SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended November 30, 1998.
Commission File Number 33-36198
NET/TECH INTERNATIONAL, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
DELAWARE 22-3038309
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization). Identification No.)
1 WEST FRONT STREET, SUITE 30, RED BANK, NEW JERSEY 07701
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (732) 345-1100
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Check whether Issuer: (1) has filed all reports required to be filed by section
13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form or any amendment to this Form
10-KSB. [ ]
Issuer's Revenues for its most recent fiscal year: $36,022.
As of January 29, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was $3,315,286. The market value of Common Stock of
the Issuer, par value $.01 per share, was computed by reference to the average
of the closing bid and asked prices of one share on such date which was 3.
The number of shares outstanding of the Issuer's Common Stock, par value $.01
per share, as of January 29, 1999: 9,389,096.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference: The information required by Part
III of Form 10-KSB is incorporated by reference to the Issuer's definitive proxy
statement relating to the 1999 Annual Meeting of Shareholders which is expected
to be filed with the Securities and Exchange Commission on or about March 30,
1999.
2
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW OF BUSINESS
Net/Tech International, Inc. is a Delaware Corporation, is the
developer of the patented Hygiene Guard Hand Wash Reminder and Monitoring
technology which prompts 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.
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 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, Arbys, Chilis 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 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.
3
<PAGE>
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 throughout the world.
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.
PATENTS
On April 30, 1990, the Company filed for US patent protection on the
water-dispersible technology (No. 5,110,525, granted May 5, 1992), useful in
manufacturing rigid containers for use in the medical and food industries. The
inventors, William H. Hale and Roger E. Kolsky, have assigned the patent rights
to the Company. Agricultural and process patent applications have been filed.
On January 18, 1991, the Company filed for US patent protection on the
Hygiene Guard(TM) invention. A patent was granted on April 13, 1993 (No.
5,202,666). All patent rights have been assigned to the Company by the
inventors, Daniel D. Richard and Herman Knippscheer. The Company intends to file
additional US and International patents for the different variations and
applications of the Hygiene Guard systems it intends to manufacture.
The Company has made a provisional patent application and three
corresponding applications to the US patent office on April 29, 1998 and
November 20, 1998 respectively relating to its Hygiene Guard systems. These new
applications and the entire Hygiene Guard patent estate is being sold to GOJO
Industries as part of the GOJO agreement. All inventors have assigned the patent
rights to the Company.
The Company was issued a patent (Patent No. 5,135,721, granted August
4, 1992) for a sterilization apparatus called Steril-Eze. All patent rights have
been assigned by the inventor to the Company.
The Company was issued a usage patent on the water-dispersible
technology (Patent No. 5,335,449, granted August 9, 1994) for the agriculture
market. All patent rights have been assigned by the inventor to the Company.
Net/Tech was issued a process patent on the water-dispersible
technology (Patent No. 5,346,449, granted September 13, 1994). This patent
covers the process required to produce the material and the ability to vary
dispersal times. All patent rights have been assigned by the inventors to the
Company.
4
<PAGE>
COMPETITION
The Company has identified at least one other manufacturer of hand wash
monitoring systems, and believes that the proposed Hygiene Guard series 1000 -
3000 product line offers features and cost savings currently unavailable in the
marketplace.
RESEARCH AND DEVELOPMENT
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. The Company has spent approximately $419,013
during the fiscal year ended November 30, 1998 on total research and development
costs. These funds were spent in order to both refine and manufacture the
Hygiene Guard Series 4000 and development of the Hygiene Guard Series 2000/3000.
Approximately $66,046 of these expenses were unpaid as of November 30, 1998.
EMPLOYEES
As of November 30, 1998 the Company had 3 full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 4700 square feet in Red Bank, New
Jersey, with an annual rent of $63,150.24. The current lease expires March 2001.
On August 14, 1998 the Company subleased approximately 700 square feet
with an annual rent of $9,600. Subsequent to November 30, 1998 the Company also
subleased an additional 2500 square feet with an annual rent of $36,000. The
Company's total space subleased is + 3200 square feet which provide sublease
income of $45,600 annually.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS
The Company held a special meeting of shareholders on October 29, 1998
for the following purposes:
1) To consider and act upon a proposal to issue and sell a minimum of
2,000,000 shares and a maximum of 2,666,667 shares of the
Company's Common Stock, $.01 par value (the "Common Stock"), at a
price of $.15 per share, pursuant to a private offering of Common
Stock to be conducted by the Company which will result in
aggregate gross proceeds of approximately $300,000 if the minimum
number of shares are sold and $400,000 if the maximum number of
shares are sold.
2) To consider and act upon a proposal to grant Glenn E. Cohen,
Chairman, President and Chief Executive Officer of the Company, an
option to purchase 1,000,000 shares of the Company's Common Stock
for $.15 per share (the "Option"). If approved by stockholders,
the Option will be immediately exercisable with respect to 250,000
shares. The Option shall become exercisable with respect to the
remaining 750,000 shares only if (i) the Company achieves revenues
of $1 million or more from and after the date of grant (October
15, 1998) of the Option, (ii) there is a change in control of the
Company or (ii) the termination, under certain circumstances, of
Mr. Cohen's employment with the Company.
Both proposals were approved by the shareholders. The following is a tally of
votes:
(1) For: 3,816,911 Against: 69,000 Abstain: 0
(2) For: 3,743,311 Against: 142,500 Abstain: 100
5
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock has been trading on the Over-the-Counter
market since January 10, 1992, the date of the Company's initial public
offering. The following table shows for the calendar periods indicated the high
and low closing bid quotation for the Company's Common Stock. The quotations,
from Dow Jones Retrieval Service, represent inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions.
HIGH BID LOW BID
-------- -------
1998
----
First Quarter 4 1/16 2 1/12
Second Quarter 3 3/8 2 9/16
Third Quarter 2 7/8 1 5/16
Fourth Quarter 7/16 3/8
1997
----
First Quarter 2 3/4 2
Second Quarter 3 3/8 1 7/16
Third Quarter 3 3/16 1 3/4
Fourth Quarter 4 2 1/4
(b) As of January 29, 1999, there were approximately 214 record holders
of the Company's Common Stock. In addition, there are 410 shareholders in street
name whose shares are held in the name of other nominees.
