SB-2/A 1 d24392_sb2-a.txt FORM SB-2/A As filed with the Securities and Exchange Commission on January 19, 2001 Registration No.: 333-50158 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------------------- AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------------------------------------- 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) ----------------------------------------------------- 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333 (Address and telephone number of principal executive offices) ----------------------------------------------------- 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333 (Address of principal place or intended principal place of business) ----------------------------------------------------- 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) ----------------------------------------------------- Copies to: C. Walter Stursberg, Jr., Esq. Stursberg & Veith 405 Lexington Avenue New York, New York 10174 ----------------------------------------------------- Approximate date of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE ----------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Maximum maximum Amount of Title of each class of Amount to Offering Price aggregate registration securities to be registered be Registered Per Share offering price(1) fee ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock, par value $.01 per share ("Common Stock")(2) 1,321,154 $3.18(8) $4,201,269 $1,167.95 ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (3) 1,154,828 $1.4375(9) $1,660,065 $ 461.33 ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (4) 412,500 $4.80 $1,980,000 $ 550.44 ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (5) 100,000 $1.25 $ 125,000 $ 34.75 ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (6) 100,000 $1.75 $ 175,000 $ 48.65 ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (7) 75,000 $1.12 $ 84,000 $ 23.35 ----------------------------------------------------------------------------------------------------------------------------- Total Registration (10) $2,286.47
(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457. (2) Consists of shares issuable upon the conversion of 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 entire note and any accrued interest 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 accoreance with Rule 416. (3) Consists of shares issuable upon the conversion of convertible notes, which is issuable upon exercise of a put option. Pursuant to the terms of the subscription agreement we entered into with the selling securityholders, 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 and any accrued interest 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. (4) 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 warrants, in accordance with Rule 416. (5) 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 warrants, in accordance with Rule 416. (6) 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 warrants, in accordance with Rule 416. (7) 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 warrants, in accordance with Rule 416. (8) 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 November 13, 2000, which date is within 5 business days prior to the initial filing date of this registration statement. (9) 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 January 17, 2001, which date is within 5 business days prior to the filing date of this amendment to the registration statement. (10) $1,825.14 of which has previously been paid. 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) $4,619,316 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 may not be sold until the 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 January 19, 2001 PROSPECTUS 5,306,816 Shares TECH LABORATORIES, INC. This is on offering of 5,306,816 shares of common stock of Tech Laboratories, Inc. Of the 5,306,816 shares being offered, up to 4,619,316 may be sold upon conversion of convertible notes and up to 412,500 may be sold upon the exercise or warrants issued in connection to 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 ______ _____________, 2001, 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 January 19, 2001. 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 Labs", "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............................5,306,816 shares of common stock Shares of Common Stock Outstanding..............4,019,039 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: Our inability to protect certain intellectual property from being copied by our competition could impair our business. We have 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 are also presently prosecuting the patent applications filed in the United States and Europe. -2- 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 it could could result in substantial losses to our business. -3- 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. Our marketing plan to sell the DynaTraX(TM) switch technology in hospitality environments is reliant upon a joint marketing agreement which, if terminated, would hamper our growth and curtail our sales. Our hospitality software sales are greatly dependent upon a Joint Marketing Agreement we entered into on October 15, 1999 with TravelNet Technologies, Inc., pursuant to which we were granted the right to sell the "Data Valet" software system, which operates with the DynaTraX(TM) switch technology. This integrated system provides high-speed Internet and bundled digital services to business travelers and hotel guests. This agreement, which terminates on September 10, 2002, can be renewed with the mutual consent of both parties. It will be necessary at that time to negotiate a new agreement or license or acquire a suitable replacement technology. If replacement software is not available it could greatly harm our ability to sell the DynaTraX(TM) switch technology in hospitality environments. -4- Our lack of insurance on the DynaTraX(TM) product inventory could result in substantial expenses and losses if the product inventory were damaged or lost. In connection with the acquistion of the DynaTraX(TM) technology, we acquired digital switches, finished products and parts from NORDX/CDT. We do not have insurance on that inventory. Damage or destruction of some or all of the inventory by fire, theft or by acts of nature would result in substantial losses and would harm our business. 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 convertible notes. We are presently registering 4,619,316 shares of common stock 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. The average of the five lowest closing bid prices of the company's common stock during the twenty-two (22) business days prior to January 19, the date of this prospectus, was $0.865929. 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. 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. -5- 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. 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." -6- 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 --------------------- ------------------------- YEAR ENDING DECEMBER 31, 2000 HIGH LOW HIGH LOW ----------------------------- ---- --- ---- --- First Quarter................................... $10.18 $4.18 $ 10.62 $4.68 Second Quarter.................................. 10.81 5.12 11 5.37 Third Quarter................................... 6.37 4.43 7.37 5.25 Fourth Quarter ................................. 4.75 0.875 5.0625 1.00 YEAR ENDING DECEMBER 31, 1999 ----------------------------- First Quarter................................... $ 2.625 $1.0625 $ 3.0 $1.3125 Second Quarter.................................. 3.125 1.50 3.875 2.00 Third Quarter................................... 3.25 1.50 3.625 1.625 Fourth Quarter ................................. 3.87 1.00 4.12 1.25 YEAR ENDING DECEMBER 31, 1998 ----------------------------- First Quarter................................... $ 3.125 $1.75 $ 3.375 $2.125 Second Quarter.................................. 2.6875 1.6875 3.00 2.00 Third Quarter................................... 2.1875 1.125 2.625 1.4375 Fourth Quarter.................................. 2.0625 1.25 2.625 1.50
As of January 15, 2001, there were approximately 250 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. -7- CAPITALIZATION The following table sets forth our capitalization as of September 30, 2000 and has been derived from financial information appearing in the Financial Statements included in this prospectus:
Nine Months Ended September 30, 2000 ------------------------------------------------- Actual Unaudited Pro-Forma(1) Pro-Forma as Adjusted(2) -------- --------- ------------------------ Total Debt: $169,599 $2,169,599 $169,599 Stockholders' equity: Common Stock, $.01 par value; 10,000,000 shares authorized; 4,019,039 shares issued and outstanding; 11,316 shares held in treasury, Pro-Forma 6,440,193 shares, authorized and issued...... $39,379 $39,379 $63,591 Additional paid-in capital............................. $4,060,287 $4,060,287 $10,404,287 Accumulated deficit.................................... ($1,131,965) ($1,131,965) ($1,261,965) Total stockholders' equity (deficiency)................ $2,967,701 $2,967,701 $9,205,913 Total Capitalization................................... $3,137,300 $5,137,300 $9,375,512
(1) $2,000,000 Convertible Debenture issued in the fourth quarter of 2000. (2) Convertible Debenture redeemed and existing warrants exercised one year hence. SELECTED FINANCIAL DATA The financial data included in the following table has been derived from our unaudited financial statements and should be read together with our unaudited financial statements and related notes.
