-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUrk2Sl7JyHjqf4xZKDuhvooomYWmbZYiut+LyPvdH6YmqMAURlBcd/kwQE3hfQw XlnOE8fVoEAOaltnIUQPJw== 0000891554-99-002353.txt : 19991220 0000891554-99-002353.hdr.sgml : 19991220 ACCESSION NUMBER: 0000891554-99-002353 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19991217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECH LABORATORIES INC CENTRAL INDEX KEY: 0000096664 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 221436279 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-82595 FILM NUMBER: 99776654 BUSINESS ADDRESS: STREET 1: 955 BELMONT AVE CITY: NORTH HALEDON STATE: NJ ZIP: 07508 BUSINESS PHONE: 9734275333 MAIL ADDRESS: STREET 1: TECH LABORATORIES INC STREET 2: 955 BELMONT AVE CITY: NORTH HALEDON STATE: NJ ZIP: 07508 SB-2/A 1 REGISTRATION STATEMENT AMENDMENT NO. 3 As filed with the Securities and Exchange Commission on December 17, 1999 Registration No.: 333-82595 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------------------- AMENDMENT NO. 3 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. |_| ================================================================================ The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ EXPLANATORY NOTE This registration statement covers the registration of (a) 1,000,000 shares of common stock, $.01 par value, of Tech Laboratories, Inc., a New Jersey corporation, for sale by Tech Labs in a self-underwritten public offering, and (b) 140,045 shares of common stock for sale by the selling securityholders, all for resale from time to time by the selling securityholders. We will amend and complete the information in this prospectus. Although we are permitted by US federal securities laws to offer to sell these securities using this prospectus, we may not sell them or accept your offer to buy them until the documentation filed with the SEC relating to these securities has been declared effective by the SEC. This prospectus is not an offer to sell these securities and it is not soliciting your offer to buy these securities in any state where that would not be permitted or legal. SUBJECT TO COMPLETION, DATED December 17, 1999 PROSPECTUS 1,000,000 Shares TECH LABORATORIES, INC. 955 Belmont Avenue North Haledon, New Jersey 07508 (973) 427-5333 We are selling a minimum of 571,428 and a maximum of 1,000,000 shares of common stock at a price of $____ per share pursuant to a direct participation offering. Until we receive and accept subscriptions for the minimum number or 571,428 shares, subscribers' funds will be deposited in escrow with United Hudson Bank. If we do not receive subscriptions for the minimum number of shares within 90 days after the date of this prospectus, the offering will be terminated and all subscribers' funds will be returned promptly, in full, without interest or deduction. You may not withdraw funds deposited in escrow. We are also registering 90,045 shares of common stock for certain persons and 50,000 shares of common stock issuable upon exercise of certain outstanding warrants that may be resold from time to time in the future by certain selling securityholders. Our shares of common stock trade on the OTC Bulletin Board under the symbol "TCHL." On ______ _____________, 1999, the last reported sale price of our common stock was $____ per share ----------------------------------------------------- This investment involves certain risks. See "Risk Factors," which begins on page 3. ----------------------------------------------------- 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. Our common stock is not being offered in any state where the offer is not permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.
==================================================================================================== Price to Underwriting Discounts Proceeds to Public and Commissions Tech Labs(1) - ---------------------------------------------------------------------------------------------------- Per Share.............................. $3.50 $0 $3.50 Total Maximum.......................... $3,500,000 $0 $3,500,000 Total Minimum.......................... $2,000,000 $0 $2,000,000 ====================================================================================================
(1) The proceeds to be received by Tech Labs are amounts before deducting expenses of the offering, estimated to be $100,000. The date of this prospectus is ____________, 1999 [PICTURES OF IDS AND DYNATRAX] PROSPECTUS SUMMARY Unless the context indicates otherwise, all references herein to "we" include Tech Labs and its wholly-owned subsidiary, Tech Logistics, Inc., collectively, and references to "Tech Labs" or "Tech Logistics" shall mean each of such companies alone. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors." 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 recently 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 multimedia 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. The Offering Shares offered: Maximum.......................... 1,000,000 shares Minimum.......................... 571,428 shares The shares are being offered on a minimum/maximum basis. No shares will be sold in the offering unless at least 571,428 shares are sold. Current Trading Symbol: OTC Bulletin Board...... TCHL-BB Escrow........................ All funds we receive with respect to the sale of the first 571,428 shares will be deposited in a special escrow account at a federally insured national bank. If 571,428 shares are not sold within ninety (90) days following the effective date of the registration statement of which this prospectus is a part, the offering will terminate and all funds will be promptly returned without interest or deduction. -2- RISK FACTORS In addition to other matters described in this document, prospective 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. -3- We may incur product liability or other liabilities relating to new products which could result in substantial losses to 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. Purchasers in this offering have a risk of greater economic loss than management. Management has acquired a significant interest in Tech Labs at a cost substantially less than that which the new investors will pay for their shareholdings. Therefore, the investors will bear a substantial risk of loss, while, as a practical matter, control of Tech Labs is likely to remain in the hands of management. -4- The offering price of the shares was arbitrarily determined and the price of the stock may decline after this offering. While our shares trade on the OTC Bulletin Board, the volume is substantially less than that being offered in this offering, and does not reflect the market price for the amount of stock we are offering. The price at which the shares are being offered has been arbitrarily determined by us, and does not necessarily bear any relationship to prices at which our shares trade, our assets, earnings, book value, or any other ordinary investment criteria. Accordingly, in comparison to utilizing such investment criteria, the offering price may be greater than would be the case were any of the above-mentioned criteria to be used in determining the per share offering price. You may not be able to resell your shares at or above the price you will pay for our common stock. We manufacture and sell the IDS system under a license agreement which, if terminated, 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. We plan to sell software under a joint marketing agreement which, if terminated, would hamper our growth. We entered into a Joint Marketing Agreement 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. -5- 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. We currently do not have insurance on the DynaTraX(TM) inventory of furnished products and parts purchased from NORDX/CDT. Damage or destruction of some or all of the inventory would result in a substantial loss to us, which could hamper our growth prospects. -6- Since this is a direct participation offering and there is no underwriter, there may be less due diligence performed. This offering is a direct participation offering. No underwriter has been retained by Tech Labs to sell these securities. One of the functions of an underwriter, along with such underwriter's counsel, is the performance of due diligence review of the company whose securities it is underwrting. Without an underwriter an investor does not have the benefit of such additional due diligence review. 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. -7- USE OF PROCEEDS The net proceeds from the sale by us of the minimum number of 571,428 shares, after deducting estimated expenses of this offering, are estimated to be $1,900,000. The net proceeds from the sale by us of the maximum number of 1,000,000 shares, after deducting expenses of this offering, are estimated to be $3,400,000. The net proceeds will be used by us in approximately the following amounts: MINIMUM MAXIMUM Assembly and testing of DynaTraX(TM) $100,000 $100,000 assets Product Development of Additional DynaTraX(TM) Products 375,000 750,000 Marketing and Sales 560,000 1,000,000 Completion of DynaTraX(TM) Inventory 275,000 500,000 IDS Enhancement, Sales, Marketing 150,000 250,000 Working capital for purchase of materials to fill orders and general corporate purposes(1) 440,000 800,000 ---------- ---------- Total $1,900,000 $3,400,000 The foregoing represents our best estimate of the net proceeds of the offering based on current planning and business conditions. Tech Labs management has broad discretionary authority to determine the exact allocation of the proceeds for the purposes set forth above and the timing of the expenditures, which may vary significantly depending upon the exact amount of funds raised, the time and cost involved in deploying the funds and other factors. Pending usage of the funds, as set forth above, the funds will be invested in short-term interest bearing securities or money market funds. The exact allocation of the proceeds for the purposes set forth above and the timing of the expenditures may vary significantly depending upon the exact amount of funds raised, the time and cost involved in deploying the funds and other factors. We believe that the proceeds from the minimum offering in addition to revenues from operations will be sufficient to fund our operations for the next 12 months, although such development would be at a reduced pace than if the maximum offering proceeds were received. If an amount less than maximum offering is raised, we may be required to delay, scale back, or eliminate parts of our development plan or obtain funds through additional financing, including loans or offerings of our securities. We presently have no agreements or understandings with respect to any future financing or loan agreements. - ---------- (1) General corporate purposes include increasing personnel and to finance operating losses that we expect to incur as we expand our customer base. -8- PRICE RANGE OF COMMON STOCK Our common stock has been trading publicly on the OTC Bulletin Board under the symbol "TCHL" since 1994. The table below sets forth the range of quarterly high and low closing sales prices for our common stock on the OTC Bulletin Board during the calendar quarters indicated. The quotations reflect inter-dealer prices, without retail mark-ups, mark-downs, or conversion, and may not represent actual transactions. TCHL COMMON STOCK
