SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/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, 1999.
Commission File Number
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: $290,381.
As of November 30, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Issuer was $1,750,071.48. 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
.187.
The number of shares outstanding of the Issuer's Common Stock, par value $.01
per share, as of November 30, 1999 9,758,671.
<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 2000 Annual Meeting of Shareholders which was filed
with the Securities and Exchange Commission on February 15, 2000.
2
<PAGE>
PART 1
Item 1. Description of Business
- -------------------------------
OVERVIEW OF BUSINESS
Net/Tech International, Inc., 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.
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GOJO INDUSTRIES AGREEMENT
On March 15, 1999, Net/Tech sold its entire hand washing technology patent
estate and product development to date to GOJO Industries, Inc. in return for a
percentage of net sales of the patented hand wash reminder and monitoring
equipment. GOJO made payments to Net/Tech in the total amount of $158,000.
Subsequent to November 30, 1999, GOJO made a determination not to proceed
with the commercialization of the next generation of Hygiene Guard Systems. In
recent communications, GOJO cited the grant of a third party patent for a
similar use and an initial rejection of one of Net/Tech's pending patent
applications as reasons for ceasing commercialization. GOJO has proposed
transferring the patent estate back to Net/Tech in exchange for termination of
the agreement and a general release. The terms of the original agreement called
for GOJO to pay Net/Tech a total of $290,000 over 20 months. Through January,
2000, GOJO had paid Net/Tech $158,000 and has not made the February payment. In
addition, Net/Tech was to receive 10% of U.S. net sales and 7% of overseas net
sales for 10 years and a sliding scale percentage for the balance of the 15 year
agreement.
Current Net/Tech management will attempt to resolve the GOJO matter as soon
as possible. Net/Tech and ROI have agreed that any resolution with GOJO must be
acceptable to ROI in order for the pending acquisition to be completed. Net/Tech
shareholders are scheduled to vote on the ROI acquisition at the Annual Meeting
on March 20, 2000.
PATENTS
The Company has no patents pending and all patent rights were transferred
to GOJO.
COMPETITION
The Company is no longer planning to produce the Hygiene Guard series of
products. The Company currently has no identifiable market and thus no
competition.
RESEARCH AND DEVELOPMENT
The Company has no current or future research and development plans.
EMPLOYEES
As of November 30, 1999, the Company had 1 full time employee. Subsequent
to November 30, 1999, the Company has no paid 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. As of December 1, 1998 the Company also subleased an
additional 2500 square feet with an annual rent of $36,000. The Company still
has in place and maintains these subleases until March 2001. The Company's total
space subleased is + 3200 square feet which provide sublease income of $45,600
annually.
Item 3. Legal Proceedings
- -------------------------
NONE
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Item 4. Submission of Matter to Vote of Security Holders
- --------------------------------------------------------
The Company did not hold a security holders meeting in fiscal year 1999.
Subsequent to November 30, 1999, a security holders' meeting was scheduled for
on March 20, 2000. Reference the Company's Definitive Proxy filed with the SEC
on February 15, 2000 for a description of items up for vote at the meeting of
Security Holders.
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
were obtained using an internet retrieval service.
1999 High Bid Low Bid
---- -------- -------
First Quarter 21/32 5/16
Second Quarter 1 1/8 3/8
Third Quarter 7/16 1/8
Fourth Quarter 3/4 1/8
1998 High Bid Low Bid
---- -------- -------
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
(b) As of February 2, 2000, there were approximately 210 record holders of
the Company's Common Stock. In addition, there were approximately 890
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
In fiscal year 1999, the Company abandoned its development of the Hygiene
Guard product line and sold all of its patent estate to GOJO Industries, Inc.
The Company is not currently developing or researching any new product lines.
During fiscal year 1999, the Company realized revenues from GOJO payments for
the patent estate. GOJO is still in the development phase of the Hygiene Guard
series. The Company has received no royalty payments from GOJO sales as a result
of the GOJO contract. As a result of these events and the ongoing cost of
operations, the Company incurred a net loss of $304,143 during the fiscal year
ending November 30, 1999. Subsequent to November 30, 1999, GOJO elected to
terminate the agreement and return the patent estate to Net/Tech.
Net/Tech International Inc., as a development stage company, was in the
process of commercializing its patented hand wash reminder and monitoring
technology. The Company's primary products were its patented Hygiene Guard
series, which prompts and monitors employee hand washing in any environment
where hygiene is a priority. In fiscal year 1998, the management team 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
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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.
