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, 2001
[_] 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, New Jersey 07508
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(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: $568,083
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 April 11, 2002, 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 $867,017.
The number of shares of common stock outstanding as of April 11, 2002: 5,143,530
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
TECH LABORATORIES, INC.
FORM 10-KSB/A
Table of Contents
Page
----
Part I.......................................................................................................... 1
Item 1. Description of Business......................................................................... 1
Item 2. Description of Property......................................................................... 8
Item 3. Legal Proceedings............................................................................... 8
Item 4. Submission of Matters to a Vote of Securityholders.............................................. 9
Part II......................................................................................................... 9
Item 5. Market for Common Equity and Related Stockholder Matters........................................ 9
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 12
Item 7. Financial Statements............................................................................ 16
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-1
Item 11. Security Ownership of Certain Beneficial Owners and Management................................III-1
Item 12. Certain Relationships and Related Transactions................................................III-2
Item 13. Exhibits and Reports on Form 8-K..............................................................III-2
SIGNATURE PAGE................................................................................................III-5
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TECH LABORATORIES, INC.
Form 10-KSB/A
Forward-looking Statements
Statements made in this Form 10-KSB/A 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/A. 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.
BUSINESS
General
Tech Laboratories, Inc. ("Tech Labs" or the "Company") manufactures and
sells various electrical and electronic components. During 2001, we marketed and
continued to develop the DynaTraX(TM) high-speed digital switch matrix system,
an electronic switching unit. We believe that DynaTraX(TM) technology will
enable us to become a provider of multi-media digital network distribution,
security, 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 three 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. This product has
become a marketing priority since the tragic events of September 11, 2001.
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
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.
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It continues to be our intention 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.
The DynaTraX(TM)Asset Acquisition - Material Terms of Purchase Agreement
On April 27, 1999, we completed the purchase of the DynaTraX(TM)
product from NORDX/CDT, Inc. for a purchase price of $500,000. 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.
Industry
DynaTraX(TM) Networking Management and Maintenance Technology
Tech Labs produces a high-speed digital matrix cross-connect switch
with a dynamic new technology, which can significantly reduce network downtime
and achieve substantial cost savings in data and telecommunications networking
environments. The DynaTraX(TM) switch provides network administrators with the
unique capability to remotely manage and maintain the "physical level" (the
actual physical connectivity) of their networks, from virtually any computer
with a few clicks of a mouse on a user-friendly graphical user interface (GUI).
This technology allows administrators to quickly and efficiently perform
physical changes electronically to repair networking problems (such as loss of
connectivity resulting in the need to move a cable to a different hub), or to
perform network reconfigurations (moves, adds or changes) to distribution
equipment such as computers and telecommunications devices. No longer does a
technician have to be dispatched to a telecommunication closet to resolve most
networking problems, or to provide changes to users' existing services on the
network.
Examples of where the DynaTraX(TM) has been found to be particularly
cost effective include: (1) active large remote corporate locations with minimal
or no IT personnel, where expensive outside technicians must often be dispatched
to resolve problems or other requests; and (2) locations where very frequent
movement of personnel occurs, such as in the military or at a convention center
where network reconfigurations are frequently required. Reconfigurations are
expensive with costs ranging from $50 to $200 on-site, and two to ten times that
for off-site reconfigurations, versus virtually no cost if a DynaTraX(TM) is
utilized. These figures do not include potential losses in productivity and
revenues associated with extended downtimes.
DynaTraX(TM) is also equipped with two key complementary products - a
Test Card and a Data Base Management System. The Test Card enables
administrators to effectively locate and resolve cable fault problems on the
distribution portion of the network. Customers state that the Test Card is far
superior to alternative methods for diagnosing problems such as traditional
cable test equipment, which typically involves using technicians to search
throughout the entire network, moving equipment and possibly interfering with
the performance of the network. DynaTraX's(TM) Database Management System
documents every event that occurs within the network, assuring that all
reconfigurations and other adaptations to the network are reflected on the
DynaTraX's(TM) GUI. Given the maze of wires, plugs, and jacks that are typically
found in a telecommunications closet, administrators are notorious for not
properly noting changes made to the network, resulting in cabling connections
errors and significant loss of productivity from unforeseen downtime. With most
network problems originating on the physical level, the Test Card and Data Base
Management System make the DynaTraX(TM) a complete tool for managing and
ensuring the integrity of data networks.
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Since launching its marketing campaign on a limited basis in early
2001, the DynaTraX(TM) has been received favorably, particularly from the U.S.
military, which frequently moves personnel and performs routine networking
changes for security purposes. DynaTraX(TM) has been tested and purchased by the
U.S. Air Force and the U.S. Navy for inclusion in government projects. Prominent
commercial users of the DynaTraX(TM) include Global Crossing Inc, Nortel
Networks, Allied Irish Bank, Sanko Telecom of Japan, and Blue Cross of Florida.
Tech Labs' long-term growth strategy includes rapid development of
DynaTraX's(TM) technological capabilities, and concurrently, product integration
and establishment of strategic partnerships with world-class software and
hardware vendors. Presently, Tech Labs is a teaming partner with BAE Systems in
marketing DynaTrax(TM) to the U.S. Government; and has submitted a bid for the
multi-year EITC government program. We also signed a teaming agreement with EPS,
Inc. to market DynaTrax(TM) and the IDS to the government. In addition, Tech
Labs believes it has been successful in taking key steps to achieving
relationships with key industry partners including Avaya Corp., Hewlett Packard
Corp, Computer Associates Inc. particularly with its DynaTraX(TM) Enterprise
Management Solution "DEMS". DEMS elevates the current DynaTraX(TM) electronic
patching system to an interactive intelligent enterprise management "Virtual
Technician" system. The Virtual Technician dramatically reduces the need for
on-site technicians to perform physical layer tasks, which can now be performed
electronically from a remote location (i.e., remotely testing network circuits,
reconnecting equipment and circuits, rapidly recovering from a critical network
failure, capturing and trapping hackers). Subsequently, the goal is to further
enhance the DEMS technology beyond the Virtual Technician application to a
system that will perform "self healing" (self-repair) network functions. Current
and future products derived from the DynaTraX(TM) will position the company as a
provider of state-of-the-art network enterprise management solution systems,
rapidly expanding from this base to become a recognized provider of enhanced
networks and integrated (voice/data/video) Internet (IP) compatible, private
customer-premise all-digital Automatic Call Directors, and PBX systems and
networks.