(c) There have been no dividends declared or paid by the Company on its
Common Stock during the past three years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included in this discussion contains forward looking
statements that are based on current expectations and beliefs and involve
numerous risks and uncertainties that could cause actual results to differ
materially. Readers are cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date hereof.
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. 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 made significant expenditures for research,
development and related engineering costs during fiscal 1998 as compared to
fiscal 1997. In 1997 this reflected the Company's contract with the supplier of
its printed circuit assembly components. These expenditures were paid for
working engineering model systems with a personal computer based system
controller capable of remote access, field testing of the model systems,
productions of beta test and field testing units. The Company also incurred
engineering costs with the company assembling the Hygiene Guard 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. In 1998
these costs continued and additional funds were expended to initiate development
of a less expensive and less sophisticated series of hand washing system
technology. These costs totaled $419,013 in fiscal 1998.
6
<PAGE>
The research and development expense consisted of $391,939 in 1997.
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.
The Company abandoned the original Series 4000/5000 version as to
complex and expensive for the marketplace and has initiated development of a
less expensive less complicated product line. During the year, after the
abandonment of marketing of the original Hygiene Guard, the Company abandoned
the inventory and prototype of the original Hygiene Guard systems.
The Company has entered into a contract with GOJO Industries. The key
terms of the contract are as follows:
1. Net/Tech to sell the entire Hygiene Guard patent estate and product
development to date to GOJO Industries.
2. 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.
Since they are in the business of supplying soap and hand hygiene
products to the worldwide foodservice and healthcare markets, they can market
the Hygiene Guard as an additional product for existing customers. Net/Tech does
not have to provide any capital for buying and assembly of units nor selling
expenses thereon. As previously noted Net/Tech is to receive a $50,000 deposit
plus 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.
In connection the Company has written off in 1998 all inventory and
prototype that is not useable. These amounted to $251,288 and $119,795
respectively. They are currently developing a new version of product, which will
be sold to GOJO along with the patent estate.
In fiscal 1997, the Company incurred costs for printing promotional
brochures, travel to tradeshows and memberships in numerous food processing and
food sanitation associations, and costs related to establishing strategic
alliances or licensing agreements with selected distributors in an effort to
position the Company as a health and food safety solutions provider. In 1998 the
Company raised a total of $1,407,905 by sale of its stock and conversion of some
options. The Company continued research and development for a newer model of the
Hygiene Guard and abandoned efforts to market the original Hygiene Guard Series
4000 as well as its plans to become a complete health and food safety solutions
provider. As a consequence the Company wrote off $371,082 in inventory parts and
in abandonment of the prototype.
LIQUIDITY AND CAPITAL RESOURCES
The Company sustained a loss of $2,071,877 and has had no revenue other
than from the sale of $36,022 of Hygiene Guard Series 4000 product. In order for
the Company to attract capital it issued 2,099,997 shares at 15(cent) per share
during the year in a private offering, as well as 535,430 shares at prices from
$1.25 to $2.00 during the year and from conversions of options and payment
creditors in stock. The Company's working capital as of November 30, 1998 was
approximately $33,548 with its assets consisting mostly of cash.
RISK FACTORS
The Company's business, results of operations and financial condition
are subject to the following risk factors:
LIMITED OPERATING HISTORY: SIGNIFICANT AND CONTINUING LOSSES. Although the
Company was formed in 1990, as far as the development, manufacture and sale of
the Hygiene Guard product series is concerned, it has limited operational
history upon which investors may base an evaluation of its performance or any
assumption as to the likelihood that the Company will be profitable. The
Company's prospects must be considered in light of the risks, problems and
difficulties frequently encountered in the establishment of a new business and
the development and
7
<PAGE>
commercialization of new products based on innovative technology. There can be
no assurance that the Company will be able to generate significant revenues or
achieve profitability.
Although 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.
TECHNOLOGICAL FACTORS. The Company's development of the Hygiene Guard has
changed direction to develop a less sophisticated, less expensive product line.
It is continuing to seek means as to refining and improving its product. The
Company's effort remains subject to risk inherent with new product development
including delays incorporating technologies into the products. The Company's
contract with GOJO in effect transfers these undertaking to GOJO.
MARKET ACCEPTANCE. The original line of Hygiene Guard did not achieve market
acceptance and as a result the Company is developing a less sophisticated, less
expensive product line in order to fill the needs of the marketplace. Demand and
market acceptance for new products is subject to a high level of uncertainty.
DEPENDENCE ON GOJO CONTRACT. Presently, the Company's main source of revenue
will be from payment from GOJO Industries including a payment as a percentage of
net sales of the patented hand washing equipment. No guarantee can be made, as
to the levels of sales which can be achieved by GOJO.
NEED FOR ADDITIONAL FINANCING. As of the fiscal year the Company shows a working
capital of $33,548. 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 no
established borrowing arrangements or available line of credit.
8
<PAGE>
ITEM 7 FINANCIAL STATEMENTS
The financial statement and supplementary data listed in the
accompanying Index to Financial Statements are attached as part of this report.
NET/TECH INTERNATIONAL, INC.
LIST OF FINANCIAL STATEMENTS
The following financial statements of Net/Tech International, Inc. are included
in Item 7:
Report of Independent Public Auditors 10
Balance Sheets F 1
Statements of Loss F 3
Statements of Cash Flows F 4
Statements of Shareholders' Equity - Inception Through November 30, 1998 F 7
Notes to Financial Statements F11
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Net/Tech International, Inc.
We have audited the accompanying consolidated balance sheets of Net/Tech
International, Inc. (a development stage company) as of November 30, 1998 and
1997, and the related consolidated statements of loss and cash flows for the
years ended November 30, 1998 and 1997 and for the period from September 11,
1989 (inception) through November 30, 1998 and consolidated statements of
stockholders' equity from inception through November 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Net/Tech International, Inc. as of November 30, 1998 and 1997 and the
consolidated results of operations, cash flows and statements of stockholders'
equity and deficit accumulated during the development stage from inception
through November 30, 1998 in conformity with generally accepted accounting
principles.
MIRSKY, FURST & ASSOCIATES, P.A.
