10-Q 1 file001.txt QUARTERLY REPORT 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 June 30, 2002 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____to ___ Commission file number: 0-25942 SVT INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 84-1167603 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 59 John Street, 3rd Floor, New York, New York 10038 --------------------------------------------------- (Address of principal executive offices) (212) 571-6904 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 16, 2002, 40,725,826 shares of common stock, par value $.001 per share of the registrant were outstanding. SVT INC. TABLE OF CONTENTS

~~Page~~PAGE ~~No.~~ PART I. FINANCIAL INFORMATION Item 1. ~~Financial~~Consolidated ~~Statements (unaudited) Condensed~~ Balance Sheets -as 1of ~~December~~June 3130, ~~2000~~2002 (unaudited) and ~~September~~December 3031, 2001........................................................................3 ~~Condensed~~Consolidated Statements of Operations -for the Three and ~~nine~~Six ~~months~~Months ended ~~September~~June 30, ~~2001,~~2002 ~~three months ended September 30, 2000~~ and ~~for~~2001 ~~the period from January 7, 2000~~ (~~inception~~unaudited)..........................................4 toConsolidated ~~September 30, 2000 2 Condensed~~ Statements of Cash Flows -for 3the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2001~~2002 and ~~for~~2001 ~~the period from January 7, 2000~~ (~~inception~~unaudited).....................................................5 ~~to September 30, 2000~~ Notes to ~~Condensed~~Consolidated Financial Statements 4(unaudited) ........................................6 Item 2. Management's Discussion and Analysis of Financial Condition ~~and~~And 6 Results of Operations...................................................................16 Item 3. Quantitative and Qualitative ~~Disclosures~~Disclosure ~~About~~about Market Risk.....................................20 8 PART II. OTHER INFORMATION 8 Item 1. Legal Proceedings.............................................................................21 8 Item 2. Changes in Securities and Use of Proceeds.....................................................21 8 Item 3. Defaults ~~Upon~~upon Senior Securities...............................................................21 8 Item 4. Submission of Matters to a Vote of Security Holders...........................................21 8 Item 5. Other Information.............................................................................21 8 Item 6. Exhibits and Reports on Form 8-K..............................................................21 8Signatures ~~SIGNATURE 9~~..............................................................................................21

2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SVT INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~September~~JUNE 30, ~~2001~~2002 December 31, ~~2000~~2001 (UNAUDITED) ----------------- ----------------~~--------------~~ ~~Assets~~ASSETS Current ~~Assets~~assets: Cash and cash equivalents...................................... $1 526,~~287~~076 $ 2,~~092~~823,110 Accounts receivable, net of allowance of $150,~~654~~000 and $250,~~983~~000, ~~Prepaid~~respectively.......................... ~~expenses~~5,368,383 --3,333,418 95Deferred income taxes.......................................... 577,~~594~~535 ~~Interest~~577,535 ~~receivable~~Due 36from stockholder ...................................... 86,~~479~~508 18- Other current assets ......................................... 452,~~037~~330 400,249 ----------------- ----------------~~--------------~~ Total current assets ........................................... 7,010,832 7,134,312 Property and equipment, net of accumulated depreciation of $128,459 and $168,926, respectively............ 138,028 299,943 Goodwill........................................................... 1,~~323~~548,~~571~~947 1,~~768~~548,~~614~~947 ~~Total~~Intangible ~~Current~~assets, ~~Assets~~net ~~Investment~~of ~~250~~accumulated amortization of $69,~~000~~595 ~~250~~and $350,379, respectively.......................... 1,284,331 1,740,957 Deposit on acquisition ......................................... 800,000 - Other long-term assets ......................................... 