As filed with the Securities and Exchange Commission on April 5, 2002
Registration No.: 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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TECH LABORATORIES, INC.
(Name of small business issuer in its charter)
New Jersey 3679, 3573, 3629, and 3613 22-1436279
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address and telephone number of principal executive offices)
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955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Address of principal place or intended principal place of business)
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Bernard M. Ciongoli, President and Chief Executive Officer
Tech Laboratories, Inc.
955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333
(Name, address, and telephone number of agent for service)
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Copies to:
C. Walter Stursberg, Jr., Esq.
Stursberg & Veith
405 Lexington Avenue
New York, New York 10174
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Approximate date of proposed sale to the public: From time to time 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
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Proposed Proposed
Maximum Maximum Amount of
Title of each class of Amount to Offering Price Aggregate Registration
securities to be registered be Registered Per Share Offering Price(1) Fee
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Shares of Common Stock, par
value $.01 per share
("Common Stock")(2) 16,415,736 $0.20(7) $3,283,147 $ 912.71
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Shares of Common Stock(3) 412,500 $4.80 $1,980,000 $ 550.44
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Shares of Common Stock(4) 100,000 $1.25 $ 125,000 $ 34.75
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Shares of Common Stock(5) 100,000 $1.75 $ 175,000 $ 48.65
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Shares of Common Stock(6) 75,000 $1.12 $ 84,000 $ 23.35
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Total Registration $1,569.90
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Consists of shares issuable upon the conversion of certain convertible
notes. Pursuant to the terms of the subscription agreement, we are
required to register 200% of the number of shares issuable upon
conversion of the convertible notes. The number of shares being
registered is equal to 200% of the number of shares of common stock
which would be issuable if the notes were converted into common stock.
Also registered hereunder are an indeterminate number of additional
shares of common stock which may become issuable by virtue of anti-
dilution provisions in the notes, in accordance with Rule 416.
(3) Consists of shares purchasable upon exercise of warrants issued to
certain securityholders, having an exercise price of $4.80 per share.
Also registered hereunder are an indeterminate number of additional
shares of common stock which may become issuable by virtue of
anti-dilution provisions in the notes, in accordance with Rule 416.
(4) Consists of shares purchasable upon exercise of warrants issued to
certain securityholders, having an exercise price of $1.25 per share.
Also registered hereunder are an indeterminate number of additional
shares of common stock which may become issuable by virtue of
anti-dilution provisions in the notes, in accordance with Rule 416.
(5) Consists of shares purchasable upon exercise of warrants issued to
certain securityholders, having an exercise price of $1.75 per share.
Also registered hereunder are an indeterminate number of additional
shares of common stock which may become issuable by virtue of
anti-dilution provisions in the notes, in accordance with Rule 416.
(6) Consists of shares purchasable upon exercise of warrants issued to
certain securityholders, having an exercise price of $1.12 per share.
Also registered hereunder are an indeterminate number of
additional shares of common stock which may become issuable by virtue
of anti-dilution provisions in the notes, in accordance with Rule 416.
(7) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(c), based on the average of the high and low
prices of the Registrant's common stock for April 1, 2002, which date
is within 5 business days prior to the filing date of this registration
statement.
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 (i) 16,415,736
shares of common stock, $.01 par value, of Tech Laboratories, Inc., a New Jersey
Corporation, issuable upon conversion of convertible notes, and (ii) 687,500
shares of common stock upon exercise of warrants. The information in this
prospectus is not complete and may be changed. These securities may not be sold
until the post-effective registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED April 5, 2002
PROSPECTUS
17,103,236 Shares
TECH LABORATORIES, INC.
This is an offering of 17,103,236 shares of common stock of Tech
Laboratories, Inc. Of the 17,103,236 shares being offered, up to 16,415,736 may
be sold upon conversion of convertible notes and up to 412,500 may be sold upon
the exercise of warrants issued in connection with the convertible notes. The
remaining 275,000 shares may be sold upon the exercise of warrants issued to
certain selling securityholders. All of the shares are being offered by the
selling security holders named in this prospectus. We will not receive any of
the proceeds from the sale of the common stock, although we will receive
approximately $2,364,000 if all of the warrants being registered are exercised.
The selling securityholders may offer the shares from time to time through
public or private transactions, at prevailing market prices, or at privately
negotiated prices.
Our shares of common stock trade on the OTC Bulletin Board under the symbol
"TCHL.OB" On __________ the last reported sale price of our common stock was $__
per share.
This investment involves certain risks. See "Risk Factors," which begins on
page 2.
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.
The date of this prospectus is __________, 2002.
PROSPECTUS SUMMARY
Unless the context indicates otherwise, all references herein to "we"
include Tech Labs and its wholly-owned subsidiaries, Tech Logistics, Inc. and
Tech Labs Community Networks, Inc., collectively, and references to "Tech
Logistics" and/or "Community Networks" shall mean each of such companies alone.
You should read the entire prospectus carefully, especially the risks of
investing in the common stock discussed under "Risk Factors."
THE OFFERING
Common Stock Offered...........................17,103,236 shares of common stock
Shares of Common Stock Outstanding.............5,143,530
Use of Proceeds ...............................We will not receive any proceeds
from the sale of common stock by
the selling security holders,
although we shall receive
approximately $2,364,000 if all
of the warrants being registered
are exercised.
Common Stock Trading Symbol ...................TCHL-OB
OUR BUSINESS
Tech Labs manufactures and markets various electrical, electronic and
telecommunications switching and distribution equipment and associated software.
We also market and manufacture, under our exclusive license, an infrared
perimeter intrusion and anti-terrorist detection system or "IDS".
We also acquired a high-speed, telecommunications management network
switching system. This switching system, the DynaTraX(TM) technology, permits
users to bypass current telephone and CATV companies' "Last Mile" connections,
allowing them to realize recurring revenues and to make their properties more
attractive to computer users, while providing bundled digital multi-media
services.
We have been in business since the 1930s, and in 1947 we were incorporated
in New Jersey. Our principal offices are located at 955 Belmont Avenue, North
Haledon, New Jersey 07508, and our telephone number is (973) 427-5333.
RISK FACTORS
In addition to other matters described in this document, investors should
carefully consider the following factors:
TECH LABS IS IN DEFAULT OF A REDEMPTION AGREEMENT AND AT PRESENT DOES NOT HAVE
THE RESOURCES TO CURE THE DEFAULT.
In January 2002, we had an Event of Default occur under our 6.5%
convertible promissory notes. The Event of Default occurred due to Tech Lab's
non-payment of the first installment due under that certain conversion and
Redemption Agreement (the "Redemption Agreement") dated January 11, 2002,
relating to the redemption by Tech Labs from holders of the notes originally
issued in October 2000 (the "Notes"). Under the terms of the Redemption
Agreement, the holders were entitled to receive two installments: (i) the first
installment of $750,000 and 300,000 shares of stock on or before January 25,
2002, and (ii) on or before April 25, 2002, the second installment of an
aggregate of $360,000 plus an additional $90,000 in cash or common stock, at the
election of Tech Labs, based upon the closing price of the shares of Tech Labs'
common stock on April 18, 2002. An Event of Default, as defined in the Notes,
occurred when we did not make the first installment under the Redemption
Agreement of $750,000 and deliver the 300,000 shares on or before Friday,
January 25, 2002. Until we are able to cure the Event of Default, each holder
may elect to cancel any unfulfilled or future redemption and conversion and to
accelerate payment of all outstanding principal and interest due under the
Notes. Tech Labs anticipates entering into negotiations with the holders to cure
the Event of Default, but no assurance can be given as to whether an agreement
can be reached with the holders for mutually acceptable terms. If the holders
accelerate payment of the principal and interest due under the Notes, which was
approximately $1,231,019 at March 26, 2002, we will be unable to pay the
outstanding balance due under the Notes.
WE HOPE TO BE ABLE TO RAISE CAPITAL TO REDEEM THE NOTES BUT MAY BE UNSUCCESSFUL.
We hope raise capital to be used to redeem the Notes if an agreement can be
reached with the holders of the Notes. No assurances, however, can be given that
we will be able to raise sufficient capital to redeem the Notes, or if we do,
that we will be able to reach mutually agreeable terms for a redemption of the
Notes with the holders.
IF WE ARE UNABLE TO RAISE CAPITAL AND/OR INCREASE REVENUES, WE MAY BE UNABLE TO
MEET OUR OBLIGATIONS AND EXPAND OPERATIONS AS PLANNED.
If we do not procure additional financing in the short term, reduce
expenditures and/or increase revenues, we may not be able to meet our
obligations. Additionally, if we are unable to raise capital and/or increase
revenue we will be unable to expand our operations and develop the new products
and technologies as described in this prospectus.
OUR INABILITY TO PROTECT CERTAIN INTELLECTUAL PROPERTY FROM BEING COPIED BY
OUR COMPETITION COULD IMPAIR OUR BUSINESS.
To date we have had no patent or copyright protection on our current
products, other than aspects of the DynaTraX(TM) product and technology. Our
ability to compete effectively with other companies will depend, in part, on our
ability to maintain the proprietary nature of our technologies. Other than with
regard to the DynaTraX(TM) patents, which have been issued to date only in
England, we intend to rely substantially on unpatented, proprietary information
and know-how. We have recently received a Notice of Allowance and Issue Fee due
from the United States Patent and Trademark office in connection with our patent
application entitled MULTI-PROTOCOL CROSS CONNECT SWITCH. We expect to pay the
issue fee by the due date of June 8, 2002. We expect the application to mature
into a patent within a few months of our payment of the issue fee. Once the
issue fee has been paid, issuance of a U.S. patent, in due course, is highly
likely. We are also presently prosecuting patent applications filed in the
United States and Europe.
-2-
WE MANUFACTURE AND SELL THE IDS SYSTEM UNDER A LICENSE AGREEMENT WHICH, IF
TERMINATED, WOULD PREVENT US FROM USING TECHNOLOGY OWNED BY EAG IN OUR PERIMETER
DETECTION SYSTEM PRODUCTS, AND WOULD HARM OUR BUSINESS.
We entered into an Amended Joint Marketing Agreement as of October 1, 1997
with Elektronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety
Equipment, AG and a Confidentialty and Manufacfuring Agreement with the same
parties and dated the same date, pursuant to which Tech Labs was granted the
exclusive right to manufacture in the U.S. and market and sell in the U.S.,
Canada and South America the IDS products. The agreements terminate on September
30, 2007 subject to automatic renewals for successive one-year periods unless
either party gives notice of non-renewal. The agreements can be terminated
earlier upon a default of any material obligation. If the license is terminated,
we would be unable to use EAG's technology in our perimeter detection system
products. Even if the agreements remain in effect until September 30, 2007, it
will be necessary at that time to negotiate a new agreement or license or
acquire a suitable replacement technology.
VOLATILITY OF STOCK PRICES MAY INCREASE THE NUMBER OF SHARES ISSUABLE UPON
CONVERSION OF THE NOTES.
The stock market from time to time experiences significant price and
volume fluctuations, some of which are unrelated to the operating performance of
particular companies. We believe that a number of factors can cause the price of
our common stock to fluctuate, perhaps substantially. These factors include,
among others:
o Announcements of financial results and other developments relating to our
business;
o Changes in the general state of the economy; and
o Changes in market analyst estimates and recommendations for our common
stock.
Significant downward fluctuations of the price of our stock may
substantially increase the number of shares of common stock issuable upon
conversation of outstanding Notes as a result of the conversion formula, which
is tied to the market price of the common stock.
THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UPON CONVERSION OF THE NOTES
MAY CAUSE SIGNIFICANT DILUTION OF EXISTING SHAREHOLDERS' INTERESTS AND EXERT
DOWNWARD PRESSURE ON THE PRICE OF OUR COMMON STOCK.
Significant dilution of existing shareholders' interests may occur if we
issue additional shares of common stock underlying the Notes. We are presently
registering 16,415,736 shares of common stock which represent 200% of the shares
which are issuable upon conversion of the notes and interest thereon. The actual
number of shares of common stock issuable upon conversion of the Notes may
constitute a significantly greater percentage of the total outstanding shares of
our common stock, as such conversion is based on a formula pegged to the market
price of the common stock. The Notes are convertible at a price equal to 85% of
the average of the five lowest closing bid prices of the common stock during the
twenty-two (22) business days immediately preceding the issuance of the Notes or
85% of the five lowest bid prices during the twenty-two business days through
the date of conversion of the Notes, whichever is lower. Therefore, there is a
possibility that the Notes may convert to common stock at a rate which may be
below the prevailing market price of the common stock at the time of conversion.