CLOSING BID CLOSING ASK ----------------------- ------------------------- YEAR ENDING DECEMBER 31, 1999 HIGH LOW HIGH LOW - ----------------------------- ---- --- ---- --- First Quarter................................... $2.625 $1.0625 $3.0 $1.3125 Second Quarter.................................. 3.125 1.50 3.875 2.00 Third Quarter................................... 3.25 1.50 3.625 1.625 Fourth Quarter (October 1 thru December 10) .................. 2.44 1.0 2.75 1.25 YEAR ENDING DECEMBER 31, 1998 - ----------------------------- First Quarter................................... $3.125 $1.75 $3.375 $2.125 Second Quarter.................................. 2.6875 1.6875 3.0 2.0 Third Quarter................................... 2.1875 1.125 2.625 1.4375 Fourth Quarter.................................. YEAR ENDING DECEMBER 31, 1997 - ----------------------------- First Quarter................................... $2.25 $ .125 $2.75 $ .625 Second Quarter.................................. 3.125 1.4375 4.125 1.9375 Third Quarter................................... 2.75 2.0625 3.875 2.3125 Fourth Quarter.................................. 2.625 1.375 2.75 1.75
As of December __, 1999, there were ___ holders of record of our common stock. DIVIDEND POLICY We have never paid any cash dividends on our common stock and anticipate that, for the foreseeable future, we will continue to retain any earnings for use in the operation of our business. Payment of cash dividends in the future will depend upon our earnings, financial condition, any contractual restrictions, restrictions imposed by applicable law, capital requirements, and other factors deemed relevant by our Board of Directors. -9- CAPITALIZATION The following table sets forth as of September 30, 1999: o on an actual basis; and o as adjusted to reflect the sale of the minimum of 571,428 shares and the maximum of 1,000,000 shares of common stock offered hereby, after deducting the estimated offering expenses:
Nine Months Ended September 30, 1999 ------------------------------------------------- Pro-Forma as Adjusted(1) --------------------- Actual Pro-Forma(1) Minimum Maximum -------- ------------ -------- -------- Total Debt: $340,629 $340,629 $340,629 $340,629 Stockholders' equity: Common Stock, $.01 par value; 5,000,000 shares authorized; 3,575,660 shares issued and outstanding-- actual and 3,650,660 Pro Forma and 4,222,088 (minimum) and 4,650,660 (maximum)-- as adjusted; 11,316 shares held in treasury............... $35,757 $36,507 $42,221 $46,507 Additional paid-in capital............................. $1,828,346 $1,902,596 $3,896,879 $5,392,596 Accumulated deficit.................................... ($863,312) ($938,312) ($938,312) ($938,312) Total stockholders' equity (deficiency)................ $1,000,791 $1,000,791 $3,000,788 $4,500,791 Total Capitalization................................... $1,341,420 $1,341,420 $3,341,917 $4,841,420
- -------- (1) Includes 75,000 shares earned by a consultant during the third quarter and issued during the fourth quarter of 1999. -10- DILUTION Purchasers of the shares will experience immediate and substantial dilution in the value of their shares after purchase. Dilution represents the difference between the initial public offering price per share paid by the purchaser in the offering and the net tangible book value per share immediately after completion of the offering. Net tangible book value per share represents the net tangible assets, defined as total assets less total liabilities, divided by the number of shares of common stock outstanding upon closing of the offering. Our net tangible book value (actual) at September 30, 1999 (unaudited), was $1,000,791 or $.28 per common share. Giving effect to the issuance after September 30, 1999 of 571,428 shares assuming an offering price of $3.50 per share (minimum) and 1,000,000 shares assuming an offering price of $3.50 per share (maximum) and the receipt of the net proceeds by Tech Labs, the pro forma net tangible book value would have been: o $3,000,788 or $.71 per share upon completion of the minimum offering; and o $4,500,791 or $.97 per share upon completion of the maximum offering. This represents an immediate increase in net tangible book value of $.44 per common share (minimum offering) and $.70 per common share (at maximum offering) to the existing shareholders and an immediate dilution of $2.79 per common share (minimum offering) and $2.53 per common share (maximum offering) to persons purchasing shares in this offering. The following table illustrates this per share dilution: Minimum Maximum ------- ------- Offering price per share $3.50 $3.50 Net tangible book value per share at September 30, .27 .27 1999 (unaudited) on a pro-forma basis Increase per common share attributable to .44 .70 payments by new investors ----- ----- Net tangible book value per share at September 30, .71 .97 1999 (unaudited), on a pro-forma basis ----- ----- reflecting the proceeds of this offering Dilution of net tangible book value per share to $2.79 $2.53 new shareholders(1) ----- ----- - --------- (1) Represents dilution of approximately 80% with the completion of the minimum offering and 72% with the completion of the maximum offering, respectively, to purchasers of common stock offered hereby. -11- The following table sets forth on September 30, 1999, on a pro forma basis, the differences between existing shareholders and new investors in the offering with respect to the number of shares of common stock purchased, the total consideration paid, and the average price per share paid by existing shareholders and by new investors.
Minimum Offering(1) Percentage of Percentage of Total Outstanding Consideration Consideration Average Price Number Shares Paid Paid per Share Existing Shareholders - Pro-Forma 3,650,660 86% $ 36,507 2% $0.01 New Investors 571,428 14% $2,000,000 98% $3.50 Total 4,222,088 100% $2,036,507 100% -- Maximum Offering(1) Percentage of Percentage of Total Outstanding Consideration Consideration Average Price Number Shares Paid Paid per Share Existing Shareholders - Pro-Forma 3,650,660 78% $ 36,507 1% $0.01 New Investors 1,000,000 22% $3,500,000 99% $3.50 Total 4,650,660 100% $3,536,507 100% --
- -------- (1) Based on September 30, 1999 shares outstanding plus 75,000 shares to be issued in November 1999 to a consultant and excluding: o options to purchase 100,000 shares exercisable at $1.25 per share and an additional 100,000 shares exercisable at $1.75 per share issued pursuant to a consulting agreement; o options to purchase 50,000 shares exercisable at $1.85 per share issued pursuant to a consulting agreement; o options to purchase an aggregate of 190,000 shares exercisable at $.50 per share granted under Tech Lab's stock option plan for officers and directors; o options to purchase 75,000 shares exercisable at $1.12 per share issued in exchange for legal services; and o pursuant to the employment agreement with our president, options to purchase up to 300,000 shares, 200,000 options of which are vested, with the balance of 100,000 options to vest on October 1, 2000, so long as the president is employed, such options to be exercisable at $.50 per share. See "Management," "Management-- Stock Option Plans" and "Description of Securities." -12- 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, --------------------------------------- --------------------------------------- Pro-Forma(1) 1996 1997 1998 1998 1999 1999 -------- -------- -------- -------- -------- --------- (unaudited) Statement of Operations Data: Sales $647,015 $444,322 $552,486 $341,352 $535,160 $535,160 Cost of Sales 337,269 446,457 386,425 317,702 374,612 374,612 -------- -------- -------- -------- -------- -------- Gross Profit 309,746 (2,135) 166,061 23,650 160,548 160,548 Operating Expenses General and administrative 246,915 257,826 311,716 306,352 548,384 623,384 Depreciation and amortization 10,849 7,278 18,133 -- -- -- -------- -------- -------- -------- -------- -------- Income (loss) from operations 51,982 (267,239) (163,788) (282,702) (387,836) (462,836) Other income-- Interest 388 166 1,654 83 -0- -0- Interest expense 3,188 6,996 6,970 6,970 -0- -0- -------- -------- -------- -------- -------- -------- Income (loss) before provision for income taxes 49,182 (274,069) (169,104) (289,589) (387,836) (462,836) Provision for income -0- -0- -0- -0- -0- -0- Net income (loss) 49,182 (274,069) (169,104) (289,589) (387,836) (462,836) Net income (loss) per share $0.04 ($0.18) ($0.06) ($0.10) ($0.11) ($0.13)
Years Ended Nine Months Ended December 31, September 30, -------------------------------------- ---------------------------------------- Pro-Forma(1) 1996 1997 1998 1998 1999 1999 ---- ---- ---- ---- ---- --------- Balance Sheet Data: (unaudited) Total assets $459,711 $609,526 $1,018,597 $431,838 $1,341,420 $1,341,420 Working Capital 267,436 405,548 851,540 315,339 878,255 878,255 Current Portion of long-term debt 34,445 34,445 32,742 32,742 30,293 30,293 Long-term debt (less current portion) -0- -0- -0- -0- -0- -0- Shareholders' equity $296,184 $429,615 $ 863,727 $327,526 $1,000,791 $1,000,791
- ---------- (1) Includes 75,000 shares earned by a consultant during the third quarter and issued during the fourth quarter of 1999. -13- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We were incorporated in 1947 as a New Jersey corporation. Our focus has historically been the design, manufacture, and sale of rotary switches. Switches have been a significant part of our revenue for five decades. In 1995, to augment revenues, we sought business in transformers and contract manufacturing. In 1998, we made a shift to new product development. In 1998, we also made our first sales of the IDS product, and in April of 1999, we completed the acquisition of the DynaTraX(TM) switch and technology. We will continue to focus on IDS and DynaTraX(TM) sales and development of additional products using these technologies. The following table sets forth the components of our revenues for each of our major business activities in 1996, 1997, and 1998 and for the nine months ended September 30, 1998 and 1999 and their approximate percentage contribution to revenues for the period indicated:
