provided by investing, activities $ - $ 970,497 $ 633,550
------- -------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
14
SWWT, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-------------------------------------------------------
1999 1998 1997
------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock $ - $ - $ (140)
------------- --------------- --------------
Net cash used in financing activities - - (140)
------------- --------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (59,587) 283,181 (511,861)
CASH AND CASH EQUIVALENTS, beginning of period 1,251,257 968,076 1,479,937
-------------
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $1,191,670 $ 1,251,257 $ 968,076
============= =============== ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid for interest $ - $ - $ 3,536
=============
============== ==============
Unearned balance of deferred compensation plan $ $ $ 12,366
============= =============== =============
The accompanying notes to financial statements are an integral part of these
statements.
15
SWWT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) BUSINESS, DISCONTINUED OPERATIONS AND CONTINUING OPERATIONS
-----------------------------------------------------------
Business
SWWT, Inc., formerly known as SweetWater, Inc. (the "Company"), specialized in
the development, marketing and sale of water filtration and purification devices
and technologies to address health concerns resulting from the microbiological
contamination of drinking water. The Company's products had been principally
marketed to outdoor supply retailers across the United States. A significant
portion of the Company's revenues were derived from sales to one national
outdoor supply retailer.
Since its inception, the Company had incurred significant operating losses and
cash flow deficits. Operating losses increased in 1996, as a result of the
Company's efforts to develop a water filtration and purification device for the
home use market. During 1996, the Company actively pursued the establishment of
a joint strategic alliance to manufacture and market the home use product;
however, the Company was not successful in locating an industry partner to
manufacture and market this potential product. Accordingly, the Company
suspended its efforts to manufacture and market this product, sold the plans,
designs and technology associated therewith in April 1997 and realized net
proceeds of approximately $210,000.
During 1997, the Company reduced its personnel, discontinued its research and
development efforts and initiated a cost containment program designed to reduce
general and administrative costs, conserve its cash reserves and enable the
Company to concentrate its resources on the manufacture and sale of its portable
water filtration and purification products (the "Outdoor Business").
Discontinued Operations
On October 21, 1997, the Company and Cascade Design, Inc. ("Cascade") executed
an Asset Purchase Agreement (the "Sale Agreement") pursuant to which the Company
agreed to sell substantially all the operations and operating assets of the
Company related to the manufacture and distribution of portable water filtration
and purification products for outdoor use, to Cascade (the "Sale Transaction"),
for cash. The Sale Transaction was approved by the shareholders of the Company
on February 5, 1998, and closing of the sale occurred on February 6, 1998. Upon
closing, the Company changed its name to SWWT, Inc.
16
In May 1997, the Company and Eric M. Reynolds (President, Chief Executive
Officer and a director of the Company), Patrick E. Thomas (Vice President and
Chief Financial Officer of the Company), and Jerry L. Cogdill (Chief of
Operations for the Company) (collectively, "Management"), entered into an
agreement (the "Management Agreement") pursuant to which Management agreed to
remain with the Company through January 31, 1998, in exchange for certain
performance bonuses and a right of first refusal to purchase the Outdoor
Business under certain conditions. Since the Company entered into the Sale
Agreement, the right of first refusal did not occur. Management received a
bonus, based on the price paid by Cascade, of approximately $523,000, of which
approximately $114,000 was earned and accrued at December 31, 1997, and the
remainder is factored into the "accrued loss for disposal of discontinued
operations."
The Company had net sales for the year ended 1997 of approximately $1,638,000.
Continuing Operations
Immediately after closing the Sale Transaction and paying related and retained
liabilities, the Company's assets were limited to approximately $1.4 million in
cash and cash equivalents. The Company has no further operating business and its
management and administrative staff have been reduced to a minimum required to
maintain and to fulfill its reporting obligations. 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, with a privately-held business.
