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, 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 August 31, 1998,
7,189,097 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 5. OTHER MATERIAL INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
2
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
August 31, November 30,
1998 1997
(unaudited)
----------------- -----------------
<S> <C> <C>
Current Assets
Cash $106,842 $832,502
Accounts Receivable 17,572 -
Inventory 288,548 41,479
Prepaid Expenses 13,457 -
----------------- -----------------
Total Current Assets 426,419 873,981
----------------- -----------------
Property and Equipment
Property and equipment, net 247,085 98,670
----------------- -----------------
Intangible Assets
Patent application costs (net of accumulated 57,899 59,942
amortization of $16,927 and $13,834 respectively)
----------------- -----------------
57,899 59,942
----------------- -----------------
Other Assets
Security deposits 10,935 4,044
----------------- -----------------
TOTAL ASSETS $ 742,338 $1,036,637
================= =================
</TABLE>
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,
1998 1997
(unaudited)
----------------- -----------------
<S> <C> <C>
Current Liabilities
Accounts payable $202,160 $80,582
Accrued expenses and interest 4,431 21,815
Obligations under capital lease-current portion 1,913 1,505
----------------- -----------------
Total Current Liabilities 208,505 103,902
----------------- -----------------
Accrued compensation - 125,000
Obligations under capital lease 245 1,759
Stockholders' Equity (Deficit)
Common stock, $.01 par value; 20,000,000
authorized; 7,189,097 and
6,689,210 shares issued and outstanding,
respectively 72,198 66,892
Additional paid-in capital 5,443,283 4,538,589
Deficit accumulated during the development stage (4,981,893) (3,799,505)
----------------- -----------------
Total Stockholders' Equity 533,588 805,976
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $742,338 $1,036,637
================= =================
</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)
STATEMENT OF LOSSES
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------------
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
(unaudited) (unaudited) (unaudited) (unaudited)
-------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue $17,847 $ - $21,509 $ -
Costs and Expenses:
Costs of sales 10,542 - 11,942 -
Marketing, general & administrative expenses 290,986 196,312 950,489 408,218
Research, development and related expenses 69,606 - 242,923 -
Depreciation and amortization 4,672 1,556 14,016 4,667
-------------- --------------- ----------------- ---------------
Total Costs and Expenses 375,804 197,868 1,219,369 412,885
Operating Loss (357,958) (197,868) (1,197,860) (412,885)
Other Income and (Expense):
Interest income 2,479 - 15,801 -
Interest expense (95) - (329) -
-------------- --------------- ----------------- ---------------
2,384 - 15,472 -
Net Income (Loss) (355,574) ($197,868) (1,182,388) ($412,885)
Net Income (Loss) Per Share ($0.05) ($0.03) ($0.17) ($0.07)
============== =============== ================= ===============
Number of Shares Used In Computation 6,872,495 5,931,835 6,846,743 5,807,465
============== =============== ================= ===============
</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,
1998 1997
(unaudited) (unaudited)
------------------ ----------------
<S> <C> <C>
Net cash (Used in) Operating Activities (1,329,167) (398,726)
Net Cash (Used In) Investing Activities (160,387) (237,594)
Net Cash Provided by Financing Activities 763,894 1,276,555
------------------ ----------------
Increase (Decrease) in Cash and Cash Equivalents (725,660) 640,235
------------------ ----------------
Cash and Cash Equivalents Beginning of Year 832,502 77,559
------------------ ----------------
Cash and Cash Equivalents End of Period $106,842 $717,794
================== ================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest 329 338
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 August 31, 1998, the Statement of Operations
for the three and nine months ended August 31, 1997 and 1998 and the Statement
of Cash Flows for the three and nine months ended August 31, 1997 and 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 as of August 31, 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 three and nine month
periods ended August 31, 1997 and 1998 are not necessarily indicative of the
operating results for the year.
In May and June 1998, the Company received $460,000 from the sale of
230,000 shares of common stock at $2 per share. As a result of this sale, the
Company issued options to purchase 115,000 shares of common stock at $5 per
share. Of this total, 100,000 shares of common stock was purchased by Ron
Heagle, then President and Chief Operating Officer of the Company.
