As filed with the Securities and Exchange Commission on October 18, 1999
Registration No.: 333-82595
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 to FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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TECH LABORATORIES, INC.
(Name of small business issuer in its charter)
New Jersey 3679, 3573, 3629, and 3613 22-1436279
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address and telephone number of principal executive offices)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address of principal place or intended principal place of business)
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Bernard M. Ciongoli, President and Chief Executive Officer
Tech Laboratories, Inc.
955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Name, address, and telephone number of agent for service)
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Copies to:
C. Walter Stursberg, Jr., Esq.
Stursberg & Veith
405 Lexington Avenue
New York, New York 10174
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock,
par value $.01 per share
("Common Stock") 1,000,000 $3.50 $3,500,000 $973.00
- --------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock 90,045 3.50 $315,516 88.20
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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.
================================================================================
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.
================================================================================
EXPLANATORY NOTE
This Registration Statement covers the registration of (a) 1,000,000 shares
of common stock, $.01 par value, of Tech Laboratories, Inc., a New Jersey
Corporation, for sale by our company in a self-underwritten public offering, and
(b) 140,045 shares of common stock for sale by the selling securityholders, all
for resale from time to time by the selling securityholders.
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 October 18, 1999
PROSPECTUS
1,000,000 Shares
TECH LABORATORIES, INC.
955 Belmont Avenue
North Haledon, New Jersey 07508
(973) 427-5333
We are selling a minimum of 571,428 and a maximum of 1,000,000 shares of
common stock at a price of $____ per share pursuant to a direct participation
offering. Until we receive and accept subscriptions for the minimum number or
571,428 shares, subscribers' funds will be deposited in escrow with United
Hudson 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 and with interest if the minimum offering is not sold and the funds
are held in escrow more than 90 days. You may not withdraw funds deposited in
escrow.
We are also registering 90,045 shares of common stock for certain persons
and 50,000 shares of common stock issuable upon exercise of certain outstanding
warrants that may be resold from time to time in the future by certain selling
securityholders.
Our shares of common stock trade on the OTC Bulletin Board under the symbol
"TCHL." On ______ _____________, 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.
====================================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions Tech Labs(1)
- ----------------------------------------------------------------------------------------------------
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
====================================================================================================
The proceeds to be received by Tech Labs are amounts 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
Unless the context indicates otherwise, all references herein to "we"
include Tech Labs and its wholly-owned subsidiary, Tech Logistics, Inc.,
collectively, and references to "Tech Labs" or "Tech Logistics" shall mean each
of such companies alone. You should read the entire Prospectus carefully,
especially the risks of investing in the common stock discussed under "Risk
Factors."
Tech Labs
We manufacture and sell various electrical and electronic components. We
recently acquired from NORDX/CDT, INC., a subsidiary of Cable Design
Technologies Corp., the DynaTraX(TM) digital matrix technology which is a
patented, state-of-the-art, transparent customer-premise, high-speed network
switching system. We believe 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.
The DynaTraX(TM) technology will also 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 users.
We also market and manufacture, under our exclusive license, an infrared
perimeter intrusion and anti-terrorist detection system or "IDS". We currently
market this product to government agencies and private industry.
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 to be outstanding
after the offering:..... There will be a maximum of 4,575,660 shares
outstanding and a minimum of 4,147,088 after
the offering. These amounts exclude:
o the issuance of 75,000 shares subsequent to June 30, 1999 pursuant to
a consulting agreement;
o 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;
o options to purchase 50,000 shares exercisable at $1.85 per share
pursuant to a consulting agreement;
o 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;
o options to purchase 75,000 shares exercisable at $1.12 per share; and
o 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.
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(upon
completion of maximum
offering)............... Assembly and testing of DynaTraX(TM) assets,
development of additional DynaTraX(TM)
products, marketing and sales, completion of
DynaTraX(TM) inventory, sales and marketing for
IDS and working capital.
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 offering
will terminate and all funds will be promptly
returned without interest or deduction, unless
we extend the offering period for up to an
additional 90 days, in which case if the
minimum offering is not sold all funds
deposited in escrow will be returned with
interest.
-2-
Summary Financial Information
Statement of
Operations Data Period Ended
Periods Ended December 31 June 30
----------------------------------------- -----------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited)
Income Statement Data:
Sales .............................. $647,015 $444,322 $552,486 $172,319 $160,304
Net Income (loss) .................. 49,182 (274,069) (169,104) (192,847) (250,220)
Earnings (loss) per share .......... $0.04 ($0.18) ($0.06) ($0.09) ($0.08)
Period Ended
June 30
------------
(unaudited)
Actual
December 31, 1998 ------
Balance Sheet Data ----------------
(unaudited):
- ------------
Total Assets ........................ $1,018,597 $1,260,294
Working Capital ..................... 851,540 1,026,243
Current Portion of Long-Term ........ 32,742 31,131
Debt
Long-Term Debt ...................... 0 0
Shareholders' Equity ................ 863,727 $1,138,407
-3-
RISK FACTORS
In addition to other matters described in this document, prospective
investors should carefully consider the following factors:
We have limited sales revenue, have a history of losses and may not be
profitable in the future.
Our limited sales revenue and history of losses makes it uncertain when or
if we will become profitable. 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, we must increase our sales and
margins of our products significantly in order to avoid continued losses.
Our capital requirements may be greater than the proceeds we receive from this
offering.
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. Our primary capital
requirements over the next 12 months include:
o payments of trade payables;
o marketing expenses;
o research and development; and
o 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. 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.
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 need the proceeds of this offering to
market these products and develop and market new products.
-4-
The market for our service is uncertain.
We believe that the DynaTraX(TM) technology will serve as the basis for new
products in the area of multi-media digital network distribution and management
equipment for use in campus and building facilities. Our success depends upon
several factors including, among others:
o The development of an effective marketing and distribution network;
o The acceptance of our products by potential users; and
o Our ability to support existing products and develop and support new
products that are compatible with other systems in use by potential
customers and provide useful features that are user friendly.
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. 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 new products, and
additional costs and expenses that may exceed current estimates.
The market in which we sell our products is characterized by many competing
technologies and continual advancements. We may not be able to compete
effectively against other technologies.
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:
o technologically equivalent or superior to competing products;
o cost-effective; and
o flexible and 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(TM)-based products, the sales
and operations history of such products has been limited. Because we have not
sold a sufficient number of DynaTraX(TM) products since our acquisition of the
technology, we can not judge the level of performance of this product. We also
can not determine at this time whether our DynaTraX(TM) product 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.
-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.
Our dependence on third parties could hamper our growth prospects.
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 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. 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. 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.
We may be unable to protect certain 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, which have been issued to date only in England, we intend
to rely substantially on unpatented, proprietary information and know-how. We
are also presently prosecuting the patent applications filed in the United
States and Europe.
-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 if such coverage can be
obtained on affordable terms.
We cannot predict at this time our potential liability if customers make
claims against us asserting that DynatraX(TM), IDS or other new products fail to
function.
Management has acquired a significant interest in Tech Labs 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 Tech Labs is likely to remain in the
hands of management.
-7-
The offering price of the shares was arbitrarily determined and may not reflect
ordinary investment criterion.
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.
We manufacture and sell the IDS system under a license agreement
We entered into an Amended Joint Marketing Agreement as of October 1, 1997
with Elektronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety
Equipment, AG and a Confidentialty and Manufacfuring Agreement with the same
parties and dated the same date, pursuant to which 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 agreements can be terminated
earlier upon a default of any material obligation. If the license is terminated,
we would be unable to use EAG's technology in our perimeter detection system
products. Even if the agreements remain in effect until September 30, 2007, it
will be necessary at that time to negotiate a new agreement or license or
acquire a suitable replacement technology.
