As filed with the Securities and Exchange Commission on February 2, 2000
Registration No.: 333-82595
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5 to FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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TECH LABORATORIES, INC.
(Name of small business issuer in its charter)
New Jersey 3679, 3573, 3629, and 3613 22-1436279
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address and telephone number of principal executive offices)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address of principal place or intended principal place of business)
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Bernard M. Ciongoli, President and Chief Executive Officer
Tech Laboratories, Inc.
955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Name, address, and telephone number of agent for service)
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Copies to:
C. Walter Stursberg, Jr., Esq.
Stursberg & Veith
405 Lexington Avenue
New York, New York 10174
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
================================================================================
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This registration statement covers the registration of (a) 451,613 shares
of common stock, $.01 par value, of Tech Laboratories, Inc., a New Jersey
corporation, for sale by Tech Labs in a self-underwritten public offering, and
(b) 140,045 shares of common stock for sale by the selling securityholders, all
for resale from time to time by the selling securityholders.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED February 2, 2000
PROSPECTUS
451,613 Shares
TECH LABORATORIES, INC.
We are selling a minimum of 258,065 and a maximum of 451,613 shares of
common stock at a price of $____ per share pursuant to a direct participation
offering. Until we receive and accept subscriptions for the minimum number or
258,065 shares, subscribers' funds will be deposited in escrow with Hudson
United Bank. After the closing of the sale of at least 258,065 shares,
subscribers' funds will continue to be deposited in escrow to permit a
determination to be made that subscribers are resident in those jurisdictions
where Tech Labs is authorized to sell its shares, and that the subscribers'
funds may be released.
We are also registering 90,045 shares of common stock for certain persons
and 50,000 shares of common stock issuable upon exercise of certain outstanding
warrants that may be resold from time to time in the future by certain selling
securityholders.
Our shares of common stock trade on the OTC Bulletin Board under the symbol
"TCHL." On ______ _____________, 2000, the last reported sale price of our
common stock was $____ per share
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This investment involves certain risks. See "Risk Factors," which begins on
page 3.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
====================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions Tech Labs
- ----------------------------------------------------------------------------------------------------
Per Share.............................. $7.75 $0 $7.75
Total Maximum.......................... $3,500,000 $0 $3,500,000
Total Minimum.......................... $2,000,000 $0 $2,000,000
====================================================================================================
The date of this prospectus is ____________, 2000
[PICTURES OF IDS AND DYNATRAX]
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references to "we" include Tech
Labs and its wholly-owned subsidiary, Tech Logistics, Inc., collectively, and
references to "Tech Labs" or "Tech Logistics" shall mean each of such companies
alone. You should read the entire prospectus carefully, especially the risks of
investing in the common stock discussed under "Risk Factors."
OUR BUSINESS
Tech Labs manufactures and markets various electrical, electronic and
telecommunications switching and distribution equipment and associated software.
We also market and manufacture, under our exclusive license, an infrared
perimeter intrusion and anti-terrorist detection system or "IDS".
We recently acquired a high-speed, telecommunications management network
switching system. This switching system, the DynaTraX(TM) technology, permits
users to bypass current telephone and CATV companies' "Last Mile" connections,
allowing them to realize recurring revenues and to make their properties more
attractive to computer users, while providing bundled digital multi-media
services.
We have been in business since the 1930s, and in 1947 we were incorporated
in New Jersey. Our principal offices are located at 955 Belmont Avenue, North
Haledon, New Jersey 07508, and our telephone number is (973) 427-5333.
The Offering
Shares offered:
Maximum.......................... 451,613 shares
Minimum.......................... 258,065 shares
The shares are being offered on a minimum/maximum basis. No shares will be sold
in the offering unless at least 258,065 shares are sold.
Current Trading Symbol:
OTC Bulletin Board...... TCHL-BB
Escrow........................ All funds we receive with respect to the sale
of the first 258,065 shares will be deposited
in a special escrow account at a federally
insured national bank. If 258,065 shares are
not sold within ninety (90) days following the
effective date of the registration statement of
which this prospectus is a part, the offering
will terminate and all funds will be promptly
returned without interest or deduction.
-2-
RISK FACTORS
In addition to other matters described in this document, prospective
investors should carefully consider the following factors:
Our inability to protect certain intellectual property from being copied by
our competition could impair our business.
We have no patent or copyright protection on our current products, other
than aspects of the DynaTraX(TM) product and technology. Our ability to compete
effectively with other companies will depend, in part, on our ability to
maintain the proprietary nature of our technologies. Other than with regard to
the DynaTraX(TM) patents, which have been issued to date only in England, we
intend to rely substantially on unpatented, proprietary information and
know-how. We are also presently prosecuting the patent applications filed in the
United States and the European Common Market.
-3-
Since we have no product liability insurance we could incur substantial
expenses if product liability claims are filed against us.
There is a risk that our current products may malfunction and cause loss
of, or error in, data, loss of man hours, damage to, or destruction of,
equipment or delays. Consequently, we, as the manufacturer of components,
assemblies and devices may be subject to claims if such malfunctions or
breakdowns occur. We are not aware of any past or present claims against us.
While we presently do not maintain product liability insurance, we intend to
obtain such coverage at the completion of this offering if such coverage can be
obtained on affordable terms. We cannot predict at this time our potential
liability if customers make claims against us asserting that DynatraX(TM), IDS
or other new products fail to function. Since we have no insurance we could
incur substantial expenses defending ourselves against a product liability
claim. If we are found to be liable for any product liability claim it could
could result in substantial losses to our business.
-4-
We manufacture and sell the IDS system under a license agreement which, if
terminated, would prevent us from using technology owned by EAG in our perimeter
detection system products, and would harm our business.
We entered into an Amended Joint Marketing Agreement as of October 1, 1997
with Elektronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety
Equipment, AG and a Confidentialty and Manufacfuring Agreement with the same
parties and dated the same date, pursuant to which Tech Labs was granted the
exclusive right to manufacture in the U.S. and market and sell in the U.S.,
Canada and South America the IDS products. The agreements terminate on September
30, 2007 subject to automatic renewals for successive one-year periods unless
either party gives notice of non-renewal. The agreements can be terminated
earlier upon a default of any material obligation. If the license is terminated,
we would be unable to use EAG's technology in our perimeter detection system
products. Even if the agreements remain in effect until September 30, 2007, it
will be necessary at that time to negotiate a new agreement or license or
acquire a suitable replacement technology.
Our marketing plan to sell the DynaTraX(TM) switch technology in hospitality
environments is reliant upon a joint marketing agreement which, if terminated,
would hamper our growth and curtail our sales.
Our hospitality software sales are greatly dependent upon a Joint Marketing
Agreement we entered into on October 15, 1999 with TravelNet Technologies, Inc.,
pursuant to which we were granted the right to sell the "Data Valet" software
system, which operates with the DynaTraX(TM) switch technology. This integrated
system provides high-speed Internet and bundled digital services to business
travelers and hotel guests. This agreement, which terminates on September 10,
2002, can be renewed with the mutual consent of both parties. It will be
necessary at that time to negotiate a new agreement or license or acquire a
suitable replacement technology. If replacement software is not available it
could greatly harm our ability to sell the DynaTraX(TM) switch technology in
hospitality environments.
-5-
Our lack of insurance on the DynaTraX(TM) product inventory could result in
substantial expenses and losses if the product inventory were damaged or lost.
In connection with the acquistion of the DynaTraX(TM) technology, we
acquired digital switches, finished products and parts from NORDX/CDT. We do not
have insurance on that inventory. Damage or destruction of some or all of the
inventory by fire, theft or by acts of nature would result in substantial
losses and would harm our business.
-6-
This prospectus contains forward-looking information.
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs, and
assumptions. Words such as " anticipates," "expects," "intends", "plans,"
"believes," "seeks," "estimates" and variations of these words and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We undertake no obligation to update these statements or publicly
release the result of any revisions to the forward-looking statements that we
may make to reflect events or circumstances after the date of this prospectus or
to reflect the occurrence of unanticipated events.
-7-
USE OF PROCEEDS
The net proceeds from the sale by us of the minimum number of 258,065
shares, after deducting estimated expenses of this offering, are estimated to be
$1,900,000. The net proceeds from the sale by us of the maximum number of
451,613 shares, after deducting expenses of this offering, are estimated to be
$3,400,000. The net proceeds will be used by us in approximately the following
amounts:
MINIMUM MAXIMUM
Assembly and testing of DynaTraX(TM) $100,000 $100,000
assets
Product Development of Additional
DynaTraX(TM) Products 375,000 750,000
Marketing and Sales 560,000 1,000,000
Completion of DynaTraX(TM) Inventory 275,000 500,000
IDS Enhancement, Sales, Marketing 150,000 250,000
Working capital for purchase
of materials to fill orders and
general corporate purposes,
which include increasing
personnel and to finance
operating losses that we expect
to incur as we expand our
customer base. 440,000 800,000
---------- ----------
Total $1,900,000 $3,400,000
The foregoing represents our best estimate of the net proceeds of the
offering based on current planning and business conditions. Tech Labs management
has broad discretionary authority to determine the exact allocation of the
proceeds for the purposes set forth above and the timing of the expenditures,
which may vary significantly depending upon the exact amount of funds raised,
the time and cost involved in deploying the funds and other factors. Pending
usage of the funds, as set forth above, the funds will be invested in short-term
interest bearing securities or money market funds.
The exact allocation of the proceeds for the purposes set forth above and
the timing of the expenditures may vary significantly depending upon the exact
amount of funds raised, the time and cost involved in deploying the funds and
other factors.
We believe that the proceeds from the minimum offering in addition to
revenues from operations will be sufficient to fund our operations for the next
12 months, although such development would be at a reduced pace than if the
maximum offering proceeds were received. If an amount less than maximum offering
is raised, we may be required to delay, scale back, or eliminate parts of our
development plan or obtain funds through additional financing, including loans
or offerings of our securities. We presently have no agreements or
understandings with respect to any future financing or loan agreements.
-8-
PRICE RANGE OF COMMON STOCK
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
----------------------- -------------------------
YEAR ENDING DECEMBER 31, 1999 HIGH LOW HIGH LOW
- ----------------------------- ---- --- ---- ---
First Quarter................................... $2.625 $1.0625 $3.0 $1.3125
Second Quarter.................................. 3.125 1.50 3.875 2.00
Third Quarter................................... 3.25 1.50 3.625 1.625
Fourth Quarter ................................. 3.87 1.00 4.12 1.25
YEAR ENDING DECEMBER 31, 1998
- -----------------------------
First Quarter................................... $3.125 $1.75 $3.375 $2.125
Second Quarter.................................. 2.6875 1.6875 3.00 2.00
Third Quarter................................... 2.1875 1.125 2.625 1.4375
Fourth Quarter.................................. 2.0625 1.25 2.625 1.50
YEAR ENDING DECEMBER 31, 1997
- -----------------------------
First Quarter................................... $2.25 $ .125 $2.75 $ .625
Second Quarter.................................. 3.125 1.4375 4.125 1.9375
Third Quarter................................... 2.75 2.0625 3.875 2.3125
Fourth Quarter.................................. 2.625 1.375 2.75 1.75
As of February 2, 2000, there were ___ holders of record of our common
stock.
DIVIDEND POLICY
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.
-9-
CAPITALIZATION
The following table sets forth as of September 30, 1999:
o on an actual basis; and
o as adjusted to reflect the sale of the minimum of 258,065 shares and the
maximum of 451,613 shares of common stock offered in this offering, after
deducting the estimated offering expenses; and
o Includes 75,000 shares earned by a consultant during the third quarter and
issued during the fourth quarter of 1999.