Years Ended Nine Months Ended December 31, September 30, --------------------------------------- --------------------------------------- 1997 1998 1999 1998 1999 2000 ------- -------- -------- --------- -------- --------- Unaudited --------- Statement of Operations Data: Sales 444,322 $552,486 $689,190 $341,352 $535,160 $849,106 Cost of Sales 446,457 386,425 472,790 317,702 374,612 372,967 ------- -------- -------- --------- -------- -------- Gross Profit (2,135) 166,061 216,400 23,650 160,548 476,139 Operating Expenses General and administrative 257,826 311,716 846,174 306,352 548,384 507,030 Depreciation and amortization 7,278 18,133 15,000 -- -- -- ------- -------- -------- --------- -------- -------- Income (loss) from operations (267,239) (163,788) (644,774) (282,702) (387,836) (30,891) Other income--Interest 166 1,654 1,150 83 -0- 34,796 Interest expense 6,996 6,970 11,305 6,970 -0- 5,465 ------- -------- -------- --------- -------- -------- Income (loss) before provision for income taxes (274,069) (169,104) (654,929) (289,589) (387,836) (1,560) Provision for income taxes -0- -0- -0- -0- -0- -0- Net income (loss) (274,069) (169,104) (654,929) (289,589) (387,836) (1,560) Net income (loss) per share ($0.18) ($0.06) ($0.18) ($0.10) ($0.12) -0-
Years Ended Nine Months Ended December 31, September 30, -------------------------------------- ---------------------------------------- 1997 1998 1999 1998 1999 2000 ---- ---- ---- ---- ---- --------- Balance Sheet Data: Unaudited ------------------- --------- Total assets $609,526 $1,018,597 $1,258,172 $431,838 $1,341,420 $3,137,30 Working Capital 405,548 851,540 566,966 315,339 878,255 2,778,489 Current Portion of long-term debt 34,445 32,742 28,559 32,742 30,293 25,821 Long-term debt (less current portion) -0- -0- -0- -0- -0- -0- Shareholders' equity $429,615 $ 863,727 $722,305 $327,526 $1,000,791 $2,967,701
-8- 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 1997, 1998, 1999, and nine months ended September 30, 1999 and 2000 and their approximate percentage contribution to revenues for the period indicated:
PRODUCT TYPE 1997 % of Revenue 1998 % of Revenue 1999 % of Revenue ------------ ---- ------------ ---- ------------ ---- ------------ Switches $199,324 44.8% $166,550 30.1% $269,739 39.1% IDS Sensors 0 0 254,900 46.2% 298,853 43.4% Transformers/Coils 53,595 12.1% 50,515 9.1% 46,786 6.8% Contract Manufacturing 191,404 43.1% 80,520 14.6% 73,812 10.7% -------- ------ -------- ------ -------- ------ Totals $444,323 100.0% $552,485 100.0% $689,190 100.0% ======== ====== ======== ====== ======== ====== Nine Months Ended September 30, ---------------------------------------------------------- 2000 PRODUCT TYPE 1999 % of Revenue (unaudited) % of Revenue ------------ -------- ------------ --------- ------------ Switches $256,877 47.5 $308,666 36.4% IDS Sensors 155,731 29.6 399,646 47.1% Transformers/Coils 73,852 13.8 26.498 3.1% Contract Manufacturing 48,700 9.1 114,296 13.4% -------- ------- -------- ------ Totals $535,160 100.0% $849,106 100.0% ======== ======= ======== ======
There has been a significant decrease in sales of rotary switches and contract manufacturing, due to a shift to new product development and sales. There were no sales of the new IDS sensors in 1997. In 1998 and 1999 sales of the IDS sensors were $254,900 and $298,853. This increase is continuing in the year 2000. The following table sets forth the percentages of gross profit for each of our major business activities in 1997, 1998, 1999 and the nine months ended September 30, 1999 and 2000.
Nine Months ended ----------------------- September 30, Net Net 2000 Net PRODUCT TYPE 1997 1998 Change 1998 1999 Change 1999 (unaudited) Change ------------ ---- ---- ------ ---- ---- ------ ---- ---- ------ Rotary Switches 44.2% 45.0% 0.8% 45.0% 45.0% -0- 45.0% 55.0 10.0% IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6% 54.6% 69.0% 14.4% Transformers/Coils 22.7% 25.0% 2.3% 25.0% 25.0% -0- 25.0% 25.0% -0- Contract Manufacturing 20.0% 22.8% 2.8% 22.8% 22.8% -0- 22.8% 22.8% -0- Unallocated company Expenses, Including Physical Inventory Adjustments and Factory Overhead (31.2%) (13.1%) 18.1% (13.1%) (14.0%) (0.9%) (13.1%) (0.2) 12.9% Total Gross Profit % (0.5%) 30.1% 30.6% 30.1% 31.4% 1.3% 30.0% 56.1% 26.1%
We have begun to shift out of the subcontracting and transformer business which provides low gross profit margins, for higher gross profit margin sales of IDS and other new products. While rotary switches produce high gross profits, demand for rotary switches is low. We have gradually shifted our product offering from less profitable to more profitable proprietary products. -9- Results of Operations Nine Months Ended September 30, 2000, Compared to Nine Months Ended September 30, 1999. Sales were $849,106 for the nine months ended September 30, 2000 as compared to $535,160 for the similar period of 1999. This increase was due to sales of our IDS Sensor Products to the Department of Energy plus an increase in Dynatrax Sales. Cost of sales of $372,967 for the first nine months of the year 2000 has decreased by $1,645 compared to the same period for 1999, primarily due to a shift in sales to our more profitable IDS Senors and Dynatrax Products. Selling, general and administrative expenses decreased by $41,354 compared to the same period in 1999 due to non-recurring stock related expenses incurred to support our self-underwritten public offering in the second quarter of 1999, which was partially offset by increased marketing efforts of our more profitable product lines. Income from operations increased by $386,276 compared to a loss of [$387,836] for the prior period as a direct result of increased sales plus the elimination of non-recurring stock related expenses. Nine Months Ended September 30, 2000, Compared to Year Ended December 31, 1999. Significant Changes In the first nine months of 2000, Tech Labs continued to reverse several negative trends. Sales trends improved substantially due to the full intregration of the DynaTraX product line into Tech Labs' sales and marketing efforts plus increased IDS Sensor sales. Cash Flow for the first nine months of 2000 was positive at $1,299,395 as a result of the completion of Tech Labs' self-underwritten public offering on May 2, 2000. 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. 1998 Compared to 1997. Sales increased 24% from $444,322 in 1997 to $552,486 in 1998. This was due to an increase in sales of the Intrusion Detection System (IDS). We will continue our efforts to grow high margin IDS sales. Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due to an increase in sales of lower cost IDS products, which have a higher gross profit than historical products. Selling, general and administrative expenses, including depreciation, increased 24% from $265,104 in 1997 to $329,849 in 1998 due to increased sales efforts, engineering, testing, and promotion of new product introductions, as well as consulting, legal, and other expenses in connection with the acquisition of the DynaTraX(TM) product line. Income (loss) from operations decreased 39% from a loss of ($267,239) in 1997 to a loss of ($163,788) in 1998 due to higher gross profit margins on new products. Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in 1998. Liquidity and Capital Resources. During the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 we have had difficulty meeting our working capital requirements, which was a result of lower sales, limited marketing efforts, and continued losses from operations. During the years ended December 31, 1997 and 1998, we completed sales of our common stock which raised approximately $407,000 in 1997 and $603,716 in 1998. During calendar 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 December 31, 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%: o Note 1. Executed December 13, 1999 and is due February 13, 2000 o Note 2. Executed December 15, 1999 and is due February 15, 2000 o Note 3. Executed December 20, 1999 and is due February 20, 2000 During 1998 we sold our first IDS products to the U.S. government Los Alamos facility. Continued sales will, however, be dependent upon sustained marketing efforts. Because sales from our historical lines of products have not in the past, and are not in the future expected to generate sufficient revenue to support our product development and marketing and sales efforts for our DynaTraX(TM) and IDS products, we will be required to meet our capital needs to finance our business plan through the sale of our shares of common stock in public and private securities transactions and/or through credit facilities. In the event we are unable to raise or borrow sufficient funds, we will be required to curtail the implementation of our business plan. -10- BUSINESS General Tech Laboratories, Inc. manufactures and sells various electrical and electronic components. During 1999, we completed the acquisition of the DynaTraX(TM) high-speed digital switch matrix system, an electronic switching unit. We believe that the acquisition of the DynaTraX(TM) technology will enable us to become a provider of multi-media digital network distribution and management equipment for use in campus and building facilities. This equipment manages voice, video and data transmissions on a network. In addition, during the last two and a half 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. Historical Business We also manufacture and sell standard and customized transformers, test equipment and rotary switches, the latter of which products 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 electronic and electrical assemblies, printed circuit board assemblies, cable and harness assemblies and specialized electronic equipment. Approximately 15% of our products are manufactured for military applications. We sell our switch, transformer and test equipment products in the electronics and electrical industries, primarily as a contract manufacturer for other companies or for inclusion in OEM products. We market our products in these industries in the United States. This is a mature market. Competition is on the basis of price and service. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. We intend 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. -11- The DynaTraX(TM) Asset Acquisition - Material Terms of Purchase Agreement On April 27, 1999, pursuant to an asset acquisition agreement with NORDX/CDT, Inc., we completed the purchase of the DynaTraX(TM) product, for a purchase price of $500,000. The entire amount of the purchase price was paid upon closing. 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. Under the agreement, NORDX/CDT, Inc. retained a limited amount of inventory to service customers who had purchased the technology prior to the discontinuance of the DynaTraX(TM) business by NORDX/CDT, Inc. Industry DynaTraX(TM) Networking Management and Maintenance Technology We believe that there is a rapidly growing marketplace for "digital" multi-media, including Internet, high-speed data, digital voice and video, and, information equipment and systems. We intend to use our DynaTraX(TM) technology to produce a line of standard, digital telecommunication distribution and management equipment that OEM's and/or Value-Added-Resellers will be able to use as a platform they can custom configure, through software, to supply a variety of industry and customer-specific applications and functions. We entered into an agreement in October 1999 with TravelNet Technologies, Inc. to sell the "Data Valet" software system which runs on a Dynatrax(TM) distributing switch system. This system provides high-speed, bundled, multi-media Internet and video services to business travelers and hotel guests. This integrated system also monitors and bills guests for services used. The agreement expires on September 10, 2002. The TravelNet Agreement provides that Tech Labs and TravelNet will jointly o promote DynaTraX(TM) and the Data Valet products in trade shows; o share the costs of trade show participation; o select and pay for retaining an advertising agency; o training of sales personnel; and o share information, literature, sales projections, sales leads and technical support. We intend to build industry recognition for producing private, customer-premise (community, commercial, educational and hospitality complexes, and residential buildings), high-speed Internet, Long Distance, Intranet information distribution and management switching systems. We believe the future trend in communications is reselling local loop services, which is the service connection between the local phone company's local office and the telephone customer, using new digital transmission technology and equipment to get around the present "de facto monopoly" telephone and CATV companies maintain over local connection and distribution services. The DynaTraX(TM) product, we believe, offers a faster switch and a much larger port size than any competing product and is not limited to a specific type of network as with some competing products. Port size refers to the number of network connections available for user equipment and for network distribution equipment. DynaTraX(TM) is proposed to be sold in the multi-media digital network distribution and management equipment industry. The growth in digital networks is clear as is the cost in supporting and maintaining these networks. We initially intend to market the DynaTraX(TM) product in the eastern portion of the United States with expansion to other markets over time. Our goal is to have our DynaTraX(TM) technology play a large role in helping developers, builders and/or managers of private residential communities and commercial, industrial, educational and hospitality complexes establish facilities that will distribute and manage high-speed digital Internet, Long Distance and CATV services. This technology permits these users to bypass current telephone and CATV companies' "Last Mile" connection service. "Last Mile" connection service is the interconnection between a wide range of computing resources to "Wide Area Network", and may allow users to increase rents and to make their properties more attractive to tenants. In making progress towards that objective, we, through a subsidiary, in June, 2000 acquired three contracts to provide residential bundled communication services to property developments in Florida from M3Communications, Inc. Each of the contracts is for a 10 year term. Two of the contracts are with NTS in Orlando, Florida, representing 357 existing apartment units, and the third contract is with Premier Properties in Ft. Myers, Florida, representing 300 new apartments projected to be completed within the next eighteen months. Tech Labs Community Networks, Inc., a wholly-owned subsidiary of Tech Labs, acquired the contracts through its subsidiary, Tech Labs Community Networks of the Southeast, Inc. As partial consideration for the sale, M3 was given a 20% stake in Tech Labs Community Netorks of the Southeast. Tech Labs Community Networks retains the remaining 80% of Southeast's outstanding shares. M3 will also receive 20% of the operating income derived from the three contracts and any contracts signed by Southeast within 120 days of June 23, 2000. Tech Labs agreed to provide all residential broadband-bundled servies in Virginia, South Carolina, Kentucky, Tennessee, Georgia, Louisiana, Mississippi and Florida through Southeast. We formed Tech Labs Community Networks, Inc. to be the holding company of regionally oriented subsidiaries which would provide residential bundled communication services to property developments. Tech Labs Community Networks of the South East, Inc. focuses on the southeastern region of the United States. No other subsidiaries of Tech Labs Community Networks have been formed to date. 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). -12- We expect that competition in the sale of our DynaTraX(TM) product will be on the basis of price, features, service and technical support. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. Competition for network management products comes from several different sources. One source of competition is the designated employees of large organizations which have been hired to manage and maintain their internal networks. However, we believe the need to reduce costs through the implementation of automated cost saving technologies such as the DynaTraX(TM) technology will provide Tech Labs with market opportunities. Another group of competitors which 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 mainatining end-to-end network configuration, which is the connection between different points on a network from the telecommumunications 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: 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. In the past we have experienced, and we are likely to experience in the future, delays in the development and introduction of products. We cannot assure you that we will keep pace with the rapid rate of change in security and network switching systems research, or that our new products will adequately meet the requirements of the marketplace or achieve market acceptance. 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 recently begun marketing IDS to government agencies and private industry for use in nuclear, industrial, and institutional installations. We have also begun to manufacture and market products currently sold by International Logistics Inc., as well as new security, police training, bomb detection and disposal equipment, anti-terrorism countermeasures and lie detection devices. New devices are intended to include hand-held letter bomb detectors, hand-held weapons detectors, video surveillance equipment as well as integrated audio-visual surveillance vehicles for government and police use. We have entered into an 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 this is a growing industry and that terrorist incidents and security breaches serve to increase the demand for our products. We have recently completed the sale of an IDS to Los Alamos National -13- Laboratories. This industry has a number of different competing products and technologies. Competition in the industry is partly based on price and partly on other factors such as effectiveness of a product in the field, acceptable levels of false alarms for a given application and service. We are marketing the IDS product for global distribution. We have a number of competitors for the IDS products offering competitive technology, many of whom have greater financial and other resources. We have received approval for the IDS from the U.S. Air Force for inclusion in their Tactical Automated Security System program, which is a $500 million program to thwart enemy attacks on critical military installations throughout the world. Subsequent to this approval, Tech Labs has received a blanket order to provide 50 IDS systems to the U.S. Air Force. Tech Labs has as of the date of this prospectus shipped 12 systems under its blanket order to the Air Force prime contractor. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. Marketing Strategies Marketing. We plan to implement a three-pronged marketing program consisting of: o Industry announcements and presentations through business and industry trade groups; o Establishing relationships with several industry recommenders and specifiers, who are consultants and engineering companies to help present our cable management and network physical layer solutions to the end-users and their contract management or system integrators; and o A promotional campaign of ads, mailings, and on-line Web site media, targeted at the end-user communications managers, their consultants and advisers. Initially, we will focus on the communication/computer centers in the eastern part of the United States. We plan to divide this area into four sales regions: o New England states; o New York metropolitan area; o Mid-Atlantic/Washington DC area; and o South East Coast states. We will quickly set up several regional representatives, sales agents, and/or certified value added resellers in each of the four regions. Our plan is to have one representative and, initially, up to two VARs for each region. Whenever possible, we plan to use former NORDX/CDT trained sales agents and certified VARs. Sales representatives will be commissioned sales agents. VARs will be system integrators who will purchase DynaTraX(TM) products at a volume based discount price for resale as part of a turn-key service in which the system integrator designs the system, purchases the component products and installs and maintains the system. We also plan to expand on the initial program by opening up additional sales areas in the country and overseas. We contemplate doing this by adding regional representatives or agents, or through current VAR organizations that have a national presence. -14- In the established East Coast area, we intend to set up three regional sales/service centers: o Massachusetts; o Washington, DC; and o Florida We will repeat the process in the other areas as they become established. We plan to use our sales/service centers to introduce new, enhanced versions of the DynaTraX(TM) system and to provide territory customer support services. We also plan to set up a separate marketing campaign and sales operations to build markets for our expanded high-speed, customer-premise DynaTraX(TM) gateway networking switch. In addition, working with VARs, we will focus on providing turn-key, private customer-premise digital gateway exchange networking systems. We will target real estate developers, builders and/or owners of private communities, commercial community retail complexes and shared rental buildings to enable them to control and resell Internet, long distance, CATV, and building automation information services going into and out of their private facilities. Source of Supply Current inventory component purchases for all our products are made from OEMs, brokers, and other vendors. We typically have more than a single source of supply for each part, component, or service, but from time to time we may utilize a single supplier for a particular part or component. During the year ended December 31, 1999, 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. During the year ended December 31, 1998, Wiggins Plastics accounted for 14.2% of our supply of inventory. 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 September 30, 2000 and December 31, 1999, was as follows: As of December 31, 1999: $742,765 As of September 30, 2000: $443,737 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 also have patents pending in the United States and in the European Common Market. -15- Employees As of November 10, 2000, we had 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, and 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 May, 2001. The annual base rent is $48,000 and includes property taxes and other adjustments. We believe our premises are adequate for our current needs and that if and when additional space is required, it would be available on acceptable terms. We are an integrated manufacturer and, accordingly, except for plastic moldings and extrusions, produce nearly all major subassemblies and components of our devices from raw materials. We purchase certain components from outside sources and maintain an in-house, light machine shop allowing fabrication of a variety of metal parts and castings, complete tool room for making and repairing dies, a stamping shop and an assembly shop with light assembly presses. Our test lab checks and tests our products at various stages of assembly and each finished product undergoes a complete test prior to shipment. We anticipate that we will either manufacture any new products ourselves or subcontract their manufacture, in whole or in part, to others. We believe that personnel, equipment, and/or subcontractors will be readily available as and when needed. We offer warranties on all our current products, including parts and labor for one year. We have limited research and development facilities and currently employ one 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 53 President, Treasurer, and Director Earl M. Bjorndal 48 Vice President and Director Carmine O. Pellosie, Jr. 57 Secretary and Director Salvatore Grisafi 70 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, 70, 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 the Company 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 $100,000 in any recent fiscal year. -17- Summary Compensation Table
Long-Term Annual Compensation Compensation ----------------------------------- ------------- Shares of Common Stock Issuable Upon Name and 2000 Exercise of Principal Position Year Salary($) Bonus($) Options ------------------ ---- --------- -------- ------- Bernard M. Ciongoli 2000 $125,000 0 250,000 President, Treasurer 1999 $125,000 0 0 1998 $125,000 0 300,000
The following table sets forth information relating to all options granted to named executive officers: Option Grants in Fiscal Year 2000
Percent of Number of Total Options Securities Underlying Granted to Employees Exercise Expiration Name Options Granted in Fiscal Year (%) Price Date ---- --------------- ------------------ ----- ---- Bernard M. Ciongoli 111,000 40.36 $2.68125 1/02/06 139,000 50.00 $2.4375 1/02/06
We have a five (5) year employment contract with Mr. Ciongoli that commenced October 1, 1998, and was amended June 18, 1999. Mr. Ciongoli is currently compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also entitled to receive two (2%) percent of our sales in excess of $1,000,000 during any year he is employed by us. In addition, Mr. Ciongoli was also granted an option exercisable for five (5) years from date of grant to purchase 300,000 shares of stock at $.50 per share, such option to vest in increments of 100,000 shares per annum on each anniversary date of the agreement commencing October 1, 1998. The agreement is automatically renewed for one (1) year unless either party terminates the agreement in writing at least 180 days prior to the expiration of the term or of any renewal period. In 1996 we granted to Mr. Ciongoli an option to purchase 100,000 shares of common stock exercisable for five (5) years at $.50 per share under our 1996 stock option plan. In 2000 we granted to Mr. Ciongoli 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 and which vests over a period of three (3) years. We also granted to Mr. Ciongoli a non-plan option, subject to the approval of shareholders, in consideration and in recognition of his services to Tech Labs to purchase up to 139,000 shares exercisable over (5) years at $2.4375 and which vests over the course of three (3) years from the date of grant. -18- We do not have employment agreements with any other named executive officers. Our directors are not presently compensated. Consultants We have entered into a consulting agreement with MPX Network Solutions, Inc. The agreement expires on March 14, 2001, and provides 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 $1,000,000 of the net sale prices to 1/2% of the net sale prices over $4,000,000, and o MPX will also receive 50,000 shares of common stock and will be issued options to purchase up to 50,000 shares of common stock, at a purchase price of $1.25 per share, depending on net sales of telecommunications products during the initial term and the extension term of the agreement. These services will be provided on an as needed basis, primarily by MPX's president, Mr. Sal Grisafi. We have also entered into a consulting agreement with Scott Coby. Under the terms of the agreement, the consultant will provide certain marketing and financial services. In consideration for entering into the agreement, which has an initial term of two years, we issued to the consultant a warrant to purchase 50,000 shares of common stock at $1.85 per share exercisable for five (5) years. 