In the statements of operations for the year ended December 31, 1997, the
financial statement balances for sales and marketing and research and
development represent the operating expenses incurred to develop the home use
water purification technology which was sold in the second quarter of 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The balance sheet as of December 31, 1999 and 1998, and the statements of
operations for the three years ending December 31, 1999, have been restated
under Accounting Principles Board Opinion No. 30 as a result of the execution of
the Sale Agreement and shareholder approval obtained on February 5, 1998.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all cash and
highly liquid investments with an original maturity of three months or less to
be cash equivalents. As of December 31, 1999 and 1998, the Company's cash and
cash equivalents consisted of demand deposits, and money market accounts in
banks and other financial institutions and governmental securities with
maturities less than 90 days, which approximated market value.
17
Income Taxes
The Company accounts for income taxes according to the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities and carryforwards. Such deferred income tax assets and liabilities
are based on enacted tax laws. 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 (Note 5).
Treasury Stock
Treasury stock purchases are accounted for at cost, and are reflected as a
reduction of common stock and additional paid-in capital in the accompanying
balance sheets.
Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. For each
period presented there are no differences between Net Income (Loss) and
Comprehensive Income (Loss).
Basic and Diluted Loss per Common Share
Loss per common share and common equivalent share for each period presented is
computed using the sum of the weighted average number of shares of common stock
outstanding. Fully diluted shares that would result from the exercise of common
stock options would be anti-dilutive and thus are not presented.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates.
18
(3) STOCKHOLDERS EQUITY
Private Placement Offering
In November 1995, the Company completed a private placement of its common stock.
In connection with the offering, 1,335,078 shares of common stock were sold at a
price of $4 per share, providing net proceeds to the Company of approximately
$5,267,100. This included the conversion of a $1,500,000 Convertible
Subordinated Promissory Note issued in September 1995 to an existing shareholder
of the Company and accrued interest of $15,308 at $4 per share of common stock.
Preferred Stock
The Company is authorized to issue 6,462,500 shares of $.001 par value,
preferred stock. Shares of preferred stock may be issued from time to time in
one or more series, with the rights and powers of each series set by the Board
of Directors.
(4) STOCK OPTIONS AND WARRANT
In February 1998, the Company granted to each member of the Board of Directors
an option entitling them to purchase 60,000 shares of Common Stock at an
exercise price of $1.3125 per share, which option is not exercisable until
February 5, 2000.
No stock options were granted during 1999 by the Company. In addition, no stock
options were exercised or canceled during 1999.
No stock options were exercised subsequent to year end.
19
Number of Shares
-----------------
Officers Employees
and and Per Share
Directors Others Exercise Price
--------- ------- -------------
Balance, December 31, 1996 500,917 136,150 $ .47-$8.125
Granted 25,000 500 $ .50-$4.00
Exercised - - -
Canceled (42,667) (105,561) $ 47-$8.125
-------- -------- ------------
Balance, December 31, 1997 483,250 31,089 $ .50-$8.125
Granted 360,000 - $ 1.3125
Exercised - - -
Canceled (483,250) (31,089) $ .50-$8.125
-------- -------- ------------
Balance, December 31, 1998 360,000 - $ 1.3125
Granted - - -
Exercised - - -
Canceled - - -
Balance, December 31, 1999 360,000 - $ 1.3125
======== ======== ============
Exercisable at December 31, 1999 - - -
======== ======== ============
The Company accounts for its stock-based compensation plan and non-plan options
under APB No. 25, under which no compensation expense is recognized for options
granted with an exercise price equal to the fair value of the Company's common
stock on the date of grant. The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") for disclosure purposes. For SFAS No. 123 purposes, the fair value of
each option grant and stock purchase right has been estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
Year Ended December 31,
----------------------
1998 1997
---- ----
Risk-free interest rate 5.41% 5.36%
Dividend rate 0% 0%
Expected volatility 18.95% 116.26%
Expected Life 3.0 years 3.0 years
20
Using these assumptions, the fair value of the stock options granted in 1998 and
1997 was approximately $0 or $0 per option and $9,401 or $0.37 per option,
respectively, which would be amortized as compensation expense over the vesting
period of the options. Had compensation cost been determined consistent with
SFAS No. 123, utilizing the assumptions detailed above, the Company's net loss
and earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share data).