PRODUCT TYPE 1996 % of Revenue 1997 % of Revenue 1998 % of Revenue - ------------ ---- ------------ ---- ------------ ---- ------------ Switches $262,858 40.6% $199,324 44.8% $166,550 30.1% IDS Sensors 0 0 0 0 254,900 46.2% Transformers/Coils 60,741 9.4% 53,595 12.1% 50,515 9.1% Contract Manufacturing 323,416 50.0% 191,404 43.1% 80,520 14.6% -------- ----- -------- ------ -------- ------ Totals $647,015 100.0% $444,323 100.0% $552,485 100.0% ======== ===== ======== ====== ======== ====== Nine Months Ended September 30, ------------------------------------------------------------ (unaudited) PRODUCT TYPE 1998 % of Revenue 1999 % of Revenue - ------------ ---- ------------ ---- ------------ Rotary Switches $ 191,157 56.3 $ 256,877 47.5 IDS Sensors 44,034 12.9 155,731 29.6 Transformers/Coils 73,049 21.4 73,852 13.8 Contract Manufacturing 33,112 9.4 48,700 9.1 --------- ------ -------- ------ Totals $ 341,352 100.0% $ 535,160 100.0% ========= ====== ========= ======
As the foregoing reflects, there was a significant decrease in sales of rotary switches and contract manufacturing, due to a shift to new product development and sales. There were no sales of the new IDS in 1997. In 1998, sales of the IDS were $254,900. The following table sets forth the percentages of gross profit for each of our major business activities in 1997 and 1998, and for the nine months ended September 30, 1998 and 1999:
Nine Months Ended September 30, ----------------------------------- (unaudited) PRODUCT TYPE 1997 1998 Net Change 1998 1999 Net Change - ------------ ---- ---- ---------- ---- ---- ---------- Rotary Switches 44.2% 45.0% 0.8% 44.2% 45.0% 0.8% IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6% Transformers/Coils 22.7% 25.0% 2.3% 22.7% 25.0% 2.3% Contract Manufacturing 20.0% 22.8% 2.8% 20.0% 22.8% 2.8% Unallocated company expenses(1) (31.2%) (13.1%) 18.1% (38.8%) (13.1%) 25.7% Total company gross profit % (0.5%) 30.1% 30.6% 7.0% 30.0% 23.0%
We have begun to shift out of the subcontracting and transformer business which provides low gross profit margins, for higher gross profit margin sales of IDS and other new products. While rotary switches produce high gross profits, demand for rotary switches is low. We have gradually shifted our product offering from less profitable to more profitable proprietary products. - ---------- (1) Includes physical inventory adjustments and factory overhead. -14- Results of Operations Nine Months Ended September 30, 1999, Compared to Nine Months Ended September 30, 1998 -- Unaudited. Sales were $535,160 for the first nine months of 1999 as compared to $341,352 for the nine months ended September 30, 1998. The increase was due to growth in switch and sensor sales. Cost of sales of $374,612 for the nine months ended September 30, 1999 compared to $317,702 for the same period in 1998 increased due to a substantial growth in business. Selling, general, and administrative expenses increased by $242,032 in the first nine months of 1999 as compared to the prior period in 1998 which resulted from higher than normal expenses in 1999 due to professional fees associated with the acquisition of DynaTraX(TM). Losses from operations of ($387,836) in the first nine months of 1999 increased by $98,247 compared to losses of ($289,589) for the prior period as a direct result of higher administrative expenses. 1998 Compared to 1997. Sales increased 24% from $444,322 in 1997 to $552,486 in 1998. This was due to an increase in sales of the Intrusion Detection System (IDS). Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due to an increase in sales of lower cost IDS products. Selling, general and administrative expenses, including depreciation, increased 24% from $265,104 in 1997 to $329,849 in 1998 due to increased sales efforts, engineering, testing, and promotion of new product introductions, as well as consulting, legal, and other expenses in connection with the acquisition of the DynaTraX(TM) product line. Income (loss) from operations decreased 39% from a loss of ($267,239) in 1997 to a loss of ($163,788) in 1998 due to higher gross profit margins on new products. Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in 1998. 1997 Compared to 1996 Sales decreased 31.3% from $647,015 in 1996 to $444,322 in 1997 due to a decrease in subcontracting activity. Cost of sales increased 32.4% from $337,269 in 1996 to $446,457 in 1997 due to fixed overhead. Selling, general and administrative expenses, including depreciation, increased slightly from $257,764 in 1996 to $265,104 in 1997. We had income of $51,982 for 1996 as compared to a loss of ($267,239) for 1997 due to lower sales from subcontracting activity. Interest expense increased 119% from $3,188 in 1996 to $6,996 in 1997. Liquidity and Capital Resources. During the years ended December 31, 1997 and 1998 and for the 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 must be repaid in full no later than December 24, 1999. 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 this offering. In the event we are unable to complete this offering or we sell less than the maximum number of shares offered hereby, we will be required to curtail the implementation of our business plan. Year 2000 Readiness Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. These date code fields will need to distinguish 21st century dates from 20th century dates to avoid system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such "Year 2000" requirements. Our Year 2000 review is in progress. We believe that all of our own computer systems and products will be compliant before 2000. o Products. The DynaTraX(TM) system software runs on Microsoft Windows NT, which is Year 2000 compliant. The DynaTraX(TM) hardware is also compliant. The IDS and the various electronic and electrical components that we manufacture neither contain microprocessors nor are they reliant on time or date software. We believe such equipment to be unaffected by the Year 2000 problem. o Vendors. We have conducted a very limited and preliminary review of our vendors' exposure to the Year 2000 problem. However, since all of our components are bought "off the shelf" and are manufactured by numerous companies, we believe we will be able to replace supplies from any vendor experiencing manufacturing difficulties due to the Year 2000 problem. We are not contractually committed to long term relationships with vendors and should have no difficulty substituting vendors as neccessary. o IT Systems. We conducted a survey of our information technology hardware and have scheduled upgrades and/or replacements of all identified Year 2000 non-compliant hardware and software prior to 2000. o Costs. We do not currently expect that costs associated with Year 2000 compliance will materially affect our operations or financial position. However, if we discover Year 2000 problems in the future, we may not be able to develop, implement, or test remediation or contingency plans in a timely or cost-effective manner. o Risks. Failure of third party products, such as a breakdown in telephone, electric service or other utilities, e-mail, voicemail or the World Wide Web could cause a disruption in our business operations. Disruptions in services provided by banks, telephone companies and the U.S. Postal Service could negatively impact our business. Although we believe that our products are Year 2000 compliant, it is possible that they may not contain the date codes necessary to operate in the year 2000. Any failure of the products to perform could result in the delay or cancellation of product orders and the diversification of managerial and technical resources from product development and other business activities to attend to Year 2000 issues. o Continegncy Plan. We have not developed a contingency plan to address any situation that may result if our Year 2000 preparations prove to be inadequate, and we do not anticipate the need to do so. Tech Labs believes it has done all that can reasonably be done. -15- BUSINESS A glossary of technical terms is provided on page 21. General Tech Laboratories, Inc. manufactures and sells various electrical and electronic components. During this year, we completed the acquisition of the DynaTraX(TM) high-speed digital switch matrix system. We believe that the acquisition of the DynaTraX(TM) technology will enable us to become a provider of multi-media digital network distribution and management equipment for use in campus and building facilities. In addition, during the last two years, through our subsidiary, Tech Logistics, Inc., we have been 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. We have plans to expand our business operations in a number of ways over the next 12 to 18 months, provided that we receive the proceeds of this offering. Our primary capital requirements over the next 12 months include: o payments of trade payables; o marketing expenses, including the sale of the DynaTrax(TM) switch; o research and development; and o tooling costs for improved versions of our existing products and development of new products. o development of DynaTrax(TM) we acquired from NORDX/CDT. Additional financing may be necessary to pursue these plans, and we may be unable to secure such financing on acceptable terms. The failure to secure additional financing could limit our ability to develop our business. Historical Business We also manufacture and sell standard and customized rotary switches, transformers and test equipment. In addition, we act as a contract manufacturer for other companies and produce on an OEM basis electronic and electrical assemblies, printed circuit board assemblies, cable and harness assemblies and specialized electronic equipment. Approximately 15% of our products are manufactured for military applications. We sell our switch, transformer and test equipment products in the electronics and electrical industries, primarily as a contract manufacturer for other companies or for inclusion in OEM products. We market our products in these industries in the United States. This is a mature market. Competition is on the basis of price and service. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. We have also developed a new line of decade resistance, capacitance and inductance substituters, utilizing our highly reliable rotary switches. Prototypes for these products have been made and evaluated, and the tooling to produce these products has been completed. We intend to market our new line over the Internet, as well as through our distribution and outside sales agents. Our website is currently on-line. Our website address is www.techlabsinc.com. - ---------- (1) See Subsequent Events Footnote 9 for pro forma financial impact of the DynaTrax(TM) acquisition on Tech Labs. -16- 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. ("TravelNet") to sell the "Data Valet" software system which runs on Dynatrax(TM) distributing switch system (the "TravelNet Agreement"). 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 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. 