U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO
________ .
Commission File Number 000-27592
TECH LABORATORIES, INC.
(Exact name of Small Business issuer as specified in its charter)
New Jersey 22-1436279
---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, NJ 07508
(Address of principal executive offices)
(973) 427-5333
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of August 13, 2004: 68,064,235 shares of common stock
outstanding, $0.01 par value
TECH LABORATORIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets................................................... 1 - 2
Statements of Operations.......................................... 3
Statements of Cash Flows.......................................... 4
Notes to Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 6 - 7
Item 3. Controls and Procedures........................................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 9
Item 2. Changes in Securities............................................ 10
Item 3. Defaults Upon Senior Securities.................................. 10
Item 4. Submission of Matters to a Vote of Security Holders.............. 10
Item 5. Other Information................................................ 10
Item 6. Exhibits and Reports on Form 8-K................................. 10
SIGNATURES................................................................ 10
TECH LABORATORIES, INC.
BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
June 30, December 31,
2004 2003
----------- -----------
Current Assets:
Cash $ 132,722 $ 165,308
Accounts receivable, net of allowance for
for doubtful accounts of $1,000 9,995 10,107
Inventories 1,428,872 1,249,777
Prepaid expenses 1,075 1,074
----------- -----------
Total current assets 1,572,664 1,426,266
----------- -----------
Property, plant, and equipment, at cost:
Leasehold improvements 2,247 2,247
Machinery, equipment, and instruments 608,087 607,987
Furniture and fixtures 109,183 110,893
----------- -----------
Total property, plant, and equipment 719,517 721,127
Less: Accumulated depreciation and amortization (437,683) (427,909)
----------- -----------
Net property, plant, and equipment $ 281,834 $ 293,218
----------- -----------
Other assets $ 12,063 $ 12,063
----------- -----------
Total assets $ 1,866,561 $ 1,731,547
=========== ===========
See notes to financial statements.
1
TECH LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited) (Audited)
June 30, December 31,
2004 2003
----------- -----------
Current Liabilities:
Convertible notes $ 255,190 $ 1,480,785
Note payable to bank 33,744 34,444
Accounts payable and accrued expenses 195,333 300,712
Other liabilities 92,296 3,271
----------- -----------
Total current liabilities 576,563 1,819,212
----------- -----------
Stockholders' equity (deficiency)
Common stock, $.01 par value; 250,000,000
shares authorized: 18,045,376 shares
outstanding in 2003; 58,075,178 shares
outstanding in 2004 580,752 175,143
Less: 15,191 shares reacquired and held
in treasury (113) (113)
----------- -----------
580,639 175,030
Additional paid-in capital 6,124,747 4,480,381
(Accumulated deficit) (5,415,388) (4,743,076)
----------- -----------
1,289,998 (87,665)
----------- -----------
Total Liabilities and Stockholders'
Equity $ 1,866,561 $ 1,731,547
=========== ===========
See notes to financial statements.
2
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Sales $ 13,565 $ 75,688 $ 65,266 $ 170,015
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 9,053 55,290 38,864 113,455
Selling, general, and administrative expense 157,141 13,538 310,073 76,240
------------ ------------ ------------ ------------
166,194 68,828 348,937 189,695
------------ ------------ ------------ ------------
Income (loss) from Operations (152,629) 6,860 (283,671) (19,680)
------------ ------------ ------------ ------------
Other income (expenses):
Interest income 94 73 94 192
Interest expense (19,000) (18,425) (48,735) (36,850)
Financing fee (340,000) -- (340,000) --
------------ ------------ ------------ ------------
(358,906) (18,352) (388,641) (36,658)
------------ ------------ ------------ ------------
Income (loss) before income taxes (511,535) (11,492) (672,312) (56,338)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) (511,535) (11,492) (672,312) (56,338)
(Accumulated deficit), Beg Qtr (4,903,853) (3,861,998) (4,743,076) (3,817,152)
------------ ------------ ------------ ------------
(Accumulated deficit), End Qtr (5,415,388) (3,873,490) (5,415,388) (3,873,490)
------------ ------------ ------------ ------------
Net loss per share, basic and diluted $ (0.01) $ -- $ (0.02) $ (0.01)
============ ============ ============ ============
Weighted average number of common
shares and equivalents, basic and diluted 47,233,919 5,522,416 37,173,640 5,522,416
============ ============ ============ ============
See notes to financial statements.