Subject to raising sufficient capital, Tech Labs intends to further
expand the DynaTraX(TM) matrix technology through the development of several
types of advanced management and switching systems:
1. A fiber optic Input/Output (I/O) DEMS switch capable of
cross-connecting multi-mode fiber circuits as well as providing fiber
to copper media conversion. This effort starts out as a revised version
of the current DynaTraX(TM) switch and eventually is incorporated in
the newer IP addressable switch products. The design effort basically
entails redesigning the I/O equipment and Distribution cards that will
plug directly into the existing DynaTraX(TM) switch package. This
product will be suited for customer premise applications that utilize
fiber-optic cabling in their horizontal cabling distribution plant. A
primary market for such a product is the government, especially the
military and security agencies where fiber optic cabling (regardless of
transmission speeds) is used for security and transmission reasons.
2. A 36-port switch that will reduce the fixed overhead cost and
physical size of the current (standard 108-port size) switch package.
This switch will utilize the current switch subassembly card modules
and power supply repackaged to fit into a back-plane versus the current
mid-plane chassis package. The purpose is to have a switch product that
is better priced and packaged for applications in smaller remote sites.
3. A new switching/management system designed around the Tech Labs
matrix chips. The system will support broadband voice/data/video IP
networks and be packaged to conform to the latest PC bus technology in
accordance with SCSA architecture and computer telephony practices. The
end product the Company intends to produce is focused on the customer
premise network operating center versus telephone exchange applications
and will include:
o IP Addressable Automatic Call Director "ACD".
o IP Addressable PBX and Centrex office switches.
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All products will feature the Tech Labs matrices and utilize
intelligent I/O line interface cards and user-friendly software
development tools already designed for the original DynaTraX(TM)
switching systems. The primary markets we are targeting for this new
technology will be:
o Fortune 1000 remote call centers or branch office
operations.
o Government agencies.
o Private commercial and residential properties as they
migrate more and more to the idea of owning and
operating their local network facilities.
The marketing channels the Company will rely on to sell the products to
the above groups will be the value-added resellers "VARs" responsible for
delivery of a turnkey information service, or for the implementation, management
and maintenance of private customer premise network facilities. This will
include CLECs, ISPs, and facility project management organizations.
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).
We continue to believe that competition in the sale of our DynaTraX(TM)
products 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 growing need to control and reduce costs by
using technology such as DynaTraX(TM) to automate tasks otherwise performed by
expensive technical labor, 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 maintaining end-to-end network configuration,
which is the connection between different points on a network
from the telecommunications 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:
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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 Tech Labs and 20% by Carmine O. Pellosie,
Jr., a director of our company 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 entered into an agreement dated effective 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
agreement provides 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. The company believes demand for this product will grow rapidly,
particularly in light of the recent terrorist attack that occurred on September
11, 2001. The company recently sold the IDS product to Los Alamos National
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.
In 1999 we 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.
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 are implementing a marketing program consisting of:
Distribution through Typical Resale Channel Partners. These are technically
qualified networking systems integration, implementation and management type
companies, in the business of providing network project-management consulting
services and/or on-site implementation, installation and maintenance support
services. The companies Tech Labs deals with will be working in the markets
(commercial or government) the Company has targeted and already established a
customer base.
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Building Sales and Sales Lead. In addition to the already existing networks of
existing and potential clients known by the Company's managers and resale
channel partners, Tech Labs, contingent upon sufficient resources, will also
embark on an aggressive promotion program consisting of advertising in trade
journals, trade show participation and mailing campaigns. The Company is
establishing itself as certified approved partners of large Enterprise
Management (HP, CA, IBM) systems providers, as well as large networking
equipment companies (such as Avaya) where there is a fit for integrating the
company's technology with these companies' technology and products.
Advertising. This will be a continuous program for both commercial and military
markets involving a focused DynaTraX(TM) Enterprise Management Solution campaign
in at least three trade magazines - two commercial and one government.
Trade Shows. The Company hopes to do at least six shows per year, comprised of
two major industry shows and four smaller territory focused government "AFCEA"
trade shows. In addition, Tech Labs will also participate in two or more shows
as part of exhibits setup by its channel and teaming partners.
Mailing Campaign. Tech Labs will use commercial and government industry mailing
lists available through industry trade organizations. These lists will be
territorially arranged focusing on the proper person or groups involved in
specifying, recommending and/or purchasing DynaTraX(TM) products.
Certified Partners Programs. Working under such arrangements, the company
expects to be able to co-promote its technology through its existing sales
channels and marketing programs. In some instances, these organizations will
even sell the product through their sales organization catalogs as a value-added
product or as an OEM.
Marketing Channels
The sales infrastructure for DynaTraX(TM), we anticipate, will include
a three-tier sales organization structure comprised of a senior company sales
executive managing up to five "market area" sales managers and several resale
channels in each area. These market areas will be located in the following
general regions: East Coast, Southwest, Mid West, West Coast, and Northwest.
Market territories will be selected based on the projected number of commercial
and government organizations considered to be primary target customers. These
regional areas will be further broken down to several "channel sales
territories".
Market areas will be established in phases over a two-year period,
starting with the East Coast where the company presently has established a base
of operations in two regional territories, New York and Florida. The goal is to
have a minimum of three regional territory sales managers in each market area.
For example, on the East Coast the company will initially setup managers in the
Northeast, New York City/New Jersey Metro region, Mid-Atlantic - Washington DC
region, and Southeast - Orlando/Tampa Florida region. Regional territories are
further broken down to local-territory units. During the initial East Coast
buildup phase, the company will support other market company agents (technical
representatives) operating in the regional territories targeted for development.
Representatives will be supported by the closest regional sales office manager.
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.
U.S. Military
The Department of Defense is presently under a mandate from the
President and Congress to minimize costs and maximize efficiency. The military,
unlike commercial organizations, will encourage the use of new technology such
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as DEMS to improve productivity, operations and reliability. The specific
military business opportunities the company is targeting includes: Improving IT
network management and maintenance capabilities; supporting "rapid deployment"
for configuring networks and for recovering from network disasters; having
current and accurate information about network configurations, connected assets
and usage statistics; preventing hackers or other type of unauthorized attempts
from gaining access to network resources, and then identifying and capturing
them.
Non-military Government Agencies
These government organizations primarily contract out their network
support operations. They are under significant pressure to reduce staff and
costs while also being asked to do more. In order to achieve these mandates,
agencies will have to rely on new technology such as DEMS that can help improve
their productivity while at the same time increase network services and
reliability. In addition, government agencies (especially the FBI, CIA, and NSA)
are also being challenged by Congress regarding their poor track record on
protecting their information and network resources against hackers and other
unauthorized users.
Commercial Organizations
Opportunities include large organizations with many regional business
offices and/or local call centers (remote office operations) as well as mid-size
organizations with medium size headquarters and small remote branch operations.
