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| SWWI.PK > SEC Filings for SWWI.PK > Form 10-Q on 14-May-2008 | All Recent SEC Filings |
14-May-2008
Quarterly Report
discontinued activities of the Company, consisting of revenues, operating costs,
general and administrative costs, and certain assets and liabilities associated
with the Company's promotions business, were classified as discontinued
operations for financial reporting purposes.
As a result of the loss of its customers, the Company no longer has any
operating business. Since August 2001, the Company has concentrated its efforts
on reducing its costs and settling numerous claims, contractual obligations, and
pending litigation. As a result of these efforts, the Company has been able to
resolve a significant number of outstanding liabilities that existed at December
31, 2001, or arose subsequent to that date. At March 31, 2008, the Company had
reduced its workforce to 4 employees from 136 employees at December 31, 2001.
The Company is currently managed by the Chief Executive Officer, together with a
principal financial officer and an acting general counsel.
Outlook
As a result of the stockholders' deficit at December 31, 2007, significant
losses from operations and lack of operating revenues, the Company's independent
registered public accounting firm has expressed substantial doubt about the
Company's ability to continue as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. The Company has taken
significant actions and will continue to take further action to reduce its cost
structure. The Board of Directors of the Company continues to consider various
alternative courses of action for the Company going forward, including possibly
acquiring or combining with one or more operating businesses. The Board of
Directors has reviewed and analyzed a number of proposed transactions and will
continue to do so until it can determine a course of action going forward to
best benefit all shareholders, including the holder of the Company's outstanding
preferred stock. The Company cannot predict when the Directors will have
developed a proposed course of action or whether any such course of action will
be successful. Management believes it has sufficient capital resources and
liquidity to operate the Company for the foreseeable future.
As previously reported on Form 8-K dated October 5, 2007, in September 2007 the
Board appointed a Special Committee of independent directors to review the
possible recapitalization of the Company which was approved by the stockholders
as a non-binding stockholder proposal at the 2007 annual meeting of
stockholders. In the proposed recapitalization, the outstanding preferred stock
would be converted into shares of common stock equal to 70% of the shares
outstanding following the recapitalization. The members of the Special Committee
are Joseph Bartlett and Allan Brown.
RESULTS OF CONTINUING AND DISCONTINUED OPERATIONS
The discontinued activities of the Company have been classified as discontinued
operations in the accompanying condensed consolidated financial statements.
Continuing operations represent the costs required to maintain the Company's
current corporate infrastructure that will enable the Board of Directors to
pursue various alternative courses of action going forward. These costs
primarily consist of the salaries and benefits of executive management and
corporate finance staff, professional fees, Board of Director fees, and space
and facility costs. The Company's continuing operations and discontinued
operations will be discussed separately, based on the respective financial
results contained in the accompanying condensed consolidated financial
statements and related notes.
RESULTS OF CONTINUING OPERATIONS
Three Months Ended March 31, 2008, Compared to Three Months Ended March 31, 2007
The Company generated no sales or gross profits during the three months ended
March 31, 2008 and 2007.
General and administrative expenses totaled $.9 million during the three months
ended March 31, 2008, compared to $.6 million during the same period in the
prior year. The increase was primarily due to $.3 million in advisory and legal
costs associated with reviewing the possible recapitalization of the Company by
the Special Committee of independent directors.
Interest income totaled $.1 million during the three months ended March 31,
2008, compared to $.2 million during the same period in the prior year. Interest
income is earned on the Company's cash bank balances and primarily indexed to
the Fed Fund Rate. The decrease in the Company's bank balances and decrease in
the Fed Fund Rate resulted in the decreased interest income.
The Company recorded an investment impairment of approximately $16,000 during
the three months ended March 31, 2008, and a nominal investment impairment
during the same period in the prior year. Such impairments were recorded to
adjust the recorded value of its investments accounted for under the cost
method, which does not include the Company's investment in Yucaipa AEC, to the
estimated future undiscounted cash flows the Company expects from such
investments.
RESULTS OF DISCONTINUED OPERATIONS
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
The Company generated no sales or gross profits during the three months ended
March 31, 2008 and 2007.
The Company recorded general and administrative expenses of $.1 million during
the three months ended March 31, 2008, compared to approximately $11,000 during
the same period in the prior year, which primarily consisted of an adjustment to
the recorded value of a cash surrender value related asset.
