SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1999
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-27592
TECH LABORATORIES, INC.
(Exact name of Small Business issuer in its charter)
New Jersey 22-1436279
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, New Jersey 07508
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (973) 427-5333
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ___
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form and no disclosure will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $689,190
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within the last 60
days. On March 24, 2000, the aggregate market value of voting stock held by non-
affiliates, based on the closing price as quoted on the OTC Bulletin Board under
the symbol "TCHL", was $19,230,708.
Transitional Small Business Disclosure Format (check one): Yes___ No _X_
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TECH LABORATORIES, INC.
FORM 10-KSB/A
Table of Contents
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Page
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Part I ................................................................................. 1
Item 1. Description of Business ............................................... 1
Item 2. Description of Property ............................................... 6
Item 3. Legal Proceedings ..................................................... 6
Item 4. Submission of Matters to a Vote of Securityholders .................... 7
Part II ................................................................................. 7
Item 5. Market for Common Equity and Related Stockholder Matters .............. 7
Item 6. Discussion and Analysis or Plan of Operation .......................... 9
Item 7. Financial Statements .................................................. 11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................. III-1
Part III................................................................................. III-1
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ..................... III-1
Item 10. Executive Compensation ................................................ III-2
Item 11. Security Ownership of Certain Beneficial Owners and
Management............................................................. III-3
Item 12. Certain Relationships and Related Transactions......................... III-4
Item 13. Exhibits and Reports on Form 8-K ...................................... III-5
</TABLE>
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TECH LABORATORIES, INC.
Form 10-KSB
Forward-looking Statements
Statements made in this Form 10-KSB that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
federal securities laws. These statements often can be identified by the use of
terms such as "may," "will," "expect," "anticipate," "estimate," or "continue,"
or the negative thereof. Such forward-looking statements speak only as of the
date made. Any forward-looking statements represent management's best judgment
as to what may occur in the future. However, forward-looking statements are
subject to risks, uncertainties, and important factors beyond the control of
Tech Labs that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include, but are not limited to, those discussed under
the caption "Factors That May Affect Future Events" in Item 6 of this Form
10-KSB. Tech Labs disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or unanticipated
events.
Part I
Item 1. Description of Business.
General
Tech Laboratories, Inc. manufactures and sells various electrical and
electronic components. During 1999, we completed the acquisition of the
DynaTraX(TM) high-speed digital switch matrix system, an electronic switching
unit. We believe that the acquisition of the DynaTraX(TM) technology will enable
us to become a provider of multi-media digital network distribution and
management equipment for use in campus and building facilities. This equipment
manages voice, video and data transmissions on a network.
In addition, during the last two years, through our subsidiary, Tech
Logistics, Inc., we have been manufacturing and marketing under our exclusive
license, an infrared perimeter intrusion and anti-terrorist detection system or
"IDS." The IDS was originally designed for military applications, and we
currently market this product to government agencies and private industry for
use in nuclear, industrial and institutional installations.
We have plans to expand our business operations in a number of ways over
the next 12 to 18 months. Our primary capital requirements over that time period
include:
o payments of trade payables;
o marketing expenses, including the sale of the DynaTrax(TM) switch;
o research and development;
o tooling costs for improved versions of our existing products and
development of new products; and
o development of DynaTrax(TM) technology we acquired from NORDX/CDT.
Historical Business
We also manufacture and sell standard and customized transformers, test
equipment and rotary switches, the latter of which products permits an
electrical signal to be diverted from point A to point B. In addition, we act as
a contract manufacturer for other companies and produce on an OEM basis
electronic and electrical assemblies, printed circuit board assemblies, cable
and harness assemblies and specialized electronic equipment. Approximately 15%
of our products are manufactured for military applications.
We sell our switch, transformer and test equipment products in the
electronics and electrical industries, primarily as a contract manufacturer for
other companies or for inclusion in OEM products. We market our products in
these industries in the United States. This is a mature market. Competition is
on the basis of price and service. Pricing of our products is based upon
obtaining a margin above cost of production. The margin we will accept varies
with quantity and the channels of distribution.
We intend to market our historical products over the Internet, as well as
through our distribution and outside sales agents. Our website is currently
on-line. Our website address is www.techlabsinc.com.
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The DynaTraX(TM) Asset Acquisition - Material Terms of Purchase Agreement
On April 27, 1999, pursuant to an asset acquisition agreement with
NORDX/CDT, Inc., we completed the purchase of the DynaTraX(TM) product, for a
purchase price of $500,000. The entire amount of the purchase price was paid
upon closing. In connection with the acquisition of DynaTraX(TM) technology, we
acquired certain inventory, patents and patent applications, and other equipment
related to the DynaTraX(TM) product. Under the agreement, NORDX/CDT, Inc.
retained a limited amount of inventory to service customers who had purchased
the technology prior to the discontinuance of the DynaTraX(TM) business by
NORDX/CDT, Inc.
Industry
DynaTraX(TM) Networking Management and Maintenance Technology
We believe that there is a rapidly growing marketplace for "digital"
multi-media, including internet, high-speed data, digital voice and video, and,
information equipment and systems. We intend to use our DynaTraX(TM) technology
to produce a line of standard, digital telecommunication distribution and
management equipment that OEM's and/or Value-Added-Resellers will be able to use
as a platform they can custom configure, through software, to supply a variety
of industry and customer-specific applications and functions.
We entered into an agreement in October 1999 with TravelNet Technologies,
Inc. to sell the "Data Valet" software system which runs on a Dynatrax(TM)
distributing switch system. This system provides high-speed, bundled,
multi-media Internet and video services to business travelers and hotel guests.
This integrated system also monitors and bills guests for services used. The
agreement expires on September 10, 2002.
The TravelNet Agreement provides that Tech Labs and TravelNet will jointly
o promote DynaTraX(TM) and the Data Valet products in trade shows;
o share the costs of trade show participation;
o select and pay for retaining an advertising agency;
o training of sales personnel; and
o share information, literature, sales projections, sales leads and
technical support.
We intend to build industry recognition for producing private,
customer-premise (community, commercial, educational and hospitality complexes,
and residential buildings), high-speed Internet, Long Distance, Intranet
information distribution and management switching systems.
We believe the future trend in communications is reselling local loop
services, which is the service connection between the local phone company's
local office and the telephone customer, using new digital transmission
technology and equipment to get around the present "de facto monopoly" telephone
and CATV companies maintain over local connection and distribution services.