Included in this group are Fortune 1000 service organizations (banks financial
investment companies, medical insurance companies, large retail operations,
etc.) that have regional operations and rely on territory branch offices to sell
their products or services to their customers, and organizations that have a
need to change their network arrangement "churn" to support relocating personal
or to service temporary users of their facilities. In addition to relying on
their networks to conduct business, these organizations also have a need to
protect the network resources and customer information from hackers and other
unauthorized users.
Source of Supply
Current inventory component purchases for all our products are made
from OEMs, brokers, and other vendors. We typically have multiple sources of
supply for each part, component, or service, and during the year ended December
31, 2001, cannot characterize any particular company as being our "largest"
supplier. During the year ended December 31, 2000, Wiggins Plastics was our
largest supplier with 7.4% of our overall inventory purchases. These purchases
were primarily used in the manufacture of electromechanical switches. 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, 2001, and December 31, 2000, was as follows:
As of December 31, 2001: $14,146
As of December 31, 2000: $586,441
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:
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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.
On March 28, 2001 the Company filed a patent application in the U.S.
Patent office to provide Positive Network Access Security control to prevent
unauthorized hacker attacks to network services and systems. Tech Labs Positive
Access Security System works with the DynaTraX(TM) digital cross-connect
physical layer switch. This security physical layer enhancement solution allows
the ability to automatically disconnect circuits detected to be under attack
from an unauthorized user (hacker) and capture the hacker by quickly rerouting
the circuit the hacker is on to a honey pot (track, trace and locate) simulator
network system. As an integral part of an existing or new Enterprise Management
System's security, the DynaTraX(TM) Enterprise Management System software will
quickly respond to an SNMP alarm instruction by having the DynaTraX(TM) switch
disconnect the circuit being used by a hacker within 90 nanoseconds.
Employees
We have 16 full-time employees, including our officers, seven of whom
were engaged in manufacturing, one in repair services, one in administration and
financial control, two in engineering and research and development, and two in
marketing and sales, and three in management.
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 April, 2007. The annual base rent is $49,000 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.
Item 3. Legal Proceedings.
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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.
Item 4. Submission of Matters to a Vote of Securityholders.
On December 17, 2001, Tech Labs held its annual meeting of
shareholders. At the meeting, the following matters were voted upon by the
shareholders:
1. Bernard Ciongoli, Earl Bjorndal, Carmine Pellosie, Jr., and Salvatore
Grisafi were elected directors to serve until the next annual meeting
and until their successors are chosen and qualified.
The votes received by each are as follows:
Votes For Votes Withheld
--------- --------------
Bernard Ciongoli 3,228,647 1,146,580
Earl Bjorndal 3,229,230 1,123,030
Carmine Pellosie, Jr. 3,235,447 1,146,530
Salvatore Grisafi 3,235,447 1,146,530
2. Charles J. Birnberg was approved as the Company's independent public
accountant for the fiscal year ended December 31, 2001.
For Against Abstain
--- ------- -------
3,242,747 1,153,030 1,200
3. The shareholders did not approve the proposal to adopt an incentive
stock option plan for employees of the Company.
For Against Abstain
--- ------- -------
1,347,830 1,202,891 1,796,256
4. The shareholders did not approve the proposal to adopt a stock option
plan for the non-employee directors of the Company.
For Against Abstain
--- ------- -------
1,381,725 1,219,346 1,796,256
5. The shareholders approved the proposal amending the Company's
certificate of incorporation increasing the number of authorized shares
of common stock from 10,000,000 to 25,000,000.
For Against Abstain
--- ------- -------
3,193,056 981,271 223,200
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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
CLOSING BID CLOSING ASK
--------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDING DECEMBER 31, 2002
-----------------------------
First Quarter ....................................... .50 .16 .59 .19
YEAR ENDING DECEMBER 31, 2001
-----------------------------
First Quarter ....................................... 1.625 0.71875 1.75 0.875
Second Quarter....................................... .75 .43 .875 .50
Third Quarter........................................ .60 .27 .73 .32
Fourth Quarter....................................... .51 .28 .56 .34
YEAR ENDING DECEMBER 31, 2000
-----------------------------
First Quarter........................................ 10.00 4.1875 10.625 4.6875
Second Quarter....................................... 10.8125 5.1255 11.00 5.375
Third Quarter........................................ 6.375 3.1875 7.375 3.50
Fourth Quarter....................................... 4.75 0.875 5.0625 1.00
As of April 11, 2002, there were 252 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 closed on
the offering on May 3, 2000. We sold to the public an aggregate of 293,379
shares for gross proceeds of $2,273,723.
On November 17, 2000, Tech Labs filed a registration statement on Form
SB-2 to register shares of its common stock for the benefit of certain selling
securityholders, including the shares underlying the $1,500,000 convertible
-10-
notes issued on October 13, 2000. On January 22, 2001, the registration
statement was declared effective by the Securities and Exchange Commission. We
registered 2,008,654 shares, of which up to 1,321,154 may be sold upon
conversion of convertible notes and up to 412,500 may be sold upon the exercise
of warrants issued in connection with the convertible notes. The remaining
275,000 shares may be sold upon the exercise of warrants issued to certain
selling security holders. Pursuant to the terms of the subscription agreement
the Company entered into with the holders of the convertible notes (the
"Subscription Agreement"), the Company was required to register 200% of the
number of shares into which the notes may be converted.
On March 9, 2001 we filed a registration statement on Form S-8, which
registered 876,000 shares which (i) may issued upon the exercise of stock
options granted under our 1996 incentive stock option plan, (ii) may be issued
under free-standing stock options and (iii) shares and options which have been
and may be issued under a consulting agreement.
On April 24, 2001, Tech Labs filed post-effective amendment no. 1 to
the registration statement filed on Form SB-2. We registered a total of
5,306,816 shares of which up to 4,619,316 may be sold upon conversion of
convertible notes and up to 412,500 may be sold upon exercise of warrants issued
in connection with the convertible notes. We were required to amend the
registration statement to increase the number of shares registered in order to
remain in compliance with the terms of the Subscription Agreement and to update
the financial information. The post-effective amendment was declared effective
on May 7, 2001, by the Securities and Exchange Commission.
On April 5, 2002 we filed a new registration statement on Form SB-2 to
register shares of our common stock for the benefit of certain selling
securityholders, including the shares underlying the $1,500,000 convertible
notes issued on October 13, 2000, to replace the registration statement filed
for the benefit of certain selling securityholdres initially filed on November
17, 2000. We registered a total of 17,103,236 shares of which up to 16,415,736
may be sold upon conversion of convertible notes and up to 412,500 may be sold
upon exercise of warrants issued in connection with the convertible notes. The
registration statement is currently under review by the Securities and Exchange
Commission.
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 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 (the "Securities
Act") as follows:
1. In April 2001, we issued to Pierre Bergeron, an employee of Tech
Labs, 10,000 shares. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof. The shares were
issued to Mr. Bergeron in consideration of his services to Tech Labs. Mr.
