As filed with the Securities and Exchange Commission on July 9, 1999
Registration No.: 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 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. |_|
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum maximum Amount of
Title of each class of Amount to Offering Price aggregate registration
securities to be registered be Registered Per Share offering price(1) fee
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Shares of Common Stock,
par value $.01 per share
("Common Stock") 1,000,000 $3.50 $3,500,000 $973.00
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Shares of Common Stock 90,045 3.50 $315,516 88.20
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Shares of Common Stock 25,000 3.50 $87,500 24.33
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Common Stock, $.01 par
value(2) 50,000 1.85 $92,500 25.72
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(o).
(2) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $1.85 per share. Pursuant to Rule 416,
also includes such additional shares as may be issuable as a result of the
anti-dilution provisions of said warrants.
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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 (i) 1,000,000 shares
of Common Stock, $.01 par value ("Common Stock"), of Tech Laboratories, Inc., a
New Jersey Corporation, for sale by our company in a self-underwritten public
offering, and (ii) 165,045 shares of Common Stock (collectively, the "Selling
Securityholder Shares") for sale by the holders thereof and by the holders of
certain outstanding warrants (collectively, the "Selling Securityholders"), all
for resale from time to time by the Selling Securityholders.
We will amend and complete the information in this Prospectus. Although we are
permitted by US federal securities laws to offer to sell these securities using
this Prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This Prospectus is not an offer to sell these securities
and it is not soliciting your offer to buy these securities in any state where
that would not be permitted or legal.
SUBJECT TO COMPLETION, DATED July 9, 1999
PROSPECTUS
1,000,000 Shares
TECH LABORATORIES, INC.
955 Belmont Avenue
North Haledon, New Jersey 07508
(973) 427-5333
We have just completed the purchase of the DynaTraX(TM) network management
switch and technology, an all digital, high-speed, customer-premise networking
technology. We also currently manufacture and sell various electrical and
electronic components. In the last two years, we have developed and marketed
infrared security and anti-terrorist products under an exclusive license granted
to our company.
We are selling a minimum of 571,428 and a maximum of 1,000,000 shares of
common stock (the "Shares") at a price of $____ per Share, on a "best efforts"
basis. Until we receive and accept subscriptions for the minimum number or
571,428 shares, subscribers' funds will be deposited in escrow with
______________ Bank. If we do not receive subscriptions for the minimum number
of shares within 90 days after the date of this Prospectus, unless we extend the
offering period for up to an additional 90 days, the Offering will be terminated
and all subscribers' funds will be returned promptly, in full, without interest
or deduction. You may not withdraw funds deposited in escrow.
We are also registering 115,090 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
securityholders (the "Selling Securityholders"). We have covenanted to use our
best efforts to keep the Registration Statement of which this Prospectus is a
part effective with the Securities and Exchange Commission in order to permit
such resales, and it is expected that such resales will be made from time to
time on the electronic bulletin board, or otherwise. Such resales are subject to
prospectus delivery and other requirements of the Securities Act of 1933, as
amended (the "Securities Act"). We will not receive any proceeds from the market
sales of the Selling Securityholder shares or the shares of Common Stock
issuable upon exercise of such warrants other than proceeds relating to the
exercise price of such warrants. We are paying all costs and expenses of
registering these shares of Common Stock. See "Offering by Selling
Securityholders."
Our shares of common stock trade on the OTC Bulletin Board under the symbol
"TCHL." On ______ _____________, 1999, 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 4.
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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.
You should only rely on the information incorporated by reference or
provided in this Prospectus or any supplement. We have not authorized anyone
else to provide you with
different information. Our common stock is not being offered in any state where
the offer is not permitted. You should not assume that the information in this
Prospectus or any supplement is accurate as of any date other than the date on
the front of those documents.
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Price to Underwriting Discounts Proceeds to
Public and Commissions the Company(1)
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Per Share.............................. $3.50 $0 $3.50
Total Maximum.......................... $3,500,000 $0 $3,500,000
Total Minimum.......................... $2,000,000 $0 $2,000,000
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(1) Before deducting expenses of the Offering, estimated to be $100,000.
The date of this Prospectus is ____________, 1999
[PICTURES OF IDS AND DYNATRAX]
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
Prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock.
Unless the context indicates otherwise, all references herein to "we" include
Tech Laboratories, Inc. and its wholly-owned subsidiary, Tech Logistics, Inc.,
collectively, and references to "Tech Laboratories" 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."
The Company
We currently manufacture and sell various electrical and electronic
components. On April 27, 1999, we acquired from NORDX/CDT, INC., a subsidiary of
Cable Design Technologies Corp., the DynaTraX(TM) digital matrix switch system,
which is a patented, state-of-the-art, transparent customer-premise, high-speed
network switching system. 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 community campus and building
facilities.
We feel our DynatraX(TM), all digital, high-speed, customer-premise
networking technology will 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, possibly allowing them to realize recurring
revenues and to make their properties more attractive to tenants.
In addition to our DynaTraX(TM) technology, during the last two years,
through our subsidiary, Tech Logistics, Inc., we have been marketing and
manufacturing, 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 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.......................... 1,000,000 shares
Minimum.......................... 571,428 shares
The shares are being offered on a minimum/maximum basis. No shares will be sold
in the Offering unless at least 571,428 shares are sold.
Shares of Common Stock to be Outstanding After the Offering(1):
If Maximum Sold.......... 4,575,660 shares
If Minimum Sold.......... 4,147,088 shares
Current Trading Symbol:
OTC Bulletin Board...... TCHL-BB
Risk Factors.................. For a discussion of risks that you should
consider before buying the Shares, see "RISK
FACTORS."
Use of Proceeds(2)............ Transition of DynatraX(TM) assets, product
development, marketing and sales, completion
of DynatraX(TM) inventory, sales and marketing
for IDS and working capial. See "Use of
Proceeds."
Plan of Distribution.......... The shares will be offered and sold by our
executive officers and directors. We may retain
the services of one or more NASD-registered
broker-dealers as selling agents to effect
offers and sales on our behalf.
Escrow........................ All funds we receive with respect to the sale
of the first 571,428 shares will be deposited
in a special escrow account at a federally
insured national bank. If 571,428 shares are
not sold within ninety (90) days following the
effective date of the Registration Statement of
which this Prospectus is a part (the "Effective
Date"), unless we extend the offering period
for up to an additional ninety (90) days in our
sole discretion, the offering will
automatically terminate and all funds received
from the sale of shares will be returned to the
purchasers thereof.
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(1) Excludes (i) 75,000 shares issuable pursuant to a consulting agreement,
(ii) options to purchase 100,000 shares at $1.25 per share and an
additional 100,000 shares at $1.75 per share pursuant to a consulting
agreement, (iii) options to purchase 50,000 shares exercisable at $1.85 per
share pursuant to a consulting agreement, (iv) options to purchase an
aggregate of 190,000 shares exercisable at $.50 per share granted under our
company's stock option plan for officers and directors, (v) options to
purchase 75,000 shares exercisable at $1.12 per share, and (vi) pursuant to
the employment agreement with our president, options to purchase up to
300,000 shares, 100,000 options of which are vested, with the balance to
vest in 100,000 increments on each of October 1, 1999, and October 1, 2000,
so long as the president is employed, such options to be exercisable at
$.50 per share. See "Management," "Management-- Stock Option Plan" and
"Description of Securities."
(2) Assuming the maximum number of shares offered hereby are sold.
-2-
Summary Financial Information
The summary Consolidated Financial Data provided herein should be read in
conjunction with our financial statements, including the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Prospectus.
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
Notes thereto.
