U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 2
TO
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
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(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: (732) 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 13
SIGNATURES 14
<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 61,260 64,352
amortization of $12,517 and $9,424 respectively)
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>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, NOVEMBER 30,
1997 1996
(UNAUDITED)
----------- -----------
<S> <C> <C>
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
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 Stage (2,986,245) (2,573,361)
----------- -----------
Total Stockholders' Equity 1,509,986 145,370
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,552,975 $ 177,485
=========== ===========
</TABLE>
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
(Weighted average number of shares for the period) =========== =========== =========== ===========
</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 1997, 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 1997, 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 30 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>
BENEFITS OF THE HYGIENE GUARD:
/bullet/ Makes customers aware of organization's concern and efforts
/bullet/ Helps employers meet HACCP guidelines (Hazard Analysis and Critical
Control Points)
/bullet/ Reduces exposure to public liability
/bullet/ Does not require employees to take additional steps (only to follow the
law)
/bullet/ Addresses public health and safety issues
THE NEED
The following are sources, statistics and quotes which highlight the impact of
food borne illness and the importance of hand washing.
1. "81 million food borne illnesses per year - 10,000 preventable deaths"
Food and Drug Administration (FDA).
2. "One of the main reasons for the spread of food borne illness is unwashed
hands." "To decrease hepatitis is as simple as washing your hands, it
breaks the chain of infection." (Salt Lake City happens to have 7 times
the national average of hepatitis A cases). Dr. Eileen Risk, Chief
Epidemiologist Salt Lake City Health Department
3. "In hospitals, 2,000,000 people become ill and 80,000 die from infections
they do not have upon entering the facility." ABC 20/20
4. "Hand washing is the single most important means of preventing infection".
Dr. Trish Pearls of John Hopkins Hospital
NOTE: Medical costs and productivity losses due to food borne illness are
between $6.4 billion and $34.9 billion annually.
THE SOLUTION
The Hygiene Guard System monitors hand washing at any designated hand washing
station(i.e. restroom, kitchens, food preparation and processing areas, medical
facilities, etc.). Net/Tech's Hygiene Guard provides industry with a practical
method to safeguard their customers and/or patients. This proven technological
advancement potentially saves lives, breaks the chain of hand spread infections
and prevents serious food borne illness outbreaks. The Hygiene Guard System is
designed to proactively satisfy regulatory requirements which relate to
food/health safety. The System can be used in food service/processing, health
and child care industries, as well as in any environment where controlling the
spread of infectious disease is a priority.
THE PURPOSE
The Hygiene Guard was designed to protect the health and welfare of customers,
patients, employees and their families. The purpose of the Hygiene Guard System
is to reduce hand spread illness and help control the spread of infectious
disease. Recently, the implementation of HACCP (Hazard Analysis and Critical
Control Points) was recommended in Food Code '97 for every food establishment in
America. Hand washing and documentation is an integral part of all HACCP
programs. The Hygiene Guard is a simple, effective, non-intrusive system
designed to meet HACCP requirements and help prevent the spread of food borne
illness. The Hygiene Guard can provide the medical community with affordable
technology that can ensure every possible action had been taken to prevent the
spread of infection.
9
<PAGE>
HOW THE HYGIENE GUARD SYSTEM WORKS
The patented Hygiene Guard system is an active infrared hand washing monitoring
and documentation system, which works in conjunction with the existing sink,
soap dispenser and computer. This system records all hand washing activity at
any sink or hand washing station. The Hygiene Guard software runs on Windows 95
or NT.
I THE EMPLOYEE BADGE: Each employee is issued a Hygiene Guard "Smart
------------------- Badge". This can be assigned individually or can be
shared by workers on separate shifts. The Smart Badge is activated by an
infrared transmitter called EMU, which is located in any potentially
unsanitary area (i.e.: hospital room, restroom, break room, supply closet,
food processing area, etc.). All hand washing activity, complete and
incomplete, is documented on the Hygiene Guard software which is included
with the purchase or lease of the system.
BADGE TYPES:
1. SMART BADGE: The standard badge is used by workers who do not come in
contact with the public. Once an employee enters the potentially
unsanitary room or area being monitored, this badge will flash amber
for five minutes and red for an additional five (or until the
employee washes their hands). This gives the worker ample time to
initiate the hand washing process. The light on the badge turns
green only after the employee satisfactorily completes the hand
cleansing cycle.
2. PUBLIC BADGE: This Smart Badge is worn by employees who come in
contact with the public. When an EMU activates this badge it will beep
every 45 seconds until the employee washes his/her hands. The person
must wash their hands within ten minutes or an infraction will be
recorded.
3. TIME INTERVAL FEATURE: The standard Smart Badge and Public Badge
programmed to beep on a regular basis to proactively initiate
hand washing. The time interval can easily be programmed by the
employer to fit their needs (e.g. every 45 minutes).
II. ENTRY/EXIT MONITORING UNIT (EMU): This unit is mounted to the ceiling or
wall in any potentially unsanitary area and transmits an infrared signal to
activate the standard or Public Smart Badge.
III. SINK MONITORING UNIT (SMU): This component talks with the Smart Badge and
records all hand washing activity, complete or incomplete. The SMU will
glow amber until the cycle is finished and will then turn green to let the
employee know that sufficient time has lapsed. If the worker leaves the
sink too quickly, the SMU will turn red.
The Smart Badge and SMU are de-activated if the employee:
uses the soap dispenser;
stands in front of the sink for a pre-determined time period (e.g.
20 seconds);
Initiates the flow of warm water (optional).
IV. SYSTEM CONTROLLER: The Hygiene Guard software can be loaded on the existing
computer. It documents all hand washing occurrences (see attached sample
report). EMU's and SMU's are wired to the interface, which is included with
the basic system and connects to the existing computer.
NOTE: BADGES CAN ALSO BE USED AS NAMETAGS.
10
<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
PRESIDENT
Mr. Glenn E. Cohen serves as President and Chief Operating Officer. Mr.
Cohen is a graduate of Boston University, with a Bachelor of Business
Administration and Marketing. He is also a graduate of California Western School
of Law and has been licensed to practice law in New Jersey since 1986. From
1986-1996, Mr. Cohen was vice-president and General Counsel of Cohen/Schatz
Associates, Inc., a land brokerage company in New Jersey, where he was
responsible for over $200 million in annual sales.
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 1997, 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
11
<PAGE>
Ecolab, Mr. Heagle's division was responsible for $550 million in sales and $120
million in profits, annually.
MARKETING CONSULTANT
In June 1997, 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.
12
<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.
13
<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 15, 1997
14