Bergeron had complete access to all relevant information regarding Tech Labs.
2. In April 2001, we issued to Concurrent Resources Group, a consultant
to Tech Labs, 27,465 shares. The issuance of the shares was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
3. In March 2001 we issued to Ed Branca, an employee of Tech Labs
Community Networks of Southeast, Inc., 10,000 shares. The issuance of the shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The shares were issued to Mr. Branca in consideration of his services.
Mr. Branca had complete access to all relevant information regarding Tech Labs.
4. In January 2001 we issued to Barry Bendett, a consultant to Tech
Labs, 65,000 shares pursuant to terms of a consulting agreement. The issuance of
the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. Mr. Bendett is a sophisticated investor and has complete
access to all relevant information regarding Tech Labs.
5. In November 2000 we issued to Barry Bendett, a consultant to Tech
Labs, options to purchase 100,000 shares at $4.00 per share. The issuance of the
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. Mr. Bendett is a sophisticated investor and had complete
access to all relevant information regarding Tech Labs.
6. In October 2000 we issued a $1,500,000 principal amount convertible
notes which is due on October 13, 2002 to certain accredited investors. The
issuance of the note was made pursuant to Rule 506 of Regulation D under the
Securities Act.
-11-
7. In October 2000 we issued warrants to purchase 412, 500 shares of
our common stock to accredited investors in connection with the issuance of the
convertible notes described above in Item 6. The issuance of the warrants was
made pursuant to Rule 506 of Regulation D under the Securities Act.
8. In July 2000 we issued 25,000 shares and an option to purchase
100,000 shares at $5.75 per share for a term of 3 years to m3communications,
Inc. pursuant to an asset purchase agreement between Tech Labs, Tech Labs
Community Networks of the Southeast, Inc., a subsidiary of Tech Labs, and the
shareholders of m3communications, Inc. The issuance of the securities was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.
9. In June 2000 we issued 25,000 shares to Nathan Perlmutter pursuant
to a convertible note agreement dated September 5, 1997 which note was issued as
part of a private placement conducted pursuant to Rule 504 of Regulation D in
1997.
10. In July 2000 we issued 20,000 shares to Louis Tomasella, who is a
former director of Tech Labs, pursuant to Mr. Tomasella's exercise of stock
options granted to him under Tech Labs stock option plan.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 1999, 2000, and 2001 and their approximate
percentage contribution to revenues for the period indicated:
PRODUCT TYPE 1999 % of Revenue 2000 % of Revenue 2001 % of Revenue
---- ------------ ---- ------------ ---- ------------
Switches $269,739 39.1% $ 400,082 39.3%$ 306,678 53.9%
IDS Sensors 298,853 43.4% 472,374 46.4% 156,409 27.6%
Transformers/Coils 46,786 6.8% 41,849 4.1% 46,111 8.1%
Contract Manufacturing 73,812 10.7% 103,213 10.2% 58,885 10.4%
--------- ------ ----------- ------ ---------- ------
Totals $689,190 100.0% $1,017,518 100.0% $ 568,083 100.0%
========= ====== =========== ====== ========== ======
The following table sets forth the percentages of gross profit for each
of our major business activities in 1999, 2000, and 2001:
-12-
Year Ended December 31,
---------------------------------------------------------------
PRODUCT TYPE 1999 2000 Net Change 2000 2001 Net Change
---------------- ---- ---- ---------- ---- ---- ----------
Switches 45.0% 79.3% 34.3% 79.3% 72.2% (7.1%)
IDS Sensors 54.6% 55.5% 0.9% 55.5% 57.6% 2.1%
Transformers/Coils 25.0% 49.1% 24.1% 49.1% 41.6% (7.5%)
Contract Manufacturing 22.8% 31.0% 8.2% 31.0% 50.1% 19.1%
Unallocated company expenses,
including physical
inventory adjustments
and factory overhead (14.0%) (26.2%) (12.2%) (26.2%) (26.6%) (0.4%)
Total company gross profit % 31.4% 36.0% 4.6% 36.0% 36.8% 0.8%
We have continued 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
2001 compared to 2000
Sales were $568,083 for 2001 as compared to $1,017,518 for the year
ended 2000. The decline in sales of (55.8%) was a direct result of the economic
downturn in 2001.
Cost of sales of $358,754 for the year ended 2001 compared to $651,460
for the year ended 2000 declined due to the volume decrease. The Company's gross
profit percentage improved to 36.8% even though volume declined.
Selling, general, and administrative expenses increased by $231,924 in
2001 as compared to the prior period in 2000. This 28.3% increase was due to the
Company's continuing efforts to secure short- and long-term financing in 2001.
Losses from operations of ($857,482) in 2001 increased by $438,827
compared to losses of ($418,655) for the prior period as a direct result of
volume declines and expenses associated with efforts to secure financing.
-13-
2000 compared to 1999
Sales of $1,017,518 for 2000 increased 47.6% over 1999 as a result of
the Company's continuing efforts to market our higher profit DynaTrax(TM) and
IDS Sensor products.
Cost of sales of $651,460 increased 37.7% due to higher sales of
DynaTrax(TM) and IDS Sensors which improved the Company's gross profit
percentage 4.6 percentage points, or an increase of 14.6% versus 1999.
Selling, general and administrative expenses declined only slightly to
$818,552 due to major marketing expansion efforts for our DynaTrax(TM) product
line.
The Company's loss from operations for 2000 was ($418,655), an
improvement of 36.1% versus 1999, caused by increased sales of our more
profitable products partially offsetting our market expansion cost.
Liquidity and Capital Resources.
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%. As of December 31, 2000, $150,000 of a total of $200,000 in promissory
notes has been repaid and $50,000 remains outstanding and is due by December 31,
2002.
During 2000 we completed two significant transactions that improved the
Company's liquidity. On May 3, 2000 we completed an offering of our common stock
to the public pursuant to a registration statement on Form SB-2. We sold to the
public an aggregate of 293,379 shares for gross proceeds of $2,273,723.
Subsequently, on October 13, 2000 the Company completed a private placement,
pursuant to Rule 506 of Regulation D, of convertible promissory notes for gross
proceeds of $1,500,000.
During 2001, as a result of the economic downturn, the Company suffered
severe operating losses and negative cash flows which impaired the Company's
liquidity position and caused a default in January 2002 on an underlying
conversion and redemption agreement related to the convertible notes issued in
October 2000. The Company does not currently have the financial resources to
cure this default, but is negotiating with the noteholders for a cure.
If sales do not improve in 2002, or if additional financing is not
secured, the Company will be forced to make dramatic expense reductions which
will hamper its marketing efforts but support the Company's viability.
During 1998 we also 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.
