U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarterly period ended
August 31, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from_____________ to ______________
Commission File Number 33-36198
NET/TECH INTERNATIONAL, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3038309
-------------------------- ----------------------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
1 WEST FRONT STREET, SUITE 30, RED BANK, NEW JERSEY 07701
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(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (908) 345-1100
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(Former name, former address and former fiscal year, if changed since last
report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of August 31, 1997,
6,665,210 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
<PAGE>
NET/TECH INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Loss 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
AUGUST 31, NOVEMBER 30,
1997 1996
(UNAUDITED)
---------- -----------
CURRENT ASSETS
Cash 717,794 $ 77,560
Note Receivable 500,000 0
Prepaid Expenses 0 0
---------- ----------
Total Current Assets 1,217,794 77,560
---------- ----------
FIXED ASSETS
Furniture and Equipment 257,593 19,999
Less: Accumulated Depreciation 8,034 6,460
---------- ----------
Net Fixed Assets 249,559 13,539
---------- ----------
INTANGIBLE ASSETS
Patent Application Costs (net of
accumulated amortization of $12,517
and $9,424 respectively) 61,260 64,352
Unamortized Organization Costs 84 84
---------- ----------
61,344 64,436
OTHER ASSETS
Security Deposits 24,278 21,950
---------- ----------
TOTAL ASSETS $1,552,975 $ 177,485
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, NOVEMBER 30,
1997 1996
(UNAUDITED)
----------- -----------
CURRENT LIABILITIES
Accounts Payable 29,865 $ 22,939
Accrued Expenses and Interest 9,518 4,625
Obligations Under Capital Lease 960 1,287
----------- -----------
Total Current Liabilities 40,343 28,851
LONG TERM LIABILITIES 0 0
Obligations Under Capital Lease 2,646 3,264
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.01 par value;
20,000,000 authorized; 6,665,210
and 5,697,212 shares issued and
outstanding, respectively 66,652 56,972
Additional Paid-In Capital 4,429,579 2,661,759
Deficit Accumulated During the
Development (2,986,245) (2,573,361)
----------- -----------
Total Stockholders' Equity 1,509,986 145,370
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,552,975 $ 177,485
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 0 $ 0 $ 0 $ 0
COSTS AND EXPENSES:
General & Administrative Expenses 140,906 38,914 281,101 54,308
Research and Development Expenses 0 0 0 0
Legal and Professional Fees 55,406 14,331 127,117 29,796
Depreciation 525 0 1,574 1,603
Amortization of Intangibles 1,031 167 3,093 335
OPERATING LOSS ($ 197,868) ($ 53,412) ($ 412,884) ($ 86,042)
OTHER (INCOME) AND EXPENSE:
Interest (Income) 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) ($ 197,868) ($ 53,412) ($ 412,884) ($ 86,042)
NET INCOME (LOSS) PER SHARE ($ 0.03) ($ 0.01) ($ 0.07) ($ 0.02)
=========== =========== =========== ===========
Number of Shares Used In Computation 5,924,009 5,565,753 5,804,837 5,317,817
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
August 31, August 31,
1997 1996
(unaudited) (unaudited)
----------- ----------
<S> <C> <C>
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (398,726) (136,724)
NET CASH USED FOR INVESTING ACTIVITIES ($ 237,594) ($ 6,280)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,276,555 428,474
----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 640,235 285,470
----------- ---------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 77,559 0
----------- ---------
CASH AND CASH EQUIVALENTS END OF YEAR $ 717,794 $ 285,470
=========== =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 338 $ 0
Income Taxes $ 0 $ 0
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
NOTE 1 FINANCIAL STATEMENTS
The Balance Sheet as of August 31, 1997, the Statement of Operation for the
nine months ended August 31, 1997 and the Statement of Cash Flows for the nine
months ended August 31, 1997 have been prepared by the Company, without audit.
In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at August 31, 1997 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1996 annual
report to shareholders. The results of operations for the period ended August
31, 1997 are not necessarily indicative of the operating results for the full
year.
In March 1997, the Company received $200,000 from the sale of 800,000
options to purchase its common stock at $2.50 per share. These options are valid
for a period of two years. In August the Company received $525,000 from the
exercise of 350,000 of these options at a reduced exercise price of $1.50. The
remaining 450,000 options have a reduced exercise price of $2. Exercise of the
balance of 450,000 options would result in a cash infusion of $900,000 to the
Company.
In June the Company received a total of $455,000 from the sale of stock
options and Common Stock. Of this total, $270,000 was raised from the sale of
1,080,000 options to purchase common stock at an exercise price of $2.50 per
share. Exercise of these options would result in an additional cash infusion of
$2,700,000 to the Company.