-8-
Potential unavailablility of components; limited or single source of supply.
Current inventory component purchases for all our products are made from
OEMs, brokers and other vendors. We typically have more than a single source of
supply for each part, component or service . 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.
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. 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. 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, Mr. Carmine O.
Pellosie, Jr. and Mr. Richard Rice. Mr. Ciongoli and Mr. Bjorndal are both
employed by Tech Labs. 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.
We may need additional capital in the future and may not be able to secure
adequate funds in terms acceptable to us.
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 we may be unable to secure
such financing. 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.
Since this is a direct participation offering and there is no underwriter, there
may be less due diligence performed.
This offering is a direct participation offering. No underwriter has been
retained by Tech Labs to sell these securities. One of the functions of an
underwriter, along with such underwriter's counsel, is the performance of due
diligence in addition to that performed by our counsel. Without an underwriter,
we do not have the benefit of an additional due diligence review.
This prospectus contains forward-looking information.
This prospectus contains forward-looking information. These statements are
not guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements.
This prospectus contains forward-looking statements that have been made
under the provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are not historical facts but rather are based
on current expectations, estimates and projections about our industry, our
beliefs, and assumptions. Words such as " anticipates," "expects," "intends",
"plans," "believes," "seeks," "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties include those described in "Risk Factors" and elsewhere
in this prospectus.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We undertake no obligation to update these statements or publicly
release the result of any revisions to the forward-looking statements that we
may make to reflect events or circumstances after the date of this prospectus or
to reflect the occurrence of unanticipated events.
-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
Assembly and testing of DynaTraX(TM) $100,000 $100,000
assets
Product Development of Additional
DynaTraX(TM) Products 375,000 750,000
Marketing and Sales 560,000 1,000,000
Completion of DynaTraX(TM) Inventory 275,000 500,000
IDS Enhancement, Sales, Marketing 150,000 250,000
Working capital primarily
for accounts receivable and
inventory growth 440,000 800,000
---------- ----------
Total $1,900,000 $3,400,000
The foregoing represents our best estimate of the net proceeds of the
offering based on current planning and business conditions. Tech Labs management
has broad discretionary authority to determine the exact allocation of the
proceeds for the purposes set forth above and the timing of the expenditures,
which may vary significantly depending upon the exact amount of funds raised,
the time and cost involved in deploying the funds and other factors. Pending
usage of the funds, as set forth above, the funds will be invested in short-term
interest bearing securities or money market funds.
The exact allocation of the proceeds for the purposes set forth above and
the timing of the expenditures may vary significantly depending upon the exact
amount of funds raised, the time and cost involved in deploying the funds and
other factors.
We believe that the proceeds from the minimum offering in addition to
revenues from operations will be sufficient to fund our operations for the next
12 months, although such development would be at a reduced pace than if the
maximum offering proceeds were received. If an amount less than maximum offering
is raised, we may be required to delay, scale back, or eliminate parts of our
development plan or obtain funds through additional financing, including loans
or offerings of our securities. We presently have no agreements or
understandings with respect to any future financing or loan agreements.
-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
Third Quarter................................... 3.25 1.50 3.625 1.625
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 October __, 1999, there were ___ holders of record of our common
stock.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and anticipate
that, for the foreseeable future, we will continue to retain any earnings for
use in the operation of our business. Payment of cash dividends in the future
will depend upon our earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements, and
other factors deemed relevant by our Board of Directors.
-12-
CAPITALIZATION
The following table sets forth as of June 30, 1999:
o on an actual basis; and
o as adjusted to reflect 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:
Period Ended
June 30, 1999
-----------------------------------
As Adjusted
---------------------
Actual Minimum Maximum
-------- -------- --------
Total Debt: $121,887 $121,887 $121,887
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(1)............ $35,757 $41,471 $45,757
Additional paid-in capital............................. $1,828,346 $3,722,632 $5,218,346
Accumulated deficit.................................... ($725,696) ($725,696) ($725,696)
Total stockholders' equity (deficiency)................ $1,138,407 $3,038,407 $4,538,407
Total Capitalization................................... $1,260,294 $3,160,294 $4,660,294
- --------
(1) Excludes (A) 75,000 shares issued subsequent to June 30, 1999 pursuant to a
consulting agreement and (B) shares issuable upon the exercise of
outstanding (1) options and warrants and (2) options that may be granted
pursuant to certain consulting agreements and under our stock option plan.
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, defined as 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 June 30, 1999 (unaudited), was $1,138,407 or
$.32 per common share.
Giving effect to the issuance after June 30, 1999 of 571,428 shares
assuming an offering price of $3.50 per share (minimum) and 1,000,000 shares
assuming an offering price of $3.50 per share (maximum) and the receipt of the
net proceeds by Tech Labs, the pro forma net tangible book value would have
been:
o $3,038,407 or $.73 per share upon completion of the minimum offering; and
o $4,538,407 or $.99 per share upon completion of the maximum offering.
This represents an immediate increase in net tangible book value of $.41
per common share (minimum offering) and $.67 per common share (at maximum
offering) to the existing shareholders and an immediate dilution of $2.77 per
common share (minimum offering) and $2.51 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 June 30, .32 .32
1999 (unaudited)
Increase per common share attributable to .41 .67
payments by new investors ----- -----
Net tangible book value per share at June 30, .73 .99
1999 (unaudited), on a pro forma basis ----- -----
reflecting the proceeds of this offering
Dilution of net tangible book value per share to $2.77 $2.51
new shareholders(1) ----- -----
- ---------
(1) Represents dilution of approximately 79% with the completion of the minimum
offering and 72% with the completion of the maximum offering, respectively,
to purchasers of common stock offered hereby.
-14-
The following table sets forth on June 30, 1999, on a pro forma basis, the
differences between existing shareholders and new investors in the offering with
respect to the number of shares of common stock purchased, the total
consideration paid, and the average price per share paid by existing
shareholders and by new investors.
Minimum Offering(1)
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders 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)
Percentage of
Percentage of Total
Outstanding Consideration Consideration Average Price
Number Shares Paid Paid per Share
Existing
Shareholders 3,575,660 77% $ 35,757 1% $0.01
New Investors 1,000,000 23% $3,500,000 99% $3.50
Total 4,575,660 100% $3,535,757 100% --
- --------
(1) Based on the number of outstanding shares as of June 30, 1999 and excludes:
o 75,000 shares issued subsequent to June 30, 1999 pursuant to a consulting
agreement;
o 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;
o options to purchase 50,000 shares exercisable at $1.85 per share pursuant
to a consulting agreement;
o options to purchase an aggregate of 190,000 shares exercisable at $.50 per
share granted under Tech Lab's stock option plan for officers and
directors;
o options to purchase 75,000 shares exercisable at $1.12 per share; and
o 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."
-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."
