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 February 28, 1998.
[ ] 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.
-----------------------------------------------------------------
(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
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (732) 345-1100
----------------------------------------------------
(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 February 28, 1998,
6,832,697 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 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
FEBRUARY 28, NOVEMBER 30,
1998 1997
(UNAUDITED)
----------- ----------
CURRENT ASSETS
Cash 406,673 $ 832,502
Inventory 59,567 41,479
---------- ----------
Total Current Assets 466,240 873,981
---------- ----------
FIXED ASSETS
Leashold improvements 10,126 10,126
Furniture and fixtures 40,130 35,494
Machinery and equipment 96,831 73,146
---------- ----------
147,087 118,766
Less: Accumulated Depreciation 23,737 20,096
---------- ----------
123,350 98,670
---------- ----------
INTANGIBLE ASSETS
Patent application costs (net of
accumulated amortization of
$15,781 and $13,834 respectively) 59,961 59,942
---------- ----------
59,961 59,942
---------- ----------
OTHER ASSETS
Security deposits 11,354 4,044
---------- ----------
TOTAL ASSETS 660,905 $1,036,637
========== ==========
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
FEBRUARY 28, NOVEMBER 30,
1998 1997
(UNAUDITED)
---------- ------------
CURRENT LIABILITIES
Accounts payable 42,348 $ 80,582
Accrued expenses and interest 8,876 21,815
Obligations under capital
lease-current portion 1,150 1,505
---------- -----------
Total Current Liabilities 52,374 103,902
---------- -----------
Accrued compensation -- 125,000
Obligations under capital lease 1,759 1,759
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value;
20,000,000 authorized;
6,832,697 and 6,689,210
shares issued and
outstanding, respectively 68,327 66,892
Additional paid-in capital 4,737,155 4,538,589
Deficit accumulated during
the development stage (4,198,710) (3,799,505)
---------- -----------
Total Stockholders' Equity 606,772 805,976
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 660,905 $ 1,036,637
========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSSES
THREE MONTHS THREE MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
REVENUE $ -- $ --
COSTS AND EXPENSES:
Marketing, general & administrative
expenses 302,822 54,782
Research, development and related
expenses 91,588 --
Depreciation and amortization 4,671 1,556
----------- -----------
OPERATING LOSS $ (399,081) $ (56,338)
OTHER (INCOME) AND EXPENSE:
Interest expense 124 --
----------- -----------
124 --
NET INCOME (LOSS) $ (399,205) $ (56,338)
NET INCOME (LOSS) PER SHARE $ (0.06) $ (0.01)
=========== ===========
Number of Shares Used In Computation 6,820,419 5,726,212
=========== ===========
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
THREE MONTHS ENDED
-------------------------
FEBRUARY 28, FEBRUARY 28,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Profit (Loss) ($399,205) ($56,338)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation 3,641 525
Amortization of intangible assets 1,031 1,031
Compensation and services paid in Common Stock 20,000 --
Inventory (18,087)
Prepaid expenses -- (6,080)
Security deposits (7,310) --
Accounts payable (38,235) (14,050)
Accrued expenses and interest (12,938) (1,043)
--------- --------
Total Adjustments (51,898) (19,617)
--------- --------
NET CASH (USED IN) OPERATING ACTIVITIES (451,103) (75,955)
--------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net (28,321) --
Patent and trademark acquisitions (1,050) --
--------- --------
NET CASH (USED IN) INVESTING ACTIVITIES $ (29,371) $ 0
--------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 30,000 72,500
Proceeds from options sold 25,000 --
Principal payments under capital lease (355) (303)
--------- --------
NET CASH PROVIDED BY FINANACING ACTIVITIES 54,645 72,197
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (425,829) (3,758)
--------- --------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 832,502 77,559
--------- --------
CASH AND CASH EQUIVALENTS END OF YEAR $ 406,673 $ 73,801
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 124 $ --
Income Taxes $ -- $ --
</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 February 28, 1998, the Statement of Operations for
the three months ended February 28, 1998 and the Statement of Cash Flows for the
three months ended February 28, 1998 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 February 28, 1998 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, 1997 annual
report to shareholders. The results of operations for the period ended February
28, 1998 are not necessarily indicative of the operating results for the full
year.