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.
-14-
In January 2002, we had an Event of Default occur under our 6.5%
convertible promissory notes. The Event of Default occurred due to the Company's
non-payment of the first installment due under that certain Conversion and
Redemption Agreement (the "Redemption Agreement") dated January 11, 2002,
relating to the redemption by the Company from holders of the notes originally
issued in October 2000 (the "Notes"). Under the terms of the Redemption
Agreement, the holders were entitled to receive two installments: (i) the first
installment of $750,000 and 300,000 shares of stock on or before January 25,
2002, and (ii) on or before April 25, 2002, the second installment of an
aggregate of $360,000 plus an additional $90,000 in cash or common stock, at the
election of the Company, based upon the closing price of the shares of the
Company's common stock on April 18, 2002. An Event of Default, as defined in the
Notes, occurred when the Company did not make the first installment under the
Redemption Agreement of $750,000 and deliver the 300,000 shares on or before on
Friday, January 25, 2002. Until the Company is able to cure the Event of
Default, each holder may elect to cancel any unfulfilled or future redemption
and conversion and to accelerate payment of all outstanding principal and
interest due under the Notes. The Company is presently in negotiations with the
holders to cure the Event of Default, but no assurance can be given as to
whether an agreement can be reached with the holders for mutually acceptable
terms. If the holders accelerate payment of the principal and interest due under
the Notes, which was $1,219,202 at December 31, 2001, the Company will be unable
to make payment.
If the Company does not procure additional financing in the short term,
reduce expenditures and/or increase revenues, the Company may not be able to
meet its obligations. Additionally, if the Company is unable to raise capital
and/or increase revenue it will be unable to expand its operations and develop
the new products and technologies as described in this Annual Report.
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 Europe.
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. 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.
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 Confidentiality and Manufacturing 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.
-15-
Item 7. Financial Statements.
Report of independent certified public accountants..............................F-1
Consolidated balance sheet for the years ended December 31, 2001,
2000, and 1999..................................................................F-2, F-3
Consolidated statements of operations for the years ended December 31, 2001,
2000, and 1999..................................................................F-4
Consolidated statements of stockholders' equity for the years ended
December 31, 2001, 2000, and 1999...............................................F-5
Consolidated statements of cash flows for the years ended
December 31, 2001, 2000, and 1999...............................................F-6
Notes to consolidated financial statements......................................F-7 - F-9
-16-
REPORT OF INDEPENDENT AUDITORS
Charles J. Birnberg, CPA
150 Overlook Avenue
Hackensack, New Jersey 07601
March 14, 2002
To The Board of Directors of Tech Laboratories, Inc.
I have audited the Balance Sheets of Tech Laboratories, Inc. as of
December 31, 1999, 2000, and 2001, 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, 1999, 2000, and
2001, 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
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999, 2000, AND 2001
ASSETS
1999 2000 2001
---- ---- ----
Current Assets:
Cash .......................................... $ 162,925 $2,523,446 $ 892,003
Marketable Securities, at the Lower of
Cost or Market (Note 1) ....................... 61,453 64,333 40,000
Accounts Receivable, Net of Allowance of $10,000
in 2000 and 1999, and 25,000 in 2001........... 57,697 93,952 112,200
Inventories (Notes 1 & 2) ..................... 816,703 1,286,838 2,075,479
Prepaid Expense ................................. 4,055 4,055 6,303
----------- ----------- -----------
Total Current Assets ....................... $1,102,833 $3,972,624 $3,125,985
----------- ----------- -----------
Property, Plant and Equipment at Cost (Note 1)
Leasehold Improvements ........................ 2,247 2,247 2,247
Machinery, Equipment and Instruments .......... 379,815 467,100 524,730
Furniture and Fixtures ........................ 75,899 81,603 95,662
----------- ----------- -----------
............................................. $ 457,961 $ 550,950 $ 622,639
Less: Accumulated Depreciation & Amortization ... 314,162 342,551 373,900
----------- ----------- -----------
Net, Property, Plant and Equipment ........... $ 143,799 $ 208,399 $ 248,739
----------- ----------- -----------
Other Assets ..................................... $ 11,540 $ 12,059 $ 12,059
----------- ----------- -----------
Total Assets ............................... $1,258,172 $4,193,082 $3,386,783
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
F-2
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999, 2000, AND 2001
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1999 2000 2001
---- ---- ----
Current Liabilities:
Defaulted Convertible Notes ................. -0- -0- 1,219,202
Current Portion of Long Term Debt (Note 5) .. $ 28,559 $ 17,198 $ 33,347
Short-Term Loans Payable (Note 6) ........... 243,373 63,623 63,789
Accounts Payable and Accrued Expenses ....... 260,745 32,961 82,224
Other Liabilities ........................... 3,190 8,375 7,562
------------ ------------ ------------
Total Current Liabilities ................ $ 535,867 $ 122,157 $ 1,406,124
------------ ------------ ------------
Long Term Convertible Notes Payable ............. -- $ 1,520,318 -0-
Stockholders' Investment:
Common Stock, $.01 Par Value;
10,000,000 Shares Authorized ................ $ 36,507 $ 39,493 $ 47,836
Less: 11,316 Shares Reacquired
and Held in Treasury ........................ (113) (113) (113)
------------ ------------ ------------
$ 36,394 $ 39,380 $ 47,723
Capital Contributed in Excess of Par Value .. 1,816,316 4,060,287 4,339,478
Retained Earnings ........................... 0 0 0
Accumulated Deficit ......................... (1,130,405) (1,549,060) (2,406,542)
------------ ------------ ------------
$ 722,305 $ 2,550,607 $ 1,980,659
------------ ------------ ------------
Total Liabilities and Stockholders' Investment $ 1,258,172 $ 4,193,082 $ 3,386,783
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-3
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1999, 2000, AND 2001
1999 2000 2001
---- ---- ----
Sales .......................................... $ 689,190 $ 1,017,518 $ 568,083
------------ ------------ ------------
Costs and Expenses:
Cost of Sales .............................. 472,790 651,460 358,754
Selling, General and Administrative Expenses 861,174 818,552 1,050,476
------------ ------------ ------------
1,333,964 1,470,012 1,409,230
------------ ------------ ------------
Income/(Loss) From Operations .................. $ (644,774) $ (452,494) $ (841,147)
------------ ------------ ------------
Other Income (Expenses):
Interest Income .............................. $ 1,150 $ 63,543 $ 69,442
Interest Expense ............................. (11,305) (29,704) (85,777)
------------ ------------ ------------
$ (10,155) $ 33,839 (16,335)
------------ ------------ ------------
Income/(Loss) Before Income Taxes ............ $ (654,929) $ (418,655) $ (857,482)
Provision for Income Taxes (Notes 1 & 4) ..... -- -- --
------------ ------------ ------------
Net Income/(Loss) .............................. $ (654,929) $ (418,655) $ (857,482)
Accum. Earnings/(Deficit,) Beg. of Year ...... $ (475,476) $(1,130,405) $(1,549,060)
------------ ------------ ------------
Accum. Earnings/(Deficit,) End of Year ....... $(1,130,405) $(1,549,060) $(2,406,542)
------------ ------------ ------------
Primary EPS .................................... $ (0.18) $ (0.10) $ (0.17)
Fully Diluted EPS .............................. $ (0.13) $ (0.08) $ (0.06)
The accompanying notes are an integral part of these financial statements.