Nine Months Ended
September 30, 1999
-------------------------------------------------
Pro-Forma as Adjusted
---------------------
Actual Pro-Forma Minimum Maximum
-------- --------- -------- --------
Total Debt: $340,629 $340,629 $340,629 $340,629
Stockholders' equity:
Common Stock, $.01 par value; 5,000,000 shares authorized; 3,575,660 shares
issued and outstanding-- actual and 3,650,660 Pro Forma and 3,908,725 (minimum)
and 4,102,273 (maximum)-- as
adjusted; 11,316 shares held in treasury............... $35,757 $36,507 $39,088 $41,023
Additional paid-in capital............................. $1,828,346 $1,902,596 $3,900,011 $5,398,081
Accumulated deficit.................................... ($863,312) ($938,312) ($938,312) $5,398,081
Total stockholders' equity (deficiency)................ $1,000,791 $1,000,791 $3,000,781 $4,500,792
Total Capitalization................................... $1,341,420 $1,341,420 $3,341,416 $4,500,421
-10-
DILUTION
Purchasers of the shares will experience immediate and substantial dilution
in the value of their shares after purchase. Dilution represents the difference
between the initial public offering price per share paid by the purchaser in the
offering and the net tangible book value per share immediately after completion
of the offering. Net tangible book value per share represents the net tangible
assets, defined as total assets less total liabilities, divided by the number of
shares of common stock outstanding upon closing of the offering. Our unaudited,
actual net tangible book value at September 30, 1999, was $1,000,791 or $.28 per
common share.
Giving effect to the issuance after September 30, 1999 of the minimum
offering of 258,065 shares assuming an offering price of $7.75 per share and the
maximum offering of 451,613 shares assuming an offering price of $7.75 per share
and the receipt of the net proceeds by Tech Labs, the pro forma net tangible
book value would have been:
o $3,000,787 or $.77 per share upon completion of the minimum offering; and
o $4,500,782 or $1.10 per share upon completion of the maximum offering.
This represents an immediate increase in net tangible book value to
existing shareholder of $.50 per common share if the minimum number of shares
are sold and $.80 per common share if the maximum number of shares is sold and
an immediate dilution to person purchasing shares in this offering of $6.98 per
common share, or 90%, and $16.65 per common share, or 86%, if the maximum number
of shares are sold. The following table illustrates this per share dilution:
Minimum Maximum
------- -------
Offering price per share $7.75 $7.75
Net tangible book value per share at September 30, .27 .27
1999 (unaudited) on a pro-forma basis
Increase per common share attributable to .50 .83
payments by new investors ----- -----
Net tangible book value per share at September 30, .77 1.10
1999 (unaudited), on a pro-forma basis ----- -----
reflecting the proceeds of this offering
Dilution of net tangible book value per share to
new shareholders $6.98 $6.65
----- -----
-11-
The following table sets forth on September 30, 1999, on a pro forma basis,
the differences between existing shareholders and new investors in the offering
with respect to the number of shares of common stock purchased, the total
consideration paid, and the average price per share paid by existing
shareholders and by new investors.
Minimum Offering
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders - Pro-Forma 3,650,660 93% $ 36,507 2% $0.01
New Investors 258,065 7% $2,000,000 98% $7.75
Total 3,908,725 100% $2,036,507 100% --
Maximum Offering
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders - Pro-Forma 3,650,660 89% $ 36,507 1% $0.01
New Investors 451,613 11% $3,500,000 99% $7.75
Total 4,102,273 100% $3,536,507 100% --
The above two tables are based on September 30, 1999 shares outstanding plus
75,000 shares issued in november 1999 to a consutant and excluding:
o options to purchase 100,000 shares exercisable at $1.25 per share and an
additional 100,000 shares exercisable at $1.75 per share issued pursuant to
a consulting agreement;
o options to purchase 50,000 shares exercisable at $1.85 per share issued
pursuant to a consulting agreement;
o options to purchase an aggregate of 190,000 shares exercisable at $.50 per
share granted under Tech Lab's stock option plan for officers and
directors;
o options to purchase 75,000 shares exercisable at $1.12 per share issued in
exchange for legal services; and
o pursuant to the employment agreement with our president, options to
purchase up to 300,000 shares, 200,000 options of which are vested, with
the balance of 100,000 options to vest on October 1, 2000, so long as the
president is employed, such options to be exercisable at $.50 per share.
o option contained in an 8% convertible promissory note dated September 5,
1997 pursuant to which noteholder was granted the right to purchase up to
25,000 shares until February 6, 2000, exercisable at $3.00 per share.
-12-
SELECTED FINANCIAL DATA
The financial data included in the following table has been derived from
our unaudited financial statements and should be read together with our
unaudited financial statements and related notes. The pro-forma financial
information includes 75,000 shares earned by a consultant during the third
quarter and issued during the fourth quarter of 1999.
Years Ended Nine Months Ended
December 31, September 30,
--------------------------------------- ---------------------------------------
Pro-Forma
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- ---------
(unaudited)
Statement of Operations Data:
Sales $647,015 $444,322 $552,486 $341,352 $535,160 $535,160
Cost of Sales 337,269 446,457 386,425 317,702 374,612 374,612
-------- -------- -------- -------- -------- --------
Gross Profit 309,746 (2,135) 166,061 23,650 160,548 160,548
Operating Expenses
General and administrative 246,915 257,826 311,716 306,352 548,384 623,384
Depreciation and
amortization 10,849 7,278 18,133 -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) from operations 51,982 (267,239) (163,788) (282,702) (387,836) (462,836)
Other income-- Interest 388 166 1,654 83 -0- -0-
Interest expense 3,188 6,996 6,970 6,970 -0- -0-
-------- -------- -------- -------- -------- --------
Income (loss) before provision
for income taxes 49,182 (274,069) (169,104) (289,589) (387,836) (462,836)
Provision for income -0- -0- -0- -0- -0- -0-
Net income (loss) 49,182 (274,069) (169,104) (289,589) (387,836) (462,836)
Net income (loss) per share $0.04 ($0.18) ($0.06) ($0.10) ($0.11) ($0.13)
Years Ended Nine Months Ended
December 31, September 30,
-------------------------------------- ----------------------------------------
Pro-Forma
1996 1997 1998 1998 1999 1999
---- ---- ---- ---- ---- ---------
Balance Sheet Data: (unaudited)
Total assets $459,711 $609,526 $1,018,597 $431,838 $1,341,420 $1,341,420
Working Capital 267,436 405,548 851,540 315,339 878,255 878,255
Current Portion of long-term debt 34,445 34,445 32,742 32,742 30,293 30,293
Long-term debt (less current portion) -0- -0- -0- -0- -0- -0-
Shareholders' equity $296,184 $429,615 $ 863,727 $327,526 $1,000,791 $1,000,791
-13-
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 1996, 1997, and 1998 and for the nine months
ended September 30, 1998 and 1999 and their approximate percentage contribution
to revenues for the period indicated:
PRODUCT TYPE 1996 % of Revenue 1997 % of Revenue 1998 % of Revenue
- ------------ ---- ------------ ---- ------------ ---- ------------
Switches $262,858 40.6% $199,324 44.8% $166,550 30.1%
IDS Sensors 0 0 0 0 254,900 46.2%
Transformers/Coils 60,741 9.4% 53,595 12.1% 50,515 9.1%
Contract Manufacturing 323,416 50.0% 191,404 43.1% 80,520 14.6%
-------- ----- -------- ------ -------- ------
Totals $647,015 100.0% $444,323 100.0% $552,485 100.0%
======== ===== ======== ====== ======== ======
Nine Months Ended
September 30,
------------------------------------------------------------
(unaudited)
PRODUCT TYPE 1998 % of Revenue 1999 % of Revenue
- ------------ ---- ------------ ---- ------------
Rotary Switches $ 191,157 56.3 $ 256,877 47.5
IDS Sensors 44,034 12.9 155,731 29.6
Transformers/Coils 73,049 21.4 73,852 13.8
Contract Manufacturing 33,112 9.4 48,700 9.1
--------- ------ -------- ------
Totals $ 341,352 100.0% $ 535,160 100.0%
========= ====== ========= ======
As the above table reflects, there was a significant decrease in sales of
rotary switches and contract manufacturing, due to a shift to new product
development and sales. There were no sales of the new IDS in 1997. In 1998,
sales of the IDS were $254,900.
The following table sets forth the percentages of gross profit for each of
our major business activities in 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999:
Nine Months Ended
September 30,
-----------------------------------
(unaudited)
PRODUCT TYPE 1997 1998 Net Change 1998 1999 Net Change
- ------------ ---- ---- ---------- ---- ---- ----------
Rotary Switches 44.2% 45.0% 0.8% 44.2% 45.0% 0.8%
IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6%
Transformers/Coils 22.7% 25.0% 2.3% 22.7% 25.0% 2.3%
Contract Manufacturing 20.0% 22.8% 2.8% 20.0% 22.8% 2.8%
Unallocated company expenses,
including physical
inventory adjustments
and factory overhead (31.2%) (13.1%) 18.1% (38.8%) (13.1%) 25.7%
Total company gross profit % (0.5%) 30.1% 30.6% 7.0% 30.0% 23.0%
We have begun to shift out of the subcontracting and transformer business
which provides low gross profit margins, for higher gross profit margin sales of
IDS and other new products. While rotary switches produce high gross profits,
demand for rotary switches is low.
We have gradually shifted our product offering from less profitable to more
profitable proprietary products.
-14-
Results of Operations
Nine Months Ended September 30, 1999, Compared to Nine Months Ended September
30, 1998 -- Unaudited.
Sales were $535,160 for the first nine months of 1999 as compared to
$341,352 for the nine months ended September 30, 1998. The increase was due to
growth in switch and sensor sales. We will continue efforts in the future to
increase sales of these high margin products.
Cost of sales of $374,612 for the nine months ended September 30, 1999
compared to $317,702 for the same period in 1998 increased due to sales of IDS
sensors to the Department of Energy's Los Alamos facility.
Selling, general, and administrative expenses increased by $242,032 in the
first nine months of 1999 as compared to the prior period in 1998 which resulted
from higher than normal expenses in 1999 due to professional fees associated
with the acquisition of DynaTraX(TM).
Losses from operations of ($387,836) in the first nine months of 1999
increased by $98,247 compared to losses of ($289,589) for the prior period as a
direct result of higher administrative expenses, due to the non-recurring
DynaTraX(TM) acquisition fees and legal fees.
1998 Compared to 1997.
Sales increased 24% from $444,322 in 1997 to $552,486 in 1998. This was due
to an increase in sales of the Intrusion Detection System (IDS). We will
continue our efforts to grow high margin IDS sales.
Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due
to an increase in sales of lower cost IDS products, which have a higher gross
profit than historical products.
Selling, general and administrative expenses, including depreciation,
increased 24% from $265,104 in 1997 to $329,849 in 1998 due to increased sales
efforts, engineering, testing, and promotion of new product introductions, as
well as consulting, legal, and other expenses in connection with the acquisition
of the DynaTraX(TM) product line.
Income (loss) from operations decreased 39% from a loss of ($267,239) in
1997 to a loss of ($163,788) in 1998 due to higher gross profit margins on new
products.
Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in
1998.
1997 Compared to 1996
Sales decreased 31.3% from $647,015 in 1996 to $444,322 in 1997 due to a
decrease in subcontracting activity.
Cost of sales increased 32.4% from $337,269 in 1996 to $446,457 in 1997 due
to fixed overhead.
Selling, general and administrative expenses, including depreciation,
increased slightly from $257,764 in 1996 to $265,104 in 1997.
We had income of $51,982 for 1996 as compared to a loss of ($267,239) for
1997 due to lower sales from subcontracting activity.
Interest expense increased 119% from $3,188 in 1996 to $6,996 in 1997.
Liquidity and Capital Resources.
During the years ended December 31, 1997 and 1998 and for the nine months
ended September 30, 1998 and 1999 we have had difficulty meeting our working
capital requirements, which was a result of lower sales, limited marketing
efforts, and continued losses from operations. During the years ended December
31, 1997 and 1998, we completed sales of our common stock which raised
approximately $407,000 in 1997 and $603,716 in 1998.