93,151 325,171 ----------------- ----------------~~------------~~ ~~Total Assets~~ $110,~~573~~875,~~571~~289 $2 11,~~018~~049,~~614~~330 ================= ================~~==============~~ ~~Liabilities~~LIABILITIES ~~and~~AND ~~stockholders~~STOCKHOLDERS' ~~deficit~~EQUITY ~~Liabilities~~Current liabilities: Accounts payable ~~and~~........................................... ~~accrued~~$1,062,792 $ 725,144 Accrued expenses ........................................... 2,854,383 2,451,768 Due to stockholder .......................................... - 166,875 Line of credit ............................................... 51,614 - ----------------- ---------------- Total current liabilities ~~$709~~......................................... 3,~~247~~968,789 ~~$446~~3,~~764~~343,787 ~~Series~~----------------- B---------------- Deferred income taxes ............................................. 2,050,421 2,050,421 ----------------- ---------------- Commitments and contingencies Stockholders' equity: Preferred ~~Stock~~stock, $0.001 par value;, 5020,000,000 shares authorized, ~~757,778~~no shares issued ~~and~~or outstanding............................... ~~3,485,955~~- ~~3,485,955~~- ~~Stockholders' deficit:~~ Common ~~Stock~~stock, $0.001 par value;, ~~750~~100,000,000 shares authorized, 329,~~122~~887,~~254~~454 and 40,725,826 shares issued and outstanding................................................... 329,~~122~~887 340,~~122~~726 ~~Accumulated~~Additional ~~deficit~~paid-in (2capital....................................... 700,~~213~~613 26,~~798~~319,706 Cumulative translation adjustments............................... (163,840) (1181,~~506,272~~288) ~~Notes~~Retained ~~receivable~~earnings (~~410,955~~deficit)...................................... 4,289,419 (~~410~~20,~~955~~524,022) ----------------- ----------------~~--------------~~ Total stockholders' ~~deficit~~equity......................................... (24,~~621~~856,~~631)~~079 (15,~~914~~655,~~105)~~122 ----------------- ----------------~~--------------~~ ~~Total Liabilities and Stockholders' Deficit~~ $110,~~573~~875,~~571~~289 $2 11,~~018~~049,~~614~~330 ================= ================~~============== See accompanying notes to condensed financial statements.~~

The accompanying notes are an integral part of these financial statements. 3 SVT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

~~Period~~FOR ~~from~~THE ~~January~~THREE 7,MONTHS ~~2000~~ENDED ~~Three~~JUNE ~~months ended Nine months ended (inception) to September~~ 30, ~~September~~FOR ~~30,~~THE ~~September~~SIX ~~30,~~MONTHS ~~September~~ENDED JUNE 30, ----------------------------------- --------------------------------- 2001 2002 2001 2002 -------------- -------------- --------------- -------------- ~~2001~~Revenues............................................ ~~2000~~$ ~~2001~~5,833,665 ~~2000~~$ 4,390,348 $ 13,254,856 $ 9,215,225 Cost of revenues.................................... 4,166,978 3,234,890 9,448,828 6,979,362 -------------- -------------- --------------- -------------- Gross profit........................................ 1,666,687 1,155,458 3,806,028 2,235,863 Operating expenses: General and administrative ~~$367~~expenses..................................... 834,~~831~~832 ~~$246~~1,~~408~~683,404 ~~$774~~1,~~418~~600,753 ~~$612~~2,~~460~~758,390 ~~Total~~Stock ~~operating~~option compensation expense............... - 1,875,000 - 6,125,000 Merger-related costs and expenses............... ~~367~~- 34,818 - 18,808,068 -------------- -------------- --------------- -------------- Operating income (loss)............................. 831,855 ~~246~~(2,~~408~~437,764) ~~774~~2,~~418~~205,275 ~~612~~(25,~~460~~455,595) ~~Other~~Grant income: - 150,000 - 150,000 Interest (expense) income, 18net...................... (29,~~150~~763) 4520,~~727~~141 66(28,~~892~~183) 6011,~~556~~567 -------------- -------------- --------------- -------------- Income (loss) before income taxes................... 802,092 (2,267,623) 2,177,092 (25,294,028) Income taxes (benefit).............................. 362,864 (50,810) 984,911 (480,587) -------------- -------------- --------------- -------------- Net ~~loss~~income $(~~349,681~~loss)................................... $~~(200~~ 439,~~681)~~228 $ (~~707~~2,~~526~~216,813) $ 1,192,181 (~~551~~24,~~904~~813,441) ============== ============== =============== ============== Basic earnings per share............................ $0.01 $(0.05) $0.04 $(0.64) ============== ============== ~~Net~~=============== ~~loss~~============== Diluted earnings per share.......................... -$0.01 ~~basic and diluted~~ $(0.1105) $(0.~~06)~~04 $(0.2364) $============== (============== =============== ============== Basic weighted average shares outstanding.~~17)~~............................. ~~See~~29,887,454 ~~accompanying~~40,725,826 ~~notes~~29,887,454 to38,869,543 ~~condensed~~============== ~~financial~~============== ~~statements~~=============== ============== Diluted weighted average shares outstanding......... 29,887,454 40,725,826 29,887,454 38,869,543 ============== ============== =============== ==============

