U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 1
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
May 31, 1999.
[ ] 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
---------------------------------------------------------
(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 May 31, 1999, 9,757,969
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 1. LEGAL PROCEEDINGS 11
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
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1999 1998
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 57,591 $160,334
Accounts receivable -- 9,437
Due from sale of patent 144,000 --
Prepaid expenses 10,867 12,419
-------- --------
Total Current Assets 212,457 182,190
-------- --------
FIXED ASSETS
Leashold improvements 10,126 10,126
Furniture and fixtures 44,024 44,024
Machinery and equipment 18,898 18,898
-------- --------
73,048 73,048
Less: Accumulated Depreciation 32,911 26,474
-------- --------
40,137 46,574
-------- --------
INTANGIBLE ASSETS
Patent application costs - (net of accumulated 25,000 52,632
amortization of $0 and $21,144 respectively)
-------- --------
25,000 52,632
-------- --------
OTHER ASSETS
Due from sale of patent - non-current 84,000 --
Security deposits 10,850 10,850
-------- --------
Total Other Assets 94,850 10,850
TOTAL ASSETS $372,445 $292,246
======== ========
</TABLE>
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
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, accrued expenses and interest $ 102,989 $ 146,883
Obligations under capital lease-current portion 1,345 1,759
----------- -----------
Total Current Liabilities 104,333 148,642
----------- -----------
Accrued compensation -- --
Obligations under capital lease -- --
Deposits 2,600 1,600
----------- -----------
Total Other Liabilities 2,600 1,600
----------- -----------
Total Liabilities 106,933 150,242
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 20,000,000
authorized; 9,757,969 and
6,689,210 shares issued and outstanding,
respectively 97,587 93,246
Additional paid-in capital 5,980,799 5,920,140
Deficit accumulated during the development stage (5,812,874) (5,871,382)
----------- -----------
Total Stockholders' Equity 265,512 142,004
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 372,445 $ 292,246
=========== ===========
</TABLE>
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 OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- --------------------------------
MAY 31, MAY 31, MAY 31, MAY 31,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE $ -- $ 3,663 $ 23,584 $ 3,663
COSTS AND EXPENSES:
Costs of sales -- 1,400 12,535 1,400
Marketing, general & administrative expenses 112,640 356,681 184,847 659,503
Research, development and related expenses 5,000 81,730 25,299 173,317
Depreciation and amortization 3,218 4,672 8,264 9,344
----------- ----------- ----------- -----------
Total Costs and Expenses 120,861 444,484 230,945 843,564
OPERATING LOSS (120,860) (440,821) (207,360) (839,902)
OTHER INCOME AND (EXPENSE):
Gain on sale of patent 264,195 -- 264,195 --
Interest income 819 13,322 1,874 13,322
Interest expense (64) (110) (201) (234)
----------- ----------- ----------- -----------
264,950 13,212 265,868 13,088
NET INCOME (LOSS) 144,090 $ (427,608) 58,507 $ (826,813)
NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.06) $ 0.01 $ (0.12)
=========== =========== =========== ===========
Number of Shares Used In Computation 9,757,969 6,872,495 9,630,588 6,846,743
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
MAY 31, MAY 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Profit (Loss) $ 58,507 ($826,813)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation 6,437 7,282
Amortization of intangible assets 1,827 2,062
Compensation and services paid in Common Stock -- 20,000
Gain on sale of patent (264,195) --
Changes in assets and liabilities
Accounts receivable 9,437 (3,663)
Inventory -- (57,638)
Prepaid expenses 1,551 (16,807)
Security deposits -- (6,890)
Deposits 1,000 --
Accrued expenses and interest (43,893) (6,730)
--------- ---------
Total Adjustments (287,336) (62,384)
--------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES (229,329) (889,197)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net -- (158,069)
Proceeds from sale of patent 62,000
Patent and trademark acquisitions -- (1,050)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES 62,000 (159,119)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Sale of common stock 65,000 440,000
Proceeds from options sold -- 25,000
Principal payments under capital lease (414) (723)
--------- ---------
NET CASH PROVIDED BY FINANACING ACTIVITIES 64,586 464,277
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (102,743) (584,039)
--------- ---------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 160,334 832,502
--------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 57,591 $ 248,463
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest ............................................... $ 201 $ 338
Income Taxes ........................................... -- --
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE>
NOTE 1: FINANCIAL STATEMENTS
The Balance Sheet as of May 31, 1999, the Statement of Operations for
the six months ended May 31, 1999 and the Statement of Cash Flows for the six
months ended May 31, 1999 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 May 31, 1999 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, 1998 annual
report to shareholders. The results of operations for the period ended May 31,
1999 are not necessarily indicative of the operating results for the full year.
NOTE 2: AGREEMENTS
In March 1999, the Company sold its Hygiene Guard patent estate and
product development. Under the terms of the agreement, the Company will receive
10% percent of net U.S. sales of the patented hand wash reminder and monitoring
technology for a period of 10 years. The Company will also receive 5% of net
U.S. sales for the next two years, 2 1/2% of net U.S. sales for the following
three years and 7% of all foreign net sales for a period of ten years. In March
1999, the Company received a down payment of $50,000 and is to receive minimum
guaranteed payments of $12,000 per month for a period of twenty months. The
purchaser will also fund product development, patent prosecution protection and
worldwide marketing.