During calendar year 1999 we raised an additional $250,000 for the
acquisition of the DynaTraX(TM) assets and an additional $200,000 for working
capital. On October 25, 1999 Tech Labs borrowed $50,000 at 10% interest per year
pursuant to a promissory note and security agreement with the lender. Under the
terms of the security agreement, Tech Labs assigned a security interest in two
of Tech Labs' purchase orders totaling $543,000. Under the terms of the
promissory note, the $50,000 was to be repaid in full no later than December 24,
1999. The Note was extended to a due date of January 28, 2000 at an interest
rate of 14%. In addition, Tech Labs entered into three unsecured promissory
notes, as described below, in the amount of $50,000 each, at an interest rate of
10%:
o Note 1. Executed December 13, 1999 and is due February 13, 2000
o Note 2. Executed December 15, 1999 and is due February 15, 2000
o Note 3. Executed December 20, 1999 and is due February 20, 2000
During 1998 we sold our first IDS products to the U.S. government Los
Alamos facility. Continued sales will, however, be dependent upon sustained
marketing efforts. Because sales from our historical lines of products have not
in the past, and are not in the future expected to generate sufficient revenue
to support our product development and marketing and sales efforts for our
DynaTraX(TM) and IDS products, we will be required to meet our capital needs to
finance our business plan through the sale of our shares of common stock in this
offering. In the event we are unable to complete this offering or we sell less
than the maximum number of shares offered, we will be required to curtail the
implementation of our business plan.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.
Our Year 2000 review is in progress. We believe that all of our own
computer systems and products were compliant before 2000.
o Products. The DynaTraX(TM) system software runs on Microsoft Windows
NT, which is Year 2000 compliant. The DynaTraX(TM) hardware is also
compliant. The IDS and the various electronic and electrical
components that we manufacture neither contain microprocessors nor are
they reliant on time or date software. We believe such equipment to be
unaffected by the Year 2000 problem.
o Vendors. We have conducted a very limited and preliminary review of
our vendors' exposure to the Year 2000 problem. However, since all of
our components are bought "off the shelf" and are manufactured by
numerous companies, we believe we will be able to replace supplies
from any vendor experiencing manufacturing difficulties due to the
Year 2000 problem. We are not contractually committed to long term
relationships with vendors and should have no difficulty substituting
vendors as neccessary.
o IT Systems. We conducted a survey of our information technology
hardware and have scheduled upgrades and/or replacements of all
identified Year 2000 non-compliant hardware and software prior to
2000.
o Costs. We do not currently expect that costs associated with Year 2000
compliance will materially affect our operations or financial
position. However, if we discover Year 2000 problems in the future, we
may not be able to develop, implement, or test remediation or
contingency plans in a timely or cost-effective manner.
o Risks. Failure of third party products, such as a breakdown in
telephone, electric service or other utilities, e-mail, voicemail or
the World Wide Web could cause a disruption in our business
operations. Disruptions in services provided by banks, telephone
companies and the U.S. Postal Service could negatively impact our
business. Although we believe that our products are Year 2000
compliant, it is possible that they may not contain the date codes
necessary to operate in the year 2000. Any failure of the products to
perform could result in the delay or cancellation of product orders
and the diversification of managerial and technical resources from
product development and other business activities to attend to Year
2000 issues.
o Contingency Plan. We did not develop a contingency plan to address any
situation that could have resulted if our Year 2000 preparations were
inadequate. Tech Labs believes it did all that could reasonably be
done.
As of the date of this prospectus, we have not experienced any interruption
in our business, internal operations or computer equipment associated with the
transition to the Year 2000.
-15-
BUSINESS
General
Tech Laboratories, Inc. manufactures and sells various electrical and
electronic components. During 1999, we completed the acquisition of the
DynaTraX(TM) high-speed digital switch matrix system, an electronic switching
unit. We believe that the acquisition of the DynaTraX(TM) technology will enable
us to become a provider of multi-media digital network distribution and
management equipment for use in campus and building facilities. This equipment
manages voice, video and data transmissions on a network.
In addition, during the last two years, through our subsidiary, Tech
Logistics, Inc., we have been manufacturing and marketing under our exclusive
license, an infrared perimeter intrusion and anti-terrorist detection system or
"IDS." The IDS was originally designed for military applications, and we
currently market this product to government agencies and private industry for
use in nuclear, industrial and institutional installations.
We have plans to expand our business operations in a number of ways over
the next 12 to 18 months, provided that we receive the proceeds of this
offering. Our primary capital requirements over that time period include:
o payments of trade payables;
o marketing expenses, including the sale of the DynaTrax(TM) switch;
o research and development;
o tooling costs for improved versions of our existing products and
development of new products; and
o development of DynaTrax(TM) technology we acquired from NORDX/CDT.
Additional financing may be necessary to pursue these plans, and we may be
unable to secure such financing on acceptable terms. The failure to secure
additional financing could limit our ability to develop our business.
Historical Business
We also manufacture and sell standard and customized transformers, test
equipment and rotary switches, the latter of which products permits an
electrical signal to be diverted from point A to point B. In addition, we act as
a contract manufacturer for other companies and produce on an OEM basis
electronic and electrical assemblies, printed circuit board assemblies, cable
and harness assemblies and specialized electronic equipment. Approximately 15%
of our products are manufactured for military applications.
We sell our switch, transformer and test equipment products in the
electronics and electrical industries, primarily as a contract manufacturer for
other companies or for inclusion in OEM products. We market our products in
these industries in the United States. This is a mature market. Competition is
on the basis of price and service. Pricing of our products is based upon
obtaining a margin above cost of production. The margin we will accept varies
with quantity and the channels of distribution.
We intend to market our historical products over the Internet, as well as
through our distribution and outside sales agents. Our website is currently
on-line. Our website address is www.techlabsinc.com.
-16-
The DynaTraX(TM) Asset Acquisition - Material Terms of Purchase Agreement
On April 27, 1999, pursuant to an asset acquisition agreement with
NORDX/CDT, Inc., we completed the purchase of the DynaTraX(TM) product, for a
purchase price of $500,000. The entire amount of the purchase price was paid
upon closing. In connection with the acquisition of DynaTraX(TM) technology, we
acquired certain inventory, patents and patent applications, and other equipment
related to the DynaTraX(TM) product. Under the agreement, NORDX/CDT, Inc.
retained a limited amount of inventory to service customers who had purchased
the technology prior to the discontinuance of the DynaTraX(TM) business by
NORDX/CDT, Inc.
Industry
DynaTraX(TM) Networking Management and Maintenance Technology
We believe that there is a rapidly growing marketplace for "digital"
multi-media, including internet, high-speed data, digital voice and video, and,
information equipment and systems. We intend to use our DynaTraX(TM) technology
to produce a line of standard, digital telecommunication distribution and
management equipment that OEM's and/or Value-Added-Resellers will be able to use
as a platform they can custom configure, through software, to supply a variety
of industry and customer-specific applications and functions.
We entered into an agreement in October 1999 with TravelNet Technologies,
Inc. to sell the "Data Valet" software system which runs on a Dynatrax(TM)
distributing switch system. This system provides high-speed, bundled,
multi-media Internet and video services to business travelers and hotel guests.
This integrated system also monitors and bills guests for services used. The
agreement expires on September 10, 2002.
The TravelNet Agreement provides that Tech Labs and TravelNet will jointly
o promote DynaTraX(TM) and the Data Valet products in trade shows;
o share the costs of trade show participation;
o select and pay for retaining an advertising agency;
o training of sales personnel; and
o share information, literature, sales projections, sales leads and
technical support.
We intend to build industry recognition for producing private,
customer-premise (community, commercial, educational and hospitality complexes,
and residential buildings), high-speed Internet, Long Distance, Intranet
information distribution and management switching systems.
We believe the future trend in communications is reselling local loop
services, which is the service connection between the local phone company's
local office and the telephone customer, using new digital transmission
technology and equipment to get around the present "de facto monopoly" telephone
and CATV companies maintain over local connection and distribution services.
Our goal is to have our DynaTraX(TM) technology play a large role in
helping developers, builders and/or managers of private residential communities
and commercial, industrial, educational and hospitality complexes establish
facilities that will distribute and manage high-speed digital Internet, Long
Distance and CATV services. This technology permits these users to bypass
current telephone and CATV companies' "Last Mile" connection service. "Last
Mile" connection service is the interconnection between a wide range of
computing resources to "Wide Area Network", and may allow users to increase
rents and to make their properties more attractive to tenants.
We believe that our DynaTraX(TM) product offers a faster switch and a much
larger port size than any competing product and is not limited to a specific
type of network as with some competing products. Port size refers to the number
of network connections available for user equipment and for network distribution
equipment.
Our DynaTraX(TM) product is proposed to be sold in the multi-media digital
network distribution and management equipment industry. The growth in digital
networks is clear as is the cost in supporting and maintaining these networks.
We initially intend to market the DynaTraX(TM) product in the eastern portion of
the United States with expansion to other markets over time. There are at least
four companies that have products that compete with the DynaTraX(TM) product.
However, we believe none of these competitors offer a product with all of the
features or capabilities of DynaTraX(TM).
-17-
We expect that competition in the sale of our DynaTraX(TM) product will be
on the basis of price, features, service and technical support. Pricing of our
products is based upon obtaining a margin above cost of production. The margin
we will accept varies with quantity and the channels of distribution.
Competition for network management products comes from several different
sources. One source of competition is the designated employees of large
organizations which have been hired to manage and maintain their internal
networks. However, we believe the need to reduce costs through the
implementation of automated cost saving technologies such as the DynaTraX(TM)
technology will provide Tech Labs with market opportunities.
Another group of competitors which produces products to manage and maintain
the network physical layer consists of NHC, RIT and Cyteck. Of these three
companies, NHC is the only one that offers a product comparable to DynaTrax(TM),
but which is not as fast as DynaTraX(TM). In addition, V-LAN switching, which is
a technology utilized by a number of companies, can be regarded as a competing
technology. However, V-LAN switching is limited to a specific type of network,
i.e. Ethernet, and not able to support many tasks which our DynaTraX(TM)
technology is designed to complete. These tasks are:
o rearranging network physical layer connections e.g.s moves, adds and
changes of equipment such as computer terminals; fax machines; and
printers;
o testing circuits;
o managing and mainatining end-to-end network configuration, which is
the connection between different points on a network from the
telecommumunications closet to the user outlet; and
o maintaining asset inventory records.
We regard V-LAN as complementary to DynaTraX(TM) circuit switching since
they can work together to provide a more comprehensive network
management/maintenance solution. The four competitors all have greater financial
and other resources and currently account for substantially all of the existing
market.
Although we believe that the DynaTraX(TM) technology will serve as the
basis for new products in the area of multi-media, digital network distribution
and management equipment for use in campus and building facilities, our ability
to successfully market our products will depend upon several factors including,
among others:
o The development of an effective marketing and distribution network;
o The acceptance of our products by potential users; and
o Our ability to support existing products and develop and support new
products that are compatible with other systems in use by potential
customers and provide useful features that are user friendly.
In the past we have experienced, and we are likely to experience in the
future, delays in the development and introduction of products. We cannot assure
you that we will keep pace with the rapid rate of change in security and network
switching systems research, or that our new products will adequately meet the
requirements of the marketplace or achieve market acceptance.
Infrared Intrusion Detection System or "IDS"
In April 1997, we formed Tech Logistics, Inc., a joint venture subsidiary
owned at that time 80% by our company and 20% by Carmine O. Pellosie, Jr., a
director of 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 recently begun marketing IDS to government agencies and private
industry for use in nuclear, industrial, and institutional installations. We
have also begun to manufacture and market products currently sold by
International Logistics Inc., as well as new security, police training, bomb
detection and disposal equipment, anti-terrorism countermeasures and lie
detection devices. New devices are intended to include hand-held letter bomb
detectors, hand-held weapons detectors, video surveillance equipment as well as
integrated audio-visual surveillance vehicles for government and police use.
We have entered into an agreement dated to be effective October 1, 1997
with EAG, W.T. Sports, Ltd. and FUA Safety Equipment. Under the terms of the
agreement we were granted an exclusive right until September 30, 2007 to
manufacture and sell in the U.S., Canada and South America the IDS products. The
agreements provide that until March 31, 2001 gross pre-tax profits will be
shared 70% to Tech Labs and 30% to FUA. From April 1, 2001 until September 30,
2007 the gross pre-tax profits in excess of 16% will be shared 70% to Tech Labs
and 30% to FUA. We will also pay FUA a royalty of 5% of the cost of any IDS
products we manufacture and sell. We also intend to market metal detection
equipment manufactured by EAG for use in security and industrial applications,
such as walk-through metal detectors and hand-held metal detectors.