In July 1998, the Company received $150,000 from the sale of 100,000
shares of common stock at $1.50 per share. As a result of this sale, the Company
issued options to purchase 50,000 shares of common stock at $4 per share.
All stock issued as a result of the foregoing transactions is subject
to Rule 144 Restrictions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
GENERAL OVERVIEW:
Net/Tech International, Inc., a Delaware corporation (the "Company"),
is the manufacturer and distributor of the patented Hygiene Guard/trademark/
Hand Wash Reminder and Monitoring Systems. The Hygiene Guard/trademark/ System
reminds and monitors employee hand washing in any environment where hygiene is a
priority. Target markets include restaurants, grocery, lodging, food
manufacturers and health care.
Since inception, the Company has not generated any significant revenue
and has sustained operating losses. The Company has financed its operations
primarily through the sale of its capital stock and, currently, does not have
adequate capital to support its operations on an ongoing basis.
Funds have been expended by the Company to (a) develop its product
known as Hygiene Guard/trademark/ and (b) position itself as a complete food and
health safety company offering a variety of hand washing, food and health safety
solutions. To develop the product, the Company expended funds to engineer and
build the computer controlled Hygiene Guard/trademark/ Systems, field
7
<PAGE>
test the model systems and produce beta test and field testing units. The
Company also incurred engineering costs to develop the badge to be worn by
employees, the Sink and Ceiling Monitoring units, the system interface and
tooling changes to manufacture these products. Marketing, general and
administrative expenses increased as the Company added sales, marketing and
technical support staff in connection with the beta test sites and trade shows
attended to promote the product. The Company is currently in production of three
versions of its planned Hygiene Guard/trademark/ product line. In addition, the
Company has expended funds in an effort to position itself as a complete health
and food safety solutions Company.
After careful evaluation of feedback from existing test/purchase
locations, and as a result of limited financial resources and lower than
anticipated sales to date, the Company's Board of Directors has made a
determination to change its focus and to devote financial resources exclusively
to its patented Hygiene Guard/trademark/ technology and the establishment of
global strategic partnerships. The Company believes that the current versions of
the Hygiene Guard product may be too sophisticated and expensive for certain
market segments and that a version of the product should be offered that is less
sophisticated and less expensive.
The Company is currently manufacturing three different versions of the
Hygiene Guard Clean Hands Program products and will develop two additional
versions so that it is positioned to offer five versions of the product,
including low cost systems, which it believes will gain market acceptance. The
Company anticipates that the re-engineering of its product will be complete and
that the new product line will be available for sale early in the third quarter
of fiscal year 1999. In the interim period, several actions will be taken with
respect to the ongoing operation of the Company. As a result of the change in
its business plan described above, the Company expects to reduce its selling,
general and administrative expenses in future periods. In that connection, the
Company has determined that the development of a food and health safety
reference guide and catalog is not financially practical and has abandoned this
endeavor. In addition, Ronald Heagle's employment with the Company has
terminated. Mr. Heagle formerly served as President and Chief Operating Officer
of the Company.
The Company believes that in order to effectively market its product it
should pursue strategic alliances with international hygiene and food safety
companies to market and distribute its products rather than develop its own
independent channels of distribution. The Company has learned from its existing
test/purchase locations that name recognition, service and regular visits to end
users that can be provided by certain potential strategic partners is extremely
valuable in the sales process. Several hygiene and food safety companies have
expressed an interest in a strategic alliance with the Company; however, no
agreements have been reached and there can be no assurance that strategic
alliances can be formed. As such, the Company will continue its internal sales
efforts while endeavoring to arrange a strategic alliance.
RESULTS OF OPERATIONS:
As a result of continued expenses and lower than expected sales
described above under the caption "General Overview", the Company incurred
significant losses during the current quarter and the fiscal year to date. The
Company's efforts to obtain debt or equity financing have been adversely
affected by these operating results.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
As of August 31, 1998, the Company had working capital of $204,458. The
Company's cash balance at that date was $106,842. Approximately 65% of the
Company's accounts payable as of August 31, 1998 have been past due for a
substantial period of time.
