SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended March 31, 2001
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission File Number 000-27592
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TECH LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1436279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
955 Belmont Avenue
North Haledon, NJ
07508
(Address of Registrant's (Zip Code)
principal executive office)
Registrant's telephone number, including area code: (973) 427-5333
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares of Common Stock, par value $.01 per share,
outstanding as of May 11, 2001: 4,392,541.
Tech Laboratories, Inc.
FORM 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 1
Balance Sheets as of March 31, 2000
And 2001 (unaudited)............................................... 1
Statements of Operations --For the Three Months
Ended March 31, 2000 and 2001 (unaudited)........................ 3
Statements of Cash Flows -- For the Three
Months Ended March 31, 2000 and 2001 (unaudited)................. 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 7
PART II. OTHER INFORMATION
Item 5. Other Information.................................................. 7
Signatures......................................................... 8
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECH LABORATORIES, INC.
BALANCE SHEET
MARCH 31, 2000 AND 2001
(UNAUDITED)
ASSETS
2000 2001
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Current Assets:
Cash $ 88,602 $2,150,159
Marketable Securities, at the Lower of
Cost or Market 61,453 69,733
Accounts Recievable, net of Allowance
for Doubtful Accounts of $10,000 251,539 138,360
Inventories 851,126 1,472,570
Prepaid Expenses 4,055 4,055
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Total Current Assets $1,256,775 $3,834,877
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Property, Plant and Equipment, at Cost
Leasehold Improvements 2,247 2,247
Machinery, Equipment and Instruments 379,815 477,340
Furniture and Fixtures 75,899 87,107
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Total Property, Plant & Equipment 457,961 566,694
Less: Accumulated Depreciation & Amortz 314,162 351,673
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Net, Property, Plant and Equipment 143,799 215,021
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Other Assets - Including Public Offering
Escrow Deposits $ 935,301 $ 12,059
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Total Assets $2,335,875 $4,061,957
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The accompanying notes are an integral part of these financial statements.
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TECH LABORATORIES, INC.
BALANCE SHEET
MARCH 31, 2000 AND 2001
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' INVESTMENTS
2000 2001
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Current Liabilities:
Current Portion of Long Term Debt $ 27,727 $ 34,444
Short-Term Loans Payable 243,373 73,789
Accounts Payable 260,277 32,600
Other Liabilities 32,933 47,077
Public Offering Subscribers' Liability 923,761 -0-
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Total Current Liabilities $ 1,488,471 $ 187,910
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Long Term Convertible Notes Payable -0- $ 1,519,755
Stockholders; Investment:
Common Stock $.01 Par Value;
10,000,000 Shares Authorized; 3,650,660
Issued in 2000, 4,019,039 Issued in 2001 36,507 39,493
Less: 11,316 Shares Reacquired and
Held in Treasury (113) (113)
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$ 36,394 $ 39,380
Common Stock Subscribed 75,000 -0-
Capital Contributed in Excess of Par Value 1,816,316 4,060,287
Retained Earnings/ (Accum. Deficit) (1,080,306) (1,745,375)
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$ 847,404 $ 2,354,292
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Total Liabilities and Stockholders'
Equity $ 2,335,875 $ 4,061,957
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The accompanying notes are an integral part of these financial statements.
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TECH LABORATORIES, INC.
STATEMENT OF OPERATIONS
MARCH 31, 2000 AND 2001
(UNAUDITED)
2000 2001
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Sales $ 319,243 $ 206,200
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Costs and Expenses:
Cost of Sales 140,622 160,950
Selling, General and Administrative
Expenses 128,522 246,085
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269,144 407,035
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Income/(loss) from Operations $ 50,099 $ (200,835)
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Other Income (Expenses): -0- 4,520
Income/ (Loss) Before Income Taxes 50,099 (196,315)
Provision for Income Taxes 0 0
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Net Income/ (Loss) 50,099 (196,315)
Retained Earnings/(Accum. Deficit,) Beg. Qtr. (1,130,405) (1,549,060)
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Retained Earnings/(Accum. Deficit), End. Qtr. $(1,080,306) $(1,745,375)
Primary Earnings Per Share $ 0.01 $ (0.05)
Fully Diluted Earnings Per Share $ 0.01 $ (0.04)
The accompanying notes are an integral part of these financial statements.
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TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOW
MARCH 31, 2000 AND 2001
(UNAUDITED)
Cash Flow From (for) 2000 2001
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Operating Activities:
Net Income/ (Loss) From Operations $ 50,099 $(196,315)
ADD/(Deduct) Items
Not Affecting Cash:
Depreciation -0- 7,034
Amortization -0- 63
Changes in Operating
Assets and Liabilities:
Marketable Securities -0- (5,400)
Accounts Receivable (193,842) (44,404)
Inventories (34,423) (185,732)
Prepaid Expenses -0- -0-
Accounts Payable and
Accrued Expenses (68) 361
Other Assets/Liabilities 28,911 67,734
Net Cash Flow from (for) -------- --------
Operating Activities (149,323) (357,020)
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Cash Flows From (For)
Investing Activities -0- (15,744)
Cash Flows From (For) Financing Activities:
Long Term Debt -0- (523)
Issuance of Common Stock -0- -0-
Common Stock Subscriptions 75,000 -0-
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Net Cash Flow From (For)
Finnancing Activities 75,000 (523)
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Net Increase/(Decrease) in Cash (74,323) (373,287)
Cash Balance Beginning of Year 162,925 2,523,446
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Cash Balance End of First Quarter 88,602 2,150,159
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The accompanying notes are an integral part of these financial statements.