We are marketing our IDS product to the security and anti-terrorist
industry. We believe this is a growing industry and that terrorist incidents and
security breaches serve to increase the demand for our products. We have
recently completed the sale of an IDS to Los Alamos National
-18-
Laboratories.
This industry has a number of different competing products and
technologies. Competition in the industry is partly based on price and partly on
other factors such as effectiveness of a product in the field, acceptable levels
of false alarms for a given application and service. We are marketing the IDS
product for global distribution. We have a number of competitors for the IDS
products offering competitive technology, many of whom have greater financial
and other resources.
We have received approval for the IDS from the U.S. Air Force for inclusion
in their Tactical Automated Security System program which is a $500 million
program to thwart enemy attacks on critical military installations throughout
the world. Subsequent to this approval, Tech Labs has received a blanket order
to provide 50 IDS systems to the U.S. Air Force. Tech Labs has as of the date of
this prospectus shipped 12 systems under its blanket order to the Air Force
prime contractor. Pricing of our products is based upon obtaining a margin above
cost of production. The margin we will accept varies with quantity and the
channels of distribution.
Marketing Strategies
Marketing. We plan to implement a three-pronged marketing program
consisting of:
o Industry announcements and presentations through business and industry
trade groups;
o Establishing relationships with several industry recommenders and
specifiers, who are consultants and engineering companies to help
present our cable management and network physical layer solutions to
the end-users and their contract management or system integrators; and
o A promotional campaign of ads, mailings, and on-line Web site media,
targeted at the end-user communications managers, their consultants
and advisers.
Initially, we will focus on the communication/computer centers in the
eastern part of the United States. We plan to divide this area into four sales
regions:
o New England states;
o New York metropolitan area;
o Mid-Atlantic/Washington DC area; and
o South East Coast states.
We will quickly set up several regional representatives, sales agents,
and/or certified value added resellers in each of the four regions. Our plan is
to have one representative and, initially, up to two VARs for each region.
Whenever possible, we plan to use former NORDX/CDT trained sales agents and
certified VARs.
Sales representatives will be commissioned sales agents. VARs will be
system integrators who will purchase DynaTraX(TM) products at a volume based
discount price for resale as part of a turn-key service in which the system
integrator designs the system, purchases the component products and installs and
maintains the system.
We also plan to expand on the initial program by opening up additional
sales areas in the country and overseas. We contemplate doing this by adding
regional representatives or agents, or through current VAR organizations that
have a national presence.
-19-
In the established East Coast area, we intend to set up three regional
sales/service centers:
o Massachusetts;
o Washington, DC; and
o Florida
We will repeat the process in the other areas as they become established.
We plan to use our sales/service centers to introduce new, enhanced
versions of the DynaTraX(TM) system and to provide territory customer support
services. We also plan to set up a separate marketing campaign and sales
operations to build markets for our expanded high-speed, customer-premise
DynaTraX(TM) gateway networking switch.
In addition, working with VARs, we will focus on providing turn-key,
private customer-premise digital gateway exchange networking systems. We will
target real estate developers, builders and/or owners of private communities,
commercial community retail complexes and shared rental buildings to enable them
to control and resell Internet, long distance, CATV, and building automation
information services going into and out of their private facilities.
Although we believe that we can be profitable by the second quarter of 2000
from the increased sales of our IDS products and sales of the newly acquired
DynaTraX(TM) completed inventory, our profitability is subject to both the
successful and timely implementation of our business plan and market acceptance
of our new products.
Our plan to become profitable included the acquisition of the DynaTraX(TM)
product in April 1999 and to sell the finished DynaTraX(TM) inventory we
acquired.
Because we have incurred substantially all our anticipated research and
development costs with respect to our IDS product and have had it approved by
the Air Force for inclusion in the TASS program, and have completed the purchase
of the DynaTraX(TM) switch, technology and marketing materials, upon completion
of this offering, we believe we will have the funds necessary to market our
products and achieve profitability.
Limited Sales Revenue
Our limited sales revenue and history of losses makes it uncertain when or
if we will become profitable. Our failure to achieve profitablility within the
time frame expected by investors may adversly affect our business and the market
price of our common stock. For the years ended December 31, 1997 and 1998 our
sales were $444,322 and $552,486, respectively, and we had net losses of
($274,069) and ($169,104). As of December 31, 1998, we had an accumulated
deficit of ($475,476). We have had limited cash flow and working capital, which
has restricted our recent operations.
Although the proceeds of this offering will enable us to implement our
business plan to develop, market, manufacture and market the IDS and
DynaTraX(TM) products, we must increase our sales of these new products
significantly in order to avoid continued losses. In the event that sales and
profitability are delayed to the point beyond that anticipated and liquidity is
impacted, we would reduce or defer operating expenses, such as expenses to
finish work in progress relating to the DynaTraX(TM) inventory and research and
development of additional DynaTraX(TM) products.
Source of Supply
Current inventory component purchases for all our products are made from
OEMs, brokers, and other vendors. We typically have more than a single source of
supply for each part, component, or service, but from time to time we may
utilize a single supplier for a particular part or component. During the year
ended December 31, 1998, Wiggins Plastics was our largest supplier with 14.2% of
our overall inventory purchases. These purchases were primarily used in the
manufacture of electromechanical switches. During the year ended December 31,
1997, Wiggins Plastics accounted for 16.8% of our supply of inventory. Those
components were in products that produced approximately 25.7% of our revenue for
such year. We have no long-term agreements with any of our suppliers.
Order Backlog
The backlog of written firm orders for our products and services as of
September 30, 1999, was as follows:
As of September 30, 1999: $618,556
As of September 30, 1998: $150,656
Patents
In connection with our acquisition of the DynaTraX(TM) assets, we acquired
certain patents and pending patent applications. Four patents have been granted
in Great Britain, which are listed below:
o Patent title: User Interface for Local Area Network. This patent covers
technology which allows communication between the user and the equipment
controlling the network. This patent expires in 2013.
o Patent title: Token Ring. This patent covers technology which transmits
information between devices on a network. This patent expires in 2013.
o Patent title: Half Duplex Circuit for Local Area Network. This patent
covers technology which allows one-way communication either to or from the
Local Area Network. This patent expires in 2013.
o Patent title: Matrix Switch Arrangement. This patent covers technology
which is a switch that can either connect or disconnect one or more devices
on a network. This patent expires 2015.
We also have patents pending in the United States and in the European
Common Market
-20-
Employees
As of September 30, 1999, we had 11 full-time employees, including our
officers, seven of whom were engaged in manufacturing, one in repair services,
one in administration and financial control, one in engineering and research and
development, and one in marketing and sales.
Facilities; Manufacturing
Our corporate headquarters and manufacturing facility is located in North
Haledon, New Jersey. Our primary manufacturing and office facility is a
one-story building that is adequate for our current needs. We lease this
facility of 8,000 square feet, from a non-affiliated person, under a lease that
ends in May, 2001. The annual base rent is $48,000 and includes property taxes
and other adjustments. We believe our premises are adequate for our current
needs and that if and when additional space is required, it would be available
on acceptable terms.
We are an integrated manufacturer and, accordingly, except for plastic
moldings and extrusions, produce nearly all major subassemblies and components
of our devices from raw materials. We purchase certain components from outside
sources and maintain an in-house, light machine shop allowing fabrication of a
variety of metal parts and castings, complete tool room for making and repairing
dies, a stamping shop and an assembly shop with light assembly presses. Our test
lab checks and tests our products at various stages of assembly and each
finished product undergoes a complete test prior to shipment.
We anticipate that we will either manufacture any new products ourselves or
subcontract their manufacture, in whole or in part, to others. We believe that
personnel, equipment, and/or subcontractors will be readily available as and
when needed.
We offer warranties on all our current products, including parts and labor
for one year.
We have limited research and development facilities and currently employ
one engineer.
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.
-21-
MANAGEMENT
Directors, Executive Officers, and Key Consultants
Name Age Title
- ---- --- -----
Bernard M. Ciongoli 52 President, Treasurer, and Director
Earl M. Bjorndal 47 Vice President and Director
Carmine O. Pellosie, Jr. 57 Secretary and Director
Louis Tomasella 58 Director
Richard J. Rice 62 Director
Each director is elected for a period of three years and until his
successor is duly elected by shareholders and qualified. Officers serve at the
will of the board of directors.
Bernard M. Ciongoli became our president and a director in late 1992, and
became Treasurer in 1998. From 1990 through 1991 he served as president of
HyTech Labs, a company engaged in sales and servicing of electronic test
equipment. During the years of 1987 to 1990, he acted as the principal owner and
President of Bernco Developers, a real estate developer. Mr. Ciongoli holds a
degree in electronic engineering from Paterson Institute of Technology.
Earl M. Bjorndal has been with us in various capacities since 1981. He has
been a director since 1985, and became a vice president in 1992. He is a
graduate of the New Jersey Institute of Technology with both bachelor's and
master's degrees in industrial engineering.
Carmine O. Pellosie, Jr. has been a director since the formation of Tech
Logistics, Inc. in 1997 and has been our Secretary since April 1999. Since
January 1, 1999, he has been the Controller of the Passaic County Department of
Health and Human Services. Prior to January 1999, he was, for more than five
years, president of International Logistics, Inc.
Louis J. Tomasella has served as director since 1994 and was treasurer from
1994 through 1998. He is the owner of Tomco Realty, a general real estate
brokerage firm in New Jersey. Mr. Tomasella holds a bachelors degree in liberal
arts from Rutgers University.
Richard J. Rice has served as a director since July 1999. He has served as
chairman of Teletalk International Services, Inc. since June 1994. He also
serves as president and CEO of Richard J. Rice, Inc. since November 1993. Prior
to 1993 Mr. Rice was president and CEO of Long Distance Services, Inc. for more
than five years.
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.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
president. No other officer has received compensation in excess of $100,000 in
any recent fiscal year.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- -------------
Shares of
Common Stock
Issuable Upon
Name and 1998 Exercise of
Principal Position Year Salary($) Bonus($) Options
------------------ ---- --------- -------- -------
Bernard M. Ciongoli 1998 $125,000 0 300,000
President, Treasurer
The following table sets forth information realting to all options granted:
Option Grants in Fiscal Year 1998
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in
Options Granted Fiscal Year Exercise Expiration
Name (#)(1) (%)(2) Price($)(3) Date
---- --------------- ------------ ----------- ----------
Bernard M. Ciongoli 300,000 85.7 $.50 10/1/03
Earl M. Bjorndal 50,000 14.3 $.50 10/1/03
Carmine O. Pellosie, Jr. 0 N/A N/A N/A
We have a five (5) year employment contract with Mr. Ciongoli that
commenced October 1, 1998, and amended June 18, 1999. Mr. Ciongoli is currently
compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also
entitled to receive two (2%) percent of our sales in excess of $1,000,000 during
any year he is employed by us. In addition, Mr. Ciongoli was also granted an
option exercisable for five (5) years from date of grant to purchase 300,000
shares of stock at $.50 per share, such option to vest in increments of 100,000
shares per annum on each anniversary date of the agreement commencing October 1,
1998. The agreement is automatically renewed for one (1) year unless either
party terminates the agreement in writing at least 180 days prior to the
expiration of the term or of any renewal period.
In 1996 we granted to Mr. Ciongoli an option to purchase 100,000 shares of
common stock exercisable for five (5) years at $.50 per share under our stock
option plan.
-22-
We do not have employment agreements with any other officer or other
employee. Our directors are not presently compensated.
Consultants
We have entered into a consulting agreement with MPX Network Solutions,
Inc. The term of the agreement is for one year expiring on March 14, 2000,
renewable for an additional one year period.
o MPX will provide consulting services in the areas of marketing,
customer relations and strategic and product development planning,
particularly with regard to communications products;
o MPX will receive an annual fee of $52,000 and commissions on sales of
telecommunications products during the term of the agreement ranging
from 3% of the first $1,000,000 of the net sale prices to 1/2% of the
net sale prices over $4,000,000, and
o MPX will also receive 50,000 shares of common stock and will be issued
options to purchase up to 50,000 shares of common stock, at a purchase
price of $1.25 per share, depending on net sales of telecommunications
products during the initial term and the extension term of the
agreement. These services will be provided on an as needed basis,
primarily by MPX's president, Mr. Sal Grisafi.