Our goal is to have our DynaTraX(TM) technology play a large role in
helping developers, builders and/or managers of private residential communities
and commercial, industrial, educational and hospitality complexes establish
facilities that will distribute and manage high-speed digital Internet, Long
Distance and CATV services. This technology permits these users to bypass
current telephone and CATV companies' "Last Mile" connection service. "Last
Mile" connection service is the interconnection between a wide range of
computing resources to "Wide Area Network", and may allow users to increase
rents and to make their properties more attractive to tenants.
We believe that our DynaTraX(TM) product offers a faster switch and a much
larger port size than any competing product and is not limited to a specific
type of network as with some competing products. Port size refers to the number
of network connections available for user equipment and for network distribution
equipment.
Our DynaTraX(TM) product is proposed to be sold in the multi-media digital
network distribution and management equipment industry. The growth in digital
networks is clear as is the cost in supporting and maintaining these networks.
We initially intend to market the DynaTraX(TM) product in the eastern portion of
the United States with expansion to other markets over time. There are at least
four companies that have products that compete with the DynaTraX(TM) product.
However, we believe none of these competitors offer a product with all of the
features or capabilities of DynaTraX(TM).
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We expect that competition in the sale of our DynaTraX(TM) product will be
on the basis of price, features, service and technical support. Pricing of our
products is based upon obtaining a margin above cost of production. The margin
we will accept varies with quantity and the channels of distribution.
Competition for network management products comes from several different
sources. One source of competition is the designated employees of large
organizations which have been hired to manage and maintain their internal
networks. However, we believe the need to reduce costs through the
implementation of automated cost saving technologies such as the DynaTraX(TM)
technology will provide Tech Labs with market opportunities.
Another group of competitors which produces products to manage and maintain
the network physical layer consists of NHC, RIT and Cyteck. Of these three
companies, NHC is the only one that offers a product comparable to DynaTrax(TM),
but which is not as fast as DynaTraX(TM). In addition, V-LAN switching, which is
a technology utilized by a number of companies, can be regarded as a competing
technology. However, V-LAN switching is limited to a specific type of network,
i.e. Ethernet, and not able to support many tasks which our DynaTraX(TM)
technology is designed to complete. These tasks are:
o rearranging network physical layer connections e.g.s moves, adds and
changes of equipment such as computer terminals; fax machines; and
printers;
o testing circuits;
o managing and mainatining end-to-end network configuration, which is
the connection between different points on a network from the
telecommumunications closet to the user outlet; and
o maintaining asset inventory records.
We regard V-LAN as complementary to DynaTraX(TM) circuit switching since
they can work together to provide a more comprehensive network
management/maintenance solution. The four competitors all have greater financial
and other resources and currently account for substantially all of the existing
market.
Although we believe that the DynaTraX(TM) technology will serve as the
basis for new products in the area of multi-media, digital network distribution
and management equipment for use in campus and building facilities, our ability
to successfully market our products will depend upon several factors including,
among others:
o The development of an effective marketing and distribution network;
o The acceptance of our products by potential users; and
o Our ability to support existing products and develop and support new
products that are compatible with other systems in use by potential
customers and provide useful features that are user friendly.
Infrared Intrusion Detection System or "IDS"
In April 1997, we formed Tech Logistics, Inc., a joint venture subsidiary
owned at that time 80% by our company and 20% by Carmine O. Pellosie, Jr., a
director of Tech Labs and president of International Logistic, Inc., a privately
owned company that distributes police, security, safety and communication
security devices. In May 1998, we acquired Mr. Pellosie's interest in Tech
Logistics. The IDS, which is an active infrared sensor system able to detect
intrusions by humans or vehicles into protected areas, was originally designed
for military applications.
We have recently begun marketing IDS to government agencies and private
industry for use in nuclear, industrial, and institutional installations. We
have also begun to manufacture and market products currently sold by
International Logistics Inc., as well as new security, police training, bomb
detection and disposal equipment, anti-terrorism countermeasures and lie
detection devices. New devices are intended to include hand-held letter bomb
detectors, hand-held weapons detectors, video surveillance equipment as well as
integrated audio-visual surveillance vehicles for government and police use.
We have entered into an agreement dated as of October 1, 1997 with EAG,
W.T. Sports, Ltd. and FUA Safety Equipment. Under the terms of the agreement we
were granted an exclusive right until September 30, 2007 to manufacture and sell
in the U.S., Canada and South America the IDS products. The agreements provide
that until March 31, 2001 gross pre-tax profits will be shared 70% to Tech Labs
and 30% to FUA. From April 1, 2001 until September 30, 2007 the gross pre-tax
profits in excess of 16% will be shared 70% to Tech Labs and 30% to FUA. We will
also pay FUA a royalty of 5% of the cost of any IDS products we manufacture and
sell. We also intend to market metal detection equipment manufactured by EAG for
use in security and industrial applications, such as walk-through metal
detectors and hand-held metal detectors.
We are marketing our IDS product to the security and anti-terrorist
industry. We believe this is a growing industry and that terrorist incidents and
security breaches serve to increase the demand for our products. We have
recently completed the sale of an IDS to Los Alamos National
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Laboratories.
This industry has a number of different competing products and
technologies. Competition in the industry is partly based on price and partly on
other factors such as effectiveness of a product in the field, acceptable levels
of false alarms for a given application and service. We are marketing the IDS
product for global distribution. We have a number of competitors for the IDS
products offering competitive technology, many of whom have greater financial
and other resources.
We have received approval for the IDS from the U.S. Air Force for inclusion
in their Tactical Automated Security System program which is a $500 million
program to thwart enemy attacks on critical military installations throughout
the world. Subsequent to this approval, Tech Labs has received a blanket order
to provide 50 IDS systems to the U.S. Air Force. Tech Labs has shipped 12
systems during calendar year 1999 under its blanket order to the Air Force prime
contractor. Pricing of our products is based upon obtaining a margin above cost
of production. The margin we will accept varies with quantity and the channels
of distribution.
Marketing Strategies
Marketing. We plan to implement a three-pronged marketing program
consisting of:
o Industry announcements and presentations through business and industry
trade groups;
o Establishing relationships with several industry recommenders and
specifiers, who are consultants and engineering companies to help
present our cable management and network physical layer solutions to
the end-users and their contract management or system integrators; and
o A promotional campaign of ads, mailings, and on-line Web site media,
targeted at the end-user communications managers, their consultants
and advisers.
Initially, we will focus on the communication/computer centers in the
eastern part of the United States. We plan to divide this area into four sales
regions:
o New England states;
o New York metropolitan area;
o Mid-Atlantic/Washington DC area; and
o South East Coast states.
We will quickly set up several regional representatives, sales agents,
and/or certified value added resellers in each of the four regions. Our plan is
to have one representative and, initially, up to two VARs for each region.
Whenever possible, we plan to use former NORDX/CDT trained sales agents and
certified VARs.