-3-
The exact number of shares of common stock into which the Notes may
ultimately be convertible will vary over time as the result of ongoing changes
in the trading price of our common stock. Decreases in the trading price of our
common stock would result in increases in the number of shares of common stock
issuable upon conversion of the Notes. The following consequences could result:
o If the market price of our common stock declines, thereby
proportionately increasing the number of shares of common stock
issuable upon conversion of the Notes, an increasing downward pressure
on the market price of the common stock might result, which is
sometimes referred to as a downward "spiral" effect.
o The dilution caused by conversion of the Notes and sale of the
underlying shares could also cause downward pressure on the market
price of the common stock.
o The conversion of the Notes would dilute the book value and earnings
per share of common stock held by our existing shareholders.
SINCE WE HAVE NO PRODUCT LIABILITY INSURANCE WE COULD INCUR SUBSTANTIAL EXPENSES
IF PRODUCT LIABILITY CLAIMS ARE FILED AGAINST US.
There is a risk that our current products may malfunction and cause
loss of or error in data, loss of man hours, damage to or destruction of
equipment, or delays. Consequently, we, as the manufacturer of components,
assemblies, and devices may be subject to claims if such malfunctions or
breakdowns occur. We are not aware of any past or present claims against us.
While we presently do not maintain product liability insurance, we intend to
obtain such coverage at the completion of this offering if such coverage can be
obtained on affordable terms. We cannot predict at this time our potential
liability if customers make claims against us asserting that DynaTraX(TM), IDS
or other new products fail to function. Since we have no insurance, we could
incur substantial expenses defending ourselves against a product liability
claim. If we are found to be liable for any product liability claim, if could
result in substantial losses to our business.
This prospectus contains forward-looking information.
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs, and
assumptions. Words such as " anticipates," "expects," "intends", "plans,"
"believes," "seeks," "estimates" and variations of these words and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We undertake no obligation to update these statements or publicly
release the result of any revisions to the forward-looking statements that we
may make to reflect events or circumstances after the date of this prospectus or
to reflect the occurrence of unanticipated events.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock owned by the selling security holders, although we will receive
approximately $2,364,000 if all of the warrants being registered are exercised,
which would be used for working capital purposes. All proceeds from the sale of
shares of common stock owned by the selling security holders will be for the
account of the selling securityholders described below. See "Selling
Securityholders."
-4-
PRICE RANGE OF COMMON STOCK
Our common stock has been trading publicly on the OTC Bulletin Board under
the symbol "TCHL-OB" 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
--------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDING DECEMBER 31, 2002
- -----------------------------
First Quarter (through March 29, 2002)............... .50 .16 .59 .19
YEAR ENDING DECEMBER 31, 2001
- -----------------------------
First Quarter ....................................... 1.625 0.71875 1.75 0.875
Second Quarter....................................... .75 .43 .875 .50
Third Quarter........................................ .60 .27 .73 .32
Fourth Quarter....................................... .51 .28 .56 .34
YEAR ENDING DECEMBER 31, 2000
- -----------------------------
First Quarter........................................ 10.00 4.1875 10.625 4.6875
Second Quarter....................................... 10.8125 5.1255 11.00 5.375
Third Quarter........................................ 6.375 3.1875 7.375 3.50
Fourth Quarter....................................... 4.75 0.875 5.0625 1.00
As of March 29, 2002, there were 252 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.
-5-
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001
and has been derived from financial information appearing in the Financial
Statements included with this prospectus:
Twelve Months Ended
December 31, 2001
----------------------------
Actual
Audited Pro-Forma(1)
------------ -------------
Total Debt:....................................................... $ 1,406,124 $ 186,922
Stockholders' equity:
Common Stock, $.01 par value; 10,000,000 shares authorized;
5,106,607 shares issued and outstanding; 11,316 shares held
in treasury, Pro-Forma 13,314,475 shares issued................. $ 47,723 $ 133,145
Additional paid-in capital........................................ $ 4,339,478 $ 5,473,265
Accumulated deficit............................................... ($ 2,406,542) ($ 2,406,542)
Total stockholders' equity (deficiency)........................... $ 1,980,659 $ 3,199,868
Total Capitalization.............................................. $ 3,386,783 $ 3,386,790
(1) Convertible Debentures redeemed. Tech Labs previous registration statement
of Form SB-2, initially filed November 17, 2000, and subsequent amendments
included warrant exercise which is excluded from this pro-forma calculation due
to anti-dilution.
SELECTED FINANCIAL DATA
The financial data included in the following table has been derived from
our audited financial statements and should be read together with our audited
financial statements and related notes.
Years Ended December 31,
------------------------------------
1999 2000 2001
------------ ------------ ------------
Statement of Operations Data:
Sales $ 689,190 $ 1,017,518 $ 568,083
Cost of Sales 472,790 651,460 358,754
------------ ------------ ------------
Gross Profit 216,400 366,058 209,329
------------ ------------ ------------
Operating Expenses
General and Administrative 846,174 790,163 1,019,127
------------ ------------ ------------
Depreciation and Amortization 15,000 28,389 31,349
------------ ------------ ------------
Income/(Loss) From Operations $ (644,774) $ (452,494) $ (841,147)
Other Income - Interest 1,150 63,543 69,442
Interest Expense (11,305) (29,704) (85,777)
------------ ------------ ------------
Income/(Loss) before provision
for income taxes $ (654,929) $ (418,155) $ (857,482)
Provision for Income Taxes -0- -0- -0-
------------ ------------ ------------
Net Income/(Loss) $ (654,929) $ (418,655) $ (857,482)
Primary income (loss) per share $ (0.18) $ (0.10) $ (0.17)
Fully diluted income (loss)
per share $ (0.13) $ (0.08) $ (0.06)
Balance Sheet Data:
- -------------------
Total assets $ 1,258,172 $ 4,193,082 $ 3,386,783
Working Capital 566,966 3,850,467 1,719,861
Current Portion of long-term debt 28,559 17,198 1,252,549
Long-term debt (less current portion) -0- -0- -0-
Shareholders' equity $ 722,305 $ 2,550,607 $ 1,980,659
-6-
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 1999, 2000, and 2001 and their approximate
percentage contribution to revenues for the period indicated:
PRODUCT TYPE 1999 % of Revenue 2000 % of Revenue 2001 % of Revenue
---- ------------ ---- ------------ ---- ------------
Switches $269,739 39.1% $ 400,082 39.3% $ 306,678 53.9%
IDS Sensors 298,853 43.4% 472,374 46.4% 156,409 27.6%
Transformers/Coils 46,786 6.8% 41,849 4.1% 46,111 8.1%
Contract Manufacturing 73,812 10.7% 103,213 10.2% 58,885 10.4%
-------- ------ ---------- ------ --------- -------
Totals $689,190 100.0% $1,017,518 100.0% $ 568,083 100.0%
======== ====== ========== ====== ========= ======
The following table sets forth the percentages of gross profit for each of
our major business activities in 1999, 2000, and 2001:
Year Ended December 31,
-----------------------------------------------------------------------
PRODUCT TYPE 1999 2000 Net Change 2000 2001 Net Change
- ------------ ---- ---- ---------- ---- ---- ----------
Switches 45.0% 79.3% 34.3% 79.3% 72.2% (7.1%)
IDS Sensors 54.6% 55.5% 0.9% 55.5% 57.6% 2.1%
Transformers/Coils 25.0% 49.1% 24.1% 49.1% 41.6% (7.5%)
Contract Manufacturing 22.8% 31.0% 8.2% 31.0% 50.1% 19.1%
Unallocated company expenses,
including physical inventory
adjustments and factory overhead (14.0%) (26.2%) (12.2%) (26.2%) (26.6%) (0.4%)
Total company gross profit % 31.4% 36.0% 4.6% 36.0% 36.8% 0.8%
We have continued 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.
Results of Operations
2001 compared to 2000
Sales were $568,083 for 2001 as compared to $1,017,518 for the year ended
2000. The decline in sales of (55.8%) was a direct result of the economic
downturn in 2001.
Cost of sales of $358,754 for the year ended 2001 compared to $651,460 for
the year ended 2000 declined due to the volume decrease. Tech Labs' gross profit
percentage improved to 36.8% even though volume declined.
Selling, general, and administrative expenses increased by $231,924 in 2001
as compared to the prior period in 2000. This 28.3% increase was due to Tech
Labs' continuing efforts to secure short- and long-term financing in 2001.
-7-
Losses from operations of ($857,482) in 2001 increased by $438,827 compared
to losses of ($418,655) for the prior period as a direct result of volume
declines and expenses associated with efforts to secure financing.
2000 compared to 1999
Sales of $1,017,518 for 2000 increased 47.6% over 1999 as a result of Tech
Labs' continuing efforts to market our higher profit DynaTrax(TM) and IDS Sensor
products.
Cost of sales of $651,460 increased 37.7% due to higher sales of
DynaTrax(TM) and IDS Sensors which improved Tech Labs' gross profit percentage
4.6 percentage points, or an increase of 14.6% versus 1999.
Selling, general and administrative expenses declined only slightly to
$818,552 due to major marketing expansion efforts for our DynaTrax(TM) product
line.
Tech Labs' loss from operations for 2000 was ($418,655), an improvement of
36.1% versus 1999, caused by increased sales of our more profitable products
partially offsetting our market expansion cost.
1999 compared to 1998
Sales were $689,190 for 1999 as compared to $552,485 for the year ended
1998. The increase was due to growth in switch and sensor sales. We will
continue efforts in the future to increase sales of these high margin products.
Cost of sales of $472,790 for the year ended 1999 compared to $386,425 for
the year ended 1998 increased due to sales of IDS sensors to the Department of
Energy's Los Alamos facility, and increased switch sales.
Selling, general, and administrative expenses increased by $531,325 in 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), and the fees incurred in connection with Tech Labs'
self-underwritten public offering.
Losses from operations of ($654,929) in 1999 increased by $485,825 compared
to losses of ($169,104) for the prior period as a direct result of higher
administrative expenses, due to the non-recurring DynaTraX(TM) acquisition fees
and legal fees, and self-underwritten public offering legal fees.
Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in
1998.
Liquidity and Capital Resources.
During calendar year 1999 we raised an additional $250,000 for the
acquisition of the DynaTraX(TM) assets and an additional $200,000 for working
capital. On October 25, 1999 Tech Labs borrowed $50,000 at 10% interest per year
pursuant to a promissory note and security agreement with the lender. Under the
terms of the security agreement, Tech Labs assigned a security interest in two
of Tech Labs' purchase orders totaling $543,000. Under the terms of the
promissory note, the $50,000 was to be repaid in full no later than December 24,
1999. The Note was extended to a due date of January 28, 2000 at an interest
rate of 14%. In addition, Tech Labs entered into three unsecured promissory
notes, as described below, in the amount of $50,000 each, at an interest rate of
10%. As of December 31, 2000, $150,000 of a total of $200,000 in promissory
notes has been repaid and $50,000 remains outstanding and is due as of December
31, 2002.
During 2000 we completed two significant transactions that have improved
our liquidity. On May 3, 2000 we completed an offering of our common stock to
the public pursuant to a registration statement on Form SB-2. We sold to the
public an aggregate of 293,379 shares for gross proceeds of $2,273,723.
Subsequently, on October 13, 2000 we completed a private placement, pursuant to
Rule 506 of Regulation D, of convertible promissory notes for gross proceeds of
$1,500,000.
During 2001, as a result of the economic downturn, we suffered severe
operating losses and negative cash flows which impaired our liquidity position
and caused a default in January 2002 on an underlying conversion and redemption
agreement related to the convertible notes issued in October 2000. We do not
currently have the financial resources to cure this default.
If sales do not improve in 2002, or if additional financing is not secured,
we will be forced to make dramatic expense reductions which will hamper our
marketing efforts but support our viability.
