SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------

                                 F O R M 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, 1997       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
                           ---------------------------

         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 March 20, 1998, was  approximately  $1,038,804.  On such date, the
last sale price of registrant's common stock was $1.125 per share.

         Indicate  number  of  shares  outstanding  of each of the  registrant's
classes of common stock, as of March 20, 1998.

               Class                             Outstanding on March 20, 1998
               -----                             -----------------------------
Common Stock, par value $.001 per share                  3,122,254


                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the proxy  statement  for the  registrant's  1998 Annual  Meeting of
Shareholders,which will be filed with the Securities and Exchange Commission not
later than 120 days after the registrant's fiscal year end of December 31, 1997,
are incorporated by reference into Part III.
<PAGE>
                                     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.  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").  The Company's  principal  office is located at
3492 W. 109th Circle,  Westminster,  Colorado 80030 and its telephone  number is
303/460-8017.

         As a result of the Sale, the Company's only  significant  asset is cash
and cash  equivalents of approximately  $1.4 million,  after payment of expenses
related to the Sale and  management  and severance  bonuses.  The Company has no
further operating  business,  and has reduced its management and  administrative
staff  to one  part-time  employee.  The  Company  plans  to use its cash to pay
ongoing  general  and  administrative  expenses,  which  are  anticipated  to be
minimal, and to seek acquisition candidates. The Board of Directors is exploring
opportunities to effect an acquisition  whether by merger,  exchange or issuance
of capital stock,  acquisition of assets, or other similar business  combination
(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 no
arrangement,  agreement or understanding 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
acquired, the Company may utilize cash, equity, debt or a combination thereof to
increase  the  amount of capital  available  for a  Business  Combination  or to
finance the operation of the acquired  business.  Although the Company  believes
additional capital may be required,  the necessity for and the amount and nature
of any future  borrowings  or other  financings  by the  Company  will depend on
numerous  considerations  including  the  Company's  capital  requirements,  its
perceived  ability  to  service  such  debt  and  prevailing  conditions  in the
financial  markets  and the  general  economy.  No  assurance  can be made  that
additional capital will be available on terms acceptable to the Company.  If the
Company issues additional equity to raise

                                       2
<PAGE>
capital or to acquire a new business,  the  percentage  ownership of the current
shareholders  could be 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  $11,000,000 as of December 31, 1997.  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. Although the Company
and SBC Warburg Dillon Read ("Dillon Read"),  the Company's  financial  advisor,
actively  pursued a joint strategic  alliance to manufacture and market the home
use  product,  the  Company  was unable to locate an  industry  partner for this
product.  Accordingly,  the Company  suspended  its efforts to  manufacture  and
market  the  home  use  product  and  sold the  plans,  designs  and  technology
associated therewith in April 1997.

         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.  The
Company's Outdoor Business consisted of three primary devices:  two microfilters
(the Guardian and the WalkAbout) and one purifier (the Guardian+Plus). Customers
could  continue to use the primary  devices by purchasing  available  recyclable
replacement  filter  cartridges.  Several accessory products were also sold. The
Company's  products were sold in the United States and in eight countries around
the world primarily by independent sales  representatives  to specialty sporting
goods  stores that  specialized  in  backpacking,  hiking,  mountaineering,  and
adventure travel  outfitting.  Over 58% of 1997 sales occurred in the second and
third quarters.  Recreational Equipment,  Inc., a large retailer,  accounted for
37% of 1997 sales;  export sales amounted to approximately  10% of the Company's
1997 sales, primarily to Canada. As a result of its cost containment program and
the suspension of its efforts to manufacture and market a home use product,  the
Company  eliminated its research and development  staff and its  microbiological
staff in the  first  half of 1997.  The  Company's  aggregate  expenditures  for
research and product development for continuing and discontinued  operations for
the years ended 1997,  1996,  and 1995 were $237,000,  $1,029,000,  and $624,000
respectively.
                                        3
<PAGE>
         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 Recovery  Engineering,  Inc.,  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,
(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.

Employees

         Currently,  the Company had no full-time  employees  and one  part-time
employee.  At December 31, 1997,  the Company had 12 full-time  employees,  7 of
whom were involved in manufacturing and assembly, 3 in sales and marketing,  and
2 in general and administrative  functions.  The Company also had 27 independent
sales  representatives who covered fifteen North American sales regions. None of
the Company's  employees were  represented by a labor union or were covered by a
collective  bargaining  agreement and the Company had not  experienced  any work
stoppages.

ITEM 2.  FACILITIES

         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.  The  Company's  lease for 11,500
square feet of office and warehouse  space in Longmont,  Colorado,  which housed
its  administrative  offices and  manufacturing  facility,  was assigned to, and
assumed by, Cascade in connection  with the Sale. The Company's  lease on 21,000
square feet of office and warehouse  space in Longmont,  Colorado was terminated
in August 1997.


ITEM 3.  LEGAL PROCEEDINGS

         In February 1996,  three former  employees of the Company filed charges
of age discrimination  against the Company with the Equal Employment Opportunity
Commission  ("EEOC").  Two of these charges has been  disallowed by the EEOC and
the remaining  charge is under review.  The Company denies such  allegations and
intends to vigorously  defend against such charge of  discrimination.  While the
outcome of  litigation  in general is always  uncertain,  the  Company  does not
believe that these charges will have an adverse effect on the Company's  results
of operations or financial condition.

                                        4
<PAGE>
         In 1996,  the Company  received a  communication  from a patent holder,
which is a  competitor  of the  Company,  offering to license such patent to the
Company with respect to an accessory part of the Guardian and the Guardian+Plus.
Although the Company does 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 believes
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 stockholder  vote during the last
quarter of the fiscal year ended  December  31,  1997.  In the first  quarter of
1998,  the  proposals  to  approve  the  Sale and to amend  the  Certificate  of
Incorporation  to change the Company's  name were submitted to, and approved by,
the stockholders of the Company.


                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED

                  STOCKHOLDER MATTERS

         The Common Stock has been trading in the over-the-counter  market under
the symbol  "SWWT"  since May 14,  1997.  Prior  thereto,  the Common  Stock was
trading on the NASDAQ  Small Cap Market,  with the  exception of the period from
June 22, 1995 through  March 1, 1996,  when the Common  Stock was delisted  from
such market as the Company had fewer than 300 shareholders.  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, 1996 as reported by NASDAQ for
the period in which the Common Stock  traded  thereon and as reported by dealers
appearing as market  makers on the OTC  Bulletin  Board for the periods in which
the  Common  Stock  traded  on the  over-the-counter  market.  These  quotations
represent inter-dealer prices, without retail mark-up,  mark-down or commissions
and do not necessarily  represent actual transactions.  As trading in the Common
Stock has been sporadic and in small volumes since its initial  public  offering
in January 1994,  the Company  cannot be assured that an active  public  trading
market will develop or be  sustained.  The Company  believes  that the number of
beneficial owners was at least 300 as of March 20, 1998.

1997                         HIGH          LOW
First Quarter                0.75          0.50
Second Quarter               0.75          0.50
Third Quarter                0.25          0.125
Fourth Quarter               0.75          0.10

1996
First Quarter                3.75          2.50
Second Quarter               3.32          3.00
Third Quarter                3.00          2.00
Fourth Quarter               2.48          0.32


         The Company has never paid a dividend and does not  anticipate  payment
of dividends in the foreseeable future.

                                        5

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

         The  selected  financial  data  presented  below  for the  years  ended
December  31, 1993  through  December  31, 1997 are derived  from the  financial
statements of the Company, which statements have been audited by Arthur Andersen
LLP,  independent  public  accountants,  as indicated  in their report  included
elsewhere herein. 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".
<TABLE>
<CAPTION>
                             SUMMARY FINANCIAL DATA
                      (in thousands, except per share data)

                                                          Year Ended December 31,
                                                          -----------------------
                                             1997         1996       1995        1994        1993
                                          -------       ------     ------      ------      ------
<S>                                      <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Net Sales ............................          0           0           0           0           0
Costs and Expenses:
   General & Administrative ..........        289         628         249         248          82
   Sales & Marketing .................         56         267        --          --          --
   Research & Development ............        237         908        --          --          --
Operating Income (Loss) ..............       (582)     (1,803)       (249)       (248)        (82)
Other Income, net ....................        246         128          29         139          25
Net (Loss) from Continuing ...........       (336)     (1,675)       (220)       (109)        (57)
    Operations
Net (Loss) from Continuing ...........   $  (0.11)   $  (0.55)   $  (0.11)   $  (0.06)   $  (0.05)
    Operations per Common
    Share - Basic and Diluted
Weighted Average number of
    common shares outstanding (1) ....      3,094       3,065       1,949       1,789       1,123

            December 31,
                                             1997        1996        1995        1994        1993
                                         --------    --------    --------    --------    --------
Balance Sheet Data:
Working Capital ......................   $  1,372    $  2,178    $  5,847    $  3,661    $    853

Total Assets .........................      1,941       3,309       7,506       5,114       1,660
Long Term Debt .......................       --          --           208         371        --
Total Liabilities ....................        569         617         616         910         197
Accumulated earnings (deficit) .......    (11,066)     (9,724)     (5,492)     (2,887)     (1,244)
Stockholder's equity .................      1,372       2,693       6,890       4,204       1,463
<FN>
(1) See Note 2 to  financial  statements  for  information  with  respect to the
calculation of share and per share data.
</FN>
</TABLE>
                                        6

<PAGE>
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, 1993 through  December 31, 1997 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

1997 Compared to 1996 - Continuing Operations

         Net loss from continuing operations decreased by $1,339,000 from a loss
of $1,675,000 or $0.55 per share for the year ended  December 31, 1996 to a loss
of $336,000 or $0.11 per share for the year ended December 31, 1997 primarily as
a result  of the  suspension  of the  Company's  efforts  to  develop a home use
product and the  resulting  sale of assets  associated  with such product in the
second quarter of 1997. Sales and marketing  expense decreased 79% from $267,000
to $56,000,  research and  development  expense  decreased  74% from $908,000 to
$237,000,  and other income increased 92% from $128,000 to $246,000, in the year
ended  December  31, 1996 and 1997,  respectively.  General  and  administrative
expense decreased 54% from $628,000 to $289,000,  in the year ended December 31,
1996 and 1997, respectively.

1997 Compared to 1996 - Discontinued Operations

         Loss on discontinued  operations decreased 67% from $2,557,000 or $0.83
per share to  $849,000 or $0.27 per share for the year ended  December  31, 1996
and 1997,  respectively,  primarily as a result of the cost containment  program
implemented in 1997. In addition, a loss on disposal of discontinued  operations
of $157,000 was recorded in year ended  December 31, 1997  primarily as a result
of a $50,000 estimated loss on discontinued  operations through the closing date
of  the  Sale,  and  $665,000  accrued  transaction  costs  plus  severance  and
management value  appreciation  bonus partially  offset by a $558,000  estimated
gain on sale of assets.