We have also entered into a consulting agreement with Scott Coby. Under the
terms of the agreement, the consultant will provide certain marketing and
financial services. In consideration for entering into the agreement, which has
an initial term of two years, we issued to the consultant a warrant to purchase
50,000 shares of common stock at $1.85 per share exercisable for five (5) years.
We issued an additional warrant to Scott Coby to purchase up to 200,000
shares of common stock at $3.50 per share exercisable for five (5) years. This
warrant vests in increments of 25,000 warrants for every $250,000 of sales of
Tech Lab's products to purchasers obtained by consultant within the initial two
(2) year term of the consulting agreement with Mr. Coby. The shares underlying
the warrants have certain registration rights.
We have also entered into a consulting agreement dated March 10, 1999, with
Mint Corporation, a New York corporation, to provide certain financial and
business consulting services, which include assisting our management in
developing its business plan, introducing Tech Labs to members of the financial
community, and assisting us in our financial planning. Under the terms of the
consulting agreement, which may be terminated by us upon ten (10) days' prior
written notice, we:
o issued 100,000 shares to Mint, 25,000 shares of which were issued in
June 1999 and 75,000 shares were issued in November 1999; and
o granted to consultant an option to purchase up to 200,000 shares of
common stock, such options to be exercisable to purchase 100,000
shares at $1.25 per share and options to purchase 100,000 shares at
$1.75 per share. The options have vested in full because the agreement
was not terminated by Tech Labs prior to July 10, 1999. The shares
underlying the options have certain registration rights.
Stock Option Plan
On December 11, 1996, the board of directors adopted a stock option plan
for officers, directors, and other key employees. Options issued pursuant to the
stock option plan to qualified key employees are meant to qualify as incentive
stock options within the meaning of Secion 422A of the Internal Revenue Code. A
total of 450,000 shares were set aside for this purpose, and options for an
aggregate of 190,000 shares have been granted at an exercise price of $.50 per
share.
The plan is administered by a committee appointed by the board of
directors, which is comprised of two or more members of the board of directors.
The committee's interpretation and construction of the stock option plan is
final unless otherwise determined by the board.
Options granted under the plan shall have an option price not less than
100% of the fair market value of the shares of Tech Labs' common stock on the
date of the granting of the option, or 110% of the fair market value for
stockholders who, at the time of grant, posses more than 10% of the total voting
power of all classes of stock. If the aggregate fair market value of the shares
of stock, determined as of the date of grant, during any calendar year exceeds
$100,000 then only the first $100,000 of such shares exercised will be treated
as incentive stock options.
Any option must be granted within 10 years of the date the plan was adopted
or approved by the shareholders, whichever is earlier. The option, by its terms,
must be exercisable within 10 years of the date it is granted. If, however,
options are granted to an optionee who, at the time of grant, posseses more than
10% of the total voting power of all classes of stock, the options granted shall
be exercisable no more than 5 years from the date of grant. Options generally
may be exercised only if the optionee remains continuously associated with Tech
Labs from the date of grant to the date of exercise. However, options may be
exercised upon termination of employment or upon death of any employee within
certain specified time periods.
CERTAIN 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.
-23-
On December 11, 1996, we agreed to compensate our president, Bernard M.
Ciongoli, and our vice president, Earl M. Bjorndal, for unpaid salary earned
during 1996 in the form of common stock. Mr. Ciongoli received 280,000 shares
for unpaid salary earned in the amount of $14,000 at $0.05 per share, and Mr.
Bjorndal received 160,000 shares for unpaid salary earned in the amount of
$8,000 at $0.05 per share.
In December, 1996, we issued to Louis Tomasella 100,000 shares of common
stock for consulting services.
In April, 1997, we formed Tech Logistics, Inc., a joint venture subsidiary
with Carmine O. Pellosie, Jr., for which he received 25,000 shares of Tech Labs'
stock for his expertise and to give him a proprietary interest in Tech Labs.
Tech Logistics was formed to market security devices distributed by
International Logistics, Inc., a privately-owned company, of which Mr. Pellosie
was the president and principal shareholder. Mr. Pellosie became a director of
Tech Labs at that time. In May 1998, we acquired Mr. Pellosie's interest in Tech
Logistics, Inc. for 15,000 shares of our common stock.
Each of these transactions were on terms as fair as those obtainable from
independent third parties.
-24-
PRINCIPAL STOCKHOLDERS
The following table describes, as the date of this prospectus and as
anticipated following this offering, the ownership of the presently issued and
outstanding shares of our common stock by:
o persons known to us to own more than 5% of such stock, and
o the ownership of common stock by our directors, and by all officers
and directors as a group.
Number of
Shares Owned % of Shares % of Shares
Beneficially Prior to Outstanding After
Name and of Record Offering Offering
- ---- ------------- -------- --------
Minimum Maximum
------- -------
Bernard M. Ciongoli 820,000 20.76% 20.98% 19.99%
Earl Bjorndal 248,344 6.71% 6.35% 6.05%
Carmine O. Pellosie, Jr. 40,000 1.10% 1.02% 0.98%
Louis Tomasella 120,000 3.33% 3.07% 2.95%
Richard J. Rice 80,000 2.19% 2.05% 1.95%
All officers and directors as a 1,308,344 34.09% 33.47% 31.90%
group (5 persons)
o The information for Mr. Ciongoli includes 100,000 shares issuable upon the
exercise of immediately exercisable options granted under our stock option
plan and 200,000 shares issuable upon exercise of options earned under our
employment agreement with Mr. Ciongoli.
o The information for Mr. Bjorndal includes 50,000 shares issuable upon the
exercise of immediately exercisable options granted under our stock option
plan.
o The information for Mr. Pelosie does not include 20,000 shares issuable
upon the exercise of options granted upon our stock option plans, which
options are not exercisable until July 2000.
o The information as to all officers and directors as a group also includes
20,000 shares issuable upon the exercise of immediately exercisable options
granted under our stock option plan.
PLAN OF DISTRIBUTION
We will receive proceeds from the sale of 451,613 shares, aggregating a
maximum of $3,500,000, before deducting offering expenses, if all such shares
are sold. We will not receive the proceeds of any sale of the securities by any
selling securityholders, but will receive proceeds upon exercise of warrants
held by the selling security holders. We will pay all of the expenses incident
to the registration of the securities, including registration pursuant to the
securities laws of certain states, other than:
o commissions,
o expenses,
o reimbursements,
o and discounts of underwriters, dealers, and agents, if any, pursuant
to any sales by the selling securityholders.
-25-
We may use one or more member firms of the National Association of
Securities Dealers, Inc. to sell the shares. As of the date of this prospectus,
we have not entered into any agreements or arrangements for the sale of the
shares with any broker, dealer, or sales agent. Any underwriters, dealers, or
agents who participate in the distribution of the shares may be deemed to be
"underwriters" under the Securities Act of 1933, and any discounts, commissions,
or concessions received by any such underwriters, dealers, or agents may be
deemed to be underwriting discounts and commissions. We anticipate that we will
pay a commission or underwriting fee to such brokers or dealers of no more than
10%.
If, at some time, we meet the requirements of the NASDAQ SmallCap Market
for listing of our shares, we will apply for listing. If our shares should be
accepted for listing on the SmallCap Market, then certain underwriters may
engage in passive market making transactions in our common stock in accordance
with Rule 103 of Regulation M.
In order to comply with the applicable securities laws, if any, of certain
states, the securities will be offered or sold in such states through registered
or licensed brokers or dealers in those states. In addition, in certain states,
the securities may not be offered or sold unless they have been registered or
qualified for sale in such states or an exemption from such registration or
qualification requirement is available and with which we have complied.
Minimum offering and escrow account
All funds received by us with respect to the sale of the first 258,065
shares will be deposited by us at Hudson United Bank. If a minimum of 258,065
shares offered for sale in our direct participation offering are not sold within
ninety (90) days following the effective date of the registration statement of
which this prospectus is a part, the offering will automatically terminate and
all funds received from the sale of the shares will be returned to the
purchasers without interest. At the time that 258,065 shares have been sold
prior to the expiration of the 90-day period, we will release the funds from the
escrow account for deposit into the working account of Tech Labs. Although we
will continue to sell the offering to attempt to reach the maximum offering of
451,613 shares, subscribers' funds will continue to be deposited in escrow to
permit a determination to be made that subscribers are resident in those
jurisdictions where Tech Labs is authorized to sell shares.
Any funds deposited in escrow after the sale of 258,065 shares, will be
released from time to time up to the 90th day following the effective date of
the registration where it has been determined that the subscribers are resident
in jurisdictions where Tech Labs is authorized to sell its shares. All released
funds will be used as described in the prospectus.
Subscription Agreement
Any one who desires to purchase shares must complete and execute the
subscription agreement included as an exhibit to this registration statement and
provide it to Tech Labs, together with payment in full for the shares. Tech Labs
is not obligated to accept any subscription agreement and reserves the right to
reject any subscription in whole or in part. Any subscription agreement from a
subscriber who is resident in a jurisdiction where Tech Labs is not authorized
to offer and sell its shares will be rejected. In addition, any subscription
which is not accompanied by a completed and signed subscription agreement will
be rejected.
Direct participation offering
This offering is a direct participation offering. No underwriter has been
retained by Tech Labs to sell these securities. As president of Tech Labs,
Bernard M. Ciongoli will sell these shares.
Limited state registration
We anticipate that we will primarily sell the shares in a limited number of
states, depending on the location and registration of any selling broker or
dealer that it locates. We will initially seek to qualify or register the sales
of the shares in the states of New York, New Jersey, Connecticut, California,
Pennsylvania, Michigan and Texas. We will not accept subscriptions from
investors resident in other states unless we effect a registration in that state
or determine that no such registration is required.
Sales by the selling securityholders
The selling securityholders shares may be sold to purchasers from time to
time directly by and subject to the discretion of the selling securityholders.
The selling securityholders may, from time to time, offer their securities for
sale through underwriters, dealers, or agents, who may receive compensation in
the form of underwriting discounts, concessions, or commissions from the selling
securityholders and/or the purchasers of the securities for whom they may act as
agents.
Any underwriters, dealers, or agents who participate in the distribution of
the securities may be deemed to be "underwriters" under the 1933 Act, and any
discounts, commissions, or concessions received by any such underwriters,
dealers, or agents may be deemed to be underwriting discounts and commissions
under the 1933 Act. The securities sold by the selling securityholders may be
sold from time to time in one or more transactions at an offering price that is
fixed or that may vary from transaction to transaction depending upon the time
of sale or at prices otherwise negotiated at the time of sale. Such prices will
be determined by the selling securityholders or by agreement between the selling
securityholders and any underwriters.
-26-
Any underwriters, dealers, or agents who participate in the distribution of
the securities may be deemed to be "underwriters" under the Securities Act, and
any discounts, commissions, or concessions received by any such underwriters,
dealers, or agents may be deemed to be underwriting discounts and commissions
under the Securities Act.
At the time a particular offer is made by or on the behalf of the selling
securityholders, a prospectus, including any necessary supplement thereto, will
be distributed which will set forth the number of shares of common stock and
other securities being offered, and the terms of the offering, including the
name or names of any underwriters, dealers, or agents, the purchase price paid
by any underwriter for the shares purchased from the selling securityholders,
any discounts, commissions and other items constituting compensation from the
selling securityholders, any discounts, commissions, or concessions allowed,
reallowed, or paid to dealers, and the proposed selling price to the public.
Use of a Broker-Dealer
If we determine to use a broker-dealer, such broker-dealer must be a member
in good standing of the National Association of Securities Dealers, Inc. and
registered, if required, to conduct sales in those states in which it would sell
the shares. We anticipate that we would not pay in excess of 10% as a sales
commission for any sales of the shares.