The accompanying notes are an integral part of these financial statements. 4 SVT INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~January~~FOR 7,THE ~~2000~~SIX ~~(date~~MONTHS ~~Nine~~ENDED ~~Months~~JUNE ~~Ended of inception) to September~~ 30, ~~2001 September 30, 2000~~ ----------------------------------- 2001 2002 -------------- ---------------- ~~Cash~~OPERATING ~~flows~~ACTIVITIES: ~~from~~Net ~~operating~~income ~~activities~~(loss)......................................................... ~~Net~~$ ~~loss~~1,192,181 $ (~~707~~24,~~526~~813,441) $Adjustments to reconcile net income (~~551,904~~loss) ~~Changes~~to innet cash provided by operating activities- Depreciation and amortization.......................................... 13,864 321,251 Bad debt provision .................................................... - 215,324 Compensation charge for stock option issuance.......................... - 6,125,000 Non-cash charge for merger-related expenses............................ - 19,328,103 Changes in assets and liabilities:- ~~Interest~~Decrease (increase) in accounts receivable............................. 1,270,684 1,819,641 Decrease (18increase) in due from stockholder............................ 293,~~442~~645 86,508 Decrease (increase) in other current assets............................ (1167,~~822~~471) ~~Prepaid~~52,081 ~~expenses~~Decrease ~~95,594~~(increase) in other assets.................................... (~~172~~566) 17,~~739~~980 (Decrease) ~~Accounts~~increase in accounts payable................................ ~~and~~(1,180,818) (337,648) (Decrease) increase in accrued ~~liabilities~~expenses................................ ~~262~~1,~~483~~031,964 ~~370~~(475,~~500~~785) (Decrease) increase in due to stockholder.............................. - 166,875 --------------~~--------~~ ----------------~~--------~~ Net cash ~~used~~provided inby operating activities................................. ~~(367~~2,~~891)~~553,483 ~~(365~~2,~~965)~~505,889 -------------- ---------------- INVESTING ACTIVITIES: Cash ~~flows~~paid ~~from~~for ~~investing~~business ~~activities~~acquisitions, ~~Purchase~~net of ~~investment~~cash acquired.................................................. - ~~(500~~10,000) ~~Advance~~Purchase ~~paid~~of -property and equipment.................................... (18,~~000~~205) (164,~~000~~349) --------------~~---------~~ ----------------~~--------~~ Net cash (used in) investing activities................................... - (18,~~500,000~~205) ~~Cash flows from financing activities Proceeds from issuance of stock - 2~~(154,~~825,000~~349) ~~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)~~ --------- ---------------- FINANCING ACTIVITIES: Net borrowings (repayments) on line of credit.......................... (11,645) (51,614) -------------- ---------------- Net cash ~~provided~~(used byin) financing activities................................... -(11,645) 3(51,~~325,000~~614) -------------- ---------------- Effect of exchange rate changes on cash flows............................. (148,799) (2,892) -------------- ---------------- ~~Net~~NET ~~increase~~INCREASE ~~(decrease)~~IN inCASH ~~cash~~AND ~~and~~CASH ~~cash~~EQUIVALENTS................................. ~~equivalents (367~~2,~~891)~~384,834 12,~~459~~297,~~035~~034 ~~Cash~~CASH ~~and~~AND ~~cash~~CASH ~~equivalents~~EQUIVALENTS, atBEGINNING ~~beginning~~OF ofPERIOD.............................................................. ~~period~~ 1,~~654~~184,~~983~~499 -526,076 --------------~~---------~~ ----------------~~--------~~ ~~Cash~~CASH ~~and~~AND ~~cash~~CASH ~~equivalents~~EQUIVALENTS, atEND ~~end~~OF ofPERIOD.................................. ~~period~~ $ 13,~~287~~569,~~092~~333 $ 12,~~459~~823,~~035~~110 ============== ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest................................................. $ 55,300 $ 8,042 ============== ================ ~~See~~Cash ~~accompanying~~paid ~~notes~~for toincome ~~condensed~~taxes............................................. ~~financial~~$ ~~statements.~~640,425 $ 604,000 ============== ================