3
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the
Six Months Ended
June 30,
--------------------------
2004 2003
----------- -----------
Cash flow from (for) operating activities:
Net income (loss) from operations $ (672,312) $ (56,338)
Add (deduct) items not affecting cash:
Depreciation/amortization 9,774 15,034
Expenses paid with the issuance of stock 620,278 --
Changes in operating assets and liabilities
Accounts receivable 112 (71,294)
Inventories (179,095) 98,846
Accounts payable and accrued expenses (76,277) (9,734)
Other assets/liabilities 89,024 25,428
----------- -----------
Net cash flow from (for) operating activities (208,496) 1,942
----------- -----------
Cash flows from (for) investing activities
Sale of machinery and equipment 1,610 2,828
----------- -----------
Net cash flow from (for) investing activities 1,610 2,828
----------- -----------
Cash flows from (for) financing activities:
Proceeds of convertible note 175,000 --
Payment of note payable to bank (700) --
----------- -----------
Net cash flow from (for) financing activities 174,300 --
----------- -----------
Net increase (decrease) in cash (32,586) 4,770
Cash balance beginning of year 165,308 68,343
----------- -----------
Cash balance - end of second quarter $ 132,722 $ 73,113
=========== ===========
Supplemental schedule of noncash investing and
financing activities:
Conversion of debt to common stock $ 1,437,995 $ --
See notes to financial statements.
4
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Tech Laboratories, Inc.
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Item
310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended, June 30, 2004 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2004. These unaudited financial statements should be
read in conjunction with the audited financial statements and footnotes
thereto included in the Company's Form 10-KSB/A for the year ended,
December 31, 2003, as filed with the Securities and Exchange Commission.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. LONG-TERM CONVERTIBLE DEBT:
On October 13, 2000, Tech Labs completed a $1.5 million 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. Tech Labs disclosed all terms of this financing on Form 8-K
filed on October 18, 2000.
On January 11, 2002, Tech Labs entered into a conversion and redemption
agreement concerning the long-term debt. An Event of Default, as defined
in the 6.5% convertible notes, occurred on January 25, 2002, when Tech
Labs was unable to make the first payment of $750,000 to the holders of
the notes.
On April 19, 2002, Tech Labs successfully negotiated a cure of the default
referenced above. This cure required that Tech Labs' registration
statement, filed with the Securities and Exchange Commission on April 5,
2002, to have been declared effective on or before June 29, 2002, covered
the shares underlying the 6.5% convertible notes. If the registration
statement was declared effective by such date and Tech Labs made certain
payments described in the Tech Labs' report on Form 8-K filed April 25,
2002, the maturity date of the 6.5% convertible notes would have been
extended from October 13, 2002 to December 30, 2002.
On August 2, 2002, the Company announced that an Event of Default
reoccurred on the 6.5% convertible notes. The Company was unable to have
its registration statement declared effective by June 29, 2002, and was
unable to reach a new agreement with the holders of the 6.5% convertible
notes prior to the expiration of the waiver the Company had been granted
by the holders of the notes. In October 2003 a cure was successfully
negotiated and is further described in the Company's 8-K filed in October
2003. In May 2004, Cornell Capital acquired convertible debt and signed a
stand by equity financing agreement with Tech Labs, Inc. Financing
availability is contingent on registration of the shares underlying this
agreement. An SB-2 to register these shares is in process.
5
TECH LABORATORIES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information contained in this section should be read in conjunction with the
consolidated financial statements and notes thereto appearing in the report Form
10-QSB and the Company's Annual Report for the year ended December 31, 2003.
Quarter ending June 30, 2004, compared to Quarter ending June 30, 2003
----------------------------------------------------------------------
Sales were $13,565 for the second quarter of 2004 as compared to $75,688
for the similar period of 2003. This decrease was due to the continuing
effects of the economic downturn. The company is seeking long-term
contracts with major computer companies. The company believes these
contracts will provide future growth in its major product, Dyntrax.
Cost of sales of $9,053 for the second quarter of 2004 has been decreased
by $46,237 compared to the same period of 2003, primarily due to the sales
decline.
Selling, general, and administrative expenses increased by $143,603
compared to the same period of 2003 due to increases in expenses
associated with the company's attempts to raise long-term capital.
Loss from operations of ($511,535) increased ($500,043) compared to a loss
of ($11,492) for the prior period as a direct result of sale declines,
expenses incurred to explore long-term financing prospects, including the
$340,000 commitment fee paid to Cornell Capital Partners, related to a
standby equity distribution agreement.
Six months ending June 30, 2004, compared to six months
-------------------------------------------------------
ending June 30, 2003
--------------------
Sales were $65,266 for the six months ended, June 30, 2004 as compared to
$170,015 for the similar period of 2003. This decrease was due to the
continuing effects of the economic downturn. The company is seeking
long-term contracts with major computer companies. The company believes
these contracts will provide future growth in its major product, Dyntrax.
Cost of sales of $38,864 for the six months ended June 30, 2004 has been
decreased by $74,591 compared to the same period of 2003, primarily due to
the sales decline.
Selling, general, and administrative expenses increased by $233,833
compared to the same period of 2003 due to increases in expenses
associated with the company's attempts to raise long-term capital.