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TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2001
(UNAUDITED)
(1) Summary of Significant Accounting Policies
CASH - Includes Tech Labs' checking account at Hudson United Bank and a money
market account at Prudential Securities. 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, 1998, 1999, and 2000 physical inventories were taken and tested.
No physical inventory was taken on March 31, 2001.
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 $64,333 at December 31, 2000 and
$69,733 at March 31, 2001.
(2) Inventories:
Inventories at December 31, 2000, and March 31, 2001 were as follows:
2000 March 31, 2001
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Raw Materials & Finished Components $ 912,358 $ 942,076
Work in Process & Finished Goods 374,480 530,494
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$1,286,838 $ 1,472,570
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(3) Income/(loss) Per Share:
Primary Income/(loss) per share was calculated on the weighted average shares
outstanding. As of March 31, 2001, weighted average shares outstanding were
4,019,039.
Fully Diluted Income/(loss) per share was calculated on the weighted average
shares above plus 1,500,000 shares from the assumed conversion of Convertible
Debt in October, 2000.
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(4) Income Taxes:
Since the Company has an operating loss carry forward of $2,292,591 as of
December 31, 2000, no interperiod tax allocation was made.
(5) Current Portion of Long-Term Debt:
Loans payable to banks were as follows for the periods indicated:
CURRENT NON-CURRENT
PERIOD ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
- -------------- ----- ------------- ------ ------
2000 Hudson United Bank Prime +1.5% $34,444 --
March 31, 2001 Hudson United Bank Prime +1.5% $34,444 --
Certain marketable securities are pledged as collateral on the above loan.
(6) Short-Term Loans Payable
Demand loans payable include loans from stockholders, officers, members of the
Board of Directors and third parties. The outstanding loan balances due as of
December 31, 2000 and March 31, 2001 was $73,789. 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 $7,267 at
December 31, 2000 is secured by the assets of Tech Labs. In October of 1999,
three short-term loans for a total of $200,000 at (10%) ten percent annual
interest were completed. Certain contractural revenues were pledged to secure
this loan. As of December 31, 2000, $150,000 of such loans were repaid and
$50,000 remains outstanding and is due by December 31, 2001.
(7) Common Stock
In 1999, Tech Labs commenced a public offering to raise between $2,000,000
(minimum) and $3,500,000 (maximum). The Company's registration statement filed
on Form SB-2 was declared effective on February 3, 2000. The offering was
completed on May 3, 2000 and a total of $2,273,723 was raised.
(8) Long-Term Convertible Debt
On October 13, 2000 Tech Labs completed a $1.5 million financing of 6.5%
convertible promissory notes due October 13, 2002. Interest is payable quarterly
in cash or in shares of common stock at the option of the noteholders. Tech Labs
disclosed all terms of this financing on Form 8-K filed on October 18, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained in this section should be used in conjunction with the
consolidated Financial Statements and Notes therewith appearing in this report
Form 10QSB and the Company's Annual Report for the year ended December 31, 2000.
Quarter ending March 31, 2001, Compared to Quarter Ending March 31, 2000.
Sales were $206,200 for the first quarter of 2001 as compared to $319,243
for the similar period of 2000. This decrease was due to sales of our DynaTrax
(TM) products being delayed until the second quarter of 2001.
Cost of sales of $160,950 for the first quarter of the year 2001 has been
increased by $20,328 compared to the same period of 2000, primarily due to high
cost rotary switch sales and the delay in shipping low-cost DynaTrax (TM)
products.
Selling, general, and administrative expenses increased by $117,563
compared to the same period in 2000 due to expenses incurred to expand our
markets for our high margin DynaTrax(TM) products plus legal fees incurred to
prepare the Company's Post-Effective Amendment to its Registration Statement
filed on Form SB-2 and initially declared effective on January 22, 2001.
Income from operations of ($196,315) decreased ($246,417) compared to a
profit of $50,099 for the prior period as a direct result of the reasons set
forth above.
Quarter Ending March 31, 2001, Compared to Year Ending December 31, 2000.
SIGNIFICANT CHANGES
In the first quarter of the year 2001, the Company made a significant
operating investment in expanding DynaTrax (TM) markets.
Cash Flow for the first quarter of 2001 was negative ($373,287) as a result
of the operating investment.
ADDITIONAL EVENTS
Under the terms of the agreement the Company entered into with the $1.5
million convertible noteholders, both the Company and the noteholders had the
option, provided the noteholders did not beneficially own more than 9.99% of the
Company's common stock, calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder, to
enter into additional 6.5% convertible notes for a total of $500,000. During the
time period alloted to exercise the option the noteholders beneficially owned in
excess of 9.99% of the Company's stock, and accordingly, the option to exercise
the additional $500,000 convertible notes could not be exercised.
SUBSEQUENT EVENT
On April 30, 2001 the Company announced a plan to buyback up to 200,000
shares of its common stock. The buyback plan provides that the purchases may be
made from time to time at prevailing prices in the open market by block
purchases or in private transactions and may be discontinued at any time. The
repurchases will be funded through available cash. As of the date of this report
the Company has not repurchased any shares.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company filed a Registration Statement on Form SB-2 on November 17,
2000 to register shares of its common stock for the benefit of certain selling
security holders, including the shares underlying the $1,500,000 convertible
notes issued October 13, 2000. The Registration Statement was declared effective
by the Securities and Exchange Commission on January 22, 2001. On April 24, 2001
the Company filed Post-Effective Amendment No. 1 to the Registration Statement
to update the Company's financial and other information. The Post-Effective
Amendment was declared effective on May 7, 2001 by the Securities and Exchange
Commission.
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TECH LABORATORIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH LABORATORIES, INC.
Date: May 15, 2001 By: /s/ Bernard M. Ciongoli
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Bernard Ciongoli
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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