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, possibly allowing them to increase rents and to make their properties more attractive to tenants. We believe that our DynaTraX(TM) product offers a faster switch and a much smaller port size than any competing product and is not limited to a specific type of network as with some competing products. Our DynaTraX(TM) product is proposed to be sold in the multi-media digital network distribution and management equipment industry. The growth in digital networks is clear as is the cost in supporting and maintaining these networks. We initially intend to market the DynaTraX(TM) product in the eastern portion of the United States with expansion to other markets over time. There are at least four companies that have products that compete with the DynaTraX(TM) product. However, we believe none of these competitors offer a product with all of the features or capabilities of DynaTraX(TM). - ---------- (1) See Subsequent Events Footnote 9 for pro forma financial impact of the DynaTraX(TM) acquisition on Tech Labs. -17- 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 produce products to manage and maintain the network physical layer consists of NHC, RIT and Cyteck. Of these three companies, NHC is the only one that offers a transparent high-speed switch. The NHC switch is not as fast as our DynaTraX(TM) product and much smaller in port size. In addition, V-LAN switching, which is a technology utilized by a number of companies, can be regarded as a competing technology. However, V-LAN switching is limited to a specific type of network (Ethernet) and not able to support many tasks which our DynaTraX(TM) technology is designed to complete. These tasks are: o rearranging network physical layer connections e.g.s moves, adds and changes of equipment such as computer terminals; fax machines; and printers; o testing circuits; o managing and mainatining end-to-end network configuration; and o maintaining asset inventory records. We regard V-LAN as complementary to DynaTraX(TM) circuit switching since they can work together to provide a more comprehensive network management/maintenance solution. The four competitors all have greater financial and other resources and currently account for substantially all of the existing market. 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 ("IDS") In April 1997, we formed Tech Logistics, Inc., a joint venture subsidiary owned at that time 80% by our company and 20% by Carmine O. Pellosie, Jr., a director of our company and president of International Logistic, Inc., a privately owned company that distributes police, security, safety and communication security devices. In May 1998, we acquired Mr. Pellosie's interest in Tech Logistics. The IDS, which is an active infrared sensor system able to detect intrusions by humans or vehicles into protected areas, was originally designed for military applications. We have recently begun marketing IDS to government agencies and private industry for use in nuclear, industrial, and institutional installations. We have also begun to manufacture and market products currently sold by International Logistics Inc., as well as new security, police training, bomb detection and disposal equipment, anti-terrorism countermeasures and lie detection devices. New devices are intended to include hand-held letter bomb detectors, hand-held weapons detectors, video surveillance equipment as well as integrated audio-visual surveillance vehicles for government and police use. We have entered into an Amended and Restated Joint Marketing Agreement and a Confidentiality and Manufacturing Agreement as of October 1, 1997 with Elekronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety Equipment, AG (FUA), pursuant to which 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 agreements provide that gross pre-tax profits shall be calculated according to GAAP and shall be distributed quarterly in arrears 70% to Tech Labs and 30% to FUA until March 31, 2001. Thereafter, until September 30, 2007 the agreements provide that any pre-tax net profit in excess of 16% shall be distributed 70% to Tech Labs and 30% to FUA. In addition, we will also pay FUA a royalty of 5% of the cost of any IDS products we manufacture and sell. We also intend to market metal detection equipment manufactured by EAG for use in security and industrial applications, such as walk-through metal detectors and hand-held metal detectors. We are marketing our IDS product to the security and anti-terrorist industry. We believe this is a growing industry and that terrorist incidents and security breaches serve to increase the demand for our products. We have recently completed the sale of an IDS to Los Alamos National -18- Laboratories. This industry has a number of different competing products and technologies. Competition in the industry is partly based on price and partly on other factors such as effectiveness of a product in the field, acceptable levels of false alarms for a given application and service. We are marketing the IDS product for global distribution. We have a number of competitors for the IDS products offering competitive technology, many of whom have greater financial and other resources. We have received approval for the IDS from the U.S. Air Force for inclusion in their Tactical Automated Security System (TASS) program which is a $500 million program to thwart enemy attacks on critical military installations throughout the world. Subsequent to this approval, Tech Labs has received a blanket order to provide 50 IDS systems to the U.S. Air Force. Tech Labs has as of the date of this Prospectus shipped 12 systems under its blanket order to the TASS prime contractor. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. Marketing Strategies Marketing. We plan to implement a three-pronged marketing program consisting of: o Industry announcements and presentations through business and industry trade groups; o Establishing relationships with several industry recommenders and specifiers, who are consultants and engineering companies to help present our cable management and network physical layer solutions to the end-users and their contract management or system integrators; and o A promotional campaign of ads, mailings, and on-line Web site media, targeted at the end-user communications managers, their consultants and advisers. Initially, we will focus on the communication/computer centers in the eastern part of the United States. We plan to divide this area into four sales regions: o New England states; o New York metropolitan area; o Mid-Atlantic/Washington DC area; and o South East Coast states. We will quickly set up several regional representatives, sales agents, and/or certified value added resellers (VARs) in each of the four regions. Our plan is to have one representative and, initially, up to two VARs for each region. Whenever possible, we plan to use former NORDX/CDT trained sales agents and certified VARs. Sales representatives will be commissioned sales agents. VARs will be system integrators who will purchase DynaTraX(TM) products at a volume based discount price for resale as part of a turn-key (design, install, maintain) service. We also plan to expand on the initial program by opening up additional sales areas in the country and overseas. We contemplate doing this by adding regional representatives or agents, or through current VAR organizations that have a national presence. -19- In the established East Coast area, we intend to set up three regional sales/service centers: o Massachusetts; o Washington, DC; and o Florida We will repeat the process in the other areas as they become established. We plan to use our sales/service centers to introduce new, enhanced versions of the DynaTraX(TM) system and to provide territory customer support services. We also plan to set up a separate marketing campaign and sales operations to build markets for our expanded high-speed, customer-premise DynaTraX(TM) gateway networking switch. In addition, working with VARs, we will focus on providing turn-key, private customer-premise digital gateway exchange networking systems. We will target real estate developers, builders and/or owners of private communities, commercial community retail complexes and shared rental buildings to enable them to control and resell Internet, long distance, CATV, and building automation information services going into and out of their private facilities. Although we believe that we can be profitable by the fourth quarter of 1999 from the increased sales of our IDS products and sales of the newly acquired DynaTraX(TM) completed inventory, our profitability is subject to both the successful and timely implementation of our business plan and market acceptance of our new products. Our plan to become profitable included the acquisition of the DynaTraX(TM) product in April 1999 and to sell the finished DynaTraX(TM) inventory we acquired. Because we have incurred substantially all our anticipated research and development costs with respect to our IDS product and have had it approved by the Air Force for inclusion in the TASS program, and have completed the purchase of the DynaTraX(TM) switch, technology and marketing materials, upon completion of this offering, we believe we will have the funds necessary to market our products and achieve profitability. Limited Sales Revenue Our limited sales revenue and history of losses makes it uncertain when or if we will become profitable. Our failure to achieve profitablility within the time frame expected by investors may adversly affect our business and the market price of our common stock. For the years ended December 31, 1997 and 1998 our sales were $444,322 and $552,486, respectively, and we had net losses of ($274,069) and ($169,104). As of December 31, 1998, we had an accumulated deficit of ($475,476). We have had limited cash flow and working capital, which has restricted our recent operations. Although the proceeds of this offering will enable us to implement our business plan to develop, market, manufacture and market the IDS and DynaTraX(TM) products, we must increase our sales of these new products significantly in order to avoid continued losses. In the event that sales and profitability are delayed to the point beyond that anticipated and liquidity is impacted, we would reduce or defer operating expenses, such as expenses to finish work in progress relating to the DynaTraX(TM) inventory and research and development of additional DynaTraX(TM) products. Source of Supply Current inventory component purchases for all our products are made from OEMs, brokers, and other vendors. We typically have more than a single source of supply for each part, component, or service, but from time to time we may utilize a single supplier for a particular part or component. During the year ended December 31, 1998, Wiggins Plastics was our largest supplier with 14.2% of our overall inventory purchases. These purchases were primarily used in the manufacture of electromechanical switches. During the year ended December 31, 1997, Wiggins Plastics accounted for 16.8% of our supply of inventory. Those components were in products that produced approximately 25.7% of our revenue for such year. We have no long-term agreements with any of our suppliers. Order Backlog The backlog of written firm orders for our products and services as of September 30, 1999, was