-8-
BUSINESS
General
Tech Labs manufactures and sells various electrical and electronic
components. We also market and are continuing to develop the DynaTraX(TM)
high-speed digital switch matrix system, an electronic switching unit. We
believe that DynaTraX(TM) technology will enable us to become a provider of
multi-media digital network distribution, security, and management equipment for
use in campus and building facilities. This equipment manages voice, video and
data transmissions on a network.
In addition, during the last three years, through our subsidiary, Tech
Logistics, Inc., we have been manufacturing and marketing under our exclusive
license, an infrared perimeter intrusion and anti-terrorist detection system or
"IDS." The IDS was originally designed for military applications, and we
currently market this product to government agencies and private industry for
use in nuclear, industrial and institutional installations. This product has
become a marketing priority since the terrorist attack of September 11, 2001.
Historical Business
We also manufacture and sell standard and customized transformers, test
equipment and rotary switches, the latter of which permits an electrical signal
to be diverted from point A to point B. In addition, we act as a contract
manufacturer for other companies and produce, on an OEM basis, electrical
assemblies, printed circuit board assemblies, cable and harness assemblies and
specialized electronic equipment. Approximately 15% of our products are
manufactured for military applications.
We sell our switch, transformer and test equipment products in the
electronics and electrical industries, primarily as a contract manufacturer for
other companies or for inclusion in OEM products. We market our products in
these industries in the United States. This is a mature market. Competition is
on the basis of price and service. Pricing of our products is based upon
obtaining a margin above cost of production. The margin we will accept varies
with quantity and the channels of distribution.
-9-
It continues to be our intention to market our historical products over
the Internet, as well as through our distribution and outside sales agents. Our
website is currently on-line. Our website address is www.techlabsinc.com.
The DynaTraX(TM)Asset Acquisition - Material Terms of Purchase Agreement
On April 27, 1999, we completed the purchase of the DynaTraX(TM)
product from NORDX/CDT, Inc. for a purchase price of $500,000. In connection
with the acquisition of DynaTraX(TM) technology, we acquired certain inventory,
patents and patent applications, and other equipment related to the
DynaTraX(TM)product.
Industry
DynaTraX(TM) Networking Management and Maintenance Technology
Tech Labs produces a high-speed digital matrix cross-connect switch
with a dynamic new technology, which can significantly reduce network downtime
and achieve substantial cost savings in data and telecommunications networking
environments. The DynaTraX(TM) switch provides network administrators with the
unique capability to remotely manage and maintain the "physical level" (the
actual physical connectivity) of their networks, from virtually any computer
with a few clicks of a mouse on a user-friendly graphical user interface (GUI).
This technology allows administrators to quickly and efficiently perform
physical changes electronically to repair networking problems (such as loss of
connectivity resulting in the need to move a cable to a different hub), or to
perform network reconfigurations (moves, adds or changes) to distribution
equipment such as computers and telecommunications devices. No longer does a
technician have to be dispatched to a telecommunication closet to resolve most
networking problems, or to provide changes to users' existing services on the
network.
Examples of where the DynaTraX(TM) has been found to be particularly
cost effective include: (1) active large remote corporate locations with minimal
or no IT personnel, where expensive outside technicians must often be dispatched
to resolve problems or other requests; and (2) locations where very frequent
movement of personnel occurs, such as in the military or at a convention center
where network reconfigurations are frequently required. Reconfigurations are
expensive with costs ranging from $50 to $200 on-site, and two to ten times that
for off-site reconfigurations, versus virtually no cost if a DynaTraX(TM) is
utilized. These figures do not include potential losses in productivity and
revenues associated with extended downtimes.
DynaTraX(TM) is also equipped with two key complementary products - a
Test Card and a Data Base Management System. The Test Card enables
administrators to effectively locate and resolve cable fault problems on the
distribution portion of the network. Customers state that the Test Card is far
superior to alternative methods for diagnosing problems such as traditional
cable test equipment, which typically involves using technicians to search
throughout the entire network, moving equipment and possibly interfering with
the performance of the network. DynaTraX's(TM) Database Management System
documents every event that occurs within the network, assuring that all
reconfigurations and other adaptations to the network are reflected on the
DynaTraX's(TM) GUI. Given the maze of wires, plugs, and jacks that are typically
found in a telecommunications closet, administrators are notorious for not
properly noting changes made to the network, resulting in cabling connections
errors and significant loss of productivity from unforeseen downtime. With most
network problems originating on the physical level, the Test Card and Data Base
Management System make the DynaTraX(TM) a complete tool for managing and
ensuring the integrity of data networks.
-10-
Since launching its marketing campaign on a limited basis in early
2001, the DynaTraX(TM) has been received favorably, particularly from the U.S.
military, which frequently moves personnel and performs routine networking
changes for security purposes. DynaTraX(TM) has been tested and purchased by the
U.S. Air Force and the U.S. Navy for inclusion in government projects. Prominent
commercial users of the DynaTraX(TM) include Global Crossing Inc, Nortel
Networks, Allied Irish Bank, Sanko Telecom of Japan, and Blue Cross of Florida.
Tech Labs' long-term growth strategy includes rapid development of
DynaTraX's(TM) technological capabilities, and concurrently, product integration
and establishment of strategic partnerships with world-class software and
hardware vendors. Presently, Tech Labs is a teaming partner with BAE Systems in
marketing DynaTrax(TM) to the U.S. Government; and has submitted a bid for the
multi-year EITC government program. We also signed a teaming agreement with EPS,
Inc. to market DynaTrax(TM) and the IDS to the government.
In addition, Tech Labs believes it has been successful in taking key
steps to achieving relationships with key industry partners including Avaya
Corp., Hewlett Packard Corp, Computer Associates Inc. particularly with its
DynaTraX(TM) Enterprise Management Solution "DEMS". DEMS elevates the current
DynaTraX(TM) electronic patching system to an interactive intelligent enterprise
management "Virtual Technician" system. The Virtual Technician dramatically
reduces the need for on-site technicians to perform physical layer tasks, which
can now be performed electronically from a remote location (i.e., remotely
testing network circuits, reconnecting equipment and circuits, rapidly
recovering from a critical network failure, capturing and trapping hackers).
Subsequently, the goal is to further enhance the DEMS technology beyond the
Virtual Technician application to a system that will perform "self healing"
(self-repair) network functions. Current and future products derived from the
DynaTraX(TM) will position us as a provider of state-of-the-art network
enterprise management solution systems, rapidly expanding from this base to
become a recognized provider of enhanced networks and integrated
(voice/data/video) Internet (IP) compatible, private customer-premise
all-digital Automatic Call Directors, and PBX systems and networks.
Subject to raising sufficient capital, we intend to further expand the
DynaTraX(TM) matrix technology through the development of several types of
advanced management and switching systems:
1. A fiber optic Input/Output (I/O) DEMS switch capable of
cross-connecting multi-mode fiber circuits as well as providing fiber
to copper media conversion. This effort starts out as a revised version
of the current DynaTraX(TM) switch and eventually is incorporated in
the newer IP addressable switch products. The design effort basically
entails redesigning the I/O equipment and Distribution cards that will
plug directly into the existing DynaTraX(TM) switch package. This
product will be suited for customer premise applications that utilize
fiber-optic cabling in their horizontal cabling distribution plant. A
primary market for such a product is the government, especially the
military and security agencies where fiber optic cabling (regardless of
transmission speeds) is used for security and transmission reasons.
2. A 36-port switch that will reduce the fixed overhead cost and
physical size of the current (standard 108-port size) switch package.
This switch will utilize the current switch subassembly card modules
and power supply repackaged to fit into a back-plane versus the current
mid-plane chassis package. The purpose is to have a switch product that
is better priced and packaged for applications in smaller remote sites.
3. A new switching/management system designed around the Tech Labs
matrix chips. The system will support broadband voice/data/video IP
networks and be packaged to conform to the latest PC bus technology in
accordance with SCSA architecture and computer telephony practices. The
end product we intend to produce is focused on the customer premise
network operating center versus telephone exchange applications and
will include:
o IP Addressable Automatic Call Director "ACD".
o IP Addressable PBX and Centrex office switches.
-11-
All products will feature the Tech Labs matrices and utilize
intelligent I/O line interface cards and user-friendly software
development tools already designed for the original DynaTraX(TM)
switching systems. The primary markets we are targeting for this new
technology will be:
o Fortune 1000 remote call centers or branch office
operations.
o Government agencies.
o Private commercial and residential properties as they
migrate more and more to the idea of owning and
operating their local network facilities.
The marketing channels we will rely on to sell the products to the
above groups will be the value-added resellers "VARs" responsible for delivery
of a turnkey information service, or for the implementation, management and
maintenance of private customer premise network facilities. This will include
CLECs, ISPs, and facility project management organizations.
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).
We continue to believe that competition in the sale of our DynaTraX(TM)
products will be on the basis of price, features, service and technical support.
Pricing of our products is based upon obtaining a margin above cost of
production. The margin we will accept varies with quantity and the channels of
distribution.
Competition for network management products comes from several
different sources. One source of competition is the designated employees of
large organizations which have been hired to manage and maintain their internal
networks. However, we believe the growing need to control and reduce costs by
using technology such as DynaTraX(TM) to automate tasks otherwise performed by
expensive technical labor, will provide Tech Labs with market opportunities.
Another group of competitors which produces products to manage and
maintain the network physical layer consists of NHC, RIT and Cyteck. Of these
three companies, NHC is the only one that offers a product comparable to
DynaTrax(TM), but which is not as fast as DynaTraX(TM). In addition, V-LAN
switching, which is a technology utilized by a number of companies, can be
regarded as a competing technology. However, V-LAN switching is limited to a
specific type of network, I.E., Ethernet, and not able to support many tasks
which our DynaTraX(TM) technology is designed to complete. These tasks are:
o rearranging network physical layer connections, e.g.s moves,
adds, and changes of equipment such as computer terminals; fax
machines; and printers;
o testing circuits;
o managing and maintaining end-to-end network configuration,
which is the connection between different points on a network
from the telecommunications closet to the user outlet; and
o maintaining asset inventory records.
We regard V-LAN as complementary to DynaTraX(TM) circuit switching
since they can work together to provide a more comprehensive network
management/maintenance solution. The four competitors all have greater financial
and other resources and currently account for substantially all of the existing
market.
Although we believe that the DynaTraX(TM) technology will serve as the
basis for new products in the area of multi-media, digital network distribution
and management equipment for use in campus and building facilities, our ability
to successfully market our products will depend upon several factors including,
among others:
-12-
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.
Infrared Intrusion Detection System or "IDS"
In April 1997, we formed Tech Logistics, Inc., a joint venture
subsidiary owned at that time 80% by Tech Labs 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 entered into an agreement dated effective as of October 1, 1997
with EAG, W.T. Sports, Ltd. and FUA Safety Equipment. Under the terms of the
agreement we were granted an exclusive right until September 30, 2007 to
manufacture and sell in the U.S., Canada and South America the IDS products. The
agreement provides that until March 31, 2001 gross pre-tax profits will be
shared 70% to Tech Labs and 30% to FUA. From April 1, 2001 until September 30,
2007 the gross pre-tax profits in excess of 16% will be shared 70% to Tech Labs
and 30% to FUA. We will also pay FUA a royalty of 5% of the cost of any IDS
products we manufacture and sell. We also intend to market metal detection
equipment manufactured by EAG for use in security and industrial applications,
such as walk-through metal detectors and hand-held metal detectors.
We are marketing our IDS product to the security and anti-terrorist
industry. We believe demand for this product will grow rapidly, particularly in
light of the recent terrorist attack that occurred on September 11, 2001. We
recently sold the IDS product to Los Alamos National 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.
In 1999 we received approval for the IDS from the U.S. Air Force for
inclusion in their Tactical Automated Security System program, which is a $500
million program to thwart enemy attacks on critical military installations
throughout the world.
Pricing of our products is based upon obtaining a margin above cost of
production. The margin we will accept varies with quantity and the channels of
distribution.
Marketing Strategies
Marketing. We are implementing a marketing program consisting of:
Distribution through Typical Resale Channel Partners. These are technically
qualified networking systems integration, implementation and management type
companies, in the business of providing network project-management consulting
services and/or on-site implementation, installation and maintenance support
services. The companies Tech Labs deals with will be working in the markets
(commercial or government) we have targeted and will already have established a
customer base.