Year Ended December 31,
---------------------------
1999 1998 1997
---- ---- ----
Net loss:
As reported $ (69) $ (141) $ (1,342)
Pro forma $ (69) $ (141) $ (1,607)
Net loss per common share:
As reported $(0.02) $ (0.05) $ (0.43)
Pro forma $(0.02) $ (0.05) $ (0.52)
In September 1995, the Company issued a warrant for the purchase of 88,435
shares of common stock in connection with the issuance of the $1,500,000
Convertible Promissory Note.
(5) INCOME TAXES
-----------
As of December 31, 1999 and 1998, the Company had net operating loss ("NOL")
carryforwards for tax purposes of approximately $9,800,000 and $9,700,000,
respectively. Based on an effective tax rate of 38%, the Company's related
deferred tax assets were approximately $3,700,000 and $3,700,000 as of December
31, 1999 and 1998, respectively. The NOL carryovers expire from the year 2006
through the year 2019. The NOL carryover provisions apply for 20 years to all
losses incurred in 1999 and subsequent years. The Tax Reform Act of 1986
contains provisions which may limit the net operating loss and credit carryovers
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interests.
The Company has determined that approximately $3,700,000 and $3,700,000 of net
deferred tax assets as of December 31, 1999 and 1998, respectively, do not
satisfy the realization criteria set forth in SFAS No. 109. Recognition of these
benefits requires future taxable income, the attainment of which is uncertain.
Accordingly, a valuation allowance has been recorded to fully offset these net
deferred tax assets.
(6) 401(K) 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 employee salary deferral. Under the 401(k) Plan,
the Company could also
21
elect to make discretionary contributions. Employees vested in Company
contributions over six years of service with the Company. Forfeitures of the
unvested portion were allocated to the remaining employees in the plan
proportionately, based upon current year compensation. During 1998, and 1997, 0,
and 5,726 respectively, shares of common stock were issued to the 401(k) plan.
The plan was terminated in February 1998.
(7) COMMITMENTS AND CONTINGENCIES
The Company's present Corporate headquarters is 3492 West 109th Circle,
Westminster, Colorado 80030. No rental expense is presently being incurred by
the Company.
The Company retained all liabilities related to its operations prior to the
closing of the Sale Transaction, with the exception of product warranty
liabilities, which were assumed by Cascade. The liabilities retained by the
Company include, among others, product liabilities and any environmental
liabilities arising out of the Company's operations prior to the Sale or its
prior leases of facilities. The Company has product and general liability
insurance on an occurrence basis which provides up to $11 million in coverage
for occurrences up to the date of the Sale Transaction and $1 million for
occurrence after the date of the Sale Transaction. The Company has not incurred
any product liabilities since its inception.
(8) SUBSEQUENT EVENT
Merger With E-Newco, Inc.
On April 14, 2000, the Company and its newly-formed, wholly owned
subsidiary, ENWC Acquisition, Inc., a Delaware corporation ("ENWC"), entered
into a merger agreement (the "Merger Agreement") with E-Newco, Inc., a Delaware
corporation ("E-Newco"). The Merger Agreement provides for the Company to issue
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
their shares of ENewco common stock. E-Newco will then merge with ENWC (the
"Merger") and become a wholly owned subsidiary of the Company. E-Newco is a
newly-formed holding company that will fund early-stage Internet properties and
acquire existing companies focused on media, music, entertainment, and consumer
applications. The terms of the Series B Preferred Stock provide for automatic
conversion into an aggregate of 75,777,162 shares of Common Stock following the
approval by the stockholders of the Company of the requisite increase to the
amount of authorized Common Stock and the receipt by the Company of additional
equity financing of at least $15.0 million. The holders of the Series B
Preferred Stock will vote with the holders of the Common Stock on an as
converted basis and will possess approximately 95.5% of the voting power
outstanding after the Merger. Upon completion of these transactions, but without
giving effect of the receipt of the additional equity financing, the Company
will have outstanding approximately 79,347,851 shares of Common Stock, on an as
converted and fully diluted basis, of which the current stockholders of E-Newco
will own approximately 95.5%.