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 have 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. Unless the agreement is earlier terminated, we shall also issue to the consultant (i) 65,000 shares of common stock for services to be performed through January 15, 2001, (ii) 35,000 shares for services to be performed through April 15, 2001, (iii) 35,000 shares for services to be performed through July 15, 2001, and (iv) 35,000 shares for services to be performed through October 15, 2001. 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. Under this plan options for an aggregate of 190,000 shares have been granted at an exercise price of $.50 per share, options for 111,000 shares have been granted at an exercise price of $2.68125 and options for 25,000 shares have been granted at an exercise price of $2.4375. 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. 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. -19- In May 2000 the board of directors adopted two additional stock option plans, an incentive stock option plan and a non-employee director plan. The plans were submitted to a vote by the shareholders at the Annual Meeting of Shareholders held on August 10, 2000 but were not approved. In November 2000 the board of directors adopted the November 2000 Incentive Stock Option Plan and the November 2000 Non-employee Director Plan. Both plans will be submitted to the shareholders for their approval at a Special Meeting of the Shareholders tentatively scheduled for the first quarter of 2001. The November 2000 Employee Plan authorizes the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code for the purchase of an aggregate of 150,000 shares (subject to adjustment for stock splits and similar capital changes) of common stock to employees of Tech Labs. By adopting the 2000 Employee Plan, the board belives that Tech Labs will be better able to attract, motivate and retain as employees people upon whose judgment and special skills the success of Tech Labs in large measure depends. The November 2000 Employee Plan will be administered by the 2000 Employee Plan Committee of the board of directors, which will be comprised of one or more of the independent members of the board. The Committee can make such rules and regulations and establish procedures for the administration of the 2000 Employee Plan as it deems appropriate. The exercise price of an incentive stock option must be at the fair market value of Tech Labs' common stock on the date of grant or 110% of the fair market value for shareholders who, at the time the option is granted, own more than 10% of the total combined classes of stock of Tech Labs or any subsidiary. No employees may exercise more than $100,000 in options held by them in any year. No option may have a term of more than ten years, or five years for 10% or greater shareholders. Options generally may be exercised only if the option holder remains continuously associated with Tech Labs or a subsidiary from the date of grant to the date of exercise. However, options may be exercised upon termination of employment or upon death or disability of any employee within certain specified periods. The November 2000 Non-employee Director Plan was adopted in order to link the personal interests of non-employee directors to the long-term financial success of Tech Labs. The total number of shares for which options may be granted from time to time under the plan is 100,000 shares. The plan will be administered by a committee of directors who are not eligible to participate in the plan. Options become exercisable with respect to such shares granted on the date on which the option was granted, so long as the optionee remains an eligible director. No option may be exercised more than five years after the date on which it is granted. The number of shares available for options, the number of shares subject to outstanding options and their exercise prices will be adjusted for changes in outstanding shares such as stock splits and combinations of shares. Shares purchased upon exercise of options, in whole or in part, must be paid for in cash or by means of unrestricted shares of common stock or any combinations thereof. 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." -20- 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 957,000 19.52% Earl Bjorndal 273,344 6.02% Carmine O. Pellosie, Jr. 80,000 1.78% Salvatore Grisafi 50,000* 1.11% Libra Finance, S.A. 275,000 6.15% Celeste Trust Reg 446,500 9.99% The Endeavour Capital Investment Fund, S.A. 446,500 9.99% Esquire Trade & Finance 446,500 9.99% All officers and directors as a 1,360,344 28.43% group (4 persons) * These shares are owned by Mr. Grisafi's wife. ** 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 137,000 shares that may be acquired within 60 days pursuant to the exercise of options granted under our 1996 stock option plan and 300,000 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. 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 $0.865929, no more than an amount equal to 446,500 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. -21- 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. 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. -22- 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. -23- 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.
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 446,500 446,500 0 9.99% 0% The Endeavour Capital Investment Fund, S.A.(2)(3) Cumberland House 27 Cumberland Street Nassau New Providence Bahamas 446,500 446,500 0 9.99% 0% Esquire Trade & Finance, Inc.(2)(3) Trident Chambers P.O. Box 146, Road Town Tortolu, BVI 446,500 446,500 0 9.99% 0% The Endeavour Management Inc. S.A (4) Cumberland House 27 Cumberland Street Nassau New Providence Bahamas 137,500 137,500 0 3.33% 0% Libra Finance, S.A (4) P.O. Box 4603 Zurich, Switzerland 275,000 275,000 0 6.40% 0% Stursberg & Veith (5) 405 Lexington Avenue New York, NY 75,000 75,000 0 1.83% 0% Mint Corporation (5) 211 Park Avenue Hicksville, New York 11801 200,000 200,000 0 4.74% 0%
-24- (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 $0.865929 of the currently outstanding $1,500,000 note and the potentially outstanding $500,000 convertible note and payment of interest thereon. 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. 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) Assumes the purchase of an additional $500,000 of Tech Labs 6.5% convertible notes. (4) 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. (5) 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 two 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. 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. -25- 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. -26- DESCRIPTION OF SECURITIES Our authorized capital stock consists of 10,000,000 shares of common stock having a par value of $.01 each, of which 4,019,039 shares are currently outstanding and 11,316 shares are held in treasury. There are currently approximately 250 holders of common stock. Common Stock Each share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. The common stock does not have cumulative voting rights, which means that the holders of a majority of the outstanding shares may elect all of the directors of Tech Labs. The common stock does not have any preemptive rights. Stockholders holding a majority of the voting power of the capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders, and the vote by the holders of a majority of such outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger or amendment of our certificate of incorporation. Holders of common stock are entitled to receive dividends pro rata based on the number of shares held, when, as and if declared by the board of directors, from funds legally available therefor. In the event of the liquidation, dissolution or winding up of the affairs of our company, all assets and funds of our company remaining after the payment of all debts and other liabilities shall be distributed, pro rata, among the holders of the common stock. Holders of common stock are not entitled to preemptive, subscription, or conversion rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered hereby will be when issued, fully paid and non-assessable. 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. Upon the effectiveness of this registration statement, Tech Labs has the right, subject to certain conditions, to require the purchasers of the $1,500,000 note to purchase up to an additional $500,000 principal amount of convertible note on the same terms and conditions as the $1,500,000 note. 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 that the notes are subject to. 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 our president, all of which options have vested. As additional incentive, Mr. Ciongoli was granted options to purchase up to 111,000 shares under our 1996 stock option plan and a non-plan option to purchase up to 139,000 shares, which is subject to the approval of the shareholders of Tech Labs. 