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 entered into a contract with GOJO Industries. The key terms of
the contract were as follows:
1. Net/Tech sold the entire Hygiene Guard patent estate and product
development to date to GOJO Industries.
2. GOJO was to control product development, patent protection and marketing
costs.Net/Tech was 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 would receive 7% of foreign net sales of the
patented equipment for 10 years. No minimum sales guarantees were required
by GOJO.
Subsequent to November 30, 1999, GOJO made a determination not to proceed
with the commercialization of the next generation of Hygiene Guard Systems. In
recent communications, GOJO cited the grant of a third party patent for a
similar use and an initial rejection of one of Net/Tech's pending patent
applications as reasons for ceasing commercialization. GOJO has proposed
transferring the patent estate back to Net/Tech in exchange for termination of
the agreement and a general release.
In connection with sale to GOJO, 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 $143,986 and has had no revenue other than
the payments from GOJO Industries. In order for the Company to attract capital
it issued 434,034 shares at $0.29 per share during the year and from conversions
of options and payment creditors in stock. The Company's working capital as of
November 30, 1999 was approximately $18,589 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:
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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 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.
The Company was dependent upon GOJO as its main source of revenue. Subsequent to
November 30, 1999, GOJO made a determination not to proceed with the
commercialization of the next generation of Hygiene Guard Systems. In recent
communications, GOJO cited the grant of a third party patent for a similar use
and an initial rejection of one of Net/Tech's pending patent applications as
reasons for ceasing commercialization. GOJO has proposed transferring the patent
estate back to Net/Tech in exchange for termination of the agreement and a
general release.
TECHNOLOGICAL FACTORS. The Company has abandoned development of the Hygiene
Guard product line. The Company is not developing new products.
MARKET ACCEPTANCE. Because of the contract with GOJO, and the Company's
abandonment of the development of a less expensive Hygiene Guard application,
the market for the Hygiene Guard product line in effect rested with GOJO and
GOJO has decided not to commercialize the product line.
DEPENDENCE ON GOJO CONTRACT. The Company's main source of revenue was from
payments from GOJO Industries and no further payments may be forthcoming.
NEED FOR ADDITIONAL FINANCING. As of the fiscal year the Company shows a working
capital of $18,589. The Company was 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.
SUBSEQUENT EVENTS. The Company has entered into an agreement to acquire Results
Oriented Integration Corporation d/b/a ROI Corporation, a privately held Georgia
corporation. With the acquisition of ROI, the Company will be in a new business,
providing payment processing software to the e-commerce marketplace, as well as
retail and mail order businesses.
ROI ACQUISITION
ROI markets software that processes electronic payment transactions for
companies selling through Internet e-commerce, retail outlets, and mail order
call centers. ROI's primary software is "e-transaction middleware" that is
certified to provide access to credit card and check authorization networks for
application software from companies like Binary Tree, Computer Associates, J.D.
Edwards, Friedman Corporation, HarrisData, Intentia, LANSA, VAI, and dozens
more. ROI's middleware is used in both business-to-business and
business-to-consumer transactions by companies ranging from very small to very
large Internet marketers and retailers, including Alltel, Brunswick, 800.com,
IBM, Omaha Steaks, and Skytel.
ROI is a leader in credit card processing software for the IBM AS/400 in
the United States. The AS/400 is one of the world's most popular business
computers, with more than 650,000 systems sold in more than 150 countries. The
Company believes the availability of additional capital will allow ROI to
leverage its position and expand internationally. Additionally, ROI intends to
offer its new ROI JavaCardTM middleware on other systems like Unix, Linux, and
Windows. To further broaden its offerings, the Company will pursue acquisitions
of other software companies whose products are complementary to ROI's.
Once all of the terms and conditions of the agreement for the acquisition
of ROI have been met, ROI's shareholders will have controlling interest in the
Company, ROI management will replace Net/Tech management,
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and the name of the Company will be changed to ROI. The Company believes that
the potential market for ROI products and services will continue to grow rapidly
as more and more companies implement e-commerce systems.
The Company must issue (after a 1-for-6 reverse split) a total of 6,118,918
shares of Common Stock, par value $.01 per share, to be exchanged for all of the
issued and outstanding shares of common stock of ROI. These shares will not be
registered under the Securities Act of 1933, as amended, and must be held for a
minimum of two years. 2,352,988 of these shares will be delivered at closing and
3,765,930 of these shares will be held in escrow, with a portion released each
year based on the Company's Net Income Before Income Taxes ("NIBIT") for the
fiscal years ending in 2000, 2001, 2002, 2003, 2004, and 2005. Each year's
released shares must be held for a minimum of one year. Except for the minimum
holding period, all of these shares are subject to piggyback registration rights
which will enable the holder of such shares to have such shares registered along
with any possible future registration of shares of the Company.