If the Company does not receive additional equity financing of at least
$15.0 million within 180 days of the consummation of the transactions
contemplated by the Merger Agreement, 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.
The Company is expected to pay a one-time cash dividend to its
pre-Merger stockholders in an amount equal to the cash on the Company' s balance
sheet immediately prior to the effective time of the Merger less expenses
related to the Merger and the settlement of certain claims as described below.
Claim and Settlement
On March 28, 2000, the Company received a communication making certain
claims with respect to a prior transaction. On April 13, 2000, the Company
entered into an agreement to settle such claims. Under the agreement, the
Company, without admitting liability, will make a one-time payment to the
claimant of $250,000, will reimburse related expenses of the claimant up to
$50,000 and will receive an unconditional release from the claimant. The
payments will be made prior to the closing of the Merger, and are a condition
precedent to the consummation of the Merger.
22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements with the Company and its independent
accountants on any matter of accounting principles or practice or financial
statement disclosure during 1999 or 1998.
23
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding the
directors and the executive officer of the Company:
Name Position With the Company Age Director Since
- ---- ------------------------- --- --------------
Peter W. Gilson Chairman of the Board 60 1993
Thomas Barnds Director 31 1998
Clarke H. Bailey Director 45 1998
Thomas A. Barron Director 48 1993
Blair W. Effron Director 37 1995
Randall A. Hack Director 52 1995
Patrick E. Thomas Chief Executive Officer 45 N/A
Peter W. Gilson has served as a director of the Company since June 1993 and
as Chairman of the Board since February 1998. Mr. Gilson served as President and
Chief Executive Officer of Physician Support Systems, Inc. a company
specializing in the management of physician and hospital practices, from 1991
through December 1997. From 1989 to the present, Mr. Gilson has also served as
Chief Executive Officer of the Warrington Group, Inc., a manufacturer of safety
products which was previously a division of The Timberland Company. From 1987 to
1988, he served as Chief Operating Officer of The Timberland Company, a
manufacturer of footwear and outdoor clothing. From 1978 to 1986, he served as
President of the Gortex Fabrics Division of W. L. Gore Associates. Mr. Gilson is
a director and Chairman of Swiss Army Brands, Inc. and a director of Glenayre
Technologies, Inc. and of New Hope Foundation.
Thomas C. Barnds has served as a director of the Company since February
1998. Since October 1998, Mr. Barnds has served as a Managing Director at Nassau
Capital L.L.C., which manages a $2 billion portfolio of investments in private
companies and assets on behalf of Princeton University's endowment. From August
1996 to October 1998, Mr. Barnds served as an Associate at Nassau Capital L.L.C.
Prior to joining Nassau Capital, Mr. Barnds was the manager of new business
development for McGaw, Inc., a healthcare company, and a financial analyst at
Alex. Brown & Sons, an investment banking firm. Mr. Barnds received a B.A. from
Princeton University in 1990 and an M.B.A. from Stanford University in 1996.