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 also 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. Under this plan options for an aggregate of 190,000 shares granted at an exercise price of $.50 per share, options to purchase 111,000 shares granted at an exercise price of $2.68125 and options for 25,000 shares have been granted at an exercise price of $2.4375. The board has also approved two new stock option plans, the November 2000 Incentive Stock Option Plan and the November 2000 Non-employee Director Plan. Both plans will be submitted to the shareholders of Tech Labs at a Special Meeting of the Shareholders for approval. No options have been granted to date under either of the 2000 plans. 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, 1,108,912 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, 1,083,912 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. -27- 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, 1997, 1998 and 1999 as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Charles J. Birnberg's report, given on their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed a registration statement on Form SB-2 under the Securities Act of 1933, 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 November 17, 2000 To The Board of Directors of Tech Laboratories, Inc. I have audited the Balance Sheets of Tech Laboratories, Inc. as of December 31, 1997, 1998 and 1999 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, 1997, 1998 and 1999 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, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 ASSETS
YEARS ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30, -------------------------------------------- 1999 2000 1997 1998 1999 (UNAUDITED) ---------- ---------- ---------- ---------- ---------- Current Assets: Cash $ 166,173 $ 532,780 $ 162,925 $ 212,348 $1,462,319 Marketable Securities, at the Lower of Cost or Market (Note 1) 59,343 56,693 61,453 61,923 61,453 Accounts Receivable, net of Allowance of $10,000 in 1999, 1998 and 1997 90,734 143,462 57,697 150,359 169,251 Inventories (Notes 1 & 2) 269,209 270,118 816,703 788,586 1,251,010 Prepaid Expense 0 3,357 4,055 5,668 4,055 ---------- ---------- ---------- ---------- ---------- Total Current Assets $ 585,459 $1,006,410 $1,102,833 $1,218,884 $2,948,088 ---------- ---------- ---------- ---------- ---------- Property, Plant and Equipment, at Cost (Note 1): Leasehold Improvements 2,247 2,247 2,247 2,247 2,247 Machinery, Equipment and Instruments 223,884 230,137 379,815 340,337 410,425 Furniture and Fixtures 67,425 67,425 75,899 67,574 79,161 ---------- ---------- ---------- ---------- ---------- $ 293,556 $ 299,809 $ 457,961 $ 410,158 $ 491,833 Less: Accumulated Depreciation & Amortization 281,029 299,162 314,162 299,162 314,162 ---------- ---------- ---------- ---------- ---------- Net, Property, Plant and Equipment $ 12,527 $ 647 $ 143,799 $ 110,996 $ 177,671 ---------- ---------- ---------- ---------- ---------- Other Assets $ 11,540 $ 11,540 $ 11,540 $ 11,540 $ 11,541 ---------- ---------- ---------- ---------- ---------- Total Assets $ 609,526 $1,018,597 $1,258,172 $1,341,420 $3,137,300 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements F-3 TECH LABORATORIES, INC. BALANCE SHEETS DECEMBER 31, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 LIABILITIES AND STOCKHOLDERS' INVESTMENT
YEARS ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30, ---------------------------------------------- 1999 2000 1997 1998 1999 (UNAUDITED) ---------- ---------- ---------- ---------- ---------- Current Liabilities: Current Portion of Long Term Debt (Note 5) $ 34,445 $ 32,742 $ 28,559 $ 30,293 $ 25,821 Short-Term Loans Payable (Note 6) 43,373 43,373 243,373 43,373 79,956 Accounts Payable and Accrued Expenses 48,148 42,155 260,745 189,025 34,765 Other Utilities 53,945 36,600 3,190 77,938 29,057 ----------- ----------- ----------- ---------- ---------- Total Current Liabilities $ 179,911 $ 154,870 $ 535,867 340,629 $ 169,599 ----------- ----------- ----------- ---------- ---------- Stockholders' Investment: Common Stock. $.01 Par Value; 10,000,000 Shares Authorized; 3,650,660 issued in 1999 and 4,019,039 issued as of September 30, 2000 $ 13,753 $ 23,483 $ 36,507 $ 35,870 $ 39,492 Less: 11,316 Shares Reacquired and and Held in Treasury (113) (113) (113) (113) (113) ----------- ----------- ----------- ---------- ---------- $ 13,640 $ 23,370 $ 36,394 $ 35,757 $ 39,379 Common Stock Subscribed (Note 7) 0 500 0 0 0 Capital Contributed in Excess of Par Value 721,847 1,315,833 1,816,316 1,828,346 4,060,287 Retained Earnings 0 0 0 0 0 Accumulated Deficit (306,372) (475,476) (1,130,405) (863,312) (1,131,965) ----------- ----------- ----------- ---------- ---------- $ 429,615 $ 863,727 $ 722,305 1,000,791 2,967,701 ----------- ----------- ----------- ---------- ---------- Total Liabilities and Stockholders' Investment $ 609,526 $ 1,018,597 $ 1,258,172 $1,341,420 $3,137,300 =========== =========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements F-4 TECH LABS, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMMON STOCK CAPITAL IN EXCESS OF ACCUMULATED SHARES AMOUNT PAR VALUE DEFICIT TOTAL ----------- ----------- ----------- ----------- ----------- Balance December 31, 1996 1,101,532 $ 9,189 $ 317,585 $ (32,303) $ 294,471 Stock Issued -- 4,451 404,262 408,713 Stock Subscribed -- 500 500 Net Income/ (Loss) (274,069) (274,069) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1997 1,546,632 $ 14,140 $ 721,847 $ (306,372) $ 429,615 Stock Issued 1,323,311 9,230 593,986 603,216 Net Income/(loss) (169,104) (169,104) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1998 2,869,943 $ 23,370 $ 1,315,833 $ (475,476) $ 863,727 Stock Issued 780,717 13,024 500,483 513,507 Net Income/(loss) (654,929) (654,929) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1999 3,650,660 $ 36,394 $ 1,816,316 $(1,130,405) $ 722,305 Stock Issued 368,379 2,985 2,243,971 2,246,956 Net Income/(loss) (1,560) (1,560) ----------- ----------- ----------- ----------- ----------- Balance September 30, 2000 4,019,039 $ 39,379 $ 4,060,287 $(1,131,965) $ 2,967,701
F-5 TECH LABORATORIES, INC. STATEMENTS OF OPERATIONS DECEMBER 31, 1997, 1998, AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1997 1998 1999 1999 2000 ----------- ----------- ----------- ---------- ---------- Sales $ 444,322 $ 552,486 $ 689,190 $ 535,160 $ 849,106 ----------- ----------- ----------- ---------- ---------- Costs and Expenses: Cost of Sales 446,457 386,425 472,790 374,612 372,967 Selling, General and Administrative Expenses 265,104 329,849 861,174 548,384 507,030 ----------- ----------- ----------- ---------- ---------- 711,561 716,274 1,333,964 922,996 $ 879,997 ----------- ----------- ----------- ---------- ---------- Income/(Loss) From Operations ($ 267,239) ($ 163,788) ($ 644,774) ($ 387,836) ($ 30,891) ----------- ----------- ----------- ---------- Other Income (Expenses): Interest Income $ 166 $ 1,654 $ 1,150 $ 0 34,796 Interest Expense (6,996) (6,970) (11,305) 0 (5,465) ----------- ----------- ----------- ---------- ---------- ($ 6,830) ($ 5,316) ($ 10,155) -- 29,331 ----------- ----------- ----------- ---------- ---------- Income/(Loss) Before Income Taxes ($ 274,069) ($ 169,104) ($ 654,929) ($ 387,836) ($ 1,560) Provision for Income Taxes (Notes 1 & 4) -- -- -- 0 0 ----------- ----------- ----------- ---------- ---------- Net Income/(Loss) ($ 274,069) ($ 169,104) ($ 654,929) ($ 387,836) ($ 1,560) Accum. Earnings/(Deficit), Beg. of Year ($ 32,303) ($ 306,372) ($ 475,476) (475,476) (1,130,405) ----------- ----------- ----------- ---------- ---------- Accum. Earnings/(Deficit,) End of Year ($ 306,372) ($ 475,476) ($1,130,405) ($ 863,312) ($1,131,965) ----------- ----------- ----------- ---------- ---------- Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.18) ($ 0.12) $ 0
The accompanying notes are an integral part of these financial statements. F-6 TECH LABORATORIES, INC. STATEMENTS OF CASH FLOWS DECEMBER 31, 1997, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1997 1998 1999 1999 2000 --------- --------- --------- ---------- ---------- Cash Flows From (For) Operating Activities: Net Income/(Loss) From Operations ($274,069) ($169,104) ($654,929) ($387,836) (1,560) Add/(Deduct) Items Not Affecting Cash: Depreciation/Amortization (Note 1) 7,278 11,880 15,000 0 0 Unrealized (Gain)/ Loss on Valuation of Marketable Securities (Note 1) 0 3,357 470 0 0 Changes in Operating Assets and Liabilities: Marketable Securities (35,001) (2,650) (4,290) (5,230) 0 Accounts Receivable 2,615 (52,728) 85,765 (6,897) (111,554) Inventories 22,665 (909) (546,585) (518,468) (434,307) Accounts Payable (7,925) (40,249) 216,359 146,870 (225,980) Other Assets and Liabilities 15,862 14,997 593 39,027 23,129 --------- --------- --------- ---------- ---------- Net Cash Flows For Operating Activities ($268,575) ($235,406) ($887,617) ($732,534) ($750,272) --------- --------- --------- ---------- ---------- Cash Flows From (For) Investing Activities DynatraX Machinery & Equipment $ 0 $ 0 ($158,152) ($ 110,349) ($33,872) --------- ---------- ---------- Net Cash Flows From (For) Investing Activities $ 0 $ 0 ($158,152) ($ 110,349) ($33,872) --------- ---------- ---------- Cash Flows From (For) Financing Activities: Acquisition/(Repayment) of Short Term Debt ($ 10,000) ($ 1,703) $ 162,407 ($ 2,449) (163,417) Issuance of Common Stock 407,500 603,716 513,507 524,900 2,246,956 --------- --------- --------- ---------- ---------- Net Cash Flows From (For) Financing Activities $ 397,500 $ 602,013 $ 675,914 $ 522,451 2,083,539 --------- --------- --------- ---------- ---------- Net Increase/(Decrease) in Cash $ 128,925 $ 366,607 ($369,855) ($ 320,432) 1,299,395 Cash Balance, Beginning of Year 21,398 166,173 532,780 532,780 162,924 --------- --------- --------- --------- ---------- Cash Balance, End of Year $ 150,323 $ 532,780 $ 162,925 $ 21,348 1,462,319 --------- --------- --------- --------- ----------