The Company believes that the signing of this contract will put it in a
position to meet its present and future working capital obligations. However,
even though there are minimum guaranteed payments to the Company, there is still
a risk factor to be assumed by investors. While the contract provides for
initial payments totaling $290,000 additional revenue is contingent upon GOJO's
sales of the patented equipment.
NOTE 3: LEGAL PROCEEDINGS
On May 19, 1999 the Company was notified that Compliance Control, Inc.
(CCI) demands arbitration against the Company. The demand is made pursuant to
the written agreement with the Company dated March 12, 1998, CCI and the
Company had contracted for the distribution of the Hygenius(TM) hand washing
control and monitoring systems manufactured by or for CCI. The Agreement
requires the Company to pay CCI a minimum amount each month, in the event that
the Company failed to sell the minimum number of the product. The claims
against the Company are breach of contract in the amount of $112,672.76 plus
interest and recovery of arbitration fees, costs and attorneys' fees in an
amount to be determined by the Arbitrator.
On June 18, 1999 the Companay filed a Demand for Arbitration
Counterclaim against Compliance Control, Inc. The nature of the counterclaim
included breach of contract, covenant of good faith and fair dealing, fraud
and trade disparagement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
Net/Tech International, Inc., a Delaware Corporation, is the developer
of the patented Hygiene Guard Hand Wash Reminder and Monitoring technology which
prompt and verifies employee hand washing in any environment where hygiene is a
priority.
Net/Tech International was founded in 1990. Prior to April 1996, the
Company was focused on commercializing its patented technology for water
dispersible products. The Company developed a prototype of the water dispersible
product, which was successfully tested by the US Military. At that time the
product could not be produced cost effectively enough to be competitive with
styrofoam. The Company retains ownership to its water dispersible patents and
may determine to investigate the potential to commercialize this technology.
During fiscal 1996 the Company made a determination to focus on its
patented Hygiene Guard Hand Wash Reminder and Monitoring technology. The Company
strategy was to capitalize on the growing demand for health and food safety
products as a result of serious food borne illness outbreaks which have
substantially increased in frequency in the United States and abroad.
Between 1996 and until October 1998 the Company raised funds and
focused its efforts in order to accomplish the following: 1) Completion of the
design and development of the Hygiene Guard Hand Wash Reminder and Monitoring
System Series 4000/5000 2) Field testing and manufacturing of the Hygiene Guard
product line 3) Introduction of the product line to the food service and medical
industries 4) Hired executives to develop a complete food safety catalog in
order to position the Company as a food safety solution provider.
Net/Tech's initial product development focus was to produce a Hygiene
Guard product capable of identifying employees who did not wash after using the
restroom facilities and to create a reporting system for
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<PAGE>
overall employee hand washing. As a result of this design criteria the Company
designed a Hygiene Guard Series 4000 product, which required a hard wire
installation and a Windows 95' computer in order to run the system.
The Company received tremendous media exposure (including CNN
Worldwide) and was successful in its initial marketing efforts, receiving test
purchase orders from many well-known fast food chains including KFC, Big Boys,
WhatABurger, Arby's, Chili's and other well known companies.
After extensive testing and evaluation, the Hygiene Guard product line
was deemed to have important benefits and be of substantial value to end users
hand washing activity. However, end users noted the following drawbacks, which
made them reluctant to commit to substantial purchases. 1) Necessity of a costly
hard wire installation. 2) Cost of the system (approximately $2500 per store).
3) Complexity of operating a computer in order to run the system. As a result of
these drawbacks these companies were unwilling to place substantial purchase
orders. All of the fast food chains involved however, did indicate a significant
interest in a simple Hygiene Guard type system that would remind the employees
to wash and make sure they get to the sink. In addition, specific end users
indicated a strong interest in monitoring hand washes upon entry into the
kitchen.
As a result of the Company's inability to achieve substantial
commitments from end users the Company was unable to secure the necessary
financing to execute its business plan to become a complete food safety
solutions provider. Additionally, the Company was forced to abandon its plans
for completing a health and food safety catalog and for development of
distribution channels for its existing systems.
In October 1998 the Company made a decision to focus its efforts on 1)
developing a less expensive, less sophisticated version of the Hygiene Guard
product line. 2) Establish a strategic partnership or agreement with an
international food safety related company in order to market the Company's hand
washing systems throughout the world. The Company determined it was necessary to
pursue a strategic alliance in order to effectively market its systems since the
Company did not have the resources to manufacture cost effectively or create its
own distribution channels.
GOJO INDUSTRIES AGREEMENT
In July 1998 the Company initiated discussions with industry leading
international hygiene related companies in an effort to establish a strategic
relationship to market the next generation of the Hygiene Guard product line.
After a market analysis and multiple negotiations the Company has
chosen to enter into a worldwide exclusive agreement with GOJO Industries, Inc.
