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
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
November 30, November 30,
1998 1997
------------- ------------
Current Assets
Cash $160,334 $ 832,502
Accounts receivable 9,437 -
Inventory - 41,479
Prepaid expenses 12,419 --
----------- -----------
Total Current Assets 182,189 873,981
----------- -----------
Fixed Assets
- - ------------
Leasehold improvements 10,126 10,126
Furniture and fixtures 44,023 35,494
Machinery and equipment 18,897 73,146
----------- -----------
73,047 118,766
Less: Accumulated Depreciation 26,474 20,096
----------- -----------
46,573 98,670
----------- -----------
Intangible Assets
Patent application costs (net of accumulated 52,632 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
=========== ===========
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
November 30, November 30,
1998 1997
------------ ------------
Current Liabilities
- - -------------------
Accounts payable and accrued expenses and interest $146,883 $ 102,397
Obligations under capital lease-current portion 1,759 1,504
------------ ------------
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 (5,871,381) (3,799,504)
------------ ------------
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.
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 3,964,983
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 60,470
Loss on abandonment of assets 371,082 - 371,653
Loss on abandonment of patents - - 33,675
Write-off of investment - - 30,000
--------------- ------------- -------------
355,125 627 455,270
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
=============== =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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
- - ----------------- --------------- --------------- ----------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
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 119,795.00 - 121,398
Decrease in accrued expenses from Initial
public offering - - 30,500
Compensation and services paid in Common Stock 182,905 219,000 402,155
Investment - 30,000
Interest to affiliate paid in Common Stock - - 6,856
Accounts receivable (9437) - (9,437)
Inventory 41,479 (41,479) -
Prepaid expenses (12419) - (12,419)
Security deposits (6806) 17,990 (10,766)
Accounts payable, accrued expenses and interest 44,486 74,833 200,414
Accrued compensation (125000) - (125,000)
Deposits 1600 - 1,600
Other (84) - (84)
--------------- --------------- ----------------
Total Adjustments 256,786 289,318 759,573
--------------- --------------- ----------------
NET CASH (USED IN)
OPERATING ACTIVITIES -1815091 (936,826) (5,111,809)
--------------- --------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net -80572 -99695 (234,256)
Patent and trademark acquisitions - - (82,704)
--------------- --------------- ----------------
NET CASH (USED IN) INVESTING ACTIVITIES $ (80,572) $ (99,695) $ (316,960)
--------------- --------------- ----------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements. F4
F4
<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
- - ----------------- ------------- --------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Issuance of common stock 1,225,000 1312750 2,993,985
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
------------- --------------- --------------
NET CASH PROVIDED BY 1,223,495 1,791,463 5,589,103
------------- --------------- --------------
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 $ 832,505 $160,334
============= =============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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:
Cash Paid During the Period For:
<S> <C> <C> <C>
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 options
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 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 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 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>
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 2450 487550 -- 490,000
Shares issued upon exercise of 20,000 200 24800 -- 25,000
stock options
Shares issued at $1.25 per share 100,000 1000 124000 -- 12,5000
Shares issued for consulting services 11,858 118.58 27486 -- 27,605
Shares issued as compensation expense 1,429 14.29 4985 -- 5,000
Shares issued at $1.75 per share 57,143 571.43 99428 -- 100,000
Shares issued at $1.50 per share 100,000 1000 149000 -- 150,000
Proceeds from private placement
Shares issued at $.15 per share 2,099,997 20999.97 294000 -- 315,000
Compensation expense for issuance -- -- 170300 -- 170,300
of stock options
Net (Loss) (2,071,877) (2,071,876)
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.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS 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 prompt 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 equivalents consist of highly liquid interest bearing investments with
a maturity date at acquisition of three months or less.
ACCOUNTS RECEIVABLE
The Company examines its accounts receivable for their 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.
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.
F11
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
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 not 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.
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. Adoption of SFAS No. 128 is not
expected to have a material impact on the Company's per share data.
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).
F12
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
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.
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.
F13
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
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 GOJO's
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.