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, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) Summary of Significant Accounting Policies CASH - Includes Tech Lab's checking account at Hudson United Bank. There are no Cash Equivalents. ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to customers. The allowance for bad debts is accrued based on a review of customer accounts receivables aging. INVENTORIES - Inventories are valued at cost or market, whichever is lower. The FIFO cost method is generally used to determine the cost of the inventories. At December 31, 1997, 1998 and 1999 physical inventories were taken and tested. No physical inventory was taken on September 30, 2000. PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: ASSETS ESTIMATED USEFUL LIVES Machinery 5 to 7 years Furniture & Fixtures 5 to 7 years Maintenance and repairs are charged to expense as incurred. The cost of betterments is capitalized and depreciated at appropriate rates. Upon retirement or other disposition of property items, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of income. INCOME TAXES - Income tax expense is based on reported income and deferred tax credit is provided for temporary differences between book and taxable income. MARKETABLE SECURITIES - The marketable securities are recorded at the lower of cost or market. The cost of securities was $59,343 at December 31, 1997, $56,693 at December 31, 1998, $61,453 at December 31, 1999 and $61,453 at September 30, 2000. (2) Inventories: Inventories at December 31, 1997, 1998, 1999 and September 30, 2000 were:
1997 1998 1999 2000 ---- ---- ---- ------- Raw Materials & Finished Components $231,202 $202,359 $715,438 $1,057,725 Work in Process & Finished Goods 38,007 67,759 107,265 193,285 -------- -------- -------- ---------- $269,209 $270,118 $816,703 $1,251,010 -------- -------- -------- ----------
(3) Income/(loss) Per Share: Income/(loss) per share was calculated on the weighted average number of shares outstanding during the year ended December 31, 1997 of 1,550,048, during the year ended December 31, 1998 of 2,202,905 shares, during the year ended December 31, 1999, 3,650,660 shares and 4,019,039 shares at September 30, 2000. (4) Income Taxes: At December 31, 1997, 1998 and 1999 the balance of operating loss carryforward was $1,049,903, $1,219,007 and $1,873,936, 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 ---------- ----- ------------- ------ ------ 1997 Hudson United Bank Prime +1.5% $34,445 -- 1998 Hudson United Bank Prime +1.5% $32,742 -- 1999 Hudson United Bank Prime +1.5% $28,559 -- September 30, 2000 Hudson United Bank Prime +1.5% $25,821 -- Certain marketable securities are pledged as collateral on the above loan. (6) Short-Term Loans Payable Demand loans payable include loans from stockholders, officers, members of the board of directors and third parties. The outstanding loan balances due as of December 31, 1997, 1998 and December 31, 1999 was $43,373 for 1997 and 1998, and $243,373 for 1999, which includes accrued interest for all three years. The annual interest rate for these loans ranged between six (6%) percent and ten (10%) percent. One loan in the principal amount of $11,500 together with accrued interest of $4,294 at December 31, 1999 is secured by the assets of Tech Labs. In October of 1999, three short-term loans for a total of $200,000 at (10%) ten percent annual interest were completed. Certain contractural revenues were pledged to secure this loan. As of September 30, 2000, $150,000 of these October, 1999 loans had been repaid. (7) Common Stock In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of common stock. In 1997 and 1998, Tech Labs completed a private placement of common stock pursuant to Rule 504 which raised $917,324. In 1999, Tech Labs began a self-underwritten public offering to raise between $2,000,000 (minimum) and $3,500,000 (maximum). This offering was completed in May, 2000. (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. F-7 (9) Subsequent Events 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 preliminary fair market values, which may be revised at a later date. Results subsequent to the date of acquisition will be included in Tech Lab's financial statements. Had the results of the DynaTraX acqusition been included in our consolidated statements for 1997, 1998 and 1999, the effect would have been material. Year Ended Year Ended DynaTraX December 31, December 31, (Unaudited) 1998 1999 ----------- ----------- ----------- Net Sales $ 400,000 $ 100,000 Cost of Sales 300,000 20,000 ----------- ----------- Gross Profit 100,000 80,000 Research/Development 900,000 -0- Selling & G&A Expenses 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 Purchase (Unaudited) Price* ---------- ----------- Inventory 2,700,000 $ 400,000 Test Equip. 355,000 100,000 ----------- ----------- Total 3,055,000 500,000 =========== =========== * Included in December 31, 1999 Tech Labs balance sheet. Effect on (Unaudited) Tech Labs 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) =========== =========== F-8 _____________, 2001 TECH LABORATORIES, INC. 5,306,816 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............................................................ 6 PRICE RANGE OF COMMON STOCK................................................ 7 DIVIDEND POLICY............................................................ 7 CAPITALIZATION............................................................. 8 SELECTED FINANCIAL DATA.................................................... 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 9 BUSINESS .................................................................. 11 MANAGEMENT................................................................. 17 CERTAIN TRANSACTIONS....................................................... 20 PRINCIPAL STOCKHOLDERS..................................................... 21 PLAN OF DISTRIBUTION....................................................... 22 OFFERING BY SELLING SECURITYHOLDERS........................................ 24 DESCRIPTION OF SECURITIES.................................................. 27 SHARES ELIGIBLE FOR FUTURE SALE............................................ 27 LEGAL MATTERS.............................................................. 28 EXPERTS .................................................................. 28 ADDITIONAL INFORMATION..................................................... 28 INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 28 INDEX TO FINANCIAL STATEMENTS ............................................. F-1 Until _________, 2001 (25 days after the date of this prospectus), all dealers that effect transactions in these shares of Common Stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. INFORMATION NOT REQUIRED IN PROSPECTUS Indemnification of Directors and Officers Tech Labs is incorporated in New Jersey. Under Section ____ of the Corporation Law of the State of New Jersey, a New Jersey corporation has the power, under specified circumstances, to indemnify its directors, officers, employees, and agents in connection with actions, suits, or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees, and agents, against expenses incurred in any action, suit, or proceeding. The Certificate of Incorporation and the By-laws of Tech Labs provide for indemnification of directors and officers to the fullest extent permitted by the General Corporation Law of the State of New Jersey. The General Corporation Law of the State of New Jersey provides that a certificate of incorporation may contain a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section ____ (relating to liability for unauthorized acquisitions or redemptions of, or dividends on, capital stock) of the General Corporation Law of the State of New Jersey, or (d) for any transaction from which the director derived an improper personal benefit. Tech Labs's Certificate of Incorporation contains such a provision. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE. Other Expenses of Issuance and Distribution The following table sets forth the expenses in connection with this Registration Statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission. Filing Fee-- Securities and Exchange Commission $ 1,825 Fees and Expenses of Accountants $ 15,000 Fees and Expenses of Legal Counsel $ 70,000 Blue Sky Fees and Expenses $ 3,500 Printing and Engraving Expenses $ 7,500 Miscellaneous Expenses $ 2,175 Total.................................... $100,000 Recent Sales of Unregistered Securities As listed below, the Company 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 II-1 made within the United States or to United States citizens or residents were made in reliance upon the exemptions from registration under the Securities Act of 1933 as follows: 1. 