Clarke H. Bailey has served as a director of the Company since February
1998. Mr. Bailey has served as Chairman, Chief Executive Officer and a director
of National Fulfillment, Inc., a leading provider of literature fulfillment and
other marketing services, since January 1999. Since February 1995, Mr. Bailey
has served as Co-Chairman of the Board and a director of Hudson River Capital
LLC, a private equity firm specializing in middle market acquisitions,
recapitalizations and expansion capital investments. Mr. Bailey has served as
Chairman of Glenayre Technologies, Inc., a paging and messaging infrastructure
technology firm, since October 1, 1999 and served as Chief Executive Officer and
a director of Glenayre from December 1990 until March 1994 and as its Vice
Chairman of the Board from November 1992 to July 1996. Mr. Bailey also served as
Chairman, Chief Executive Officer and a director of Arcus Technology Services,
Inc., the leading national provider of secure off-site computer data storage and
related disaster recovery services as well as information technology staffing
solutions, from February 1995 until its merger with Iron Mountain Incorporated
in January 1998. Mr. Bailey is also a
24
director of Swiss Army Brands, Inc., Iron Mountain Incorporated and Connectivity
Technologies, Inc.
Thomas A. Barron has served as a director of the Company since June 1993.
From November 1995 until February 1998, he served as Chairman of the Board of
the Company. Mr. Barron is an author and has been Chairman of Evergreen
Management Corp., a private investment firm, since January 1990. From November
1983 through November 1989, Mr. Barron was President, Chief Operating Officer
and a director of The Prospect Group, Inc., a publicly held New York based
holding company that conducted its major operations through subsidiaries and
affiliates engaged in the railroads and specialized consumer products
industries. Prior to that he served as a general partner of Sierra Ventures, a
venture capital limited partnership. Mr. Barron also serves as a director of
Swiss Army Brands, Inc. Mr. Barron, a Rhodes Scholar, has served as a Trustee of
Princeton University, and on national and regional boards of The Wilderness
Society and The Nature Conservancy.
Blair W. Effron has served as a director of the Company since November
1995. Mr. Effron joined Dillon Read & Co., Inc., a New York based investment
bank now known as SBC Warburg Dillon Read, in 1987 and currently serves as a
Managing Director. Since 1993, Mr. Effron has been head of the firm's consumer
products group, where he has responsibility for several clients including
Anheuser-Busch Companies, Inc., General Mills, Inc., H. J. Heinz Company, and
Playtex Products Inc. Mr. Effron also heads the Financial Sponsor Group. Mr.
Effron has been a founding investor in several consumer products related
enterprises including USA Detergents, Inc. and American Value Brands, Inc. a
processor and marketer of value brand food products for mass merchandisers. Mr.
Effron received a B.A. from Princeton University in 1984 and an M.B.A. from
Columbia University in 1987.
Randall A. Hack has served as a director of the Company since November
1995. Since January 1995, Mr. Hack has served as a senior managing director of
Nassau Capital L.L.C., an investment firm which he founded. Nassau Capital
manages a $2 billion portfolio of investments in private companies and real
estate assets on behalf of Princeton University's endowment. From 1990 to
January 1995, Mr. Hack served as President and Chief Executive Officer of the
Princeton University Investment Company, which has overall management
responsibility for Princeton's $5.5 billion endowment fund. From 1988 to 1990,
Mr. Hack was the President and Chief Executive Officer of Capstone Equities,
Inc. and, from 1979 to 1988, President and Chief Executive Officer of Matrix
Development Company, a commercial and industrial real estate development firm in
New Jersey, which he founded. Mr. Hack received a B.A. degree summa cum laude
from Princeton University in 1969 and an M.B.A. from Harvard University in 1972.
He serves as a Director of Crown Castle International Corporation and
Cornerstone Properties, Inc.