         During the year ended  December  31,  1997,  the  Company  had sales of
$1,638,000,  a decrease of 21%, compared to sales in the year ended December 31,
1996 of  $2,064,000.  This is primarily

                                       7
<PAGE>
due to decreased sales of the Guardian  partially  offset by higher sales of the
WalkAbout.  The Company believes that overall sales of portable water filtration
products in the outdoor  specialty  sporting  goods market  declined  during the
period as a result of the maturation of the market.

         The  gross  margin  of  $340,000  or 21% of sales  for the  year  ended
December  31, 1997 was higher than the prior year gross margin of $103,000 or 5%
of sales,  primarily due to lower  manufacturing  overhead costs  primarily as a
result of the cost containment program implemented in 1997.

         Sales and marketing  expenses for the year ended December 31, 1997 were
$468,000,  a decrease of 57%, compared to $1,079,000 for the year ended December
31, 1996.  This  decrease was due to reduced  staffing  costs as a result of the
cost containment program and reduced advertising and sales aids expenses.

         There were no research and development expenses related to the portable
outdoor water filtration market for the year ended December 31, 1997, a decrease
of $121,000  compared to the year ended December 31, 1996. This decrease was due
to the  Company's  suspension of efforts to design new products for the portable
outdoor water filtration market.

         General and  administrative  expenses  for the year ended  December 31,
1997 were  $771,000  compared to $774,000 for the year ended  December 31, 1996.
Lower staffing costs in 1997 were offset by severance costs  associated with the
reduction in personnel,  the costs associated with terminating  contingent lease
obligations,  and the  allocation of excess  manufacturing  facilities  space to
general and administrative expense.

1996 Compared to 1995 - Continuing Operations

         Net loss from continuing  operations  increased from a loss of $220,000
or $0.11 per share, to a loss of $1,675,000 or $0.55 per share in 1995 and 1996,
respectively.  The increased  loss was primarily due to $908,000 of research and
development  expenditures  for the home use  product  and  increased  investment
banking  fees,  partially  offset by higher  interest  income on higher cash and
marketable securities balances.

         The Company's  operating  expenses increased in 1996 as a result of the
research  and  development  associated  with the  development  of a new home use
product.  The  Company  suspended  its  efforts to  manufacture  and market this
product, reduced its personnel and initiated a cost containment program.

                                        8

<PAGE>
1996 Compared to 1995 - Discontinued Operations

         Net loss on  discontinued  operations  increased 7% from  $2,385,000 or
$1.23 per share in 1995 to $2,557,000  or $0.83 per share in 1996  primarily due
to  $686,000  in  impairment  loss on the value of fixed  assets and  intangible
assets  of the  outdoor  business,  offset  by lower  research  and  development
expenses.

         Sales  decreased  5% from  $2,163,000  in 1995  to  $2,064,000  in 1996
primarily  due to lower  Guardian unit sales  partially  offset by both a higher
selling  price  for  the  Guardian,  higher  Guardian+Plus  unit  sales  and the
introduction of the new  WalkAbout(TM)  microfilter.  The Company  believed that
overall sales of portable  water  filtration  products in the outdoor  specialty
sporting goods market  declined during the year as a result of the maturation of
such  market.  The  Company  believed  that any  future  sales  growth for these
products  will depend on the ability of the Company and other  manufacturers  to
expand the market and to develop larger distribution  channels,  such as general
sporting goods stores and mass merchants.  As general  sporting goods stores and
mass  merchants  have only  recently  begun to sell the  product  category,  the
Company cannot be assured that the market for such products will expand.

         Gross  margin of  $103,000  in 1996 was lower than the prior year gross
margin of $232,000  primarily due to lower sales of higher  margin  Guardian and
accessory products.

         Sales and marketing  expenses  decreased 1% from  $1,090,000 in 1995 to
$1,079,000 in 1996 primarily due to decreased  trade show costs offset by higher
sales commissions to the sales force for the portable outdoor product line.

         Research and development  expenses  decreased 81% from $624,000 in 1995
to $121,000 in 1996  primarily  due to the  Company's  decreased  investment  in
research and development associated with products for the portable outdoor water
filtration market.

         General and administrative expenses decreased 14% from $903,000 in 1995
to $774,000 in 1996 primarily as a result of lower legal expenses.

Liquidity and Capital Resources

         Cash and cash equivalents and short term  investments  decreased by 50%
from  $1,921,000 at December 31, 1996 to $968,000 at December 31, 1997 primarily
due to funding continued operating losses in 1997.

     Since its  inception,  the Company has been  engaged  primarily  in product
development  and has  incurred  operating  losses  resulting  in an  accumulated
deficit of approximately  $11,000,000 as of December 31, 1997.  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
                                       9
<PAGE>
realized proceeds of approximately $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 seek
acquisition candidates.  Depending on the size and nature of the entity, if any,
which  may be  acquired,  the  Company  may  utilize  cash,  equity,  debt  or a
combination  thereof to increase the amount of capital  available for a Business
Combination or to finance the operation of the acquired  business.  Although the
Company believes  additional capital may be required,  the necessity for and the
amount and nature of any future  borrowings  or other  financings by the Company
will  depend  on  numerous   considerations   including  the  Company's  capital
requirements,  its  perceived  ability  to  service  such  debt  and  prevailing
conditions in the financial markets and the general economy. No assurance can be
made that  additional  capital  will be  available  on terms  acceptable  to the
Company.


                                       10
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS



                          INDEX TO FINANCIAL STATEMENTS



                                                                       Page
                                                                       ----

Report of Independent Public Accountants                                F-2

Balance Sheets                                                          F-3

Statements of Operations                                                F-5

Statements of Stockholders' Equity                                      F-6

Statements of Cash Flows                                                F-7

Notes to Financial Statements                                           F-9


                                       11
<PAGE>

                      SWWT, INC.

                      FINANCIAL STATEMENTS
                      AS OF DECEMBER 31, 1997 AND 1996
                      TOGETHER WITH REPORT OF INDEPENDENT
                          PUBLIC ACCOUNTANTS



<PAGE>

                          INDEX TO FINANCIAL STATEMENTS


                                                                 Page
                                                                 ----

Report of Independent Public Accountants                         F-2

Balance Sheets                                                   F-3

Statements of Operations                                         F-5

Statements of Stockholders' Equity                               F-6

Statements of Cash Flows                                         F-7

Notes to Financial Statements                                    F-9



                                       F-1
<PAGE>


                    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, 1997 and 1996, and
the related  statements of operations,  stockholders'  equity and cash flows for
each of the three years in the period ended December 31, 1997.  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,
1997 and 1996,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  1997,  in  conformity  with
generally accepted accounting principles.




Denver, Colorado,                                        ARTHUR ANDERSEN LLP
 February 24, 1998.


                                       F-2
<PAGE>
                                                                     Page 1 of 2



                                SWEETWATER, INC.
                                ----------------
<TABLE>
<CAPTION>
                                 BALANCE SHEETS
                                 --------------

                                                                December 31,
                                                             -----------------
                                       ASSETS                1997         1996
                                       ------                ----         ----
<S>                                                      <C>          <C>
CURRENT ASSETS:
    Cash and cash equivalents ........................   $  968,076   $1,479,937
    Short-term investments ...........................         --        440,659
    Accounts receivable, less allowance for doubtful
       accounts of $35,000 in 1996 ...................         --        132,446
    Inventory, net of reserve for obsolescence of
       $205,000 in 1996 ..............................         --        690,231
    Prepaids and other current assets ................        2,476       51,288
    Net assets of discontinued operations ............      970,497         --
                                                         ----------   ----------
              Total current assets ...................    1,941,049    2,794,561
                                                         ----------   ----------
FIXED ASSETS (Note 1):
    Equipment, furniture and fixtures ................         --        475,000
    Less- Accumulated depreciation ...................         --           --
                                                         ----------   ----------
              Total fixed assets .....................         --        475,000
                                                         ----------   ----------
OTHER ASSETS:
    Deposits and other, net ..........................         --         39,921
                                                         ----------   ----------
              Total assets ...........................   $1,941,049   $3,309,482
                                                         ==========   ==========
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
balance sheets.

                                      F-3
<PAGE>
                                                                     Page 2 of 2


                                SWEETWATER, INC.
                                ----------------
<TABLE>
<CAPTION>
                                 BALANCE SHEETS
                                 --------------

          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------

                                                                             December 31,
                                                                             ------------
                                                                           1997           1996
                                                                           ----           ----
<S>                                                                 <C>             <C>
CURRENT LIABILITIES:
    Accounts payable and accrued liabilities ....................   $    246,464    $    493,356
    Accrued salaries and employee benefits ......................        165,620          92,982
    Accrued warranty costs and other ............................           --            30,630
    Accrued loss for disposal of discontinued operations ........        156,997            --
                                                                     -----------    ------------
              Total liabilities .................................        569,081         616,968
                                                                     -----------    ------------

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY:
    Common stock, $.001 par value;  8,000,000 shares  authorized;
     3,115,918 and 3,067,382  shares issued and  outstanding
     at December 31, 1997 and 1996, after deducting
     128,941 and 126,606 shares held in treasury, respectively ..          3,116           3,068
    Deferred compensation .......................................           --           (12,366)
    Additional paid-in capital ..................................     12,434,873      12,425,783
    Accumulated deficit .........................................    (11,066,021)     (9,723,971)
                                                                    ------------    ------------
              Total stockholders' equity ........................      1,371,968       2,692,514
                                                                    ------------    ------------
              Total liabilities and stockholders' equity ........   $  1,941,049    $  3,309,482
                                                                    ============    ============

</TABLE>

The  accompanying  notes to financial  statements  are an integral part of these
balance sheets.

                                      F-4
<PAGE>

                                   SWEETWATER, INC.
                                   ----------------
<TABLE>
<CAPTION>
                               STATEMENTS OF OPERATIONS
                               ------------------------

                                                                For the Years Ended December 31,
                                                                --------------------------------
                                                              1997           1996           1995
                                                              ----           ----           ----
<S>                                                      <C>            <C>            <C>
NET SALES ............................................   $      --      $      --      $      --

                                                         -----------    -----------    -----------
OPERATING EXPENSES:
    Sales and marketing ..............................        55,910        267,332           --
    Research and development .........................       236,673        907,945           --
    General and administrative .......................       289,429        627,794        249,029
                                                         -----------    -----------    -----------
              Total operating expenses ...............       582,012      1,803,071        249,029
                                                         -----------    -----------    -----------
INCOME (LOSS) FROM OPERATIONS ........................      (582,012)    (1,803,071)      (249,029)
                                                         -----------    -----------    -----------
OTHER INCOME (EXPENSE):
    Gain on sale of technology and fixed assets ......       202,497           --             --
    Interest income ..................................        46,870        161,222        122,205
    Interest expense and other .......................        (3,536)       (33,138)       (93,344)
                                                         -----------    -----------    -----------
                                                             245,831        128,084         28,861
                                                         -----------    -----------    -----------
NET (LOSS) FROM CONTINUING
    OPERATIONS .......................................      (336,181)    (1,674,987)      (220,168)

(LOSS) FROM DISCONTINUED OPERATIONS ..................      (848,872)    (2,557,288)    (2,385,000)

(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) ...........................................   $(1,342,050)   $(4,232,275)   $(2,605,168)
                                                         ===========    ===========    ===========

INCOME (LOSS) PER COMMON SHARE -
    BASIC AND DILUTED
       Net (loss) ....................................   $     (0.43)   $     (1.38)   $     (1.34)
                                                         ===========    ===========    ===========
       (Loss) from continuing operations .............   $     (0.11)   $     (0.55)   $     (0.11)
                                                         ===========    ===========    ===========
       (Loss) from discontinued operations ...........   $     (0.27)   $     (0.83)   $     (1.23)
                                                         ===========    ===========    ===========
       (Loss) from disposal of discontinued operations   $     (0.05)   $      --      $      --
                                                         ===========    ===========    ===========

WEIGHTED AVERAGE SHARES
    OUTSTANDING ......................................     3,094,330      3,065,311      1,948,946
                                                         ===========    ===========    ===========
</TABLE>

Theaccompanying  notes to  financial  statements  are an integral  part of these
statements.