Sales representatives will be commissioned sales agents. VARs will be
system integrators who will purchase DynaTraX(TM) products at a volume based
discount price for resale as part of a turn-key service in which the system
integrator designs the system, purchases the component products and installs and
maintains the system.
We also plan to expand on the initial program by opening up additional
sales areas in the country and overseas. We contemplate doing this by adding
regional representatives or agents, or through current VAR organizations that
have a national presence.
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In the established East Coast area, we intend to set up three regional
sales/service centers:
o Massachusetts;
o Washington, DC; and
o Florida
We will repeat the process in the other areas as they become established.
We plan to use our sales/service centers to introduce new, enhanced
versions of the DynaTraX(TM) system and to provide territory customer support
services. We also plan to set up a separate marketing campaign and sales
operations to build markets for our expanded high-speed, customer-premise
DynaTraX(TM) gateway networking switch.
In addition, working with VARs, we will focus on providing turn-key,
private customer-premise digital gateway exchange networking systems. We will
target real estate developers, builders and/or owners of private communities,
commercial community retail complexes and shared rental buildings to enable them
to control and resell Internet, long distance, CATV, and building automation
information services going into and out of their private facilities.
Source of Supply
Current inventory component purchases for all our products are made from
OEMs, brokers, and other vendors. We typically have more than a single source of
supply for each part, component, or service, but from time to time we may
utilize a single supplier for a particular part or component. During the year
ended December 31, 1999, Wiggins Plastics was our largest supplier with 7.4% of
our overall inventory purchases. Those components were in products that produced
approximately 11.4% of our revenue. These purchases were primarily used in the
manufacture of electromechanical switches. During the year ended December 31,
1998, Wiggins Plastics accounted for 14.2% of our overall inventory purchases.
Those components were in products that produced approximately 25.7% of our
revenue for such year. We have no long-term agreements with any of our
suppliers.
Order Backlog
The backlog of written firm orders for our products and services as of
December 31, 1999, was as follows:
As of December 31, 1999: 742,765
As of December 31, 1998: 128,025
Patents
In connection with our acquisition of the DynaTraX(TM) assets, we acquired
certain patents and pending patent applications. Four patents have been granted
in Great Britain, which are listed below:
o Patent title: User Interface for Local Area Network. This patent covers
technology which allows communication between the user and the equipment
controlling the network. This patent expires in 2013.
o Patent title: Token Ring. This patent covers technology which transmits
information between devices on a network. This patent expires in 2013.
o Patent title: Half Duplex Circuit for Local Area Network. This patent
covers technology which allows one-way communication either to or from the
Local Area Network. This patent expires in 2013.
o Patent title: Matrix Switch Arrangement. This patent covers technology
which is a switch that can either connect or disconnect one or more devices
on a network. This patent expires 2015.
We also have patents pending in the United States and in the European
Common Market.
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Employees
As of December 31, 1999, we had 11 full-time employees, including our
officers, seven of whom were engaged in manufacturing, one in repair services,
one in administration and financial control, one in engineering and research and
development, and one in marketing and sales.
Item 2. Description of Property.
Our corporate headquarters and manufacturing facility is located in North
Haledon, New Jersey. Our primary manufacturing and office facility is a
one-story building that is adequate for our current needs. We lease this
facility of 8,000 square feet, from a non-affiliated person, under a lease that
ends in May, 2001. The annual base rent is $48,000 and includes property taxes
and other adjustments. We believe our premises are adequate for our current
needs and that if and when additional space is required, it would be available
on acceptable terms.
We are an integrated manufacturer and, accordingly, except for plastic
moldings and extrusions, produce nearly all major subassemblies and components
of our devices from raw materials. We purchase certain components from outside
sources and maintain an in-house, light machine shop allowing fabrication of a
variety of metal parts and castings, complete tool room for making and repairing
dies, a stamping shop and an assembly shop with light assembly presses. Our test
lab checks and tests our products at various stages of assembly and each
finished product undergoes a complete test prior to shipment.
We anticipate that we will either manufacture any new products ourselves or
subcontract their manufacture, in whole or in part, to others. We believe that
personnel, equipment, and/or subcontractors will be readily available as and
when needed.
We offer warranties on all our current products, including parts and labor
for one year.
We have limited research and development facilities and currently employ
one engineer.
Item 3. Legal Proceedings.
Litigation
We are involved in a lawsuit arising from a letter of intent relating to a
small potential transaction we did not complete because we believed there were
misrepresentations made to us. We believe that the outcome is likely to be
favorable, but that our maximum liability if we do not prevail would be $30,000.
The suit is pending in the Superior Court of New Jersey, Law Division, Passaic
County.
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Item 4. Submission of Matters to a Vote of Securityholders.
None.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock has been trading publicly on the OTC Bulletin Board under
the symbol "TCHL" since 1994. The table below sets forth the range of quarterly
high and low closing sales prices for our common stock on the OTC Bulletin Board
during the calendar quarters indicated. The quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs, or conversion, and may not
represent actual transactions.
TCHL COMMON STOCK
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASK
----------------------- -------------------------
YEAR ENDING DECEMBER 31, 2000 HIGH LOW HIGH LOW
- ----------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (through March 24)................ 10.00 4.1875 10.625 4.6875
YEAR ENDING DECEMBER 31, 1999
- -----------------------------
First Quarter................................... $2.625 $1.0625 $3.0 $1.3125
Second Quarter.................................. 3.125 1.50 3.875 2.00
Third Quarter................................... 3.25 1.50 3.625 1.625
Fourth Quarter ................................. 3.87 1.00 4.12 1.25
YEAR ENDING DECEMBER 31, 1998
- -----------------------------
First Quarter................................... $3.125 $1.75 $3.375 $2.125
Second Quarter.................................. 2.6875 1.6875 3.00 2.00
Third Quarter................................... 2.1875 1.125 2.625 1.4375
Fourth Quarter.................................. 2.0625 1.25 2.625 1.50
</TABLE>
As of February 2, 2000, there were 249 holders of record of our common
stock.
We have never paid any cash dividends on our common stock and anticipate
that, for the foreseeable future, we will continue to retain any earnings for
use in the operation of our business. Payment of cash dividends in the future
will depend upon our earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements, and
other factors deemed relevant by our Board of Directors.
The transfer agent for our common stock is Interwest Transfer Co., Inc.,
P.O. Box 17136, Salt Lake City, Utah 84117.
On February 3, 2000, our registration statement, filed on Form SB-2, was
declared effective by the Securities and Exchange Commission. We are selling a
minimum of 258,065 and a maximum of 451,613 shares of common stock at a price of
$7.75 per share pursuant to a direct participation offering. We are also
registering 90,045 shares of common stock for certain persons and 50,000 shares
of common stock issuable upon exercise of certain outstanding warrants that may
be resold from time to time in the future by certain selling security holders.