RISK FACTORS
FINANCIAL PERFORMANCE. The Company has incurred operating losses for the years
ending November 30, 1997, 1998, and 1999. The Company's financial information
can be found in its 10-KSB and 10-QSB filings. Additional financial information
can be found in the addenda to this Memorandum. ROI incurred an operating loss
in its fiscal year ending June 30, 1998, and had operating profits in its fiscal
year ending June 30, 1999, and for the six-month period ending December 31,
1999. Appendix A includes the audited financial statements of ROI for the fiscal
years ended June 30, 1998, and 1999, the unaudited financial statements of ROI
for the six months ended December 31, 1999, and the unaudited financial
statements of the Company for the fiscal year ended November 30, 1999. Appendix
B includes the pro forma financial statements for the combination of the Company
and ROI for the fiscal year ended November 30, 1999, and the pro forma financial
statements projected for ROI for the fiscal years ending June 30, 2000 and 2001.
Upon completion of the acquisition of ROI, the Company's fiscal year end will be
changed from November 30 to June 30. There can be no assurance that the business
will be profitable in the future.
COMPETITION. In the IBM AS/400 market, ROI products have achieved acceptance and
are installed on approximately 1,000 systems. In the new markets for other
computer systems that the Company intends to enter, some of the competitors are
much larger and more established and are better capitalized, leaving the Company
at a substantial disadvantage.
ADDITIONAL CAPITAL REQUIREMENTS. The Company believes that the proceeds of this
offering, together with cash flow from operations will be adequate to meet the
Company's short term working capital requirements. No assurance can be given
that the Company will not require additional debt or equity financing to
maintain and support its operations, or that the Company will be able to obtain
such financing when and if required.
NO ASSURANCE OF SUCCESSFUL EXPANSION. ROI currently offers software only for IBM
AS/400 computer systems in the United States. The Company intends to expand the
market for ROI products onto additional types of computer systems and into
international markets. The Company also intends to pursue the acquisition of
companies whose products are complementary to ROI's. No assurance can be given
that such expansion will be successful or that such acquisitions will be
accomplished.
NO ASSURANCE OF MEETING PROJECTIONS. Any return to shareholders of the Company
will be dependent upon the success of the Company in achieving the sales as
forecast and in operating the Company within anticipated costs. There is no
guarantee or assurance that such success will be achieved or maintained for a
specific period of time. Sales may be adversely affected by various industry and
technological factors, or any adverse changes in general economic conditions. If
the Company does not achieve its projected operating results, any investment in
the Company could be uneconomic.
TRADING MARKET. The Company's common stock is traded on the OTC Bulletin Board
under the symbol "NTTI." However, the Company considers its common stock to be
"thinly traded" and there can be no assurance that an active trading market in
the Company's stock will be maintained. In the absence of such a market, an
investor may find it more difficult to sell the stock offered hereby. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices of many
small companies. The trading price of the Company's common stock is expected to
be subject to significant fluctuations in response to
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variations in quarterly operating results, changes in analysts' earnings
estimates, announcements of technological innovations by the Company or its
competitors, general conditions in the software industry and other factors.
These fluctuations, as well as general economic and market conditions, may have
a material adverse effect on the market price of the Company's common stock.
NO ASSURANCE OF NASDAQ OR AMEX LISTING. The Company intends to apply for a
listing of its common stock on the NASDAQ Small Cap Stock Market or the American
Stock Exchange as soon as practicable. The Company believes that after the
closing this offering and the closing of the ROI acquisition, the Company will
meet the requirements for such a listing. However, there is no assurance that
the common stock will qualify for a listing. In addition, there are certain
subjective criteria for listing applications. Even if the Company meets the
published requirements for listing, there can be no assurance that the NASDAQ or
the American Stock Exchange will list the Company's common stock.
CONTROL BY PRINCIPAL SHAREHOLDERS. Upon completion of this offering and the ROI
acquisition, the Company's three principal shareholders will own a majority of
the Company's total issued and outstanding common stock. Such principal
shareholders will be in a position to elect all the directors of the Company and
control the management and affairs of the Company.
DILUTION. Purchasers of the Shares will incur an immediate dilution in the net
tangible book value of such Shares upon the completion of this offering in that
the net tangible book value per Share immediately after such offering will be
significantly less than the price per share at which the Shares are purchased.