Patrick E. Thomas, CPA has served as President and Chief Executive Officer
of the Company since February 1998 and as Vice President and Chief Financial
Officer since November 1994. Mr. Thomas has served as President and Managing
Member of Total Beverage LLC, a private limited liability company specializing
in retail beverage sales, since April 1998. Mr. Thomas has served as Chief
Financial Officer and Chief Operating Officer of Draco Systems, Inc. since
February 1998. Mr. Thomas was Chief Financial Officer for Bird Medical
Technologies, Inc., a $50 million publicly traded medical products manufacturer
from 1990 to 1993. From 1993 to 1994 he held positions as Vice President of
Finance for Head Sports USA, Inc. a $50 million sporting goods manufacturer and
distributor, and then Chief Accounting Officer and Controller for Synergen,
Inc., a 600 employee publicly traded biotechnology pharmaceutical development
company. Mr. Thomas also served as Chief Financial Officer and Director for
LIFECARE
25
International, Inc., a privately owned $20 million international medical
products manufacturer from 1984 to 1990. Mr. Thomas received his B.S. in
Accounting from University of Illinois in 1976. Mr. Thomas is a director of
Great Trango Holdings, Co., MT Ideas, LLC, and MacroSystems Digital Video, AG.
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders or until their successors are duly elected.
Hudson River Capital LLC and Nassau Capital Partners L.P. each have the right to
nominate one person to serve on the Company's Board of Directors, and the
Company has agreed to use its best efforts to secure the election of each such
nominee to the Board of Directors. Clarke H. Bailey and Randall A. Hack were
nominated by Hudson River Capital LLC and Nassau Capital Partners, L.P.,
respectively, pursuant to such arrangements. The Company knows of no other
arrangements or understandings between a director or nominee and any other
person pursuant to which he has been selected as a director or nominee. There
are no family relationships between any of the directors or the executive
officer of the Company. The Company's only executive officer serves at the
discretion of the Board of Directors.
Item 11. Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Company to its Chief Executive Officers for the years ended December
31, 1999, 1998 and 1997 and to the additional executive officers who received in
excess of $100,000 in compensation for 1999:
Long Term Compensation
-----------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------ -------------------- -------------------------
Other
Annual Restricted LTIP All other
Compen- Stock Options/ Payouts compensation
Name & Principal Position Year Salary ($) Bonus ($) sation ($) Award ($) SARs ($) ($) ($)(1)
- ------------------------- ---- ---------- --------- ---------- --------- -------- --- ------
PATRICK E. THOMAS 1999 $36,000 -0- -0- -0- -0- -0- -0-
Chief Executive Officer 1998 $116,924(2) $136,188(3) -0- -0- -0- -0- $1,053
since February 1998; Vice 1997 $85,000 $38,000(3) -0- -0- -0- -0- $3,400
President - Finance prior
thereto
(1) Represents the Company's Contribution to the executive officer's
401(k) account.
(2) Amounts reported for 1998 salary include three months of severance
plus accrued vacation pay and $64,000, or $6,000 per month, paid to
Mr. Thomas in his capacity as President and Chief Executive Officer.
(3) Represents the balance of the performance bonus earned under the terms
of the Management Agreement. This bonus, together with the 1997
accrued bonus of $38,000, which was also paid under the terms of the
Management Agreement, was paid to the executive officer in February
1998.
Option/SAR Grants in Last Fiscal Year; Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values
As of the end of the Company's 1999 fiscal year, there were no outstanding
stock options held by the Company's executive officer. No stock options were
held by, granted to, or exercised by, the executive officer in 1999.
26
SWWT, Inc. Profit Sharing Plan and Trust
Pursuant to the SweetWater, Inc. 401(k) Profit Sharing Plan and Trust (the
"401(k) Plan"), which was established effective January 1, 1995, the Company
contributed matching contributions in the form of Company common stock at the
rate of 50% of the first 8% of employee salary deferral. Under the 401(k) Plan,
the Company could also elect to make discretionary contributions. Employees
vested in Company contributions over six years of service with the Company.
Forfeitures of the unvested portion were allocated to the remaining employees in
the plan proportionately based upon current year compensation. The Company
terminated the 401(k) Plan in 1998.