Fort Lee, New Jersey
March 5, 1999
Except for Note 3 which is
March 15, 1999
10
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
------
NOVEMBER 30, NOVEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 160,334 $ 832,502
Accounts receivable 9,437 --
Inventory -- 41,479
Prepaid expenses 12,419 --
---------- ----------
Total Current Assets 182,190 873,981
---------- ----------
FIXED ASSETS
Leasehold improvements 10,126 10,126
Furniture and fixtures 44,024 35,494
Machinery and equipment 18,898 73,146
---------- ----------
73,048 118,766
Less: Accumulated Depreciation 26,474 20,096
---------- ----------
46,574 98,670
---------- ----------
INTANGIBLE ASSETS
Patent application costs (net of accumulated 52,633 59,942
amortization of $21,144 and $13,834 respectively)
OTHER ASSETS
Security deposits 10,850 4,044
---------- ----------
TOTAL ASSETS $ 292,247 $1,036,637
------------ ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F1
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 30,
1998 1997
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses and interest $ 146,883 $ 102,397
Obligations under capital lease-current portion 1,759 1,505
----------- -----------
Total Current Liabilities 148,642 103,902
OTHER LIABILITIES
Accrued compensation -- 125,000
Obligations under capital lease -- 1,759
Deposits 1,600 --
----------- -----------
Total Other Liabilities 1,600 126,759
----------- -----------
Total Liabilities 150,242 230,661
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 20,000,000
authorized; 9,324,637 and
6,689,210 shares issued and outstanding,
respectively 93,246 66,892
Additional paid-in capital 5,920,140 4,538,589
Deficit accumulated during the development stage (5,871,382) (3,799,505)
----------- -----------
Total Stockholders' Equity 142,004 805,976
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 292,247 $ 1,036,637
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
F2
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSSES
<TABLE>
<CAPTION>
JANUARY 10,
1990
FOR THE YEAR FOR THE YEAR (INCEPTION)
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1998 1997 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Revenue $ 36,022 $ - $ 36,022
COSTS AND EXPENSES:
Cost of sales 14,674 - 14,674
Marketing, general & administrative expenses 1,298,821 814,604 3,964,984
Research, development and related expenses 419,013 391,939 1,381,794
Depreciation and amortization 20,266 18,974 90,681
--------------- --------------- ----------------
OPERATING LOSS $(1,716,752) ($1,225,517) $(5,416,111)
OTHER (INCOME) AND EXPENSE:
Interest income (16,366) - (40,528)
Interest expense 409 627 60,471
Loss on abandonment of assets 371,082 - 371,653
Loss on abandonment of patents - - 33,675
Write-off of investment - - 30,000
--------------- --------------- ----------------
355,125 627 455,271
NET INCOME (LOSS) $(2,071,877) ($1,226,144) ($5,871,382)
NET INCOME (LOSS) PER SHARE $ (0.29) ($0.20)
=============== ===============
Number of Shares Used In Computation 7,085,086 6,024,262
=============== ===============
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F3
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 10,
1990
(INCEPTION)
THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
FISCAL YEAR ENDED 1998 1997 1998
- ----------------- ------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Profit (Loss) ($2,071,877) ($1,226,144) ($5,871,382)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation 12,873 14,564 66,284
Amortization of intangible assets 7,394 4,410 22,145
Write-off of patents and trademarks -- -- 35,927
Loss on disposal of assets 119,795 -- 121,398
Decrease in accrued expenses from Initial
public offering -- -- 30,500
Compensation and services paid in Common Stock 202,905 219,000 422,155
Investment -- -- 30,000
Interest to affiliate paid in Common Stock -- -- 6,856
Accounts receivable (9,437) -- (9,437)
Inventory 41,479 (41,479) --
Prepaid expenses (12,419) -- (12,419)
Security deposits (6,806) 17,990 (10,766)
Accounts payable, accrued expenses and interest 44,486 74,833 200,414
Accrued compensation (125,000) -- (125,000)
Deposits 1600 -- 1,600
Other (84) -- (84)
----------- ----------- -----------
Total Adjustments 276,786 289,318 779,573
----------- ----------- -----------
NET CASH (USED IN)
OPERATING ACTIVITIES (1,795,091) (936,826) (5,091,809)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net (80,572) (99,695) (234,256)
Patent and trademark acquisitions -- -- (82,704)
----------- ----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES ($ 80,572) ($ 99,695) ($ 316,960)
----------- ----------- -----------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
F4
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
JANUARY 10,
1990
(INCEPTION)
THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
FISCAL YEAR ENDED 1998 1997 1998
- ----------------- ----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 1,205,000 1,312,750 2,973,985
Loan proceeds from affiliate -- -- 634,182
Repayment of debt to affiliate -- -- (169,357)
Financing via capital leases -- -- 4,551
Other -- -- (16)
Proceeds from debt -- -- 130,000
Deferred public offering costs -- -- (84,496)
Issuance of common stock net of offering costs -- -- 1,054,078
Proceeds from options sold -- 480,000 480,000
Principal payments under capital lease (1,505) (1,287) (2,792)
Proceeds of warrants exercised -- -- 548,968
----------- ----------- -----------
1,203,495 1,791,463 5,569,103
NET CASH PROVIDED BY ----------- ----------- -----------
FINANCING ACTIVITIES
Net Increase (Decrease) in Cash and Cash Equivalents (672,168) 754,942 160,334
----------- ----------- -----------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 832,502 77,560 --
----------- -----------
CASH AND CASH EQUIVALENTS END OF YEAR $ 160,334 $ 832,502 $ 160,334
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
F5
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 10,
1990
(INCEPTION)
THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
FISCAL YEAR ENDED 1998 1997 1998
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash Paid During the Period For:
Interest $ 409 $ 627 $1,036
Income Taxes $ -- $ -- $ --
</TABLE>
Supplemental schedule of noncash activities:
The Company recognized consulting expense of $12,605 for common stock in
connection with contracts to vendors. The Company recognized $170,300 in
compensation expense on options granted an employee. The expense was
calculated on the difference between the fair market value of the stock less
the exercise price on the date of grant. The Company abandoned its original
prototype and sustained a loss of $119,795 which was net of accumulated
depreciation of $6,495.