If a broker-dealer were to sell the shares, it is likely that such
broker-dealer would be deemed to be an underwriter of the securities as defined
in Section 2(11) of the Securities Act of 1933 and we would be required to
obtain a no-objection position from the National Association of Securities
Dealers, Inc. regarding the underwriting and compensation terms entered into
between Tech Labs and such potential broker-dealer. In addition, we would be
required to file a post-effective amendment to the registration statement of
which this prospectus is a part to disclose the name of such selling
broker-dealer and the agreed underwriting and compensation terms. In order to
comply with the applicable securities laws, if any, of certain states, the
securities will be offered or sold in such states through registered or licensed
brokers or dealers in those states.
Pursuant to Regulation M of the General Rules and Regulations of the
Securities and Exchange Commission, any person engaged in a distribution of
securities, including on behalf of a selling securityholder, may not
simultaneously bid for, purchase or attempt to induce any person to bid for,
purchase, or attempt to induce any person to bid for or purchase securities of
the same class for a period of five business days prior to the commencement of
such distribution and continuing until the selling securityholder, or other
person engaged in the distribution, is no longer a participant in the
distribution.
We may select dealers who are members of the National Association of
Securities Dealers, Inc. to sell the shares, and may pay commissions of up to
[10]% to such dealers. No underwriter or dealer has made any firm commitment to
purchase or sell any of the shares offered hereby.
-27-
OFFERING BY SELLING SECURITYHOLDERS
An additional 90,045 outstanding shares and 50,000 shares of common stock
issuable upon exercise of warrants held by the selling securityholders have been
registered pursuant to the registration statement under the Securities Act, of
which this prospectus forms a part, for sale by such holders. The shares may be
sold subsequent to the effective date of the offering if a current prospectus
relating to the securityholder shares is in effect and the securityholder shares
are qualified for sale. None of the shares being registered by the selling
securityholders pursuant to this registration statement are being offered for
sale in connection with the offering. The shares of common stock and the shares
underlying any warrants are not, however, subject to a lock-up.
We will not receive any proceeds from the market sales of the
securityholder shares, although we will receive the proceeds from the exercise
of the warrants held by the selling securityholders. Tech Labs is paying all
costs and expenses of registering the securityholder shares. Sales of the
securityholder shares or the potential of such sales could have an adverse
effect on the market price of our common stock.
The selling securityholders and the number of shares held by each are as
listed below:
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
----------------------- ------
Scott Coby.................................................... 45,045
Coby Capital Corporation...................................... 50,000
David Harris.................................................. 45,000
--------
TOTAL..................................................... 140,045
There are no other material relationships between any of the selling
securityholders and Tech Labs, nor have any such material relationships existed
within the past three years.
The sale of the securityholder shares may be effected from time to time in
transaction, which may include block transactions, in:
o the over-the-counter market;
o in negotiated transactions; or
o a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
Selling securityholders may effect such transactions by selling their
securities directly to purchasers
o through broker-dealers acting as agents; or
o to broker-dealers who may purchase shares as principals and thereafter
sell the securities from time to time in the market in negotiated
transactions or otherwise.
The selling security holders have been advised that the shares may only be
sold in New Jersey through a registered broker-dealer or in reliance upon an
exemption from registration.
Broker-dealers, if any, may receive compensation in the form of discounts,
commissions, or concessions and/or the purchasers from whom such broker-dealers
may act as agents or to whom they may sell as principals or otherwise, which
compensation as to a particular broker-dealer may exceed customary commissions.
-28-
At the time a particular offer of securityholder shares is made by or on
behalf of a selling securityholder, to the extent required, a prospectus will be
distributed that will set forth the number of securityholder shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers, or agents, if any, the purchase price paid by any
underwriter for any securityholder shares purchased from the selling
securityholder, and any discounts, commissions, or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
If any of the following events occurs, this prospectus will be amended to
include additional disclosure before offers and sales of the securityholder
shares are made:
o To the extent such securities are sold at a fixed price or by option
at a price other than the prevailing market price, such price would be
set forth in this prospectus;
o If the securities are sold in block transactions and the purchaser
wishes to resell, such arrangements would be described in this
prospectus;
o If the compensation paid to broker-dealers is other than usual and
customary discounts, commissions, or concessions, disclosure of the
terms of the transaction would be included in this prospectus.
This prospectus would also disclose if there are other changes to the
stated plan of distribution, including arrangements that either individually or
as a group would constitute an orchestrated distribution of the securityholder
shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of securityholder shares may not simultaneously
engage in market making activities with respect to any securities of Tech Labs
for a period of at least two (and up to nine) business days prior to the
commencement of such distribution. In addition, each selling securityholder
desiring to sell securityholder shares will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of the purchases and sales of shares of Tech Labs' securities by such
selling securityholders.
The selling securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.
-29-
SHARES ELIGIBLE FOR FUTURE SALE
If we sell the maximum number of shares in this offering, we will have
4,102,273 common shares outstanding. Other than shares sold to affiliates of
Tech Labs, the shares sold in this offering will be freely tradeable without
restriction under the Securities Act of 1933. Of the 3,650,660 shares of common
stock currently outstanding, 2,368,266 are freely tradeable without restriction
under the Act. The remaining 1,282,394 shares held by existing shareholders are
deemed "restricted" securities within the meaning of Rule 144 under the Act.
In general, under Rule 144, restricted securities held by any person who is
not an affiliate of the company and who has beneficially owned his or her shares
for at least two years are freely tradeable. In addition, under Rule 144, a
person who has beneficially owned restricted securities for at least one year,
including persons who may be deemed "affiliates" of the company, as the term
affiliate is defined in Rule 144, would be entitled to sell, within any
three-month period, a number of common shares of which does not exceed the
greater of 1% of our then outstanding common shares or the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission under Rule 144.
No sales are permitted, however, unless the current information about Tech
Labs prescribed by Rule 144 is publicly available, sales are made through
brokers or market makers in the manner prescribed by the rule, and all other
requirements of the rule are met. The restricted shares outstanding have been
held for varying periods of time, and certain of such shares have been held for
the requisite periods and may be sold at any time subject to the volume
limitations set forth above. If there are significant sales of our common shares
by existing shareholders or sales of any of the shares underlying warrants when
such shares have been registered pursuant to an effective registration
statement, the price of our common shares may go down.
There is presently no agreement by any holder, including our "affiliates",
of "restricted" shares not to sell his shares.
The Securities and Exchange Commission has adopted Rule 15g-9 which
requires broker-dealers who recommend "penny stocks" to persons other than
established customers and accredited investors to make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale.
The regulations that generally define a "penny stock" to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include an equity security listed on NASDAQ
and an equity security issued by an issuer that has:
o net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years;
o net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or
o average annual revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith.
After receipt of the net proceeds from this offering, our net tangible
assets are expected to exceed $2,000,000, providing an exception to this
regulation even though our share price is below $5.00, so this regulation should
not be applicable, initially, to our shares. If our net tangible assets fall
below $2,000,000 and the market price of our shares is less than $5.00 per
share, then this regulation will apply. If our securities were subject to the
regulations applicable to penny stocks, the market liquidity for the securities
would be severely affected by limiting the ability of broker-dealers to sell the
securities and the ability of purchasers in this offering to sell their
securities in the secondary market. There is no assurance that trading in our
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
There is a very limited market for our common stock and a more substantial
market may not develop in the future; or if developed, be maintained, or that
the market price of our common stock will not decline. Even if a more active
trading market does develop, the market price of our common stock is likely to
be highly volatile and could be subject to wide fluctuations in response to
factors such as:
o actual or anticipated variations in our quarterly operating results;
o announcements of new product or service offerings;
o future technological innovations;
o new commercial products;
o changes in regulation;
o changes in financial estimates by securities analysts;
o conditions and trends in the electrical, electronic component,
security, and network switching industries;
o changes in the economic performance and/or market valuations of other
security and network switching companies; and
o general market conditions and other general factors.
Furthermore, the stock markets, and in particular, the OTC Bulletin Board
and NASDAQ stock markets, have experienced extreme price and volume fluctuations
that have particularly affected the market prices of many technology companies,
and have often been unrelated or disproportionate to the operating performance
of such companies. Additionally, the market price of our common stock could be
adversely affected by losses and other negative news regarding one or more other
companies, despite the fact that such information is not related to us
specifically. The trading prices of many technology companies' stocks are at or
near their historical highs. Such high trading prices may not be sustained.
These broad market factors may adversely affect the market price of our common
stock. In addition, general economic, political, and market conditions, such as
recessions, changes in interest rates, or international currency fluctuations,
may adversely affect the market price of our common stock.
-30-
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 5,000,000 shares of common stock
having a par value of $.01 each, of which 3,650,660 shares are currently
outstanding and 11,316 shares are held in treasury. There are currently
approximately [___] holders of common stock.
Common Stock
Each share of common stock is entitled to one vote on all matters submitted
to a vote of shareholders. The common stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares may
elect all of the directors of Tech Labs. The common stock does not have any
preemptive rights. Stockholders holding a majority of the voting power of the
capital stock issued and outstanding and entitled to vote, represented in person
or by proxy, are necessary to constitute a quorum at any meeting of our
stockholders, and the vote by the holders of a majority of such outstanding
shares is required to effect certain fundamental corporate changes such as
liquidation, merger or amendment of our certificate of incorporation.
Holders of common stock are entitled to receive dividends pro rata based on
the number of shares held, when, as and if declared by the board of directors,
from funds legally available therefor. In the event of the liquidation,
dissolution or winding up of the affairs of our company, all assets and funds of
our company remaining after the payment of all debts and other liabilities shall
be distributed, pro rata, among the holders of the common stock. Holders of
common stock are not entitled to preemptive, subscription, or conversion rights,
and there are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares of common
stock offered hereby will be when issued, fully paid and non-assessable.
Stock Options and Stock Option Plan
We have outstanding options to consultants and third parties:
o to purchase 50,000 shares exercisable for five years at $1.85 per
share,
o to purchase 75,000 shares exercisable for five years at $1.12 per
share,
o to purchase 200,000 shares exercisable for two years, as to 100,000
shares at $1.25 per share and as to 100,000 shares at $1.75 per share,
and
o to purchase 50,000 shares exercisable for five (5) years from date of
vesting at $1.25 per share.
o to purchase 25,000 shares exercisable until February 6, 2000 at $3.00
per share
Tech Labs has granted options to purchase 300,000 shares exercisable at
$.50 per share pursuant to an employment agreement with our president, 200,000
options of which have vested and the remaining 100,000 options to vest on
October 1, 2000.
We have also adopted a stock option plan for officers, directors, and other
key employees. A total of 450,000 shares have been reserved for issuance under
the plan, and options for an aggregate of 190,000 shares, exercisable at $.50
per share, have been granted to date.
We issued 50,000 shares of common stock to MPX pursuant to our consulting
agreement. Pursuant to the consulting agreement dated March 10, 1999 with Mint,
in addition to the options set forth above, we issued an aggregate of 100,000
shares.
-31-
Market Information
Our common stock is listed on the OTC Electronic Bulletin Board under the
symbol "TCHL-BB." Trading in the common stock has historically been very
limited.
Transfer Agent
The transfer agent for our common stock is Interwest Transfer Co., Inc., P.
O. Box 17136, Salt Lake City, Utah 84117.
LEGAL MATTERS
The validity of the common stock offered in this offering will be passed
upon for us by Stursberg & Veith, 405 Lexington Avenue, New York, New York
10174, the partners of which law firm own options to purchase 75,000 shares.
EXPERTS
Charles J. Birnberg, CPA, independent auditors, have audited our financial
statements at December 31, 1998, for the years ended December 31, 1997 and 1998,
as set forth in their report. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on Charles J.
Birnberg's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, with the Securities and Exchange Commission with respect to the
common stock offered pursuant to this prospectus. This prospectus, which forms a
part of the registration statement, does not contain all of the information
included in the registration statement and any of its amendment and the
exhibits, which are available for inspection without charge, and copies of which
may be obtained at prescribed rates, at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
the Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission maintains a Website at www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
INFORMATION NOT REQUIRED IN PROSPECTUS
We will provide, without charge, to each person who received a prospectus,
upon written or oral request of such person to us at the mailing address or
telephone number listed below, a copy of any of the information incorporated by
reference. The mailing address of our principal executive offices is Tech
Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508, (973)
427-5333.