                                       F-5
<PAGE>
                                                                     Page 1 of 2
                                SWEETWATER, INC.
                                ----------------
<TABLE>
<CAPTION>
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                       ----------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
              ----------------------------------------------------

                                                              Common Stock                    Additional
                                                              ---------------     Deferred      Paid-in     Accumulated
                                                           Shares      Amount   Compensation    Capital       Deficit      Total
                                                           ------      ------   ------------    -------       -------      -----
<S>                                                      <C>         <C>         <C>         <C>          <C>           <C>
BALANCES, December 31, 1994 ...........................  1,802,786   $  1,803    $(48,826)   $ 7,137,693  $ (2,886,528) $ 4,204,142

    Treasury stock purchase on February 28, 1995
     from a stockholder, at cost ......................    (34,375)       (34)       --          (15,950)         --        (15,984)
    Issuance of treasury stock ........................        300       --          --            1,725          --          1,725
    Stock options exercised ...........................        800          1       2,534         (2,163)         --            372
    Common stock issued in November 1995 in a private
     placement offering, at $4.00 per share, net of
     offering costs of approximately $73,000 ..........  1,335,078      1,335        --        5,265,791          --      5,267,126
    Common stock issued to 401(k) plan ................      5,726          6        --           22,905          --         22,911
    Treasury stock purchase on December 11, 1995
     from a stockholder, at cost ......................    (45,786)       (46)       --           (2,701)         --         (2,747)
    Amortization of deferred compensation expense .....       --         --        17,438           --            --         17,438
    Net loss ..........................................       --         --          --             --      (2,605,168)  (2,605,168)
                                                       -----------   --------    --------    -----------  ------------  -----------
BALANCES, December 31, 1995 ...........................  3,064,529      3,065     (28,854)    12,407,300    (5,491,696)   6,889,815

    Common stock issued to 401(k) Plan ................      9,969         10        --           31,903          --         31,913
    Amortization of deferred compensation expense .....       --         --        16,488           --            --         16,488
    Treasury stock purchase on September 13, 1996
     from a stockholder, at cost ......................     (7,116)        (7)       --             (420)         --           (427)
    Common stock issuance cost ........................       --         --          --          (13,000)         --        (13,000)
    Net loss ..........................................       --         --          --             --      (4,232,275)  (4,232,275)
                                                       -----------   --------    --------    -----------  ------------  -----------
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
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                      F-6
<PAGE>

                                                                     Page 1 of 2

                                SWEETWATER, INC.
                                ----------------
<TABLE>
<CAPTION>
                            STATEMENTSOF CASH FLOWS
                            -----------------------



                                                                               For the Years Ended
                                                                                  December 31,
                                                                        ---------------------------------
                                                                        1997          1996           1995
                                                                        ----          ----           ----

<S>                                                               <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ..................................................   $(1,342,050)   $(4,232,275)   $(2,605,168)
    Adjustments to reconcile net loss to net cash used
       in operating activities-
          Depreciation and amortization .......................       174,783        442,948        353,942
          Impairment loss .....................................          --          685,838           --
          Gain on sale of technology and fixed assets .........      (202,497)          --             --
          Amortization of deferred compensation expense .......          --           16,488         17,438
          Conversion of interest payable to common stock ......          --             --           15,308
          Issuance of treasury stock to 401(k) Plan ...........        21,644         31,913         22,911
          Accrued loss for disposal of discontinued operations        156,997           --             --
    Changes in assets and liabilities-
       Accounts receivable ....................................          --          (74,624)        54,824
       Inventory - ............................................       429,832       (518,598)
       Prepaids and other current assets ......................        48,812         54,130          9,896
       Deposits and other .....................................          --          (13,762)       (31,631)
       Accounts payable and accrued liabilities ...............      (246,892)       235,191        (47,825)
       Accrued salaries and employee benefits .................        72,638         66,300        (30,612)
       Accrued warranty costs and other .......................          --           15,524        (11,149)
       Net change in operating assets of
          discontinued operations .............................       171,294           --             --
                                                                  -----------    -----------    -----------
              Net cash used in operating activities ...........    (1,145,271)    (2,342,497)    (2,770,664)
                                                                  -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of fixed assets .................................          --         (379,784)      (657,566)
    Purchase of fixed assets related to discontinued operations       (36,183)          --             --
    Proceeds from sale of technology ..........................       229,074           --             --
    Purchases of short-term investments .......................          --             --       (5,400,577)
    Proceeds from sales of short-term investments .............       440,659      4,020,238      3,621,823
                                                                  -----------    -----------    -----------
              Net cash provided by (used in)
                 investing activities .........................       633,550      3,640,454     (2,436,320)
                                                                  -----------    -----------    -----------
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                      F-7
<PAGE>


                                                                     Page 2 of 2

                                SWEETWATER, INC.
                                ----------------
<TABLE>
<CAPTION>
                            STATEMENTS OF CASH FLOWS
                            ------------------------
                                                                     For the Years Ended
                                                                          December 31,
                                                              ----------------------------------
                                                              1997            1996          1995
                                                              ----            ----          ----
<S>                                                      <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from borrowings under term loan agreement   $      --      $      --      $   877,708
    Payments on borrowings under term loan agreement .          --         (315,924)    (1,081,838)
    Proceeds from convertible note payable ...........          --             --        1,500,000
    Proceeds from issuance of common stock,
       net of stock issuance costs ...................          --          (13,000)     3,751,818
    Repurchase of common stock .......................          (140)          (427)       (18,731)
    Sale of treasury stock ...........................          --             --            1,725
    Proceeds from exercise of stock options ..........          --             --              372
                                                         -----------    -----------    -----------
              Net cash (used in) provided by financing
                 activities ..........................          (140)      (329,351)     5,031,054
                                                         -----------    -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH
    EQUIVALENTS ......................................      (511,861)       968,606       (175,930)

CASH AND CASH EQUIVALENTS, beginning of period .......     1,479,937        511,331        687,261
                                                         -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, end of period .............   $   968,076    $ 1,479,937    $   511,331
                                                         ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES:
       Conversion of interest payable to common stock    $      --      $      --      $    15,308
                                                         ===========    ===========    ===========
       Conversion of notes payable to common stock ...   $      --      $      --      $ 1,500,000
                                                         ===========    ===========    ===========
       Cash paid for interest ........................   $     3,536    $    29,875    $    81,045
                                                         ===========    ===========    ===========
       Unearned balance of deferred compensation plan    $    12,366    $      --      $      --
                                                         ===========    ===========    ===========
</TABLE>
The  accompanying  notes to financial  statements  are an integral part of these
statements.

                                      F-8
<PAGE>
                                SWEETWATER, INC.
                                ----------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                                DECEMBER 31, 1997
                                -----------------


(1)     BUSINESS, DISCONTINUED OPERATIONS, ASSET
        ----------------------------------------
           IMPAIRMENT AND CONTINUING OPERATIONS
           ------------------------------------
SWWT, Inc., formerly known as SweetWater,  Inc. (the "Company"), has 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 have
been principally  marketed to outdoor supply retailers across the United States.
A significant  portion of the Company's revenues have been derived from sales to
one national outdoor supply retailer (Note 6).

Since its inception,  the Company has incurred significant  operating losses and
cash flow deficits  resulting in an accumulated  deficit of approximately  $11.1
million as of December 31, 1997. 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

                                      F-9
<PAGE>
and realized net proceeds of approximately  $210,000. The Company had no amounts
capitalized related to this product.

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.  The
effect  of the sale is  detailed  in the Pro  Forma  Balance  Sheet  information
included in Note 10. Upon closing, the Company changed its name to SWWT, Inc.

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

                                      F-10
<PAGE>
performance  bonuses  and a right of  first  refusal  to  purchase  the  Outdoor
Business  under  certain  conditions.  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  years  ended  1997,  1996  and  1995 of
approximately $1,638,000, $2,064,000 and $2,163,000, respectively.

       Impairment Loss Recognized in 1996
       ----------------------------------
Long-lived  assets held and used in the Company's  portable water filtration and
purification  business,  including certain  manufacturing  equipment and related
intangible  assets,  were  reviewed for possible  impairment  because  events or
changes in the Company's circumstances, as described above, indicated that their
carrying  amounts may not be recoverable.  An impairment loss was recognized and
the net book value of such assets was reduced based on the Company's estimate of
the fair market  value of such  assets.  The  Company's  estimate of fair market
value was based on third party  estimates as well as the  Company's  estimate of
future  cash flows to be  generated  from the use of such  assets.  As a result,
during 1996, the Company  recorded an impairment  loss of $685,838.  The related
assets were reflected in the accompanying balance sheets at their estimated fair
market value of $475,000 as of December 31, 1996.

       Continuing Operations
       ---------------------
Immediately  after closing the Sale  Transaction and paying related and retained
liabilities,  the Company's assets will be 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

                                      F-11
<PAGE>
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 which the Board believes may have
significant growth potential.

In the statements of operations for the years ending December 31, 1997, 1996 and
1995,  the remaining  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.  The remaining  financial  statement  balances  represent the Company's
general and  administrative  overhead  not  attributable  to either the portable
Outdoor  Business  or the indoor  home use  products  and  technology.  Salaries
attributable  to corporate  general and  administrative  expenses  were $70,000,
$70,000 and  $70,000 for the years ended  December  31,  1997,  1996,  and 1995,
respectively.

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       ------------------------------------------
       Basis of Presentation
       ---------------------
The balance sheet as of December 31, 1997 and the  statements of operations  for
the three years ending  December 31, 1997 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.

                                      F-12
<PAGE>
       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,  1997,  the  Company's  cash and cash
equivalents  consisted of demand deposits and money market accounts in banks and
other financial institutions, which approximated market value.

       Short-Term Investments
       ----------------------
Short-term  investments consist of U.S. Federal  Government,  Federal Government
Agency-backed  securities and corporate  notes with  maturities of less than one
year.  These  securities  are  classified as  "held-to-maturity"  investments as
defined by Statement of Financial  Accounting Standards No. 115, "Accounting for
Certain  Investments in Debt and Equity Securities." At December 31, 1996, these
securities  had an amortized  cost basis of $440,659 , which  approximated  fair
value. No such securities were held as of December 31, 1997.