F-4
TECH LABS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS 1999, 2000, AND 2001
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit Total
------------ ------------ ------------ ------------ ------------
Balance
December 31, 1999 3,650,660 $ 36,394 $ 1,816,316 $(1,130,405) $ 722,305
Stock Issued 368,379 2,986 2,243,971 -- 2,246,957
Net Income/(Loss) -- -- -- (418,655) (418,655)
------------ ------------ ------------ ------------ ------------
Balance
December 31, 2000 4,019,039 $ 39,380 $ 4,060,287 $(1,549,060) $ 2,550,607
Stock Issued 1,087,568 8,343 279,191 -- 287,534
Net Income/(Loss) -- -- -- (857,482) (857,482)
------------ ------------ ------------ ------------ ------------
Balance
December 31, 2001 5,106,607 47,723 4,339,478 (2,406,542) 1,980,659
The accompanying notes are an integral part of these financial statements.
F-5
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1999, 2000, AND 2001
1999 2000 2001
---- ---- ----
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ........... $ (654,929) $ (418,655) $ (857,482)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) .......... 15,000 28,389 31,349
Unrealized (Gain)/Loss on Valuation of
Marketable Securities (Note 1) ............. 470 -- -0-
Changes in Operating Assets and Liabilities:
Marketable Securities ....................... (4,290) (2,880) 24,333
Accounts Receivable ......................... 85,765 (36,255) (18,248)
Inventories ................................. (546,585) (470,135) (788,641)
Accounts Payable and Accrued Expenses ....... 216,359 (227,784) 49,263
Other Assets and Liabilities ................ 593 5,185 (3,061)
------------ ------------ ------------
Net Cash Flows For Operating Activities ......... $ (887,617) $(1,122,135) $(1,562,488)
------------ ------------ ------------
Cash Flows From (For) Investing Activities:
Increase in Fixed Assets .................... $ (158,152) $ (92,989) $ (71,689)
Net Cash Flows From (For) Investing Activities .. $ (158,152) $ (92,989) $ (71,689)
------------ ------------ ------------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of Short Term Debt .. $ 162,407 $ 1,328,688 $ (284,800)
Issuance of Common Stock .................... 513,507 2,246,957 287,534
------------ ------------ ------------
Net Cash Flows From (For) Financing Activities .. $ 675,914 $ 3,575,645 $ 2,734
------------ ------------ ------------
Net Increase/(Decrease) in Cash ................. $ (369,855) $ 2,360,521 $(1,631,443)
Cash Balance, Beginning of Year ................. 532,780 162,925 2,523,446
------------ ------------ ------------
Cash Balance, End of Year ....................... $ 162,925 $ 2,523,446 $ 892,003
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-6
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(1) Summary of Significant Accounting Policies
CASH - Includes Tech Labs' checking account at Hudson United Bank plus
a Money Market Account at Prudential Securities.
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, 1999, 2000, and 2001, 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 depreciations 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 $61,453 at December 31, 1999, $64,333
at December 31, 2000, and $40,000 as of December 31, 2001.
(2) Inventories:
Inventories at December 31, 1999, 2000, and 2001 were as follows:
1999 2000 2001
---- ---- ----
Raw Materials & Finished Components $715,438 $ 912,358 $ 993,666
Work in Process & Finished Goods $107,265 $ 374,480 $1,081,813
--------- ----------- -----------
$816,703 $1,286,838 $2,075,479
--------- ----------- -----------
F-7
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(3) Income/(loss) Per Share:
Primary Income/(loss) per share was calculated on the weighted average
number of shares outstanding during the year ended December 31, 1999, 3,650,660,
and for the year ended December 31, 2000, 4,019,039, and for the year ended
December 31, 2001, 5,106,607.
Fully Diluted Income/(loss) per share was calculated on the weighted
average shares above plus 8,207,868 shares from the assumed conversion of
convertible debt which was issued in October, 2000.
(4) Income Taxes:
At December 31, 1999, 2000, and 2001 the balance of operating loss
carryforward was $1,873,936, $2,292,591, and $3,150,073, 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
---------- ----- ------------- ------ ------
1999 Hudson United Bank Prime +1.5% $28,559
2000 Hudson United Bank Prime +1.5% $17,198
2001 Hudson United Bank Prime +1.5% $33,347
Certain Marketable Securities are pledged as collateral on the above loans.
(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, 1999, December 31, 2000, and December 31, 2001, was $243,373
for 1999, $63,623 for 2000, and $63,789 for 2001, which includes accrued
interest for all three years. The annual interest rate for these loans ranges
between six (6%) percent and ten (10%) percent. In October of 1999, three
short-term loans for a total of $200,000 at ten percent (10%) annual interest
were completed. Certain contractual revenues were pledged to secure these loans.
As of December 31, 2000, $150,000 of such loans were repaid. The remaining
$50,000 is outstanding and is due by December 31, 2002.
(7) COMMON STOCK
In 1999, Tech Labs filed a registration statement on Form SB-2 with the
Securities and Exchange Commission. The registration statement was declared
effective on February 3, 2000. The offering was completed on May 3, 2000 for
total proceeds of $2,273,723.
F-8
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(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.
(9) MAJOR ACQUISITION:
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 fair market values. Results subsequent to
the date of acquisition will be included in Tech Labs' financial statements. Had
the results of the DynaTrax acquisition been included in our consolidated
statements for 1998, and 1999, the effect would have been material.
DynaTrax Year Ended Year Ended
(Unaudited) December 31, 1998 December 31, 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 (Unaudited) Purchase Price*
---------------------- ---------------
Inventory $ 2,700,000 $ 400,000
Test Equipment 355,000 100,000
------------ ----------
Total $ 3,055,000 $ 500,000
============ ==========
* Included in December 31, 1999 Tech Labs balance sheet.
F-9
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
Effect on Tech Labs Inc. (Unaudited) 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)
============ ==========
(10) LONG-TERM CONVERTIBLE DEBT
On October 13, 2000 Tech Labs completed a $1.5 million dollar financing
of 6.5% convertible promissory notes due October 15, 2002. Interest is payable
quarterly in cash or in shares of common stock at the option of the noteholders.