The Company abandoned all of its inventory in relation to the original
prototypes and sustained a loss in the amount of $251,288.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F6
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
INCEPTION THROUGH NOVEMBER 30, 1998
DEFICIT TOTAL
ACCUMULATED SHARE-
DURING THE HOLDERS'
COMMON STOCK ADDITIONAL PAID DEVELOPMENT EQUITY
SHARES AMOUNT IN CAPITAL STAGE (DEFICIT)
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
JANUARY 10, 1990 (INCEPTION)
Shares issued at $.01 per unit
For cash-private placement 3,162,500 $ 31,625 -- -- $ 31,625
For promotional service provided 25,000 250 -- -- 250
For subscription receivable 750,000 7,500 -- -- 7,500
For organizational costs provided 100,000 1,000 -- -- 1,000
For patent assignment 200,000 2,000 -- -- 2,000
Shares issued at $1.00 per unit
For cash-private placement 130,000 1,300 128,700 -- 130,000
Exercise of options 30,000 300 29,700 -- 30,000
Net (Loss) (154,151) (154,151)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1990 4,397,500 $ 43,975 $ 158,400 ($ 154,151) $ 48,224
DECEMBER 1, 1990 TO NOVEMBER 30, 1991
Net (Loss) (144,403) (144,403)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1991 4,397,500 $ 43,975 $ 158,400 ($ 298,554) ($ 96,179)
DECEMBER 1, 1991 TO NOVEMBER 30, 1992
Shares issued at $7.00 per share
For cash - IPO 149,110 1,491 1,042,279 -- 1,043,770
Shares issued at $2.33 per share
For Convertible Note 55,787 558 129,426 -- 129,984
Shares issued at $2.00 per share
For Inside A Warrants 10,000 100 19,900 -- 20,000
Shares issued at $2.67 per share
For Inside B Warrants 10,000 100 26,600 -- 26,700
Reduction of deferred offering costs -- -- (212,813) -- (212,813)
Net (Loss) (662,629) (662,629)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1992 4,622,397 $ 46,224 $ 1,163,792 ($ 961,183) $ 248,833
=========== =========== =========== =========== ===========
</TABLE>
F7
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
INCEPTION THROUGH NOVEMBER 30, 1998
DEFICIT TOTAL
ACCUMULATED SHARE-
ADDITIONAL DURING THE HOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
-------------- ----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
DECEMBER 1, 1992 TO NOVEMBER 30, 1993
Shares issued at $7.50 per share
For - IPO A Warrants 33,230 332 248,893 -- 249,225
Shares issued at $4.66 per share
For Convertible Note A Warrants 500 5 2,325 -- 2,330
Shares issued at $2.00 per share
For Inside A Warrants 25,000 250 49,750 -- 50,000
Shares issued at $2.67 per share
For Inside B Warrants 5,000 50 13,320 -- 13,370
Proceeds from private placement:
Shares issued at $2.50 per share 60,000 600 148,386 -- 148,986
Shares issued at $6.00 per share 3,000 30 17,870 -- 17,900
Shares issued at $2.42 per share 92,000 920 222,080 -- 223,000
Shares issued at $2.33 per share 10,000 100 23,250 -- 23,350
Shares issued at $4.00 per share
For Professional Services 2,000 20 7,980 -- 8,000
Net (Loss) (656,814) (656,814)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1993 4,853,127 $ 48,531 $ 1,897,646 ($1,617,997) $ 328,180
December 1, 1993 to November 30, 1994
Proceeds from private placement:
Shares issued at $2.75 per share 2,000 20 5,480 -- 5,500
Net (Loss) (521,615) (521,615)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1994 4,855,127 $ 48,551 $ 1,903,126 ($2,139,612) ($ 187,935)
=========== =========== =========== =========== ===========
</TABLE>
F8
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
INCEPTION THROUGH NOVEMBER 30, 1998
DEFICIT TOTAL
ACCUMULATED SHARE-
ADDITIONAL DURING THE HOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DECEMBER 1, 1994 TO NOVEMBER 30, 1995
Net (Loss) (235,508) (235,508)
----------- -----------
BALANCE NOVEMBER 30, 1995 4,855,127 $ 48,551 $ 1,903,126 ($2,375,120) ($ 423,443)
----------- ----------- ----------- ----------- -----------
DECEMBER 1, 1995 TO NOVEMBER 30, 1996
Shares issued at $1.25 per share for 149,874 1,499 185,844 -- 187,343
Inside A & B Warrants
Proceeds from private placement:
Shares issued at $0.25 per share 150,000 1,500 36,000 -- 37,500
Shares issued at $1.00 per share
to acquire Pressure Point Tech 25,000 250 24,750 -- 25,000
Shares issued at $1.00 per share
for Convertible Loan 517,211 5,172 512,039 -- 517,211
Net (Loss) (198,241) (198,241)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1996 5,697,212 $ 56,972 $ 2,661,759 ($2,573,361) $ 145,370
----------- ----------- ----------- ----------- -----------
DECEMBER 1, 1996 TO NOVEMBER 30, 1997
Proceeds from private placement:
Shares issued at $1.25 per share 626,000 6,260 776,240 -- 782,500
Sale of options for $1.00 per option -- -- 200,000 -- 200,000
with an exercise price of $2.50
Sale of options for $.25 per option -- -- 270,000 -- 270,000
with an exercise price of $2.50
Shares issued at $1.50 per share upon 349,998 3,500 521,500 -- 525,000
exercise of stock options
</TABLE>
F9
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
INCEPTION THROUGH NOVEMBER 30, 1998
DEFICIT TOTAL
ACCUMULATED SHARE-
ADDITIONAL DURING THE HOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shares issued upon exercise of
stock options 16,000 160 15,090 -- 15,250
Compensation expense for issuance -- -- 94,000 -- 94,000
of stock options
Net (Loss) (1,226,144) (1,226,144)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1997 6,689,210 $ 66,892 $ 4,538,589 $(3,799,505) $ 805,976
----------- ----------- ----------- ----------- -----------
DECEMBER 1, 1997 TO NOVEMBER 30, 1998
Shares issued at $2.00 per share 245,000 2,450 487,550 -- 490,000
Shares issued upon exercise of 20,000 200 24,800 -- 25,000
stock options
Shares issued at $1.25 per share 100,000 1,000 124,000 -- 125,000
Shares issued for consulting services 11,858 119 27,486 -- 27,605
Shares issued as compensation expense 1,429 14 4,986 -- 5,000
Shares issued at $1.75 per share 57,143 571 99,429 -- 100,000
Shares issued at $1.50 per share 100,000 1,000 149,000 -- 150,000
Proceeds from private placement
Shares issued at $.15 per share 2,099,997 21,000 294,000 -- 315,000
Compensation expense for issuance -- -- 170,300 -- 170,300
of stock options
Net (Loss) (2,071,877) (2,071,877)
----------- ----------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1998 9,324,637 $ 93,246 $ 5,920,140 $(5,871,382) $ 142,004
=========== =========== =========== =========== ===========
</TABLE>
Share prices are rounded to the nearest penny.