-13-
Building Sales and Sales Lead. In addition to the already existing networks of
existing and potential clients known by our managers and resale channel
partners, Tech Labs, contingent upon sufficient resources, will also embark on
an aggressive promotion program consisting of advertising in trade journals,
trade show participation and mailing campaigns. Tech Labs is establishing itself
as certified approved partners of large Enterprise Management (HP, CA, IBM)
systems providers, as well as large networking equipment companies (such as
Avaya) where there is a fit for integrating the company's technology with these
companies' technology and products.
Advertising. There will be a continuous program for both commercial and military
markets involving a focused DynaTraX(TM) Enterprise Management Solution campaign
in at least three trade magazines - two commercial and one government.
Trade Shows. We hope to do at least six shows per year, comprised of two major
industry shows and four smaller territory focused government "AFCEA" trade
shows. In addition, Tech Labs will also participate in two or more shows as part
of exhibits setup by its channel and teaming partners.
Mailing Campaign. Tech Labs will use commercial and government industry mailing
lists available through industry trade organizations. These lists will be
territorially arranged focusing on the proper person or groups involved in
specifying, recommending and/or purchasing DynaTraX(TM) products.
Certified Partners Programs. Working under such arrangements, we expect to be
able to co-promote our technology through existing sales channels and marketing
programs. In some instances, these organizations will even sell the product
through their sales organization catalogs as a value-added product or as an OEM.
Marketing Channels
The sales infrastructure for DynaTraX(TM), we anticipate, will include
a three-tier sales organization structure comprised of a senior company sales
executive managing up to five "market area" sales managers and several resale
channels in each area. These market areas will be located in the following
general regions: East Coast, Southwest, Mid West, West Coast, and Northwest.
Market territories will be selected based on the projected number of commercial
and government organizations considered to be primary target customers. These
regional areas will be further broken down into several "channel sales
territories".
Market areas will be established in phases over a two-year period,
starting with the East Coast where the company presently has established a base
of operations in two regional territories, New York and Florida. The goal is to
have a minimum of three regional territory sales managers in each market area.
For example, on the East Coast we will initially setup managers in the
Northeast, New York City/New Jersey Metro region, Mid-Atlantic - Washington DC
region, and Southeast - Orlando/Tampa Florida region. Regional territories are
further broken down to local-territory units. During the initial East Coast
buildup phase, we will support other market company agents (technical
representatives) operating in the regional territories targeted for development.
Representatives will be supported by the closest regional sales office manager.
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.
-14-
U.S. Military
The Department of Defense is presently under a mandate from the
President and Congress to minimize costs and maximize efficiency. The military,
unlike commercial organizations, will encourage the use of new technology such
as DEMS to improve productivity, operations and reliability. The specific
military business opportunities we are targeting includes: Improving IT network
management and maintenance capabilities; supporting "rapid deployment" for
configuring networks and for recovering from network disasters; having current
and accurate information about network configurations, connected assets and
usage statistics; preventing hackers or other type of unauthorized attempts from
gaining access to network resources, and then identifying and capturing them.
Non-military Government Agencies
These government organizations primarily contract out their network
support operations. They are under significant pressure to reduce staff and
costs while also being asked to do more. In order to achieve these mandates,
agencies will have to rely on new technology such as DEMS that can help improve
their productivity while at the same time increase network services and
reliability. In addition, government agencies (especially the FBI, CIA, and NSA)
are also being challenged by Congress regarding their poor track record on
protecting their information and network resources against hackers and other
unauthorized users.
Commercial Organizations
Opportunities include large organizations with many regional business
offices and/or local call centers (remote office operations) as well as mid-size
organizations with medium size headquarters and small remote branch operations.
Included in this group are Fortune 1000 service organizations (banks financial
investment companies, medical insurance companies, large retail operations,
etc.) that have regional operations and rely on territory branch offices to sell
their products or services to their customers, and organizations that have a
need to change their network arrangement "churn" to support relocating personal
or to service temporary users of their facilities. In addition to relying on
their networks to conduct business, these organizations also have a need to
protect the network resources and customer information from hackers and other
unauthorized users.
Source of Supply
Current inventory component purchases for all our products are made
from OEMs, brokers, and other vendors. We typically have multiple sources of
supply for each part, component, or service, and during the year ended December
31, 2001, cannot characterize any particular company as being our "largest"
supplier. During the year ended December 31, 2000, Wiggins Plastics was our
largest supplier with 7.4% of our overall inventory purchases. These purchases
were primarily used in the manufacture of electromechanical switches. 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
December 31, 2001, and December 31, 2000, was as follows:
As of December 31, 2001: $14,146
As of December 31, 2000: $586,441
-15-
Patents
In connection with our acquisition of the DynaTraX(TM) assets, we acquired
certain patents and pending patent applications. Four patents have been granted
in Great Britain, which are listed below:
o Patent title: User Interface for Local Area Network. This patent covers
technology which allows communication between the user and the equipment
controlling the network. This patent expires in 2013.
o Patent title: Token Ring. This patent covers technology which transmits
information between devices on a network. This patent expires in 2013.
o Patent title: Half Duplex Circuit for Local Area Network. This patent
covers technology which allows one-way communication either to or from the
Local Area Network. This patent expires in 2013.
o Patent title: Matrix Switch Arrangement. This patent covers technology
which is a switch that can either connect or disconnect one or more devices
on a network. This patent expires 2015.
We have also received a Notice of Allowance and Issue Fee Due from the
United States Patent and Trademark Office in connection with our patent
application entitled MULTI-PROTOCOL CROSS CONNECT SWITCH. We expect to pay the
issue fee by the due date of June 8, 2002. We expect the application to mature
into a patent within a few months of our payment of the issue fee. Once the
issue fee has been paid, issuance of a U.S. patent, in due course, is highly
likely.
We also have patents pending in the United States and in Europe. In
addition, Tech Labs has a U.S. patent pending on new technology relating to the
protection of computer networks from hacker attacks.
Employees
We have 16 full-time employees, including our officers, seven of whom were
engaged in manufacturing, one in repair services, one in administration and
financial control, two in engineering and research and development, two in
marketing and sales, and three in management.
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 April, 2007. The annual base rent is $49,000 and includes property taxes
and other adjustments. We believe our premises are adequate for our current
needs and that if and when additional space is required, it would be available
on acceptable terms.
We are an integrated manufacturer and, accordingly, except for plastic
moldings and extrusions, produce nearly all major subassemblies and components
of our devices from raw materials. We purchase certain components from outside
sources and maintain an in-house, light machine shop allowing fabrication of a
variety of metal parts and castings, complete tool room for making and repairing
dies, a stamping shop and an assembly shop with light assembly presses. Our test
lab checks and tests our products at various stages of assembly and each
finished product undergoes a complete test prior to shipment.
We anticipate that we will either manufacture any new products ourselves or
subcontract their manufacture, in whole or in part, to others. We believe that
personnel, equipment, and/or subcontractors will be readily available as and
when needed.
We offer warranties on all our current products, including parts and labor
for one year.
We have limited research and development facilities and currently employ
one engineer.
Litigation
We are involved in a lawsuit arising from a letter of intent relating to a
small potential transaction we did not complete because we believed there were
misrepresentations made to us. We believe that the outcome is likely to be
favorable, but that our maximum liability if we do not prevail would be $30,000.
The suit is pending in the Superior Court of New Jersey, Law Division, Passaic
County.
-16-
MANAGEMENT
Directors, Executive Officers, and Key Consultants
Name Age Title
- ---- --- -----
Bernard M. Ciongoli 55 President, Treasurer, and Director
Earl M. Bjorndal 50 Vice President and Director
Carmine O. Pellosie, Jr. 59 Secretary and Director
Salvatore Grisafi 71 Director
Each director is elected for a period of one year 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.
Salvatore Grisafi has been a director since August of 2000. Mr. Grisafi is
president of MPX Network Solutions, a privately held
telecommunications/networking business development and marketing consulting
company. Mr. Grisafi has served as a consultant to Tech Labs since 1998, and
assisted the Company in the acquisition of the DynaTrax(TM) technology from
NORDX/CDT and in identifying other opportunities and business strategies. Mr.
Grisafi is a graduate of the New York Institute of Technology.
Tech Labs' success will depend to a large extent upon the continued efforts
of Bernard M. Ciongoli, our president and chief executive officer. Mr. Ciongoli
has an intricate understanding of Tech Labs, its business operations and the
technology underlying its products. It would be very difficult for Tech Labs to
replace Mr. Ciongoli, and accordingly the loss of his services would be
detrimental to our operations. We do, however, maintain key man life insurance
on Mr. Ciongoli to compensate for any such loss, and have an employment
agreement with him. Expansion of our business may require additional managers
and employees with industry experience. In general, only highly qualified
managers have the necessary skills to develop and market our products and
provide our services.
Competition for skilled management personnel in the industry is intense,
which may make it more difficult and expensive to attract and retain qualified
managers and employees. Expansion of our business will likely also require
additional non-employee board members with business and industry experience. We
do not, however, have directors' and officers' liability insurance, which may
limit our ability to attract qualified non-employee board members.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
president. No other officer has received compensation in excess of $100,000 in
any recent fiscal year.
-17-
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------- -------------
Shares of
Common Stock
Issuable Upon
Name and 2001 Exercise of
Principal Position Year Salary($) Bonus($) Options
------------------ ---- --------- -------- -------
Bernard M. Ciongoli 2001 $135,000 0 600,000
President, Treasurer 2000 $125,000 0 250,000
1999 $125,000 0 0
The following table sets forth information relating to all options granted
to named executive officers:
Option Grants in Fiscal Year 2001
Percent of
Number of Total Options
Securities Underlying Granted to Employees Exercise Expiration
Name Options Granted in Fiscal Year (%) Price Date
- ---- --------------- ------------------ ----- ----
Bernard M. Ciongoli 100,000 15.38 $.9625 3/01/06
500,000 76.92 $.43 8/01/06
Tech Labs has entered into an employment agreement for a term of five (5)
years with Mr. Ciongoli, dated as of August 1, 2001, which agreement supersedes
the employment agreement that was in effect with Mr. Ciongoli dated October 1,
1998, as amended June 18, 1999, and February 21, 2001. Mr. Ciongoli is currently
compensated under the terms of the employment agreement at the base salary rate
of $150,000 per annum. Mr. Ciongoli is also entitled to receive two percent (2%)
of our sales in excess of $1,000,000 during any year he is employed by us. In
addition, Mr. Ciongoli was granted an option, exercisable for five (5) years
from the date of grant, to purchase 500,000 shares of stock at $.43 per share,
such option to vest in increments of 100,000 shares every six (6) months
commencing February 1, 2002. The agreement is automatically renewable for three
(3) years unless either party terminates the agreement in writing at least 180
days prior to the expiration of the initial term period.
In addition, in 2001, we granted to Mr. Ciongoli an option to purchase up
to 100,000 shares under our 1996 stock option plan exercisable for five (5)
years at $0.9625 per share which vest over a period of two (2) years. In 2000,
we granted to Mr. Ciongoli (i) a non-plan option in consideration and in
recognition of his services to Tech Labs to purchase up to 139,000 shares
exercisable over five (5) years at $2.4375, which vests over the course of three
(3) years from the date of grant; and (ii) an option to purchase up to 111,000
shares of common stock under our 1996 stock option plan exercisable for five (5)
years at $2.68125 per share, which vests over a period of three (3) years.
-18-
We do not have employment agreements with any other named executive
officers. Our directors are not presently compensated.
Consultants
We entered into a consulting agreement with MPX Network Solutions, Inc. The
agreement, as amended, expired on March 21, 2002, and provided that:
o MPX will provide consulting services in the areas of marketing,
customer relations and strategic and product development planning,
particularly with regard to communications products;
o MPX will receive an annual fee of $52,000 and commissions on sales of
telecommunications products during the term of the agreement ranging
from 3% of the first $2,000,000 of the net sale prices to 1/2% of the
net sale prices over $4,000,000, and
o MPX will receive 50,000 shares of common stock; and, options to
purchase (i) up to, depending on net sales of telecommunications
products during the term of the agreement, 50,000 shares of common
stock at a purchase price of $1.25 per share, (ii) options to purchase
up to 25,000 shares exercisable for 3 years at $0.75 per share, and
(iii) options to purchase up to 25,000 shares exercisable for 4 years
at $0.75 per share but which do not vest until the "Positive Network
Access Security" patent filed by Tech Labs is approved by the U.S.