       Inventory
       ---------
Inventory is stated at the lower of cost  (first-in,  first-out) or market,  and
consists  primarily of component parts,  including  filter  accessories and pump
assemblies.  Finished  goods include  material  costs,  labor and  manufacturing
overhead.  Inventory,  included  in net  assets of  discontinued  operations  at
December 31, 1997, consists of the following at December 31, 1997 and 1996.

                                      F-13
<PAGE>


                                           1997        1996
                                           ----        ----
     Raw materials ..................   $ 382,371    $ 669,736
     Finished goods .................     436,729      225,495
                                          -------      -------
                                          819,100      895,231
     Less- Reserve for obsolescence      (185,000)    (205,000)
                                         --------     --------
                                        $ 634,100    $ 690,231
                                        =========    =========


       Fixed Assets
Depreciation of fixed assets is computed on a straight-line  basis over a period
of one to three years.  Replacements,  renewals and improvements are capitalized
and costs for repairs and maintenance are expensed as incurred.

       Revenue Recognition
Revenue is generally recorded upon passage of title when the product is shipped.

       Research and Development
Research and development costs are expensed as incurred and consist primarily of
salaries, supplies, depreciation and contract services.

       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 (Note7).

         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.

       Loss Per Share
In February  1997,  the Financial  Accounting  Standards  Board  (FASB),  issued
Statement of Financial  Accounting  Standards  No.128,  Earnings Per Share. This
statement  establishes  new standards for computing and presenting  earnings per
share and, as  required,  has been adopted  retroactively  by the Company in the
accompanying  financial  statements.  Adoption of the  standard  had no material
impact  on  reported  earnings  per  share  and  required  financial   statement
disclosures. Outstanding options and warrants for the Companys common stock have
been  excluded  from  the  computations  of  earnings  per  share  as  they  are
antidilutive for the periods presented.

       Use of Estimates
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.

       Asset Impairment
The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial  Accounting  Standards  No.121,   Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFASNo. 121). The
Company  reviews  its  assets  for  impairment  whenever  events or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  For assets which are held and used in operations,  the asset would
be impaired if the  undiscounted  future cash flows related to the asset did not
exceed  the net book  value.  As  discussed  more  fully in Note 1, the  Company
reviewed its long-lived assets for impairment and recorded an impairment loss of
$685,838 for the year ended  December 31, 1996 related to its equipment  used in
operations and intangible  assets. The impairment charge is included in the loss
from discontinued operations for 1996.

(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
(Note5).

       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 October 1993,  the Company  adopted a Stock Option Plan (the Plan) to provide
directors, officers, employees and consultants options to purchase up to 250,000
shares of the Companys  common stock.  Under the terms of the Plan, the Board of
Directors may grant either nonqualified or incentive stock options as defined by
the Internal Revenue Service.  The purchase price of shares subject to incentive
stock options is the fair market value of the Companys  common stock on the date
of grant. The purchase price of a nonqualified  option must not be less than the
par value of the stock.  If the grantee owns more than 10% of the total combined
voting power or value of all classes of stock on the date of grant, the purchase
price of an  incentive  stock  option  must be at least 110% of the fair  market
value at the date of grant and the exercise  term cannot  exceed five years from
the date of grant.  All other options  granted under the Plan are exercisable up
to 10 years from the date of grant.  The Board of Directors has determined  that
the options outstanding will vest 25% over the first year with the remaining 75%
vesting on a straight-line basis over the remaining 36 months. If the employment
of a participant  is terminated  for any reason other than death or  disability,
any stock options then held by the participant  which are currently  exercisable
shall remain  exercisable  after the  termination  of employment for a period of
three months, but no later than the specified expiration date.

In addition to the Stock Option Plan, the Company has issued non-plan options to
certain  directors,  officers,  employees and consultants since 1993. As part of
the Form S-8 Registration  Statement filed in April 1996, the Company registered
an aggregate  382,915 shares  reserved for issuance  pursuant to non-plan option
agreements  with certain named  individuals as well as the 250,000 shares of the
Plan.  The  non-plan  options  primarily  vest over a  four-year  period with an
approximate  20% to 60% vesting on the date of grant with the remaining  vesting
on a straight-line basis.

In April 1994, the Company granted an option to purchase 17,000 shares of common
stock at a purchase  price of $8.125 per share to each of its five  non-employee
directors.  Each  option  became  exercisable  with  respect to 5,000  shares on
July13,  1994; an additional 3,000 shares became  exercisable on April25,  1995,
and on each  subsequent  anniversary  thereof.  On November7,  1995, the Company
canceled all non-exercisable  options (9,000 options per non-employee  director)
and issued  240,000  additional  options to purchase  shares of common  stock at
$4.00 per share.  A directors  ability to exercise  the option is limited in the
event he ceases to be a  director.  No  options  have been  exercised  under the
non-employee director stock option plan to date.

In conjunction with the Sale Transaction,  all unexercised stock options held by
employees,  directors  and  consultants  expired on  February6,  1998.  No stock
options were exercised subsequent to yearend.


Fixed Assets
------------

Depreciation of fixed assets is computed on a straight-line  basis over a period
of one to three years.  Replacements,  renewals and improvements are capitalized
and costs for repairs and maintenance are expensed as incurred.

Revenue Recognition
-------------------
Revenue is generally recorded upon passage of title when the product is shipped.


Research and Development
------------------------

Research and development costs are expensed as incurred and consist primarily of
salaries, supplies, depreciation and contract services.

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

                                      F-14
<PAGE>
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 7).


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.

Loss Per Share
---------------
In February 1997, the Financial  Accounting  Standards  Board  ("FASB"),  issued
Statement of Financial  Accounting Standards No. 128, "Earnings Per Share." This
statement  establishes  new standards for computing and presenting  earnings per
share and, as  required,  has been adopted  retroactively  by the Company in the
accompanying  financial  statements.  Adoption of the  standard  had no material
impact  on  reported  earnings  per  share  and  required  financial   statement
disclosures.  Outstanding  options and warrants for the  Company's  common stock
have been  excluded  from the  computations  of  earnings  per share as they are
antidilutive for the periods presented.

Use of Estimates
----------------

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

                                      F-15
<PAGE>
date of the  financial  statements,  and the  reported  amounts of  revenue  and
expense  during the  reporting  period.  Actual  results could differ from those
estimates.

Asset Impairment
-----------------
The  Financial  Accounting  Standards  Board  ("FASB")  has issued  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121").
The Company  reviews  its assets for  impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  For assets which are held and used in operations,  the asset would
be impaired if the  undiscounted  future cash flows related to the asset did not
exceed  the net book  value.  As  discussed  more  fully in Note 1, the  Company
reviewed its long-lived assets for impairment and recorded an impairment loss of
$685,838 for the year ended  December 31, 1996 related to its equipment  used in
operations and intangible  assets. The impairment charge is included in the loss
from discontinued operations for 1996.

(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 (Note 5).

                                      F-16


<PAGE>

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 October 1993, the Company adopted a Stock Option Plan (the "Plan") to provide
directors, officers, employees and consultants options to purchase up to 250,000
shares of the Company's common stock.  Under the terms of the Plan, the Board of
Directors  may grant  either  "nonqualified"  or  "incentive  stock  options" as
defined by the Internal Revenue Service. The purchase price of shares subject to
incentive  stock options is the fair market value of the Company's  common stock
on the date of grant.  The purchase price of a  nonqualified  option must not be
less than the par value of the stock.  If the grantee  owns more than 10% of the
total  combined  voting  power or value of all  classes  of stock on the date of
grant,  the purchase price of an incentive stock option must be at least 110% of
the fair market value at the date of grant and the exercise  term cannot  exceed
five years from the date of grant.  All other options granted under the Plan are
exercisable  up to 10 years from the date of grant.  The Board of Directors  has
determined that the options  outstanding  will vest 25% over the first year with
the remaining 75% vesting on a straight-line basis over the remaining 36 months.
If the employment of a participant is terminated for any reason other than death
or  disability,  any  stock  options  then  held by the  participant  which  are
currently   exercisable  shall  remain  exercisable  after  the  termination  of
employment  for a  period  of three  months,  but no  later  than the  specified
expiration date.

                                      F-17

<PAGE>

In addition to the Stock Option Plan, the Company has issued non-plan options to
certain  directors,  officers,  employees and consultants since 1993. As part of
the Form S-8 Registration  Statement filed in April 1996, the Company registered
an aggregate  382,915 shares  reserved for issuance  pursuant to non-plan option
agreements  with certain named  individuals as well as the 250,000 shares of the
Plan.  The  non-plan  options  primarily  vest over a  four-year  period with an
approximate  20% to 60% vesting on the date of grant with the remaining  vesting
on a straight-line basis.

In April 1994, the Company granted an option to purchase 17,000 shares of common
stock at a purchase  price of $8.125 per share to each of its five  non-employee
directors.  Each option became  exercisable with respect to 5,000 shares on July
13, 1994; an additional  3,000 shares became  exercisable on April 25, 1995, and
on each  subsequent  anniversary  thereof.  On  November  7, 1995,  the  Company
canceled all non-exercisable  options (9,000 options per non-employee  director)
and issued  240,000  additional  options to purchase  shares of common  stock at
$4.00 per share.  A director's  ability to exercise the option is limited in the
event he ceases to be a  director.  No  options  have been  exercised  under the
non-employee director stock option plan to date.

In conjunction with the Sale Transaction,  all unexercised stock options held by
employees,  directors  and  consultants  expired on February  6, 1998.  No stock
options were exercised subsequent to yearend.

                                      F-18
<PAGE>
<TABLE>
<CAPTION>
                                                               Number of Shares
                                                               ----------------
                                                          Officers          Employees
                                                             and               and        Per Share
                                                          Directors          Others     Exercise Price
                                                          ---------          ------     --------------
<S>                                                    <C>               <C>           <C>
         Balance, December 31, 1994                       166,667            37,916    $  .47- $8.125

             Granted                                      360,250            52,277    $  1.00- $4.00
             Exercised                                   -                     (800)   $     .47
             Canceled                                     (45,000)             (867)   $  .47- $8.125
                                                       ----------        ----------       ---------------

         Balance, December 31, 1995                       481,917            88,526    $  .47- $8.125

             Granted                                       50,000            53,400             $4.00
             Exercised                                   -                    -                    -
             Canceled                                     (31,000)           (5,776)            $4.00
                                                       ----------        ----------    --------------
         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
                                                          =======          ========     =============

         Exercisable at December 31, 1997                 306,462            22,227    $  .50- $8.125
                                                          =======          ========     =============
</TABLE>
The exercise  prices for the options to purchase  514,339 shares of common stock
include 25,000 shares at $0.50,  2,000 shares at $1.00,  447,339 shares at $4.00
and 40,000 shares at $8.125. The exercise prices for the exercisable  options to
purchase  328,689 shares of common stock include  25,000 shares at $0.50,  1,000
shares at $1.00, 262,689 shares at $4.00 and 40,000 shares at $8.125.