The accompanying notes to financial statements are an integral part of these
statements.
F10
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company was incorporated in Delaware on January 10, 1990. The Company is the
developer of the patented Hygiene Guard Hand Wash Reminder and Monitoring
technology which prompts and verifies employee hand washing in any environment
where hygiene is a priority. See Note 2 and Note 2a.
In 1993, the Company formed Multi-Monitoring Systems, Inc., a Delaware
Corporation. As of November 30, 1995, no shares have been issued and the company
has no financial activity, therefore, it is not consolidated with Net/Tech. In
October 1995, the Company acquired Pressure Point Technologies (see Note 3). The
financial statements include the accounts for this subsidiary from the date of
acquisition.
CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid interest bearing investments
with a maturity date at acquisition of three months or less.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk are principally cash and cash equivalents. The Company's cash, which
at times during fiscal year ended November 30, 1998 exceeded the Federal
Depository Insurance limit, are deposited at high quality financial
institutions. The Company believes that deposits with such financial
institutions minimizes such risk.
In addition, all of the Company's purchases are from two vendors. The Company
believes that there are alternative sources for these purchases should the need
arise.
As of March 1999, the Company's sole source of future revenue is dependent upon
one companies ability to market the Hygiene Guard product line. See Note 2a.
ACCOUNTS RECEIVABLE
The Company examines its accounts receivable for collectibility. As of November
30, 1998, the Company believes that all accounts receivable are fully
collectible.
INVENTORY
The inventory is stated at the lower of cost or market in the year 1997. For the
fiscal year ended November 30, 1998 the inventory was written down to zero and
abandoned.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the asset. Leasehold
Improvements are amortized over the shorter of the respective life of the lease
or the useful life of the improvements.
The capitalized prototype costs and related accumulated depreciation were
written off in 1998.
F11
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Upon the sale or retirement of depreciable assets, the cost and related
accumulated depreciation will be removed and the resulting profit or loss will
be reflected in income. Expenditures for maintenance and repairs are charged
against income as incurred.
Estimated useful lives are as follows:
Machinery and Equipment 5 - 10 years
Furniture and Fixtures 5 - 7 years
INTANGIBLE ASSETS
Costs incurred in connection with filing patent and trademark applications are
capitalized. Patents and trademarks granted are amortized on a straight line
basis over a lifetime of 10 and 3 years, respectively. Abandoned patents are
expensed in the year of abandonment.
LONG-LIVED ASSETS
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). Long lived assets and identifiable
intangibles to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Impairment is measured by comparing the carrying value of the
long-lived asset to the estimated undiscounted future cash flows expected to
result from uses of the assets and their eventual disposition. The adoption of
SFAS No. 121 did have a material impact on the results of operations or
financial position of the Company. During the year ended November 30, 1998, the
Company continued its policy of accounting for impairment of long lived assets
resulting in the write off of the prototype in the amount of $119,795. In
addition, the Company also wrote off it's inventory in the amount of $251,287.
ORGANIZATION COSTS
Organization costs were capitalized and are being amortized over a five year
period.
RESEARCH AND DEVELOPMENT COSTS
Research, development and related engineering costs are expensed as incurred.
LOSS PER COMMON AND COMMON EQUIVALENT SHARE
The loss per common share for the fiscal years 1998 and 1997 was computed by
dividing the net loss by the weighted average number of common shares
outstanding during such periods. Common stock equivalents were not included in
the computation of weighted average shares outstanding because their inclusion
would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which replaces current Earnings Per Share (EPS) reporting
for interim and annual periods ending after December 15, 1997 and requires a
dual presentation of basic and diluted EPS. During the fiscal year ended
November 30, 1998, the Company adopted SFAS No. 128. This did not have a
material impact on the Company's per share data.
F12
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Actual results could differ
from those estimates.
EMPLOYEES STOCK PLANS
The Company accounts for its stock options in accordance with the provisions of
the Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees." In accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company continues to apply the provisions of APB
No. 25 for purposes of determining net income and has adopted the pro forma
disclosure requirement of SFAS No. 123 effective December 1, 1996. (See Note 8).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a complete set of general
purpose financial statements; and SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a Company's business segments and related disclosures
about it's products, services, geographic areas and major customers. Both SFAS
No. 130 and SFAS No. 131 are effective for fiscal years beginning after December
15, 1997. The Company believes that the adoption of the new standards will not
have a material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for changes in fair value, gains or losses, depends
on the intended use of the derivative and its resulting designation. The
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Adoption of this standard will not impact the financial results
of the Company.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132
Employers Disclosures About Pensions and Other Post Retirement Benefits, which
revises employers' disclosures about pension and other post retirement benefit
plans, requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer deemed useful. The statement
is effective for fiscal years beginning after December 15, 1997. The Company
believes that the adoptions of this standard will not have a material effect on
the financial results of the Company.
NOTE 2 - LIQUIDITY AND BUSINESS RISKS
The Company had sales of $36,000 in the current year ended November 30, 1998.
The Company had an accumulated deficit of $5,871,382 as of November 30, 1998.
The accumulated deficit was $3,799,505 on November 30, 1997. Such losses have
resulted principally from research and development expenditures and engineering
costs, as well as the expansion of the company's staff including sales,
marketing and technical support. After the introduction of the product in 1998
the company decided to abandon the original model and engineer a smaller less
complex model. As a result the company wrote off its inventory and prototype.
The Company also decided to cut its sales, marketing and technical support
payroll at the end of fiscal 1998.
F13
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
During the year the company raised capital by the issuance of 2,635,427 shares
of common stock for $1,237,605. Substantially all the shares were subject to
Rule 144 of the Securities Exchange Commission.
NOTE 2a) - MATERIAL SUBSEQUENT EVENTS
In March 1999, the Company sold its 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 addition, 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. The purchaser will also fund product
development, patent prosecution protection and worldwide marketing.