Period Ended Period Ended
December 31, June 30,
-------------------------------------------- --------------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(unaudited)
Statement of Operations Data:
Sales $647,015 $444,322 $552,486 $172,319 $160,304
Cost of Sales 337,269 446,457 386,425 173,182 112,213
-------- -------- -------- -------- --------
Gross Profit 309,746 (2,135) 166,061 (863) 48,091
Operating Expenses
General and administrative 246,915 257,826 311,716 188,569 298,311
Depreciation and
amortization 10,849 7,278 18,133 -- --
-------- -------- -------- -------- --------
Income (loss) from operations 51,982 (267,239) (163,788) (189,432) (250,220)
Other income-- Interest 388 166 1,654 83 -0-
Interest expense 3,188 6,996 6,970 3,498 -0-
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes 49,182 (274,069) (169,104) (192,847) (250,220)
Provision for income -0- -0- -0- -0- -0-
Net income (loss) 49,182 (274,069) (169,104) (192,847) (250,220)
Net income (loss) per share $0.04 ($0.18) ($0.06) ($0.09) ($0.08)
Period Ended Period Ended
December 31, June 30,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
Balance Sheet Data: (unaudited)
Total assets $459,711 $609,526 $1,018,597 $590,126 $1,260,294
Working Capital 267,436 405,548 851,540 384,671 1,026,243
Current Portion of long-term debt 34,445 34,445 32,742 32,742 31,131
Long-term debt (less current portion) -0- -0- -0- -0- -0-
Shareholders' equity $296,184 $429,615 $ 863,727 $424,268 $ 1,138,407
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
We were incorporated in 1947 as a New Jersey corporation. Our focus has
historically been the design, manufacture, and sale of rotary switches. Switches
have been a significant part of our revenue for five decades. In 1995, to
augment revenues, we sought business in transformers and contract manufacturing.
In 1998, we made a shift to new product development. In 1998, we also made our
first sales of the IDS product, and in April of 1999, we completed the
acquisition of the DynaTraX(TM) switch and technology. We will continue to focus
on IDS and DynaTraX(TM) sales and development of additional products using these
technologies.
The following table sets forth the components of our revenues for each of
our major business activities in 1996, 1997, and 1998 and for the six months
ended June 30, 1998 and 1999 and their approximate percentage contribution to
revenues for the period indicated:
PRODUCT TYPE 1996 % of Revenue 1997 % of Revenue 1998 % of Revenue
- ------------ ---- ------------ ---- ------------ ---- ------------
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%
======== ===== ======== ====== ======== ======
Six Months Ended
June 30,
------------------------------------------------------------
(unaudited)
PRODUCT TYPE 1998 % of Revenue 1999 % of Revenue
- ------------ ---- ------------ ---- ------------
Rotary Switches $ 97,016 56.3 $ 76,160 47.5
IDS Sensors 22,229 12.9 47,474 29.6
Transformers/Coils 36,876 21.4 22,006 13.8
Contract Manufacturing 16,198 9.4 14,664 9.1
-------- ------ -------- ------
Totals $172,319 100.0% $160,304 100.0%
======== ====== ======== ======
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
June 30, 1998 and 1999:
Six Months Ended
June 30,
-----------------------------------
(unaudited)
PRODUCT TYPE 1997 1998 Net Change 1998 1999 Net Change
- ------------ ---- ---- ---------- ---- ---- ----------
Rotary Switches 44.2% 45.0% 0.8% 44.2% 45.0% 0.8%
IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6%
Transformers/Coils 22.7% 25.0% 2.3% 22.7% 25.0% 2.3%
Contract Manufacturing 20.0% 22.8% 2.8% 20.0% 22.8% 2.8%
Unallocated company expenses(1) (31.2%) (13.1%) 18.1% (38.8%) (13.1%) 25.7%
Total company gross profit % (0.5%) 30.1% 30.6% (0.05%) 30.0% 30.5%
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
Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998 --
Unaudited.
Sales were $160,304 for the first six months of 1999 as compared to
$172,319 for the six months ended June 30, 1998. The decrease was due to limited
marketing efforts and the lack of new product introductions.
Cost of sales of $112,213 for the six months ended June 30, 1999 compared
to $173,182 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 increased by $109,742 or 58%
in the first half of 1999 as compared to the prior period in 1998 which resulted
from higher than normal expenses in 1999 due to professional fees associated
with the acquisition of DynaTraX(TM).
Losses from operations of ($250,220) in the first half of 1999 increased by
$57,373 or 30% compared to losses of ($189,432) for the prior period as a direct
result of higher 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 lower costs IDS 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 six months
ended June 30, 1998 and 1999 we have had difficulty meeting our working capital
requirements, which was a result of lower sales, limited marketing efforts, and
continued losses from operations. During the years ended December 31, 1997 and
1998, we completed sales of our common stock which raised approximately $407,000
in 1997 and $603,716 in 1998. During calendar 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.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.
Our Year 2000 review is in progress. We believe that all of our own
computer systems and products will be compliant before 2000.
o Products. The DynaTraX(TM) system software runs on Microsoft Windows
NT, which is Year 2000 compliant. The DynaTraX(TM) hardware is also
compliant. The IDS and the various electronic and electrical
components that we manufacture neither contain microprocessors nor are
they reliant on time or date software. We believe such equipment to be
unaffected by the Year 2000 problem.
o Vendors. All of our components are bought "off the shelf" and are
manufactured by numerous companies. We believe we will be able to
replace supplies from any vendor experiencing manufacturing
difficulties due to the Year 2000 problem.
o IT Systems. We conducted a survey of our information technology
hardware and and have scheduled upgrades and/or replacements of all
identified Year 2000 non-compliant hardware and software prior to
2000.
o Costs. We do not currently expect that costs associated with Year 2000
compliance will materially affect our operations or financial
position. However, if we discover Year 2000 problems in the future, we
may not be able to develop, implement, or test remediation or
contingency plans in a timely or cost-effective manner.
o Risks. Failure of third party products, such as a breakdown in
telephone, electric service or other utilities, e-mail, voicemail or
the World Wide Web could cause a disruption in our business
operations. Disruptions in services provided by banks, telephone
companies and the U.S. Postal Service could negatively impact our
business. Although we believe that our products are Year 2000
compliant, it is possible that they may not contain the date codes
necessary to operate in the year 2000. Any failure of the products to
perform could result in the delay or cancellation of product orders
and the diversification of managerial and technical resources from
product development and other business activities to attend to Year
2000 issues.
-18-
BUSINESS
General
Tech Laboratories, Inc., which was incorporated in 1947, 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. 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) Asset Acquisition
On April 27, 1999, we completed the acquisition of the DynaTraX(TM) system,
from NORDX/CDT, INC. for a purchase price of $500,000. 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, including internet, high-speed data, digital voice and video; and,
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.
We may be unable 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) 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 initially intend to market the DynaTraX(TM) product in the eastern portion of
the United States with expansion to other markets over time. There are at least
four companies that have products that compete with the DynaTraX(TM) product.
However, we believe none of these competitors offer a product with all of the
features or capabilities of DynaTraX(TM).
-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 from several different
sources. One source of competition is the designated employees of large
organizations which have been hired to manage and maintain their internal
networks. However, we believe the need to reduce costs through the
implementation of automated cost saving technologies such as the DynaTraX(TM)
technology, will provide Tech Labs with market opportunities.
Another group of competitors which 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, which is a technology utilized by a number
of companies, can be regarded as a competing technology. However, V-LAN
switching is limited to a specific type of network (Ethernet) and not able to
support many tasks which our DynaTraX(TM) technology is designed to complete.
These tasks are:
o rearranging network physical layer connections e.g.s moves, adds and
changes of equipment such as computer terminals; fax machines; and
printers;
o testing circuits;
o managing and mainatining end-to-end network configuration; and
o maintaining asset inventory records.
We regard V-LAN as complementary to DynaTraX(TM) circuit switching since
they can work together to provide a more comprehensive network
management/maintenance solution. The four competitors all have greater financial
and other resources and currently account for substantially all of the existing
market.
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. Pellosie, Jr., a
director of our company and president of International Logistic, Inc., a
privately owned company that distributes police, security, safety and
communication security devices. In May 1998, we acquired Mr. Pellosie's interest
in Tech Logistics. The IDS, which is an active infrared sensor system able to
detect intrusions by humans or vehicles into protected areas, was originally
designed for military applications.