Until we receive and accept subscriptions for the minimum number or 258,065
shares, or gross proceeds of at least $2.0 million, subscribers' funds will be
deposited in escrow.
Recent Sales of Unregistered Securities
As listed below, the Company issued shares of its Common Stock, par value
$.01 per share, to the following individuals or entities for the consideration
as listed in cash or services. All sales
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made within the United States or to United States citizens or residents were
made in reliance upon the exemptions from registration under the Securities Act
of 1933 as follows:
1. In November 1999 we issued 75,000 shares to Mint Corporation for consulting
services pursuant to our agreement with Mint dated March 10, 1999. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principals of Mint are sophisticated and had complete
access to all relevant information regarding Tech Labs.
2. In June 1999 we issued to Coby Capital Corporation, a consultant to Tech
Labs, options to purchase 50,000 shares at $1.85 per share. The options are
exercisable for a period of four years from the date of grant, but may be
extended upon the occurrence of certain specified events. The issuance of the
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principal of Coby Capital is "accredited" and had
access to all relevant information regarding Tech Labs.
3. In June 1999 we sold 90,045 shares to two "accredited" investors for gross
proceeds of $200,000. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
4. In June 1999 we issued 25,000 shares to Mint Corporation for previously
rendered consulting services pursuant to our agreement with Mint dated March 10,
1999. Pursuant to said agreement, Mint was also granted options to purchase
100,000 shares at $1.25 per share and 100,000 shares at $1.75 per share. The
options are exercisable for a period of two years from the date of grant, but
may be extended upon the occurrence of certain specified events. The issuance of
the shares and options was exempt from registration under the Securities Act
pursuant to Section 4(2) thereof.
5. In June 1999 we issued 50,000 shares to MPX Network Solutions, Inc. pursuant
to a consulting agreement in exchange for services. The issuance of the shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The principal of MPX is sophisticated and had complete access to all
relevant information regarding Tech Labs.
6. In March 1999 we issued 600 shares to a noteholder in payment of $600 in
interest in lieu of cash, as provided under the terms of the note. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The noteholder purchased the note beteween December 1996
and October 1997. The noteholder was sophisticated and had access to all
relevant information.
7. From September 1998 to April 1999, we sold shares of our common stock
pursuant to Rule 504 of Regulation D under the Securities Act to eight investors
who were either sophisticated or "accredited" as that term is defined under Rule
501(a) of Regulation D under the Securities Act. Each investor was given a
private placement memorandum which included financial statements describing Tech
Labs. Each investor also had access to Bernard M. Ciongoli, Tech Labs'
president, and to other pertinent documentation. The offering raised a total of
$443,200.00, $250,000 of which was raised in April 1999.
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Item 6. Management's Discussion and Analysis or Plan of Operation.
General
We were incorporated in 1947 as a New Jersey corporation. Our focus has
historically been the design, manufacture, and sale of rotary switches. Switches
have been a significant part of our revenue for five decades. In 1995, to
augment revenues, we sought business in transformers and contract manufacturing.
In 1998, we made a shift to new product development. In 1998, we also made our
first sales of the IDS product, and in April of 1999, we completed the
acquisition of the DynaTraX(TM) switch and technology. We will continue to focus
on IDS and DynaTraX(TM) sales and development of additional products using these
technologies.
The following table sets forth the components of our revenues for each of
our major business activities in 1997, 1998 and 1999 and their approximate
percentage contribution to revenues for the period indicated:
<TABLE>
<CAPTION>
PRODUCT TYPE 1997 % of Revenue 1998 % of Revenue 1999 % of Revenue
- ------------ ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Switches $199,324 44.8% $166,550 30.1% $269,739 39.1%
IDS Sensors 0 0 254,900 46.2% 298,853 43.4%
Transformers/Coils 53,595 12.1% 50,515 9.1% 46,786 6.8%
Contract Manufacturing 191,404 43.1% 80,520 14.6% 73,812 10.7%
-------- ----- -------- ----- -------- -----
Totals $444,323 100.0% $552,485 100.0% $689,190 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
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The following table sets forth the percentages of gross profit for each of
our major business activities in 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------------------------------
PRODUCT TYPE 1997 1998 Net Change 1998 1999 Net Change
- ------------ ---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Switches 44.2% 45.0% 0.8% 45.0% 45.0% -0-
IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6%
Transformers/Coils 22.7% 25.0% 2.3% 25.0% 25.0% -0-
Contract Manufacturing 20.0% 22.8% 2.8% 22.8% 22.8% -0-
Unallocated company expenses,
including physical
inventory adjustments
and factory overhead (31.2%) (13.1%) 18.1% (13.1%) (14.0%) (0.9%)
Total company gross profit % (0.5%) 30.1% 30.6% 30.1% 31.4% 1.3%
</TABLE>
We have begun to shift out of the subcontracting and transformer business
which provides low gross profit margins, for higher gross profit margin sales of
IDS and other new products. While rotary switches produce high gross profits,
demand for rotary switches is low.
We have gradually shifted our product offering from less profitable to more
profitable proprietary products.
Results of Operations
1999 compared to 1998
Sales were $689,190 for 1999 as compared to $552,485 for the year ended
1998. The increase was due to growth in switch and sensor sales. We will
continue efforts in the future to increase sales of these high margin products.
Cost of sales of $472,790 for the year ended 1999 compared to $386,425 for
the year ended 1998 increased due to sales of IDS sensors to the Department of
Energy's Los Alamos facility, and increased switch sales.
Selling, general, and administrative expenses increased by $531,325 in 1999
as compared to the prior period in 1998 which resulted from higher than normal
expenses in 1999 due to professional fees associated with the acquisition of
DynaTraX(TM), and the fees incurred in connection with Tech Labs'
self-underwritten public offering.
Losses from operations of ($654,929) in 1999 increased by $485,825 compared
to losses of ($169,104) for the prior period as a direct result of higher
administrative expenses, due to the non-recurring DynaTraX(TM) acquisition fees
and legal fees, and self-underwritten public offering legal fees.
10
<PAGE>
1998 Compared to 1997.
Sales increased 24% from $444,322 in 1997 to $552,486 in 1998. This was due
to an increase in sales of the Intrusion Detection System (IDS). We will
continue our efforts to grow high margin IDS sales.
Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due
to an increase in sales of lower cost IDS products, which have a higher gross
profit than historical products.