Statement of
Operations Data
Years Ended December 31 March 31
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1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited)
Income Statement Data:
Sales .............................. $647,015 $444,322 $552,486 $86,160 $59,714
Net Income (loss) .................. 49,182 (274,069) (169,104) (96,423) (44,937)
Earnings (loss) per share .......... $0.04 ($0.18) ($0.06) ($0.04) ($0.03)
March 31, 1999
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(unaudited)
Actual Pro Forma(2) As Adjusted(1)(2)
December 31, 1998 ------ ----------- -----------------
Balance Sheet Data ----------------
(unaudited): Minimum Maximum
- ------------ ------- -------
Total Assets ........................ $1,018,597 $1,035,303 $1,604,311 $3,429,311 $4,929,311
Working Capital ..................... 851,540 887,724 1,456,732 3,281,732 4,781,732
Current Portion of Long-Term ........ 32,742 32,742 32,742 32,742 32,742
Debt
Long-Term Debt ...................... 0 0 0 0 0
Shareholders' Equity ................ 863,727 $899,911 $1,468,919 $3,293,919 $4,793,919
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(1) Adjusted to give effect to the sale of shares offered hereby, after
deducting estimated offering expenses.
(2) Gives effect to (i) 278,572 shares of common stock issued for an aggregate
of $250,000; (ii) 90,045 shares of common stock issued for an aggregate of
$200,000 and (iii) 50,000 shares and 25,000 shares of common stock issued
to two of our consultants, respectively.
RISK FACTORS
In addition to other matters described in this document, prospective
investors should carefully consider the following factors:
We have had a History of Limited Sales and Operating Losses.
We have had limited sales and have experienced operating losses. 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,
sales of our products must be made at greatly increased volumes and with
sufficient margins to avoid continued losses. No assurance can be given that we
will be able to sell sufficient quantities of our products with margins great
enough to achieve profitability.
We have a Need for Substantial Additional Capital.
The net proceeds from this offering are estimated to be approximately
$1,900,000, if only the minimum number of Shares is sold, and $3,400,000 if the
maximum number of Shares is sold. We are significantly under-capitalized and if
less than all of the Shares are sold, we will still be in need of significant
additional capital after completion of this Offering in order to expand our
operations in the manner contemplated by our management if we are successful in
raising the maximum proceeds from this Offering. Our primary capital
requirements over the next 12 months include payments of trade payables,
marketing expenses, research and development and tooling costs for improved
versions of our existing products and development of new products. We believe
that funds generated by operations and the proceeds of this Offering, if only
the minimum number of Shares is sold, will be sufficient to sustain current
operating levels; however, expansion of operations will need to proceed at a
slower pace as operating funds permit unless we are able to arrange for
financing from other sources. We currently have no agreements or understanding
with respect to additional sources of capital or financing in addition to
amounts raised in this Offering. We face all of the difficulties of a company
that is undercapitalized. We lack adequate capital to expand our operations,
particularly if only the minimum number of Shares is sold. Accordingly,
investors should be aware of the substantial risk that we may not achieve all of
our proposed business objectives due to a lack of adequate capital. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business."
Although We Have Acquired and/or Developed New Products, We Have Had Limited
Sales of These Products to Date.
We have, in the past two years, entered into a number of agreements and
arrangements to acquire, develop and/or market a broader range of products, some
of which incorporate some of our historical products and others of which involve
diversification into the areas of security devices and systems and network
switching systems. Due to our limited resources, we have engaged in only limited
development and marketing of these products, and our revenues from such
activities have been minimal. We will require the proceeds of this Offering to
market these products and develop and market new products; however, there can be
no assurance that any of these products will achieve significant market
acceptance or that we will derive significant revenues from these products.
-4-
The Success of Our Business is Dependent on Our Ability to Market DynaTraX(TM)
and Develop and Market Other New Products.
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. However, there can be no
assurance that we will successfully market such products or develop and market
other new products. Our success depends upon several factors including, among
others, (i) the development of an effective marketing and distribution network,
(ii) the acceptance of our products by potential users, and (iii) 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.
While we are not a new enterprise, because we are in the process of
substantially changing our product line, we are encountering many of the
problems faced by a new enterprise. You should be aware of the difficulties
normally encountered by a new enterprise and the high rate of failure of such
enterprises. There is no history upon which to base any assumption as to the
likelihood that we will prove successful, and there can be no assurance that we
will become a viable or profitable business. The likelihood of our success must
be considered in light of the delays, uncertainties, difficulties and risks
inherent in a new business, many of which may be beyond our control. These
include, but are not limited to, unanticipated problems relating to testing,
manufacturing, marketing and competition, development of additional products,
and additional costs and expenses that may exceed current estimates. In
addition, there can be no assurance that the DynaTraX products will receive
commercial acceptance or generate significant revenues. Further, there can be no
assurance that revenues will increase significantly in the future or that we
will ever achieve profitable operations. See "Business."
Our Market Share Depends on the Technical Superiority of Our Products, Our
7bility to Keep Pace with Technological Changes and Customer Acceptance.
Our future success will depend in large part on timely development and
introduction of new products that provide enhanced security, network switching
capabilities and related features. The security systems and products that we
intend to develop and market represent a significant investment on the part of a
customer. Our products will have to be technologically equivalent or superior to
competing products and cost effective. We will also have to demonstrate that our
products are flexible and can be designed to meet specific and changing customer
needs. Customers will be seeking to invest in systems that will not be rendered
obsolete or inadequate in the foreseeable future. In addition, we will have to
develop and maintain a service capacity for the systems we sell and install. If
we fail to introduce technologically superior, cost-competitive products and to
demonstrate our ability to maintain and service our products, we will not be
able to achieve significant sales.
We have made a substantial investment in acquiring the technology
underlying the DynaTraX(TM) products and services from NORDX/CDT, Inc. Although
NORDX/CDT, Inc. has made some sales of DynaTraX-based products, the sales and
operations history of such products has been limited. We cannot be sure that our
DynaTraX(TM) products will perform as anticipated. There can be no assurance
that any products will be compatible with other systems in use by potential
customers, be capable of being sold, installed and supported in commercial
volumes at reasonable prices and costs or be successfully marketed. We will be
required to create product awareness and demand, and persuade potential
customers of the advantages of adapting or replacing existing network switching
systems. We cannot be sure that our products will achieve significant commercial
success or that revenues will equal or exceed the cost of our investment.
-5-
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.
We Have Limited Marketing and Sales Capabilities and We Are Dependent on Third
Parties for Marketing Activities.
Our operating results will depend to a large extent on our ability to
educate sophisticated potential customers about the advantages of our products
and to market our products to the users and decision makers within those
potential customers. We currently market our existing products primarily through
our catalog. We have very limited marketing capabilities and experience, and we
need to develop a sales and marketing program and sales distribution channels.
We are currently primarily dependent on our President, Bernard M. Ciongoli, who,
because of his other duties as President, is only able to devote a part of his
time to such activities, and our consultant, MPX Network Solutions, Inc., for
development and implementation of our sales and marketing program, as well as
for customer development and contact. We anticipate that we will depend, to a
significant extent, on distributors to market and support our products. We have
not established any such arrangements to date. The success of any such
relationship will depend in part upon such parties' own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being marketed by such persons, and there can be no assurance that such
parties will have the interest or ability to successfully market our products.
We cannot be sure that we will be able to arrange third party distribution of
our products or that such arrangements would result in significant sales.
Further, we could be dependent for a substantial portion of our sales on one or
a very small number of distributors. In such event, the loss of one or more
significant distributors could have a material adverse effect on our business
and financial condition. Our success will depend in great part on our ability to
successfully implement our marketing and sales program and create sufficient
levels of demand for our products. There can be no assurance that any marketing
and sales efforts undertaken by us or on our behalf will be successful or will
result in any significant sales of our products. See "Business -- Marketing
Strategies."
We Have No Assurance as to Protection of Intellectual Property, and We May Be
Dependent on Intellectual Property.
We have no patent or copyright protection on our current products, other
than 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, we intend to rely substantially on unpatented proprietary
information and know-how, and there can be no assurance that others will not
develop such information and know-how independently or otherwise obtain access
to our technology. In addition, we cannot be sure that others will not challenge
the DynatraX(TM) patents or develop competing products that use equivalent or
superior technology. Also, it is uncertain whether our proprietary technology
will not infringe on other rights owned by others and that as a result we may
not be in a position to license such technology at a reasonable cost.