The Company disclosed all terms of this financing on Form 8-K filed on October
18, 2000.
(11) SUBSEQUENT EVENT
On January 11, 2002, the Company entered into a conversion and
redemption agreement concerning the Long-Term Debt referenced in Note (10). An
Event of Default, as defined in the 6.5% convertible notes the Company issued in
October 2000, occurred on January 25, 2002, when the Company was unable to make
the first payment of $750,000 to the holders of the notes. The Company is
currently negotiating with the holders to cure this default. The Company does
not currently have the financial resources to cure this default.
(12) GOING CONCERN
As a result of the operating losses and negative cash flows experienced
by the Company in 2001, Tech Labs currently has a tenuous liquidity position. If
sales do no improve during 2002, the Company will be forced to make dramatic
expense reductions, which may hamper its marketing efforts, but would support
its viability.
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 55 President, Treasurer, and Director
Earl M. Bjorndal 50 Vice President and Director
Carmine O. Pellosie, Jr. 59 Secretary and Director
Salvatore Grisafi 71 Director
Each director is elected for a period of one year and until his successor
is duly elected by shareholders and qualified. Officers serve at the will of the
board of directors.
III-1
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.
Salvatore Grisafi has been a director since August of 2000. Mr. Grisafi is
president of MPX Network Solutions, a privately held
telecommunications/networking business development and marketing consulting
company. Mr. Grisafi has served as a consultant to Tech Labs since 1998, and
assisted the Company in the acquisition of the DynaTrax(TM) technology from
NORDX/CDT and in identifying other opportunities and business strategies. Mr.
Grisafi is a graduate of the New York Institute of Technology.
Tech Labs' success will depend to a large extent upon the continued efforts
of Bernard M. Ciongoli, our president and chief executive officer. Mr. Ciongoli
has an intricate understanding of Tech Labs, its business operations and the
technology underlying its products. It would be very difficult for Tech Labs to
replace Mr. Ciongoli, and accordingly the loss of his services would be
detrimental to our operations. We do, however, maintain key man life insurance
on Mr. Ciongoli to compensate for any such loss, and have an employment
agreement with him. Expansion of our business may require additional managers
and employees with industry experience. In general, only highly qualified
managers have the necessary skills to develop and market our products and
provide our services.
Competition for skilled management personnel in the industry is intense,
which may make it more difficult and expensive to attract and retain qualified
managers and employees. Expansion of our business will likely also require
additional non-employee board members with business and industry experience. We
do not, however, have directors' and officers' liability insurance, which may
limit our ability to attract qualified non-employee board members.
Committees of the Board
The Company has a standing audit committee composed of Bernard Ciongoli and
Carmine Pellosie, and a compensation committee composed of Carmine Pellosie and
Salvatore Grisafi. Both committees were formed in August, 2001. The function of
the audit committee is to review our internal accounting control procedures,
review our financial statements, and review with the independent public
accountants the result of their audit.
The compensation committee reviews the employment and compensation
agreements of the Company's senior employees. The committee has held one formal
meeting since it was formed.
Meetings of the Board
The Company held two meetings of the Board in 2001. All of the Company's
directors participated in the meetings.
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 regulations 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 in a timely manner with the
exception of a Form 4 that was filed late on behalf of an officer of the Company
which was required to be filed to reflect the vesting of certain stock options
granted as part of such officer's employment agreement. The options have not
been exercised and are only exercisable at $.43 per share, which is presently
greater than the market price for the Company's common stock.
III-2
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 $100,000 in
any recent fiscal year.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- -------------
Shares of
Common Stock
Issuable Upon
Name and 2001 Exercise of
Principal Position Year Salary($) Bonus($) Options
------------------ ---- --------- -------- -------
Bernard M. Ciongoli 2001 $135,000 0 600,000
President, Treasurer 2000 $125,000 0 250,000
1999 $125,000 0 0
The following table sets forth information relating to all options granted
to named executive officers:
Option Grants in Fiscal Year 2001
Percent of
Number of Total Options
Securities Underlying Granted to Employees Exercise Expiration
Name Options Granted in Fiscal Year (%) Price Date
---- --------------- ------------------ ----- ----
Bernard M. Ciongoli 100,000 15.38 $.9625 3/01/06
500,000 76.92 $.43 8/01/06
Tech Labs has entered into an employment agreement for a term of five (5)
years with Mr. Ciongoli, dated as of August 1, 2001, which agreement supersedes
the employment agreement that was in effect with Mr. Ciongoli dated October 1,
1998, as amended June 18, 1999, and February 21, 2001. Mr. Ciongoli is currently
compensated under the terms of the employment agreement at the base salary rate
of $150,000 per annum. Mr. Ciongoli is also entitled to receive two percent (2%)
of our sales in excess of $1,000,000 during any year he is employed by us. In
addition, Mr. Ciongoli was granted an option, exercisable for five (5) years
from the date of grant, to purchase 500,000 shares of stock at $.43 per share,
such option to vest in increments of 100,000 shares every six (6) months
commencing February 1, 2002. The agreement is automatically renewable for three
(3) years unless either party terminates the agreement in writing at least 180
days prior to the expiration of the initial term period.
In addition, in 2001, we granted to Mr. Ciongoli an option to purchase up
to 100,000 shares under our 1996 stock option plan exercisable for five (5)
years at $0.9625 per share which vest over a period of two (2) years. In 2000,
we granted to Mr. Ciongoli (i) a non-plan option in consideration and in
recognition of his services to Tech Labs to purchase up to 139,000 shares
exercisable over five (5) years at $2.4375, which vests over the course of three
(3) years from the date of grant; and (ii) an option to purchase up to 111,000
shares of common stock under our 1996 stock option plan exercisable for five (5)
years at $2.68125 per share, which vests over a period of three (3) years.
We do not have employment agreements with any other named executive
officers. Our directors are not presently compensated.