Patent and Trademark office.
These services were provided on an as needed basis, primarily by MPX's
president, Mr. Sal Grisafi, who is a director of Tech Labs.
We also entered into a consulting agreement with Scott Coby. Under the
terms of the agreement, the consultant provides certain marketing and financial
services. In consideration for entering into the agreement, which has an initial
term of two years, we issued to the consultant a warrant to purchase 50,000
shares of common stock at $1.85 per share exercisable for five (5) years.
We issued an additional warrant to Scott Coby to purchase up to 200,000
shares of common stock at $3.50 per share exercisable for five (5) years. This
warrant vests in increments of 25,000 warrants for every $250,000 of sales of
Tech Lab's products to purchasers obtained by consultant within the initial two
(2) year term of the consulting agreement with Mr. Coby. The shares underlying
the warrants have certain registration rights.
We also entered into a consulting agreement with Barry Bendett. Under the
terms of the agreement the consultant will provide certain business develpment
services, including but not limited to, expanding the customer base, financial
planning, corporate structuring and marketing matters. In consideration for
entering into the agreement, which has an initial term of two (2) years, we
issued to the consultant an option to purchase 100,000 shares of common stock at
$4.00 per share exercisable for three (3) years. Pursuant to the terms of the
agreement, we also issued to Mr. Bendett an aggregate of 170,000 shares for his
services.
Stock Option Plans
On December 11, 1996, the board of directors adopted a stock option plan
for officers, directors, and other key employees. Options issued pursuant to the
stock option plan to qualified key employees are meant to qualify as incentive
stock options within the meaning of Section 422A of the Internal Revenue Code. A
total of 450,000 shares were set aside for this purpose. Currently outstanding
under this plan are grants of options for an aggregate of 306,000 shares, of
which 100,000 were granted at an exercise price of $0.9625, 111,000 were granted
at an exercise price of $2.68125, 25,000 were granted at an exercise price of
$2.4375 and 70,000 were granted at an exercise price of $0.875.
The 1996 Plan is administered by a committee appointed by the board of
directors, which is comprised of two or more members of the board. The
committee's interpretation and construction of the stock option plan is final
unless otherwise determined by the board.
-19-
Options granted under the 1996 Plan shall have an option price not less
than 100% of the fair market value of the shares of Tech Labs' common stock on
the date of the granting of the option, or 110% of the fair market value for
stockholders who, at the time of grant, posses more than 10% of the total voting
power of all classes of stock. If the aggregate fair market value of the shares
of stock, determined as of the date of grant, during any calendar year exceeds
$100,000 then only the first $100,000 of such shares exercised will be treated
as incentive stock options.
Any option must be granted within 10 years of the date the plan was adopted
or approved by the shareholders, whichever is earlier. The option, by its terms,
must be exercisable within 10 years of the date it is granted. If, however,
options are granted to an optionee who, at the time of grant, posseses more than
10% of the total voting power of all classes of stock, the options granted shall
be exercisable no more than 5 years from the date of grant. Options generally
may be exercised only if the optionee remains continuously associated with Tech
Labs from the date of grant to the date of exercise. However, options may be
exercised upon termination of employment or upon death of any employee within
certain specified time periods.
CERTAIN TRANSACTIONS
The following information describes certain transactions between Tech Labs
and certain affiliated parties. Future transactions, if any, must be approved by
the board of directors.
In March, 1999, we entered in to a consulting agreement with MPX Network
Solutions, Inc. Sal Grisafi is the president of MPX and a director of Tech
Labs'. See "Management-Consultants."
In March of 2001, we extended the term of our consulting agreement with MPX
Network Solutions Inc., whose president, Salvatore Grisafi, is also a director
of Tech Labs, until March 21, 2002.
PRINCIPAL STOCKHOLDERS
The following table describes, as the date of this prospectus, the
beneficial ownership of our common stock by:
o persons known to us to own more than 5% of such stock, and
o the ownership of common stock by our directors, and by all officers
and directors as a group.
Number of
Shares Owned % of
Name Beneficially Common Stock
- ---- ------------- ------------
Bernard M. Ciongoli 1,140,334 19.78%
Earl Bjorndal 273,444 5.24%
Carmine O. Pellosie, Jr. 60,000 1.16%
Salvatore Grisafi 100,000 1.93%
Libra Finance, S.A. 275,000 5.08%
Celeste Trust Reg 570,868 9.99%
The Endeavour Capital Investment
Fund, S.A. 570,868 9.99%
Esquire Trade & Finance 570,868 9.99%
All officers and directors as a 1,573,778 26.30%
group (4 persons)
-20-
* Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of common stock that an individual or entity has a right
to acquire within 60 days purusant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or entity, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of such
individual or entity, but are not deemed to be outstanding for the purposes
of computing the percentage ownership of any other person or entity shown
in the table.
o The information for Mr. Ciongoli includes 120,334 shares that may be
acquired within 60 days pursuant to the exercise of options granted under
our 1996 stock option plan and 500,000 shares issuable upon exercise of
options earned under our employment agreement with Mr. Ciongoli.
o The information for Mr. Bjorndal includes 75,000 shares that may be
acquired within 60 days pursuant to the exercise of options granted under
our 1996 stock option plan.
o The information for Mr. Grisafi includes 50,000 shares that are owned by
MPX Network Solutions, Inc., a company that Mr. Grisafi controls and in
which Mr. Grisafi's wife holds all of the outstanding shares, and 50,000
shares that may be acquired within 60 days pursuant to the exercise of two
(2) non-plan grants of stock options.
o The information for Mr. Pellosie includes 20,000 shares issuable upon the
exercise of immediately exercisable options granted under our 1996 stock
option plan.
o The number of shares beneficially owned by each of Celeste Trust Reg, The
Endeavour Capital Investment Fund, S.A., and Esquire Trade & Finance may
not exceed, by the terms of their Subscription Agreement with Tech Labs,
9.99% of the outstanding number of shares of common stock of Tech Labs.
Beneficial ownership is calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Based on a conversion price for the Notes of $0.136, no more
than an amount equal to approximately 570,868 shares may be converted by
each of Celeste Trust Reg, The Endeavour Capital Investment Fund, S.A., and
Esquire Trade & Finance at any one time; provided, however, each of the
above mentioned parties is not precluded from converting the maximum amount
permissible under the Notes, immediately disposing of some or all of those
shares and subsequently converting additional amounts remaining under the
Notes.
PLAN OF DISTRIBUTION
Tech Labs is registering this offering of shares on behalf of the selling
securityholders. Tech Labs will pay all costs, expenses and fees related to the
registration, including all registration and filing fees, printing expenses,
fees and disbursements of its counsel, blue sky fees and expenses.
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.
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.
-21-
Any underwriters, brokers, 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. Accordingly, any commission, discount
or concession received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act of 1933. Because the selling stockholders may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securites Act of
1933, the selling stockholders will be subject to the prospectus delivery
requirements of the Securities Act of 1933. Each selling stockholder has advised
Tech Labs that the stockholder has not yet entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of the shares.
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.
The selling securityholders have agreed to sell the shares only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from registration or qualification is available and is complied
with.
The selling securityholders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and their associated rules and regulations,
including Regulation M. These provisions may limit the timing of purchases and
sales of shares of the common stock of Tech Labs by the selling securityholders.
Tech Labs will make copies of this prospectus available to the selling
securityholders and has informed them of the need for delivery of copies of this
prospectus to purchases at or before the time of any sale of the shares.
OFFERING BY SELLING SECURITYHOLDERS
The following tables set forth certain information concerning each of the
selling securityholders. The shares are being registered to permit the selling
securityholders and their transferees or other successors in interest to offer
the shares from time to time. Except for Stursberg & Veith none of the selling
securityholders has held any position or office or had a material relationship
with Tech Labs or any of our affiliates within the past three years other than
as a result of the ownership of our common stock.
Selling securityholders are under no obligation to sell all or any portion
of their shares. Particular selling shareholders may not have a present
intention of selling their shares and may sell less than the number of shares
indicated. The following table assumes that the selling shareholders will sell
all of their shares.
-22-
Number of
Shares
Beneficially Number of Percent of
Owned and Number of Shares Shares Percent of
to be Owned Shares Owned Owned Shares
Prior to Being After Prior to the Owned After
Selling Shareholders Offering(1) Offered Offering Offering the Offering
- ------------------------------------------- ------------ --------- ---------- ------------ ------------
Celeste Trust Reg(2)(3)
c/o Trevisa-Treuhand-Anstalt Landstrasse
8 Furstentums
99996 Balzers
Liechtenstein 570,868 570,868 0 9.99% 0%
The Endeavour Capital Investment Fund, S.A.(2)
Cumberland House 27
Cumberland Street
Nassau New Providence
Bahamas 570,868 570,868 0 9.99% 0%
Esquire Trade & Finance, Inc.(2)
Trident Chambers
P.O. Box 146, Road Town
Tortolu, BVI 570,868 570,868 0 9.99% 0%
The Endeavour Management Inc. S.A (3)
Cumberland House 27
Cumberland Street
Nassau New Providence
Bahamas 137,500 137,500 0 3.33% 0%
Libra Finance, S.A (3)
P.O. Box 4603
Zurich, Switzerland 275,000 275,000 0 5.08% 0%
Stursberg & Veith (4)
405 Lexington Avenue
New York, NY 75,000 75,000 0 1.43% 0%
Mint Corporation (4)
211 Park Avenue
Hicksville, New York 11801 200,000 200,000 0 3.74% 0%
(1) Based upon the information we have received, we assume that the selling
securityholders have sole voting and investment power with respect to all shares
owned.
(2) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. The number
of shares of common stock shown as beneficially owned both prior to and after
the offering by the selling securityholders represents an estimate of the number
of shares of common stock to be offered by such selling securityholders assuming
a conversion price of $0.136 on the remaining balance of approximately
$1,231,019, as of March 26, 2002, on the $1,500,000 Notes. The actual number of
shares of common stock issuable upon conversion of the Notes is indeterminate,
is subject to adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted by Tech Labs at
this time, including the future market price of the common stock.
-23-
The actual number of shares being registered under this registration
statement also includes 200% of the number of shares of common stock issuable
upon exercise of the notes and interest payable thereon. The Notes are
convertible at a price equal to 85% of the average of the five lowest closing
bid prices of the common stock during the twenty-two (22) business days
immediately preceding the closing of the financing transaction in which Tech
Labs delivered the notes and to the selling securityholders or 85% of the five
lowest bid prices during the twenty-two (22) business days through the date of
conversion of the notes, whichever is lower. Therefore, the number of shares
issuable upon conversion of the Notes may be less than or greater than the
number of shares shown as beneficially owned by the selling securityholders or
otherwise covered by this prospectus.
Pursuant to the terms of the subscription agreement entered into between
the selling securityholders and Tech Labs, the Notes are convertible by each
selling securityholder and interest is payable in common stock only to the
extent that the number of shares of common stock then beneficially owned, as
determined in accordance with section 13(d) of the 1934 Act and Rule 13d-3
thereunder, by such selling securityholder and its affiliates would not exceed
9.9% of the then outstanding shares of common stock of Tech Labs, provided such
selling securityholder has not sent written notification to Tech Labs that it
wishes to void the 9.9% limitation. Furthermore, the selling securityholders are
not precluded from converting the maximum amount permissible under the notes,
immediately disposing of some or all of those shares and subsequently converting
additional amounts remaining under the Notes.
(3) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. The number
of shares of common stock shown as beneficially owned both prior to and after
the offering represents 200% of the number of shares of common stock issuable
upon the exercise of warrants to purchase common stock at an exercise price of
$4.80.
(4) Represents shares of common stock issuable upon the exercise of warrants to
purchase common stock.
In recognition of the fact that certain selling securityholders may wish to
be legally permitted to sell their shares of common stock when they deem
appropriate, we agreed with certain selling securityholders to file with the
United States Securities and Exchange Commission, under the Securities Act of
1933, as amended, a registration statement on Form SB-2, of which this
prospectus is a part, with respect to the resale of the shares of common stock,
and have agreed to prepare and file amendments and supplements to the
registration statement as may be necessary to keep the registration statement
effective until the shares of common stock are no longer required to be
registered for the sale thereof by certain sellingsecurity holders.