We have recently begun marketing IDS to government agencies and private
industry for use in nuclear, industrial, and institutional installations. We
have also begun to manufacture and market products currently sold by
International Logistics Inc., as well as new security, police training, bomb
detection and disposal equipment, anti-terrorism countermeasures and lie
detection devices. New devices are intended to include hand-held letter bomb
detectors, hand-held weapons detectors, video surveillance equipment as well as
integrated audio-visual surveillance vehicles for government and police use.
We have entered into an 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.
We are marketing our IDS product to the security and anti-terrorist
industry. We believe this is a growing industry and that terrorist incidents and
security breaches serve to increase the demand for our products. We have
recently completed the sale of an IDS to Los Alamos National
-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 approval for the IDS from the U.S. Air Force 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. Subsequent to this approval, Tech Labs has received a
blanket order to provide 50 IDS systems to the U.S. Air Force. Tech Labs has as
of the date of this Prospectus shipped 6 systems under its blanket order to the
TASS prime contractor. Pricing of our products is based upon obtaining a margin
above cost of production. The margin we will accept varies with quantity and the
channels of distribution.
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:
o Industry announcements and presentations through business and industry
trade groups;
o Establishing relationships with several industry recommenders and
specifiers, who are consultants and engineering companies to help
present our cable management and network physical layer solutions to
the end-users and their contract management or system integrators; and
o A promotional campaign of ads, mailings, and on-line Web site media,
targeted at the end-user communications managers, their consultants
and advisers.
Initially, we will focus on the communication/computer centers in the
eastern part of the United States. We plan to divide this area into four sales
regions:
o New England states;
o New York metropolitan area;
o Mid-Atlantic/Washington DC area; and
o South East Coast states.
We will quickly set up several regional representatives, sales agents,
and/or certified value added resellers (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.
We also plan to expand on the initial program by opening up additional
sales areas in the country and overseas. We contemplate doing this by adding
regional representatives or agents, or through current VAR organizations that
have a national presence.
-22-
In the established East Coast area, we intend to set up three regional
sales/service centers:
o Massachusetts;
o Washington, DC; and
o Florida
We will repeat the process in the other areas as they become established.
We plan to use our sales/service centers to introduce new, enhanced
versions of the DynaTraX(TM) system and to provide territory customer support
services. We also plan to set up a separate marketing campaign and sales
operations to build markets for our expanded high-speed, customer-premise
DynaTraX(TM) gateway networking switch.
In addition, working with VARs, we will focus on providing turn-key,
private customer-premise digital gateway exchange networking systems. We will
target real estate developers, builders and/or owners of private communities,
commercial community retail complexes and shared rental buildings to enable them
to control and resell Internet, Long Distance, CATV, and building automation
information services going into and out of their private facilities.
Although we believe that we can be profitable by the fourth 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 approval from the U.S. Air Force for inclusion of
the IDS products in its TASS program. We received our first blanket order for
our IDS product in May 1999.
Our plan to become profitable included the acquisition of the DynaTraX(TM)
product in April 1999 and to sell the finished DynaTraX(TM) inventory we
acquired.
Because we have incurred substantially all our anticipated research and
development costs with respect to our IDS product and have had it approved by
the Air Force for inclusion in the TASS program, and have completed the purchase
of the DynaTraX(TM) switch, technology and marketing materials, upon completion
of this offering, we believe we will have the funds necessary to market our
products and achieve profitability.
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.
Source of Supply
Current inventory component purchases for all our products are made from
OEMs, brokers, and other vendors. We typically have more than a single source of
supply for each part, component, or service, but from time to time we may
utilize a single supplier for a particular part or component. During the year
ended December 31, 1998, Wiggins Plastics was our largest supplier with 14.2% of
our overall inventory purchases. These purchases were primarily used in the
manufacture of electromechanical switches. During the year ended December 31,
1997, Wiggins Plastics accounted for 16.8% of our supply of inventory. Those
components were in products that produced approximately 25.7% of our revenue for
such year. We have no long-term agreements with any of our suppliers.
Order Backlog
The backlog of written firm orders for our products and services as of June
30, 1999, was as follows:
As of June 30, 1999: $485,440
As of June 30, 1998: $159,109
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.
-23-
Employees
As of June 30, 1999, we had 11 full-time employees, including our officers,
seven of whom were engaged in manufacturing, one in repair services, one in
administration and financial control, one in engineering and research and
development, and one in marketing and sales.
Facilities; Manufacturing
Our corporate headquarters and manufacturing facility is located in North
Haledon, New Jersey. Our primary manufacturing and office facility is a
one-story building that is adequate for our current needs. We lease this
facility of 8,000 square feet, from a non-affiliated person, under a lease that
ends in May, 2001. The annual base rent is $48,000 and includes property taxes
and other adjustments. We believe our premises are adequate for our current
needs and that if and when additional space is required, it would be available
on acceptable terms.
We are an integrated manufacturer and, accordingly, except for plastic
moldings and extrusions, produce nearly all major subassemblies and components
of our devices from raw materials. We purchase certain components from outside
sources and maintain an in-house, light machine shop allowing fabrication of a
variety of metal parts and castings, complete tool room for making and repairing
dies, a stamping shop and an assembly shop with light assembly presses. Our test
lab checks and tests our products at various stages of assembly and each
finished product undergoes a complete test prior to shipment.
We anticipate that we will either manufacture any new products ourselves or
subcontract their manufacture, in whole or in part, to others. We believe that
personnel, equipment, and/or subcontractors will be readily available as and
when needed.
We offer warranties on all our current products, including parts and labor
for one year.
We have limited research and development facilities and currently employ
one (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. Pellosie, Jr. 57 Secretary and Director
Louis Tomasella 58 Director
Richard J. Rice 62 Director
Each director is elected for a period of three years and until his
successor is duly elected by shareholders and qualified. Officers serve at the
will of the board of directors.
Bernard M. Ciongoli became our president and a director in late 1992, and
became Treasurer in 1998. From 1990 through 1991 he served as president of
HyTech Labs, a company engaged in sales and servicing of electronic test
equipment. During the years of 1987 to 1990, he acted as the principal owner and
President of Bernco Developers, a real estate developer. Mr. Ciongoli holds a
degree in electronic engineering from Paterson Institute of Technology.
Earl M. Bjorndal has been with us in various capacities since 1981. He has
been a director since 1985, and became a vice president in 1992. He is a
graduate of the New Jersey Institute of Technology with both bachelor's and
master's degrees in industrial engineering.
Carmine O. Pellosie, Jr. has been a director since the formation of Tech
Logistics, Inc. in 1997 and has been our Secretary since April 1999. Since
January 1, 1999, he has been the Controller of the Passaic County Department of
Health and Human Services. Prior to January 1999, he was, for more than five
years, president of International Logistics, Inc.
Louis J. Tomasella has served as director since 1994 and was treasurer from
1994 through 1998. He is the owner of Tomco Realty, a general real estate
brokerage firm in New Jersey. Mr. Tomasella holds a bachelors degree in liberal
arts from Rutgers University.