Director's Compensation Fees
In 1999 and 1998, Directors of the Company did not receive fees for
attending board meetings or committee meetings. Directors were reimbursed for
their out-of-pocket expenses, including travel, incurred in the performance of
their duties as directors. As a result of the Sale to Cascade, all outstanding
stock options, including options issued to directors of the Company, expired on
February 6, 1998. In February 1998, the Board granted each of Messrs. Bailey,
Barnds, Barron, Effron, Gilson and Hack an option entitling them to purchase
60,000 shares of Common Stock at an exercise price of $1.3125 per share, which
option is fully vested and became exercisable on February 5, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 11, 2000 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director and the executive officer of the Company, and
(iii) all directors and the executive officer as a group. Except as otherwise
noted, the Company knows of no agreements among its shareholders which relate to
voting or investment power over its Common Stock.
27
Beneficial Owner Shares Beneficially Owned(1)
--------------------------------
Number Percent
Directors:
Clarke H. Bailey 88,000 2.8%
Thomas Barnds 681,845(2) 21.4%
Thomas A. Barron 94,583 3.0%
Blair W. Effron 78,750 2.5%
Peter W. Gilson 67,792 2.1%
Randall A. Hack 695,799(3) 21.9%
Executive Officer 12,942 *
Executive officer & directors as a
group (includes 7 persons)
1,098,113 31.5%
Other 5% Shareholders:
Nassau Capital Partners L.P. 621,598 19.9%
22 Chambers Street
Princeton, NJ 08542
Equities Enterprises, Inc. 609,150(4) 19.5%
160 Madison Avenue
Third Floor
New York, New York 10016
Hudson River Capital LLC 420,536(5) 13.1%
667 Madison Avenue
Suite 2500
New York, NY 10021
Charles Elsener 197,500 6.3%
CH-6438
Ibach, Switzerland
* Less than 1%
(1) Unless otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares shown as beneficially owned
by them, subject to community property laws where applicable. With respect
to information regarding 5% shareholders, the Company has relied on
information provided in publicly-filed documents and, in certain cases, on
supplementary information provided by the shareholder. The number of shares
listed for each director includes 60,000 shares issuable upon exercise of a
stock option granted to such director.
(2) Includes 621,598 shares held by Nassau Capital Partners L.P. and 247 shares
which represent Mr. Barnds' interest in shares directly or indirectly held
by NAS Partners I L.L.C., a limited liability company in which he is a
member. Mr. Barnds is an employee of Nassau Capital L.L.C., which serves as
the sole general partner of Nassau Capital Partners L.P. Mr. Barnds
disclaims beneficial ownership of shares held by Nassau Capital Partners
L.P.
(3) Includes 621,598 shares held by Nassau Capital Partners L.P. and 1,701
shares which represent Mr. Hack's interest in shares held directly or
indirectly by NAS Partners I L.L.C., a limited liability company in which
he is a member. Mr. Hack is one of four members of Nassau Capital L.L.C.
which serves as the sole general partner of Nassau Capital Partners, L.P.
Mr. Hack disclaims beneficial ownership of shares held by Nassau Capital
Partners L.P.
(4) Shares are held by Equities Holdings LLC, a wholly-owned subsidiary of
Equities Enterprises, Inc.
(5) Includes 79,591 shares issuable upon exercise of a common stock purchase
warrant.
28
Item 13. Certain Relationships and Related Transactions
None.
29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Documents filed as part of this Report:
---------------------------------------
Financial Statements and Financial Statement Schedules to be filed
hereunder are contained in Item 8.
All other financial statement schedules are omitted because they are
not required, are inapplicable or the information has been included
elsewhere in the financial statements or notes thereto.
b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed in the fourth quarter of fiscal 1999.
c) Exhibits:
---------
Reference is made to the accompanying Index of Exhibits.