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 )
F14
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
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
Significant option groups outstanding at November 30, 1998 and related price and
life information follows:
<TABLE>
<CAPTION>
Weighted Average
Range of Exercise Weighted Average Remaining
Price Outstanding Exercise Price Contractual Life
----- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.15 to $1.00 405,000 .30 3.5
$1.01 to $2.00 877,500 1.63 1.7
$2.01 to $4.9 1,080,000 2.50 3.5
$5.00 115,000 5.00 2.5
</TABLE>
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
F15
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
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.
<TABLE>
<CAPTION>
Weighted Average Weighted Average
FAIR VALUE PER SHARE EXERCISE PRICE PER SHARE
-------------------- ------------------------
1998
<S> <C> <C>
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
</TABLE>
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.
NOTE 9 - 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.
F16
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
NOTE 10 - 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 11 - 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.
NOTE 12 - 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.
F17
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
NOTE 13 - 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 14. - 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
NOTE 15. - 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.
F18
<PAGE>
NET TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
NOVEMBER 30, 1998
NOTE 16. - 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
Documents incorporated by reference: The information required by Part III of
From 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.
11
<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)
10.41 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)
10.51 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
Hygiene Guard (5)
10.10 Agreement with Stainless Design Corporation,
dated October 31, 1996 for Phase II development
of Hygiene 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 on 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, 1997.
12
<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, thereunto duly authorized, on the 16th day of
March, 1999.
NET/TECH INTERNATIONAL, INC.
By: /s/ GLENN E. COHEN
-----------------------------------------
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
13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated as of October 15,
1998, is entered into between NET/TECH INTERNATIONAL, INC., a Delaware
Corporation (the "Company"), and GLENN E. COHEN ("Executive").
RECITALS
A. The Company wishes to employ Executive as Chairman of the Board,
President and Chief Executive Officer in accordance with the terms and
conditions set forth below.
B. The Executive wishes to be employed by the Company as Chairman of
the Board, President and Chief Executive Officer in accordance with the terms
and conditions set forth below.
THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Company and Executive agree as follows:
1. EMPLOYMENT DUTIES. During the term of the Agreement (as defined in
paragraph 8 below), the Company will employ Executive as its Chairman of the
Board, President and Chief Executive Officer. In such capacities, Executive will
be responsible for managing the day to day operations of the Company and will
report directly to the Board of Directors (the "Board") and perform all such
duties on a full-time basis as may be designated by the Board. The Executive's
election as a member of the Company's Board shall be determined by the
shareholders of the Company and the Company shall have no obligation to effect
such election.
It is understood and agreed that Executive shall devote such time as is
deemed necessary for the performance of his duties as Chairman of the Board,
President and Chief
<PAGE>
Executive Officer. It is further understood that Executive is involved in other
business activities that would not interfere with his ability to perform his
duties as Chairman of the Board, President and Chief Executive Officer.
2. START DATE. October 15, 1998.
3. BASE SALARY. Base salary shall be at the rate of $125,000.00 per
calendar year payable in periodic installments in accordance with the Company's
regular payroll practices. The base salary shall be increased at the rate of
$25,000.00 per year. Such increase shall be effective each calendar year.
4. BONUS. Executive shall be eligible to receive a bonus as determined
by the Board.
5. EXPENSES. Executive shall be entitled to prompt reimbursement
(within 30 days of submission of request for reimbursement) for all reasonable,
ordinary and necessary travel, entertainment, and other expenses incurred by the
Executive during the employment period (in accordance with the policies and
procedures established for senior executive officers of the Company) in the
performance of his duties and responsibilities for the Company under this
Agreement; provided, that the Executive shall properly account for such expenses
in accordance with the policies and procedures of the Company.