In August the Company received a $500,000 promissory note for the sale of
Common Stock. In September, subsequent to the balance sheet date, the Company
received $125,000 of that note with the balance to be received by the end of
October.
All stock issued as a result of the foregoing transactions is, or will be,
subject to Rule 144 restrictions.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Net/Tech International, Inc.'s core technology is the patented Hygiene
Guard Hand Washing Monitoring System. The Hygiene Guard is an innovative,
potentially life saving technology used to monitor employee hand washing at any
hand washing station. The system can be utilized in the food service, food
processing, health care and child care industries as well as any environment
where hygiene and control of the spread of infectious disease is a priority.
Net/Tech designs and assembles hygiene, food safety and health care related
monitoring and data acquisition systems. These systems provide accountability
reporting and are designed to proactively satisfy regulatory requirements which
relate to food and health safety. The Company's mission is to develop innovative
products and systems which incorporate the most up to date technology in order
to solve industry specific problems, satisfy regulatory requirements and/or
create new opportunities.
GENERAL
Since the January 1996 appointment of Glenn E. Cohen as President and Chief
Operating Officer, the Company has made significant progress towards the
commercialization of the Hygiene Guard Hand Washing Monitoring System. During
that time period, the Company has achieved the following milestones:
/bullet/ The Company unveiled the Hygiene Guard System at the National
Restaurant Show in Chicago in May, 1997. The Hygiene Guard received
an overwhelming response resulting in tremendous media exposure both
in the United States and Internationally. On May 20, the Hygiene
Guard was the focus of a front page article in USA Today and a page
one article in the Marketplace Section of the Wall Street Journal.
The Associated Press also ran an article which was picked up by
hundreds of newspapers worldwide. In addition, the system was also
featured on the Good Morning America Show and CNN News among other
television media.
/bullet/ The Company has contracted an Infrared manufacturer to supply all
necessary infrared components to complete an additional 12 prototype
systems and as exclusive infrared supplier for production
manufacturing. Also, Net/Tech has contracted with Precision Flow
Technologies to manage it's assembly facility, located in Saugerties,
NY.
/bullet/ On August 28, 1997 the Company installed the Hygiene Guard System at
Tropicana Hotel and Casino in Atlantic City as the first End User
Beta Test Site. The Company intends to incorporate the Tropicana
feedback for software and network enhancements in order to prepare
the system for production. As a result of this installation, the
Company again received national media attention. The Company is
scheduled to install the Hygiene Guard System at the William Beaumont
U.S. Army Medical Center in El Paso, Texas, in November of this year.
/bullet/ The Company intends to place the remainder of its 12 production
systems at strategic End User locations throughout the country during
November 1997 -January 1998. This will provide additional field
testing and end user feedback prior to full scale manufacturing.
/bullet/ The Company has received tremendous interest from potential End Users
and Distributor/Joint Venture Partners throughout the U.S. and
internationally.
/bullet/ Net/Tech International, Inc., has contracted the services of two
industry leading marketing consultant professionals. Both have
committed to selling the system to industry professionals with whom
they have relationships for over 25 years. Ron Heagle and Associates
represents 25 years of experience in the Sanitation Industry. As Vice
President of National Accounts for Ecolab, Inc., Mr. Heagle serviced
both the Food Service and Health Care Industries. C.J. (Chip) Johns
and Associates represents over 25 years experience in food
manufacturing as an owner of Prepared Foods which provided 9 of the
top 12 fast food chains with meat related food products.
8
<PAGE>
PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The cash balance at August 31, 1997 was $717,794. Recently there has been a
cash infusion of $650,000 as detailed in the Notes to the Financial Statements.
The Company also expects to receive an additional $375,000 in investment capital
over the next sixty days. The Company believes the current cash position will
fund the Company through fiscal 1998.
U.S. AND INTERNATIONAL MARKETING ACTIVITIES
As a result of the National Restaurant Show and tremendous media attention,
the Company has been approached by major food service and hygiene related
companies both in the U.S. and abroad.
The Company's immediate focus is the negotiation and finalizing of Joint
Venture and Distributor relationships for the Hygiene Guard System.
The Company is currently in negotiation for the expansion of marketing
activities overseas. Discussions are underway with a firm interested in a joint
marketing program for Europe and 5 major South American countries.
MANAGEMENT TEAM EXPANSION
VICE PRESIDENT - SALES
In May 1997, Mark Hersh was appointed to serve as the company's Vice
President of Sales and Marketing. Prior to joining Net/Tech International, Inc.,
Mr. Hersh was President of Eden Classic Inc., where he developed and implemented
a wholesale/retail marketing strategy and distribution network. Mr. Hersh is a
graduate of the University of Florida with a concentration in International
Marketing. Mr. Hersh recently presented, on behalf of the Company, at the
Education Conference for the Association of Professionals in Infection Control
(APIC) and at the National Environmental Health Association Conference (NEHA).