30
PART V
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Patrick E. Thomas
-------------------------------------
Patrick E. Thomas
President and Chief Executive Officer
Date: April 14, 2000
31
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ Patrick E. Thomas April 14, 2000
- ------------------------------------
Patrick E. Thomas
Chief Executive Officer, President,
Chief Financial Officer
(Principal Financial Officer)
/s/ Clarke H. Bailey April 14, 2000
- ------------------------------------
Clarke H. Bailey
Director
/s/ Thomas Barnds April 14, 2000
- ------------------------------------
Thomas Barnds
Director
/s/ Thomas A. Barron April 14, 2000
- ------------------------------------
Thomas A. Barron
Director
/s/ Blair W. Effron April 14, 2000
- ------------------------------------
Blair W. Effron
Director
/s/ Peter Gilson April 14, 2000
- ------------------------------------
Peter Gilson
Chairman of the Board
Director
/s/ Randall A. Hack April 14, 2000
- ------------------------------------
Randall A. Hack
Director
32
INDEX OF EXHIBITS
No. Exhibit Document Exhibit No.
- --- ---------------- -----------
(2.1) Agreement and Plan of Merger dated as of April 14, 2000 among
E-Newco, Inc., a Delaware corporation, the Company, and ENWC
Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of the Company 2.1
(3) Articles of Incorporation and by-laws
(A) Certificate of Incorporation, as amended (6)
(B) By-laws (1)
(3.1) Certificate of Designations of Series B Preferred Stock, par value
$.001 per share 3.1
(4) Instruments defining the rights of security holders, including
indentures
(A) Excerpts from the Certificate of Incorporation, as amended (6)
(B) Excerpts from the By-laws (1)
(C) Specimen stock certificate (2)
(10) Material Contracts
(a) Form of Stock Purchase Agreement by and between the Company
and The Forschner Group, Inc. (now known as Swiss Army
Brands, Inc.) (1)
(b) Form of Stock Purchase Agreement by and between the Company
and certain purchasers of Series A Preferred Stock (1)
(c) 1993 Stock Option Plan, as amended (2,5)
(d) Note and Warrant Agreement dated September 26, 1995 (3)
(e) Common Stock Purchase Warrant issued to Forschner
Enterprises, Inc. (now known as Hudson River Capital LLC) (3)
(f) Subscription Agreement by and between the Company and Nassau
Capital Partners in connection with the 1995
private placement of shares of Common Stock (4)
(g) Form of Subscription Agreement executed by the Company and
certain investors in connection with the 1995 private
placement of shares of Common Stock (4)
(h) Form of Director's Stock Option Agreement
(i) Asset Purchase Agreement dated as of October 21, 1997 (the
"Asset Purchase Agreement") by and between SweetWater, Inc.,
a Delaware corporation, and Cascade Designs, Inc., a
Washington corporation ("Purchaser"). (A list of exhibits and
schedules to the Purchase Agreement is attached thereto. The
Registrant agrees to furnish to the Commission
supplementally, upon request, a copy of any such exhibits or
schedules not otherwise filed herewith.) (7)
(23) Consent of experts and counsel 23
(27) Financial Data Schedule 27
(99.1) News Release, dated April 14, 2000 99
(1) These exhibits were filed as exhibits to the Company's Registration
Statement on Form S-1, Registration No. 33-71036, as filed on October
29, 1993, and are incorporated herein by reference.
(2) These exhibits were filed as exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-1, Registration No.
33-71036, as filed on December 13, 1993, and are incorporated herein
by reference.
(3) These exhibits were filed as exhibits to the Company's Form 8-K as
filed on October 2, 1995, and are incorporated herein by reference.
33
(4) These exhibits were filed as exhibits to the Company's Form 10-K for
the year ended December 31, 1995, as filed in March 29, 1996, and are
incorporated herein by reference.
(5) Constitutes a "management contract or compensatory plan or
arrangement" required to be filed pursuant to Item 14 (c) of the Form
10-K.
(6) These exhibits were filed as exhibits to the Company's Form 10-K, as
filed on March 31, 1998, and are incorporated herein by reference.
(7) This exhibit was filed as an exhibit to the Company's Form 8-K as
filed on February 19,1998, and is incorporated herein by reference
34