Competition.
We compete against a variety of other concerns, most of which are larger
and have greater financial, technical and marketing capacities and other
resources than we do. See "Business -- Industry."
-6-
We May Incur Product Liability or Other Liabilities Relating to New Products.
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. We cannot be sure that
such coverage will be available to us on terms we can afford.
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.
Management Owns a Significant Interest at a Lower Cost than Purchasers of the
Shares in this Offering.
Management has acquired a significant interest in the Company at a cost
substantially less than that which the new investors will pay for their
shareholdings. Therefore, the investors will bear a substantial risk of loss,
while, as a practical matter, control of our company is likely to remain in the
hands of management.
The Purchasers Will Incur Immediate Dilution.
As a purchaser of the shares, you will incur an immediate dilution in the
per share book value of their Common Stock from $3.50 to $2.82 if the minimum
number of Shares is sold and from $3.50 to $2.56 if the maximum number of Shares
is sold. In addition, the investors in the Shares will bear a substantially
larger portion of the risk of loss of this venture, while essential control of
our company will remain with the present shareholders. See "Dilution."
There Is a Very Limited Market for Our Securities.
There is a very limited market for the Common Stock of the Company, and no
assurance can be given that any greater market will develop in the future or,
once 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;
-7-
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. We cannot assure you that such high trading prices
will 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.
The Offering Price of the Shares Was Arbitrarily Determined.
While our shares trade on the OTC Bulletin Board, the volume is
substantially less than that being offered in this Offering, and does not
reflect the market price for the amount of stock we are offering in this
Offering. The price at which the Shares are being offered has been arbitrarily
determined by us, and does not necessarily bear any relationship to assets,
earnings, book value, or any other ordinary investment criterion.
Shareholders Are Not Entitled to Cumulative Voting.
Neither our Articles of Incorporation nor our by-laws provide for
cumulative voting. Since the election of directors and all other questions will
be decided by majority vote, except as otherwise provided by the Articles of
Incorporation and the laws of the State of New Jersey, the shareholders who
purchase the shares offered hereby may not have the power to elect even a single
director and, as a practical matter, our company will continue to be controlled
by the current management. See "Principal Shareholders" and "Description of
Common Stock."
We Have Never Paid Dividends and Are Unlikely to Pay Dividends in the
Foreseeable Future.
We have not paid any dividends on our Common Stock for at least the last
six years and intend to follow a policy of retaining earnings, if any, to
finance the development and expansion of our business. Although we do not
envision payment of dividends, payment of dividends, if any, will depend upon
future earnings, financial requirements, and other factors. See "Business."
Dependence Upon Joint Venture Agreement.
We have entered into an Amended Joint Marketing Agreement (the "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 our company 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
Agreement 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, no assurances can be given that the agreements will be
renewed or that we will be able to replace the IDS with other satisfactory
technology and products.
-8-
Potential Unavailability of Components; Limited or Single Source of Supply.
Current inventory purchases 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 will have only 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. Should a supplier, particularly a
principal supplier, be unwilling or unable to supply any inventory part,
component, or service in a timely manner, our business could be adversely
affected. In addition, even if such parts or components are available, shortage
of supply could result in an increase in procurement costs which may adversely
affect our profitability. Additionally, even though we carry insurance, if our
inventory is destroyed or damaged as a result of a catastrophe, it would
materially adversely affect our ability to deliver products to our customers.
We Have No Insurance on the DynatraX(TM) Product Inventory.
We currently do not have insurance on the DynatraX(TM) inventory of
furnished products and parts purchased from NORDX/CDT. These are currently in
possession of NORDX/CDT in Canada awaiting shipment to us. Damage or destruction
of some or all of the inventory would result in a substantial loss to us.
We are Dependent on our Key Personnel, and we will also need Additional
Management and Outside Directors with Business Expertise.
We are highly dependent upon the efforts of Bernard M. Ciongoli, our
president and chief executive officer. The loss of the services of Mr. Ciongoli
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. See " Management -- Director, Executive Officers,
and Key Consultants." Expansion of our business may require additional managers
and employees with industry experience. 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. Additionally,
our board of directors currently consists of Mr. Ciongoli, Mr. Earl M. Bjorndal,
Mr. Louis Tomasella, and Mr. Carmine O. Pellose, Jr. Mr. Ciongoli and Mr.
Bjorndal are both employed by the company. Expansion of our business will likely
require additional non-employee board members with business and industry
experience.
We do not have directors' and officers' liability insurance. This may limit
our ability to attract qualified non-employee board members.
There are Risks Associated with our Proposed Business Expansion.
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. We plan to begin the sale of the DynatraX(TM) switch, to complete the
DynatraX(TM) unfinished inventory we
-9-
acquired, and to develop improved and modified DynatraX(TM) products.
Additional financing may be necessary to pursue these plans, and there can be no
assurance that such financing will be available. In pursuing business expansion,
we may incur expenses that we cannot recover, and we will be required to expense
certain costs which may negatively affect our operating results. See "Use of
Proceeds," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We had a Net Loss in 1998.
For the year ended December 31, 1998, we incurred a net loss of $169,104.
We attribute such loss to a decrease in sales of our old line of products, an
increase in sales, engineering, testing, and promotion expenses of our IDS
product, and other related expenses, as well as consulting and legal expenses in
conjunction with the acquisition of the DynatraX(TM) product line. There can be
no assurance that we will not generate losses in the future.
There May be Possible Restrictions on Trading Due to Penny Stock Regulation.
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 (a) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for three
years, (b) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (c) 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.
-10-
USE OF PROCEEDS
The net proceeds from the sale by us of the minimum number of 571,428
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
1,000,000 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
Transition of DynatraX(TM) $100,000 $100,000
Product Development of Additional
DynaTraX Products 375,000 750,000
Marketing and Sales 560,000 1,000,000
Completion of DynaTraX Inventory 275,000 500,000
IDS Enhancement, Sales, Marketing 150,000 250,000
Working Capital 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. 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.
-11-
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
YEAR ENDING DECEMBER 31, 1998
- -----------------------------
First Quarter................................... $3.125 $1.75 $3.375 $2.125
Second Quarter.................................. 2.6875 1.6875 3.0 2.0
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 July __, 1999, there were ___ holders of record of our common stock.
DIVIDEND POLICY
We have never paid any cash dividends on our 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.
-12-
CAPITALIZATION
The following table sets forth (i) our actual capitalization at March 31,
1999, (ii) our pro forma capitalization at March 31, 1999, as adjusted to
reflect the effect of the issuance after March 31, 1999, of 443,617 shares of
Common Stock and (iii) the sale of the minimum of 571,428 shares and the maximum
of 1,000,000 shares of Common Stock offered hereby, after deducting the
estimated Offering expenses, and the application of the estimated net proceeds
of approximately $1,900,000 if the minimum number of Shares is sold, and
$3,400,000 if the maximum number of shares is sold, as set forth in this
Prospectus. See "USE OF PROCEEDS" and "BUSINESS."
March 31, 1999
-------------------------------------------------------
As Adjusted(1)
----------------------
Actual Pro Forma(1) Minimum Maximum
---------- ----------- --------- ---------
Total Debt: $135,392 $135,392 $135,392 $135,392
Stockholders' equity:
Common Stock, $.01 par value; 5,000,000
shares authorized; 3,575,660 shares issued and
outstanding-- actual and 4,147,088
(minimum) and 4,575,660 (maximum)-- as
adjusted; 11,316 shares held in treasury(2)............ $29,491 $35,757 $41,471 $45,757
Additional paid-in capital............................. $1,390,833 $1,953,575 $3,772,861 $5,268,575
Accumulated deficit.................................... $520,413 ($520,413) ($520,413) ($520,413)
Total stockholders' equity (deficiency)................ $899,911 $1,468,919 $3,293,919 $4,793,919
Total Capitalization................................... $1,035,303 $1,604,311 $3,429,311 $4,929,311
- --------
(1) Includes (i) 278,572 shares of common stock issued for an aggregate of
$250,000; (ii) 90,045 shares of common stock issued for an aggregate of
$200,000 and (iii) 50,000 shares and 25,000 shares of common stock issued
to two of our consultants, respectively.