Stursberg & Veith has been legal counsel to Tech Labs for the past three
years.
The sale of the securityholder shares may be effected from time to time in
transactions, 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.
-24-
The selling security holders have been advised that the shares may only be
sold in New Jersey through a registered broker-dealer or in reliance upon an
exemption from registration.
Broker-dealers, if any, may receive compensation in the form of discounts,
commissions, or concessions and/or the purchasers from whom such broker-dealers
may act as agents or to whom they may sell as principals or otherwise, which
compensation as to a particular broker-dealer may exceed customary commissions.
If any of the following events occurs, this prospectus will be amended to
include additional disclosure before offers and sales of the securityholder
shares are made:
o To the extent such securities are sold at a fixed price or by option
at a price other than the prevailing market price, such price would be
set forth in this prospectus;
o If the securities are sold in block transactions and the purchaser
wishes to resell, such arrangements would be described in this
prospectus;
o If the compensation paid to broker-dealers is other than usual and
customary discounts, commissions, or concessions, disclosure of the
terms of the transaction would be included in this prospectus.
This prospectus would also disclose if there are other changes to the
stated plan of distribution, including arrangements that either individually or
as a group would constitute an orchestrated distribution of the securityholder
shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of securityholder shares may not simultaneously
engage in market making activities with respect to any securities of Tech Labs
for a period of at least two (and up to nine) business days prior to the
commencement of such distribution. In addition, each selling securityholder
desiring to sell securityholder shares will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of the purchases and sales of shares of Tech Labs' securities by such
selling securityholders.
The selling securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 25,000,000 shares of common stock
having a par value of $.01 each, of which 5,143,530 are currently
outstanding and 11,316 shares are held in treasury. There are currently
approximately 252 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.
-25-
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.
Common Stock Purchase Warrants
In October 2000, Tech Labs issued 412,500 warrants to purchase shares of
common stock at an exercise price of $4.80 per share, subject to adjustment, at
any time until 5:00 pm New York time, on October 13, 2003. Tech Labs may call
the warrants on thirty days written notice, provided the average closing
bid price equals or exceeds $8.00 per share for twenty consecutive business
days and the average daily volume is at least 90,000 shares per day.
The exercise price of the warrants and the number of shares of common stock
issuable upon exercise thereof are subject to adjustment in certain events,
including stock splits or combinations, stock dividends, or through
recapitalization resulting from stock split or combination.
6.5% Convertible Notes
In October 2000, Tech Labs issued a $1,500,000 principal amount convertible
note which is due on October 13, 2003. Interest is payable quarterly in cash or
in shares of common stock at the option of the noteholder.
The Notes and their accrued interest are convertible at anytime while any
portion of them are outstanding into shares of Tech Labs common stock. The Notes
are convertible at a price equal to 85% of the average of the lowest closing bid
prices of the common stock during the five lowest bid prices during the
twenty-two (22) business days immediately preceding the issuance date of the
notes or 85% of the five (5) lowest bid prices during the twenty-two business
days through the date of conversion of the notes, whichever is lower.
Upon satisfaction of certain conditions and the good faith negotiations of
Tech Labs and the purchasers of the notes, a portion of the Notes may be
converted into convertible preferred stock, which shall contain terms nearly
identical to the terms of the notes.
Stock Options and Stock Option Plan
In addition to the warrants to purchase 412,500 shares of our common
stock, we have outstanding options to consultants and third parties:
o to purchase 50,000 shares exercisable for five years at $1.85 per
share,
o to purchase 75,000 shares exercisable for five years at $1.12 per
share,
o to purchase 200,000 shares exercisable for two years, as to 100,000
shares at $1.25 per share and as to 100,000 shares at $1.75 per share,
o to purchase 100,000 shares exercisable for three years at $4.00 per
share.
Tech Labs has granted options to purchase 300,000 shares exercisable at
$.50 per share pursuant to an employment agreement with Mr. Cionoli, initially
dated October 1, 1998, all of which options have vested, and 500,000 shares
exercisable at $1.43 per share pursuant to the employment agreement with Mr.
Ciongoli dated August 24, 2001, which supersedes the prior employment agreement,
of which options to purchase up to 100,000 shares have vested to date and an
additional 100,000 shares shall vest every six months commencing February 1,
2002. As additional incentive, Mr. Ciongoli was granted options to purchase (i)
up to 100,000 shares under our 1996 stock option plan at an exercise price of
$0.9625, of which all 100,000 shares have vested; (ii) up to 111,000 shares
under our 1996 stock option plan at an exercise price of $2.68125, of which
74,000 shares have vested and the remaining 37,000 Shares shall vest next year;
and (iii) a non plan option to purchase up to 139,000 shares, at an exercise
price of $2.4375, of which 46,374 shares have vested and the remaining 92,666
shall vest over the course of this year and next.
-26-
We issued 50,000 shares of common stock to MPX pursuant to our consulting
agreement. Pursuant to the consulting agreement dated March 10, 1999 with Mint,
in addition to the options set forth above, we issued an aggregate of 100,000
shares.
We have adopted a 1996 stock option plan for officers, directors, and other
key employees. A total of 450,000 shares have been reserved for issuance under
the 1996 Plan. Currently outstanding under this plan are grants of options for
an aggregate of 306,000 shares, of which 100,000 were granted at an exercise
price of $0.9625, 111,000 were granted at an exercise price of $2.68125, 25,000
were granted at an exercise price of $2.4375 and 70,000 were granted at an
exercise price of $0.875.
SHARES ELIGIBLE FOR FUTURE SALE
No assurance can be given as to the effect, if any, that future sales of
common stock will have on the market price of our common stock. Of our shares of
common stock currently outstanding, assuming no exercise of warrants or
conversion of convertible notes into shares of our common stock, 1,021,377 are
"restricted securities" as the term is defined in Rule 144 under the Securities
Act of 1933, as amended, and under certain circumstances may be sold without
registration pursuant to that rule. Subject to the compliance with the notice
and manner of sale requirement of Rule 144 and provided that we are current in
our reporting obligations under the Securities Exchange Act of 1934, a person
who beneficially owns restricted shares of stock for a period of at least one
year is entitled to sell, within any three month period, shares equal to the
greater of 1% of the then outstanding shares of common stock, or if the common
stock is quoted on the NASDAQ System, the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of the required
notice of sale on the Form 144, with the United States Securities and Exchange
Commission. As of the date of this prospectus, 973,912 shares of common stock,
held by beneficial owners, are eligible for sale pursuant to Rule 144. We are
unable to predict the effect that the sales made under Rule 144 otherwise may
have on the market price of the common stock prevailing at the time of any such
sales. Nevertheless, sales of substantial amounts of the restricted shares of
common stock in the public market could adversely effect the then prevailing
market for our common stock.
Market Information
Our common stock is listed on the OTC Electronic Bulletin Board under the
symbol "TCHL-OB." Trading in the common stock has historically been very
limited.
Transfer Agent
The transfer agent for our common stock is Interwest Transfer Co., Inc., P.
O. Box 17136, Salt Lake City, Utah 84117.
LEGAL MATTERS
The validity of the common stock offered in this offering will be passed
upon for us by Stursberg & Veith, 405 Lexington Avenue, New York, New York
10174, the partners of which law firm own options to purchase 75,000 shares and
which are being registered pursuant to this prospectus.
EXPERTS
Charles J. Birnberg, CPA, independent auditors, have audited our financial
statements for the years ended December 31, 1999, 2000 and 2001 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.
-27-
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, with the Securities and Exchange Commission with respect to the
common stock being registered pursuant to this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all of the
information included in the registration statement and any of its amendments and
the exhibits, which are available for inspection without charge, and copies of
which may be obtained at prescribed rates, at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at the Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. The Commission maintains a Website at www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
INFORMATION NOT REQUIRED IN PROSPECTUS
We will provide, without charge, to each person who received a prospectus,
upon written or oral request of such person to us at the mailing address or
telephone number listed below, a copy of any of the information incorporated by
reference. The mailing address of our principal executive offices is Tech
Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508, (973)
427-5333.
-28-
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Charles J. Birnberg, CPA Independent Auditors.....................F-2
Audited Financial Statements
Balance Sheets.........................................................F-3, F-4
Statement of Stockholders' Equity ..........................................F-5
Statements of Operations....................................................F-6
Statements of Cash Flows....................................................F-7
Notes to Financial Statements...............................................F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Charles J. Birnberg, CPA
150 Overlook Avenue
Hackensack, New Jersey 07601
March 14, 2002
To The Board of Directors of Tech Laboratories, Inc.
I have audited the Balance Sheets of Tech Laboratories, Inc. as of December
31, 1999, 2000 and 2001 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, 1999, 2000 and
2001 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-2
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999, 2000, AND 2001
ASSETS
1999 2000 2001
---- ---- ----
Current Assets:
Cash .......................................... $ 162,925 $2,523,446 $ 892,003
Marketable Securities, at the Lower of
Cost or Market (Note 1) ....................... 61,453 64,333 40,000
Accounts Receivable, Net of Allowance of $10,000
in 2000 and 1999, and 25,000 in 2001........... 57,697 93,952 112,200
Inventories (Notes 1 & 2) ..................... 816,703 1,286,838 2,075,479
Prepaid Expense ................................. 4,055 4,055 6,303
----------- ----------- -----------
Total Current Assets ....................... $1,102,833 $3,972,624 $3,125,985
----------- ----------- -----------
Property, Plant and Equipment at Cost (Note 1)
Leasehold Improvements ........................ 2,247 2,247 2,247
Machinery, Equipment and Instruments .......... 379,815 467,100 524,730
Furniture and Fixtures ........................ 75,899 81,603 95,662
----------- ----------- -----------
............................................. $ 457,961 $ 550,950 $ 622,639
Less: Accumulated Depreciation & Amortization ... 314,162 342,551 373,900
----------- ----------- -----------
Net, Property, Plant and Equipment ........... $ 143,799 $ 208,399 $ 248,739
----------- ----------- -----------
Other Assets ..................................... $ 11,540 $ 12,059 $ 12,059
----------- ----------- -----------
Total Assets ............................... $1,258,172 $4,193,082 $3,386,783
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
F-3
TECH LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1999, 2000, AND 2001
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1999 2000 2001
---- ---- ----
Current Liabilities:
Defaulted Convertible Notes ................. -0- -0- 1,219,202
Current Portion of Long Term Debt (Note 5) .. $ 28,559 $ 17,198 $ 33,347
Short-Term Loans Payable (Note 6) ........... 243,373 63,623 63,789
Accounts Payable and Accrued Expenses ....... 260,745 32,961 82,224
Other Liabilities ........................... 3,190 8,375 7,562
------------ ------------ ------------
Total Current Liabilities ................ $ 535,867 $ 122,157 $ 1,406,124
------------ ------------ ------------
Long Term Convertible Notes Payable ............. -- $ 1,520,318 -0-
Stockholders' Investment:
Common Stock, $.01 Par Value;
10,000,000 Shares Authorized ................ $ 36,507 $ 39,493 $ 47,836
Less: 11,316 Shares Reacquired
and Held in Treasury ........................ (113) (113) (113)
------------ ------------ ------------
$ 36,394 $ 39,380 $ 47,723
Capital Contributed in Excess of Par Value .. 1,816,316 4,060,287 4,339,478
Retained Earnings ........................... 0 0 0
Accumulated Deficit ......................... (1,130,405) (1,549,060) (2,406,542)
------------ ------------ ------------
$ 722,305 $ 2,550,607 $ 1,980,659
------------ ------------ ------------
Total Liabilities and Stockholders' Investment $ 1,258,172 $ 4,193,082 $ 3,386,783
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-4
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
DECEMBER 31, 1999, 2000, AND 2001
1999 2000 2001
---- ---- ----
Sales .......................................... $ 689,190 $ 1,017,518 $ 568,083
------------ ------------ ------------
Costs and Expenses:
Cost of Sales .............................. 472,790 651,460 358,754
Selling, General and Administrative Expenses 861,174 818,552 1,050,476
------------ ------------ ------------
1,333,964 1,470,012 1,409,230
------------ ------------ ------------
Income/(Loss) From Operations .................. $ (644,774) $ (452,494) $ (841,147)
------------ ------------ ------------
Other Income (Expenses):
Interest Income .............................. $ 1,150 $ 63,543 $ 69,442
Interest Expense ............................. (11,305) (29,704) (85,777)
------------ ------------ ------------
$ (10,155) $ 33,839 (16,335)
------------ ------------ ------------
Income/(Loss) Before Income Taxes ............ $ (654,929) $ (418,655) $ (857,482)
Provision for Income Taxes (Notes 1 & 4) ..... -- -- --
------------ ------------ ------------
Net Income/(Loss) .............................. $ (654,929) $ (418,655) $ (857,482)
Accum. Earnings/(Deficit,) Beg. of Year ...... $ (475,476) $(1,130,405) $(1,549,060)
------------ ------------ ------------
Accum. Earnings/(Deficit,) End of Year ....... $(1,130,405) $(1,549,060) $(2,406,542)
------------ ------------ ------------
Primary EPS .................................... $ (0.18) $ (0.10) $ (0.17)
Fully Diluted EPS .............................. $ (0.13) $ (0.08) $ (0.06)
The accompanying notes are an integral part of these financial statements.