Prior to the signing of this contract, the Company could not meet its present
working capital obligations. The Company has been extremely slow in paying its
accounts payable. Certain vendors have contacted the Company and made demand for
payment. 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 sales
of the patented equipment.
NOTE 3 - ACQUISITIONS
In November 1997, the Company acquired Hospitality Marketing and Purchasing
Corp., (HMP) for 100,000 authorized but unissued shares of common stock in
exchange for 100% of the stock of HMP. HMP is a Florida Corporation formed by
Ron Heagle. HMP assets consisted principally of a planned Health and Food safety
reference guide and catalog and the industry acumen of Mr. Heagle. Accordingly,
the shares issued to HMP were accounted for as an incentive signing bonus for
the personnel services of Mr. Heagle and were charged to the statement of
operations in the amount of $125,000. The shares were not issued until December
1997, the resulting expense and liability have been accrued as of November 30,
1997. The shares were valued at the value ascribed to other Rule 144 stock
issued in the period of the acquisitions. On October 15, 1998, Mr. Heagle's
employment was terminated by the Board of Directors.
In October 1996, the Company acquired 100% of the common stock in Pressure Point
Technologies, Inc., in a transaction accounted for under the purchase method.
The Company issued 25,000 shares of authorized but unissued stock in
consideration for the stock acquired. Pressure Point Technologies was
incorporated in Michigan in 1996, and the assets of the company consist
primarily of the technology for a battery less remote control for which a patent
was granted on March 31, 1998.
NOTE 4 - CONVERSION OF DEBT
Beginning in April 1994, the Company borrowed capital for operations from
CRYO-CELL International, Inc. The amounts borrowed were in the form of
convertible notes due on demand at an interest rate of 10% per annum. The notes
were convertible into the common stock of Net Tech International, Inc. at
CRYO-CELL'S discretion. All of the Company's patent rights were assigned to
CRYO-CELL as collateral for the notes.
On November 1, 1995, both boards of directors of the respective companies
resolved to convert the notes into shares of restricted common stock valued by
the Company at $1. The Company issued 517,211 shares which satisfied $52,386 in
accrued interest and the remaining $464,825 principal amount due.
F14
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 5 - PATENTS
Patents have been granted on the Hygiene Guard, TM, and on the water dispensable
technology. The patent applications and rights were assigned by the co-inventors
to the Company. The assignments included rights to all related developments,
modifications and improvements. In consideration of the assignments each of the
co-inventors received 100,000 shares of common stock of the Company, valued at
$1,000, which approximates costs incurred by the co-inventors. The patent rights
were capitalized and recorded as an asset.
A patent has also been granted on a battery less remote technology and was
valued at $25,000 which is the value of the shares given. (See Note 3 )
NOTE 6 - WARRANTS
The Company issued 160,000 shares with detachable Class A warrants at $1.00 per
share prior to the public offering. The IPO consisted of 149,110 shares with
detachable Class A warrants exercisable at $7.50 per share. In addition, the
Company issued 55,790 shares with detachable Class A warrants exercisable at
$2.33 per share (conversion price) for the $130,000 convertible note. All of the
Class A warrants were exercisable to purchase one share of common and one Class
B warrant. The Class B warrants were exercisable to purchase one share of common
stock.
NOTE 7 - OPTIONS
In 1992 the Company adopted an Employee Incentive Stock Option Plan providing
for 250,000 shares to be available and the Company has set aside a reserve of
shares of that amount for this purpose. In addition, the Company has issued
Non-Employee Stock Options to individuals whose contribution and assistance is
of benefit to the Company.
Stock option activity was as follows for the two years ended November 30, 1998:
WEIGHTED AVERAGE
NO. OF SHARES EXERCISE PRICE
------------- ----------------
Outstanding at November 30, 1996 185,000 $ 1.19
Granted 2,317,500 $ 2.02
Exercised 365,000 $ 1.48
Terminated -0- $ -0-
Outstanding at November 30, 1997 2,137,500 $ 2.02
Granted and Purchased 490,000 $ 1.66
Exercised 20,000 $ 1.25
Terminated 130,000 $ 2.35
Outstanding at November 30, 1998 2,477,500 $ 1.95
F15
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
Significant option groups outstanding at November 30, 1998 and related price and
life information follows:
WEIGHTED AVERAGE
RANGE OF EXERCISE WEIGHTED AVERAGE REMAINING
PRICE OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
- ------------------ ----------- ----------------- ----------------
$0.15 to $1.00 405,000 .30 3.5
$1.01 to $2.00 877,500 1.63 1.7
$2.01 to $4.99 1,080,000 2.50 3.5
$5.00 115,000 5.00 2.5
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock, Issued to Employees" (APB 25) and related Interpretations in accounting
for its stock options. Accordingly, in 1997, $94,000 in compensation expense was
recognized for its stock-based compensation. During the year ended November 30,
1998, $170,300 in compensation expense was recognized for the Company's stock
based compensation. Had compensation cost for the options been determined based
upon the fair value at the grant date consistent with the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and net loss per share would
have been $2,253,040 and $.32 for the year ended November 30, 1998, and
$1,708,719 and $.28 for the year ended November 30, 1997. The weighted average
fair value of each option granted during fiscal 1998 is estimated at $.72 at the
date of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5%, expected life of 3.2 years, expected
volatility of 1.27% and no dividend yield. The weighted average fair value of
each option granted during fiscal 1997 is estimated at $1.36 at the date of
grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 6.3%, expected life of 1.2 years,
expected volatility of 133%, and no dividend yield.
Weighted average grant date fair values are shown below for groups where the
stock price equals, exceeds and is less than the exercise price.
WEIGHTED AVERAGE WEIGHTED AVERAGE
FAIR VALUE PER SHARE EXERCISE PRICE PER SHARE
--------------------- ------------------------
1998
Stock Price-Exercise Price $ .62 $ .25
Stock Price-Exercise Price $ .84 $ 3.47
1997
Stock Price-Exercise Price $ 2.02 $ 1.22
Stock price-Exercise Price $ 1.02 $ 1.25
The pro forma effect on net income is not representative of the pro forma effect
on net income in future periods because it does not take into consideration pro
forma compensation expense related to grants made in prior periods.
