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, 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.
(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, 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 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1999 1998
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 68,332 $160,334
Accounts receivable 24,962 9,437
Prepaid expenses 12,878 12,419
-------- --------
Total Current Assets 106,172 182,190
-------- --------
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 29,692 26,474
-------- --------
43,356 46,574
-------- --------
INTANGIBLE ASSETS
Patent application costs (net of accumulated
amortization of $22,971 and $21,144 respectively) 50,805 52,632
-------- --------
50,805 52,632
-------- --------
OTHER ASSETS
Security deposits 10,850 10,850
-------- --------
TOTAL ASSETS $211,183 $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>
February 28, November 30,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, accrued expenses and interest $ 85,404 $ 146,883
Obligations under capital lease-current portion 1,759 1,759
----------- -----------
Total Current Liabilities 87,163 148,642
----------- -----------
Accrued compensation -- --
Obligations under capital lease -- --
Deposits 2,600 1,600
----------- -----------
Total Other Liabilities 2,600 1,600
----------- -----------
Total Liabilities 89,763 150,242
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 (5,956,966) (5,871,382)
----------- -----------
Total Stockholders' Equity 121,420 142,004
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 211,183 $ 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 LOSSES
<TABLE>
<CAPTION>
Three Months Three Months
ended ended
February 28, February 28,
1999 1998
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
REVENUE $ 23,584 $ --
COSTS AND EXPENSES:
Cost of sales 17,848 --
Marketing, general & administrative expenses 66,894 302,822
Research, development and related expenses 20,299 91,588
Depreciation and amortization 5,046 4,671
----------- -----------
OPERATING LOSS $ (86,502) ($ 399,081)
OTHER (INCOME) AND EXPENSE:
Interest income (1,055) --
Interest expense 137 124
----------- -----------
(918) 124
NET LOSS $ (85,584) ($ 399,205)
NET LOSS PER SHARE ($ 0.01) ($ 0.06)
=========== ===========
Number of Shares Used In Computation 9,500,377 6,820,419
=========== ===========
</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>
Three Months Ended
---------------------------
February 28, February 28,
1999 1998
(unaudited) (unaudited)
----------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ($ 85,584) ($399,205)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation and amortization 5,046 4,672
Compensation and services paid in Common Stock -- 20,000
Accounts receivable (15,525)
Prepaid expenses (459) --
Security deposits -- (7,310)
Accounts payable, accrued expenses and interest (61,480) (51,173)
Deposits 1,000 --
--------- ---------
Total Adjustments (71,418) (51,898)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (157,002) (451,103)
--------- ---------
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)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 65,000 30,000
Proceeds from options sold -- 25,000
Principal payments under capital lease -- (355)
--------- ---------
NET CASH PROVIDED BY FINANACING ACTIVITIES 65,000 54,645
--------- ---------
Net Decrease in Cash and Cash Equivalents (92,002) (425,829)
--------- ---------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 160,334 832,502
--------- ---------
CASH AND CASH EQUIVALENTS END OF YEAR $ 68,332 $ 406,673
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 137 $ 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, 1999, the Statement of Operations for
the three months ended February 28, 1999 and the Statement of Cash Flows for the
three months ended February 28, 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 February 28, 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 February
28, 1999 are not necessarily indicative of the operating results for the full
year.
During the quarter, the Company received $65,000 from the sale of 433,333
shares of common stock. Stock issued will be subject to Rule 144 restrictions.
NOTE 2: AGREEMENTS
In March 1999, the Company sold its Hygiene Guard patent estate and product
development to GOJO Industries, Inc. Under the terms of the agreement, the
Company will receive a down payment of $50,000 and minimum guaranteed payments
of $12,000 per month for a period of twenty months. In addition the Company will
recieve 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 addition, the purchaser intends to 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.
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.
7
<PAGE>
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 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 the food service, institutional and healthcare 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 three months
ended February 28, 1999, were $20,299 as compared to $91,588 for the three
months ended February 28, 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 three months ended February 28, 1999 from the sales
of the Hygiene Guard Series 4000 product. At February 28, 1999 the Company had
cash and cash equivalents of $68,332. The Company received $65,000 from the sale
of 433,333 shares at 15(cent) per share during the three months eNDED February
28, 1999.
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
<PAGE>
FORWARD LOOKING STATEMENTS
Statements wherein the terms "believes", "intends", or "expects" are
intended to reflect "forward looking statements" of the Company. The information
contained herein is subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements or paragraphs. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation(1)
3.2 By-Laws(1)
------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-36198).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed since the last report.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET/TECH INTERNATIONAL, INC.
/S/ GLENN E. COHEN
Glenn E. Cohen
Chairman and Chief Executive Officer
Date: April 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 68,332
<SECURITIES> 0
<RECEIVABLES> 24,962
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,172
<PP&E> 73,048
<DEPRECIATION> 29,692
<TOTAL-ASSETS> 211,183
<CURRENT-LIABILITIES> 87,163
<BONDS> 0
0
0
<COMMON> 97,587
<OTHER-SE> 23,833
<TOTAL-LIABILITY-AND-EQUITY> 211,183
<SALES> 23,584
<TOTAL-REVENUES> 23,584
<CGS> 17,848
<TOTAL-COSTS> 110,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,584)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