Selling, general and administrative expenses, including depreciation,
increased 24% from $265,104 in 1997 to $329,849 in 1998 due to increased sales
efforts, engineering, testing, and promotion of new product introductions, as
well as consulting, legal, and other expenses in connection with the acquisition
of the DynaTraX(TM) product line.
Income (loss) from operations decreased 39% from a loss of ($267,239) in
1997 to a loss of ($163,788) in 1998 due to higher gross profit margins on new
products.
Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in
1998.
Liquidity and Capital Resources.
During the years ended December 31, 1997, 1998 and 1999 we have had
difficulty meeting our working capital requirements, which was a result of lower
sales, limited marketing efforts, and continued losses from operations. During
the years ended December 31, 1997 and 1998, we completed sales of our common
stock which raised approximately $407,000 in 1997 and $603,716 in 1998.
During calendar year 1999 we raised an additional $250,000 for the
acquisition of the DynaTraX(TM) assets and an additional $200,000 for working
capital. On October 25, 1999 Tech Labs borrowed $50,000 at 10% interest per year
pursuant to a promissory note and security agreement with the lender. Under the
terms of the security agreement, Tech Labs assigned a security interest in two
of Tech Labs' purchase orders totaling $543,000. Under the terms of the
promissory note, the $50,000 was to be repaid in full no later than December 24,
1999. The Note was extended to a due date of January 28, 2000 at an interest
rate of 14%. In addition, Tech Labs entered into three unsecured promissory
notes, as described below, in the amount of $50,000 each, at an interest rate of
10%:
o Note 1. Executed December 13, 1999 and is due February 13, 2000
o Note 2. Executed December 15, 1999 and is due February 15, 2000
o Note 3. Executed December 20, 1999 and is due February 20, 2000
During 1998 we sold our first IDS products to the U.S. government Los
Alamos facility. Continued sales will, however, be dependent upon sustained
marketing efforts. Because sales from our historical lines of products have not
in the past, and are not in the future expected to generate sufficient revenue
to support our product development and marketing and sales efforts for our
DynaTraX(TM) and IDS products, we will be required to meet our capital needs to
finance our business plan through the sale of our shares of common stock.
In 1999, Tech Labs began an SB-2 public offering to raise equity of
$2,000,000 (minimum) to $3,500,000 (maximum). This offering is expected to be
completed in April of 2000.
Factors that May Affect Future Events.
The following factors, among others, could cause actual events and financial
results to differ materially from those anticipated by forward-looking
statements made in this Annual Report on Form 10-KSB and presented elsewhere by
management from time to time.
We have no patent or copyright protection on our current products, other
than aspects of the DynaTraX(TM) product and technology. Our ability to
compete effectively with other companies will depend, in part, on our
ability to maintain the proprietary nature of our technologies. Other than
with regard to the DynaTraX(TM) patents, which have been issued to date
only in England, we intend to rely substantially on unpatented, proprietary
information and know-how. We are also presently prosecuting the patent
applications filed in the United States and the European Common Market.
There is a risk that our current products may malfunction and cause loss
of, or error in, data, loss of man hours, damage to, or destruction of,
equipment or delays. Consequently, we, as the manufacturer of components,
assemblies and devices may be subject to claims if such malfunctions or
breakdowns occur. We are not aware of any past or present claims against
us. While we presently do not maintain product liability insurance, we
intend to obtain such coverage at the completion of this offering if such
coverage can be obtained on affordable terms. We cannot predict at this
time our potential liability if customers make claims against us asserting
that DynatraX(TM), IDS or other new products fail to function. Since we
have no insurance we could incur substantial expenses defending ourselves
against a product liability claim. If we are found to be liable for any
product liability claim it could could result in substantial losses to our
business.
We entered into an Amended Joint Marketing Agreement as of October 1, 1997
with Elektronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety
Equipment, AG and a Confidentialty and Manufacfuring Agreement with the
same parties and dated the same date, pursuant to which Tech Labs was
granted the exclusive right to manufacture in the U.S. and market and sell
in the U.S., Canada and South America the IDS products. The agreements
terminate on September 30, 2007 subject to automatic renewals for
successive one-year periods unless either party gives notice of
non-renewal. The agreements can be terminated earlier upon a default of any
material obligation. If the license is terminated, we would be unable to
use EAG's technology in our perimeter detection system products. Even if
the agreements remain in effect until September 30, 2007, it will be
necessary at that time to negotiate a new agreement or license or acquire a
suitable replacement technology.
Our hospitality software sales are greatly dependent upon a Joint Marketing
Agreement we entered into on October 15, 1999 with TravelNet Technologies,
Inc., pursuant to which we were granted the right to sell the "Data Valet"
software system, which operates with the DynaTraX(TM) switch technology.
This integrated system provides high-speed Internet and bundled digital
services to business travelers and hotel guests. This agreement, which
terminates on September 10, 2002, can be renewed with the mutual consent of
both parties. It will be necessary at that time to negotiate a new
agreement or license or acquire a suitable replacement technology. If
replacement software is not available it could greatly harm our ability to
sell the DynaTraX(TM) switch technology in hospitality environments.
In connection with the acquistion of the DynaTraX(TM) technology, we
acquired digital switches, finished products and parts from NORDX/CDT. We
do not have insurance on that inventory. Damage or destruction of some or
all of the inventory by fire, theft or by acts of nature would result in
substantial losses and would harm our business.
Item 7. Financial Statements.
Report of independent certified public accountants F-1
Consolidated balance sheet for the years ended December 31, 1999,
1998 and 1997 F-2, F-3
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated statements of stockholders' equity for the years
ended December 31, 1999, 1998 and 1997 F-5
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 F-6
Notes to consolidated financial statements F-7
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Charles J. Birnberg, CPA
150 Overlook Avenue
Hackensack, New Jersey 07601
March 24, 2000
To The Board of Directors of Tech Laboratories, Inc.
I have audited the Balance Sheets of Tech Laboratories, Inc. as of December
31, 1997, 1998 and 1999 and the related Statements of Income and Retained
Earnings, and Cash Flows for the years then ended. These financial statements
are the responsibility of the company's management.
The audits were conducted in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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.
I believe that the audits provide a reasonable basis for my opinion.