In December 1997, the Company received $30,000 from the sale of 15,000
shares of common stock. In January 1998, the Company received $25,000 from the
exercise of 20,000 options to purchase its common stock at $1.25 per share.
Stock issued will be subject to Rule 144 restrictions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
Net/Tech International Inc. (the "Company"), a Delaware Corporation,
develops and distributes health and food safety products and solutions to the
food manufacturing, food service and health care industries. Net/Tech's premier
product is the patented Hygiene GuardTM, which prompts and monitors employee
hand washing in any facility where hygiene is a priority. The Company's product
line is designed to help satisfy federal, state and local health and food safety
regulatory compliance.
During fiscal 1997, the Company designed and manufactured Hygiene GuardTM
prototypes and began initial beta testing of the systems within the hospitality
and healthcare industries. The Hygiene GuardTM 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.
In May of 1997, the Company introduced the Hygiene GuardTM system at the
National Restaurant Association show, which resulted in national and
international media attention including a segment on CNN. The Hygiene Guard was
also featured in over 500 publications in both the United States and foreign
newspapers and magazines.
The Company is currently testing the Hygiene GuardTM system at the
Tropicana Hotel and Casino, Arby's and KFC's fast food chains, William Beaumont
Army Medical Center, and is scheduled to begin a field test at a Nestle food
manufacturing plant in April 1998. The field tests on the Series 4000 Hygiene
Guard are scheduled to be completed in May 1998 with simultaneous availability
of production units. The Company is also engineering additional series of the
Hygiene GuardTM systems in order to be able to meet customer needs for different
applications and price points.
As a result of the Company's purchase in November 1997, of Hospitality
Marketing & Purchasing Corporation (HMP) and the appointment of Ronald J. Heagle
as President and Chief Operating Officer, the Company has expanded its plans and
vision to become a complete health and food safety solutions company. The
Company now plans to offer a variety of health and food safety products and
services in addition to the proprietary Hygiene Guard technology.
In January 1998, the Company was chosen by Pilgrim Products, Inc. as
master distributor for the Food Fresh(TM) line of products. Pilgrim Products,
based in Meriden, Connecticut, manufactures food safety products. Under the
terms of the agreement, all Food Fresh, or similar products, manufactured by
Pilgrim, will be distributed
7
<PAGE>
through Net/Tech. As the sole distributor for this food safety product,
Net/Tech's new target market will encompass 800,000 walk-in coolers and over 1.5
million reach-in coolers in the U.S. food service industry alone.
In March 1998, the Company was appointed as exclusive master distributor
of the HyGenius(TM) Hand Washing Verification System manufactured by Compliance
Control, Inc. As part of the exclusive arrangement, Net/Tech will take over
marketing to all existing national accounts. The HyGenius(TM) System works with
any existing hand sink in nursing homes, daycare and restaurants where hand
washing is critical in preventing the spread of illness and infection. The
system guides users through a controlled hand washing process including soaping,
lathering and rinsing for a designated amount of time as required under FDA
retail Food Code. Additionally, the HyGenius(TM) verifies proper and frequent
washing and provides feedback on individual compliance with automatic
"management-ready" reporting. Among those currently using the HyGenius(TM)
system are some of the largest names in the quick service restaurant industry as
well as Marriott Hotels, Senior Living and food service operations.
Net/Tech intends to offer the hospitality and health care industries the
most innovative and affordable hand wash monitoring and hand washing systems in
the marketplace. The Company is also developing a food and health safety
reference guide and catalog, which will offer approximately 50 to 75 health and
food safety products and services. The Company is currently negotiating with
manufacturers to distribute these products in the Net/Tech catalog. Net/Tech's
strategy is to become the leading provider for health and food safety solutions.