Dilution represents the difference between the price per share paid by the new
investor, after deduction of expenses, and the net tangible book value per share
after the offering.
SHARES ELIGIBLE FOR FUTURE SALE AND THE EXERCISE OF OPTIONS AND WARRANTS MAY
ADVERSELY AFFECT THE MARKET FOR COMMON STOCK. The Company has issued shares and
will issue additional shares considered "restricted securities" that may be sold
pursuant to Rule 144 of the Securities Act of 1933. Rule 144 provides, in
essence, that a person that is an affiliate of the Company holding "restricted
securities" for a period of one year may sell only an amount every three months
equal to the greater of: (i) one percent of the Company's issued and outstanding
shares; or (ii) the average weekly volume of sales during the four calendar
weeks preceding the sale. Persons who are not affiliates of the Company may sell
without volume limitation their shares held for two years if there is adequate
current public information concerning the Company. The sale in the public market
of common stock may adversely affect prevailing market prices of common stock.
The exercise of outstanding options and warrants will dilute the percentage
ownership of stockholders. Sales in the public market of common stock underlying
such options or warrants may adversely affect prevailing market prices of common
stock. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of such
outstanding securities can be expected to exercise their respective rights
therein at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided in
such securities.
LIMITATION ON DIRECTOR LIABILITY. As permitted by Delaware law, the Company's
Certificate of Incorporation limits the liability of directors to the Company or
its stockholders for monetary damages for breach of a director's fiduciary duty
except for liability in certain instances. As a result of the Company's charter
provision and Delaware law, stockholders may have limited rights to recover
against directors for breach of fiduciary duty.
DIVIDEND POLICY. It is the present policy of the Company not to pay any cash
dividends. Payment of additional dividends in the future will depend upon the
Company's growth, profitability, financial condition and other factors that the
board of directors of the Company may deem relevant.
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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:
Balance Sheets F 1
Statements of Loss F 2
Average Share Information F 3
Statements of Cash Flows F 4
Statements of Shareholders' Equity - Inception Through November 30, 1999 F 5
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.
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Net/Tech International, Inc.
Balance Sheets
<TABLE>
<CAPTION>
November 30, November 30,
1999 1998
Assets
- ------
Current Assets
<S> <C> <C>
Cash $ 18,589 $ 160,334
Accounts receivable 24,000 9,437
Inventory
Prepaid expenses 3,168 12,419
---------------------------
Total Current Assets 45,757 182,190
---------------------------
Fixed Assets
Leasehold improvements -- 10,126
Furniture and fixtures -- 44,024
Machinery and equipment -- 18,898
---------------------------
-- 73,048
Less Accumulated Depreciation -- 26,474
---------------------------
-- 46,574
---------------------------
Intangible Assets
Patent application costs (net of accumulated
amortization of $5,000 and $21,144 respectively) 20,000 52,633
Other Assets
Security deposits 10,850 10,850
---------------------------
Total Assets $ 76,607 $ 292,247
===========================
Liabilities and Stockholdrs' Equity
Current Liabilities
Accounts payable and accrued expenses and interest $ 173,745 $ 148,483
Obligations under capital lease, current portion -- 1,759
---------------------------
Total Liabilities 173,745 150,242
---------------------------
Stockholders' Equity (Deficit)
Common Stock, $.01 par value: 20,000,000 authorized;
9,758,671 and 9,324,637 shares issued and
outstanding, respectively 97,587 93,246
Additional paid-in capital 5,980,800 5,920,140
Deficit (6,175,525) (5,871,382)
---------------------------
Total Stockholders' Equity (97,138) 142,004
---------------------------
Total liabilities and stockholders' equity $ 76,607 $ 292,246
===========================
</TABLE>
See accompanying notes to consolidated financial statements are an integral part
of these financial statements
F-1
<PAGE>
Net/Tech International, Inc.