Therefore, the financial statements in my opinion, present fairly the
financial position of Tech Laboratories, Inc. as of December 31, 1997, 1998 and
1999 and the results of operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
Sincerely,
/s/ Charles J. Birnberg
Charles J. Birnberg
Certified Public Accountant
Hackensack, New Jersey
F-1
<PAGE>
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1997, 1998 AND 1999
ASSETS
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash $ 166,173 $ 532,780 $ 162,925
Marketable Securities, at the Lower of
Cost or Market (Note 1) 59,343 56,693 61,453
Accounts Receivable, net of Allowance
of $10,000 in 1999, 1998 and 1997 90,734 143,462 57,697
Inventories (Notes 1 & 2) 269,209 270,118 816,703
Prepaid Expense 0 3,357 4,055
---------- ---------- ----------
Total Current Assets $ 585,459 $1,006,410 $1,102,833
---------- ---------- ----------
Property, Plant and Equipment at Cost (Note 1)
Leasehold Improvements 2,247 2,247 2,247
Machinery, Equipment and Instruments 223,884 230,137 379,815
Furniture and Fixtures 67,425 67,425 75,899
---------- ---------- ----------
$ 293,556 $ 299,809 $ 457,961
Less: Accumulated Depreciation & Amortization 281,029 299,162 314,162
---------- ---------- ----------
Net, Property, Plant and Equipment $ 12,527 $ 647 $ 143,799
---------- ---------- ----------
Other Assets $ 11,540 $ 11,540 $ 11,540
---------- ---------- ----------
Total Assets $ 609,526 $1,018,597 $1,258,172
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1997, 1998 AND 1999
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current Liabilities:
Current Portion of Long Term Debt (Note 5) $ 34,445 $ 32,742 $ 28,559
Short-Term Loans Payable (Note 6) 43,373 43,373 243,373
Accounts Payable and Accrued Expenses 48,148 42,155 260,745
Other Utilities 53,945 36,600 3,190
---------- ---------- ----------
Total Current Liabilities $ 179,911 $ 154,870 $ 535,867
---------- ---------- ----------
Stockholders' Investment:
Common Stock, $.01 Par Value;
5,000,000 Shares Authorized; 3,650,660
Issued (Note 7) $ 13,753 $ 23,483 $ 36,507
Less: 11,316 Shares Reacquired and
and Held in Treasury (113) (113) (113)
---------- ---------- ----------
$ 13,640 $ 23,370 $ 36,394
Common Stock Subscribed (Note 7) 500 0 0
Capital Contributed in Excess of Par Value 721,847 1,315,833 1,816,316
Retained Earnings 0 0 0
Accumulated Deficit (306,372) (475,476) (1,130,405)
---------- ---------- ----------
$ 429,615 $ 863,727 $ 722,305
---------- ---------- ----------
Total Liabilities and Stockholders'
Investment $ 609,526 $1,018,597 $1,258,172
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 444,322 $ 552,486 $ 689,190
----------- ----------- -----------
Costs and Expenses:
Cost of Sales 446,457 386,425 472,790
Selling, General and Administrative
Expenses 265,104 329,849 861,174
----------- ----------- -----------
711,561 716,274 1,333,964
----------- ----------- -----------
Income/(Loss) From Operations ($ 267,239) ($ 163,788) ($ 644,774)
----------- ----------- -----------
Other Income (Expenses):
Interest Income $ 166 $ 1,654 $ 1,150
Interest Expense (6,996) (6,970} (11,305)
----------- ----------- -----------
($ 6,830) ($5,316) ($ 10,155)
----------- ----------- -----------
Income/(Loss) Before Income Taxes ($ 274,069) ($ 169,104) ($ 654,929)
Provision for Income Taxes (Notes 1 & 4) -- -- --
----------- ----------- -----------
Net Income/(Loss) ($ 274,069) ($ 169,104) ($ 654,929)
Accum. Earnings/(Deficit,) Beg. of Year ($ 32,303) ($ 306,372) ($ 475,476)
----------- ----------- -----------
Accum. Earnings/(Deficit,) End of Year ($ 306,372) ($ 475,476) ($1,130,405)
----------- ----------- -----------
Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.18)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
TECH LABS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFECIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1996 1,101,532 $ 9,189 $ 317,585 $ (32,303) $ 294,471
STOCK ISSUED -- 4,451 404,262 408,713
STOCK SUBSCRIBED -- 500 500
NET INCOME/
(LOSS) (274,069) (274,069)
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1997 1,546,632 $ 14,140 $ 721,847 $ (306,372) $ 429,615
STOCK ISSUED 1,323,311 9,230 593,986 603,216
NET INCOME/(LOSS) (169,104) (169,104)
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1998 2,869,943 $ 23,370 $ 1,315,833 $ (475,476) $ 863,727
STOCK ISSUED 780,717 13,024 500,483 513,507
NET INCOME/(LOSS) (654,929) (654,929)
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1999 3,650,660 $ 36,394 $ 1,816,316 $(1,130,405) $ 722,305
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ($ 274,069) ($ 169,104) ($ 654,929)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) 7,278 11,880 15,000
Unrealized (Gain)/Loss on Valuation of
Marketable Securities (Note 1) 0 3,357 470
Changes in Operating Assets and Liabilities:
Marketable Securities (35,001) (2,650) (4,290)
Accounts Receivable 2,615 (52,728) 85,765
Inventories 22,665 (909) (546,585)
Accounts Payable and Accrued Exp (7,925) (40,249) 216,359
Other Assets and Liabilities 15,862 14,997 593
----------- ----------- -----------
Net Cash Flows For Operating Activities ($ 268,575) ($ 235,406) ($ 887,617)
----------- ----------- -----------
Cash Flows From (For) Investing Activities:
Increase in Fixed Assets $ 0 $ 0 ($ 158,152)
----------- ----------- -----------
Net Cash Flows From (For) Investing Activities $ 0 $ 0 ($ 158,152)
----------- ----------- -----------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of S.T. Debt ($ 10,000) ($ 1,703) $ 162,407
Issuance of Common Stock 407,500 603,716 513,507
----------- ----------- -----------
Net Cash Flows From (For) Financing Activities: $ 397,500 $ 602,013 $ 675,914
----------- ----------- -----------
Net Increase/(Decrease) in Cash $ 128,925 $ 366,607 ($ 369,855)
Cash Balance, Beginning of Year 21,398 166,173 532,780
----------- ----------- -----------
Cash Balance, End of Year $ 150,323 $ 532,780 $ 162,925
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(1) Summary of Significant Accounting Policies
CASH - Includes Tech Lab's checking account at Hudson United Bank. There
are no Cash Equivalents.
ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to
customers. The allowance for bad debts is accrued based on a review of customer
accounts receivables aging.
INVENTORIES - Inventories are valued at cost or market, whichever is lower.
The FIFO cost method is generally used to determine the cost of the inventories.
At December 31, 1997, 1998 and 1999 physical inventories were taken and tested.
PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
ASSETS ESTIMATED USEFUL LIVES
Machinery 5 to 7 years
Furniture & Fixtures 5 to 7 years
Maintenance and repairs are charged to expense as incurred. The cost of
betterments is capitalized and depreciated at appropriate rates. Upon retirement
or other disposition of property items, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in the statement of
income.