DIRECTOR OF MARKETING
In August 1997 Christopher Rosica was appointed to serve as the company's
Director of Marketing. He is responsible for public relations, marketing
strategies and sales. Mr. Rosica's professional background is in the food
service and healthcare industries. Mr. Rosica received his A.O.S. degree in
Culinary Arts from Johnson & Wales University in Rhode Island and his B.S. in
Hospitality Management from Florida International University. At Johnson &
Wales, he was selected for culinary internship with Hyatt Hotels and offered a
scholarship as an Associate Commercial fellow. His food and beverage background
included managing two restaurants with 75,000 square feet of dining,
entertainment and catering space for Restaurant Associates, Inc. and corporate
food service management for Canteen Corporation. He also worked in south Florida
with Mark Militello and Michael Chiarello, two of the country's finest chefs.
When he left the hospitality field in 1990, he pursued a career in the insurance
industry, where he worked as an Account Executive for Blue Cross Blue Shield and
Delta Dental Plans of New Jersey, winning numerous awards for his sales
abilities. He recently joined Net/Tech after working as Regional Sales Manager
for Grinspec Consulting, the largest New Jersey Insurance broker/consultants in
the public employer marketplace. At Grinspec he specialized in union
negotiations and contracts, client relations, sales presentations and account
management.
MARKETING CONSULTANT
In June, Ron Heagle was contracted as a professional marketing consultant.
Mr. Heagle has worked in the Hospitality Industry 25 years developing and
implementing programs and strategies to help National Chains and Food
Distributors with innovative products and systems. As VP National Accounts at
Ecolab, Inc., Mr. Heagle developed relationships with decision makers at the
largest hotels, restaurant chains and healthcare facilities. Mr. Heagle was
responsible for the Global Accounts Program that moved Ecolab into worldwide
presence meeting global customers needs. At the end of his tenure at
9
<PAGE>
Ecolab, Mr. Heagle's division was responsible for $550 million in sales and $120
million in profits, annually.
MARKETING CONSULTANT
In June, C.J. (Chip) Johns was contracted as a professional marketing
consultant. Mr. Johns is a successful entrepreneur and business man with over 30
years experience in the food service industry. From 1969 to 1988 Mr. Johns owned
Prepared Foods, a major meat related food processing plant. Under his direction,
Prepared Foods became the largest producer of roast beef and ham to the fast
food industry in the world. At the time of sale, the Company enjoyed the
business of 9 out of the top 12 fast food chains in America. Mr. Johns kept
Prepared Foods in this enviable position by being extremely aggressive in the
field of sales and marketing. He also served as Chairman of the Board. Prepared
Foods was purchased by International Multi-Foods, Inc. Mr. Johns currently owns
and operates a large working cattle ranch in Southern New Mexico, where he lives
with his wife and two children.
TECHNOLOGY CONSULTANT
In June 1997, Wayne K. Spillner was contracted as Technology Consultant and
assistant to the President. Mr. Spillner is a professional engineer and
principal of Aspect Engineering. During his tenure in food service and
sanitation industries, Mr. Spillner was a Technology Development Engineer for
Proctor and Gamble and Director of Research and Development for Taco Bell, a
division of PepsiCo. Mr. Spillner brings important industry specific knowledge
and contacts necessary to ensure the Hygiene Guard System is user friendly and
gains market acceptance. Mr. Spillner presented the Hygiene Guard System at the
North American Association of Food Equipment Manufacturers (NAFEM) in September
1997.
FORWARD LOOKING STATEMENTS
Statements wherein the terms "believes", "intends", or "expects" are
intended to reflect "forward looking statements" of the Company. The information
contained herein is subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements or paragraphs. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation(1)
3.2 By-Laws(1)
-------------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 33-36198).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed since the last report.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET/TECH INTERNATIONAL, INC.
/s/ GLENN E. COHEN
-------------------------------------------
Glenn E. Cohen
President and Chief Operating Officer
/s/ BRIAN K BURKE
-------------------------------------------
Brian K. Burke
Chief Financial Officer, Secretary
and Treasurer
Date: October 6, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 717,794
<SECURITIES> 0
<RECEIVABLES> 500,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,217,794
<PP&E> 257,593
<DEPRECIATION> 8,034
<TOTAL-ASSETS> 40,343
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 66,652
<OTHER-SE> 4,429,579
<TOTAL-LIABILITY-AND-EQUITY> 1,552,975
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 412,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412,884)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
