U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarterly period ended
August 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _____ to _____
Commission File Number 33-36198
NET/TECH INTERNATIONAL, INC.
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(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3038309
---------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
1 WEST FRONT STREET, SUITE 30, RED BANK, NEW JERSEY 07701
---------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's phone number, including area code: (732) 345-1100
- ----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report).
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date. As of August 31, 1999,
9,769,501 shares of $0.01 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one).
Yes [ ] No [X]
<PAGE>
NET/TECH INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Loss 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
<PAGE>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
AUGUST 31, NOVEMBER 30,
1999 1998
--------- ----------
CURRENT ASSETS
Cash $ 15,716 $160,334
Accounts receivable
-- 9,437
Due from sale of patent
144,000 --
Prepaid expenses
9,726 12,419
-------- --------
Total Current Assets 169,442 182,190
-------- --------
FIXED ASSETS
Leashold improvements 10,126 10,126
Furniture and fixtures 44,024 44,024
Machinery and equipment 18,898 18,898
-------- --------
73,048 73,048
Less: Accumulated Depreciation 36,129 26,474
-------- --------
36,919 46,574
-------- --------
INTANGIBLE ASSETS
Patent application costs - (net of accumulated 25,000 52,632
amortization of $0 and $21,144 respectively)
-------- --------
25,000 52,632
-------- --------
OTHER ASSETS
Due from sale of patent - non-current 48,000
Security deposits 10,850 10,850
-------- --------
Total Other Assets 58,850 10,850
TOTAL ASSETS $290,211 $292,246
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, NOVEMBER 30,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, accrued expenses and interest $ 93,550 $ 146,883
Obligations under capital lease-current portion 914 1,759
----------- -----------
Total Current Liabilities 94,464 148,642
----------- -----------
Accrued compensation -- --
Obligations under capital lease -- --
Deposits 2,600 1,600
----------- -----------
Total Other Liabilities 2,600 1,600
----------- -----------
Total Liabilities 97,064 150,242
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; 20,000,000
authorized; 9,769,501 and
6,689,210 shares issued and outstanding,
respectively 97,587 93,246
Additional paid-in capital 5,980,799 5,920,140
Deficit accumulated during the development stage (5,885,239) (5,871,382)
----------- -----------
Total Stockholders' Equity 193,147 142,004
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 290,211 $ 292,246
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ -- $ 17,847 $ 23,584 $ 21,509
COSTS AND EXPENSES:
Costs of sales -- 10,542 12,535 11,942
Marketing, general & administrative expenses 69,548 290,986 254,393 950,489
Research, development and related expenses -- 69,606 25,299 242,923
Depreciation and amortization 3,218 4,672 11,482 14,016
----------- ----------- ----------- -----------
Total Costs and Expenses 72,766 375,807 303,709 1,219,370
OPERATING LOSS (72,766) (357,960) (280,125) (1,197,862)
OTHER INCOME AND (EXPENSE):
Gain on sale of patent -- -- 264,195 --
Interest income 447 2,479 2,320 15,801
Interest expense (47) (95) (248) (329)
----------- ----------- ----------- -----------
400 2,384 266,267 15,472
NET INCOME (LOSS) (72,366) ($ 355,574) (13,858) ($1,182,388)
NET INCOME (LOSS) PER SHARE ($ 0.01) ($ 0.05) ($ 0.001 ($ 17.00)
=========== =========== =========== ===========
Number of Shares Used In Computation 9,768,721 6,872,495 9,676,969 6,846,743
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
NET/TECH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
---------------------------
AUGUST 31, AUGUST 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Profit (Loss) ($ 13,858) ($1,182,388)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation 9,655 10,923
Amortization of intangible assets 1,827 3,093
Compensation and services paid in Common Stock -- 20,000
Gain on sale of patent (264,195) --
Changes in assets and liabilities
Accounts receivable 9,437 (17,572)
Inventory -- (247,069)
Prepaid expenses 2,692 (13,457)
Security deposits -- (6,891)
Deposits 1,000 --
Accounts payable, accrued expenses and interest (53,331) 104,194
----------- -----------
Total Adjustments (292,914) (146,779)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (306,772) (1,329,167)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net -- (159,337)
Proceeds from sale of patent 98,000
Patent and trademark acquisitions -- (1,050)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES 98,000 (160,387)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Sale of common stock 65,000 740,000
Proceeds from options sold -- 25,000
Principal payments under capital lease (846) (1,106)
----------- -----------
NET CASH PROVIDED BY FINANACING ACTIVITIES 64,154 763,894
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (144,618) (725,660)
----------- -----------
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 160,334 832,502
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 15,716 $ 106,842
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 248 $ 329
Income Taxes -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
NOTE 1: FINANCIAL STATEMENTS
The Balance Sheet as of August 31, 1999, the Statement of Operations for
the nine months ended August 31, 1999 and the Statement of Cash Flows for the
nine months ended August 31, 1999 have been prepared by the Company, without
audit. In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at August 31, 1999 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's November 30, 1998 annual
report to shareholders. The results of operations for the period ended August
31, 1999 are not necessarily indicative of the operating results for the full
year.