The Company recorded a gain on settlement of approximately $.1 million during
the three months ended March 31, 2008 and 2007. These amounts represented
payments received, net of imputed interest, related to the New Subordinated Note
with Cyrk.
Interest income totaled approximately $13,000 during the three months ended
March 31, 2008 and 2007. These amounts relate to imputed interest income earned
related to the New Subordinated Note with Cyrk.
LIQUIDITY AND CAPITAL RESOURCES
The matters discussed in the section "Absence of Operating Business; Going
Concern" in Note 2 of the "Notes to Condensed Consolidated Financial Statements"
have had and will continue to have a substantial adverse impact on the Company's
cash position. As a result of the stockholders' deficit at December 31, 2007,
significant losses from operations and lack of operating revenues, the Company's
independent registered public accounting firm has expressed substantial doubt
about the Company's ability to continue as a going concern. The accompanying
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
The Company continues to incur operating losses in 2008 within its continuing
operations for the general and administrative expenses incurred to manage the
affairs of the Company and resolve outstanding legal matters. Inasmuch as the
Company no longer generates operating income and is unable to borrow funds, the
source of current and future working capital is expected to be cash on hand, the
recovery of certain long-term investments, and any future proceeds from
litigation. By utilizing cash received pursuant to the settlement with
McDonald's in 2004, management believes it has sufficient capital resources and
liquidity to operate the Company for the foreseeable future.
The Board of Directors of the Company continues to consider various alternative
courses of action for the Company, including possibly acquiring or combining
with one or more operating businesses. The Board of Directors has reviewed and
analyzed a number of proposed transactions and will continue to do so until it
can determine a course of action going forward to best benefit all shareholders,
including the holder of the Company's outstanding preferred stock. The Company
cannot predict when the Directors will have developed a proposed course of
action or whether any such course of action will be successful.
As previously reported on Form 8-K dated October 5, 2007, in September 2007 the
Board appointed a Special Committee of independent directors to review the
possible recapitalization of the Company which was approved by the stockholders
as a non-binding stockholder proposal at the 2007 annual meeting of
stockholders. In the proposed recapitalization, the outstanding preferred stock
would be converted into shares of common stock equal to 70% of the shares
outstanding following the recapitalization. The members of the Special Committee
are Joseph Bartlett and Allan Brown.
Continuing Operations
Working capital from continuing operations was $14.9 million and $15.7 million
at March 31, 2008, and December 31, 2007, respectively.
Net cash used in operating activities from continuing operations during the
three months ended March 31, 2008, totaled $.6 million primarily due to a loss
from continuing operations of $.8 million partially offset by a change of
$.2 million in working capital items. Net cash used in operating activities from
continuing operations during the three months ended March 31, 2007, totaled
$.4 million primarily due to a loss from continuing operations.
There was nominal cash provided by investing activities during the three months
ended March 31, 2008. Net cash used in investing activities from continuing
operations during the three months ended March 31, 2007, totaled $.2 million
primarily due to an increase in restricted cash.
There were no financing activities from continuing operations during the three
months ended March 31, 2008 and 2007.
Discontinued Operations
Working capital from discontinued operations was a deficit of $.8 million and
$.9 million at March 31, 2008, and December 31, 2007, respectively.
There was nominal net cash used in operating activities of discontinued during
the three months ended March 31, 2008, primarily due to the transfer of cash to
discontinued operations from continuing operations totaling approximately
$107,000 as discontinued operations required additional assets from discontinued
operations to cover liabilities from discontinued operations partially offset by
the receipt of payments related to the New Subordinated Note from Cyrk totaling
approximately $95,000. Net cash provided by discontinued operations during the
three months ended March 31, 2007, totaled $.5 million primarily due to the
receipt of payments related to the New Subordinated Note from Cyrk totaling
$.1 million and the transfer of cash from discontinued operations to continuing
operations totaling $.4 million as discontinued operations already had
sufficient assets from discontinued operations to cover liabilities from
discontinued operations.
There was no cash provided by investing activities from discontinued operations
during the three months ended March 31, 2008. Net cash provided by investing
activities from discontinued operations totaled $.2 million during the three
months ended March 31, 2007, and related to a decrease in restricted cash.
There were no net cash flows from financing activities within discontinued
operations during the three months ended March 31, 2008 and 2007.
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