Statement of Losses
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
November 30, November 30, November 30,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Revenue $ 158,381 $ 36,022 $ --
Costs and Expenses:
Cost of Sales 12,535 14,674 --
Marketing, general & administrative expenses 295,211 1,298,821 814,604
Research, development and related expenses 25,298 419,013 391,939
Litigation Settlement 80,904
Depreciation and amortization 20,419 20,266 18,974
-------------------------------------------
Operating Loss (275,986) (1,716,752) (1,225,517)
Other (income) and expense
Interest Income (2,602) (16,366)
Interest Expense 276 409 627
Loss on abandonment of assets 30,483 371,082
-------------------------------------------
Net Income (Loss) $ (304,143) $(2,071,877) $(1,226,144)
===========================================
Net Income (loss) per share (0.03) (0.29) (0.20)
Number of Shares Used In Computation 9,680,894 7,085,086 6,024,262
</TABLE>
See accompanying notes to consolidated financial statements are an integral part
of these financial statements
F-2
<PAGE>
Average Share Information
Opening 9,325,339
December 9,425,339
January 9,592,005
February 9,758,671
March 9,758,671
April 9,758,671
May 9,758,671
June 9,758,671
July 9,758,671
August 9,758,671
September 9,758,671
October 9,758,671
November 9,758,671
Closing 9,680,894
F-3
<PAGE>
Net/Tech International, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
November 30, November 30, November 30,
1999 1998 1997
-------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net profit (loss) $ (304,143) $(2,071,877) $(1,226,144)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES
Depreciation 16,091 12,873 14,564
Amortization of intangible assets 2,500 7,394 4,410
Loss (gain) on disposal of assets 60,616 119,795 --
Compensation paid in common stock 202,905 219,000
Accounts receivable (14,563) (9,437) --
Inventory 41,479 (41,479)
Prepaid expenses 9,251 (12,419) --
Security deposits (6,806) 17,990
Accounts payable, accrued expenses and interest 25,262 44,486 74,833
Accrued compensation (125,000) --
Deposits 1,600 --
Other (84) --
-------------------------------------------
Total Adjustments 99,157 276,786 289,318
-------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (204,986) (1,795,091) (936,826)
-------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment-net -- (80,572) (99,695)
-------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 65,000 1,205,000 1,312,750
Proceeds from options sold -- 480,000
Principal payments under capital leases (1,759) (1,505) (1,287)
-------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,241 1,203,495 1,791,463
-------------------------------------------
NET INCREASE (DECREASE) IN CASH (141,745) (672,168) 754,942
CASH AT BEGINNING OF YEAR 160,334 832,502 77,560
-------------------------------------------
CASH AT END OF YEAR $ 18,589 $ 160,334 $ 832,502
===========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 276 $ 409 $ 627
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 $170,000 in
compensation expense on options granded an employeee. The expense was calculated
on the difference between the fair market value of the stock less the exercise
price on the date of the 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 the financial statements are an integral part of these
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Net/Tech International, Inc.
Statement of Stockholders' Equity (Deficit)
Inception Through November 30, 1999 Total
Common Stock Additional Deficit Shareholders'
Shares Amount Paid-in Capital Equity (Deficit)
January 10, 1990 (Inception)
<S> <C> <C> <C> <C> <C>
Shares issued at $.01 per unit 3,162,500 $ 31,625 $ -- $ -- $ 31,625
For cash-private placement 25,000 250 250
For promotional service provided 750,000 7,500 7,500
For subscription receivable 100,000 1,000 1,000
For organizational costs provided 200,000 2,000 2,000
For patent assignment
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)
Shares issued at $7.00 per share
for cash - IPO 149,110 1,491 1,042,279 1,043,770
Shares issued at $2.32 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 defered 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
Shares issued at $7.50 per share
for - IPO 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
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)
Net (Loss) (235,508) (235,508)
-------------------------------------------------------------------------
Balance November 30, 1995 4,855,127 48,551 1,903,126 (2,375,120) (423,443)
Shares issued at $1.25 per share for
inside A&B Warrants 149,874 1,499 185,844 187,343
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
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
with an exercise price of $2.50 -- -- 200,000 200,000
Sale of Options for $0.25 per option
with an exercise price of $2.50 -- -- 270,000 270,000
Shares issued at $1.50 per share upon
exercise of stock options 349,998 3,500 521,500 525,000
Shares issued upon exercise of
stock options 16,000 160 15,090 15,250
Compensation expense for issuance of
stock options 94,000 94,000
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
Shares issued at $2.00 per share 245,000 2,450 487,550 490,000
Shares issued upon exercise of
stock options 20,000 200 24,800 25,000
Shares issued at $1.25 per share 100,000 1,000 124,000 125,000
Shares issued for consulting service 11,858 119 27,486 27,605
Shares issued as compensation 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 $0.15 per share 2,099,997 21,000 294,000 315,000
Compensation expense for issuance of
stock options 170,300 170,300
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
Shares issued upon exercise of
stock options 434,034 4,341 60,660 65,001
Net (Loss) (304,143) (304,143)
-------------------------------------------------------------------------
Balance November 30, 1999 9,758,671 $ 97,587 $ 5,980,800 $(6,175,525) $ (97,138)
=========================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-5