-32-
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Charles J. Birnberg, CPA Independent Auditors.....................F-1
Audited Financial Statements
Balance Sheets.........................................................F-2, F-3
Statement of Shareholders' Equity ..........................................F-4
Statements of Operations....................................................F-5
Statements of Cash Flows....................................................F-6
Notes to Financial Statements...............................................F-7
REPORT OF INDEPENDENT AUDITORS
Charles J. Birnberg, CPA
150 Overlook Avenue
Hackensack, New Jersey 07601
March 16, 1999
To The Board of Directors of Tech Laboratories, Inc.
I have audited the Balance Sheets of Tech Laboratories, Inc. as of December
31, 1997 and 1998 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, 1998 and 1997
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, 1997 AND 1998
ASSETS
Years Ended Nine Months Ended
December 31 September 30,
------------------------------ ------------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(Unaudited)
Current Assets:
Cash $ 166,173 $ 532,780 $ 101,490 $ 212,348
Marketable Securities, at the Lower of
Cost or Market (Note 1) 59,343 56,693 59,693 61,923
Accounts Receivable, net of Allowance
of $10,000 in 1998 and $10,000 in 1997 90,734 143,462 85,338 150,359
Inventories (Notes 1 & 2) 269,209 270,118 170,560 788,586
Prepaid Expense 0 3,357 2,570 5,668
---------- ---------- ---------- ----------
Total Current Assets $ 585,459 $1,006,410 $ 419,651 $1,218,884
---------- ---------- ---------- ----------
Property, Plant and Equipment, at Cost (Note 1):
Leasehold Improvements 2,247 2,247 2,247 2,247
Machinery, Equipment and Instruments 223,884 230,137 230,137 340,337
Furniture and Fixtures 67,425 67,425 67,425 67,574
---------- ---------- ---------- ----------
$ 293,556 $ 299,809 $ 299,809 $ 410,158
Less: Accumulated Depreciation & Amortz 281,029 299,162 299,162 299,162
---------- ---------- ---------- ----------
Net, Property, Plant and Equipment $ 12,527 $ 647 $ 647 $ 110,996
---------- ---------- ---------- ----------
Other Assets $ 11,540 $ 11,540 $ 11,540 $ 11,540
---------- ---------- ---------- ----------
Total Assets $ 609,526 $1,018,597 $ 431,838 $1,341,420
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
F-2
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31 SEPTEMBER 30
--------------------------------- -------------------------------
1997 1998 1998 1999
----------- ----------- ------------- -----------
(Unaudited)
Current Liabilities:
Current Portion of L.T. Debt (Note 5) $ 34,445 $ 32,742 $ 32,742 $ 30,293
Short-Term Loans Payable
to officers and directors (Note 6) 43,373 43,373 43,373 43,373
Accounts Payable 48,148 42,155 8,000 189,025
Other Liabilities & Investor Notes Payable 53,945 36,600 20,197 77,938
----------- ----------- ----------- -----------
Total Current Liabilities $ 179,911 $ 154,870 $ 104,312 $ 340,629
----------- ----------- ----------- -----------
Stockholders' Investment:
Common Stock. $.01 Par Value;
5,000,000 Shares Authorized; 2,869,943
Issued (Note 7) $ 13,753 $ 23,483 14,741 35,870
Less: 11,316 Shares Reacquired and
and Held in Treasury (113) (113) (113) (113)
----------- ----------- ---------- -----------
$ 13,640 $ 23,370 14,628 35,757
Common Stock Subscribed (Note 7) 0 500 0 -0-
Capital Contributed in Excess of Par Value 721,847 1,315,833 908,859 1,828,346
Retained Earnings 0 0 0 0
Accumulated Deficit (306,372) (475,476) (595,961) (863,312)
----------- ----------- ---------- -----------
$ 429,615 $ 863,727 $ 327,526 $ 1,000,791
----------- ----------- ---------- -----------
Total Liabilities and Stockholders'
Investment $ 609,526 $ 1,018,597 $ 431,838 $ 1,341,420
=========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements
F-3
TECH LABS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS 1997, 1998 AND
NINE MONTHS ENDED SEPTEMBER, 1999
COMMON STOCK
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFECIT TOTAL
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1996 1,101,532 $ 9,189 $ 317,585 $ (32,303) $ 294,471
STOCK ISSUED -- 4,451 404,262 408,713
STOCK SUBSCRIBED -- 500 500
NET INCOME/
(LOSS) (274,069) (274,069)
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1997 1,546,632 $ 14,140 $ 721,847 $ (306,372) $ 429,615
STOCK ISSUED 1,323,311 9,230 593,986 603,216
NET INCOME/(LOSS) (169,104) (169,104)
----------- ----------- ----------- ----------- -----------
BALANCE
DECEMBER 31, 1998 2,869,943 $ 23,370 $ 1,315,833 $ (475,476) $ 863,727
STOCK ISSUED 705,717 12,387 512,513 524,900
NET INCOME/(LOSS) (387,836) (387,836)
----------- ----------- ----------- ----------- -----------
BALANCE
SEPTEMBER 30, 1999 3,575,660 $ 35,757 $ 1,828,346 $ (863,312) $ 1,000,791
F-4
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1998
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31 SEPTEMBER 30
----------------------------- -----------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(Unaudited)
Sales $ 444,322 $ 552,486 $ 341,352 $ 535,160
--------- --------- --------- ---------
Costs and Expenses:
Cost of Sales 446,457 386,425 317,702 374,612
Selling, General and Administrative
Expenses 265,104 329,849 306,352 548,384
--------- --------- --------- ---------
711,561 716,274 624,054 922,996
--------- --------- --------- ---------
Income/(Loss) From Operations ($267,239) ($163,788) (282,702) (387,836)
--------- --------- --------- ---------
Other Income (Expenses):
Interest Income $ 166 $ 1,654 83 0
Interest Expense (6,996) (6,970) (6,970) 0
--------- --------- --------- ---------
($ 6,830) ($ 5,316) (6,887) 0
--------- --------- --------- ---------
Income/(Loss) Before Income Taxes ($274,069) ($169,104) (289,589) (387,836)
Provision for Income Taxes (Notes 1 & 4) 0 0 0 0
--------- --------- --------- ---------
Net Income/(Loss) ($274,069) ($169,104) (289,589) (387,836)
Retained Earnings/(Accum. Deficit,) Beg. of Period ($ 32,303) ($306,372) (306,372) (475,476)
--------- --------- --------- ---------
Retained Earnings/(Accum. Deficit,) End of Period ($306,372) ($475,476) ($595,961) ($863,312)
========= ========= ========= =========
Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.10) ($ 0.14)
The accompanying notes are an integral part of these financial statements
F-5
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31 SEPTEMBER 30
----------------------------- ---------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(Unaudited)
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ($274,069) ($169,104) ($289,589) ($387,836)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) 7,278 11,880 11,880 0
Unrealized (Gain)/ Loss on Valuation of
Marketable Securities (Note 1) 0 3,357 0 0
Changes in Operating Assets and Liabilities:
Marketable Securities (35,001) (2,650) (350) (5,230)
Accounts Receivable 2615 (52,728) 5,396 (6,897)
Inventories 22,665 (909) 98,649 (518,468)
Accounts Payable (7,925) (40,249) (40,148) 146,870
Other Assets and Liabilities 15,862 14,997 (36,318) 39,027
--------- --------- --------- ---------
Net Cash Flows For Operating Activities ($252,725) ($235,406) (250,480) (732,534)
--------- --------- --------- ---------
Cash Flows From (For) Investing Activities:
DynatraX Machinery & Equipment $ 0 $ 0 0 (110,349)
--------- --------- --------- ---------
Net Cash Flows From Investing Activities $ 0 $ 0 0 (110,349)
--------- --------- --------- ---------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of S.T. Debt ($ 10,000) ($ 1,703) (1,703) (2,449)
Acquisition/(Repayment) of L.T. Debt 0 0 0 0
Issuance of Common Stock 407,500 603,716 187,500 524,900
--------- --------- --------- ---------
Net Cash Flows From (For) Financing Activities: $ 397,500 $ 602,013 185,797 522,451
--------- --------- --------- ---------
Net Increase/(Decrease) in Cash $ 144,775 $ 366,607 (64,683) (320,432)
Cash Balance, Beginning of Year 21,398 166,173 166,173 532,780
--------- --------- --------- ---------
Cash Balance, End of Year $ 166,173 $ 532,780 $ 101,490 $ 212,348
========= ========= ========= =========
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, 1997 AND 1998
(1) Summary of Significant Accounting Policies
CASH - Includes Tech Lab's checking account at Hudson United Bank. There
are no Cash Equivalents.
ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to
customers. The allowance for bad debts is accrued based on a review of customer
accounts receivables aging.
INVENTORIES - Inventories are valued at cost or market, whichever is lower.
The FIFO cost method is generally used to determine the cost of the inventories.
At December 31, 1997 and 1998 physical inventories were taken and tested.
PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
ASSETS ESTIMATED USEFUL LIVES
Machinery 5 to 7 years
Furniture & Fixtures 5 to 7 years
Maintenance and repairs are charged to expense as incurred. The cost of
betterments is capitalized and depreciated at appropriate rates. Upon retirement
or other disposition of property items, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in the statement of
income.
INCOME TAXES - Income tax expense is based on reported income and deferred tax
credit is provided for temporary differences between book and taxable income.
MARKETABLE SECURITIES - The marketable securities are recorded at the lower of
cost or market. The cost of securities was $59,343 at December 31, 1997 and
$56,693 at December 31, 1998.
(2) Inventories:
Inventories at December 31, 1997 and 1998 were as follows:
1997 1998
---- ----
Raw Materials & Finished Components $231,202 $202,359
Work in Process & Finished Goods 38,007 67,759
-------- --------
$269,209 $270,118
-------- --------
(3) Income/(loss) Per Share:
Income/(loss) per share was calculated on the weighted average number of shares
outstanding during the year ended December 31, 1997 of 1,550,048 and during the
year ended December 31, 1998 of 2,202,905.
(4) Income Taxes:
At December 31, 1997 and 1998, the balance of operating loss carryforward was
$1,049,903 and $1,219,007, respectively, which can be utilized to offset future
taxable income.
(5) Short-Term Loans Payable:
Loans payable to banks were as follows for the years indicated:
CURRENT NON-CURRENT
YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
- ---------- ----- ------------- ------ ------
1997 Hudson United Bank Prime +1.5% $34,445 --
1998 Hudson United Bank Prime +1.5% $32,742 --
Certain marketable securities are pledged as collateral on the above loan.
(6) Short-Term Loans Payable to Officers and Directors:
Demand loans payable include loans from stockholders, officers and members of
the Board of Directors. The outstanding loan balances due as of December 31,
1997, 1998 and September 30, 1999 was $43,373 for each of such years. The annual
interest rate for these loans ranged between six (6%) percent and ten (10%)
percent. One loan in the principal amount of $11,500 together with accrued
interest of $3,604 at December 31, 1998 is secured by the assets of Tech Labs.
(7) Common Stock
In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of
common stock.
In 1997 and 1998, Tech Labs completed a placement pursuant to Rule 504 of common
stock which raised $917,324.
(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) Subsequent Events
On April 27, 1999, Tech Labs completed the purchase of existing inventories
and test equipment of the discontinued DynaTraX(TM) Product Line from NORDX/CDT
for $500,000. In accordance with the purchase price method of accounting, the
purchase price for the assets referenced above was allocated to the assets
acquired on the basis of preliminary fair market values, which may be revised at
a later date. Results subsequent to the date of acquisition will be included in
Tech Lab's financial statements. Had the results of the DynaTraX acqusition been
included in our consolidated statements for 1997, 1998 and 1999, the effect
would have been material.
Year Ended Nine Months Ended
DynaTraX December 31, September 30,
(Unaudited) 1998 1999
----------- ----------- -----------
Net Sales $ 400,000 $ 100,000
Cost of Sales 300,000 20,000
----------- -----------
Gross Profit 100,000 80,000
Research/Dev 900,000 -0-
Selling & G&A Exp 1,700,000 50,000
----------- -----------
Pre-Tax Inc./(Loss) $(2,500,000) $ 30,000
Income Tax (Expense)/
Benefit-Pro-Forma 1,150,000 -0-
----------- -----------
Net Income/(Loss) $(1,350,000) $ 30,000
----------- -----------
Investment Purchase
(Unaudited) Price*
---------- -----------
Inventory 2,700,000 $ 400,000
Test Equip. 355,000 100,000
----------- -----------
Total 3,055,000 500,000
=========== ===========
* Included in September 30, 1999 Tech Labs balance sheet.