(2) Does not include shares issuable pursuant to a consulting agreement and
shares issuable upon the exercise of outstanding (i) options and warrants
and (ii) options that may be granted pursuant to certain consulting
agreements and under our stock option plans. See "Management" and
"Description of Securities -- Stock Options, Stock Option Plan, and Other
Agreements to Issue Stock."
-13-
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 of our company (total assets less total liabilities), divided by the
number of shares of Common Stock outstanding upon closing of the offering. Our
net tangible book value (actual) at March 31, 1999 (unaudited), was $899,911 or
$.25 per common share. Taking into account the issuance of (i) 443,617 shares
after March 31, 1999 and (ii) 571,428 common shares for $2,000,000 after March
31, 1999, and the sale of the shares and the receipt of the estimated net
proceeds, the pro forma net tangible book value after March 31, 1999, would have
been $2,799,911 or $.68 per common share if only the minimum number of Shares is
sold, and $4,299,911 or $.94 per common share if the maximum number of Shares is
sold. This represents an immediate increase in net tangible book value of $.43
per common share (minimum offering) and $.69 per common share (at maximum
offering) to the existing shareholders and an immediate dilution of $.69 per
common share (minimum offering) and $.94 per common share (maximum offering) to
persons purchasing Shares in this Offering. The following table illustrates this
per share dilution:
Minimum Maximum
------- -------
Offering price per Share $3.50 $3.50
Net tangible book value per share at March 31, .25 .25
1999 (unaudited)
Increase per common share attributable to .43 .69
payments by new investors ----- -----
Net tangible book value per share at March 31, .68 .94
1999 (unaudited), on a pro forma basis ----- -----
reflecting the proceeds of this Offering(1)
Dilution of net tangible book value per share to $2.82 $2.56
new shareholders(2) ----- -----
- ---------
(1) Gives effect to the issuance after March 31, 1999 of (i) 278,572 shares for
an aggregate of $250,000, (ii) 90,045 shares of common stock for an
aggregate of $200,000 and (iii) 50,000 shares and 25,000 shares of common
stock issued to two of our consultants, respectively.
(2) Represents dilution of approximately 19% with the completion of the Minimum
Offering and 37% with the completion of the Maximum offering, respectively,
to purchasers of Common Stock offered hereby.
-14-
The following table sets forth on March 31, 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(1)(2)
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders(2) 3,575,660 86% $ 35,757 2% $0.01
New Investors 571,428 14% $2,000,000 98% $3.50
Total 4,147,088 100% $2,035,757 100% --
Maximum Offering(1)(2)
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders 3,575,660 78% $ 35,757 1% $0.01
New Investors 1,000,000 22% $3,500,000 99% $3.50
Total 4,575,660 100% $3,535,757 100% --
- --------
(1) Excludes (i) 75,000 shares issuable pursuant to a consulting agreement,
(ii) options to purchase 100,000 shares at $1.25 per share and an
additional 100,000 shares at $1.75 per share pursuant to a consulting
agreement, (iii) options to purchase 50,000 shares exercisable at $1.85 per
share pursuant to a consulting agreement, (iv) options to purchase an
aggregate of 190,000 shares exercisable at $.50 per share granted under the
Company's stock option plans for officers and directors, (v) options to
purchase 75,000 shares exercisable at $1.12 per share, and (vi) pursuant to
the employment agreement with our president, options to purchase up to
300,000 shares, 100,000 options of which are vested, with the balance to
vest in 100,000 increments on each of October 1, 1999, and October 1, 2000,
so long as the president is employed, such options to be exercisable at
$.50 per share. See "Management," "Management-- Stock Option Plans" and
"Description of Securities."
(2) Gives effect to the issuance after March 31, 1999 of (i) 278,572 shares for
an aggregate of $250,000, (ii) 90,045 shares of common stock for an
aggregate of $200,000 and (iii) 50,000 shares and 25,000 shares of common
stock issued to two of our consultants, respectively.
-15-
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 and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Years Ended Three Months Ended
December 31, March 31,
-------------------------------------------- --------------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(unaudited)
Statement of Operations Data:
Sales $647,015 $444,322 $552,486 $86,160 $59,714
Cost of Sales 337,269 446,457 386,425 86,591 40,008
-------- -------- -------- -------- --------
Gross Profit 309,746 (2,135) 166,061 (431) 19,706
Operating Expenses
General and administrative 246,915 257,826 311,716 92,464 60,110
Depreciation and
amortization 10,849 7,278 18,133 1,820 4,533
-------- -------- -------- -------- --------
Income (loss) from operations 51,982 (267,239) (163,788) (94,716) (44,937)
Other income-- Interest 388 166 1,654 -0- -0-
Interest expense 3,188 6,996 6,970 1,707 -0-
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes 49,182 (274,069) (169,104) (96,423) (44,937)
Provision for income -0- -0- -0- -0- -0-
Net income (loss) 49,182 (274,069) (169,104) (96,423) (44,937)
Net income (loss) per share $0.04 ($0.18) ($0.06) ($0.04) ($0.03)
December 31, March 31,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
Balance Sheet Data: (unaudited)
Total assets $459,711 $609,526 $1,018,597 $585,959 $1,035,303
Working Capital 267,436 405,548 851,540 381,040 887,724
Current Portion of long-term debt 34,445 34,445 32,742 32,742 32,742
Long-term debt (less current portion) -0- -0- -0- -0- -0-
Shareholders' equity $296,184 $429,615 $ 863,727 $405,107 $ 899,911
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
We were incorporated in 1947 as a New Jersey corporation. Our focus has
historically been the design, manufacture, and sale of rotary switches. Switches
have been a significant part of our revenue for five decades. In 1995, to
augment revenues, we sought business in transformers and contract manufacturing.
In 1998, we made a shift to new product development. In 1998, we also made our
first sales of the IDS product, and in April of 1999, we completed the
acquisition of the DynaTraX(TM) switch and technology. We will continue to focus
on IDS and DynaTraX(TM) sales and development of additional products using these
technologies.
The following table sets forth the components of our revenues for each of
our major business activities in 1996, 1997, and 1998 and for the three months
ended March 31, 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
- ------------ ---- ------------ ---- ------------ ---- ------------
Rotary 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%
======== ===== ======== ====== ======== ======
Three Months Ended
March 31,
------------------------------------------------------------
(unaudited)
PRODUCT TYPE 1998 % of Revenue 1999 % of Revenue
- ------------ ---- ------------ ---- ------------
Rotary Switches $48,493 56.3 $37,998 63.6
IDS Sensors 11,105 12.9 0 0
Transformers/Coils 18,406 21.4 10,260 17.2
Contract Manufacturing 8,156 9.4 11,456 19.2
-------- ------ ------- ------
Totals $86,160 100.0% $59,714 100.0%
======= ====== ======= ======
As the foregoing 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 three months ended
March 31, 1998 and 1999:
Three Months Ended
March 31,
-----------------------------------
(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% -0- (52.0%)
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(1) (31.2%) (13.1%) 18.1% (38.3%) (4.3%) 34.0%
Total company gross profit % (0.5%) 30.1% 30.6% (0.05%) 33.0% 33.5%
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.
- ----------
(1) Includes physical inventory adjustments and factory overhead.
-17-
Results of Operations
Three Months Ended March 31, 1999, Compared to Three Months Ended March 31, 1998
- -- Unaudited.
Sales were $59,714 for the first three months of 1999 as compared to
$86,160 for the three months ended March 31, 1998. The decrease was due to
limited marketing efforts and the lack of new product introductions.
