U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number 000-27592
TECH LABORATORIES, INC.
(Exact name of Small Business issuer in its charter)
New Jersey 22-1436279
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, NJ 07508
- ------------------------------------- ------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (973) 427-5333
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
The number of shares of Common Stock, par value $.01 per share, outstanding
as of the latest practicable date: As of May 19, 2005, there were
143,119,294 shares outstanding.
TECH LABORATORIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets...................................................................... 1-2
Statements of Operations .......................................................... 3
Statements of Cash Flows......................................................... 4
Notes to Financial Statements..................................................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 7
Item 3. Controls and Procedures.......................................................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................. 9
Item 2. Changes in Securities............................................................. 9
Item 3. Defaults by the Company Upon its Senior Securities........................ 9
Item 4. Submission of Matters to a Vote of Security Holders........................ 9
Item 5. Other Information.................................................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................................. 9
SIGNATURES........................................................................................ 10
TECH LABORATORIES, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
2005 2004
----------------- -----------------
Current Assets:
Cash $ 9,398 $ 106,283
Accounts receivable, net of
allowance of $1,000 24,554 10,679
Inventories 1,019,370 907,030
Prepaid expense 53,125 59,376
----------------- -----------------
Total current assets 1,106,447 1,083,368
----------------- -----------------
Certificate of deposit (restricted) 36,576 36,499
----------------- -----------------
Property, plant and equipment, at cost
Leasehold improvements 2,247 2,247
Machinery, equipment, and instruments 608,917 608,917
Furniture and fixtures 109,584 109,584
----------------- -----------------
720,748 720,748
Less accumulated depreciation and
amortization 447,457 442,570
----------------- -----------------
Net property, plant and equipment 273,291 278,178
----------------- -----------------
Other 14,420 14,420
----------------- -----------------
Total Assets $ 1,430,734 $ 1,412,465
================= =================
See notes to financial statements.
1
TECH LABORATORIES, INC.
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
March 31, December 31,
2005 2004
----------------- -----------------
Current liabilities:
Convertible notes $ 789,900 $ 828,885
Note payable 34,444 34,444
Accounts payable and accrued expenses 397,990 352,457
----------------- -----------------
Total current liabilities 1,222,334 1,215,786
Stockholders' equity
Common stock, $.01 par value;
195,000,000 shares authorized:
93,119,294 shares issued in 2005;
88,161,612 shares issued in 2004 931,193 881,616
Less: 15,191 shares reacquired and held in treasury (113) (113)
----------------- -----------------
931,080 881,503
Capital contributed in excess of par value 5,417,985 5,417,562
Accumulated deficit (6,140,665) (6,102,386)
----------------- -----------------
Total stockholders' equity 208,400 196,679
----------------- -----------------
Total liabilities and stockholders' equity $ 1,430,734 $ 1,412,465
================= =================
See notes to financial statements.
2
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------------------------
2005 2004
----------------- -----------------
Sales $ 74,114 $ 51,701
----------------- -----------------
Costs and expenses:
Cost of sales 26,296 29,811
Selling, general, and administrative
expense 74,937 152,932
----------------- -----------------
101,233 182,743
----------------- -----------------
Loss from Operations (27,119) (131,042)
Other expenses (11,160) (29,735)
----------------- -----------------
Loss before income taxes (38,279) (160,777)
Provision for income taxes - -
----------------- -----------------
Net Loss (38,279) (160,777)
Accumulated deficit, Beg Qtr. (6,102,386) (4,743,076)
----------------- -----------------
Accumulated deficit, End Qtr. (6,140,665) (4,903,853)
----------------- -----------------
Net loss per share, basic and diluted $ - $ (0.01)
================= =================
Weighted average number of common shares
and equivalent, basic and diluted 90,312,236 27,113,361
================= =================
See notes to financial statements.
3
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------------
2005 2004
---------------- ----------------
Cash flow from (for) operating activities:
Net loss from operations $ (38,279) $ (160,777)
Add (deduct) items not affecting cash:
Depreciation 4,887 4,887
Amortization 6,251 -
Capitalized interest 11,015 -
Accrued expenses and other non-cash expenses 111,934
Changes in operating assets and liabilities
Accounts receivable (13,875) (6,834)
Inventories (112,340) (76,394)
Accounts payable and accrued expenses 45,533 (9,791)
Other assets/liabilities 43,577
---------------- ----------------
Net cash flow used in
operating activities (96,808) (93,398)
---------------- ----------------
Cash flows used in investing activities (77) 753
---------------- ----------------
Net decrease in cash (96,885) (92,645)
Cash balance beginning of year 106,283 165,308
---------------- ----------------
Cash balance - end of first quarter $ 9,398 $ 72,663
================ ================
Supplemental schedule of noncash investing
and financing activities:
Conversion of debt to common stock $ 50,000 $ 311,817
================ ================
See notes to financial statements.
4
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2005
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Tech Laboratories, Inc.
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Item
310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended, March 31, 2005 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2004.
These unaudited financial statements should be read in conjunction with the
audited financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended, December 31, 2004, as filed with
the Securities and Exchange Commission.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. LONG-TERM CONVERTIBLE DEBT
On October 13, 2000, Tech Labs completed a $1.5 million financing of 6.5%
convertible promissory notes due October 15, 2002. Interest is payable
quarterly in cash or in shares of common stock at the option of the
noteholders. Tech Labs disclosed all terms of this financing on Form 8-K
filed on October 18, 2000. As of March 31, 2005, $986,913 of principal and
interest on the 6.5% convertible notes has been converted into shares of
Tech Labs' common stock.