The accompanying notes are an integral part of these financial statements. 5 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 1. BACKGROUND: SVT Inc. (SVT), formerly SWWT, Inc., is a Delaware corporation which together with its wholly-owned subsidiaries (see Note 2) is herein referred to as the Company. The Company is an information technology consulting, network, and systems management outsourcing business. To date, the Company has specialized in e-commerce applications and web-based systems management for the financial services, insurance, media and telecommunications industries. On July 23, 2001, SanVision Technology Inc. (SanVision) entered into a merger agreement with SWWT, Inc. under which a wholly-owned subsidiary of the Company (E-Newco, Inc.) was merged into SanVision and SanVision became a wholly-owned subsidiary of SWWT. Under the merger agreement, SanVision stockholders received 35,792,599 shares of the Company's common stock in exchange for their shares of SanVision. Upon completion of the transactions contemplated by the merger agreement, including (A) a one-for-two reverse stock split of the Company's common stock, (B) a change in the conversion ratio applicable to the Company's series B preferred stock into common stock from approximately 1-to-100 to approximately 1-to-10 and (C) the conversion of all shares of series B preferred stock into shares of common stock, the Company had outstanding 40,905,826 shares of common stock on an as-converted and fully diluted basis, of which the former stockholders of SanVision have 87.5 percent. On January 29, 2002, the Company's stockholders approved the reverse stock split, the change in the conversion ratio of the series B preferred stock and the conversion of all series B preferred stock into common stock. Effective on February 1, 2002, the merger between SanVision and E-Newco was completed, and on March 15, 2002, SanVision was merged into the Company and ceased to exist. For accounting and financial reporting purposes, SanVision is the acquirer through a reverse merger. The combination of SVT and SanVision was treated as an issuance of shares, primarily for cash, by SanVision. The Company reflects, in its consolidated financial statements, the assets and liabilities of SanVision at their historical book values and the tangible assets and liabilities of SWWT, Inc. at their fair values. The Company has not combined the historical earnings of SWWT, Inc. with those of SanVision, but reports SanVision's operations through the effective date of the merger. In accordance with the Securities and Exchange Commission Accounting Disclosure Rules and Practices, the transaction costs incurred in connection with the merger were charged directly to stockholders' equity to the extent of the cash received in the merger (which was equal to $785,648) and the excess (which was equal 6 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) to $18,808,068) has been charged to merger related costs and expenses. The assets, liabilities and stockholders' equity amounts that were combined with SanVision as of the merger date as part of the reverse merger transaction were as follows: ASSETS Cash and cash equivalents $ 785,648 Investment 250,000 ----------- Total assets $ 1,035,648 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accrued expenses $ 73,171 Common Stock 49,332 Additional paid-in capital 913,145 ----------- Total liabilities and stockholders' equity $1,035,648 =========== The following unaudited pro forma summary information presents the consolidated results of operations as if the merger between SanVision and SWWT, Inc. had occurred as of January 1, 2001. The unaudited pro forma summary information excludes the merger related costs and expenses of $18,808,068 which was recognized as of the merger date related to the issuance of 6,135,873 shares of the Company's common stock (see Note 4) and other professional fees related to merger expenses incurred during the six months ended June 30, 2002 . These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the merger been completed as of January 1, 2001 or results which may occur in the future.