Cost of sales of $40,008 for the three months ended March 31, 1999 compared
to $86,591 for the same period in 1998 decreased significantly due to reductions
in manufacturing costs, efficiencies, and reduction of manufacturing staff.
Selling, general, and administrative expenses decreased by $29,642 or 31%
in the first quarter of 1999 as compared to the prior period in 1998 which
resulted from higher than normal expenses in 1998 and cost reduction efforts
implemented in the fourth quarter of 1998. Selling, general, and administrative
expenses would be in line with 1998 after eliminating the higher expenses
incurred in 1998.
Losses from operations of $44,937 in the first quarter of 1999 declined by
$49,779 or 53% compared to losses of $94,716 for the prior period as a direct
result of reduced costs and lower selling, general, and administrative expenses.
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).
Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due
to an increase in sales of new 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 three months
ended March 31, 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 1999 we raised an additional
$250,000 for the acquisition of the DynaTraX(TM) assets and an additional
$200,000 for working capital.
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. Bacause 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 hereby, we will be required to curtail
the implementation of our business plan.
-18-
BUSINESS
General
Tech Laboratories, Inc. ("Tech Labs" or the "Company"), which was
incorporated in 1947, currently manufactures and sells various electrical and
electronic components. On April 27, 1999, we completed the acquisition of the
DynaTraX(TM) high-speed digital switch matrix system, a patented, state of the
art, transparent, customer-premise, high-speed network switching system. 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.
In addition, during the last two years, through our subsidiary, Tech
Logistics, Inc., we have been marketing and manufacturing 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.
Historical Business
We manufacture and sell standard and customized switches, transformers and
test equipment. 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.
Our switches are primarily incorporated in electronic and electrical
devices, test field engineering, manufacturing and quality control equipment,
and are standardized and custom-made. Transformers are devices for converting a
varying current from one voltage to another and may increase the voltage. Our
historic customer base for transformers has been the elevator industry.
Our contract manufacturing activities have included fabrication of computer
boards and assembly of cables and harnesses. In addition, we have manufactured,
on an OEM basis, such products as infrared beam perimeter security devices,
microprocessor based machine controls, test instruments for ophthalmology
products, test instruments for manufacturers of integrated circuits, control
components for photo-lithographic products, high-power control panels and power
distribution control panels.
We have also expanded our product lines by manufacturing test equipment in
which switches are a key component. We have designed test instruments in the
fields of resistance, inductance and capacitance decade substitution that serve
as calibration and design aids for engineers.
We have also developed a new line of decade resistance, capacitance and
inductance substituters, utilizing our highly reliable rotary switches.
Prototypes for these products have been made and evaluated, and the tooling to
produce these products has been completed. We intend to market our new line 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.
We have, in the past two years, entered into a number of agreements and
arrangements to develop and/or market a broader range of products, some of which
incorporate some of our historical products and others of which involve
diversification into the areas of security devices and systems and network
switching systems. Due to our limited resources, we have only engaged in limited
development and marketing of these products, and our revenues from such
activities have been minimal.
-19-
We will require the proceeds of this Offering to market these products and
develop additional products, and there can be no assurance that any of these
products will achieve significant market acceptance or that we can derive
significant revenues from these products.
The DynaTraX(TM) Assets Acquisition
On April 27, 1999, we completed the acquisition of the DynaTraX(TM) digital
switch matrix system, a state-of-the-art, transparent customer premise,
high-speed network switching system from NORDX/CDT, INC., a subsidiary of Cable
Design Technologies Corp. In connection with the acquisition of DynaTraX(TM)
technology, we acquired certain inventory, customer and supplier lists,
marketing and promotional materials, patents and patent applications, and other
equipment related to the DynaTraX(TM) product. 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.
We believe that there is a rapidly growing marketplace for "digital"
multi-media (internet, high-speed data, digital voice and video) information
equipment and systems. We intend to use the DynaTraX(TM) unique high-speed,
transparent digital cross-connect matrix to produce a line of standard,
universal firmware, configurable digital network 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. There is no assurance
that we will be able to develop or successfully market these proposed products.
We will need the funds from this Offering to develop and market our existing
DynaTraX(TM) products, as well as developing new products incorporating the
DynaTraX(TM) technology. See "Risk Factors." In the long term, 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 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.
We feel our DynaTraX(TM), all digital, high-speed, customer-premise
networking technology will 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, possibly allowing them to increase rents and to
make their properties more attractive to tenants.
Industry
DynaTraX(TM) Networking Management and Maintenance Technology
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 have recently completed the purchase of the DynaTraX(TM) technology and
inventory and initially intend to market the 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 the DynaTraX(TM) product.
-20-
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.
We believe that our DynaTraX(TM) product offers a faster switch and a much
smaller port size than any competing product and is not limited to a specific
type of network as with some competing products.
Competition for network management products comes in several forms and from
several different groups. One group of competitors is the internal staff of
large organizations who have built up a business unit to manage and maintain
their networks and have a vested interest in maintaining the status quo.
However, we believe the need for businesses to reduce costs works in favor of
implementing cost saving technologies such as the DynaTraX(TM) technology.
Another group of competitors which produce 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 transparent high-speed switch. The
NHC switch is not as fast as our DynaTraX(TM) product and much smaller in port
size. In addition, V-LAN switching can be regarded as a competing technology.
However, V-LAN switching is limited to a specific type of network (Ethernet) and
not able to support many tasks associated with rearranging network physical
layer connections, testing circuits, managing and maintaining end-to-end network
configuration and 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.
Infrared Intrusion Detection System ("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. Pellose, 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. Pellose'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 begun marketing it 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 Amended and Restated Joint Marketing Agreement and
a Confidentiality and Manufacturing Agreement as of October 1, 1997 with
Elekronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety Equipment, AG
(FUA), pursuant to which our company was 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 gross pre-tax profits shall be
calculated according to GAAP and shall be distributed quarterly in arrears 70%
to our company and 30% to FUA until March 31, 2001. Thereafter, until September
30, 2007 the agreements provide that any pre-tax net profit in excess of 16%
shall be distributed 70% to our company and 30% to FUA. In addition, 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.
Our IDS products are being sold in 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 products in this industry. We
have recently completed the sale of an IDS to Los Alamos National
-21-
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 "first look" approval for the IDS from the
U.S. Military for inclusion in their Tactical Automated Security System (TASS)
program which is a $500 million program to thwart enemy attacks on critical
military installations throughout the world. Pricing of our products is based
upon obtaining a margin above cost of production. The margin we will accept
varies with quantity and the channels of distribution.
Switches, Transformers and Test Equipment
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 have many competitors in this
market who are able to produce similar quality products, many of whom have
greater financial and other resources than we do.
Marketing Strategies
Marketing. We plan to implement a three-pronged marketing program
consisting of:
(i) Industry announcements and presentations through business and industry
trade groups;
(ii) 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
(iii) 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 a limited geographical area -- the large
communication/computer centers in the eastern part of the United States. We plan
to divide this area into four sales regions: (i) New England states; (ii) New
York metropolitan area; (iii) Mid-Atlantic/Washington DC area; and (iv) South
East Coast states. We will quickly set up several regional representatives,
sales agents, and/or certified value added resellers (VARs) 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 (design, install, maintain)
service.
In the long term, we 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.
-22-
In the established East Coast area, we intend to set up three company
regional sales/service centers: (i) Massachusetts; (ii) Washington, DC; and
(iii) Florida. We will repeat the process in the other areas as they become
established.
We plan to use our company's 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 third quarter of 1999
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. All research and development of our IDS products have been
expensed and we have received preliminary approval from the U.S. Air Force for
inclusion of the IDS products in its TASS program.
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 preliminarily
approved by the U.S. Military 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. Our profitability
will be delayed if we are not able to sell our products as we have anticipated.
We believe we are raising sufficient funds with this offering to achieve the
sales necessary to become profitable and to provide sufficient liquidity until
such time as we become profitable. 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.