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

                                      F-19
<PAGE>
stock  on the  date  of  grant.  The  Company  adopted  Statement  of  Financial
Accounting Standards No. 123, "Accounting for Stock-Based  Compensation," ("SFAS
123") for disclosure purposes in 1996. For SFAS 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,
                                       ---------------------------------------
                                       1997              1996             1995
                                       ----              ----             ----

       Risk-free interest rate         5.36%             5.96%            5.57%
       Dividend rate                      0%                0%               0%
       Expected volatility           116.26%           116.26%           82.51%
       Expected life               3.0 years         4.0 years        3.0 years

Using these  assumptions,  the fair value of the stock options  granted in 1997,
1996 and 1995 was  approximately  $9,401 or $0.37 per option,  $263,575 or $2.55
per  option and  $757,232  or $1.84 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  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,
                                            --------------------------------
                                            1997          1996          1995
                                            ----          ----          ----
        Net loss:
           As reported                   $ (1,342)      $(4,232)      $(2,605)
           Pro forma                     $ (1,607)      $(4,476)      $(2,641)

        Net loss per common share:
           As reported                   $  (0.43)      $(1.38)       $(1.34)
           Pro forma                     $   (.52)      $(1.46)       $(1.36)

                                      F-20
<PAGE>
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 (Note 5).

(5)    RELATED PARTY TRANSACTIONS
       --------------------------
In September 1995, a stockholder purchased a $1,500,000 Convertible Subordinated
Promissory  Note and a Warrant to purchase  88,435  shares of common stock at $4
per share for a total purchase  price of $1,500,000.  In November 1995, the note
and  related  interest  accrued at the prime rate were  converted  into  378,828
shares of common stock in connection with the private placement of common stock.
The warrant has not been exercised and expires in September 2000.

In 1996,  the Company  retained a financial  advisor as its  exclusive  agent to
pursue certain financial and strategic  objectives of the Company. A director of
the Company is also a managing director of this financial advisor.  Amounts paid
to this financial advisor during 1996 totaled approximately $350,000.

(6)    MAJOR CUSTOMERS AND SUPPLIERS
       -----------------------------
During 1997, 1996 and 1995 sales to one customer represented  approximately 37%,
31% and 36% of total sales for those years, respectively.

(7)    INCOME TAXES
       ------------
As of December  31, 1997 and 1996,  the Company had net  operating  loss ("NOL")
carryforwards  for tax  purposes of  approximately  $9,600,000  and  $8,200,000,
respectively.  Based on an  effective  tax rate of 38%,  the  Company's  related
deferred tax assets were approximately  $3,600,000 and $3,100,000 as of December
31, 1997 and 1996,  respectively.  The NOL carryovers  expire from the year 2006

                                      F-21
<PAGE>
through the year 2011. 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  $4,125,000 and $3,633,000 of net
deferred  tax assets as of  December  31,  1997 and 1996,  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.

The  components of the net deferred tax assets as of December 31, 1997 and 1996,
were as follows:

                                                 1997            1996
                                                 ----            ----

Net operating loss carryforwards ........   $ 3,600,000    $ 3,100,000

Capitalization of organization and
start up costs for tax purposes .........        42,000         86,000

Depreciation ............................        14,000          6,000

Accruals not deducted for tax purposes ..       148,000        180,000

Asset impairment ........................       261,000        261,000

Loss on disposal for discontinued options        60,000           --

Less- Valuation allowance ...............    (4,125,000)    (3,633,000)
                                             ----------     ----------
                                             $      -       $       -
                                             ==========     ==========

(8) 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 has 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 may also elect to make discretionary  contributions.  Employees vest
in Company contributions over six years of service with the Company. Forfeitures

                                      F-22

<PAGE>
of the unvested  portion are  allocated to the  remaining  employees in the plan
proportionately,  based upon current year  compensation.  During 1997, 1996, and
1995,  50,871  and 9,969 and 5,726  respectively,  shares of common  stock  were
issued to the 401(k) plan.

(9) COMMITMENTS AND CONTINGENCIES
    -----------------------------


In August 1997,  the Company  entered into a new lease which  commenced  October
1997, and will continue for a three year period unless canceled  between June 1,
1998 and July 15, 1998. Upon consummation of the Sale Transaction, the lease was
assigned to, and assumed by, Cascade. Minimum future lease obligations under the
new lease would have been  $6,011 per month for the period from  October 1, 1997
through June 1, 1998, and, if the lease continued,  after June 1, 1998,  minimum
future lease  obligations would have been $6,011 per month through September 30,
1998;  $6,191 per month from October 1, 1998  through  September  30, 1999;  and
$6,377 per month from October 1, 1999 through  September 30, 2000. The Company's
new  Corporate  headquarters  is 3492 West 109th Circle,  Westminster,  Colorado
80030.

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.

                                      F-23
<PAGE>



(10) PRO FORMA FINANCIAL INFORMATION
     -------------------------------
The following pro forma financial information gives effect to the Sale of Assets
to Cascade Designs, Inc. on February 6, 1998 ("Sale Transaction"). The Pro Forma
Balance  Sheet gives  effect to the Sale  Transaction  as if it had  occurred on
December 31, 1997.
<TABLE>
<CAPTION>
                                                                               Pro Forma
                                                December 31,     Pro Forma    December 31,
                                                    1997        Adjustments      1997
                                                    ----        -----------      ----
<S>                                             <C>           <C>            <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents ...............   $   968,076   $ 1,528,500    $ 2,496,576
    Prepaids and other current assets .......         2,476          --            2,476
    Assets held for sale ....................       970,497      (970,497)          --
                                                -----------   -----------    -----------
              Total current assets ..........     1,941,049       558,003      2,499,052
                                                -----------   -----------    -----------
TOTAL ASSETS ................................   $ 1,941,049   $   558,003    $ 2,499,052
                                                ===========   ===========    ===========

    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Trade accounts payable and other accrued
       liabilities ..........................   $   246,464   $      --      $   246,464
    Accrued salaries and benefits ...........       165,620       665,000        830,620
    Accrued loss for disposal of discontinued
       operations ...........................       156,997      (106,997)        50,000
                                                -----------   -----------    -----------
              Total current liabilities .....       569,081       558,003      1,127,084
                                                -----------   -----------    -----------
STOCKHOLDERS' EQUITY ........................     1,371,968          --        1,371,968
                                                -----------   -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
    EQUITY ..................................   $ 1,941,049   $   558,003    $ 2,499,052
                                                ===========   ===========    ===========
</TABLE>

                                      F-24
<PAGE>
Cash and cash  equivalents  represent the December 31, 1997 pro forma  projected
gross  cash  proceeds  received  on sale of assets as if the sale took  place on
December 31, 1997.  Actual gross cash  proceeds from the Sale  Transaction  will
differ due to changes in the Closing Asset Value  between  December 31, 1997 and
the Closing Date, February 6, 1998.

In the table below the December 31, 1997 balance  sheet  information,  estimated
gross sales  proceeds and estimated  gain on sale of assets has been provided as
additional   information.   Under  the  Sale  Agreement,   accounts  receivable,
inventories, prepaid expenses, deposits, fixed assets and other assets were sold
at book value as of February 6, 1998, plus $300,000. Liabilities assumed include
equipment  leases  and  product  warranties.  The  Company  expects  a  loss  on
operations  from  December 31, 1997 to the expected  sale date of  approximately
$50,000 and  transaction  costs plus  severance  and the  management  bonuses of
approximately $107,000, net of gain on sale of assets.

                                                               December 31, 1997
                                                               -----------------
     Accounts receivable                                           $    77,386
     Inventory                                                         634,100
     Prepaid expenses                                                    7,172
     Fixed assets                                                      309,823
     Deposits and other                                                  6,436
                                                                  ------------
     Subtotal assets to be sold                                      1,034,917
     Liabilities to be assumed                                          64,420
                                                                  ------------
     Net assets to be sold                                             970,497
     Pro forma gross sales proceeds                                  1,528,500
                                                                  ------------
     Estimated gain on sale of assets                                  558,003
     Estimated severance, management bonuses and
         transaction costs                                             665,000
     Expected loss on operations prior to sale of assets                50,000
                                                                  ------------
     December 31, 1997 accrued loss for disposal of
         discontinued operations                                   $  (156,997)
                                                                    ==========

                                      F-25
<PAGE>
Trade  payables and other  accrued  expense in the  ordinary  course of business
remain liabilities of the Company.  Pro forma adjustments included are severance
payments and management bonuses due under the Management Agreement.







                                      F-26
<PAGE>
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 since the Company's inception.

                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by this Item is  incorporated  by  reference  to the
Company's 1998 Proxy Statement.


ITEM 11.          EXECUTIVE COMPENSATION

The  information  required  by this Item is  incorporated  by  reference  to the
Company's 1998 Proxy Statement.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

The  information  required  by this Item is  incorporated  by  reference  to the
Company's 1998 Proxy Statement.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this Item is  incorporated  by  reference  to the
Company's 1998 Proxy Statement.

                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                  AND REPORTS ON FORM 8-K

Documents filed as part of this Report:
---------------------------------------

     Financial  Statements  and  Financial  Statement  Schedules  - See Index to
     Financial  Statements and Financial  Statement  Schedules at Item 8 of this
     report.

     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.

     Reports on Form 8-K:

     A Report on Form 8-K was filed on  November  5, 1997.  A Report on Form 8-K
     was also filed on February 23, 1998.

                                       12
<PAGE>
     Exhibits:
     ---------

         Reference is made to the accompanying Index of Exhibits.


                                     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.

                                SweetWater, Inc.
                                  (Registrant)


                                        /s/ Patrick E. Thomas
                                        ---------------------
                                        Patrick E. Thomas
                                        President and Chief Executive Officer

                                        Date: March 30, 1998


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 Thomas                                     March 30, 1998
------------------
Patrick Thomas
Chief Executive Officer, President,
Chief Financial Officer
(Principal Financial Officer)


-------------------                                    March __, 1998
Clarke H. Bailey
Director


/s/ Thomas Barnds                                      March 30, 1998
-----------------
Thomas Barnds
Director


/s/ Thomas A. Barron                                   March 30, 1998
--------------------
Thomas A. Barron
Director

                                       13
<PAGE>

-----------------------                                March __, 1998
Blair W. Effron
Director


/s/ Peter Gilson                                       March 30, 1998
----------------
Peter Gilson
Chairman of the Board
Director

/s/ Randall A. Hack                                    March 30, 1998
-------------------
Randall A. Hack
Director


/s/ M. Leo Hart                                        March 30, 1998
---------------
M. Leo Hart
Director



                                       14
<PAGE>
                                INDEX OF EXHIBITS


No.               Exhibit Document                                   Exhibit No.
---               ----------------                                   -----------

(2)               Not Applicable

(3)               Articles of Incorporation and by-laws

         (A)      Certificate of Incorporation, as amended                 3(A)

         (B)      By-laws(1)

(4)               Instruments defining the rights of security holders,
                    including indentures

         (A)      Excerpts from the Certificate of Incorporation,
                    as amended                                             4(A)


         (B)      Excerpts from the By-laws(1)


         (C)      Specimen stock certificate(2)

(9)               Not Applicable

(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),(11)