On January 11, 2002, Tech Labs entered into a conversion and redemption
agreement concerning this long-term debt. An Event of Default, as defined
in the 6.5% convertible notes, occurred on January 25, 2002, when Tech Labs
was unable to make the first payment of $750,000 to the holders of the
notes.
On April 19, 2002, Tech Labs successfully negotiated a cure of the default
referenced above. This cure required that Tech Labs' registration
statement, filed with the Securities and Exchange Commission on April 5,
2002, covering the shares underlying the 6.5% convertible notes, to have
been declared effective on or before June 29, 2002. If the registration
statement was declared effective by such date and Tech Labs made certain
payments described in the Tech Labs' report on Form 8-K filed April 25,
2002, the maturity date of the 6.5% convertible notes would have been
extended from October 13, 2002 to December 30, 2002.
5
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2005
(UNAUDITED)
2. LONG-TERM CONVERTIBLE DEBT (Cont'd)
On August 2, 2002, the Company announced that an Event of Default occurred
on the 6.5% convertible notes. The Company was unable to have its
registration statement declared effective by June 29, 2002, and was unable
to reach a new agreement with the holders of the 6.5% convertible notes
prior to the expiration of the waiver the Company had been granted by the
holders of the notes, which had been granted in order to permit the parties
time to negotiate a new agreement. The Company continues to seek a cure for
the default with the holders of the 6.5% convertible notes, and in October
2003, a cure was successfully negotiated and is described in the Company's
8-K filed in October, 2003. On May 18, 2004, the Company issued an
additional $250,000 convertible debenture at a rate of 5.0% due on
May 18, 2007.
6
TECH LABORATORIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Quarter ending March 31, 2005, compared to Quarter ending March 31, 2004
Sales were $74,114 for the first quarter of 2005 as compared to $51,701 for
the similar period of 2004. The increase in sales was due to increased
orders for traditional products.
Cost of sales of $26,296 for the first quarter of 2005 decreased by $3,515
compared to the same period of 2004, primarily due to the sales of lower
cost products.
Selling, administrative, and general expenses decreases by $77,995 compared
to the same period of 2004. The decrease was primarily due to the
curtailment of marketing activities.
Loss from operations of $27,119 decreased $103,923 compared to a loss of
$131,042 for the prior period as a direct result of increased sales and
reduced operating expenses.
SIGNIFICANT CHANGES
None
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $96,885 during the
three months ended, March 31, 2005, as compared to $92,645 during the three
months ended, March 31, 2004.
As a result of the continuing operating losses and negative cash flow
experienced during 2003, 2004 and the first quarter of 2005, Tech Labs has
a tenuous liquidity position. If sales do not improve or alternative
financing is not obtained, substantial doubt exists about Tech Labs'
ability to continue as a going concern.
7
TECH LABORATORIES, INC.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and
procedures that is designed to provide reasonable assurance that
information, which is required to be disclosed, is accumulated and
communicated to management timely.
Under the supervision and with the participation of management, the
Certifying Officers evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule
[13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days prior to the
filing date of this report. Based upon that evaluation, the Certifying
Officers concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relative to our
company required to be disclosed in our periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant
changes in our internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there
were no such control actions with regard to significant deficiencies and
material weaknesses.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On July 31, 2002, Tawfik Khalil and Amneh Khalil filed a lawsuit in the Superior
Court of Passaic County, New Jersey, against Glen Venza, a Company part-time
employee, Tech Labs, and certain other parties for property damages and personal
injuries. The case arose from a car accident involving Mr. Venza and the
plaintiffs, which occurred while Mr. Venza was performing certain duties for
Tech Labs in a vehicle Mr. Venza borrowed from a third party. Tech Labs has only
been named as a party to the personal injuries, and not for property damages,
and believes it is covered for the accident by its insurance policy.
On July 30, 2003, a former director and a former employee filed a joint lawsuit
in Superior Court of New Jersey, Passaic County, against us for consulting fees
and expenses, respectively. In the same lawsuit, W.T. Sports filed a claim for a
commission owed on sales due from a licensing agreement with us. The claims by
the former director and former employee are for about $10,000 and we deny any
liability under these claims and are defending the lawsuit. With regard to W.T.
Sports, our agreement has an arbitration in case of dispute and therefore we are
attempting to move this case to arbitration. We believe that we have a
counterclaim, which is far in excess of the amount they claim we owe for the
licensing fees. On November 11, 2004, an arbitration hearing took place. On
December 31, 2004, the arbitrator awarded $35,148 to WT Sports. Tech Labs can
continue to manufacture the system in the United States.
On June 30, 2004, the law firm of Stursberg & Veith, former counsel to Tech
Laboratories, Inc., filed a lawsuit in the United States District Court for the
Southern District of New York claiming that the plaintiff delivered certain good
and valuable services to Tech laboratories and is owed $161,179.26 plus
interest, costs, and disbursements for each cause of action, and other and
further relief as the Court may deem necessary. The complaint alleges four
causes of action including an unpaid account, stated breach of contract, quantim
meruit, and unjust enrichment. We disagree with the amount of the unpaid balance
owed to the plaintiff. We have filed a counterclaim for overcharging by the
plaintiff.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports of Form 8-K
On March 31, 2005, the Company filed an 8K based on a change in the
Board of Directors of the Company.
9
TECH LABORATORIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 20, 2005
TECH LABORATORIES, INC.
By: /s/ Bernard M. Ciongoli
-----------------------
Bernard M. Ciongoli
Chief Executive Officer, Principal Financial
Officer and Chief Accounting Officer
10