6. EMPLOYEE BENEFITS. The Company shall provide Executive the following
fringe benefits:
a) fully paid basic health insurance and major medical insurance;
b) a dental plan;
c) vacation of four (4) weeks per calendar year;
2
<PAGE>
d) an Income Continuation and Disability Plan in an amount equal to at
least 70% but not greater than 80% of Executive's annual base salary
as shall be standard with the insurance company which provides such
coverage;
e) term life insurance equal to one and one-half (1 1/2) times
Executive's current annual base salary provided, however, if
Executive is rated by the life insurance company any increase in
premiums resultING from such rating shall be paid by Executive; and
f) officers' and directors' liability insurance.
7. STOCK OPTIONS. The Company, subject to shareholder approval, hereby
grants to Executive options to acquire 250,000 shares of the Company's Common
Stock at an exercise price of $.15 per share. The Company, subject to
shareholder approval, hereby grants Executive options to acquire 750,000 shares
of the Company's Common Stock at an exercise price of .15(cent) per share first
exercisable and conditioned upon the Company achieving revenue of 1 million
dollars or more from and after the date of grant (October 15, 1998) of the
option. The term of said options shall be five (5) years.
Upon any Change of Control of the Company as that term is defined
herein or, in the event Executive is terminated for any reason other than for
cause, voluntary termination, death or disability, any and all options held by
Executive to the extent they are not vested will become vested and any
conditions to the exercise of those options shall be deemed satisfied.
8. TERM OF EMPLOYMENT. The term of Executive's employment under this
Agreement (the "Term") will begin on October 15, 1998 and will continue, subject
to the termination provisions set forth in paragraph 9 below AND THE EXTENSION
PROVISIONS OF THIS PARAGRAPH 8, UNTIL OCTOBER 15, 2003. On April 15, 1999 and on
April 15 every year thereafter,
3
<PAGE>
the Term of Executive's employment shall be automatically extended BY ONE (1)
additional year, unless, on or before such date, the Company shall have
delivered to Executive or Executive shall have delivered to the Company written
notice that the Term of Executive's employment hereunder will not be extended.
The word "Term" as defined and used herein shall include any additional one (1)
year extension period unless otherwise indicated.
9. RESIGNATION - TERMINATION.
a) In order to assist Executive during any transition
period that may occur, if Executive is terminated for
any reason other than for cause, voluntary termination,
death or disability, Executive shall be entitled to a
severance payment ("the Severance") equal to the amount
of compensation which would otherwise be payable during
the remainder of the original term of this Agreement (as
such term may have been extended). The Severance shall
be payable on all regularly scheduled pay days following
Executive's employment termination.
b) Executive may resign upon ninety (90) days prior written
notice to the Company, in which event Executive shall be
paid Executive's full compensation until the effective
date of termination. Provided, however, if Executive
resigns after an Adverse Change, such resignation shall
constitute a termination of this Agreement without
cause.
c) As used herein, the following terms are defined;
(i) "Adverse Change" shall mean any of the following:
(A) Any material diminution of Executive's
positions, duties or responsibilities with the
Company.
4
<PAGE>
(B) A relocation of the Company's principal
executive office to a location outside of the
State of New Jersey without Executive's consent.
(C) The failure of the Company to comply in good
faith with the terms of this Agreement.
(D) A Change in Control OCCURS AND THE EXECUTIVE
REMAINS IN THE EMPLOY OF THE COMPANY FOR A
PERIOD OF ONE (1) YEAR FOLLOWING SUCH CHANGE IN
CONTROL. DURING SUCH ONE (1) YEAR PERIOD, THE
EXECUTIVE SHALL BE PAID HIS ENTIRE THEN CURRENT
COMPENSATION UNDER THIS AGREEMENT AND SUCH
COMPENSATION SHALL NOT BE CONSIDERED AS PART OF
EXECUTIVE'S SEVERANCE.
AN ADVERSE CHANGE SHALL NOT BE DEEMED TO HAVE
OCCURRED PURSUANT TO SUBSECTIONS (A), (B), (C) OR
(D) ABOVE UNLESS A DETERMINATION WITH RESPECT TO AN
ADVERSE CHANGE HAS BEEN MADE BY EXECUTIVE WITHIN ONE
(1) YEAR OF THE OCCURRENCE OF THE EVENTS SPECIFIED
IN THE FOREGOING SUBSECTIONS.