as follows: As of September 30, 1999: $618,556 As of September 30, 1998: $150,656 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. Three of the U.K. patents expire on 2013 and one expires in 2015. Our patent applications in the U.S., Europe and elsewhere are still pending and subject to review in those jurisdictions. -20- Employees As of September 30, 1999, we had 11 full-time employees, including our officers, seven of whom were engaged in manufacturing, one in repair services, one in administration and financial control, one in engineering and research and development, and one in marketing and sales. Facilities; Manufacturing Our corporate headquarters and manufacturing facility is located in North Haledon, New Jersey. Our primary manufacturing and office facility is a one-story building that is adequate for our current needs. We lease this facility of 8,000 square feet, from a non-affiliated person, under a lease that ends in May, 2001. The annual base rent is $48,000 and includes property taxes and other adjustments. We believe our premises are adequate for our current needs and that if and when additional space is required, it would be available on acceptable terms. We are an integrated manufacturer and, accordingly, except for plastic moldings and extrusions, produce nearly all major subassemblies and components of our devices from raw materials. We purchase certain components from outside sources and maintain an in-house, light machine shop allowing fabrication of a variety of metal parts and castings, complete tool room for making and repairing dies, a stamping shop and an assembly shop with light assembly presses. Our test lab checks and tests our products at various stages of assembly and each finished product undergoes a complete test prior to shipment. We anticipate that we will either manufacture any new products ourselves or subcontract their manufacture, in whole or in part, to others. We believe that personnel, equipment, and/or subcontractors will be readily available as and when needed. We offer warranties on all our current products, including parts and labor for one year. We have limited research and development facilities and currently employ one (1) engineer. Litigation We are involved in a lawsuit arising from a letter of intent relating to a small potential transaction we did not complete because we believed there were misrepresentations made to us. We believe that the outcome is likely to be favorable, but that our maximum liability if we do not prevail would be $30,000. GLOSSARY OF TECHNICAL TERMS Digital Switch Matrix System.............. An electronic switching unit. End-to-end Network Configuration.......... The connection between different points on a network. DynaTraX(TM) resides logically between network users and the resources to which they must connect. DynaTraX permits any combination of connections to be created electronically between users and network resources. "Last Mile" Connection Service............ The interconnection between a wide range of computing resources to "Wide Area Networks" (WANS). Local Loop Service........................ The service connection between the local phone company's local office and the telephone customer. Multi-media Digital Distribution and Management Equipment............... A system that provides both the hardware and software necessary to transform the execution of MAC (Move, Add, and Change) from a manual, time-consuming task into an automated, self- documenting process. Port Size................................. The number of network ports available for the equipment and/or distribution side of the matrix system. Resistance, Capacitance, and Inductance Substituter................. Devices that allow an electric current to be modified as follows: Resistance: The amount of opposition a substance offers to the passage of electric current through it. Inductance: Property of an electric circuit that causes an electronic force to be induced in it by current. Capacitance: Ability of an electric circuit to store electric current. Rotary Switch............................. A mechanical device that permits an electrical signal to be diverted from point A to point B. Transparent High-Speed Switch............. A high speed communications switch which operates independent of network protocols and which allows rewiring to be done remotely using a P.C./workstation rather than physically changing the wiring. -21- MANAGEMENT Directors, Executive Officers, and Key Consultants Name Age Title - ---- --- ----- Bernard M. Ciongoli 52 President, Treasurer, and Director Earl M. Bjorndal 47 Vice President and Director Carmine O. Pellosie, Jr. 57 Secretary and Director Louis Tomasella 58 Director Richard J. Rice 62 Director Each director is elected for a period of three years and until his successor is duly elected by shareholders and qualified. Officers serve at the will of the board of directors. Bernard M. Ciongoli became our president and a director in late 1992, and became Treasurer in 1998. From 1990 through 1991 he served as president of HyTech Labs, a company engaged in sales and servicing of electronic test equipment. During the years of 1987 to 1990, he acted as the principal owner and President of Bernco Developers, a real estate developer. Mr. Ciongoli holds a degree in electronic engineering from Paterson Institute of Technology. Earl M. Bjorndal has been with us in various capacities since 1981. He has been a director since 1985, and became a vice president in 1992. He is a graduate of the New Jersey Institute of Technology with both bachelor's and master's degrees in industrial engineering. Carmine O. Pellosie, Jr. has been a director since the formation of Tech Logistics, Inc. in 1997 and has been our Secretary since April 1999. Since January 1, 1999, he has been the Controller of the Passaic County Department of Health and Human Services. Prior to January 1999, he was, for more than five years, president of International Logistics, Inc. Louis J. Tomasella has served as director since 1994 and was treasurer from 1994 through 1998. He is the owner of Tomco Realty, a general real estate brokerage firm in New Jersey. Mr. Tomasella holds a bachelors degree in liberal arts from Rutgers University. Richard J. Rice has served as a director since July 1999. He has served as chairman of Teletalk International Services, Inc. since June 1994. He also serves as president and CEO of Richard J. Rice, Inc. since November 1993. Prior to 1993 Mr. Rice was president and CEO of Long Distance Services, Inc. for more than five years. 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 $100,000 in any recent fiscal year. Summary Compensation Table
Long-Term Annual Compensation Compensation ----------------------------------- ------------- Shares of Common Stock Issuable Upon Name and 1998 Exercise of Principal Position Year Salary($) Bonus($) Options ------------------ ---- --------- -------- ------- Bernard M. Ciongoli 1998 $125,000 0 300,000 President, Treasurer
The following table sets forth information realting to all options granted: Option Grants in Fiscal Year 1998
Percent of Number of Total Options Securities Granted to Underlying Employees in Options Granted Fiscal Year Exercise Expiration Name (#)(1) (%)(2) Price($)(3) Date ---- --------------- ------------ ----------- ---------- Bernard M. Ciongoli 300,000 85.7 $.50 10/1/03 Earl M. Bjorndal 50,000 14.3 $.50 10/1/03 Carmine O. Pellosie, Jr. 0 N/A N/A N/A
We have a five (5) year employment contract with Mr. Ciongoli that commenced October 1, 1998, and amended June 18, 1999. Mr. Ciongoli is currently compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also entitled to receive two (2%) percent of our sales in excess of $1,000,000 during any year he is employed by 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 stock option plan. -22- We do not have employment agreements with any other officer or other employee. Our directors are not presently compensated. Consultants We have entered into a consulting agreement with MPX Network Solutions, Inc. The term of the agreement is for one year expiring on March 14, 2000, renewable for an additional one year period. 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 (the "Second Warrant") to purchase up to 200,000 shares of common stock at $3.50 per share exercisable for five (5) years the Second Warrant to vest in increments of 25,000 shares each for sales of $250,000 or more of Tech Lab's products to purchasers obtained by consultant within the initial two (2) year term of the Consulting Agreement. The shares underlying the warrants have certain registration rights. We have also entered into a consulting agreement dated March 10, 1999, with Mint Corporation, a New York corporation, to provide certain financial and business consulting services, which include assisting our management in developing its business plan, introducing Tech Labs to members of the financial community, and assisting us in our financial planning. Under the terms of the consulting agreement, which may be terminated by us upon ten (10) days' prior written notice, we: o issued 100,000 shares to Mint, 25,000 shares of which were issued in June 1999 and 75,000 shares were issued in November 1999; and o granted to consultant an option to purchase up to 200,000 shares of common stock, such options to be exercisable to purchase 100,000 shares at $1.25 per share and options to purchase 100,000 shares at $1.75 per share. The options have vested in full because the agreement was not terminated by Tech Labs prior to July 10, 1999. The shares underlying the options have certain registration rights. Stock Option Plan On December 11, 1996, the board of directors adopted a stock option plan for officers, directors, and other key employees. Options issued pursuant to the stock option plan to qualified key employees are meant to qualify as incentive stock options within the meaning of Secion 422A of the Internal Revenue Code. A total of 450,000 shares were set aside for this purpose, and options for an aggregate of 190,000 shares have been granted at an exercise price of $.50 per share. The plan is administered by a committee appointed by the board of directors, which is comprised of two or more members of the board of directors. The committee's interpretation and construction of the stock option plan is final unless otherwise determined by the board. Options granted under the plan shall have an option price not less than 100% of the fair market value of the shares of Tech Labs' common stock on the date of the granting of the option, or 110% of the fair market value for stockholders who, at the time of grant, posses more than 10% of the total voting power of all classes of stock. If the aggregate fair market value of the shares of stock, determined as of the date of grant, during any calendar year exceeds $100,000 then only the first $100,000 of such shares exercised will be treated as incentive stock options. Any option must be granted within 10 years of the date the plan was