     (d)  Form of  Non-Incentive  Stock Option  Agreement for options which were
          not issued under the 1993 Stock Option Plan(2),(11)

     (e)  Lease  Agreement dated December 12, 1994 between the Company and Pratt
          Land Limited Liability Company(3)

     (f)  Note and Warrant Agreement dated September 26, 1995(6)

     (g)  Common Stock Purchase  Warrant issued to Forschner  Enterprises,  Inc.
          (now known as Hudson River Capital LLC)(6)

                                       15
<PAGE>

     (h)  Subscription  Agreement by and between the Company and Nassau  Capital
          Partners in  connection  with the 1995 private  placement of shares of
          Common Stock;(7)

     (i)  Form of  Subscription  Agreement  executed  by the Company and certain
          investors in connection  with the 1995 private  placement of shares of
          Common Stock.(7)

     (j)  Form of Director's Stock Option Agreement.(7)

     (k)  Letter Agreement dated April 17, 1997 by and between SweetWater,  Inc.
          and American Standard Inc.(8)

     (l)  Agreement  dated as of May 9, 1997 by and among  SweetWater,  Inc. and
          Eric M. Reynolds, Patrick Thomas and Jerry Cogdill(8)

     (m)  Termination  of Lease  Agreement  dated  May 29,  1997 by and  between
          SweetWater, Inc. and Pratt Land Company, LLC.(9)

     (n)  Lease agreement dated August 1, 1997 by and between  SweetWater,  Inc.
          and Edwin Kanemoto, Dale Kanemoto and Karen K. Wood.(9)

     (o)  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.)(10)


(11.1)            Not Applicable

(12)              Not Applicable

(13)              Not Applicable

(16)              Not Applicable

(18)              Not Applicable

(21)              Not Applicable

(22)              Not Applicable

(23)              Consent of experts and counsel                        23

(24)              Not Applicable

(27)              Financial Data Schedule                               27

                                       16
<PAGE>

(28)              Not Applicable

(99)              Not Applicable


    (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 10-K for
the  year  ended  December  31,  1994,  as  filed on  March  30,  1995,  and are
incorporated herein by reference.

    (4)    These  exhibits were filed as exhibits to the Company's Form 10-Q for
the quarter ended March 31, 1995, as filed on May 12, 1995, and are incorporated
herein by reference.

    (5)    These  exhibits were filed as exhibits to the Company's Form 10-Q for
the  quarter  ended  June 30,  1995,  as  filed  on  August  12,  1995,  and are
incorporated herein by reference.

    (6)    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.

    (7)    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.

    (8)    These  exhibits were filed as exhibits to the Company's Form 10-Q for
the quarter ended March 31, 1997, as filed on May 16, 1997, and are incorporated
herein by reference.

    (9)    These  exhibits were filed as exhibits to the Company's Form 10-Q for
the  quarter  ended  June  30,  1997,  as  filed  on  August  11  1997,  and are
incorporated herein by reference.

    (10)    These  exhibits were filed as exhibits to the Company's Form 8-K, as
filed on February 23, 1998, and are incorporated herein by reference.

    (11)     Constitutes  a  "management   contract  or  compensatory   plan  or
arrangement" required to be filed pursuant to Item 14 (c) of the Form 10-K.

                                       17
<PAGE>
                                                                    Exhibit 3(A)


                            CERTIFICATE OF AMENDMENT

                                     OF THE

                          CERTIFICATE OF INCORPORATION

                                       OF

                                SWEETWATER, INC.

                    _________________________________________

                         Pursuant to Section 242 of the
                             General Corporation Law

                    _________________________________________




                  SweetWater,  Inc., a corporation  organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:


                  FIRST:            Article FIRST of the Certificate of
Incorporation is hereby amended to read in its entirety as
follows:


                  "FIRST.  The name of the Corporation is SWWT, Inc."


                  SECOND:  The  foregoing  amendment  has been duly  adopted  in
accordance with the provisions of Section 242 of the General  Corporation Law of
the  State  of  Delaware  and was  approved  by a  majority  of the  issued  and
outstanding shares entitled to vote thereon at a Special Meeting of Stockholders
of the Corporation held on February 5, 1998.


                  IN  WITNESS   WHEREOF,   the  undersigned  has  executed  this
Certificate this 6th day of February, 1998.



                                                /s/ Patrick E. Thomas
                                                ---------------------
                                                Patrick E. Thomas
                                                President and Chief
                                                Executive Officer


<PAGE>
                          CERTIFICATE OF INCORPORATION

                                SWEETWATER, INC.


                  FIRST.            The name of the corporation is:

                                SWEETWATER, INC.

                  SECOND.   The  address  of  the   registered   office  of  the
corporation  in the State of  Delaware  is 15 E.  North  Street,  City of Dover,
County of Kent,  Delaware  19901,  and the name of its registered  agent at that
address is Incorporating Services, Ltd.

                  THIRD.            The purpose of the corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.

                  FOURTH.  The  total  number  of  shares  of  stock  which  the
corporation is authorized to issue is fifteen million  (15,000,000)  shares,  of
which eight million (8,000,000) shares of the par value of $.001 each are Common
Stock and seven  million  (7,000,000)  shares of the par value of $.001 each are
Preferred Stock.

                  Shares of  Preferred  Stock may be issued from time to time in
one or more series.  The Board of Directors of the  corporation is authorized to
fix  or  alter  the  rights,  powers,   preferences  and  privileges,   and  the
qualifications,  limitations or restrictions thereof, of any series of preferred
stock,  including but not limited to dividend rights,  dividend rate, conversion
rights,  voting rights,  and liquidation  preferences;  and to fix the number of
shares constituting any such series and the designation thereof; and to increase
or decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding).

                  Of the Preferred  Stock,  6,450,000 shares shall be designated
Series A Preferred Stock ("Series A Preferred")  with the rights and preferences
set forth below.

                           A.  Issuance:  The series of Series A Shares shall
                  consist of 6,450,000 shares.

                           B. Voting Rights:  The holder of each share of Series
                  A Preferred  shall be entitled to the number of votes equal to
                  the number of shares of Common  Stock into which each share of
                  Series A Preferred could be converted and, except as otherwise
                  required by law,
                  shall have voting rights and powers equal to the voting rights
                  and powers of the Common Stock.

<PAGE>
                           C. Dividends. The holders of Series A Shares shall be
                  entitled,  when and if declared by the Board of  Directors  of
                  the corporation,  to annual dividends out of retained earnings
                  of the  corporation,  provided,  however,  that no dividend or
                  distribution  may be  declared  or paid on any share of Common
                  Stock  unless  at the  same  time an  equivalent  dividend  or
                  distribution is declared or paid on each outstanding  share of
                  Series  A   Preferred.   Each  share  of  Series  A  Preferred
                  outstanding  shall be deemed  converted  into Common  Stock as
                  provided in Section E below for  purposes of  determining  the
                  dividend  or  distribution  payable  on  shares  of  Series  A
                  Preferred.  The right to such  dividends on shares of Series A
                  Preferred  shall not be cumulative,  and no right shall accrue
                  to  holders of Series A  Preferred  by reason of the fact that
                  dividends on said shares are not declared in any prior period.

                           D.       Rights on Liquidation, Dissolution and
                                    Winding Up.

                                    Liquidation.    In   the    event   of   any
                  liquidation,  dissolution  or winding  up of the  corporation,
                  whether   voluntary   or   involuntary,   the  assets  of  the
                  corporation  available for distribution to shareholders  shall
                  be distributed as follows:

                                    a) Holders of Series A Preferred shall first
                           be  entitled  to receive  prorata an amount  equal to
                           $.3876  per share of Series A  Preferred  ("Series  A
                           Original  Purchase  Price"),  plus any  declared  and
                           unpaid  dividends  thereon (said  aggregate per share
                           amount  being  referred  to herein  as the  "Series A
                           Preferred Liquidation Preference".)

                                    b)  After  the   payment   referred   to  in
                           subsection  (a) above shall have been made in full to
                           the holders of Series A Preferred,  holders of Common
                           Stock shall then be  entitled  to receive  prorata an
                           amount  per  share  equal to the  Series A  Preferred
                           Liquidation Preference.

                                    c)  After  the   payments   referred  to  in
                           subsections (a) and (b) above have been made in full,
                           holders of Series A  Preferred  and holders of Common
                           Stock shall be entitled to  participate  prorata on a
                           share  for  share  basis in the  distribution  of any
                           additional assets of the corporation,  holders  of
                           Series A  Preferred being  treated on an as-converted
                           basis for this purpose.

                                      -2-
<PAGE>
                           E.  Conversion.  The  holders  of Series A  Preferred
                  shall have conversion rights as follows:

                                    1. Right to Convert.  Each share of Series A
                  Preferred  shall be  convertible,  at the option of the holder
                  thereof,  at any time  after  issuance,  at the  office of the
                  corporation  or any transfer agent for the Series A Preferred,
                  into such  number of fully  paid and  nonassessable  shares of
                  Common  Stock  as is  determined  by  dividing  the  Series  A
                  Original Purchase Price by the Series A Conversation  Price in
                  effect  at the time of  conversion.  The  Series A  Conversion
                  Price  shall  initially  be  $.3876  and shall be  subject  to
                  adjustment as hereinafter provided.

                                    2.  Mechanics  of  Conversion.   Before  any
                  holder of Series A Preferred  shall be entitled to convert the
                  same into  shares  of Common  Stock,  he shall  surrender  the
                  certificate or certificates  therefor,  duly endorsed,  at the
                  office of the  corporation  or of any  transfer  agent for the
                  Series A  Preferred,  and  shall  give  written  notice to the
                  corporation at such office that he elects to convert the same.
                  The  corporation  shall,  as soon as  practicable  thereafter,
                  issue and  deliver at such  office to such  holder of Series A
                  Preferred  a  certificate  or  certificates  for the number of
                  shares  of  Common  Stock to which  he  shall be  entitled  as
                  aforesaid.  Such conversion  shall be deemed to have been made
                  immediately prior to the close of business on the date of such
                  surrender of the shares of Series A Preferred to be converted,
                  and the person or persons  entitled  to receive  the shares of
                  Common Stock  issuable upon such  conversion  shall be treated
                  for all  purposes  as the  record  holder or  holders  of such
                  shares of Common Stock on such date.

                                    3. Fractional  Shares.  No fractional shares
                  of Common Stock shall be issued upon  conversion of the Series
                  A Preferred. Fractional shares shall not be issued and in lieu
                  of any fractional share to which the holder would otherwise be
                  entitled,  the  corporation  shall  pay  cash  equal  to  such
                  fraction multiplied by the then applicable Series A Conversion
                  Price.

                                    4. Adjustment of Series A Conversion  Price.
                  The Series A Conversion Price for each Series A Share, whether
                  or not  issued,  shall be subject to  adjustment  from time to
                  time as follows:

                                    a) If the  number of shares of Common  Stock
                           outstanding  at any time  after  the date  hereof  is
                           increased  by a stock  dividend  payable in shares of

                                      -3-
<PAGE>
                           Common  Stock  or by a  subdivision  or  split-up  of
                           shares of Common Stock, then on the date such payment
                           is made or such  change is  effective,  the  Series A
                           Conversion Price shall be appropriately  decreased so
                           that the  number of shares of Common  Stock  issuable
                           upon  conversion  of any share of Series A  Preferred
                           shall be increased in  proportion to such increase of
                           outstanding shares.