F16
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 8 - STOCKHOLDERS' EQUITY
Other stock reserved for future issuance is as follows:
DESCRIPTION NUMBER OF SHARES EXPIRATION
----------- ---------------- ----------
Reserve for options purchased by
non-employees 1,530,000 1/99 to 01/00
Reserve for options granted for
non-employees 272,500 5/99 to 11/03
Reserve for granted employee
options 650,000 1/99 to 10/03
$250,000 shares of the Company's stock has been put into reserve for an Employee
Stock Option Plan (the Plan). Employee Options granted under the Plan are
exercisable at 100% of the current market price and have a term of five years
from the date of grant. The options immediately terminate on the employee's
termination or in the case of permanent and total disability, the option are
exercisable for a period of 30 days after termination.
NOTE 9 - RELATED PARTY TRANSACTIONS
Cryo-Cell International Inc. owns 16.7% of the company's issued and outstanding
stock at November 30, 1998. It owned 28.2% as at November 30, 1997. There was no
intercompany charges.
NOTE 10 - SERVICES CONTRIBUTED
1) In 1990, promotional services were provided by an independent contractor
in consideration for 25,000 shares of the Company's common stock. The
Company had negotiated the fair value of the promotional services
rendered under the terms of the agreement to be $250. The Company has
recorded the shares issued at the fair market value of the service and
expensed the promotion fees.
2) In 1990, organization costs were provided by an independent contractor
in consideration for 100,000 shares of the Company's common stock. The
Company had been billed $1,000 and determined the fair value of the
costs incurred to be $1,000. The Company had recorded the shares issued
at the fair market value of the costs and capitalized the organization
costs (see Note 1).
3) In 1993, a company was issued 2,000 shares of common stock at $4.00 per
share for promotional services.
4) During the year ended November 30, 1997, a key employee was issued
107,058 shares of common stock as a signing bonus and for services
rendered.
5) During the year ended November 30, 1997, another employee was issued
1,429 shares of common stock shares for services rendered.
6) During the year ended November 30, 1998, two companies were issued a
total of 4,800 shares of common stock for consulting services.
F17
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company entered into a lease for office space in Red Bank, New Jersey. The
following schedule summarizes future minimum lease payments required under a
non-cancelable operating lease as of November 30, 1998: The lease expires in
2001.
1999 $ 48,488
2000 $ 49,582
2001 $ 12,530
Rent expense for the periods ending November 30, 1998 and November 30, 1997 was
$56,175 and $25,015, respectively.
On October 15, 1998, the Company entered into a 5 year employment agreement with
the Company President. During a portion of fiscal 1998, the President
voluntarily waived his salary in an effort to conserve company resources.
NOTE 12 - INCOME TAXES
No provision for income taxes was recorded for the two fiscal years ended
November 30, 1998 and 1997 due to net operating losses incurred. Net operating
loss carry forwards for federal tax purposes of approximately $5,472,000 expire
from 2005 through 2013.
The company's gross deferred tax assets of $1,800,000 and $1,290,000 at November
30, 1998 and 1997 respectively, represent the tax effect of net operating loss
carry forwards. Based upon the Company's earnings history, a valuation allowance
equal to the amount of the deferred tax assets is required to reduce the
Company's deferred tax assets to the amount realizable at present.
NOTE 13. - CAPITAL LEASES
The Company leases certain equipment under a capital lease. Leased property
under capital leases include:
1998 1997
---- ----
Equipment $4,551 $4,551
At November 30, 1998 the future minimum lease payments required under capital
leases are as follows:
FISCAL YEAR ENDING
------------------
November 30, 1999 $1,913
Less: Imputed interest 154
------
Present value of minimum
lease payments $1,759
======
F18
<PAGE>
NET TECH INTERNATIONAL, INC. AND SUBSIDARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 14. - INITIAL PUBLIC OFFERING
In January 1992, the Company successfully completed its initial public offering
in which the Company raised $1,043,770 from the sale of 149,110 units at $7.00
per unit. After expenses, this resulted in a cash flow to the Company of
approximately $885,000.
NOTE 15. - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fourth quarter of 1997 was adversely affected by accounting for the purchase of
HMP as employee compensation in the amount of $125,000 and significant research
and development cost incurred.
Fourth quarter of 1998 was adversely affected by the write off and abandonment
of the prototype and the product line inventory in the amounts of $119,795 and
$251,288 respectively. The fourth quarter was also affected by the value of the
option issued to an employee as compensation in the amount of $170,300.
1ST 2ND 3RD 4TH
1997 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
Net Loss $ 56.338 $ 158,678 $ 197,868 $ 813,260
========= ========= ========== ===========
Loss per share $ .01 $ .03 $ .03 $ .12
========= ========= ========== ===========
Shares used in
Computation 4,860,806 5,855,417 5,924,009 6,677,034
========== ========= ========= ===========
1998
- ----
Net Loss $ 399,205 $ 427,608 $ 355,574 $ 889,490
========== ========== ========== ===========
Loss per Share $ .06 $ .06 $ .05 $ .13
========== ========== ========== ===========
Shares used in
Computation 6,820,419 6,872,495 6,872,495 7,085,086
========== ========== ========== ===========
F19
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Officers
The following sets forth the names of the Company's directors and officers.
Directors of the Company are elected annually by the shareholders and the
officers are appointed annually by the Board of Directors.
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- -------------------------------------------------------------------------------
Glenn E. Cohen 37 Chairman of the Board, 1996
President and Chief Executive
Officer of the Company
Knud B. Gotterup 60 President of Garden State Marketing 1997
Food Importing and Brokerage
Joseph A. Louro 63 Home Builder/Real Estate Developer 1998
Glenn E. Cohen serves as Chairman of the Board, President 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 real estate sales in excess of $500 million.
Knud B. Gotterup is a founder if Garden State Marketing International, Inc., an
international food brokerage company and exclusive importer of sausage products
from one of the largest manufacturers in Europe. Mr. Gotterup is also a
consultant to the Unimark Group a major tropical fruit company in the United
States. Mr. Gotterup is a graduate of Niels Brock Business School in Denmark and
has held executive positions with DAK Foods and Dansk Unilever A/S. Mr. Gotterup
has over 35 years of experience in the food brokerage importing business in
Europe and the United States.
Joseph A. 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). Prior to that, he served as
President of B & L Building Group (1987-1990); 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) Planning Board. Mr. Louro is a three (3) time past President of
the New Jersey Shore Builder's Association and currently serves on their Board
of Trustees.