adopted or approved by the shareholders, whichever is earlier. The option, by its terms, must be exercisable within 10 years of the date it is granted. If, however, options are granted to an optionee who, at the time of grant, posseses more than 10% of the total voting power of all classes of stock, the options granted shall be exercisable no more than 5 years from the date of grant. Options generally may be exercised only if the optionee remains continuously associated with Tech Labs from the date of grant to the date of exercise. However, options may be exercised upon termination of employment or upon death of any employee within certain specified time periods. CERTAIN TRANSACTIONS The information set forth herein describes certain transactions between Tech Labs and certain affiliated parties. Future transactions, if any, must be approved by the board of directors. -23- On December 11, 1996, we agreed to compensate our president, Bernard M. Ciongoli, and our vice president, Earl M. Bjorndal, for unpaid salary earned during 1996 in the form of common stock. Mr. Ciongoli received 280,000 shares for unpaid salary earned in the amount of $14,000 at $0.05 per share, and Mr. Bjorndal received 160,000 shares for unpaid salary earned in the amount of $8,000 at $0.05 per share. In December, 1996, we issued to Louis Tomasella 100,000 shares of common stock for consulting services. In April, 1997, we formed Tech Logistics, Inc., a joint venture subsidiary with Carmine O. Pellosie, Jr. to market security devices distributed by International Logistics, Inc., a privately-owned company, of which Mr. Pellosie was the president and principal shareholder. Mr. Pellosie became a director of Tech Labs at that time. In May 1998, we acquired Mr. Pellosie's interest in Tech Logistics, Inc. for 15,000 shares of our common stock. Each of these transactions were on terms as fair as those obtainable from independent third parties. -24- PRINCIPAL STOCKHOLDERS The following table sets forth, as the date of this prospectus and as anticipated following this offering, the ownership of the presently issued and outstanding shares of our common stock 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 Shares % of Shares Beneficially Prior to Outstanding After Name and of Record Offering(1) Offering(1) - ---- ------------- -------- -------- Minimum Maximum ------- ------- Bernard M. Ciongoli(2) 720,000 18.22% 15.92% 14.54% Earl Bjorndal(3) 248,344 6.71% 5.81% 5.28% Carmine O. Pellosie, Jr.(4) 40,000 1.10% * * Louis Tomasella(5) 120,000 3.33% 2.83% 2.57% Richard J. Rice 80,000 2.19% 1.89% 1.72% All officers and directors as a 1,208,344 33.10% 28.62% 25.98% group (4 persons)(2-5)
- ----------- * less than 1%. (1) Includes 75,000 shares issued to a consultant during November 1999. (2) Includes 100,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan and 200,000 shares issuable upon exercise of options earned under our employment agreement with Mr. Ciongoli. (3) Includes 50,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan. (4) Does not include 20,000 shares issuable upon the exercise of options granted upon our stock option plans, which options are not exercisable until July 2000. (5) Includes 20,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan. PLAN OF DISTRIBUTION We will receive proceeds from the sale of 1,000,000 shares, aggregating a maximum of $3,500,000, before deducting offering expenses, if all such shares are sold. We will not receive the proceeds of any sale of the securities by any selling securityholders. We will pay all of the expenses incident to the registration of the securities, including registration pursuant to the securities laws of certain states, other than: o commissions, o expenses, o reimbursements, o and discounts of underwriters, dealers, and agents, if any, pursuant to any sales by the selling securityholders. Minimum offering and escrow account All funds received by us with respect to the sale of the first 571,428 shares will be deposited by us at Hudson United Bank. If a minimum of 571,428 shares offered for sale in our direct participation offering are not sold within ninety (90) days following the effective date of the registration statement of which this prospectus is a part, the offering will automatically terminate and all funds received from the sale of the shares will be returned to -25- the purchasers without interest. At the time that 571,428 shares have been sold prior to the expiration of the 90-day period, we will release the funds from the escrow account for deposit into the working account of Tech Labs. Although we will continue to sell the offering to attempt to reach the maximum offering (1,000,000 shares), such released funds will be used at that time as described herein. We may use one or more member firms of the National Association of Securities Dealers, Inc. to sell the shares offering hereby. As of the date hereof, we have not entered into any agreements or arrangements for the sale of the shares with any broker, dealer, or sales agent. Any underwriters, dealers, or agents who participate in the distribution of the shares may be deemed to be "underwriters" under the Securities Act of 1933, and any discounts, commissions, or concessions received by any such underwriters, dealers, or agents may be deemed to be underwriting discounts and commissions. We anticipate that we will pay a commission or underwriting fee to such brokers or dealers of no more than 10%. If, at some time, we meet the requirements of the NASDAQ SmallCap Market for listing of our shares, we will apply for listing. If our shares should be accepted for listing thereon, then certain underwriters may engage in passive market making transactions in our common stock in accordance with Rule 103 of Regulation M. In order to comply with the applicable securities laws, if any, of certain states, the securities will be offered or sold in such states through registered or licensed brokers or dealers in those states. In addition, in certain states, the securities may not be offered or sold unless they have been registered or qualified for sale in such states or an exemption from such registration or qualification requirement is available and with which we have complied. Limited state registration We anticipate that we will primarily sell the shares in a limited number of states, depending on the location and registration of any selling broker or dealer that it locates. We will initially seek to qualify or register the sales of the shares in the states of New York, New Jersey, Connecticut, California, Pennsylvania, Michigan and Texas. We will not accept subscriptions from investors resident in other states unless we effect a registration therein or determines that no such registration is required. Sales by the selling securityholders The selling securityholders shares may be sold to purchasers from time to time directly by and subject to the discretion of the selling securityholders. The selling securityholders may, from time to time, offer their securities for sale through underwriters, dealers, or agents, who may receive compensation in the form of underwriting discounts, concessions, or commissions from the selling securityholders and/or the purchasers of the securities for whom they may act as agents. Any underwriters, dealers, or agents who participate in the distribution of the securities may be deemed to be "underwriters" under the 1933 Act, and any discounts, commissions, or concessions received by any such underwriters, dealers, or agents may be deemed to be underwriting discounts and commissions under the 1933 Act. The securities sold by the selling securityholders may be sold from time to time in one or more transactions at an offering price that is fixed or that may vary from transaction to transaction depending upon the time of sale or at prices otherwise negotiated at the time of sale. Such prices will be determined by the selling securityholders or by agreement between the selling securityholders and any underwriters. -26- Any underwriters, dealers, or agents who participate in the distribution of the securities may be deemed to be "underwriters" under the Securities Act, and any discounts, commissions, or concessions received by any such underwriters, dealers, or agents may be deemed to be underwriting discounts and commissions under the Securities Act. At the time a particular offer is made by or on the behalf of the selling securityholders, a prospectus, including any necessary supplement thereto, will be distributed which will set forth the number of shares of common stock and other securities being offered, and the terms of the offering, including the name or names of any underwriters, dealers, or agents, the purchase price paid by any underwriter for the shares purchased from the selling securityholders, any discounts, commissions and other items constituting compensation from the selling securityholders, any discounts, commissions, or concessions allowed, reallowed, or paid to dealers, and the proposed selling price to the public. Use of a Broker-Dealer If we determine to use a broker-dealer, such broker-dealer must be a member in good standing of the National Association of Securities Dealers, Inc. and registered, if required, to conduct sales in those states in which it would sell the shares. We anticipate that we would not pay in excess of 10% as a sales commission for any sales of the shares. If a broker-dealer were to sell the shares, it is likely that such broker-dealer would be deemed to be an underwriter of the securities as defined in Section 2(11) of the Securities Act of 1933 and we would be required to obtain a no-objection position from the National Association of Securities Dealers, Inc. regarding the underwriting and compensation terms entered into between Tech Labs and such potential broker-dealer. In addition, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part to disclose the name of such selling broker-dealer and the agreed underwriting and compensation terms. In order to comply with the applicable securities laws, if any, of certain states, the securities will be offered or sold in such states through registered or licensed brokers or dealers in those states. Pursuant to Regulation M of the General Rules and Regulations of the Securities and Exchange Commission, any person engaged in a distribution of securities, including on behalf of a selling securityholder, may not simultaneously bid for, purchase or attempt to induce any person to bid for, purchase, or attempt to induce any person to bid for or purchase securities of the same class for a period of five business days prior to the commencement of such distribution and continuing until the selling securityholder, or other person engaged in the distribution, is no longer a participant in the distribution. We may select dealers who are members of the National Association of Securities Dealers, Inc. to sell the shares, and may pay commissions of up to [10]% to such dealers. No underwriter or dealer has made any firm commitment to purchase or sell any of the shares offered hereby. -27- OFFERING BY SELLING SECURITYHOLDERS An additional 90,045 outstanding shares and 50,000 shares of common stock issuable upon exercise of warrants held by the selling securityholders have been registered pursuant to the registration statement under the Securities Act, of which this prospectus forms a part, for sale by such holders. The shares may be sold subsequent to the effective date of the offering if a current prospectus relating to the securityholder shares is in effect and the securityholder shares are qualified for sale. None of the shares being registered by the selling securityholders pursuant to this registration statement are being offered for sale in connection with the offering. The shares of common stock and the shares underlying any warrants are not, however, subject to a lock-up. We will not receive any proceeds from the market sales of the securityholder shares, although we will receive the proceeds from the exercise of the warrants held by the selling securityholders. Tech Labs is paying all costs and expenses of registering the securityholder shares. Sales of the securityholder shares or the potential of such sales could have an adverse effect on the market price of our common stock. See "Risk Factors -- Shares Eligible for Future Sale." The selling securityholders and the number of shares held by each are as listed below: SECURITYHOLDER SELLING SECURITYHOLDERS SHARES ----------------------- ------ Scott Coby.................................................... 45,045 Coby Capital Corporation...................................... 