For the period from January 1, 2002 through the merger date on February 1, 2002, there was no activity and no expenses were incurred by SWWT, Inc. As a result, the pro forma summary information included above for the six months ended June 30, 2002 is not impacted by the inclusion of SWWT, Inc. 7 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The accompanying unaudited financial statements for the Company have been prepared in accordance with (1) accounting principles generally accepted in the United States of America for interim financial information and (2) the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements as of December 31, 2001, and filed with the Securities and Exchange Commission (the "SEC") on April 16, 2002, as part of the Company's Form 10-K for the fiscal year ended December 31, 2001. Principles of consolidation The accompanying consolidated financial statements include the accounts of SanVision, Apex Software Private Ltd., SVT Cayman, Inc. and SanVision Technologies Canada Inc., the Company's wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Revenue recognition and customer concentration Historically, the Company's revenue from consulting services has been generated under time and materials contracts. Revenue from consulting services that are billed on a time and materials basis is recognized in the period during which the services are provided. During 2001 and 2002, SanVision entered into contracts based on a fixed fee amount. Revenue from the fixed fee contracts are recognized using a percentage of completion method based on the total costs incurred to date compared to the total costs to be incurred for the contracts. The majority of the Company's services are performed for large companies located in the New York City area. Revenues from the Company's two largest customers represent approximately 74 percent of total revenues (49 percent and 25 percent, respectively) for the six months ended June 30, 2001, and the three largest customers represent approximately 68 percent of total revenues (29 percent, 28 percent and 11 percent, respectively) for the six months ended June 30, 2002. The total accounts receivable from these customers as of June 30, 2002 was $2,462,133 ($618,350, $1,322,497 and $521,286, respectively). 8 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Segment disclosures For purposes of Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," management believes that the Company operates in one segment. For the six months ended June 30, 2001 and 2002, all of the Company's revenues are attributed to customers in the United States. As of June 30, 2001 substantially all of the Company's long-lived assets were located in the United States. As of June 30, 2002, a total of approximately $3,407,000 of long-lived assets, the majority of which relate to the 2001 acquisitions, were recorded in the Company's subsidiary in India and its subsidiary in the United Kingdom. Currency translation The accounts of the Company's international subsidiaries are translated in accordance with SFAS No. 52, "Foreign Currency Translation," which requires that assets and liabilities of international operations be translated using the exchange rate in effect at the balance sheet date, and that the results of operations be translated at average exchange rates during the period. The effects of exchange rate fluctuations in translating assets and liabilities of international operations into U.S. dollars are accumulated and reflected in cumulative translation adjustments included in stockholders' equity. The effects of exchange rate fluctuations in translating the foreign currency transactions are included in general sales and administrative expenses. There were no material transaction gains or losses related to the foreign currency transactions in the accompanying Consolidated Statements of Operations. Earnings per share The Company utilizes SFAS No. 128, "Earnings Per Share," to compute earnings per share. SFAS No. 128 requires dual presentation of basic and diluted earnings per share (EPS) for complex capital structures on the statements of operations. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock unless they are anti-dilutive. For the three and six months ended June 30, 2001 the Company had no potentially dilutive securities. For the three and six months ended June 30, 2002 the dilutive impact of outstanding stock options was not included in diluted EPS as it would be anti-dilutive. 9 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Earnings per share (continued) Earnings per share are calculated as follows:

Accumulated other comprehensive income SFAS No. 130, "Reporting Comprehensive Income," established the concept of comprehensive income. Comprehensive income is defined as net income plus revenues, expenses, gains and losses that, under accounting principles generally accepted in the United States, are excluded from net income. The Company's accumulated other comprehensive income is comprised of unrealized gains and losses from foreign currency translation adjustments and is presented in the consolidated statements of stockholders' equity. Other comprehensive income (loss) is calculated as follows:

10 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Stock Split As disclosed above in the background note, there was a reverse stock split and change to the conversion ratio for SWWT common and preferred stock, and a conversion adjustment for the SanVision common stock (with 36,071,064 shares of SanVision common stock converted into 35,792,599 shares of SVT common stock) as part of the merger transaction. All references to the number of common shares and per share amounts have been restated as appropriate to reflect the effect of these transactions for all periods presented. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New accounting pronouncements In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations." SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting for business combinations and establishes the purchase method of accounting as the only acceptable method on all business combinations initiated after June 30, 2001. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement modifies existing generally accepted accounting principles related to the amortization and impairment of goodwill and other intangible assets. Upon adoption of the new standard, goodwill, including goodwill associated with equity method investments, will no longer be amortized. In addition, goodwill, other than goodwill associated with equity method investments, must be assessed at least annually for impairment using a fair-value based approach. The provisions of this statement are required to be adopted as of the beginning of the first fiscal year after December 15, 2001. Impairment losses that arise due to the initial application of this statement are to be reported as a cumulative effect of change in accounting principle. In order to complete the transitional assessment of goodwill as required by SFAS No. 142, the Company was required to determine by the end of the second quarter of 2002 the fair value of its reporting units and compare it to the reporting units' carrying amount. To the extent a reporting units' carrying amount exceeds its fair value, an indication exists that the reporting units' goodwill assets may be impaired and the Company must perform the second step of the 11 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): New accounting pronouncements transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting units' goodwill, determined by allocating the reporting units' fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS No. 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of 2002. Any transitional impairment charge will be recognized as the cumulative effect of a change in accounting principle in the Company's consolidated statement of operations. As of June 30, 2002, the Company has determined that the fair value of its reporting units exceeds the reporting units' carrying amounts and therefore, goodwill is not impaired. The required continued impairment tests of goodwill may result in future period write-downs. No goodwill amortization was recorded for the three and six months ended June 30, 2001 since there was no goodwill recorded by the Company prior to the acquisition which took place in December 2001 (see Note 3), therefore no pro-forma disclosures are required. As of June 30, 2002, the net book value for goodwill was $1,548,947. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The statement supersedes both SFAS No. 121 and the provisions of Accounting Principles Board Opinion No. 30 that are related to the accounting and reporting for the disposal of a segment of a business. SFAS No. 144 establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. This statement retains most of the requirements in SFAS No. 121 related to the recognition of impairment of long-lived assets to be held and used. However, SFAS No. 144 eliminates the requirement to allocate goodwill to long-lived assets to be tested for impairment. Instead, as previously mentioned, beginning in 2002 the Company will test the impairment of its goodwill under the provisions of SFAS No. 142. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company believes that the adoption of this statement had no material impact on its financial position, cash flows or results of operations. 12 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 3. ACQUISITION: On December 30, 2001, the Company paid a deposit of $800,000 related to a Purchase Agreement to acquire from Euro Tech, Inc. all of the outstanding stock of Euro Tech (U.K.) Private Ltd. (Euro U.K.). Euro U.K. is an information technology consulting company located in the United Kingdom. The total purchase price was $800,000 and the acquisition was effective on January 2, 2002. The purchase price has been allocated as follows: Cash........................................................... $ 10,000 Property and equipment......................................... 40,000 Intangible assets.............................................. 750,000 --------- Net assets acquired............................................ 800,000 Less - Cash acquired........................................... (10,000) --------- Net cash paid for acquisition.................................. $ 790,000 ========= The purchase price allocation is based upon information available at this time and is subject to reallocation. The acquisition has been accounted for as a purchase and the operating results of Euro U.K. have been consolidated with the Company's results since the effective date of the acquisition of January 2, 2002. The purchase price of the acquisition has been allocated to the assets acquired based upon their estimated fair value at the date of acquisition. 4. STOCKHOLDERS' EQUITY: Stock issuance On July 17, 2001 SanVision entered into restricted stock agreements with three entities which include the issuance of 6,183,610 shares of SanVision's common stock for consulting and advisory services provided to it. These agreements included provisions for forfeiture of the shares if a business combination of SanVision and SWWT, Inc. was not completed within a specified period. Since the business combination was completed within the specified period, the Company is recording an expense amount as part of the merger related expenses which is based on the fair value of the shares issued to these entities based on the trading price of SWWT, Inc. common stock. As discussed in Note 1, the combination of SanVision and SWWT, Inc. was effective as of February 1, 2002, at which time the risk of forfeiture on these shares lapsed and these shares and SanVision common stock were converted into 6,135,873 shares of the Company's common stock. As of February 1, 2002, the Company recorded a charge for these shares of $19,328,103 based on the trading price of the Company common stock on that date. 13 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 4. STOCKHOLDERS' EQUITY: Stock options During the three months ended March 31, 2002, the Company granted options to purchase 1,000,000 shares of the Company's common stock at an exercise price of $0.25 per share under the Company's 2000 Stock Incentive Plan (the "Plan"). These options were vested upon grant and have a term of not more than ten years. The grant of these options was approved by the Company's Board of Directors, which is responsible for administering the Plan. Based