Order Backlog
The backlog of written firm orders for our products and services as of
March 31, 1999, was as follows:
As of March 31, 1999: $151,226
As of March 31, 1998: $165,245
Patents
In connection with our acquisition of the DynatraX(TM) assets, we acquired
certain patents and pending patent applications. While a patent has been granted
in Great Britain, our patent applications in the U.S., Europe and elsewhere are
subject to review in those jurisdictions. There can be no assurance that these
patents will be granted and even if granted may afford us limited or no
protection, depending upon the nature of competing technology and upon our
ability to defend our intellectual property rights.
Recent Financing
In April 1999, we completed our financing plan for, among other things, the
acquisition of DynaTraX(TM)technology and related assets pursuant to which we
raised $250,000 from the sale of 278,572 shares. Subsequently, in May 1999, we
raised an additional $200,000 for general working capital purposes from the sale
of 90,045 shares.
-23-
Employees
As of March 31, 1999, we had 11 full-time employees, including our
officers, seven of whom were engaged in manufacturing, one in repair services,
one in administration and financial control, one in engineering and research and
development, and one in marketing and sales.
Facilities; Manufacturing
Our 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 (1) 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.
-24-
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. Pellose, Jr. 57 Secretary and Director
Louis Tomasella 58 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. Pellose, 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 devotes only a small portion of his time to Company
matters. 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.
Executive Compensation
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 our company. 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.
-25-
We do not have employment agreements with any other officer or other
employee, and no officer had received compensation in excess of $100,000 in any
recent fiscal year. Our directors are not presently compensated.
Consultants
We have entered into a consulting agreement with MPX Network Solutions,
Inc. ("MPX"). The term of the agreement is for one year expiring on March 14,
2000, renewable for an additional one year period. MPX will provide consulting
services in the areas of marketing, customer relations and strategic and product
development planning, particularly with regard to communications products. 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. 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 ("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, our company issued to the consultant a warrant
to purchase 50,000 shares of Common Stock at $1.85 per share exercisable for
five (5) years, and an additional warrant (the "Second Warrant") to purchase up
to 200,000 shares of Common Stock at $3.50 per share exercisable for five (5)
years, the Second Warrant to vest in increments of 25,000 shares each for sales
of $250,000 or more of our company's product to purchasers obtained by
consultant within the initial two (2) year term of the Consulting Agreement. 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 ("Mint"), to provide certain financial
and business consulting services, which include assisting our management in
developing its business plan, introducing our company to members of the
financial community, and assisting our company in its financial planning. Under
its consulting agreement which may be terminated by our company upon ten (10)
days' prior written notice, we agreed to (i) pay consultant up to 100,000
shares, 25,000 of which shares have been earned, and (ii) to grant 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 vests in full if the
agreement has not been terminated by our company 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. 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.
CERTAIN TRANSACTIONS
The information set forth herein describes certain transactions between the
Company and certain affiliated parties. Future transactions, if any, must be
approved by the Board of Directors.
-26-
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. Pellose, Jr. to market security devices distributed by
International Logistics, Inc., a private-owned company, of which Mr. Pellose was
the President and principal shareholder. Mr. Pellose became a director of the
Company at that time. In May 1998, we acquired Mr. Pellose's interest in Tech
Logistics, Inc. for 25,000 shares of our Common Stock. See "Business -- Other
Recent Developments."
-27-
PRINCIPAL STOCKHOLDERS
The following table sets forth, 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 (i) by persons known to us to own more
than 5% of such stock, and (ii) 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(1) 720,000 20.14% 17.36% 15.74%
Earl Bjorndal(2) 248,344 6.95% 5.99% 5.43%
Carmine O. Pellose, Jr.(3) 40,000 1.12% * *
Louis Tomasella(4) 120,000 3.36% 2.89% 2.62%
All officers and directors as a 1,028,344 31.57% 27.20% 24.66%
group (4 persons)(1-5)
- -----------
* less than 1%.
(1) Includes 100,000 shares issuable upon the exercise of immediately
exercisable options granted under our stock option plan and 100,000 shares
issuable upon exercise of options earned under our employment agreement
with Mr. Ciongoli.
(2) Includes 50,000 shares issuable upon the exercise of immediately
exercisable options granted under our stock option plan.
(3) 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.
(4) Includes 20,000 shares issuable upon the exercise of immediately
exercisable options granted under our stock option plan.
(5) Excludes (i) 75,000 shares issuable pursuant to a consulting agreement,
(ii) options to purchase 100,000 shares at $1.25 per share and an
additional 100,000 shares at $1.75 per share pursuant to a consulting
agreement, (iii) options to purchase 50,000 shares exercisable at $1.85 per
share pursuant to a consulting agreement, (iv) options to purchase an
aggregate of 190,000 shares exercisable at $.50 per share granted under the
Company's stock option plans for officers and directors, (v) options to
purchase 75,000 shares exercisable at $1.12 per share, and (vi) pursuant to
the employment agreement with our president, options to purchase up to
300,000 shares, 100,000 options of which are vested, with the balance to
vest in 100,000 increments on each of October 1, 1999, and October 1, 2000,
so long as the president is employed, such options to be exercisable at
$.50 per share. See "Management," "Management--Stock Option Plan" and
"Description of Securities."
PLAN OF DISTRIBUTION
We will receive proceeds from the sale of the shares, aggregating a maximum
of $3,500,000 if such shares are sold. We will not receive the proceeds of any
sale of the securities by the Selling Securityholders. 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 commissions,
expenses, reimbursements, and discounts of underwriters, dealers, and agents, if
any, made pursuant to the sale by the Selling Securityholders.
Minimum Offering and Escrow Account
All funds received by us with respect to the sale of the first 571,428
shares will be deposited by us at a federally funded national bank. If 571,428
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
automatically terminate unless extended for up to an additional ninety (90) days
in the sole discretion of the Company and all funds received from the sale of
the Shares will be returned to
-28-
the purchasers thereof with interest, at the same rate as paid by the
escrow bank. At the time that 571,428 shares have been sold (the Minimum
Offering) prior to the 90-day period (as the same may be extended), we will
release the funds from the escrow account for deposit into the working account
of our company. Although we will continue to sell the offering to attempt to
reach the Maximum Offering (1,000,000 Shares), such released funds will be used
at that time by our company as described herein.
We may use one or more member firms of the National Association of
Securities Dealers, Inc. to sell the shares. As of the date hereof, 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, 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. 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, our company meets the requirements of the NASDAQ SmallCap
Market, it will apply for listing thereon. If it should be accepted for listing
thereon, then certain underwriters may engage in passive market making
transactions in our company's 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.
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,
Florida, Illinois, and Nevada. We will not accept subscriptions from investors
resident in other states unless we effect a registration therein or determines
that no such registration is required.
Sales by the Selling Securityholders
The Selling Securityholders 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.
-29-
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
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 our company 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.
If, at some time, our company meets the NASDAQ SmallCap Market, it will
apply for listing thereon. If it should be accepted for listing thereon, then
certain underwriters may engage in passive market making transactions in our
Common Stock in accordance with Rule 103 of Regulation M.
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.
Determination of Offering Price
While there is a limited market for the stock, the amount of stock to be
offered in this Offering is substantially greater than the daily volume in our
stock. We have, therefore, arbitrarily priced the stock
-30-
we are offering at a price that we feel is reflective of what the current market
would support, given the number of shares we are selling. However, there can be
no assurances that after this Offering the market price of the stock will not
decline.
OFFERING BY SELLING SECURITYHOLDERS
An additional 115,045 outstanding shares and 50,000 shares (the
"Securityholder 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 Securityholder 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 it will
receive the proceeds from the exercise of the warrants held by the Selling
Securityholders. The Company 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 company's
Common Stock. See "Risk Factors -- Shares Eligible for Future Sale."
The Selling Securityholders and the number of Securityholder Shares held by
each are as listed below:
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
----------------------- ------
Scott Coby.................................................... 45,045
Scott Coby.................................................... 50,000
David Harris.................................................. 45,000
Mint Corporation ............................................. 25,000
--------
TOTAL..................................................... 165,045
There are no other material relationships between any of the Selling
Securityholders and our company, nor have any such material relationships
existed within the past three years.