Richard J. Rice has served as a director since July 1999. He has served as
chairman of Teletalk International Services, Inc. since June 1994. He also
serves as president and CEO of Richard J. Rice, Inc. since November 1993. Prior
to 1993 Mr. Rice was president and CEO of Long Distance Services, Inc. for more
than five years.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
president. No other officer has received compensation in excess of $100,000 in
any recent fiscal year.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- -------------
Shares of
Common Stock
Issuable Upon
Name and 1998 Exercise of
Principal Position Year Salary($) Bonus($) Options
------------------ ---- --------- -------- -------
Bernard M. Ciongoli 1998 $125,000 0 300,000
President, Treasurer
The following table sets forth information realting to all options granted:
Option Grants in Fiscal Year 1998
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in
Options Granted Fiscal Year Exercise Expiration
Name (#)(1) (%)(2) Price($)(3) Date
---- --------------- ------------ ----------- ----------
Bernard M. Ciongoli 300,000 85.7 $.50 10/1/03
Earl M. Bjorndal 50,000 14.3 $.50 10/1/03
Carmine O. Pellosie, Jr. 0 N/A N/A N/A
We have a five (5) year employment contract with Mr. Ciongoli that
commenced October 1, 1998, and amended June 18, 1999. Mr. Ciongoli is currently
compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also
entitled to receive two (2%) percent of our sales in excess of $1,000,000 during
any year he is employed by ua. In addition, Mr. Ciongoli was also granted an
option exercisable for five (5) years from date of grant to purchase 300,000
shares of stock at $.50 per share, such option to vest in increments of 100,000
shares per annum on each anniversary date of the agreement commencing October 1,
1998. The agreement is automatically renewed for one (1) year unless either
party terminates the agreement in writing at least 180 days prior to the
expiration of the term or of any renewal period.
In 1996 we granted to Mr. Ciongoli an option to purchase 100,000 shares of
common stock exercisable for five (5) years at $.50 per share under our stock
option plan.
-25-
We do not have employment agreements with any other officer or other
employee. Our directors are not presently compensated.
Consultants
We have entered into a consulting agreement with MPX Network Solutions,
Inc. The term of the agreement is for one year expiring on March 14, 2000,
renewable for an additional one year period. 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. Under the
terms of the agreement, the consultant will provide certain marketing and
financial services. In consideration for entering into the agreement, which has
an initial term of two years, we issued to the consultant a warrant to purchase
50,000 shares of common stock at $1.85 per share exercisable for five (5) years,
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 Tech Lab's products 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, to provide certain financial and
business consulting services, which include assisting our management in
developing its business plan, introducing Tech Labs to members of the financial
community, and assisting us in our financial planning. Under the terms of the
consulting agreement, which may be terminated by us upon ten (10) days' prior
written notice, we (a) issued 100,000 shares to Mint, 25,000 shares of which
were issued in June 1999 and 75,000 shares were issued in October 1999; and, (b)
granted to consultant an option to purchase up to 200,000 shares of common
stock, such options to be exercisable to purchase 100,000 shares at $1.25 per
share and options to purchase 100,000 shares at $1.75 per share. The options
vests in full if the agreement has not been terminated by Tech Labs prior to
July 10, 1999. The shares underlying the options have certain registration
rights.
Stock Option Plan
On December 11, 1996, the Board of Directors adopted a stock option plan
for officers, directors, and other key employees. Options issued pursuant to the
stock option plan are meant to qualify as incentive stock options within the
meaning of Secion 422A of the Internal Revenue Code. A total of 450,000 shares
were set aside for this purpose, and options for an aggregate of 190,000 shares
have been granted at an exercise price of $.50 per share.
CERTAIN TRANSACTIONS
The information set forth herein describes certain transactions between
Tech Labs 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. Pellosie, Jr. to market security devices distributed by
International Logistics, Inc., a private-owned company, of which Mr. Pellosie
was the president and principal shareholder. Mr. Pellosie became a director of
Tech Labs at that time. In May 1998, we acquired Mr. Pellosie's interest in Tech
Logistics, Inc. for 15,000 shares of our common stock. 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 (a) by persons known to us to own more
than 5% of such stock, and (b) 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(1) Offering(1)
- ---- ------------- -------- --------
Minimum Maximum
------- -------
Bernard M. Ciongoli(2) 720,000 20.14% 17.36% 15.74%
Earl Bjorndal(3) 248,344 6.95% 5.99% 5.43%
Carmine O. Pellosie, Jr.(4) 40,000 1.12% * *
Louis Tomasella(5) 120,000 3.36% 2.89% 2.62%
Richard J. Rice 80,000 2.24% 1.92% 1.75%
All officers and directors as a 1,208,344 33.80% 29.13% 26.40%
group (4 persons)(2-5)
- -----------
* less than 1%.
(1) Excludes 75,000 shares issued to a consultant subsequent to June 30, 1999.
(2) 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.
(3) Includes 50,000 shares issuable upon the exercise of immediately
exercisable options granted under our stock option plan.
(4) 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.
(5) Includes 20,000 shares issuable upon the exercise of immediately
exercisable options granted under our stock option plan.
PLAN OF DISTRIBUTION
We will receive proceeds from the sale of 1,000,000 shares, aggregating a
maximum of $3,500,000, before deducting offering expenses, if all such shares
are sold. We will not receive the proceeds of any sale of the securities by any
selling securityholders. 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 any sales 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 Hudson United Bank. If a minimum of 571,428
shares offered for sale in our direct participation offering are not sold within
ninety (90) days following the effective date of the registration statement of
which this prospectus is a part, the offering will automatically terminate
unless extended for up to an additional ninety (90) days in our sole discretion
and all funds received from the sale of the shares will be returned to
-28-
the purchasers thereof with interest if the funds are held in escrow more than
90 days, at the same rate as paid by the escrow bank, and without interest if
held less than 90 days. At the time that 571,428 shares have been sold prior to
the expiration of 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 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 of 1933, and any discounts, commissions, or concessions
received by any such underwriters, dealers, or agents may be deemed to be
underwriting discounts and commissions. We anticipate that we will pay a
commission or underwriting fee to such brokers or dealers of no more than 10%.
If, at some time, we meet the requirements of the NASDAQ SmallCap Market
for listing of our shares, we will apply for listing. If our shares should be
accepted for listing thereon, then certain underwriters may engage in passive
market making transactions in our common stock in accordance with Rule 103 of
Regulation M.
In order to comply with the applicable securities laws, if any, of certain
states, the securities will be offered or sold in such states through registered
or licensed brokers or dealers in those states. In addition, in certain states,
the securities may not be offered or sold unless they have been registered or
qualified for sale in such states or an exemption from such registration or
qualification requirement is available and with which we have complied.
Limited state registration
We anticipate that we will primarily sell the shares in a limited number of
states, depending on the location and registration of any selling broker or
dealer that it locates. We will initially seek to qualify or register the sales
of the shares in the states of New York, New Jersey, Connecticut, California,
Pennsylvania, Michigan, Texas and Florida. 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 shares may be sold to purchasers from time to
time directly by and subject to the discretion of the selling securityholders.
The selling securityholders may, from time to time, offer their securities for
sale through underwriters, dealers, or agents, who may receive compensation in
the form of underwriting discounts, concessions, or commissions from the selling
securityholders and/or the purchasers of the securities for whom they may act as
agents.
Any underwriters, dealers, or agents who participate in the distribution of
the securities may be deemed to be "underwriters" under the 1933 Act, and any
discounts, commissions, or concessions received by any such underwriters,
dealers, or agents may be deemed to be underwriting discounts and commissions
under the 1933 Act. The securities sold by the selling securityholders may be
sold from time to time in one or more transactions at an offering price that is
fixed or that may vary from transaction to transaction depending upon the time
of sale or at prices otherwise negotiated at the time of sale. Such prices will
be determined by the selling securityholders or by agreement between the selling
securityholders and any underwriters.
-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 of 1933 and we would be required to
obtain a no-objection position from the National Association of Securities
Dealers, Inc. regarding the underwriting and compensation terms entered into
between Tech Labs and such potential broker-dealer. In addition, we would be
required to file a post-effective amendment to the registration statement of
which this prospectus is a part to disclose the name of such selling
broker-dealer and the agreed underwriting and compensation terms. In order to
comply with the applicable securities laws, if any, of certain states, the
securities will be offered or sold in such states through registered or licensed
brokers or dealers in those states.