on the trading price ($4.50) of the Company's common stock on the grant date for these options as compared to the exercise price ($0.25) of the options, the statement of operations reflects a compensation expense charge of $4,250,000 for these options which were vested on the grant date. During the three months ended June 30, 2002, the Company granted options to purchase 500,000 shares of the Company's common stock at an exercise price of $0.25 per share under the Company's 2000 Stock Incentive Plan (the "Plan"). These options were vested 60 days from the date of grant and have a term of not more than ten years. The grant of these options was approved by the Company's Board of Directors, which is responsible for administering the Plan. Based on the trading price ($4.00) of the Company's common stock on the grant date for these options as compared to the exercise price ($0.25) of the options, the statement of operations reflects a compensation expense charge of $1,875,000 for these options. 5. COMMITMENTS: Employment Agreement During June of 2002, the Company entered into a two-year employment agreement with an employee to serve as the Company's Chief Information Officer/Chief Technology Officer at a base salary of $100,000. The agreement also calls for an annual discretionary bonus based upon certain performance objectives. In addition, upon satisfactory performance, the employee received an option to purchase 500,000 shares of the Company's common stock (see Note 4) at an exercise price of $0.25 per share. These options vest 60 days after date of the employment agreement and have a 10-year life from the date of grant. 14 SVT INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) 5. COMMITMENTS (CONTINUED): Line of Credit Per a revised proposed Line of Credit agreement dated May 31, 2002, the Company has a non-contractual line of credit for $3.5 million, with interest at the lender's prime rate or LIBOR plus 2.75%, at the Company's option. Available borrowings under the agreement are based on the lesser of $3.5 million or 75% of eligible accounts receivable, as defined. The proposed line of credit will be secured by all assets of the Company and guaranteed by all subsidiaries of the Company. Under the agreement, the Company is required to maintain compliance with certain financial and non-financial covenants. Furthermore, the agreement places restrictions on additional indebtedness and advances to affiliates, shareholders, and employees. The proposed agreement is scheduled to expire on September 30, 2002 unless renewed. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CURRENT BUSINESS ENVIRONMENT The IT services industry continues to be impacted by the Internet-related downturn starting in early 2000. However, SVT strictly adhered to its target market focus and avoided marketing its services to high-risk "dot-com" start-up businesses, which enabled SVT to avoid significant deterioration in its business. Additionally, SVT's business mix of Managed Services and Application Development has helped it weather the downturn better than many companies that are not as diversified. However, the overall slowdown in the U.S. economy during 2001and 2002 had a major impact on the demand for IT services in general, not only in terms of intense and increasing competition among vendors and pricing pressures from clients, but also drastic budget cutting measures initiated by major corporate customers, which have cancelled or deferred many IT initiatives until the economy improves. In fact, the trend in the marketplace to fund only mission critical IT projects and services and to defer or cancel all other initiatives continues. Another major current trend among customers is to terminate higher priced non-employee consultants and either replace them with new employees or absorb the consultants into permanent positions to reduce costs. SVT also lost some business in 2001, mainly from AIG, its largest customer, which decided not to renew contracts for some of the consultants after the expiration of their contract term or completion of their projects. In some cases, AIG also cancelled projects in midstream and laid-off entire project teams, writing off large amounts of investment. Going forward, management believes that the pressure on IT budgets will continue at least through the fourth quarter of 2002, if not longer. It is likely that more IT services work, including existing and new application development projects, will continue to be shifted offshore, primarily to India. Therefore, the Company will continue its emphasis on new business development and will revamp its off-shore capability. It will focus on mid-sized companies and verticals where we currently have a strong presence to take advantage of our functional knowledge. Further, while SVT is a services company, it is investigating ways where it can generate greater revenue from existing products. In the second quarter of 2002, SVT received a $150,000 grant under the WTC Business Recovery Grant Program as a result of the September 11 terrorist attacks. Management is investigating other grant and tax credit programs for which SVT may qualify. 16

Revenues for the three and six month periods ended June 30, 2002 were $4.4 and $9.2 million, a decrease of $1.4 and $4.1 million, or 24.7% and 30.5%, from $5.8 and $13.3 million for the three and six month periods ended June 30, 2001, respectively. The decline in revenues is mostly attributable to a decline in business with AIG, one of the Company's main clients. Cost of revenues for the three and six month periods ended June 30, 2002 was $3.2 and $7.0 million, a decrease of $1.0 and $2.4 million, or 22.4%, and 26.1%, respectively, reflecting fewer billable consultants from one year ago General and administrative expenses for the three and six month periods ended June 30, 2002 were $1.7 and $2.8 million, an increase of $0.8 and $1.2 million, or 101.6% and 72.3%, from $0.83 and $1.6 million for the three and six month periods ended June 30, 2001, 17 respectively. In the latest quarter SVT took a $200,000 bad debt reserve specifically related to one client. Also, our costs increased this year by about $200,000 due to additional legal and accounting costs incurred because of our public entity