GOJO, developer of the Purrell hand sanitizer, is an industry leading provider
of soap and hand hygiene products to the worldwide food service and medical
markets. GOJO is a privately held company located in their state of the art
500,000 square feet facility near Akron, Ohio. GOJO employs over 800 people and
is an industry leader in food service, institutional and health care markets.
GOJO products are sold in 46 countries worldwide.
Under the March 15, 1999 agreement, Net/Tech has agreed to sell its
entire hand washing technology patent estate and product development to date to
GOJO in return for 10% of GOJO US net sales of the patented hand wash reminder
and monitoring equipment for a period of 10 years and 5% of sales for 2 years
and 2 1/2% for 3 years. Also Net/Tech will receive 7% on foreign net sales of
the patented equipment for a period of 10 years. The agreement also states
GOJO's intention to fund product development, patent prosecution, protection and
worldwide marketing. In addition, GOJO will make a substantial down payment and
monthly payments to Net/Tech for a total of 20 months totaling $290,000. The
Company believes this Agreement with GOJO is the best alternative available to
successfully commercialize the Hygiene Guard Hand Wash Reminder & Monitoring
technology worldwide.
8
<PAGE>
RESULTS OF OPERATIONS
Net/Tech International Inc. is a development stage company, which is in
the process of commercializing its patented hand wash reminder and monitoring
technology. The Company's primary products are its patented Hygiene Guard
series, which prompts and monitors employee hand washing in any environment
where hygiene is a priority.
Research, development and related engineering expenses for the six
months ended May 31, 1999, were $25,299 as compared to $173,317 for the six
months ended May 31, 1998. The expenses incurred during 1998 reflect
expenditures to both refine and manufacture the Hygiene Guard Series 4000. After
marketing the original Hygiene Guard product line and obtaining limited sales
and market acceptance the Company made a determination to develop a new
generation of product line and seek a strategic partner to perfect and market
its systems. On November 9, 1998 the Company entered into an agreement with XL
Research, Inc. for the hardware, software design and development of the new
Hygiene Guard Series 2000/3000., a less expensive and less sophisticated series
of hand washing system technology.
In March 1999, the Company entered into an agreement with GOJO
Industries. The key terms of the agreement are as follows:
Net/Tech to sell the entire Hygiene Guard patent estate to GOJO
Industries.
GOJO to control product development, patent protection and marketing
costs. Net/Tech to receive $290,000 over 20 months and 10% US net sales
of the patented equipment for 10 years, 5% for 2 years and 2 1/2% for 3
years. In addition, Net/Tech will receive 7% of foreign net sales of
the patented equipment for 10 years. No minimum sales guarantees are
required by GOJO.
GOJO is in the business of supplying soap and hand hygiene products to
the worldwide foodservice and healthcare markets, therefore they can market the
Hygiene Guard as an additional product to existing customers. Net/Tech does not
have to provide any capital for buying and assembly of units nor selling
expenses thereon. In March 1999, Net/Tech received a $50,000 deposit and is to
receive a minimum of $12,000 per month for 20 months. In addition, Net/Tech will
receive net sales percentages of the patented equipment, previously noted. Their
main source of income will be these payments and fees generated by the sale of
units by GOJO.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses since inception and revenues
consist of $23,584 for the six months ended May 31, 1999 from the sales of the
Hygiene Guard Series 4000 product. At May 31, 1999 the Company had cash and cash
equivalents of $57,591. The Company received $65,000 from the sale of 433,333
shares at 15(cent) per share during the six months ended May 31, 1999. In March
1999, the Company received a down payment of $50,000 and will receive minimum
guaranteed payments of $12,000 per month for a period of twenty months for the
sale of its Hygiene Guard patent estate and product development.
The Company is now dependent upon GOJO as its main source of revenue.
There are no assurances as to the level of GOJO's Hygiene Guard product sales or
its success in marketing. The Company is dependent upon the initial and net
sales payments from GOJO as well as obtaining additional financing. The Company
may not have enough cash to pay-off its current payables and operate. There is
no assurance that additional financing will be available. The Company has not
established borrowing arrangements or have an available line of credit.
MANAGEMENT
At present there are 2 employees on the staff of the Company. Glenn E.
Cohen serves as the Chairman of the Board and Chief Executive Officer.
9
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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>
ITEM 1: LEGAL PROCEEDINGS
On May 19, 1999 the Company was notified that Compliance Control, Inc.
(CCI) demands arbitration against the Company. The demand is made pursuant to
the written agreement with the Company dated March 12, 1998, CCI and the
Company had contracted for the distribution of the Hygenius(TM) hand washing
control and monitoring systems manufactured by or for CCI. The Agreement
requires the Company to pay CCI a minimum amount each month, in the event that
the Company failed to sell the minimum number of the product. The claims
against the Company are breach of contract in the amount of $112,672.76 plus
interest and recovery of arbitration fees, costs and attorneys' fees in an
amount to be determined by the Arbitrator.
On June 18, 1999 the Companay filed a Demand for Arbitration
Counterclaim against Compliance Control, Inc. The nature of the counterclaim
included breach of contract, covenant of good faith and fair dealing, fraud
and trade disparagement.
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.
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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: July 20, 1999
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