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. Benett is a sophisticated investor and had complete access to all relevant information regarding Tech Labs. 2. In October 2000 we issued a $1,500,000 principal amount convertible note which is due on October 13, 2000 to certain accredited investors. The issuance of the note was made pursuant to Rule 506 of Regulation D under the Securities Act. 3. 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 note described above in Item 1. The issuance of the warrants was made pursuant to Rule 506 of Regulation D under the Securities Act. 4. In July 2000 we issued 25,000 shares 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 shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 5. In June 2000 we issued 25,000 shares to Nathan Perlmutter pursuant to a convertible note agreement dated September 5, 1997, which was part of the transaction described in item 12, below. 6. 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. 7. 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. 8. 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. 9. 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. 10. 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. 11. 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. 12. 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. 13. From September 1998 to April 1999, we sold shares of our common stock pursuant to Rule 504 of Regulation D under the Securities Act to eight investors who were either sophisticated or "accredited" as that term is defined under Rule 501(a) of Regulation D under the Securities Act. Each investor was given a private placement memorandum which included financial statements describing Tech Labs. Each investor also had access to Bernard M. Ciongoli, Tech Labs' president, and to other pertinent documentation. The offering raised a total of $443,200.00, $250,000 of which was raised in April 1999. 14. On July 10, 1998, we issued 20,300 shares of common stock for services rendered by prior counsel to Tech Labs for $22,167.40. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The prior counsel was sophisticated and had complete access to relevant information regarding Tech Labs. 15. From September 1997 to March 1998, we sold shares of our common stock pursuant to Rule 504 of Regulation D under the Securities Act to eleven investors who were either sophisticated or "accredited" as that term is defined under Rule 501(a) of Regulation D under the Securities Act. Each investor was given a private placement memorandum, which included financial statements, describing Tech Labs. Each investor also had access to Mr. Ciongoli and to other pertinent documentation. The offering raised a total of $665,791. II-2 16. In December 1998 we issued options to purchase 75,000 shares exercisable at $1.12 per share to Stursberg & Veith, counsel to Tech Labs, in exchange for services. The issuance of the options were exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The partners of Stursberg & Veith are sophisticated and have complete access to all relevant information regarding Tech Labs. 17. In November 1998 we issued 15,000 shares to Mr. Sal Grisafi in exchange for consulting services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Grisafi was a sophisticated investor and had complete access to all relevant information regarding Tech Labs. 18. In November 1998 we issued 40,000 shares to Emerson Callahan, a former director of the company, for consulting services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Callahan was an accredited investor. 19. In November 1998, we issued 25,000 shares to Carmine Pellosie, a director of the company, for services rendered to Tech Logistics, Inc. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Pellosie was an accredited investor. 20. In November 1998, we issued 15,000 shares to Carmine Pellosie, a director of the company, in exchange for his ownership of 20% of Tech Logistics, Inc. a partly owned subsidiary of our company. The issuance of the shares was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. 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 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) 10.6 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 November 2000 Incentive Stock Option Plan was previously filed. 10.19 November 2000 Non-employee Stock Option Plan was previously filed. 10.20 Asset Purchase Agreement, dated June 1, 2000 by and between Tech Labs, M3communications, Inc. and the shareholders of m3 was previously filed. 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. was previously filed. 10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and delivered to m3communications, Inc. was previously filed. 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 was previously filed. 10.24 Consulting Agreement dated as of November 13, 2000 by and between Barry Bendette and Tech Labs was previously filed. 10.25 Subscription Agreement entered into between the subscribers and Tech Labs dated October 13, 2000.(5) 10.26 Common Stock Purchase warrant entered into between the warrant holders and Tech Labs dated October 13, 2000.(5) 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 to the Registrant's registration statement filed on Form SB-2 (file No. 333-82595) filed on July 9, 1999. (2) Incorporated by reference to the Registrant's amendment No. 1 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on October 18, 1999. (3) Incorporated by reference to the Registrant's amendment No. 2 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on November 19, 1999. (4) Incorporated by reference to the Registrant's amendment No. 3 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on December 17, 1999. (5) Incorporated by reference to the Registrant's current report filed on Form 8-K (file No. 000-27592) filed on October 17, 2000. (b) The following financial statement schedules are included in this Registration Statement: None. 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; (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 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 19th day of January, 2001. 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. Signature Title Date --------- ----- ---- /s/ Bernard M. Ciongoli President, Treasurer, CEO, January 19, 2001 ----------------------------- CFO, and Director ------------------ Bernard M. Ciongoli /s/ Earl M. Bjorndal* Vice President and Director January 19, 2001 ----------------------------- ------------------ Earl M. Bjorndal /s/ Carmine O. Pellosie, Jr.* Secretary and Director January 19, 2001 ----------------------------- ------------------ Carmine O. Pellosie, Jr. /s/ Salvatore Grisafi* Director January 19, 2001 ----------------------------- ------------------ Salvatore Grisafi By: /s/ Bernard M. Ciongoli ------------------------ Bernard M. Ciongoli Attorney-in-Fact* EXHIBIT INDEX 3.1 Certificate of Incorporation.(1) 3.2 By-Laws of Tech Labs.(1) 5.1 Opinion of Stursberg & Veith 10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing Agreement dated as of October 1, 1998 between Tech Labs and Elktronic Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG.(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) 10.6 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 November 2000 Incentive Stock Option Plan was previously filed. 10.19 November 2000 Non-employee Stock Option Plan was previously filed. 10.20 Asset Purchase Agreement, dated June 1, 2000 by and between Tech Labs, M3communications, Inc. and the shareholders of m3 was previously filed. 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. was previously filed. 10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and delivered to m3communications, Inc. was previously filed. 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 was previously filed. 10.24 Consulting Agreement dates as of November 13, 2000 by and between Barry Bendette and Tech Labs was previously filed. 10.25 Subscription Agreement entered into between the subscribers and Tech Labs dated October 13, 2000.(5) 10.26 Common Stock Purchase warrant entered into between the warrant holders and Tech Labs dated October 13, 2000.(5) 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 to the Registrant's registration statement filed on Form SB-2 (file No. 333-82595) filed on July 9, 1999. (2) Incorporated by reference to the Registrant's amendment No. 1 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on October 18, 1999. (3) Incorporated by reference to the Registrant's amendment No. 2 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on November 19, 1999. (4) Incorporated by reference to the Registrant's amendment No. 3 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on December 17, 1999. (5) Incorporated by reference to the Registrant's current report filed on Form 8-K (file No. 000-27592) filed on October 17, 2000.