status. Stock option compensation expense of $1.875 and $6.125 million for the three and six months ended June 30, 2002 relates to a non-cash charge for the difference between the trading price of the Company's common stock and the exercise price for stock options that were granted to employees during the respective periods. The six month results are heavily impacted by the merger between SWWT, Inc. and SanVision Technology that consummated in the first quarter. Merger-related costs and expenses for the three months ended March 31, 2002 of $18.8 million were incurred related to the combination of SWWT, Inc. and SanVision Technology Inc. These merger costs of $18,542,455 related to the issuance of 6,135,873 shares of the Company's common stock which was contingent on the merger transaction and other professional fees related to the merger of $230,795. Residual merger costs of $34,818 were reflected in the second quarter. The effective tax rate was (1.9)% for the six months ended June 30, 2002 as compared with 45.2% for six months ended June 30, 2001. The effective tax rate for the six months ended June 30, 2002 was significantly impacted by the non-deductible merger-related expenses described above. The tax deduction for these shares was significantly less than the expense charge for financial reporting purposes. In addition, the stock option compensation expense of $6.1 million is not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2002, the Company had net working capital of $3,790,525 comprised primarily of accounts receivable and cash and cash equivalents. SVT historically financed, and the Company continues to finance, its business mainly with cash flow from operations and has not obtained any outside institutional equity funding, such as a venture capital or private equity funding. However, the cash flow from operations varies significantly from month to month primarily due to changes in net income, collection of accounts receivable and tax payments. Net cash provided by operating activities was $2,505,889 for the six months ended June 30, 2002, as compared to $2,553,483 for the six months ended June 30, 2001. The decrease in cash provided by operating activities is due primarily to a significant decrease in sales and related accounts receivable. Per a revised proposed Line of Credit agreement dated May 31, 2002, the Company has a non-contractual line of credit for $3.5 million, with interest at the lender's prime rate or LIBOR plus 2.75%, at the Company's option. Available borrowings under the agreement are based on the lesser of $3.5 million or 75 % of eligible accounts receivable, as defined. The proposed line of credit is secured by all assets of the Company and guaranteed by all subsidiaries of the Company. Under the agreement, the Company is required to maintain compliance with certain financial and non-financial covenants. Furthermore, the agreement 18 places restrictions on additional indebtness and advances to affiliates, shareholders, and employees. The proposed agreement is scheduled to expire on September 30, 2002 unless renewed. Management believes that cash generated from operations and its current cash balance will be sufficient to satisfy its projected working capital and planned capital expenditure requirements for the foreseeable future. However, if SVT requires additional funds to support working capital requirements or for other purposes, it may seek to raise the funds through public or private equity financings or from other sources. Additional financing may not be available, or, if it is available, it may be dilutive or may not be obtainable on acceptable terms. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q report contains forward-looking statements with respect to the financial condition, results of operations and business of SVT, Inc. You can find many of these statements by looking for words like "believes," "expects," "anticipates," "estimates" or similar expressions in this report. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include: o a prolonged continuation or worsening of the recent economic slowdown and its impact on IT budgets, o increasing competition, o SVT's inability to get fundings for any major geographic expansions or external growth, o failure to expand across other industry verticals, o loss of key personnel, and o loss of major existing clients or decrease of business volume with them. Because forward-looking statements are subject to risks and uncertainties, actual results of SVT may differ materially from those expressed or implied in this report. We caution you not to place undue reliance on these statements, which speak only as of the date of this report. All future written and oral forward-looking statement attributable to SVT or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. SVT does not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates in connection with its subsidiary in India. We do not anticipate any material currency risk to the Company's financial condition or results of operations resulting from currency fluctuations. 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The index of exhibits to this report appears after the signature page. (b) SVT filed no Current Reports on Form 8-K during the quarter for which this report is filed. SIGNATURES 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. SVT INC. (Registrant) By: /s/ Michael Bell ---------------------- Michael Bell Chief Financial Officer By: /s/ Dhir Sarin ---------------------- Dhir Sarin Chief Accounting Officer Date: August 19, 2002 21 INDEX OF EXHIBITS EXHIBIT DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of SVT Inc. as of January 31, 2002, filed as Exhibit 3.1 to SVT's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Commission File No. 0-25942), and incorporated herein by reference. 3.2 Amended and Restated By-Laws of SVT Inc. as of August 1, 2000, filed as Exhibit B to SWWT's Definitive Information Statement on Schedule 14C dated July 10, 2000 (Commission File No. 0-25942), and incorporated herein by reference. 10 Employment Agreement dated as of June 1, 2002, between SVT Inc. and Martin Burmeister. 99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 22

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