The sale of the Securityholder Shares by the Selling Securityholders may be
effected from time to time in transaction (which may include block transactions
by or form the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, 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 purchaser, through broker-dealers acting as agents for
the Selling Securityholders or 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. Such broker-dealers, if any, may receive
compensation in the form of discounts, commissions, or concessions from Selling
Securityholders 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).
-31-
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: (i) 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; (ii) if the securities are sold in block
transactions and the purchaser wishes to resell, such arrangements would be
described in this Prospectus; (iii) 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 the Company
for a period of at least two (and up to nine) business 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 our company's 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.
-32-
SHARES ELIGIBLE FOR FUTURE SALE
If we sell the maximum number of shares in this Offering, we will have
4,575,660 common shares outstanding. Other than shares sold to affiliates of the
Company, the shares sold in this Offering will be freely tradeable without
restriction under the Securities Act of 1933 (the "Act"). Of the 3,575,660
shares of common stock currently outstanding, 2,368,266 are freely tradeable
without restriction under the Act. The remaining 1,207,394 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. No sales are permitted, however, unless the current
information about the Company 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 the company's 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 "affiliates" of
our company, of "restricted" shares not to sell his shares.
-33-
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 5,000,000 shares of
common stock having a par value of $.01 each (the "Common Stock"), of which
3,575,660 shares are currently outstanding and 11,316 shares are held in
treasury. There are currently approximately [249] 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 of
Common Stock may elect all of the directors of our company. 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, Stock Option Plan, and Other Agreements to Issue Stock
We have outstanding (i) options to consultants and third parties (a) to
purchase 50,000 shares exercisable for five years at $1.85 per share, (b)
options to purchase 75,000 shares exercisable for five years at $1.12 per share,
(c) options 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 (d)
50,000 shares exercisable for five (5) years from date of vesting at $1.25 per
share.
The Company has granted options to purchase 300,000 shares exercisable at
$.50 per share pursuant to an employment agreement with our President, 100,000
options of which have vested and the remaining 200,000 options to vest 100,000
options on each of October 1, 1999, and October 1, 2000.
We have also adopted a stock option plan for officers, directors, and other
key employees of the Company. 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 25,000 shares under the
agreement and we are obligated to issue an additional 37,500 shares to the
consultant on June 10, 1999, and an additional 37,500 shares on July 10, 1999,
if the consulting agreement has not been previously terminated.
-34-
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 hereby 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 of our
company's Common Stock.
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, as amended, with the Securities and Exchange Commission (the
"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 amendments thereof and the exhibits thereto, 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 that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov).
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.
-35-
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Charles J. Birnberg, CPA Independent Auditors.....................F-1
Audited Financial Statements
Balance Sheets.........................................................F-2, F-3
Statements of Operations....................................................F-4
Statements of Cash Flows....................................................F-5
Notes to Financial Statements...............................................F-6
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
For the Three Month
For the Years Ended March 31
December 31
------------------------------ ------------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
Unaudited
Current Assets:
Cash $ 166,173 $ 532,780 $ 103,414 $ 259,120
Marketable Securities, at the Lower of
Cost or Market (Note 1) 59,343 56,693 59,124 56,693
Accounts Receivable, net of Allowance
of $10,000 in 1998 and $10,000 in 1997 90,734 143,462 126,664 108,946
Inventories (Notes 1 & 2) 269,209 270,118 270,100 295,000
Prepaid Expense 0 3,357 2,570 3,357
Investment in DynatraX 0 0 0 300,000
---------- ---------- ---------- ----------
Total Current Assets $ 585,459 $1,006,410 $ 561,892 1,023,116
---------- ---------- ---------- ----------
Property, Plant and Equipment, at Cost (Note 1):
Leasehold Improvements 2,247 2,247 2,247 2,247
Machinery, Equipment and Instruments 223,884 230,137 223,884 230,137
Furniture and Fixtures 67,425 67,425 67,425 67,425
---------- ---------- ---------- ----------
$ 293,556 $ 299,809 $ 293,556 $ 299,809
Less: Accumulated Depreciation & Amortz 281,029 299,162 281,029 299,162
---------- ---------- ---------- ----------
Net, Property, Plant and Equipment $ 12,527 $ 647 $ 12,527 $ 647
---------- ---------- ---------- ----------
Other Assets $ 11,540 $ 11,540 $ 11,540 $ 11,540
---------- ---------- ---------- ----------
Total Assets $ 609,526 $1,018,597 $ 585,959 $1,035,303
========== ========== ========== ==========
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
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31
--------------------------------- -------------------------------
1997 1998 1998 1999
----------- ----------- ------------- -----------
Unaudited
Current Liabilities:
Current Portion of L.T. Debt (Note 5) $ 34,445 $ 32,742 $ 32,742 $ 32,742
Short-Term Loans Payable (Note 6) 43,373 43,373 43,373 43,373
Accounts Payable 48,148 42,155 63,813 22,677
Other Liabilities & Investor Notes Payable 53,945 36,600 40,924 36,600
----------- ----------- ----------- -----------
Total Current Liabilities $ 179,911 $ 154,870 $ 180,852 $ 135,392
----------- ----------- ----------- -----------
Stockholders' Investment:
Common Stock. $.01 Par Value;
5,000,000 Shares Authorized; 2,869,943
Issued (Note 7) $ 13,753 $ 23,483 13,753 29,604
Less: 11,316 Shares Reacquired and
and Held in Treasury (113) (113) (113) (113)
----------- ----------- ----------- -----------
$ 13,640 $ 23,370 13,640 29,491
Common Stock Subscribed (Note 7) 500 0 0 -0-
Capital Contributed in Excess of Par Value 721,847 1,315,833 794,262 1,390,833
Retained Earnings 0 0 0 0
Accumulated Deficit (306,372) (475,476) (402,795) (520,413)
----------- ----------- ----------- -----------
$ 429,615 $ 863,727 $ 405,107 $ 899,911
----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Investment $ 609,526 $ 1,018,597 $ 585,959 $ 1,035,303
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
F-3
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1998
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
----------------------------- -----------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
Sales $ 444,322 $ 552,486 $ 86,160 $ 59,714
--------- --------- --------- ---------
Costs and Expenses:
Cost of Sales 446,457 386,425 86,591 40,008
Selling, General and Administrative
Expenses 265,104 329,849 94,285 64,643
--------- --------- --------- ---------
711,561 716,274 180,876 104,651
--------- --------- --------- ---------
Income/(Loss) From Operations ($267,239) ($163,788) (94,716) (44,937)
--------- --------- --------- ---------
Other Income (Expenses):
Interest Income $ 166 $ 1,654 0 0
Interest Expense (6,996) (6,970) (1,707) 0
--------- --------- --------- ---------
($ 6,830) ($ 5,316) (1,707) 0
--------- --------- --------- ---------
Income/(Loss) Before Income Taxes ($274,069) ($169,104) (96,423) (44,937)
Provision for Income Taxes (Notes 1 & 4) 0 0 0 0
--------- --------- --------- ---------
Net Income/(Loss) ($274,069) ($169,104) (96,423) (44,937)
Retained Earnings/(Accum. Deficit,) Beg. of Period ($ 32,303) ($306,372) (306,372) (475,476)
--------- --------- --------- ---------
Retained Earnings/(Accum. Deficit,) End of Period ($306,372) ($475,476) ($402,795) ($520,413)
========= ========= ========= =========
Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.04) ($ 0.03)
The accompanying notes are an integral part of these financial statements
F-4
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
----------------------------- ---------------------------
(UNAUDITED)
1997 1998 1998 1999
--------- --------- --------- ---------
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ($274,069) ($169,104) (96,423) (44,937)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) 7,278 11,880 0 4,533
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) 219 0
Accounts Receivable 2615 (52,728) (35,930) 34,516
Inventories 22,665 (909) (891) (24,882)
Accounts Payable (7,925) (40,249) 15,665 (19,478)
Other Assets and Liabilities 15,862 14,997 (15,611) 0
--------- --------- --------- ---------
Net Cash Flows For Operating Activities ($252,725) ($235,406) (132,971) (50,248)
--------- --------- --------- ---------
Cash Flows From (For) Investing Activities:
Investment DynatraX $ 0 $ 0 0 (300,000)
--------- --------- --------- ---------
Net Cash Flows From Investing Activities $ 0 $ 0 0 (300,000)
--------- --------- --------- ---------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of S.T. Debt ($ 10,000) ($ 1,703) (1,703) 0
Acquisition/(Repayment) of L.T. Debt 0 0 0 0
Issuance of Common Stock 407,500 603,716 71,915 76,588
--------- --------- --------- ---------
Net Cash Flows From (For) Financing Activities: $ 397,500 $ 602,013 70,212 76,588
--------- --------- --------- ---------
Net Increase/(Decrease) in Cash $ 144,775 $ 366,607 (62,759) (273,660)
Cash Balance, Beginning of Year 21,398 166,173 166,173 532,780
--------- --------- --------- ---------
Cash Balance, End of Year $ 166,173 $ 532,780 $ 103,414 $ 259,120
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements
F-5
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(1) Summary of Significant Accounting Policies
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) Other Short-Term Loans:
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 and 1998 were $58,373 and $43,373, respectively. 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 the Company.