Effect on (Unaudited)
Tech Labs, Inc. Year Ended Nine Months Ended
(Pro-Forma) December 31, 1998 September 30, 1999
----------------- -----------------
Net Sales $ 952,486 $ 535,160
Net Income/(loss) (1,519,104) $ (387,836)
----------- -----------
EPS $ (0.54) $ (0.14)
=========== ===========
(10) Subsequent Events
On October 25, 1999, Tech Labs borrowed $50,000 at 10% interest per year
for a term of 60 days. As security, Tech Labs granted the lender a secured
interest in two new contract orders totaling $543,000.
In late December, 1999, Tech Laboratories, Inc. extended the maturity date
of this loan to January 28, 2000 and increased the interest to 14% per
annum. Also, in late 1999 Tech Laboratories, Inc. borrowed an additional
$150,000 at 10% interest in a series of three $50,000 notes. Maturity date
for unsecured notes is February 13, 2000, February 15, 2000 and February
25, 2000 respectively.
F-6
____________________, 2000
TECH LABORATORIES, INC.
1,000,000 Shares of Common Stock
------------------------------------
PROSPECTUS
------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson, or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
================================================================================
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY......................................................... 1
RISK FACTORS............................................................... 3
USE OF PROCEEDS............................................................ 8
PRICE RANGE OF COMMON STOCK................................................ 9
DIVIDEND POLICY............................................................ 9
CAPITALIZATION............................................................. 10
DILUTION .................................................................. 11
SELECTED FINANCIAL DATA.................................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 14
BUSINESS .................................................................. 16
MANAGEMENT................................................................. 22
CERTAIN TRANSACTIONS....................................................... 23
PRINCIPAL STOCKHOLDERS..................................................... 25
PLAN OF DISTRIBUTION....................................................... 25
OFFERING BY SELLING SECURITYHOLDERS........................................ 28
SHARES ELIGIBLE FOR FUTURE SALE............................................ 30
DESCRIPTION OF SECURITIES.................................................. 31
LEGAL MATTERS.............................................................. 32
EXPERTS .................................................................. 32
ADDITIONAL INFORMATION..................................................... 32
INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 32
Until_________, 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of Common Stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
Tech Labs is incorporated in New Jersey. Under Section ____ of the
Corporation Law of the State of New Jersey, a New Jersey corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees, and agents in connection with actions, suits, or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees, and agents,
against expenses incurred in any action, suit, or proceeding. The Certificate of
Incorporation and the By-laws of Tech Labs provide for indemnification of
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of New Jersey.
The General Corporation Law of the State of New Jersey provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (a) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (b) for
acts of omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section ____ (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the General Corporation Law of the State of New Jersey, or (d) for any
transaction from which the director derived an improper personal benefit. Tech
Labs's Certificate of Incorporation contains such a provision.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
Filing Fee-- Securities and Exchange Commission $ 1,086
Fees and Expenses of Accountants $ 15,000
Fees and Expenses of Legal Counsel $ 70,000
Blue Sky Fees and Expenses $ 3,500
Printing and Engraving Expenses $ 7,500
Miscellaneous Expenses $ 2,913
Total.................................... $100,000
Recent Sales of Unregistered Securities
As listed below, the Company issued shares of its Common Stock, par value
$.0001 per share, to the following individuals or entities for the consideration
as listed in cash or services. All sales
II-1
made within the United States or to United States citizens or residents were
made in reliance upon the exemptions from registration under the Securities Act
of 1933 as follows:
1. In November 1999 we issued 75,000 shares to Mint Corporation for consulting
services pursuant to our agreement with Mint dated March 10, 1999. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principals of Mint are sophisticated and had complete
access to all relevant information regarding Tech Labs.
2. In June 1999 we issued to Coby Capital Corporation, a consultant to Tech
Labs, options to purchase 50,000 shares at $1.85 per share. The issuance of the
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principal of Coby Capital is accredited and had access
to all relevant information regarding Tech Labs.
3. In June 1999 we sold 90,045 shares to two "accredited" investors for gross
proceeds of $200,000. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
4. In June 1999 we issued 25,000 shares to Mint Corporation for previously
rendered consulting services pursuant to our agreement with Mint dated March 10,
1999. Pursuant to said agreement, Mint was also granted options to purchase
100,000 shares at $1.25 per share and 100,000 shares at $1.75 per share. The
issuance of the shares and options was exempt from Registration under the
Securities Act pursuant to Section 4(2) thereof.
5. In June 1999 we issued 50,000 shares to MPX Network Solutions, Inc. pursuant
to a consulting agreement in exchange for services. The issuance of the shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The principal of MPX is sophisticated and had complete access to all
relevant information regarding Tech Labs.
6. In March 1999 we issued 600 shares to a noteholder in payment of $600 in
interest in lieu of cash, as provided under the terms of the note. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The noteholder purchased the note beteween December 1996
and October 1997 as part of the transaction set forth in transaction No. 15. The
noteholder was sophisticated and had the access to information described in
transaction No. 15.
7. From September 1998 to April 1999, we sold shares of our common stock
pursuant to Rule 504 of Regulation D under the Securities Act to eight investors
who were either sophisticated or "accredited" as that term is defined under Rule
501(a) of Regulation D under the Securities Act. Each investor was given a
private placement memorandum which included financial statements describing Tech
Labs. Each investor also had access to Bernard M. Ciongoli, Tech Labs'
president, and to other pertinent documentation. The offering raised a total of
$443,200.00, $250,000 of which was raised in April 1999.
8. On July 10, 1998, we issued 20,300 shares of common stock for services
rendered by prior counsel to Tech Labs for $22,167.40. The issuance of the
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof. The prior counsel was sophisticated and had complete access to
relevant information regarding Tech Labs.
9. From September 1997 to March 1998, we sold shares of our common stock
pursuant to Rule 504 of Regulation D under the Securities Act to eleven
investors who were either sophisticated or "accredited" as that term is defined
under Rule 501(a) of Regulation D under the Securities Act. Each investor was
given a private placement memorandum, which included financial statements,
describing Tech Labs. Each investor also had access to Mr. Ciongoli and to other
pertinent documentation. The offering raised a total of $665,791.
II-2
10. In December 1998 we issued options to purchase 75,000 shares exercisable at
$1.12 per share to Stursberg & Veith, counsel to Tech Labs, in exchange for
services. The issuance of the options were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. The partners of Stursberg &
Veith are sophisticated and have complete access to all relevant information
regarding Tech Labs.
11. In November 1998 we issued 15,000 shares to Mr. Sal Grisafi in exchange for
consulting services. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof. Mr. Grisafi was a
sophisticated investor and had complete access to all relevant information
regarding Tech Labs.
12. In November 1998 we issued 40,000 shares to Emerson Callahan, a former
director of the company, for consulting services. The issuance of the shares was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. Mr. Callahan was an accredited investor.
13. In November 1998, we issued 25,000 shares to Carmine Pellosie, a director of
the company, for services rendered to Tech Logistics, Inc. The issuance of the
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof. Mr. Pellosie was an accredited investor.
14. In November 1998, we issued 15,000 shares to Carmine Pellosie, a director of
the company, in exchange for his ownership of 20% of Tech Logistics, Inc. a
partly owned subsidiary of our company. The issuance of the shares was exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof.
15. Between December 1996 and October 1997 we sold an aggregate of $217,500
principal amount of 8% convertible notes to eleven purchasers, $75,000 of which
notes were convertible at $.75 per share and $142,500 were convertible at $1.00
per share. The issuance of the notes was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. All the investors were
interviewed by Mr. Ciongoli and determined to be either accredited or
sophisticated. Mr. Ciongoli provided each investor with copies of Tech Labs'
financial statements prior to their investments and were given the opportunity
to ask questions and obtain additional information about Tech Labs.
Exhibits and Financial Statement Schedules
EXHIBIT INDEX
1.1 Subscription Agreement
3.1 Certificate of Incorporation was previously filed.
3.2 By-Laws of Tech Labs was previously filed.
4.1 Form of Common Stock Certificate
5.1 Opinion of Stursberg & Veith
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.
was previously filed.
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli was
previously filed.
10.3 First Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli was previously filed.
10.6 Patent and Trademark assignments were previously filed.
10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX
Network Solutions was previously filed.
10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby
Capital Corporation was previously filed.
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee was
previously filed.
10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between
NORDX/CDT, Inc. and Tech Labs was previously filed.
10.12 Tech Labs Stock Option Plan.
10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby
Capital Corporation was previously filed.
10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and
TravelNet Technologies, Inc. was previously filed.
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 was previously filed.
10.18 Promissory Note dated December 13, 1999 between Tech Labs and Campbell
Steward.
10.19 Promissory Note dated December 15, 1999 between Tech Labs and Herbert
L. Camp, Esq.
10.20 Promissory Note dated December 20, 1999 between Tech Labs and Thomas
McKean, Esq.
21.1 Subsidiaries of the Company*
24.1 Consent of Charles J. Birnberg, CPA, certified public accountants
24.2 Consent of Stursberg & Veith (included in Exhibit 5)
27 Financial Data Schedule
(b) The following financial statement schedules are included in this
Registration Statement:
None.
Undertakings
The undersigned registrant hereby undertakes:
II-3
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement, or the most recent
post-effective amendment thereof, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense
of any action, suit, or proceeding is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof
II-4
SIGNATURES
As required by the Securities Act of 1933, this Offering Statement has been
signed on behalf of the registrant in the City of North Haledon and State of New
Jersey on the 2nd day of February, 2000.
TECH LABORATORIES, INC.
By: /s/ BERNARD M. CIONGOLI
------------------------------
Bernard M. Ciongoli, President
As required by the Securities Act of 1933, this Offering Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bernard M. Ciongoli President, Treasurer, CEO, February 2, 2000
- ----------------------------- CFO, and Director -----------------
Bernard M. Ciongoli
/s/ Earl M. Bjorndal* Vice President and Director February 2, 2000
- ----------------------------- -----------------
Earl M. Bjorndal
/s/ Carmine O. Pellosie, Jr.* Secretary and Director February 2, 2000
- ----------------------------- -----------------
Carmine O. Pellosie, Jr.
/s/ Louis Tomasella* Director February 2, 2000
- ----------------------------- -----------------
Louis Tomasella
/s/ Richard J. Rice* Director February 2, 2000
- ----------------------------- -----------------
Richard J. Rice
By: /s/ Bernard M. Ciongoli
------------------------
Bernard M. Ciongoli
Attorney-in-Fact*
II-5
EXHIBIT INDEX
1.1 Subscription Agreement
3.1 Certificate of Incorporation was previously filed.
3.2 By-Laws of Tech Labs was previously filed.
4.1 Form of Common Stock Certificate
5.1 Opinion of Stursberg & Veith
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.
was previously filed.
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli was
previously filed.
10.3 First Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli was previously filed.
10.6 Patent and Trademark assignments were previously filed.
10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX
Network Solutions was previously filed.
10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby
Capital Corporation was previously filed.
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee was
previously filed.
10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between
NORDX/CDT, Inc. and Tech Labs was previously filed.
10.12 Tech Labs Stock Option Plan was previously filed.
10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby
Capital Corporation was previously filed.
10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation was previously filed.
10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and
TravelNet Technologies, Inc was previously filed.
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 was previously filed.
10.18 Promissory Note dated December 13, 1999 between Tech Labs and Campbell
Steward.
10.19 Promissory Note dated December 15, 1999 between Tech Labs and Herbert
L. Camp, Esq.
10.20 Promissory Note dated December 20, 1999 between Tech Labs and Thomas
McKean, Esq.
21.1 Subsidiaries of the Company*
24.1 Consent of Charles J. Birnberg, CPA, certified public accountants
24.2 Consent of Stursberg & Veith (included in Exhibit 5)
27 Financial Data Schedule