50,000 David Harris.................................................. 45,000 -------- TOTAL..................................................... 140,045 There are no other material relationships between any of the selling securityholders and Tech Labs, nor have any such material relationships existed within the past three years. The sale of the securityholder shares may be effected from time to time in transaction, which may include block transactions, in: o the over-the-counter market; o in negotiated transactions; or o a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. Selling securityholders may effect such transactions by selling their securities directly to purchasers o through broker-dealers acting as agents; or o to broker-dealers who may purchase shares as principals and thereafter sell the securities from time to time in the market in negotiated transactions or otherwise. Broker-dealers, if any, may receive compensation in the form of discounts, commissions, or concessions and/or the purchasers from whom such broker-dealers may act as agents or to whom they may sell as principals or otherwise, which compensation as to a particular broker-dealer may exceed customary commissions. -28- At the time a particular offer of securityholder shares is made by or on behalf of a selling securityholder, to the extent required, a prospectus will be distributed that will set forth the number of securityholder shares being offered and the terms of the offering, including the name or names of any underwriters, dealers, or agents, if any, the purchase price paid by any underwriter for any securityholder shares purchased from the selling securityholder, and any discounts, commissions, or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public. If any of the following events occurs, this prospectus will be amended to include additional disclosure before offers and sales of the securityholder shares are made: o To the extent such securities are sold at a fixed price or by option at a price other than the prevailing market price, such price would be set forth in this prospectus; o If the securities are sold in block transactions and the purchaser wishes to resell, such arrangements would be described in this prospectus; o If the compensation paid to broker-dealers is other than usual and customary discounts, commissions, or concessions, disclosure of the terms of the transaction would be included in this prospectus. This prospectus would also disclose if there are other changes to the stated plan of distribution, including arrangements that either individually or as a group would constitute an orchestrated distribution of the securityholder shares. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of securityholder shares may not simultaneously engage in market making activities with respect to any securities of Tech Labs for a period of at least two (and up to nine) business 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. -29- SHARES ELIGIBLE FOR FUTURE SALE If we sell the maximum number of shares in this offering, we will have 4,650,660 common shares outstanding. Other than shares sold to affiliates of Tech Labs, the shares sold in this offering will be freely tradeable without restriction under the Securities Act of 1933. Of the 3,650,660 shares of common stock currently outstanding, 2,368,266 are freely tradeable without restriction under the Act. The remaining 1,282,394 shares held by existing shareholders are deemed "restricted" securities within the meaning of Rule 144 under the Act. In general, under Rule 144, restricted securities held by any person who is not an affiliate of the company and who has beneficially owned his or her shares for at least two years are freely tradeable. In addition, under Rule 144, a person who has beneficially owned restricted securities for at least one year, including persons who may be deemed "affiliates" of the company, as the term affiliate is defined in Rule 144, would be entitled to sell, within any three-month period, a number of common shares of which does not exceed the greater of 1% of our then outstanding common shares or the average weekly trading volume in the over-the-counter market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission under Rule 144. No sales are permitted, however, unless the current information about Tech Labs prescribed by Rule 144 is publicly available, sales are made through brokers or market makers in the manner prescribed by the rule, and all other requirements of the rule are met. The restricted shares outstanding have been held for varying periods of time, and certain of such shares have been held for the requisite periods and may be sold at any time subject to the volume limitations set forth above. If there are significant sales of our common shares by existing shareholders or sales of any of the shares underlying warrants when such shares have been registered pursuant to an effective registration statement, the price of our common shares may go down. There is presently no agreement by any holder, including our "affiliates", of "restricted" shares not to sell his shares. The Securities and Exchange Commission has adopted Rule 15g-9 which requires broker-dealers who recommend "penny stocks" to persons other than established customers and accredited investors to make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. The regulations that generally define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include an equity security listed on NASDAQ and an equity security issued by an issuer that has: o net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years; o net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or o average annual revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. After receipt of the net proceeds from this offering, our net tangible assets are expected to exceed $2,000,000, providing an exception to this regulation even though our share price is below $5.00, so this regulation should not be applicable, initially, to our shares. If our net tangible assets fall below $2,000,000 and the market price of our shares is less than $5.00 per share, then this regulation will apply. If our securities were subject to the regulations applicable to penny stocks, the market liquidity for the securities would be severely affected by limiting the ability of broker-dealers to sell the securities and the ability of purchasers in this offering to sell their securities in the secondary market. There is no assurance that trading in our securities will not be subject to these or other regulations that would adversely affect the market for such securities. There is a very limited market for our common stock and a more substantial market may not develop in the future; or if developed, be maintained, or that the market price of our common stock will not decline. Even if a more active trading market does develop, the market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as: o actual or anticipated variations in our quarterly operating results; o announcements of new product or service offerings; o future technological innovations; o new commercial products; o changes in regulation; o changes in financial estimates by securities analysts; o conditions and trends in the electrical, electronic component, security, and network switching industries; o changes in the economic performance and/or market valuations of other security and network switching companies; and o general market conditions and other general factors. Furthermore, the stock markets, and in particular, the OTC Bulletin Board and NASDAQ stock markets, have experienced extreme price and volume fluctuations that have particularly affected the market prices of many technology companies, and have often been unrelated or disproportionate to the operating performance of such companies. Additionally, the market price of our common stock could be adversely affected by losses and other negative news regarding one or more other companies, despite the fact that such information is not related to us specifically. The trading prices of many technology companies' stocks are at or near their historical highs. Such high trading prices may not be sustained. These broad market factors may adversely affect the market price of our common stock. In addition, general economic, political, and market conditions, such as recessions, changes in interest rates, or international currency fluctuations, may adversely affect the market price of our common stock. -30- DESCRIPTION OF SECURITIES Our authorized capital stock consists of 5,000,000 shares of common stock having a par value of $.01 each, of which 3,650,660 shares are currently outstanding and 11,316 shares are held in treasury. There are currently approximately [___] holders of common stock. Common Stock Each share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. The common stock does not have cumulative voting rights, which means that the holders of a majority of the outstanding shares may elect all of the directors of Tech Labs. The common stock does not have any preemptive rights. Stockholders holding a majority of the voting power of the capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders, and the vote by the holders of a majority of such outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger or amendment of our certificate of incorporation. Holders of common stock