(7) Common Stock
In 1997, the Company converted $217,500 of short term loans into 198,750 shares
of common stock.
In 1997 and 1998, the Company completed a placement pursuant to Rule 504 of
common stock which raised $917,324.
F-6
, 1999
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............................................................... 4
USE OF PROCEEDS............................................................ 11
PRICE RANGE OF COMMON STOCK................................................ 12
DIVIDEND POLICY............................................................ 12
CAPITALIZATION............................................................. 13
DILUTION .................................................................. 14
SELECTED FINANCIAL DATA.................................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.............................................. 17
BUSINESS .................................................................. 19
MANAGEMENT................................................................. 25
CERTAIN TRANSACTIONS....................................................... 26
PRINCIPAL STOCKHOLDERS..................................................... 28
PLAN OF DISTRIBUTION....................................................... 28
OFFERING BY SELLING SECURITYHOLDERS........................................ 31
SHARES ELIGIBLE FOR FUTURE SALE............................................ 33
DESCRIPTION OF SECURITIES.................................................. 34
LEGAL MATTERS.............................................................. 35
EXPERTS .................................................................. 35
ADDITIONAL INFORMATION..................................................... 35
INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 35
Until_________, 1999 (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
The Company 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 the Company 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 (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts of omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) 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 (iv) for any
transaction from which the director derived an improper personal benefit. The
Company'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 $
Fees and Expenses of Accountants
Fees and Expenses of Legal Counsel
Blue Sky Fees and Expenses
Printing and Engraving Expenses
Miscellaneous Expenses
Total.................................... $
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:
In June 1999 we sold 90,045 shares to "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.
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.
The issuance of the shares was exempt from Registration under the Securities Act
pursuant to Section 4(2) thereof.
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.
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.
From September 1997 to April 1999, we sold shares of our Common Stock
pursuant to Rule 504 of Regulation D under the Securities Act to various
investors who were either sophisticated or "accredited" as that term is defined
until Rule 501(a) of Regulation D under the Securities Act. These sales were
made on the dates and in the amounts as follows:
On April 5, 1999, we sold 278,572 shares of Common Stock for a total of
$250,000.00.
On January 29, 1999, we sold 168,000 shares of Common Stock for a total of
$95,250.00.
On December 17, 1998, we sold 18,000 shares of Common Stock for a total of
$20,250.00.
On December 5, 1998, we sold 17,000 shares of Common Stock for a total of
$19,125.00.
On November 26, 1998, we sold 31,000 shares of Common Stock for a total of
$34,875.00.
On November 18, 1998, we sold 100,000 shares of Common Stock for a total of
$50,000.00.
On November 16, 1998, we sold 27,500 shares of Common Stock for a total of
$30,937.00.
On November 13, 1998, we sold 111,000 shares of Common Stock for a total of
$124,875.00.
On October 23, 1998, we sold 107,000 shares of Common Stock for a total of
$120,375.00.
On October 13, 1998, we sold 18,000 shares of Common Stock for a total of
$20,250.00.
On October 9, 1998, we sold 18,000 shares of Common Stock for a total of
$20,250.00.
On October 2, 1998, we sold 51,000 shares of Common Stock for a total of
$57,375.00.
On September 25, 1998, we sold 44,500 shares of Common Stock for a total of
$50,062.50.
On July 10, 1998, we issued 20,300 shares of Common Stock for services rendered
by prior counsel to our company for $22,167.40.
On March 4, 1998, we sold 7,500 shares of Common Stock for a total of
$15,000.00.
On February 24, 1998, we sold 27,500 shares of Common Stock for a total of
$55,000.00.
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On February 23, 1998, we sold 95,500 shares of Common Stock for a total of
$85,700.00.
On February 10, 1998, we sold 10,000 shares of Common Stock for a total of
$20,000.00.
On December 19, 1997, we sold 125,000 shares of Common Stock for a total of
$62,500.00.
On December 16, 1997, we sold 100,000 shares of Common Stock for a total of
$200,000.00.
On September 29, 1997, we sold 2,000 shares of Common Stock at $2.50 for a total
of $5,000.00.
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.
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.
In November 1998, we issued 25,000 shares to Carmine Pellose, 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.
In November 1998, we issued 15,000 shares to Carmine Pellose, 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.
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.
In December 1996, we issued 280,000 shares to Bernard M. Ciongoli, our president
and a director and 160,000 shares to Earl Bjorndal, our vice president and a
director for unpaid salaries in the amounts of $14,000 and $8,000, respectively
at $.05 per share. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
In December 1996, we issued 100,000 shares to Louis Tomasella, a director in
exchange for consulting services. The issuance of the shares was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Subscription Agreement*
3.1 Certificate of Incorporation
3.2 By-Laws of the Company
4.1* Form of Common Stock Certificate
5.1* Opinion of Stursberg & Veith
10.1 IDS Agreement
10.2 Employment Agreement between the Company and Bernard M. Ciongoli
10.3 Amended Joint Marketing Agreement
10.4 Confidentiality and Manufacturing Agreement
10.5 Patent and Trademark assignments
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
- --------------
* To be filed by Amendment.
(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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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;
(iii) 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:
(i) 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.
(ii) 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 9th day of July, 1999.
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.
Know all men by these presents, that each of the undersigned constitutes
and appoints Bernard M. Ciongoli as his true and lawful attorney-in-fact and
agent, with full power of substitution, for him, and in his name, place, and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this offering statement or any offering statement
relating to the offering to which this offering statement relates and any
post-effective amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Bernard M. Ciongoli President, Treasurer, CEO, July 9, 1999
- ----------------------------- CFO, and Director --------------
Bernard M. Ciongoli
/s/ Earl M. Bjorndal Vice President and Director July 9, 1999
- ----------------------------- --------------
Earl M. Bjorndal
/s/ Carmine O. Pellose, Jr. Secretary and Director July 9, 1999
- ----------------------------- --------------
Carmine O. Pellose, Jr.
/s/ Louis Tomasella Director July 9, 1999
- ----------------------------- --------------
Louis Tomasella
II-5
EXHIBIT INDEX
3.1 Certificate of Incorporation
3.2 By-Laws of the Company
4.1* Form of Common Stock Certificate
5.1* Opinion of Stursberg & Veith
10.1 IDS Agreement
10.2 Employment Agreement between the Company and Bernard M. Ciongoli
10.3 Amended Joint Marketing Agreement
10.4 Confidentiality and Manufacturing Agreement
10.5 Patent and Trademark assignments
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
- --------------
* To be filed by Amendment.