(ii)"CHANGE OF CONTROL" means the occurrence of any
one of the following events:
(A) (I) Any consolidation or merger of the Company
in which the Company respectively is not the
continuing or surviving corporation or which
contemplates that all or substantially all of
the business and/or assets of the Company shall
be controlled by another corporation; or (II) a
recapitalization including an exchange of the
Company's equity securities by the holders
thereof in which any "Person" (as such term is
used in Section 13(d) and 14(d)(2) of the
Exchange Act), becomes the beneficial owner
(within the meaning of Rule 13d3 promulgated
under the Exchange Act) of securities of the
Company representing more than 30% of the
combined power of the then outstanding
securities ordinarily having the right to vote
in the election of directors;
(B) any sale, lease, exchange or transfer (in one
transaction or series of related transactions)
of all or substantially all of the assets of the
Company;
(C) approval by the shareholders of the Company of
any plan or proposal for the liquidation or
dissolution of the Company unless such plan or
proposal is abandoned within sixty (60) days
following such approval;
(D) any "Person" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act), becomes
the beneficial owner of securities of the
Company representing more than 30% of the
combined voting power of outstanding securities
ordinarily having the right to vote in the
election of directors; or
(E) more than 50% of the then existing directors of
the Company are changed at any election of the
Board.
d) DISABILITY.
(i) In the event that at any time during the
Employment Term, Executive, due to physical or
mental injury, illness, disability or
incapacity, including "disability" within the
meaning of the disability plan which the Company
then has in effect entitling Executive to
benefits
6
<PAGE>
thereunder, shall fail to perform satisfactorily
and continuously the duties assigned to him and
the services to be performed by him hereunder
for a period of three (3) consecutive months or
for a non-consecutive period of five (5) months
within any twelve (12) month period, the Company
may terminate Executive's Employment for
"Disability" upon not less than thirty (30) days
prior written notice (such notice referred to
herein as a "Termination Notice") to Executive.
(ii) During any period (the "Disability Period") that
Executive, due to physical or mental injury,
illness, disability or incapacity, including
"disability" within the meaning of the
disability plan which the Company then has in
effect entitling Executive to benefits
thereunder, fails to perform satisfactorily and
continuously the duties assigned to him and the
services to be performed by him thereunder, the
Company shall continue to pay to Executive the
Annual Salary (as in effect at such time), less
any compensation payable to Executive under the
applicable disability insurance plan of the
Company during such Disability Period.
Thereafter, if Executive's employment hereunder
is terminated pursuant to Section 9(d)(i), the
Company shall have no further obligations under
this Agreement after the effective date of
Executive's termination of employment other than
the compensation payable to Executive under the
applicable disability insurance plan of the
Company.
7
<PAGE>
e) DEATH. Executive's employment shall terminate
immediately upon the death of Executive. Upon
termination of Executive's employment pursuant to this
Section 9(e) as a result of his death, the Company shall
have no further obligations under this Agreement after
the date of Executive's death, other than the payment of
(i) the Annual Salary accrued and unpaid through the
date of Executive's death, and (ii) the bonus payment,
if any, payable pursuant to Section 4 for the final year
of the Company during which Executive's death shall have
occurred, it being understood that payments under this
Section 9(e) shall be made to Executive's heirs and
assigns.
f) FOR CAUSE TERMINATION. The Company may at any time
terminate Executive's employment hereunder and Executive
shall have no right to receive any further compensation
or severance upon the occurrence of any of the following
events:
(i) a conviction or a plea of NOLO CONTENDERE, a
guilty plea or confession by Executive to an act
of fraud, misappropriation or embezzlement with
respect to the Company, or to a felony; or
(ii) the commission of a fraudulent act or practice
by Executive affecting the Company.