NOTE 2: AGREEMENTS
In March 1999, the Company sold its Hygiene Guard patent estate and product
development. Under the terms of the agreement, the Company will receive 10%
percent of net U.S. sales of the patented hand wash reminder and monitoring
technology for a period of 10 years. The Company will also receive 5% of net
U.S. sales for the next two years, 2 1/2% of net U.S. sales for the following
three years and 7% of all foreign net sales for a period of ten years. In March
1999, the Company received a down payment of $50,000 and is to receive minimum
guaranteed payments of $12,000 per month for a period of twenty months. The
purchaser will also fund product development, patent prosecution protection and
worldwide marketing.
The Company believes that the signing of this contract will put it in a
position to meet its present and future working capital obligations. However,
even though there are minimum guaranteed payments to the Company, there is still
a risk factor to be assumed by investors. While the contract provides for
initial payments totaling $290,000 additional revenue is contingent upon GOJO's
sales of the patented equipment.
NOTE 3: LEGAL PROCEEDINGS
On May 19,1999 the Company was notified that Compliance Control, Inc. (CCI)
demands arbitration against the Company. The demand is made pursuant to the
written agreement with the Company dated March 12, 1998. CCI and the Company had
contracted for the distribution of the Hygenius(TM) hand washing control and
monitoring systems manufactured by or for CCI. The Agreement requires the
Company to pay CCI a minimum amount each month, in the event that the Company
failed to sell the minimum number of the product. The claims against the Company
are breach of contract in the amount of $112,672.76 plus interest and recovery
of arbitration fees, costs and attorneys' fees in an amount to be determined by
the Arbitrator.
On June 18, 1999 the Company filed a Demand for Arbitration Counterclaim
against Complaince Control, Inc. The nature of the counterclaim included breach
of contract, covenant of good faith and fair dealing, fraud and trade
disparagement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
Net/Tech International, Inc., a Delaware Corporation, is the developer of
the patented Hygiene Guard Hand Wash Reminder and Monitoring technology which
prompt and verifies employee hand washing in any environment where hygiene is a
priority.
Net/Tech International was founded in 1990. Prior to April 1996, the
Company was focused on commercializing its patented technology for water
dispersible products. The Company developed a prototype of the water dispersible
product, which was successfully tested by the US Military. At that time the
product could not be produced cost effectively enough to be competitive with
styrofoam. The Company retains ownership to its water dispersible patents and
may determine to investigate the potential to commercialize this technology.
7
<PAGE>
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, Arby's, Chili's and other well known companies.
After extensive testing and evaluation, the Hygiene Guard product line was
deemed to have important benefits and be of substantial value to end users hand
washing activity. However, end users noted the following drawbacks, which made
them reluctant to commit to substantial purchases. 1) Necessity of a costly hard
wire installation. 2) Cost of the system (approximately $2500 per store). 3)
Complexity of operating a computer in order to run the system. As a result of
these drawbacks these companies were unwilling to place substantial purchase
orders. All of the fast food chains involved however, did indicate a significant
interest in a simple Hygiene Guard type system that would remind the employees
to wash and make sure they get to the sink. In addition, specific end users
indicated a strong interest in monitoring hand washes upon entry into the
kitchen.
As a result of the Company's inability to achieve substantial commitments
from end users the Company was unable to secure the necessary financing to
execute its business plan to become a complete food safety solutions provider.
Additionally, the Company was forced to abandon its plans for completing a
health and food safety catalog and for development of distribution channels for
its existing systems.
In October 1998 the Company made a decision to focus its efforts on 1)
developing a less expensive, less sophisticated version of the Hygiene Guard
product line. 2) Establish a strategic partnership or agreement with an
international food safety related company in order to market the Company's hand
washing systems throughout the world. The Company determined it was necessary to
pursue a strategic alliance in order to effectively market its systems since the
Company did not have the resources to manufacture cost effectively or create its
own distribution channels.
GOJO INDUSTRIES AGREEMENT
In July 1998 the Company initiated discussions with industry leading
international hygiene related companies in an effort to establish a strategic
relationship to market the next generation of the Hygiene Guard product line.
After a market analysis and multiple negotiations the Company has chosen to
enter into a worldwide exclusive agreement with GOJO Industries, Inc. GOJO,
developer of the Purrell hand sanitizer, is an industry leading provider of soap
and hand hygiene products to the worldwide food service and medical markets.
GOJO is a privately held company located in their state of the art 500,000
square feet facility near Akron, Ohio. GOJO employs over 800 people and is an
industry leader in food service, institutional and health care markets. GOJO
products are sold in 46 countries worldwide.
8
<PAGE>
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.