                                    b) If the  number of shares of Common  Stock
                           outstanding  at any time  after  the date  hereof  is
                           decreased by a combination of the outstanding  shares
                           of Common Stock,  then on the effective  date of such
                           combination,  the Series A Conversion  Price shall be
                           appropriately  increased so that the number of shares
                           of Common Stock issuable upon conversion of any share
                           of  Series  A  Preferred   shall  be   decreased   in
                           proportion to such decrease of outstanding shares.

                                    (c) If at any time  after  the  date  hereof
                           there  occurs  any  capital  reorganization,  or  any
                           reclassification  of any  stock  of  the  corporation
                           (other than a change in par value or as a result of a
                           stock   dividend   or   subdivision,    split-up   or
                           combination of shares),  or the  consolidation or the
                           merger of the corporation with or into another person
                           (other  than a  consolidation  or merger in which the
                           corporation is the  continuing  entity and which does
                           not result in any change in the Common Stock), or the
                           sale or other disposition of all or substantially all
                           of the properties and assets of the corporation as an
                           entity to any other person,  the shares of the Series
                           A  Preferred   shall,   after  such   reorganization,
                           reclassification,   consolidation,  merger,  sale  or
                           other  disposition,  be convertible into the kind and
                           number  of  shares  of stock or other  securities  or
                           property  of  the   corporation   or  of  the  entity
                           resulting from such  consolidation  or surviving such
                           merger or to which such properties  and assets  shall
                           have been sold or otherwise disposed of to which such
                           holder would have  been   entitled  if,   immediately
                           prior  to  such   reorganization,   reclassification,
                           consolidation,    merger,  sale or other disposition,
                           he had converted   his   shares of Series A Preferred
                           into Common  Stock. The provisions of this Subsection
                          (c) shall similarly  apply to successive reorganiza-
                           tions, reclassification,  consolidations,  mergers,
                           sales or other dispositions.

                                      -4-
<PAGE>
                                    F. No Impairment.  The corporation shall not
                           by  amendment  to its  Articles of  Incorporation  or
                           through  any  reorganization,   transfer  of  assets,
                           consolidation,  merger, dissolution, issue or sale of
                           securities,  or any other voluntary action,  avoid or
                           seek to avoid the observance or performance of any of
                           the terms to be observed or  performed  hereunder  by
                           the corporation, but shall at all times in good faith
                           assist in the carrying  out of all of the  provisions
                           of Section E and in the taking of all such  action as
                           may be necessary or  appropriate  in order to protect
                           the  conversion  rights  of the  holders  of Series A
                           Preferred against impairment.

                                    G.  Certificate as to Adjustments.  Upon the
                           occurrence of each  adjustment or readjustment of the
                           Series A Conversion  Price pursuant to Section E, the
                           corporation  at its expense  shall  promptly  compute
                           such  adjustment or  readjustment  in accordance with
                           the terms  hereof  and  prepare  and  furnish to each
                           holder of affected  Series A Preferred a certificate,
                           which  shall  be  certified   by  the   corporation's
                           accountants if required by such holder, setting forth
                           such adjustment or readjustment and showing in detail
                           the facts upon which such  adjustment or readjustment
                           is based. The corporation shall, upon written request
                           at any time of any  holder  of  Series  A  Preferred,
                           furnish  or cause to be  furnished  to such  holder a
                           like  certificate  setting forth (a) such adjustments
                           or  readjustments,  (b) the Series A Conversion Price
                           in  effect,  and (c) the  number  of shares of Common
                           Stock and the amount,  if any, of other property that
                           at the time would be received upon the  conversion of
                           the Series A Preferred.

                                    H.  Notice of Record  Date.  In the event of
                           any  taking  by the  corporation  of a record  of the
                           holders of any class of securities for the purpose of
                           determining  the holders  thereof who are entitled to
                           receive any dividend  (other than a cash dividend) or
                           other  distribution,  the  corporation  shall mail to
                           each holder of Series A  Preferred,  at least  twenty
                           (20)  days  prior to the  date  specified  herein,  a
                           notice  specifying  the date on which any such record
                           is to be taken for the  purpose of such  dividend  or
                           distribution.

                                    I.   Reservation   of  Stock  Issuable  Upon
                           Conversion.   The  corporation  shall  at  all  times
                           reserve and keep  available out of its authorized but
                                      -5-
<PAGE>
                           unissued  shares  of  Common  Stock  solely  for  the
                           purpose of effecting the  conversion of the shares of
                           Series A  Preferred  such  number  of its  shares  of
                           Common Stock as shall form time to time be sufficient
                           to effect the  conversion of all  outstanding  shares
                           the Series A Preferred; and if at any time the number
                           of  authorized  but  unissued  shares of Common Stock
                           shall not be sufficient  to effect the  conversion of
                           the then  outstanding  shares of Series A  Preferred,
                           the corporation  shall take such corporate  action as
                           may in the  opinion of its  counsel be  necessary  to
                           increase its authorized but unissued shares of Common
                           Stock to such number of shares as shall be sufficient
                           for such purpose.

                                    J. Notices.  Any notice required to be given
                           to the holder of shares of Series A  Preferred  shall
                           be deemed  given if  deposited  in the United  States
                           mail,  postage prepaid,  and addressed to each holder
                           of record at his  address  appearing  on the books of
                           the corporation.

                                    K.  Amendments and Changes.   As long as any
                           of the Series A Preferred shall be issued and
                           outstanding, the corporation shall not, without
                           first obtaining the approval (by vote or written
                           consent, as provided by law) of the holders of at
                           least a majority of the total number of shares of
                           Series A Preferred then outstanding:

                                            1. Increase the number of authorized
                                    shares of Series A Preferred.

                                            2. Create any new class or series of
                                    shares  having  rights  on a parity  with or
                                    superior  to  the  rights  of the  Series  A
                                    Preferred.

                                            3.  Amend or  change  the  Company's
                                    Articles of Incorporation or Bylaws.

                                            4.  Merge,  or  consolidate  with or
                                    into any other  corporation,  except into or
                                    with a wholly-owned  subsidiary  corporation
                                    with the requisite shareholder approval.

                                            5.  Sell,   convey,   or   otherwise
                                    dispose    of    any    material    license,
                                    intellectual   property  right,  patent,  or
                                    trade secret, or all or substantially all of

                                       -6-
<PAGE>
                                    the property or business of the corporation,
                                    whether in one transaction or in a series of
                                    transactions.

                                            6.  Materially or adversely alter or
                                    change the preferences,  rights, privileges,
                                    powers, or the restrictions provided for the
                                    benefit of the Series A Shares.

                                            7. Amend this Section K.

                           L. No  Reissuance  of  Preferred  Stock.  No share or
                  shares of Series A Preferred  acquired by the  corporation  by
                  reason of redemption,  purchase, conversion or otherwise shall
                  be reissued,  and all such shares shall be cancelled,  retired
                  and eliminated from the shares that the  corporation  shall be
                  authorized to issue.

                  FIFTH.  In  furtherance  and not in  limitation  of the powers
conferred by statute,  the Board of Directors is expressly  authorized  to make,
repeal, alter, amend and rescind the Bylaws of the corporation.

                  SIXTH. The names and mailing  addresses of the persons who are
to serve as  directors  of the  corporation  until the first  annual  meeting of
stockholders or until their successors are elected and qualify are:

             Name                                  Address
             ----                                  -------

          Eric Reynolds                       4725 Nautilus Court S.
                                              Boulder, CO 80301

          Sanford Platter                     4725 Nautilus Court S.
                                              Boulder, CO 80301

          Juan Rodriguez                      4517 Navajo Place
                                              Boulder, CO 80303

          Tom Barron                          545 Pearl Street
                                              Boulder, CO 80302

          James Kennedy                       The Forschner Group,Inc.
                                              151 Long Hill Cross Roads
                                              P.O. Box 874
                                              Shelton, CT 06484

          Ralph Sorenson                      603 Spruce Street
                                              Boulder, CO 80302


                                      - 7 -
<PAGE>

          Peter Gilson                        Physician's Support
                                              Services, Inc.
                                              P.O. Box 127
                                              Landisville, PA 17538


                  SEVENTH.  To the  fullest  extent  permitted  by the  Delaware
General  Corporation  Law, as the same  exists or may  hereafter  be amended,  a
director  of the  corporation  shall  not be liable  to the  corporation  or its
stockholders for monetary damages for breach of fiduciary duty as a director.

                  EIGHTH.  The corporation expressly elects not to be
governed by Section 203 of the Delaware General Corporation Law.

                  NINTH.  The name and mailing address of the
incorporator of the corporation is:

                     Name                                             Address
                     ----                                             -------

          David J. Cook                       1401 Walnut Street
                                              Suite 500
                                              Boulder, CO 80302


                  THE UNDERSIGNED,  being the incorporator  hereinbefore  named,
for the purpose of forming a corporation  to do business both within and without
the State of Delaware and in pursuance of the Delaware General  Corporation Law,
does make and file this  Certificate  hereby  declaring and certifying  that the
facts herein stated are true, and accordingly has hereunto set his hand and seal
this 16th day of September, 1993.



                                                         /s/ David J. Cook
                                                         -----------------
                                                             David J. Cook

                                      - 8 -

<PAGE>

                                                                    Exhibit 4(A)
                                  EXCERPTS FROM

                          CERTIFICATE OF INCORPORATION

                                       OF

                                SWEETWATER, INC.

                  "FOURTH.  The  total  number  of  shares  of stock  which  the
corporation is authorized to issue is fifteen million  (15,000,000)  shares,  of
which eight million (8,000,000) shares of the par value of $.001 each are Common
Stock and seven  million  (7,000,000)  shares of the par value of $.001 each are
Preferred Stock.

                  Shares of  Preferred  Stock may be issued from time to time in
one or more series.  The Board of Directors of the  corporation is authorized to
fix  or  alter  the  rights,  powers,   preferences  and  privileges,   and  the
qualifications,  limitations or restrictions thereof, of any series of preferred
stock,  including but not limited to dividend rights,  dividend rate, conversion
rights,  voting rights,  and liquidation  preferences;  and to fix the number of
shares constituting any such series and the designation thereof; and to increase
or decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding).

                  Of the Preferred  Stock,  6,450,000 shares shall be designated
Series A Preferred Stock ("Series A Preferred")  with the rights and preferences
set forth below.

                  A.  Issuance:  The series of Series A Shares shall
consist of 6,450,000 shares.

                  B.  Voting  Rights:  The  holder  of each  share  of  Series A
Preferred shall be entitled to the number of votes equal to the number of shares
of Common  Stock into which each share of Series A Preferred  could be converted
and,  except as otherwise  required by law,  shall have voting rights and powers
equal to the voting rights and powers of the Common Stock.