F-5
TECH LABS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
YEARS 1999, 2000, AND 2001
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit Total
------------ ------------ ------------ ------------ ------------
Balance
December 31, 1999 3,650,660 $ 36,394 $ 1,816,316 $(1,130,405) $ 722,305
Stock Issued 368,379 2,986 2,243,971 -- 2,246,957
Net Income/(Loss) -- -- -- (418,655) (418,655)
------------ ------------ ------------ ------------ ------------
Balance
December 31, 2000 4,019,039 $ 39,380 $ 4,060,287 $(1,549,060) $ 2,550,607
Stock Issued 1,087,568 8,343 279,191 -- 287,534
Net Income/(Loss) -- -- -- (857,482) (857,482)
------------ ------------ ------------ ------------ ------------
Balance
December 31, 2001 5,106,607 47,723 4,339,478 (2,406,542) 1,980,659
The accompanying notes are an integral part of these financial statements.
F-6
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1999, 2000, AND 2001
1999 2000 2001
---- ---- ----
Cash Flows From (For) Operating Activities:
Net Income/(Loss) From Operations ........... $ (654,929) $ (418,655) $ (857,482)
Add/(Deduct) Items Not Affecting Cash:
Depreciation/Amortization (Note 1) .......... 15,000 28,389 31,349
Unrealized (Gain)/Loss on Valuation of
Marketable Securities (Note 1) ............. 470 -- -0-
Changes in Operating Assets and Liabilities:
Marketable Securities ....................... (4,290) (2,880) 24,333
Accounts Receivable ......................... 85,765 (36,255) (18,248)
Inventories ................................. (546,585) (470,135) (788,641)
Accounts Payable and Accrued Expenses ....... 216,359 (227,784) 49,263
Other Assets and Liabilities ................ 593 5,185 (3,061)
------------ ------------ ------------
Net Cash Flows For Operating Activities ......... $ (887,617) $(1,122,135) $(1,562,488)
------------ ------------ ------------
Cash Flows From (For) Investing Activities:
Increase in Fixed Assets .................... $ (158,152) $ (92,989) $ (71,689)
Net Cash Flows From (For) Investing Activities .. $ (158,152) $ (92,989) $ (71,689)
------------ ------------ ------------
Cash Flows From (For) Financing Activities:
Acquisition/(Repayment) of Short Term Debt .. $ 162,407 $ 1,328,688 $ (284,800)
Issuance of Common Stock .................... 513,507 2,246,957 287,534
------------ ------------ ------------
Net Cash Flows From (For) Financing Activities .. $ 675,914 $ 3,575,645 $ 2,734
------------ ------------ ------------
Net Increase/(Decrease) in Cash ................. $ (369,855) $ 2,360,521 $(1,631,443)
Cash Balance, Beginning of Year ................. 532,780 162,925 2,523,446
------------ ------------ ------------
Cash Balance, End of Year ....................... $ 162,925 $ 2,523,446 $ 892,003
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-7
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(1) Summary of Significant Accounting Policies
CASH - Includes Tech Labs' checking account at Hudson United Bank plus
a Money Market Account at Prudential Securities.
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, 1999, 2000, and 2001, 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 depreciations 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 $61,453 at December 31, 1999, $64,333
at December 31, 2000, and $40,000 as of December 31, 2001.
(2) Inventories:
Inventories at December 31, 1999, 2000, and 2001 were as follows:
1999 2000 2001
---- ---- ----
Raw Materials & Finished Components $715,438 $ 912,358 $ 993,666
Work in Process & Finished Goods $107,265 $ 374,480 $1,081,813
--------- ----------- -----------
$816,703 $1,286,838 $2,075,479
--------- ----------- -----------
F-8
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(3) Income/(loss) Per Share:
Primary Income/(loss) per share was calculated on the weighted average
number of shares outstanding during the year ended December 31, 1999, 3,650,660,
and for the year ended December 31, 2000, 4,019,039, and for the year ended
December 31, 2001, 5,106,607.
Fully Diluted Income/(loss) per share was calculated on the weighted
average shares above plus 8,207,868 shares from the assumed conversion of
convertible debt which was issued in October, 2000.
(4) Income Taxes:
At December 31, 1999, 2000, and 2001 the balance of operating loss
carryforward was $1,873,936, $2,292,591, and $3,150,073, respectively, which can
be utilized to offset future taxable income.
(5) Current Portion of Long-Term Debt:
Loans payable to banks were as follows for the years indicated:
CURRENT NON-CURRENT
YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
- ---------- ----- ------------- ------ ------
1999 Hudson United Bank Prime +1.5% $28,559
2000 Hudson United Bank Prime +1.5% $17,198
2001 Hudson United Bank Prime +1.5% $33,347
Certain Marketable Securities are pledged as collateral on the above loans.
(6) SHORT-TERM LOANS PAYABLE
Demand loans Payable include loans from stockholders, officers, members
of the Board of Directors and third parties. The outstanding loan balances due
as of December 31, 1999, December 31, 2000, and December 31, 2001, was $243,373
for 1999, $63,623 for 2000, and $63,789 for 2001, which includes accrued
interest for all three years. The annual interest rate for these loans ranges
between six (6%) percent and ten (10%) percent. In October of 1999, three
short-term loans for a total of $200,000 at ten percent (10%) annual interest
were completed. Certain contractual revenues were pledged to secure these loans.
As of December 31, 2000, $150,000 of such loans were repaid. The remaining
$50,000 is outstanding and is due by December 31, 2002.
(7) COMMON STOCK
In 1999, Tech Labs filed a registration statement on Form SB-2 with the
Securities and Exchange Commission. The registration statement was declared
effective on February 3, 2000. The offering was completed on May 3, 2000 for
total proceeds of $2,273,723.
F-9
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(8) COMMITMENTS AND CONTINGENCIES
Tech Labs entered into an exclusive agreement with Elektronik
Apparatebau (EAG), FUA Safety Equipment and Double T Sports LTD. whereby it
received exclusive rights to manufacture and market IDS products until September
30, 2007 in the US, Canada, and South America. Gross profits will be calculated
according to GAAP and distributed quarterly 70% to Tech Labs and 30% to FUA
until March 2001. Thereafter, until 2007 quarterly distribution will be based on
pretax profits in excess of 16% being shared 70% to Tech Labs and 30% to FUA. In
addition, FUA will receive a 5% royalty based on the cost of any IDS products
Tech Labs manufactures and sells.
(9) MAJOR ACQUISITION:
On April 27, 1999, Tech Labs completed the purchase of existing
inventories and test equipment of the discontinued DynaTrax (TM) Product Line
from NORDX/CDT for $500,000. In accordance with the purchase price method of
accounting, the purchase price for the assets referenced above was allocated to
the assets acquired on the basis of fair market values. Results subsequent to
the date of acquisition will be included in Tech Labs' financial statements. Had
the results of the DynaTrax acquisition been included in our consolidated
statements for 1998, and 1999, the effect would have been material.
DynaTrax Year Ended Year Ended
(Unaudited) December 31, 1998 December 31, 1999
----------- ----------------- -----------------
Net Sales $ 400,000 $ 100,000
Cost of Sales 300,000 20,000
------------ ----------
Gross Profit 100,000 80 000
Research/Dev 900,000 0
Selling & G&A Exp 1,700,000 50,000
------------ ----------
Pre-Tax Inc./(Loss) $(2,500,000) $ 30,000
Income Tax (Expense)/
Benefit-Pro-Forma 1,150,000 0
------------ ----------
Net Income/(Loss) $(1,350,000) $ 30,000
Investment (Unaudited) Purchase Price*
---------------------- ---------------
Inventory $ 2,700,000 $ 400,000
Test Equipment 355,000 100,000
------------ ----------
Total $ 3,055,000 $ 500,000
============ ==========
* Included in December 31, 1999 Tech Labs balance sheet.
F-10
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
Effect on Tech Labs Inc. (Unaudited) Year Ended Year Ended
(Pro-Forma) December 31, 1998 December 31, 1999
- ------------------------ ----------------- -----------------
Net Sales $ 952,486 $ 535,160
Net Income/(Loss) $(1,519,104) $(387,836)
------------ ----------
EPS $ (0.54) $ (0.14)
============ ==========
(10) LONG-TERM CONVERTIBLE DEBT
On October 13, 2000 Tech Labs completed a $1.5 million dollar 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.
The Company disclosed all terms of this financing on Form 8-K filed on October
18, 2000.
(11) SUBSEQUENT EVENT
On January 11, 2002, the Company entered into a conversion and
redemption agreement concerning the Long-Term Debt referenced in Note (10). An
Event of Default, as defined in the 6.5% convertible notes the Company issued in
October 2000, occurred on January 25, 2002, when the Company was unable to make
the first payment of $750,000 to the holders of the notes. The Company hopes to
negotiate with the holders to cure this default. The Company does not currently
have the financial resources to cure this default.
(12) GOING CONCERN
As a result of the operating losses and negative cash flows experienced
by the Company in 2001, Tech Labs currently has a tenuous liquidity position. If
sales do no improve during 2002, the Company will be forced to make dramatic
expense reductions, which may hamper its marketing efforts, but would support
its viability.
F-11
_____________, 2002
TECH LABORATORIES, INC.
17,103,236 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............................................................... 2
USE OF PROCEEDS............................................................ 4
PRICE RANGE OF COMMON STOCK................................................ 5
DIVIDEND POLICY............................................................ 5
CAPITALIZATION............................................................. 6
SELECTED FINANCIAL DATA.................................................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 7
BUSINESS .................................................................. 9
MANAGEMENT................................................................. 17
CERTAIN TRANSACTIONS....................................................... 20
PRINCIPAL STOCKHOLDERS..................................................... 20
PLAN OF DISTRIBUTION....................................................... 21
OFFERING BY SELLING SECURITYHOLDERS........................................ 22
DESCRIPTION OF SECURITIES.................................................. 25
SHARES ELIGIBLE FOR FUTURE SALE............................................ 27
LEGAL MATTERS.............................................................. 27
EXPERTS .................................................................. 27
ADDITIONAL INFORMATION..................................................... 28
INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 28
INDEX TO FINANCIAL STATEMENTS ............................................. F-1
Until _________, 2002 (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 the issuance
and distribution of the securities being registered hereunder. All of such
expenses are estimates, other than the filing fees payable to the Securities and
Exchange Commission.
Filing Fee-- Securities and Exchange Commission $ 1,569.90
Fees and Expenses of Accountants $ 5,250.00
Fees and Expenses of Legal Counsel $ 2,500.00
Blue Sky Fees and Expenses $ 1,000.00
Printing $ 2,000.00
Miscellaneous Expenses $ 1,000.00
Total.................................... $ 13,319.90
Recent Sales of Unregistered Securities
As listed below, Tech Labs issued shares of its common stock, par value
$.01 per share, to the following individuals or entities for the consideration
as listed in cash or services. All sales 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 (the "Securities Act") as
follows:
1. In April 2001, we issued to Pierre Bergeron, an employee of Tech Labs, 10,000
shares. The issuance of the shares was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. The shares were issued to Mr.
Bergeron in consideration of his services to Tech Labs. Mr. Bergeron had
complete access to all relevant information regarding Tech Labs.