III-3
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table describes, as the date of this amended Annual Report,
the beneficial ownership 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 % of
Name Beneficially Common Stock
---- ------------- ------------
Bernard M. Ciongoli 1,140,334 19.78%
Earl Bjorndal 273,444 5.24%
Carmine O. Pellosie, Jr. 60,000 1.16%
Salvatore Grisafi 100,000 1.93%
Libra Finance, S.A. 275,000 5.08%
Celeste Trust Reg 570,868 9.99%
The Endeavour Capital Investment
Fund, S.A. 570,868 9.99%
Esquire Trade & Finance 570,868 9.99%
All officers and directors as a 1,573,778 26.30%
group (4 persons)
* Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of common stock that an individual or entity has a right
to acquire within 60 days purusant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or entity, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any
other person or entity shown in the table.
o The information for Mr. Ciongoli includes 120,334 shares that may be
acquired within 60 days pursuant to the exercise of options granted under
our 1996 stock option plan and 500,000 shares issuable upon exercise of
options earned under our employment agreement with Mr. Ciongoli.
o The information for Mr. Bjorndal includes 75,000 shares that may be
acquired within 60 days pursuant to the exercise of options granted under
our 1996 stock option plan.
o The information for Mr. Grisafi includes 50,000 shares that are owned by
MPX Network Solutions, Inc., a company that Mr. Grisafi controls and in
which Mr. Grisafi's wife holds all of the outstanding shares, and 50,000
shares that may be acquired within 60 days pursuant to the exercise of two
(2) non-plan grants of stock options.
o The information for Mr. Pellosie includes 20,000 shares issuable upon the
exercise of immediately exercisable options granted under our 1996 stock
option plan.
o The number of shares beneficially owned by each of Celeste Trust Reg, The
Endeavour Capital Investment Fund, S.A., and Esquire Trade & Finance may
not exceed, by the terms of their Subscription Agreement with Tech Labs,
9.99% of the outstanding number of shares of common stock of Tech Labs.
Beneficial ownership is calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Based on a conversion price for the Notes of $0.136, no more
than an amount equal to approximately 570,868 shares may be converted by
each of Celeste Trust Reg, The Endeavour Capital Investment Fund, S.A., and
Esquire Trade & Finance at any one time; provided, however, each of the
above mentioned parties is not precluded from converting the maximum amount
permissible under the Notes, immediately disposing of some or all of those
shares and subsequently converting additional amounts remaining under the
Notes.
III-4
Item 12. Certain Relationships and Related Transactions.
The following information describes certain transactions between Tech Labs
and certain affiliated parties. Future transactions, if any, must be approved by
the board of directors.
In March, 1999, we entered in to a consulting agreement with MPX Network
Solutions, Inc. Sal Grisafi is the president of MPX and a director of Tech
Labs'. See "Management-Consultants."
In March of 2001, we extended the term of our consulting agreement with MPX
Network Solutions Inc., whose president, Salvatore Grisafi, is also a director
of Tech Labs, until March 21, 2002.
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)
10.4 Second Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli dated February 21, 2001.(10)
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)
10.21 Shareholders Agreement dated June 23, 2000 by and between Tech Labs
Community Networks, Inc., the Shareholders of M3Communications, Inc.
and Tech Labs Community Networks of the South East, Inc.(5)
10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and
delivered to m3communications, Inc.(5)
III-5
10.23 First Amendment to Asset Purchase Agreement dated June 9, 2000 entered
into by and between Tech Labs, M3communications, Inc. and the
shareholders of M3.(5)
10.24 Consulting Agreement dated as of November 13, 2000 by and between Barry
Bendett and Tech Labs.(5)
10.25 Subscription Agreement entered into between the subscribers and Tech
Labs dated October 13, 2000.(6)
10.26 Common Stock Purchase warrant entered into between the warrant holders
and Tech Labs dated October 13, 2000.(6)
10.27 Amendment to Consulting Agreement dated as of April 9, 2001, and
retroactive from March 13, 2001, between Tech Labs and MPX Network
Solutions.(7)
10.28 Amended and Restated Employment Agreement dated August 24, 2001, by and
between the Company and Bernard Ciongoli.(8)
10.29 Conversion and Redemption Agreement dated January 11, 2002, by and
between the Company and the holders of the 6.5% convertible promissory
notes the Company issued in October 2000.(9)
21.1 Subsidiaries of the Company.
24.1 Consent of Charles J. Birnberg, CPA, certified public accountants.
--------------------
(1) Incorporated 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 SB-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 SB-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 SB-2, File No. 333-82595, effective
February 3, 2000, filed on December 17, 1999.
(5) Incorporated by reference from the Registrant's Registration Statement
on form SB-2, File No. 333-50158, effective January 22, 2001, filed on
November 17, 2000.
(6) Incorporated by reference from Amendment No. 5 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on January 28, 1999.
(7) Incorporated by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form SB-2, File No. 333-50158,
effective May 7, 2001.
(8) Incorporated by reference from the Registrant's Quarterly Report filed
on Form 10-QSB, File No. 000-30172, filed on November 14, 2001.
(9) Incorporated by reference from the Registrant's Currant Report on Form
8-K, File No. 000-30172, filed on January 11, 2002.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-KSB, File No. 000-30172, filed on April 3, 2001.
III-6
(b) Reports on Form 8-K.
On January 11, 2002, the Company filed a Current Report (Item V) on
Form 8-K reporting that the Company entered into a redemption and conversion
agreement (the "Redemption Agreement") with the holders (the "Holders") of its
6.5% convertible promissory notes originally issued in October 2000 (the
"Notes"). Under the terms of the Redemption Agreement, the Holders were entitled
to receive two installments: (i) $750,000 and 300,000 shares of stock on or
before January 25, 2002, and (ii) on or before April 25, 2002, an aggregate of
$360,000 plus an additional $90,000 in cash or common stock, at the election of
the Company, based upon the closing price of the shares of the Company's common
stock on April 18, 2002. Provided the Company complied with the terms of the
Redemption Agreement, (i) interest on the Notes was to cease to accrue on the
Notes from and after January 25, 2002, and (ii) the Holders were not to exercise
their right to convert outstanding balances on the Notes into shares of common
stock.
On January 30, 2002, the Company filed a current report (Item V) on
Form 8-K reporting that an Event of Default occurred under its outstanding 6.5%
convertible promissory notes. The outstanding principal and interest under the
notes at January 25, 2002, was $1,218,099. The Event of Default occurred due to
the Company's non- payment of the first installment due under that certain
Redemption Agreement dated January 11, 2002, relating to the redemption by the
Company from holders of the notes originally issued in October 2000 (the
"Notes"). Under the terms of the Redemption Agreement, the holders were entitled
to receive in two installments (i) the first installment of $750,000 and 300,000
shares of stock on or before January 25, 2002, and (ii) on or before April 25,
2002, the second installment of an aggregate of $360,000 plus an additional
$90,000 in cash or common stock, at the election of the Company, based upon the
closing price of the shares of the Company's common stock on April 18, 2002. An
Event of Default, as defined in the Notes, occurred when the Company did not
make the first installment under the Redemption Agreement of $750,000 and
deliver the 300,000 shares on or before on Friday, January 25, 2002, and it
allows each holder to elect to cancel any unfulfilled or future redemption and
conversion and to accelerate payment of all outstanding principal and interest
due under the Notes.
III-7
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 Form 10-KSB/A to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2002 TECH LABORATORIES, INC.
By: /s/ Bernard M. Ciongoli
-----------------------------
Bernard M. Ciongoli
President
III-8