RESULTS OF OPERATIONS
Net/Tech International Inc. is a development stage company, which is in the
process of commercializing its patented hand wash reminder and monitoring
technology. The Company's primary products are its patented Hygiene Guard
series, which prompts and monitors employee hand washing in any environment
where hygiene is a priority.
Research, development and related engineering expenses for the nine months
ended August 31, 1999, were $0 as compared to $25,299 for the nine months ended
August 31, 1998. The expenses incurred during 1998 reflect expenditures to both
refine and manufacture the Hygiene Guard Series 4000. After marketing the
original Hygiene Guard product line and obtaining limited sales and market
acceptance the Company made a determination to develop a new generation of
product line and seek a strategic partner to perfect and market its systems. On
November 9, 1998 the Company entered into an agreement with XL Research, Inc.
for the hardware, software design and development of the new Hygiene Guard
Series 2000/3000., a less expensive and less sophisticated series of hand
washing system technology.
In March 1999, the Company entered into an agreement with GOJO Industries.
The key terms of the agreement are as follows:
Net/Tech to sell the entire Hygiene Guard patent estate to GOJO Industries.
GOJO to control product development, patent protection and marketing
costs. Net/Tech to receive $290,000 over 20 months and 10% US net sales
of the patented equipment for 10 years, 5% for 2 years and 2 1/2% for 3
years. In addition, Net/Tech will receive 7% of foreign net sales of the
patented equipment for 10 years. No minimum sales guarantees are required
by GOJO.
GOJO is in the business of supplying soap and hand hygiene products to the
worldwide foodservice and healthcare markets, therefore they can market the
Hygiene Guard as an additional product to existing customers. Net/Tech does not
have to provide any capital for buying and assembly of units nor selling
expenses thereon. In March 1999, Net/Tech received a $50,000 deposit and is to
receive a minimum of $12,000 per month for 20 months. In addition, Net/Tech will
receive net sales percentages of the patented equipment, previously noted. Their
main source of income will be these payments and fees generated by the sale of
units by GOJO.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses since inception and revenues
consist of $23,584 for the nine months ended August 31, 1999 from the sales of
the Hygiene Guard Series 4000 product. At August 31, 1999 the Company had cash
and cash equivalents of $15716. The Company received $65,000 from the sale of
433,333 shares at 15(cent) per share during the six months ended May 31, 1999.
In March 1999, the Company received a down payment of $50,000 and will receive
minimum guaranteed payments of $12,000 per month for a period of twenty months
for the sale of its Hygiene Guard patent estate and product development.
9
<PAGE>
The Company is now dependent upon GOJO as its main source of revenue. There
are no assurances as to the level of GOJO's Hygiene Guard product sales or its
success in marketing. The Company is dependent upon the initial and net sales
payments from GOJO as well as obtaining additional financing. The Company may
not have enough cash to pay-off its current payables and operate. There is no
assurance that additional financing will be available. The Company has not
established borrowing arrangements or have an available line of credit.
MANAGEMENT
At present there are 2 employees on the staff of the Company. Glenn E.
Cohen serves as the Chairman of the Board and Chief Executive Officer.
FORWARD LOOKING STATEMENTS
Statements wherein the terms "believes", "intends", or "expects" are
intended to reflect "forward looking statements" of the Company. The information
contained herein is subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements or paragraphs. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 19,1999 the Company was notified that Compliance Control, Inc. (CCI)
demands arbitration against the Company. The demand is made pursuant to the
written agreement with the Company dated March 12, 1998. CCI and the Company had
contracted for the distribution of the Hygenius(TM) hand washing control and
monitoring systems manufactured by or for CCI. The Agreement requires the
Company to pay CCI a minimum amount each month, in the event that the Company
failed to sell the minimum number of the product. The claims against the Company
are breach of contract in the amount of $112,672.76 plus interest and recovery
of arbitration fees, costs and attorneys' fees in an amount to be determined by
the Arbitrator.
On June 18, 1999 the Company filed a Demand for Arbitration Counterclaim
against Complaince Control, Inc. The nature of the counterclaim included breach
of contract, covenant of good faith and fair dealing, fraud and trade
disparagement.
11
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation(1)
3.2 By-Laws(1)
------------------
(1) Incorporated by reference to the Company's
Registration Statement on Form S-1 (No. 33-36198).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed since the last report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET/TECH INTERNATIONAL, INC.
/S/ GLENN E. COHEN
------------------
Glenn E. Cohen
Chairman and Chief Executive Officer
Date: October 15, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 15,716
<SECURITIES> 0
<RECEIVABLES> 144,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 169,442
<PP&E> 73,048
<DEPRECIATION> 36,129
<TOTAL-ASSETS> 290,211
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 97,587
<OTHER-SE> 95,560
<TOTAL-LIABILITY-AND-EQUITY> 290,211
<SALES> 23,584
<TOTAL-REVENUES> 23,584
<CGS> 12,535
<TOTAL-COSTS> 303,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,858)
<EPS-BASIC> (.001)
<EPS-DILUTED> 0
</TABLE>