INCOME TAXES - Income tax expense is based on reported income and deferred tax
credit is provided for temporary differences between book and taxable income.
MARKETABLE SECURITIES - The marketable securities are recorded at the lower of
cost or market. The cost of securities was $59,343 at December 31, 1997, $56,693
at December 31, 1998, and $61,453 at December 31, 1999.
(2) Inventories:
Inventories at December 31, 1997, 1998 and 1999 were as follows:
1997 1998 1999
---- ---- ----
Raw Materials & Finished Components $231,202 $202,359 $715,438
Work in Process & Finished Goods 38,007 67,759 107,265
-------- -------- --------
$269,209 $270,118 $816,703
-------- -------- --------
(3) Income/(loss) Per Share:
Income/(loss) per share was calculated on the weighted average number of shares
outstanding during the year ended December 31, 1997 of 1,550,048, during the
year ended December 31, 1998 of 2,202,905, and for the year ended December 31,
1999, 3,650,660.
F-7
<PAGE>
(4) Income Taxes:
At December 31, 1997, 1998 and 1999 the balance of operating loss carryforward
was $1,049,903, $1,219,007 and $1,873,936, respectively, which can be utilized
to offset future taxable income.
(5) Current Portion of Long-Term Debt:
Loans payable to banks were as follows for the years indicated:
CURRENT NON-CURRENT
YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
- ---------- ----- ------------- ------ ------
1997 Hudson United Bank Prime +1.5% $34,445 --
1998 Hudson United Bank Prime +1.5% $32,742 --
1999 Hudson United Bank Prime +1.5% $28,559 --
Certain marketable securities are pledged as collateral on the above loan.
(6) Short-Term Loans Payable
Demand loans payable include loans from stockholders, officers, members of the
Board of Directors and third parties. The outstanding loan balances due as of
December 31, 1997, 1998 and December 31, 1999 was $43,373 for 1997 and 1998, and
$243,373 for 1999, which includes accrued interest for all three years. The
annual interest rate for these loans ranged between six (6%) percent and ten
(10%) percent. One loan in the principal amount of $11,500 together with accrued
interest of $4,294 at December 31, 1999 is secured by the assets of Tech Labs.
In October of 1999, three short-term loans for a total of $200,000 at (10%) ten
percent annual interest were completed. Certain contractural revenues were
pledged to secure this loan.
(7) Common Stock
In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of
common stock.
In 1997 and 1998, Tech Labs completed a placement of common stock pursuant to
Rule 504 which raised $917,324.
In 1999, Tech Labs began an SB-2 offering to raise between $2,000,000 (minimum)
and $3,500,000 (maximum). This offering is expected to be completed in April,
2000.
(8) Commitments and Contingencies
Tech Labs entered into an exclusive agreement with Elektronik Apparatebau
(EAG), FUA Safety Equipment and Double T Sports Ltd. whereby it received
exclusive rights to manufacture and market IDS products until September 30, 2007
in the US, Canada and South America. Gross profits will be calculated according
to GAAP and distributed quarterly 70% to Tech Labs and 30% to FUA until March
2001. Thereafter, until 2007 quarterly distribution will be based on pretax
profits in excess of 16% being shared 70% to Tech Labs and 30% to FUA. In
addition, FUA will receive a 5% royalty based on the cost of any IDS products
Tech Labs manufactures and sells.
F-8
<PAGE>
(9) Subsequent Events
On April 27, 1999, Tech Labs completed the purchase of existing inventories
and test equipment of the discontinued DynaTraX(TM) Product Line from NORDX/CDT
for $500,000. In accordance with the purchase price method of accounting, the
purchase price for the assets referenced above was allocated to the assets
acquired on the basis of preliminary fair market values, which may be revised at
a later date. Results subsequent to the date of acquisition will be included in
Tech Lab's financial statements. Had the results of the DynaTraX acqusition been
included in our consolidated statements for 1997, 1998 and 1999, the effect
would have been material.
Year Ended Year Ended
DynaTraX December 31, December 31,
(Unaudited) 1998 1999
----------- ----------- -----------
Net Sales $ 400,000 $ 100,000
Cost of Sales 300,000 20,000
----------- -----------
Gross Profit 100,000 80,000
Research/Dev 900,000 -0-
Selling & G&A Exp 1,700,000 50,000
----------- -----------
Pre-Tax Inc./(Loss) $(2,500,000) $ 30,000
Income Tax (Expense)/
Benefit-Pro-Forma 1,150,000 -0-
----------- -----------
Net Income/(Loss) $(1,350,000) $ 30,000
----------- -----------
Investment Purchase
(Unaudited) Price*
---------- -----------
Inventory 2,700,000 $ 400,000
Test Equip. 355,000 100,000
----------- -----------
Total 3,055,000 500,000
=========== ===========
* Included in December 31, 1999 Tech Labs balance sheet.
Effect on (Unaudited)
Tech Labs, Inc. Year Ended Year Ended
(Pro-Forma) December 31, 1998 December 31, 1999
----------------- -----------------
Net Sales $ 952,486 $ 535,160
Net Income/(loss) (1,519,104) $ (387,836)
----------- -----------
EPS $ (0.54) $ (0.14)
=========== ===========
F-9
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Directors, Executive Officers, and Key Consultants
Name Age Title
- ---- --- -----
Bernard M. Ciongoli 53 President, Treasurer, and Director
Earl M. Bjorndal 48 Vice President and Director
Carmine O. Pellosie, Jr. 57 Secretary and Director
Richard J. Rice 62 Director
Each director is elected for a period of three years and until his
successor is duly elected by shareholders and qualified. Officers serve at the
will of the board of directors.
Bernard M. Ciongoli became our president and a director in late 1992, and
became Treasurer in 1998. From 1990 through 1991 he served as president of
HyTech Labs, a company engaged in sales and servicing of electronic test
equipment. During the years of 1987 to 1990, he acted as the principal owner and
President of Bernco Developers, a real estate developer. Mr. Ciongoli holds a
degree in electronic engineering from Paterson Institute of Technology.
Earl M. Bjorndal has been with us in various capacities since 1981. He has
been a director since 1985, and became a vice president in 1992. He is a
graduate of the New Jersey Institute of Technology with both bachelor's and
master's degrees in industrial engineering.
Carmine O. Pellosie, Jr. has been a director since the formation of Tech
Logistics, Inc. in 1997 and has been our Secretary since April 1999. Since
January 1, 1999, he has been the Controller of the Passaic County Department of
Health and Human Services. Prior to January 1999, he was, for more than five
years, president of International Logistics, Inc.