11
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Set forth is a Summary Compensation table relating to the chief executive
officers.
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Glenn E. Cohen 1998 $84,615 -- 250,000 options
Chief Executive Officer
1997 $94,231 -- 200,000 options
Other Executive Salaries 1998 $71,153 -- --
</TABLE>
(1) No other compensation was received.
On October 15, 1998, Mr. Cohen signed a 5 year employment agreement which
included a 5 year option to purchase 1,000,000 shares of the Company's Common
Stock for $.15 per share. 250,000 shares are immediately exercisable. The
remaining 750,000 shares will become exercisable only if (I) the company
achieves revenues of $1 million of (ii) there is a change in control of the
Company or (iii) the termination, under certain circumstances, of Mr. Cohen's
employment with the Company. Mr. Cohen's employment agreement had called for
$125,000 annual salary. In an effort to conserve working capital, Mr. Cohen has
voluntarily forgone salary from August 1998 until April 1999.
COMPENSATION OF DIRECTORS
NUMBER OF SECURITIES
NAME YEAR CONSULTING FEES UNDERLYING OPTIONS
Knud B. Gotterup 1998 -- 25,000*
Joseph A. Louro 1998 -- 15,000*
* These options are exercisable to purchase common stock at $0.50 per share
for a period of 5 years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1999, there was 9,732,655 Common Shares outstanding and entitled
to vote at the Annual Meeting. Each common share is entitled to one vote on each
of the matters to be voted on at the Annual Meeting. The table listed below sets
forth, as of March 15, 1999, the beneficial ownership of all persons known by
the Company's voting stock, each Director, Executive Officer and all Executive
Officers and Directors of the Company as a group as of March 15, 1999:
12
<PAGE>
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1)
- --------------------------------------------------------------------------------
Glenn E. Cohen(2) 1,083,333 9%
Cryo-Cell International, Inc. 1,617,711 13.7%
Paul W. Enoch(3) 1,700,000 14.4%
Knud B. Gotterup(4) 45,000 *
Joseph A. Louro(5) 15,000 *
George Shifrin(6) 600,000 5%
*Less than one percent
All Executive Officers and Directors
As a group (3 persons) 42.9%
(1) Pursuant to the rules of the Securities and Exchange Commission, the
percentage of voting stock for each stockholder is calculated by dividing
(i) the number of shares deemed to be beneficially held by such
stockholders as of March 15, 1999 (ii) the sum of (a) the number of shares
of Common Stock outstanding as of March 15, 1999 plus (b) the number of
shares issuable upon exercise of options held by such stockholder which
were exercisable as of March 15, 1999 or will become exercisable within 60
days after March 15, 1999.
(2) Includes 550,000 shares subject to options exercisable as of March 15,
1999.
(3) Includes 1,000,000 shares subject to options exercisable as of March 15,
1999.
(4) Includes 45,000 shares subject to options exercisable as of March 15, 1999.
(5) Includes 15,000 shares subject to options exercisable as of March 15, 1999.
(6) Includes 450,000 shares subject to options exercisable as of March 15,
1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1997, the Company acquired Hospitality Marketing and Purchasing
Corp., (HMP) for 100,000 authorized but unissued shares of common stock in
exchange for 100% of the stock of HMP. HMP was purchased from Ronald Heagle who
served as President, Chief Operating Officer and Board Member from December 15,
1997 to October 15, 1998. HMP assets consisted principally of a health and food
safety reference guide catalog.
13
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation
3.2 By-Laws (1)
4.1 Underwriter's Option (1)
10.2 Agreement with CRYO-CELL (1)
10.3 Long term Scientific Consultation Contract
dated February 11, 1992 between the Company
and Dr. Charles L. Beatty and Polymer
Products and Services Co., including
assignment of all patent rights by
Consultant (2)
10.4 Agreement with Valgene Associates, Dated August 6, 1992
(3)
10.4.1 Agreement with Human Services Risk Management, Inc.
dated May 29, 1993 (3)
10.5 Employment Agreement dated June 17, 1991 between the
Company and Joseph Knauer (2)
10.5.1 Employment Agreement dated December 28, 1993 between the
Company and Robert Anthony Fenno (3)
10.6 Convertible Note to CRYO-CELL International, Inc., dated
November 30, 1994 (3)
10.7 Convertible note to CRYO-CELL International, Inc. dated
November 30, 1995 (4)
10.8 Agreement with Pressure Point Technologies, dated
October 29, 1996 (5)
10.9 Agreement with Stainless Design Corporation, dated April
4, 1996 for Phase I development of Hygene Guard (5)
10.10 Agreement with Stainless Design Corporation, dated
October 31, 1996 for Phase II development of Hygene
Guard (5)
10.11 Agreement between the Company and Glenn E. Cohen (5)
10.12 Employment Agreement dated October 15, 1998 between the
Company and Glenn E. Cohen
21 List of Subsidiaries (5)
27 Financial Data Schedule
(b) Reports of Form 8-K
8-K filed October 16, 1998 relating to Item 6 and 7
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's Registration Statement of Form
S-1 (no. 33-36198).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended November 30, 1991.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended November 30, 1994
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended November 30, 1995.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended November 30, 1996,
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended November 30, 1007.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, therunto duly authorized, on the 16th day of
March 1999.
NET/TECH INTERNATIONAL, INC.
By: /s/ GLENN E. COHEN
--------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities exchange Act of 1934,
this report has been signed below on March 16, 1999 by the following persons in
the capacities indicated:
/s/ KNUD GOTTERUP Director
-----------------
Knud Gotterup
/s/ JOSEPH LOURO Director
-----------------
Joseph Louro
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 160,334
<SECURITIES> 0
<RECEIVABLES> 9,437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 182,190
<PP&E> 73,048
<DEPRECIATION> 26,474
<TOTAL-ASSETS> 292,247
<CURRENT-LIABILITIES> 148,642
<BONDS> 0
0
0
<COMMON> 93,246
<OTHER-SE> 48,758
<TOTAL-LIABILITY-AND-EQUITY> 142,004
<SALES> 36,022
<TOTAL-REVENUES> 36,022
<CGS> 14,674
<TOTAL-COSTS> 1,732,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,071,877)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