10. CONFIDENTIALITY AND PROPRIETARY INFORMATION. Executive agrees to
disclose promptly and fully to the Company all inventions, improvements,
discoveries, or new ideas (collectively "Inventions") made or conceived by
Executive, either alone or with others which are along the existing or
contemplated lines of the Company's business and Executive will execute any
necessary papers or perform such other acts which may be necessary to evidence
8
<PAGE>
title to such inventions in the Company. Executive also acknowledges that any
such inventions are the property of the Company. Executive will not disclose,
publish, use or permit anyone else to disclose, publish or use any proprietary
or confidential information or trade secrets of the Company at any time during
or after Executive's employment with the Company unless required to do so by
law. Such information shall include, but not be limited to, product information,
information concerning the past, present or future business interests or plans
of the Company, customer/client lists, financial information and information
imparted to the Company by third parties which the Company protects from
disclosure to other parties. At the end of Executive's employment, Executive
will return to the Company any proprietary or confidential information in
Executive's possession.
11. NON-SOLICITATION OF COMPANY CUSTOMERS. For a period of one year
following the end of Executive's employment with the Company, Executive agrees
to not solicit or do business with directly or indirectly, any present or past
customer of the Company, or any prospective customer of the Company with whom
Executive had contact, in connection with the hand wash monitoring business
and/or any other business which resulted therefrom while Executive was employed
by the Company.
12. NON-SOLICITATION OF COMPANY EMPLOYEES. For a period of one year
following the end of Executive's employment with the Company, Executive agrees
to not participate directly or indirectly in the hiring or soliciting for
employment of any person employed by the Company or in any manner seek to induce
any such person to leave his or her employment with the Company with the
exception of Executive's personal secretary.
13. NON-COMPETE AGREEMENT. For a period of one year following the end
of Executive's employment with the Company, Executive will not, directly or
indirectly, create,
9
<PAGE>
sell, market, or otherwise provide any product related to the hand wash
monitoring business. The Executive will also not engage in any business activity
which is directly or indirectly in competition with the hand wash monitoring
business being developed, marketed, distributed, planned, sold or otherwise
provided by the Company.
14. REPRESENTATIONS. The Executive represents that he has read and
fully understands the terms of this Agreement and has signed it voluntarily.
Executive acknowledges that the Company may suffer irreparable harm if Executive
breaches this Agreement and may, in addition to other remedies, obtain an
injunction to prevent a breach or further breach of this Agreement. Executive
has been given an adequate opportunity to review this Agreement with the
attorney or other personal counsel of his choosing. Executive acknowledges that
this Agreement is the entire agreement between Executive and the Company and
that it supersedes any and all prior written or oral agreements,
representations, or any other documents or understandings.
15. GOVERNING LAW AND AMENDMENTS. This Agreement shall be interpreted
pursuant to the laws of the State of New Jersey. This Agreement may only be
changed by written agreement signed by the parties hereto and approved by the
Board. The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provision of
this Agreement.
16. BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon
and shall inure to the benefit of each party's heirs, executors, personal
representatives and assigns.
17. NOTICES. For purposes of this Agreement, notices and other
communications provided for in this Agreement shall be in writing and shall be
delivered personally, sent via
10
<PAGE>
overnight mail or United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Glenn E. Cohen
456 Ocean Avenue North #3
Long Branch, New Jersey 07740
Tel: (732) 229-4338
If to the Company: Net/Tech International, Inc.
1 West Front Street, Suite 30
Red Bank, New Jersey 07701
or to such other address or the attention of such other person as the recipient
party has previously furnished to the other parties in writing in accordance
with this paragraph. Such notices or other communications shall be effective
upon delivery or, if earlier, three days after they have been mailed as provided
above.
18. WAIVER. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent breach or promise by such other party.
19. HEADINGS. The headings of the paragraphs contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of any provision of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, none of which need contain the signature of more than one party
hereto, each of which shall be deemed to be an original, and all of which
together shall constitute a single agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
NET/TECH INTERNATIONAL, INC.
By:________________________
/s/ GLENN E. COHEN
---------------------------
Glenn E. Cohen
12
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<FISCAL-YEAR-END> NOV-30-1998
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