Pursuant to Regulation M of the General Rules and Regulations of the
Securities and Exchange Commission, any person engaged in a distribution of
securities, including on behalf of a selling securityholder, may not
simultaneously bid for, purchase or attempt to induce any person to bid for,
purchase, or attempt to induce any person to bid for or purchase securities of
the same class for a period of five business days prior to the commencement of
such distribution and continuing until the selling securityholder, or other
person engaged in the distribution, is no longer a participant in the
distribution.
We may select dealers who are members of the National Association of
Securities Dealers, Inc. to sell the shares, and may pay commissions of up to
[10]% to such dealers. No underwriter or dealer has made any firm commitment to
purchase or sell any of the Shares offered hereby.
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 90,045 outstanding shares and 50,000 shares of common stock
issuable upon exercise of warrants held by the selling securityholders have been
registered pursuant to the registration statement under the Securities Act, of
which this prospectus forms a part, for sale by such holders. The shares may be
sold subsequent to the effective date of the offering if a current prospectus
relating to the securityholder shares is in effect and the securityholder shares
are qualified for sale. None of the shares being registered by the selling
securityholders pursuant to this registration statement are being offered for
sale in connection with the offering. The shares of common stock and the shares
underlying any warrants are not, however, subject to a lock-up.
We will not receive any proceeds from the market sales of the
securityholder shares, although we will receive the proceeds from the exercise
of the warrants held by the selling securityholders. Tech Labs is paying all
costs and expenses of registering the securityholder shares. Sales of the
securityholder shares or the potential of such sales could have an adverse
effect on the market price of our common stock. See "Risk Factors -- Shares
Eligible for Future Sale."
The selling securityholders and the number of shares held by each are as
listed below:
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
----------------------- ------
Scott Coby.................................................... 45,045
Coby Capital Corporation...................................... 50,000
David Harris.................................................. 45,000
--------
TOTAL..................................................... 140,045
There are no other material relationships between any of the selling
securityholders and Tech Labs, nor have any such material relationships existed
within the past three years.
The sale of the securityholder shares may be effected from time to time in
transaction, which may include block transactions, in:
o the over-the-counter market;
o in negotiated transactions; or
o a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
Selling securityholders may effect such transactions by selling their
securities directly to purchasers
o through broker-dealers acting as agents; or
o to broker-dealers who may purchase shares as principals and thereafter
sell the securities from time to time in the market in negotiated
transactions or otherwise.
Broker-dealers, if any, may receive compensation in the form of discounts,
commissions, or concessions and/or the purchasers from whom such broker-dealers
may act as agents or to whom they may sell as principals or otherwise, which
compensation as to a particular broker-dealer may exceed customary commissions.
-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:
o To the extent such securities are sold at a fixed price or by option
at a price other than the prevailing market price, such price would be
set forth in this Prospectus;
o If the securities are sold in block transactions and the purchaser
wishes to resell, such arrangements would be described in this
Prospectus;
o If the compensation paid to broker-dealers is other than usual and
customary discounts, commissions, or concessions, disclosure of the
terms of the transaction would be included in this Prospectus.
This prospectus would also disclose if there are other changes to the
stated plan of distribution, including arrangements that either individually or
as a group would constitute an orchestrated distribution of the securityholder
shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of securityholder shares may not simultaneously
engage in market making activities with respect to any securities of Tech Labs
for a period of at least two (and up to nine) business 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(1) common shares outstanding. Other than shares sold to affiliates of
Tech Labs, the shares sold in this offering will be freely tradeable without
restriction under the Securities Act of 1933. Of the 3,575,660 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 under Rule 144.
No sales are permitted, however, unless the current information about Tech
Labs prescribed by Rule 144 is publicly available, sales are made through
brokers or market makers in the manner prescribed by the rule, and all other
requirements of the rule are met. The restricted shares outstanding have been
held for varying periods of time, and certain of such shares have been held for
the requisite periods and may be sold at any time subject to the volume
limitations set forth above. If there are significant sales of our common shares
by existing shareholders or sales of any of the shares underlying warrants when
such shares have been registered pursuant to an effective registration
statement, the price of our common shares may go down.
There is presently no agreement by any holder, including our "affiliates",
of "restricted" shares not to sell his shares.
The Securities and Exchange Commission has adopted Rule 15g-9 which
requires broker-dealers who recommend "penny stocks" to persons other than
established customers and accredited investors to make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale.
The regulations that generally define a "penny stock" to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include an equity security listed on NASDAQ
and an equity security issued by an issuer that has (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.
There is a very limited market for our common stock and a more substantial
market may not develop in the future; or if developed, be maintained, or that
the market price of our common stock will not decline. Even if a more active
trading market does develop, the market price of our common stock is likely to
be highly volatile and could be subject to wide fluctuations in response to
factors such as:
o actual or anticipated variations in our quarterly operating results;
o announcements of new product or service offerings;
o future technological innovations;
o new commercial products;
o changes in regulation;
o changes in financial estimates by securities analysts;
o conditions and trends in the electrical, electronic component,
security, and network switching industries;
o changes in the economic performance and/or market valuations of other
security and network switching companies; and
o general market conditions and other general factors.
Furthermore, the stock markets, and in particular, the OTC Bulletin Board
and NASDAQ stock markets, have experienced extreme price and volume fluctuations
that have particularly affected the market prices of many technology companies,
and have often been unrelated or disproportionate to the operating performance
of such companies. Additionally, the market price of our common stock could be
adversely affected by losses and other negative news regarding one or more other
companies, despite the fact that such information is not related to us
specifically. The trading prices of many technology companies' stocks are at or
near their historical highs. Such high trading prices may not be sustained.
These broad market factors may adversely affect the market price of our common
stock. In addition, general economic, political, and market conditions, such as
recessions, changes in interest rates, or international currency fluctuations,
may adversely affect the market price of our common stock.
- ----------
(1) Does not give effect to the issuance of 75,000 shares subsequent to June
30, 1999 pursuant to a consulting agreement.
-33-
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 5,000,000 shares of common stock
having a par value of $.01 each, of which 3,575,660(1) shares are currently
outstanding and 11,316 shares are held in treasury. There are currently
approximately [___] holders of common stock.
Common Stock
Each share of common stock is entitled to one vote on all matters submitted
to a vote of shareholders. The common stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares may
elect all of the directors of Tech Labs. The common stock does not have any
preemptive rights. Stockholders holding a majority of the voting power of the
capital stock issued and outstanding and entitled to vote, represented in person
or by proxy, are necessary to constitute a quorum at any meeting of our
stockholders, and the vote by the holders of a majority of such outstanding
shares is required to effect certain fundamental corporate changes such as
liquidation, merger or amendment of our Certificate of Incorporation.
Holders of common stock are entitled to receive dividends pro rata based on
the number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor. In the event of the liquidation,
dissolution or winding up of the affairs of our company, all assets and funds of
our company remaining after the payment of all debts and other liabilities shall
be distributed, pro rata, among the holders of the common stock. Holders of
common stock are not entitled to preemptive, subscription, or conversion rights,
and there are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares of common
stock offered hereby will be when issued, fully paid and non-assessable.
Stock Options, Stock Option Plan, and Other Agreements to Issue Stock
We have outstanding 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.
Tech Labs 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. 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 and are
obligated to issue an additional 37,500 shares as of July 10, 1999, and an
additional 37,500 shares as of August 10, 1999.
- ----------
(1) Does not give effect to the issuance of 75,000 shares issued subsequent to
June 30, 1999 pursuant to a consulting agreement.
-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.