RESULTS OF OPERATIONS
Net/Tech International Inc. is a development stage which is the process of
positioning itself as a complete health and food safety solutions Company. The
Company's primary products are its patented Hygiene Guard(TM) series which
prompts and monitors employee hand washing in any environment where hygiene is a
priority. In the current year, the management team has made a concerted effort
to utilize its financial resources to develop and promote the Hygiene Guard
products.
The Company's expenditures for research, development and related
engineering costs reflect the Company's contract with the supplier of its
printed circuit assembly components. These expenditures paid for working
engineering model systems with a personal computer based system controller
capable of remote access, field testing of the model systems, production of beg
test and field testing units. The Company also incurred engineering costs with
the company assembling the Hygiene Guard(TM) to develop the Badge to be worn by
employees, the Soap and Employee Monitoring Units, the system interface, and the
tooling charges to manufacture these products.
Marketing, general and administrative expenses increased due to the
expansion of staff as the Company added sales, marketing, and technical support
staff in connection with the seven beta test sits in process and trade shows
attended to promote the product. These beta test sites will provide full
end-user feedback prior to the full-scale manufacturing planned to commence in
the third quarter of fiscal 1998.
In addition, the Company incurred costs for printing promotional
brochures, travel to trade shows and costs related to establishing strategic
alliances or licensing agreements with selected distributors which will allow
these companies to offer the full range of the Company's health and food safety
solutions to their customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company has had no sources of recurring revenue and has incurred
operating losses since inception. The Company has financed it operations with
public and private offerings of securities and options. The Company anticipates
its capital requirements to range from $1,000,000 to $2,000,000 depending on
sales and production levels. The Company will require additional financing
during the second quarter of 1998. The Company is in discussions with private
investors and investment banks in order to raise necessary capital to fund the
operations until sufficient sales can be generated to be self-sustaining.
8
<PAGE>
The Company had working capital of $413,865 as of February 28, 1998, the
assets consisting primarily of cash equivalents of $406,673. Management believes
that existing cash combined with the required additional financing will be
sufficient to support operations throughout fiscal 1998.
The Company is continuing to actively pursue funding options including the
sale of additional options, equity or a secondary offering to obtain the
additional funding necessary to continue the research and development necessary
to complete the development of its product line and bring them to commercial
markets. There can be no assurance that such financing, can be successfully
completed.
MANAGEMENT TEAM
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Glenn E. Cohen serves as Chairman of the Board and Chief Executive
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.
PRESIDENT AND CHIEF OPERATING OFFICER
Ron Heagle serves as the President and Chief Operating Officer. Mr. Heagle
has worked in the Hospitality Industry twenty five years developing and
implementing programs and strategies to help National Chains and Food
Distributors with innovative products and systems. As Vice President of National
Accounts at Ecolab, Inc., Mr. Heagle developed relationships with the largest
hotels, restaurant chains and healthcare facilities. Mr. Heagle was responsible
for the Global Accounts Program that moved Ecolab, Inc. into worldwide presence
meeting global customers needs. At the end of his tenure at Ecolab, Mr. Heagle's
division was responsible for $550 million in sales and $120 million in profits,
annually. Mr. Heagle is a graduate of New Hampshire College, with a Bachelors
degree in Business Management and Administration. He is a member of SFM and NRA
and has relationships with the Culinary Institute of America; Johnson and Wales;
Cornell University; and American Hotel Asssociation.
VICE PRESIDENT - SALES AND MARKETING
Mark Hersh serves 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 gave
presentations 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).
VICE PRESIDENT OF CORPORATE ACCOUNTS AND DISTRIBUTOR SALES
In April 1998, Jim Ross was appointed to serve as Vice President of
Corporate Accounts and Distributor Sales. Mr. Ross served the restaurant,
hospitality, and healthcare industries for twenty four years as Assistant Vice
President of Corporate Accounts with Ecolab, Inc. Mr. Ross also worked closely
with some of the largest, multi-unit chains in the United States and was
responsible for implementing several large food and paper distributors.