The Company requires additional funds to support its operations and
believes that, because of its significant operating expenses and failure to
generate a meaningful level of sales, the sources and amounts of additional
capital available to the Company are limited. Accordingly, the Board of
Directors has proposed that the Company offer shares of its Common Stock to a
limited number of accredited investors in a private placement exempt from
registration under the Federal securities laws pursuant to Regulation D. This
proposal, which contemplates the sale of a minimum of 2,000,000 shares at $.15
per share for a total of $300,000 or a maximum of up to 2,666,667 shares at $.15
per share for a total of up to $400,000, is subject to approval of the Company's
stockholders. The Company expects the expenses of such an offering to be
approximately $25,000, which would result in net proceeds to the Company in the
range of $275,000 to $375,000 depending upon the number of shares sold. No
assurance can be given that the Company will be successful in completing the
proposed private offering.
If approved by the Company's shareholders, the private placement may
take several weeks after shareholder approval to complete. To support current
operations, the Company expects to borrow approximately $150,000 from private
investors pursuant to secured promissory notes which will provide for interest
at ten (10%) percent per annum and the repayment of principal and accrued
interest on January 14, 1999. The Company expects to grant the lenders a
security interest in its inventory to secure repayment of the indebtedness. It
is anticipated that the indebtedness will be repaid out of the proceeds of the
sale of Common Stock referred to above.
Funds generated from the sale of existing inventory and the net
proceeds from the sale of shares are expected to provide adequate working
capital for the Company for approximately the next nine to twelve months.
Management believes that the Company will establish a strategic alliance within
that period of time which should facilitate the Company's ability to attract
additional debt or equity financing, if required, on terms acceptable to it.
There can be no assurance that strategic alliances can be formed, that the
Company will be successful in completing the private offering or that the
inventory can be sold.
FORWARD LOOKING STATEMENTS
Statements wherein the terms "believes", "intends", "expects" appear 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 10Q and any
Current Reports on Form 8-K.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER MATERIAL INFORMATION
RESIGNATIONS: Daniel Richard and Frederick Wilhelm have resigned as members of
the Company's Board of Directors.
ELECTION OF GLENN COHEN AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY:
Glenn E. Cohen was elected President and Chief Executive Officer of the Company
on October 15, 1998. Ron Heagle's employment with the Company has terminated.
Mr.Heagle formerly served as President and Chief Operating Officer.
Glenn E. Cohen serves as Chairman of the Board, President and Chief Executive
Officer of the Company. 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 and development
company in New Jersey, where he was responsible for over $200 million in annual
sales.
ELECTION OF NEW DIRECTOR:
On October 15, 1998, at a special meeting, the Board of Directors of
the Company, decided to expand the number of members of the Board from 3 to 4
and to elect Joseph A. Louro to fill the vacancy on the Board. Mr. Louro will
serve on the Board until the next annual meeting of shareholders or until a
successor is elected or qualified.
Mr. Louro has been actively employed in the building industry for over
thirty years. Mr. Louro most recently served (1990-1998) as Vice President of
Perma Corp. (Subsidiary of Amrep Corp., NYSE). Mr. Louro served as President of
B & L Building Group (1987-1990); Vice President, New Jersey Division of Leisure
Technology (BYSE) (1983-1987); Vice President and C.O.O.B.F.C. Lawrenceville
Corp., a division of Berkeley Federal Savings and Loan (1979-1983); President of
Shorelane Realty Corp. (1971-1979) and Vice President of Warren Development
Corp. (1964-1971). Mr. Louro has served on the Freehold Township (NJ) Zoning
Board and currently serves on the Freehold Township (NJ) Planning Board. Mr.
Louro is a three (3) time Past President o the New Jersey Shore Builder's
Association and currently serves on the Board of Trustees of that association.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed since the last report.
10
<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: October 15, 1998
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 106,842
<SECURITIES> 0
<RECEIVABLES> 17,572
<ALLOWANCES> 0
<INVENTORY> 288,548
<CURRENT-ASSETS> 426,419
<PP&E> 278,104
<DEPRECIATION> 31,019
<TOTAL-ASSETS> 742,338
<CURRENT-LIABILITIES> 208,505
<BONDS> 0
0
0
<COMMON> 72,198
<OTHER-SE> 461,390
<TOTAL-LIABILITY-AND-EQUITY> 742,338
<SALES> 21,509
<TOTAL-REVENUES> 21,509
<CGS> 11,942
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,182,388)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