                  C.  Dividends.  The  holders  of  Series  A  Shares  shall  be
entitled, when and if declared by the Board of Directors of the corporation,  to
annual dividends out of retained earnings of the corporation, provided, however,
that no dividend or distribution  may be declared or paid on any share of Common
Stock unless at the same time an equivalent dividend or distribution is declared
or paid on each outstanding share of Series A Preferred.  Each share of Series A
Preferred outstanding shall be deemed converted into Common Stock as provided in
Section E below for purposes of determining the dividend or distribution payable
on shares of Series A Preferred. The right to such dividends on shares of Series
A Preferred shall not be cumulative, and no

<PAGE>
right shall  accrue to holders of Series A Preferred  by reason of the fact that
dividends on said shares are not declared in any prior period.

                  D.       Rights on Liquidation, Dissolution and Winding Up.

                  Liquidation. In the event of any liquidation,
dissolution or winding up of the corporation,  whether voluntary or involuntary,
the assets of the corporation  available for distribution to shareholders  shall
be distributed as follows:

                           a)  Holders  of  Series A  Preferred  shall  first be
                  entitled  to  receive  prorata  an amount  equal to $.3876 per
                  share of  Series A  Preferred  ("Series  A  Original  Purchase
                  Price"),  plus any declared and unpaid dividends thereon (said
                  aggregate  per share  amount  being  referred to herein as the
                  "Series A Preferred Liquidation Preference".)

                           b) After the payment  referred to in  subsection  (a)
                  above  shall have been made in full to the holders of Series A
                  Preferred,  holders of Common  Stock shall then be entitled to
                  receive  prorata  an amount  per share  equal to the  Series A
                  Preferred Liquidation Preference.

                           c) After the payments  referred to in subsections (a)
                  and (b)  above  have been  made in full,  holders  of Series A
                  Preferred  and  holders of Common  Stock  shall be entitled to
                  participate  prorata  on  a  share  for  share  basis  in  the
                  distribution  of any  additional  assets  of the  corporation,
                  holders of Series A Preferred being treated on an as-converted
                  basis for this purpose.

                  E.  Conversion.  The holders of Series A Preferred  shall have
conversion rights as follows:

                                  1. Right to Convert.  Each share of Series A
                  Preferred shall be convertible,  at the option of the holder
                  thereof,  at any time after  issuance,  at the office of the
                  corporation   or  any  transfer   agent  for  the  Series  A
                  Preferred,  into such number of fully paid and nonassessable
                  shares of Common  Stock as is  determined  by  dividing  the
                  Series  A   Original   Purchase   Price  by  the   Series  A
                  Conversation Price in effect at the time of conversion.  The
                  Series A  Conversion  Price  shall  initially  be $.3876 and
                  shall be subject to adjustment as hereinafter provided.

                                    2.  Mechanics  of  Conversion.   Before  any
                  holder of Series A Preferred  shall be entitled to convert the
                  same into  shares  of Common  Stock,  he shall  surrender  the
                  certificate or certificates  therefor,

                                      -2-
<PAGE>
                    duly  endorsed,  at the office of the  corporation or of any
                    transfer  agent for the Series A  Preferred,  and shall give
                    written  notice to the  corporation  at such  office that he
                    elects to convert the same. The  corporation  shall, as soon
                    as practicable thereafter,  issue and deliver at such office
                    to such  holder  of  Series A  Preferred  a  certificate  or
                    certificates  for the  number of  shares of Common  Stock to
                    which he shall be entitled  as  aforesaid.  Such  conversion
                    shall be deemed to have been made  immediately  prior to the
                    close  of  business  on the  date of such  surrender  of the
                    shares of Series A Preferred to be converted, and the person
                    or persons  entitled to receive  the shares of Common  Stock
                    issuable  upon  such  conversion  shall be  treated  for all
                    purposes  as the record  holder or holders of such shares of
                    Common Stock on such date.

                                    3. Fractional  Shares.  No fractional shares
                  of Common Stock shall be issued upon  conversion of the Series
                  A Preferred. Fractional shares shall not be issued and in lieu
                  of any fractional share to which the holder would otherwise be
                  entitled,  the  corporation  shall  pay  cash  equal  to  such
                  fraction multiplied by the then applicable Series A Conversion
                  Price.

                                    4. Adjustment of Series A Conversion  Price.
                  The Series A Conversion Price for each Series A Share, whether
                  or not  issued,  shall be subject to  adjustment  from time to
                  time as follows:

                                    a) If the  number of shares of Common  Stock
                           outstanding  at any time  after  the date  hereof  is
                           increased  by a stock  dividend  payable in shares of
                           Common  Stock  or by a  subdivision  or  split-up  of
                           shares of Common Stock, then on the date such payment
                           is made or such  change is  effective,  the  Series A
                           Conversion Price shall be appropriately  decreased so
                           that the  number of shares of Common  Stock  issuable
                           upon conversion of any share of
                           Series A Preferred  shall be increased in  proportion
                           to such increase of outstanding shares.

                                    b) If the  number of shares of Common  Stock
                           outstanding  at any time  after  the date  hereof  is
                           decreased by a combination of the outstanding  shares
                           of Common Stock,  then on the effective  date of such
                           combination,  the Series A Conversion  Price shall be
                           appropriately  increased so that the number of shares
                           of Common Stock issuable upon conversion of any share
                           of  Series  A  Preferred   shall  be   decreased   in
                           proportion to such decrease of outstanding shares.

                                      -3-
<PAGE>
                                   (c) If at any time  after  the  date  hereof
                           there  occurs  any  capital  reorganization,  or  any
                           reclassification  of any  stock  of  the  corporation
                           (other than a change in par value or as a result of a
                           stock   dividend   or   subdivision,    split-up   or
                           combination of shares),  or the  consolidation or the
                           merger of the corporation with or into another person
                           (other  than a  consolidation  or merger in which the
                           corporation is the  continuing  entity and which does
                           not result in any change in the Common Stock), or the
                           sale or other disposition of all or substantially all
                           of the properties and assets of the corporation as an
                           entity to any other person,  the shares of the Series
                           A  Preferred   shall,   after  such   reorganization,
                           reclassification,   consolidation,  merger,  sale  or
                           other  disposition,  be convertible into the kind and
                           number  of  shares  of stock or other  securities  or
                           property  of  the   corporation   or  of  the  entity
                           resulting from such  consolidation  or surviving such
                           merger or to which such  properties  and assets shall
                           have been sold or otherwise disposed of to which such
                           holder would have been entitled if, immediately prior
                           to     such     reorganization,     reclassification,
                           consolidation,  merger, sale or other disposition, he
                           had converted  his shares of Series A Preferred  into
                           Common Stock.  The provisions of this  Subsection (c)
                           shall similarly apply to successive  reorganizations,
                           reclassification,  consolidations,  mergers, sales or
                           other dispositions.

                  F.  No Impairment.  The corporation shall not by
amendment  to its  Articles  of  Incorporation  or through  any  reorganization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed  hereunder by the
corporation,  but shall at all times in good faith assist in the carrying out of
all of the  provisions  of Section E and in the taking of all such action as may
be necessary or  appropriate  in order to protect the  conversion  rights of the
holders of Series A Preferred against impairment.

                  G. Certificate as to Adjustments.  Upon the occurrence of each
adjustment or readjustment of the Series A Conversion  Price pursuant to Section
E, the  corporation  at its expense shall  promptly  compute such  adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of affected Series A Preferred a certificate, which shall be certified by
the  corporation's  accountants  if required by such holder,  setting forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment or readjustment is

                                      -4-
<PAGE>
based. The corporation  shall, upon written request at any time of any holder of
Series A  Preferred,  furnish  or cause to be  furnished  to such  holder a like
certificate setting forth (a) such adjustments or readjustments,  (b) the Series
A Conversion  Price in effect,  and (c) the number of shares of Common Stock and
the amount,  if any, of other  property  that at the time would be received upon
the conversion of the Series A Preferred.

                  H.  Notice of Record  Date.  In the event of any taking by the
corporation  of a record  of the  holders  of any  class of  securities  for the
purpose of  determining  the  holders  thereof  who are  entitled to receive any
dividend  (other than a cash dividend) or other  distribution,  the  corporation
shall mail to each holder of Series A Preferred, at least twenty (20) days prior
to the date  specified  herein,  a notice  specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.

                  I.  Reservation of Stock Issuable Upon Conversion.
The  corporation  shall  at all  times  reserve  and keep  available  out of its
authorized  but  unissued  shares of Common  Stock  solely  for the  purpose  of
effecting the  conversion of the shares of Series A Preferred such number of its
shares of Common  Stock as shall form time to time be  sufficient  to effect the
conversion of all outstanding shares the Series A Preferred;  and if at any time
the  number of  authorized  but  unissued  shares of Common  Stock  shall not be
sufficient to effect the conversion of the then  outstanding  shares of Series A
Preferred,  the  corporation  shall  take  such  corporate  action as may in the
opinion of its counsel be  necessary  to increase  its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purpose.

                  J. Notices.  Any notice  required to be given to the holder of
shares of Series A Preferred  shall be deemed  given if  deposited in the United
States  mail,  postage  prepaid,  and  addressed to each holder of record at his
address appearing on the books of the corporation.

                  K.  Amendments and Changes.
As long as any of the Series A Preferred  shall be issued and  outstanding,  the
corporation  shall not, without first obtaining the approval (by vote or written
consent,  as provided by law) of the holders of at least a majority of the total
number of shares of Series A Preferred then outstanding:

                           1. Increase the number of authorized shares of Series
                  A Preferred.

                           2.  Create  any new class or series of shares  having
                  rights  on a parity  with or  superior  to the  rights  of the
                  Series A Preferred.

                                      -5-
<PAGE>
                           3.  Amend  or  change  the   Company's   Articles  of
                  Incorporation or Bylaws.

                           4.  Merge,  or  consolidate  with or into  any  other
                  corporation,  except  into or with a  wholly-owned  subsidiary
                  corporation with the requisite shareholder approval.

                           5. Sell, convey, or otherwise dispose of any material
                  license, intellectual property right, patent, or trade secret,
                  or all or substantially all of the property or business of the
                  corporation,  whether  in one  transaction  or in a series  of
                  transactions.

                           6.  Materially  or  adversely  alter  or  change  the
                  preferences,  rights, privileges,  powers, or the restrictions
                  provided for the benefit of the Series A Shares.

                           7. Amend this Section K.

                  L. No  Reissuance  of Preferred  Stock.  No share or shares of
Series  A  Preferred  acquired  by the  corporation  by  reason  of  redemption,
purchase,  conversion or otherwise shall be reissued,  and all such shares shall
be cancelled,  retired and eliminated from the shares that the corporation shall
be authorized to issue."

                                      *****

                  "FIFTH.  In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly
authorized to make, repeal, alter, amend and rescind the Bylaws
of the corporation."

                                      *****

                  "SEVENTH.  To the fullest extent permitted by the
Delaware General Corporation Law, as the same exists or may
hereafter be amended, a director of the corporation shall not be
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director."

                                      *****

                  "EIGHTH.  The corporation expressly elects not to be
governed by Section 203 of the Delaware General Corporation Law."


                                      - 6 -