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 Periods Ended For the Periods Ended
December 31 June 30,
------------------------------ ------------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(Unaudited)
Current Assets:
Cash $ 166,173 $ 532,780 $ 109,414 $ 204,510
Marketable Securities, at the Lower of
Cost or Market (Note 1) 59,343 56,693 59,124 61,923
Accounts Receivable, net of Allowance
of $10,000 in 1998 and $10,000 in 1997 90,734 143,462 158,802 128,255
Inventories (Notes 1 & 2) 269,209 270,118 220,619 750,085
Prepaid Expense 0 3,357 2,570 3,357
---------- ---------- ---------- ----------
Total Current Assets $ 585,459 $1,006,410 $ 550,529 $1,148,130
---------- ---------- ---------- ----------
Property, Plant and Equipment, at Cost (Note 1):
Leasehold Improvements 2,247 2,247 2,000 2,247
Machinery, Equipment and Instruments 223,884 230,137 223,884 330,114
Furniture and Fixtures 67,425 67,425 67,425 67,425
---------- ---------- ---------- ----------
$ 293,556 $ 299,809 $ 293,309 $ 399,786
Less: Accumulated Depreciation & Amortz 281,029 299,162 262,902 299,162
---------- ---------- ---------- ----------
Net, Property, Plant and Equipment $ 12,527 $ 647 $ 30,407 $ 100,624
---------- ---------- ---------- ----------
Other Assets $ 11,540 $ 11,540 $ 9,190 $ 11,540
---------- ---------- ---------- ----------
Total Assets $ 609,526 $1,018,597 $ 590,126 $1,260,294
========== ========== ========== ==========
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
FOR THE
FOR THE PERIODS
PERIODS ENDED ENDED
DECEMBER 31 JUNE 30
--------------------------------- -------------------------------
1997 1998 1998 1999
----------- ----------- ------------- -----------
(Unaudited)
Current Liabilities:
Current Portion of L.T. Debt (Note 5) $ 34,445 $ 32,742 $ 32,742 $ 31,131
Short-Term Loans Payable (Note 6) 43,373 43,373 43,373 43,373
Accounts Payable 48,148 42,155 23,813 9,615
Other Liabilities & Investor Notes Payable 53,945 36,600 65,930 37,768
----------- ----------- ----------- -----------
Total Current Liabilities $ 179,911 $ 154,870 $ 165,858 $ 121,887
----------- ----------- ----------- -----------
Stockholders' Investment:
Common Stock. $.01 Par Value;
5,000,000 Shares Authorized; 2,869,943
Issued (Note 7) $ 13,753 $ 23,483 14,741 35,870
Less: 11,316 Shares Reacquired and
and Held in Treasury (113) (113) (113) (113)
----------- ----------- ----------- -----------
$ 13,640 $ 23,370 14,628 35,757
Common Stock Subscribed (Note 7) 0 500 0 -0-
Capital Contributed in Excess of Par Value 721,847 1,315,833 908,859 1,828,346
Retained Earnings 0 0 0 0
Accumulated Deficit (306,372) (475,476) (499,219) (725,696)
----------- ----------- ----------- -----------
$ 429,615 $ 863,727 $ 424,268 $ 1,138,407
----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Investment $ 609,526 $ 1,018,597 $ 590,126 $ 1,260,294
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
F-3
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 AND 1998
FOR THE
FOR THE PERIODS
PERIODS ENDED ENDED
DECEMBER 31 JUNE 30
----------------------------- -----------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(Unaudited)
Sales $ 444,322 $ 552,486 $ 172,319 $ 160,304
--------- --------- --------- ---------
Costs and Expenses:
Cost of Sales 446,457 386,425 173,182 112,213
Selling, General and Administrative
Expenses 265,104 329,849 188,569 298,311
--------- --------- --------- ---------
711,561 716,274 361,751 410,524
--------- --------- --------- ---------
Income/(Loss) From Operations ($267,239) ($163,788) (189,432) (250,220)
--------- --------- --------- ---------
Other Income (Expenses):
Interest Income $ 166 $ 1,654 83 0
Interest Expense (6,996) (6,970) (3,498) 0
--------- --------- --------- ---------
($ 6,830) ($ 5,316) (3,415) 0
--------- --------- --------- ---------
Income/(Loss) Before Income Taxes ($274,069) ($169,104) (192,847) (250,220)
Provision for Income Taxes (Notes 1 & 4) 0 0 0 0
--------- --------- --------- ---------
Net Income/(Loss) ($274,069) ($169,104) (192,847) (250,220)
Retained Earnings/(Accum. Deficit,) Beg. of Period ($ 32,303) ($306,372) (306,372) (475,476)
--------- --------- --------- ---------
Retained Earnings/(Accum. Deficit,) End of Period ($306,372) ($475,476) ($499,219) ($725,696)
========= ========= ========= =========
Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.09) ($ 0.08)
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
FOR THE FOR THE
PERIODS ENDED PERIODS ENDED
DECEMBER 31 JUNE 30
----------------------------- ---------------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(Unaudited)
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ($274,069) ($169,104) ($192,847) ($250,220)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) 7,278 11,880 0 0
Unrealized (Gain)/ Loss on Valuation of
Marketable Securities (Note 1) 0 3,357 0 0
Changes in Operating Assets and Liabilities:
Marketable Securities (35,001) (2,650) 219 5,230
Accounts Receivable 2615 (52,728) (68,068) 15,207
Inventories 22,665 (909) 48,590 (479,967)
Accounts Payable (7,925) (40,249) (24,335) (32,540)
Other Assets and Liabilities 15,862 14,997 (18,100) 1,168
--------- --------- --------- ---------
Net Cash Flows For Operating Activities ($252,725) ($235,406) (255,041) (751,582)
--------- --------- --------- ---------
Cash Flows From (For) Investing Activities:
DynatraX Machinery & Equipment $ 0 $ 0 0 (99,977)
--------- --------- --------- ---------
Net Cash Flows From Investing Activities $ 0 $ 0 0 (99,977)
--------- --------- --------- ---------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of S.T. Debt ($ 10,000) ($ 1,703) 10,282 (1,611)
Acquisition/(Repayment) of L.T. Debt 0 0 0 0
Issuance of Common Stock 407,500 603,716 188,000 524,900
--------- --------- --------- ---------
Net Cash Flows From (For) Financing Activities: $ 397,500 $ 602,013 198,282 523,289
--------- --------- --------- ---------
Net Increase/(Decrease) in Cash $ 144,775 $ 366,607 (56,759) (328,270)
Cash Balance, Beginning of Year 21,398 166,173 166,173 532,780
--------- --------- --------- ---------
Cash Balance, End of Year $ 166,173 $ 532,780 $ 109,414 $ 204,510
========= ========= ========= =========
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
CASH - Includes Tech Lab's checking account at Hudson United Bank. There
are no Cash Equivalents.
ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to
customers. The allowance for bad debts is accrued based on a review of customer
accounts receivables aging.
INVENTORIES - Inventories are valued at cost or market, whichever is lower.
The FIFO cost method is generally used to determine the cost of the inventories.
At December 31, 1997 and 1998 physical inventories were taken and tested.
PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
ASSETS ESTIMATED USEFUL LIVES
Machinery 5 to 7 years
Furniture & Fixtures 5 to 7 years
Maintenance and repairs are charged to expense as incurred. The cost of
betterments is capitalized and depreciated at appropriate rates. Upon retirement
or other disposition of property items, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in the statement of
income.
INCOME TAXES - Income tax expense is based on reported income and deferred tax
credit is provided for temporary differences between book and taxable income.
MARKETABLE SECURITIES - The marketable securities are recorded at the lower of
cost or market. The cost of securities was $59,343 at December 31, 1997 and
$56,693 at December 31, 1998.