Richard J. Rice has served as a director since July 1999. He has served as
chairman of Teletalk International Services, Inc. since June 1994. He also
serves as president and CEO of Richard J. Rice, Inc. since November 1993. Prior
to 1993 Mr. Rice was president and CEO of Long Distance Services, Inc. for more
than five years.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers and persons who own more than ten percent of its equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Directors, officers and greater
than ten-percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) reports filed.
All filing requirements applicable to its officers, directors and greater
than ten percent shareholders were complied with except as follows: the Form 3
due ten days following the effectiveness of Tech Labs' registration statement,
filed on Form SB-2 and declared effective February 3, 2000, was not timely filed
for Richard Rice or Louis Tomasella; and the Schedule 13G and 13D, also required
to be filed within ten days of the aforementioned registration statement, for
Earl Bjorndal and Bernard Ciongoli, respectively, were not timely filed. The
late Forms were filed within several days of their required due
date.
Involvement in certain legal proceedings.
During the past five years, no director or executive officer of Tech Labs
has been involved in legal proceedings of the nature required to be disclosed by
this item.
III-1
<PAGE>
Item 10. Executive Compensation
The following table summarizes the compensation paid to or earned by our
president. No other officer has received compensation in excess of $100,000 in
any recent fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- -------------
Shares of
Common Stock
Issuable Upon
Name and 1999 Exercise of
Principal Position Year Salary($) Bonus($) Options
------------------ ---- --------- -------- -------
<S> <C> <C> <C> <C>
Bernard M. Ciongoli 1999 $125,000 0
President, Treasurer 1998 $125,000 0 300,000
1997 $125,000 0
</TABLE>
No options were granted in 1999 to any employee of Tech Labs which is
required to be disclosed by this item.
We have a five (5) year employment contract with Mr. Ciongoli that
commenced October 1, 1998, and amended June 18, 1999. Mr. Ciongoli is currently
compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also
entitled to receive two (2%) percent of our sales in excess of $1,000,000 during
any year he is employed by us. In addition, Mr. Ciongoli was also granted an
option exercisable for five (5) years from date of grant to purchase 300,000
shares of stock at $.50 per share, such option to vest in increments of 100,000
shares per annum on each anniversary date of the agreement commencing October 1,
1998. The agreement is automatically renewed for one (1) year unless either
party terminates the agreement in writing at least 180 days prior to the
expiration of the term or of any renewal period.
In 1996 we granted to Mr. Ciongoli an option to purchase 100,000 shares of
common stock exercisable for five (5) years at $.50 per share under our stock
option plan.
We do not have employment agreements with any other officer or other
employee. Our directors are not presently compensated.
III-2
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table describes, the ownership of the presently issued and
outstanding shares of our common stock by:
o persons known to us to own more than 5% of such stock, and
o the ownership of common stock by our directors, and by all officers
and directors as a group.
Number of
Shares Owned
Beneficially
Name and of Record % of Shares
- ---- ------------- -----------
Bernard M. Ciongoli 820,000 20.76%
Earl Bjorndal 248,344 6.71%
Carmine O. Pellosie, Jr. 40,000 1.10%
Richard J. Rice 80,000 2.19%
All officers and directors as a
group (4 persons) 1,188,344 30.76%
o The information for Mr. Ciongoli includes 100,000 shares issuable upon the
exercise of immediately exercisable options granted under our stock option
plan and 200,000 shares issuable upon exercise of options earned under our
employment agreement with Mr. Ciongoli.
o The information for Mr. Bjorndal includes 50,000 shares issuable upon the
exercise of immediately exercisable options granted under our stock option
plan.
o The information for Mr. Pelosie does not include 20,000 shares issuable
upon the exercise of options granted upon our stock option plans, which
options are not exercisable until July 2000.
o The information as to all officers and directors as a group also includes
20,000 shares issuable upon the exercise of immediately exercisable options
granted under our stock option plan.
III-3
<PAGE>
Item 12. Certain Relationships and Related Transactions.
During the past two (2) years there were no transactions of the nature
required to be disclosed by this item.
III-4
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith or have been previously
filed with the Securities and Exchange Commission and are incorporated by
reference herein.
EXHIBIT INDEX
3.1 Certificate of Incorporation.(1)
3.2 By-Laws of Tech Labs.(1)
10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing
Agreement dated as of October 1, 1998 between Tech Labs and Elktronic
Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment,
AG.(1)
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli.(1)
10.3 First Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli.(2)
10.6 Patent and Trademark assignments.(1)
10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation.(2)
10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX
Network Solutions.(2)
10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby
Capital Corporation.(2)
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.(2)
10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between
NORDX/CDT, Inc. and Tech Labs.(2)
10.12 Tech Labs Stock Option Plan.(2)
10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby
Capital Corporation.(2)
10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation.(2)
10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation.(2)
10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and
TravelNet Technologies, Inc.(3)
10.17 Promissory Note and Security Agreement dated October 25, 1999 between
Tech Labs and Peter B. Hirschfield, Trustee, Olive Cox-Sleeper Trust
dated 10/3/58 f/b/o Bert L. Atwater.(4)
10.18 Promissory Note dated December 13, 1999 between Tech Labs and Campbell
Steward.(5)
10.19 Promissory Note dated December 15, 1999 between Tech Labs and Herbert
L. Camp, Esq.(5)
10.20 Promissory Note dated December 20, 1999 between Tech Labs and Thomas
McKean, Esq.(5)
21.1 Subsidiaries of the Company was previously filed.
27 Financial Data Schedule
(1) Incoporated by reference from the Registrant's Registration Statement on
Form SB-2, File No. 333-82595, effective February 3, 2000, filed on July 9,
1999.
(2) Incorporated by reference from Amendment No. 1 Registrant's Registration
Statement on Form 5B-2, File No. 333-82595, effective February 3, 2000,
filed on October 18, 1999.
(3) Incorporated by reference from Amendment No. 2 to Registrant's Registration
Statement on Form 5B-2, File No. 333-82595, effective February 3, 2000,
filed on November 19, 1999.
(4) Incorporated by reference from Amendment No. 3 to Registrant's Registration
Statement on Form 5B-2, File No. 333-82595, effective February 3, 2000,
filed on December 17, 1999.
(5) Incorporated by reference from Amendment No. 5 to Registrant's Registration
Statement on Form 5B-2, File No. 333-82595, effective February 3, 2000,
filed on January 28, 1999.
(b) Reports on Form 8-K.
None.
III-5
<PAGE>
TECH LABORATORIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Amendment No. 1 to Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 1, 2000 TECH LABORATORIES, INC.
By: /s/ Bernard M. Ciongoli
-------------------------
Bernard M. Ciongoli
President
III-6
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