Loss from operations of ($672,312) increased ($615,974) compared to a loss
of ($56,338) for the prior period as a direct result of sale declines,
expenses incurred to explore long-term financing prospects, including the
$340,000 commitment fee paid to Cornell Capital Partners, related to a
standby equity distribution agreement.
6
TECH LABORATORIES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT CHANGES
During the first half of 2004, the Company is still suffering from the
economic downturn.
Cash used in operations for the first half of 2004 was $32,586 as a result
of the reductions in sales caused by the downturn in the
telecommunications industry.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $32,586 during the six
months ended, June 30, 2004, as compared to generating cash of $4,770
during the six months ended, June 30, 2003.
As a result of operating losses and negative cash flow experienced during
the previous few years, Tech Labs has a tenuous liquidity position. If
sales do not improve or alternative financing is not obtained, substantial
doubt exists about Tech Labs' ability to continue as a going concern. The
company has signed a stand-by equity distribution agreement with Cornell
Capital Partners in May 2004, which could potentially provide
approximately $8.5 million of future equity financing. The company is in
the process of filing an SB-2 registration statement to register the
shares included in this agreement.
7
TECH LABORATORIES, INC.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer
(collectively the "Certifying Officers") maintain a system of
disclosure controls and procedures that is designed to provide
reasonable assurance that information, which is required to be
disclosed, is accumulated and communicated to management timely.
Under the supervision and with the participation of management, the
Certifying Officers evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days
prior to the filing date of this report. Based upon that evaluation,
the Certifying Officers concluded that our disclosure controls and
procedures are effective in timely alerting them to material
information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officer has indicated that there were no significant
changes in our internal controls or other factors that could
significantly affect such controls subsequent to the date of their
evaluation, and there were no such control actions with regard to
significant deficiencies and material weaknesses.
8
TECH LABORATORIES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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. A
former employee of Tech Labs filed the suit against us in 1995. We
believe the outcome is likely to be favorable, but that our maximum
liability, if we do not prevail, would be $30,000. The suit was
transferred to arbitration, but the arbitrator never issued a ruling
because the plaintiff never paid the arbitration fee.
On July 31, 2002, Tawfik Khalil and Amneh Khalil filed a lawsuit in
the Superior Court of Passaic County, New Jersey, against Glen
Venza, a Company part-time employee, Tech Labs, and certain other
parties for property damages and personal injuries. The case arose
from a car accident involving Mr. Venza and the plaintiffs, which
occurred while Mr. Venza was performing certain duties for Tech Labs
in a vehicle Mr. Venza borrowed from a third party. Tech Labs has
only been named as a party to the personal injuries, and not for
property damages, and believes it is covered for the accident by its
insurance policy.
A lawsuit was filed against a subsidiary of the Company, Tech Labs
Community Networks, Inc. ("TLCN"), in the Superior Court of New
Jersey, Passaic County, on February 20, 2003, claiming that the
plaintiff delivered certain goods and services to TLCN and is owed
$23,856, plus interest and attorney fees. We disagree that any goods
or services were contracted to be provided to the plaintiff, and we
believe we will prevail in this litigation.
On or about November 1, 2003, we were served with a lawsuit filed by
W.T. Sports Limited, Salvatore Griscifi, a former Director, and
Edward Branca, a former employee. We have filed a response and
counter-claim. The first claim involving Salvatore Griscifi and Mr.
Branca has been settled. The second claim is in the process of being
settled. The last claim with W.T. Sports Limited is going to
arbitration, which is mandatory pursuant to a written agreement
entered into between the parties in 1987. We believe W.T. Sports
Limited will owe us in excess of the plaintiff's claim.
On June 30, 2004, the law firm of Stursberg & Veith, former counsel
to Tech Laboratories, Inc., filed a lawsuit in the United States
District Court for the Southern District of New York claiming that
the plaintiff delivered certain good and valuable services to Tech
laboratories and is owed $161,179.26 plus interest, costs, and
disbursements for each cause of action, and other and further relief
as the Court may deem necessary. The complaint alleges four causes
of action including an unpaid account, stated breach of contract,
quantim meruit, and unjust enrichment. To date, we have not been
served with this lawsuit. We disagree with the amount of the unpaid
balance owed to the plaintiff and are attempting to negotiate a
settlement of the amount owed.
9
TECH LABORATORIES, INC.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending, June 30, 2004,
covered by this report to a vote of the Company's shareholders, through
the solicitation of proxies or otherwise.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes Oxley Act
of 2002
32.1 Certification pursuant to Section 906 of Sarbanes Oxley Act
of 2002
(b) Reports of Form 8-K
None
SIGNATURES
In accordance with the requirements of the exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TECH LABORATORIES, INC.
Date: February 10, 2005 By: /s/ Bernard M. Ciongoli
--------------------------------------
Bernard M. Ciongoli
Chief Executive Officer
Chief Financial Officer
10