(2) Inventories:
Inventories at December 31, 1997 and 1998 were as follows:
1997 1998
---- ----
Raw Materials & Finished Components $231,202 $202,359
Work in Process & Finished Goods 38,007 67,759
-------- --------
$269,209 $270,118
-------- --------
(3) Income/(loss) Per Share:
Income/(loss) per share was calculated on the weighted average number of shares
outstanding during the year ended December 31, 1997 of 1,550,048 and during the
year ended December 31, 1998 of 2,202,905.
(4) Income Taxes:
At December 31, 1997 and 1998, the balance of operating loss carryforward was
$1,049,903 and $1,219,007, respectively, which can be utilized to offset future
taxable income.
(5) Short-Term Loans Payable:
Loans payable to banks were as follows for the years indicated:
CURRENT NON-CURRENT
YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
- ---------- ----- ------------- ------ ------
1997 Hudson United Bank Prime +1.5% $34,445 --
1998 Hudson United Bank Prime +1.5% $32,742 --
Certain marketable securities are pledged as collateral on the above loan.
(6) Short-Term Loans Payable to Officers and Directors:
Demand loans payable include loans from stockholders, officers and members of
the Board of Directors. The outstanding loan balances due as of December 31,
1997 and 1998 was $43,373 for each of such years. The annual interest rate for
these loans ranged between six (6%) percent and ten (10%) percent. One loan in
the principal amount of $11,500 together with accrued interest of $3,604 at
December 31, 1998 is secured by the assets of Tech Labs.
(7) Common Stock
In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of
common stock.
In 1997 and 1998, Tech Labs completed a placement pursuant to Rule 504 of common
stock which raised $917,324.
(8) Commitments and Contingencies
Tech Labs entered into an exclusive agreement with Elektronik Apparatebau
(EAG) whereby it received exclusive rights to manufacture and market IDS
products until September 30, 2007. Since Elektronik Apparatebau (EAG) receives a
share of the incremental gross profit generated by incremental IDS product
sales, Tech Labs has no future commitments or contingencies caused by this
agreement.
(9) Subsequent Events
On April 27, 1999, Tech Labs completed the purchase of existing inventories
and test equipment of the DynaTrax(TM) Product Line from NORDX/CDT for $500,000.
In accordance with the purchase price method of accounting, the purchase price
for the assets referenced above was allocated to the assets acquired on the
basis of preliminary fair market values, which may be revised at a later date.
Results subsequent to the date of acquisition will be included in Tech Lab's
financial statements. Had the results of the DynaTrax(TM) acquisition been
included in our consolidated results for 1998, the effect would have been
material.
1998
Dynatrax Product Line Tech Laboratories, Inc.
--------------------- -----------------------
Net Sales $400,000 $952,486
Operating Loss (2,500,000)* (2,669,104)
EPS -0- $1.21
* Includes one time R&D expense of $900,000.
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 OPERATIONS............................................. 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
Tech Labs is incorporated in New Jersey. Under Section ____ of the
Corporation Law of the State of New Jersey, a New Jersey corporation has the
power, under specified circumstances, to indemnify its directors, officers,
employees, and agents in connection with actions, suits, or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees, and agents,
against expenses incurred in any action, suit, or proceeding. The Certificate of
Incorporation and the By-laws of Tech Labs provide for indemnification of
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of New Jersey.
The General Corporation Law of the State of New Jersey provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (a) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (b) for
acts of omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section ____ (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the General Corporation Law of the State of New Jersey, or (d) for any
transaction from which the director derived an improper personal benefit. Tech
Labs's Certificate of Incorporation contains such a provision.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
Filing Fee-- Securities and Exchange Commission $
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 October 1999 we issued 75,000 shares to Mint Corporation for consulting
services pursuant to our agreement with Mint dated March 10, 1999. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
In June 1999 we issued to Coby Capital Corporation options to purchase 50,000
shares at $1.85 per share. The issuance of the options were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
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.
Pursuant to said agreement, Mint was also granted options to purchase 100,000
shares at $1.25 per share and 100,000 shares at $1.75 per share. The issuance of
the shares and options was exempt from Registration under the Securities Act
pursuant to Section 4(2) thereof.
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
under 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.
II-2
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 Pellosie, a director of the
company, for services rendered to Tech Logistics, Inc. The issuance of the
shares was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.
In November 1998, we issued 15,000 shares to Carmine Pellosie, a director of the
company, in exchange for his ownership of 20% of Tech Logistics, Inc. a partly
owned subsidiary of our company. The issuance of the shares was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
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
EXHIBIT INDEX
1.1 Subscription Agreement*
3.1 Certificate of Incorporation is incorporated by reference to the
Company's Registration Statement on Form SB-2 as filed on July 9, 1999
(the "Registration Statement")
3.2 By-Laws of Tech Labs are incorporated by reference to the Company's
Registration Statement.
4.1 Form of Common Stock Certificate*
5.1 Opinion of Stursberg & Veith*
10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing
Agreement dated as of October 1, 1998 between Tech Labs and Elktronic
Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG.
is incorporated by reference to the Company's Registration Statement.
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli is
incorporated by reference to the Company's Registration Statement.
10.3 First Amendment to Employment Agreement between Tech Labs and
Bernard M. Ciongoli.
10.6 Patent and Trademark assignments is incorporated by reference to the
Company's Registration Statement.
10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation.
10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX
Network Solutions.
10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby
Capital Corporation.
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.
10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between
NORDX/CDT, Inc. and Tech Labs.
10.12 Tech Labs Stock Option Plan.
10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby
Capital Corporation.
10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and
Mint Corporation.
10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and
Mint Corporation.
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:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement, or the most recent
post-effective amendment thereof, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense
of any action, suit, or proceeding is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof
II-4
SIGNATURES
As required by the Securities Act of 1933, this Offering Statement has been
signed on behalf of the registrant in the City of North Haledon and State of New
Jersey on the 18th day of October, 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, October 18, 1999
- ----------------------------- CFO, and Director ----------------
Bernard M. Ciongoli
/s/ Earl M. Bjorndal* Vice President and Director October 18, 1999
- ----------------------------- ----------------
Earl M. Bjorndal
/s/ Carmine O. Pellosie, Jr.* Secretary and Director October 18, 1999
- ----------------------------- ----------------
Carmine O. Pellosie, Jr.
/s/ Louis Tomasella* Director October 18, 1999
- ----------------------------- ----------------
Louis Tomasella
/s/ Richard J. Rice Director October 18, 1999
- ----------------------------- ----------------
Richard J. Rice
By: /s/ Bernard M. Ciongoli
------------------------
Bernard M. Ciongoli
Attorney-in-Fact*
II-5
EXHIBIT INDEX
1.1 Subscription Agreement*
3.1 Certificate of Incorporation is incorporated by reference to the
Company's Registration Statement on Form SB-2 as filed on July 9, 1999
(the "Registration Statement")
3.2 By-Laws of Tech Labs are incorporated by reference to the Company's
Registration Statement.
4.1 Form of Common Stock Certificate*
5.1 Opinion of Stursberg & Veith*
10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing
Agreement dated as of October 1, 1998 between Tech Labs and Elktronic
Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG.
is incorporated by reference to the Company's Registration Statement.
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli is
incorporated by reference to the Company's Registration Statement.
10.3 First Amendment to Employment Agreement between Tech Labs and
Bernard M. Ciongoli.
10.6 Patent and Trademark assignments is incorporated by reference to the
Company's Registration Statement.
10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint
Corporation.
10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX
Network Solutions.
10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby
Capital Corporation.
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.
10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between
NORDX/CDT, Inc. and Tech Labs.
10.12 Tech Labs Stock Option Plan.
10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby
Capital Corporation.
and Coby Capital Corporation.
10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and
Mint Corporation.
10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and
Mint Corporation.
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.