2. In April 2001, we issued to Concurrent Resources Group, a consultant to Tech
Labs, 27,465 shares. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
II-1
3. In March 2001 we issued to Ed Branca, an employee of Tech Labs Community
Networks of Southeast, Inc., 10,000 shares. The issuance of the shares was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The shares were issued to Mr. Branca in consideration of his services.
Mr. Branca had complete access to all relevant information regarding Tech Labs.
4. In January 2001 we issued to Barry Bendett, a consultant to Tech Labs, 65,000
shares pursuant to terms of a consulting agreement. The issuance of the shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. Mr. Bendett is a sophisticated investor and has complete access to all
relevant information regarding Tech Labs.
5. In November 2000 we issued to Barry Bendett, a consultant to Tech Labs,
options to purchase 100,000 shares at $4.00 per share. The issuance of the
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. Mr. Bendett is a sophisticated investor and had complete
access to all relevant information regarding Tech Labs.
6. In October 2000 we issued a $1,500,000 principal amount convertible notes
which is due on October 13, 2002 to certain accredited investors. The issuance
of the note was made pursuant to Rule 506 of Regulation D under the Securities
Act.
7. In October 2000 we issued warrants to purchase 412,500 shares of our common
stock to accredited investors in connection with the issuance of the convertible
notes described above in Item 6. The issuance of the warrants was made pursuant
to Rule 506 of Regulation D under the Securities Act.
8. In July 2000 we issued 25,000 shares and an option to purchase 100,000 shares
at $5.75 per share for a term of 3 years to m3communications, Inc. pursuant to
an asset purchase agreement between Tech Labs, Tech Labs Community Networks of
the Southeast, Inc., a subsidiary of Tech Labs, and the shareholders of
m3communications, Inc. The issuance of the securities was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
9. In June 2000 we issued 25,000 shares to Nathan Perlmutter pursuant to a
convertible note agreement dated September 5, 1997 which note was issued as part
of a private placement conducted pursuant to Rule 504 of Regulation D in 1997.
10. In July 2000 we issued 20,000 shares to Louis Tomasella, who is a former
director of Tech Labs, pursuant to Mr. Tomasella's exercise of stock options
granted to him under Tech Labs stock option plan.
11. In November 1999 we issued 75,000 shares to Mint Corporation for consulting
services pursuant to our agreement with Mint dated March 10, 1999. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principals of Mint are sophisticated and had complete
access to all relevant information regarding Tech Labs.
12. In June 1999 we issued to Coby Capital Corporation, a consultant to Tech
Labs, options to purchase 50,000 shares at $1.85 per share. The issuance of the
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The principal of Coby Capital is accredited and had access
to all relevant information regarding Tech Labs.
13. In June 1999 we sold 90,045 shares to two "accredited" investors for gross
proceeds of $200,000. The issuance of the shares was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
14. 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.
II-2
15. In June 1999 we issued 50,000 shares to MPX Network Solutions, Inc. pursuant
to a consulting agreement in exchange for services. The issuance of the shares
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The principal of MPX is sophisticated and had complete access to all
relevant information regarding Tech Labs.
16. In March 1999 we issued 600 shares to a noteholder in payment of $600 in
interest in lieu of cash, as provided under the terms of the note. The issuance
of the shares was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The noteholder purchased the note beteween December 1996
and October 1997 as part of the transaction set forth in transaction No. 15. The
noteholder was sophisticated and had the access to information described in
transaction No. 15.
Exhibits and Financial Statement Schedules
EXHIBIT INDEX
3.1 Certificate of Incorporation.(1)
3.2 By-Laws of Tech Labs.(1)
5.1 Opinion of Stursberg & Veith
5.2 Opinion of J. Howland Robinson
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.(1)
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli.(1)
10.3 First Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli.(2)
10.4 Second Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli dated February 21, 2001.(10)
10.6 Patent and Trademark assignments.(1)
10.7 Consulting Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.8 Consulting Agreement dated March 22, 1999, between Tech Labs and MPX
Network Solutions.(2)
10.9 Consulting Agreement dated June 2, 1999, between Tech Labs and Coby
Capital Corporation.(2)
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.(2)
10.11 Asset Acquisition Agreement dated as of March 12, 1999, by and between
NORDX/CDT, Inc. and Tech Labs.(2)
10.12 Tech Labs Stock Option Plan.(2)
10.13 Stock Option Agreement dated June 3, 1999, between Tech Labs and Coby
Capital Corporation.(2)
10.14 Stock Option Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.15 Stock Option Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.16 Joint Marketing Agreement dated October 15, 1999, between Tech Labs and
TravelNet Technologies, Inc.(3)
10.17 Promissory Note and Security Agreement dated October 25, 1999, between
Tech Labs and Peter B. Hirschfield, Trustee, Olive Cox-Sleeper Trust
dated 10/3/58 f/b/o Bert L. Atwater.(4)
10.18 Promissory Note dated December 13, 1999, between Tech Labs and Campbell
Steward.(5)
10.19 Promissory Note dated December 15, 1999, between Tech Labs and Herbert
L. Camp, Esq.(5)
10.20 Promissory Note dated December 20, 1999, between Tech Labs and Thomas
McKean, Esq.(5)
10.21 Shareholders Agreement dated June 23, 2000 by and between Tech Labs
Community Networks, Inc., the Shareholders of M3Communications, Inc.
and Tech Labs Community Networks of the South East, Inc.(5)
10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and
delivered to m3communications, Inc.(5)
10.23 First Amendment to Asset Purchase Agreement dated June 9, 2000 entered
into by and between Tech Labs, M3communications, Inc. and the
shareholders of M3.(5)
II-3
10.24 Consulting Agreement dated as of November 13, 2000 by and between Barry
Bendett and Tech Labs.(5)
10.25 Subscription Agreement entered into between the subscribers and Tech
Labs dated October 13, 2000.(6)
10.26 Common Stock Purchase warrant entered into between the warrant holders
and Tech Labs dated October 13, 2000.(6)
10.27 Amendment to Consulting Agreement dated as of April 9, 2001, and
retroactive from March 13, 2001, between Tech Labs and MPX Network
Solutions.(7)
10.28 Amended and Restated Employment Agreement dated August 24, 2001, by and
between the Company and Bernard Ciongoli.(8)
10.29 Conversion and Redemption Agreement dated January 11, 2002, by and
between the Company and the holders of the 6.5% convertible promissory
notes the Company issued in October 2000.(9)
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 5.1).
- --------------------
(1) Incorporated by reference from the Registrant's Registration Statement
on Form SB-2, File No. 333-82595, effective February 3, 2000, filed on
July 9, 1999.
(2) Incorporated by reference from Amendment No. 1 Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on October 18, 1999.
(3) Incorporated by reference from Amendment No. 2 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on November 19, 1999.
(4) Incorporated by reference from Amendment No. 3 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on December 17, 1999.
(5) Incorporated by reference from the Registrant's Registration Statement
on form SB-2, File No. 333-50158, effective January 22, 2001, filed on
November 17, 2000.
(6) Incorporated by reference from Amendment No. 5 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on January 28, 1999.
(7) Incorporated by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form SB-2, File No. 333-50158,
effective May 7, 2001.
(8) Incorporated by reference from the Registrant's Quarterly Report filed
on Form 10-QSB, File No. 000-30172, filed on November 14, 2001.
(9) Incorporated by reference from the Registrant's Currant Report on Form
8-K, File No. 000-30172, filed on January 11, 2002.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-KSB, File No. 000-30172, filed on April 3, 2001.
Undertakings
The undersigned registrant hereby undertakes:
(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;
II-4
(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-5
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 5th day of April, 2002.
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, April 5, 2002
- ----------------------------- CFO, and Director ------------------
Bernard M. Ciongoli
/s/ Earl M. Bjorndal Vice President and Director April 5, 2002
- ----------------------------- ------------------
Earl M. Bjorndal
/s/ Carmine O. Pellosie, Jr. Secretary and Director April 5, 2002
- ----------------------------- ------------------
Carmine O. Pellosie, Jr.
/s/ Salvatore Grisafi Director April 5, 2002
- ----------------------------- ------------------
Salvatore Grisafi
EXHIBIT INDEX
3.1 Certificate of Incorporation.(1)
3.2 By-Laws of Tech Labs.(1)
5.1 Opinion of Stursberg & Veith
5.2 Opinion of J. Howland Robinson
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.(1)
10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli.(1)
10.3 First Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli.(2)
10.4 Second Amendment to Employment Agreement between Tech Labs and Bernard
M. Ciongoli dated February 21, 2001.(10)
10.6 Patent and Trademark assignments.(1)
10.7 Consulting Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.8 Consulting Agreement dated March 22, 1999, between Tech Labs and MPX
Network Solutions.(2)
10.9 Consulting Agreement dated June 2, 1999, between Tech Labs and Coby
Capital Corporation.(2)
10.10 Assignment of Lease dated May 1, 1992 between William Tanis as
Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.(2)
10.11 Asset Acquisition Agreement dated as of March 12, 1999, by and between
NORDX/CDT, Inc. and Tech Labs.(2)
10.12 Tech Labs Stock Option Plan.(2)
10.13 Stock Option Agreement dated June 3, 1999, between Tech Labs and Coby
Capital Corporation.(2)
10.14 Stock Option Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.15 Stock Option Agreement dated March 10, 1999, between Tech Labs and Mint
Corporation.(2)
10.16 Joint Marketing Agreement dated October 15, 1999, between Tech Labs and
TravelNet Technologies, Inc.(3)
10.17 Promissory Note and Security Agreement dated October 25, 1999, between
Tech Labs and Peter B. Hirschfield, Trustee, Olive Cox-Sleeper Trust
dated 10/3/58 f/b/o Bert L. Atwater.(4)
10.18 Promissory Note dated December 13, 1999, between Tech Labs and Campbell
Steward.(5)
10.19 Promissory Note dated December 15, 1999, between Tech Labs and Herbert
L. Camp, Esq.(5)
10.20 Promissory Note dated December 20, 1999, between Tech Labs and Thomas
McKean, Esq.(5)
10.21 Shareholders Agreement dated June 23, 2000 by and between Tech Labs
Community Networks, Inc., the Shareholders of M3Communications, Inc.
and Tech Labs Community Networks of the South East, Inc.(5)
10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and
delivered to m3communications, Inc.(5)
10.23 First Amendment to Asset Purchase Agreement dated June 9, 2000 entered
into by and between Tech Labs, M3communications, Inc. and the
shareholders of M3.(5)
10.24 Consulting Agreement dated as of November 13, 2000 by and between Barry
Bendett and Tech Labs.(5)
10.25 Subscription Agreement entered into between the subscribers and Tech
Labs dated October 13, 2000.(6)
10.26 Common Stock Purchase warrant entered into between the warrant holders
and Tech Labs dated October 13, 2000.(6)
10.27 Amendment to Consulting Agreement dated as of April 9, 2001, and
retroactive from March 13, 2001, between Tech Labs and MPX Network
Solutions.(7)
10.28 Amended and Restated Employment Agreement dated August 24, 2001, by and
between the Company and Bernard Ciongoli.(8)
10.29 Conversion and Redemption Agreement dated January 11, 2002, by and
between the Company and the holders of the 6.5% convertible promissory
notes the Company issued in October 2000.(9)
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 5.1)
- --------------------
(1) Incorporated by reference from the Registrant's Registration Statement
on Form SB-2, File No. 333-82595, effective February 3, 2000, filed on
July 9, 1999.
(2) Incorporated by reference from Amendment No. 1 Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on October 18, 1999.
(3) Incorporated by reference from Amendment No. 2 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on November 19, 1999.
(4) Incorporated by reference from Amendment No. 3 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on December 17, 1999.
(5) Incorporated by reference from the Registrant's Registration Statement
on form SB-2, File No. 333-50158, effective January 22, 2001, filed on
November 17, 2000.
(6) Incorporated by reference from Amendment No. 5 to Registrant's
Registration Statement on Form SB-2, File No. 333-82595, effective
February 3, 2000, filed on January 28, 1999.
(7) Incorporated by reference from Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form SB-2, File No. 333-50158,
effective May 7, 2001.
(8) Incorporated by reference from the Registrant's Quarterly Report filed
on Form 10-QSB, File No. 000-30172, filed on November 14, 2001.
(9) Incorporated by reference from the Registrant's Currant Report on Form
8-K, File No. 000-30172, filed on January 11, 2002.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-KSB, File No. 000-30172, filed on April 3, 2001.