9
<PAGE>
MARKETING CONSULTANT
C.J. (Chip) Johns serves 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
Wayne K. Spillner is 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.
GENERAL
HYGIENE GUARD is an infrared Hand Washing Prompt and Verification System
that works at any existing hand washing sink at your facility.
HEALTH AND FOOD SAFETY:
Currently it is estimated that over 80 million cases of food borne illness
each year resulting in 10,000 preventable deaths. Tracking food borne illness,
over 70% of all outbreaks originate at foodservice operations and, as many as
40% are the result of poor hand washing and cross-contamination.
These statistics are staggering. One food borne illness can not only cause
severe illness but can cost millions of dollars, tarnish brand names, and
reputations or even put an establishment out of business. THE HYGIENE GUARD
PROVIDES A WAY TO HELP PROTECT AGAINST THESE LOSSES.
REGULATORY COMPLIANCE:
Helps meet State, FDA Food Code 97' and HACCP standards. Many health
departments support the Hygiene Guard program. Hygiene Guard can reduce
disposable glove requirements.
MARKETING:
Independent Research sponsored by International Food Safety Council (IFSC)
presented at COEX98 stated that "NINETY-SIX PERCENT OF CONSUMERS HOLD KITCHEN
WORKERS, CHEFS AND FOOD PREPARATION STAFFS AS THE MOST RESPONSIBLE FOR FOOD
SAFETY IN RESTAURANTS." FURTHERMORE, THE RESEARCH STATED THAT "ACTION-ORIENTED
VISUAL CUES SEEM TO MATTER MOST TO CONSUMERS IN MAKING THEM VERY CONFIDENT THAT
RESTAURANT FOOD IS SAFE."
10
<PAGE>
The fact is that customers are more likely to come back if they feel safe.
The Hygiene Guard Clean Hands Program badge is VISIBLE to the customer and lets
them know that your establishment is doing everything possible to create a
"foodsafe" environment.
This program can be the basis for an ad campaign and can include table
tents and window decals. The research is clear that customers want to know that
they are being protected and that their food is being prepared safely.
FEATURES OF THE HYGIENE GUARD SYSTEM:
/bullet/ Verifies individual employee hand washing at any hand washing station
or restroom throughout your establishment.
/bullet/ Promotes employees to wash their hands on a time interval basis (i.e.
30 minutes or 1 hour). The system is simple it only requires the
employee to wear the badge and wash their hands regularly.
/bullet/ Provides detailed hand washing reports on our customized software,
which includes time, location and frequency of hand washing activity.
The Hygiene Guard entry/exit station can also be used as an employee
time clock.
/bullet/ Verifies hand washing and identifies employees who fail to wash their
hands after completion of unsanitary occurrences (i.e. restroom use,
entering janitorial supply closet, breakroom or handling of dirty
dishes, etc.)
BENEFITS OF THE HYGIENE GUARD SYSTEM:
/bullet/ Protection against hand spread food borne illness and
cross-contamination.
/bullet/ Saves on disposable glove expenditures. Also environment friendly
keeps gloves out of landfills.
/bullet/ Saves management time verifying employee hand washing.
/bullet/ Marketing advantage - lets customers know they are safe.
/bullet/ Healthy environment - less employee sick time.
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.
11
<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)
27 Financial Data Schedule
-------------------
(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.
12
<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
Chairman and Chief Executive Officer
Date: April 20, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 406,673
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 59,567
<CURRENT-ASSETS> 466,240
<PP&E> 147,087
<DEPRECIATION> 23,737
<TOTAL-ASSETS> 660,905
<CURRENT-LIABILITIES> 52,374
<BONDS> 0
0
0
<COMMON> 68,327
<OTHER-SE> 4,737,154
<TOTAL-LIABILITY-AND-EQUITY> 660,905
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 399,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (399,205)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