are entitled to receive dividends pro rata based on the number of shares held, when, as and if declared by the board of directors, from funds legally available therefor. In the event of the liquidation, dissolution or winding up of the affairs of our company, all assets and funds of our company remaining after the payment of all debts and other liabilities shall be distributed, pro rata, among the holders of the common stock. Holders of common stock are not entitled to preemptive, subscription, or conversion rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered hereby will be when issued, fully paid and non-assessable. Stock Options and Stock Option Plan 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, and o to purchase 50,000 shares exercisable for five (5) years from date of vesting at $1.25 per share. Tech Labs has granted options to purchase 300,000 shares exercisable at $.50 per share pursuant to an employment agreement with our president, 200,000 options of which have vested and the remaining 100,000 options to vest on October 1, 2000. We have also adopted a stock option plan for officers, directors, and other key employees. A total of 450,000 shares have been reserved for issuance under the plan, and options for an aggregate of 190,000 shares, exercisable at $.50 per share, have been granted to date. We issued 50,000 shares of common stock to MPX pursuant to our consulting agreement. Pursuant to the consulting agreement dated March 10, 1999 with Mint, in addition to the options set forth above, we issued an aggregate of 100,000 shares. -31- Market Information Our common stock is listed on the OTC Electronic Bulletin Board under the symbol "TCHL-BB." Trading in the common stock has historically been very limited. Transfer Agent The transfer agent for our common stock is Interwest Transfer Co., Inc., P. O. Box 17136, Salt Lake City, Utah 84117. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Stursberg & Veith, 405 Lexington Avenue, New York, New York 10174, the partners of which law firm own options to purchase 75,000 shares. EXPERTS Charles J. Birnberg, CPA, independent auditors, have audited our financial statements at December 31, 1998, for the years ended December 31, 1997 and 1998, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Charles J. Birnberg's report, given on their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, with the Securities and Exchange Commission (the "Commission") with respect to the common stock offered pursuant to this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement and amendments thereof and the exhibits thereto, which are available for inspection without charge, and copies of which may be obtained at prescribed rates, at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and at the Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. The Commission maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission (http://www.sec.gov). INFORMATION NOT REQUIRED IN PROSPECTUS We will provide, without charge, to each person who received a prospectus, upon written or oral request of such person to us at the mailing address or telephone number listed below, a copy of any of the information incorporated by reference. The mailing address of our principal executive offices is Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333. -32- INDEX TO FINANCIAL STATEMENTS Page ---- Report of Charles J. Birnberg, CPA Independent Auditors.....................F-1 Audited Financial Statements Balance Sheets.........................................................F-2, F-3 Statement of Shareholders' Equity ..........................................F-4 Statements of Operations....................................................F-5 Statements of Cash Flows....................................................F-6 Notes to Financial Statements...............................................F-7 REPORT OF INDEPENDENT AUDITORS Charles J. Birnberg, CPA 150 Overlook Avenue Hackensack, New Jersey 07601 March 16, 1999 To The Board of Directors of Tech Laboratories, Inc. I have audited the Balance Sheets of Tech Laboratories, Inc. as of December 31, 1997 and 1998 and the related Statements of Income and Retained Earnings, and Cash Flows for the years then ended. These financial statements are the responsibility of the Company's management. The audits were conducted in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that the audits provide a reasonable basis for my opinion. Therefore, the financial statements in my opinion, present fairly the financial position of Tech Laboratories, Inc. as of December 31, 1998 and 1997 and the results of operations and cash flows for the years then ended in conformity with generally accepted accounting principles. Sincerely, /s/ Charles J. Birnberg Charles J. Birnberg Certified Public Accountant Hackensack, New Jersey F-1 TECH LABORATORIES, INC. BALANCE SHEETS DECEMBER 31, 1997 AND 1998
ASSETS Years Ended Nine Months Ended December 31 September 30, ------------------------------ ------------------------------ 1997 1998 1998 1999 ---------- ---------- ---------- ---------- (Unaudited) Current Assets: Cash $ 166,173 $ 532,780 $ 101,490 $ 212,348 Marketable Securities, at the Lower of Cost or Market (Note 1) 59,343 56,693 59,693 61,923 Accounts Receivable, net of Allowance of $10,000 in 1998 and $10,000 in 1997 90,734 143,462 85,338 150,359 Inventories (Notes 1 & 2) 269,209 270,118 170,560 788,586 Prepaid Expense 0 3,357 2,570 5,668 ---------- ---------- ---------- ---------- Total Current Assets $ 585,459 $1,006,410 $ 419,651 $1,218,884 ---------- ---------- ---------- ---------- Property, Plant and Equipment, at Cost (Note 1): Leasehold Improvements 2,247 2,247 2,247 2,247 Machinery, Equipment and Instruments 223,884 230,137 230,137 340,337 Furniture and Fixtures 67,425 67,425 67,425 67,574 ---------- ---------- ---------- ---------- $ 293,556 $ 299,809 $ 299,809 $ 410,158 Less: Accumulated Depreciation & Amortz 281,029 299,162 299,162 299,162 ---------- ---------- ---------- ---------- Net, Property, Plant and Equipment $ 12,527 $ 647 $ 647 $ 110,996 ---------- ---------- ---------- ---------- Other Assets $ 11,540 $ 11,540 $ 11,540 $ 11,540 ---------- ---------- ---------- ---------- Total Assets $ 609,526 $1,018,597 $ 431,838 $1,341,420 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements F-2 TECH LABORATORIES, INC. BALANCE SHEETS DECEMBER 31, 1997 AND 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT NINE MONTHS YEARS ENDED ENDED DECEMBER 31 SEPTEMBER 30 --------------------------------- ------------------------------- 1997 1998 1998 1999 ----------- ----------- ------------- ----------- (Unaudited) Current Liabilities: Current Portion of L.T. Debt (Note 5) $ 34,445 $ 32,742 $ 32,742 $ 30,293 Short-Term Loans Payable to officers and directors (Note 6) 43,373 43,373 43,373 43,373 Accounts Payable 48,148 42,155 8,000 189,025 Other Liabilities & Investor Notes Payable 53,945 36,600 20,197 77,938 ----------- ----------- ----------- ----------- Total Current Liabilities $ 179,911 $ 154,870 $ 104,312 $ 340,629 ----------- ----------- ----------- ----------- Stockholders' Investment: Common Stock. $.01 Par Value; 5,000,000 Shares Authorized; 2,869,943 Issued (Note 7) $ 13,753 $ 23,483 14,741 35,870 Less: 11,316 Shares Reacquired and and Held in Treasury (113) (113) (113) (113) ----------- ----------- ---------- ----------- $ 13,640 $ 23,370 14,628 35,757 Common Stock Subscribed (Note 7) 0 500 0 -0- Capital Contributed in Excess of Par Value 721,847 1,315,833 908,859 1,828,346 Retained Earnings 0 0 0 0 Accumulated Deficit (306,372) (475,476) (595,961) (863,312) ----------- ----------- ---------- ----------- $ 429,615 $ 863,727 $ 327,526 $ 1,000,791 ----------- ----------- ---------- ----------- Total Liabilities and Stockholders' Investment $ 609,526 $ 1,018,597 $ 431,838 $ 1,341,420 =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements F-3 TECH LABS, INC. STATEMENT OF SHAREHOLDERS' EQUITY YEARS 1997, 1998 AND NINE MONTHS ENDED SEPTEMBER, 1999
COMMON STOCK CAPITAL IN EXCESS OF ACCUMULATED SHARES AMOUNT PAR VALUE DEFECIT 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 705,717 12,387 512,513 524,900 NET INCOME/(LOSS) (387,836) (387,836) ----------- ----------- ----------- ----------- ----------- BALANCE SEPTEMBER 30, 1999 3,575,660 $ 35,757 $ 1,828,346 $ (863,312) $ 1,000,791
F-4 TECH LABORATORIES, INC. STATEMENTS OF OPERATIONS DECEMBER 31, 1997 AND 1998
NINE MONTHS YEARS ENDED ENDED DECEMBER 31 SEPTEMBER 30 ----------------------------- ----------------------------- 1997 1998 1998 1999 --------- --------- --------- --------- (Unaudited) Sales $ 444,322 $ 552,486 $ 341,352 $ 535,160 --------- --------- --------- --------- Costs and Expenses: Cost of Sales 446,457 386,425 317,702 374,612 Selling, General and Administrative Expenses 265,104 329,849 306,352 548,384 --------- --------- --------- --------- 711,561 716,274 624,054 922,996 --------- --------- --------- --------- Income/(Loss) From Operations ($267,239) ($163,788) (282,702) (387,836) --------- --------- --------- --------- Other Income (Expenses): Interest Income $ 166 $ 1,654 83 0 Interest Expense (6,996) (6,970) (6,970) 0 --------- --------- --------- --------- ($ 6,830) ($ 5,316) (6,887) 0 --------- --------- --------- --------- Income/(Loss) Before Income Taxes ($274,069) ($169,104) (289,589) (387,836) Provision for Income Taxes (Notes 1 & 4) 0 0 0 0 --------- --------- --------- --------- Net Income/(Loss) ($274,069) ($169,104) (289,589) (387,836) Retained Earnings/(Accum. Deficit,) Beg. of Period ($ 32,303) ($306,372) (306,372) (475,476) --------- --------- --------- --------- Retained Earnings/(Accum. Deficit,) End of Period ($306,372) ($475,476) ($595,961) ($863,312) ========= ========= ========= ========= Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.10) ($ 0.14)
The accompanying notes are an integral part of these financial statements F-5 TECH LABORATORIES, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NINE MONTHS YEARS ENDED ENDED DECEMBER 31 SEPTEMBER 30 ----------------------------- --------------------------- 1997 1998 1998 1999 --------- --------- --------- --------- (Unaudited) Cash Flows From (For) Operating Activities: Net Income/(Loss) From Operations ($274,069) ($169,104) ($289,589) ($387,836) Add/(Deduct) Items Not Affecting Cash: Depreciation/Amortization (Note 1) 7,278 11,880 11,880 0 Unrealized (Gain)/ Loss on Valuation of Marketable Securities (Note 1) 0 3,357 0 0 Changes in Operating Assets and Liabilities: Marketable Securities (35,001) (2,650) (350) (5,230) Accounts Receivable 2615 (52,728) 5,396 (6,897) Inventories 22,665 (909) 98,649 (518,468) Accounts Payable (7,925) (40,249) (40,148) 146,870 Other Assets and Liabilities 15,862 14,997 (36,318) 39,027 --------- --------- --------- --------- Net Cash Flows For Operating Activities ($252,725) ($235,406) (250,480) (732,534) --------- --------- --------- --------- Cash Flows From (For) Investing Activities: DynatraX Machinery & Equipment $ 0 $ 0 0 (110,349) --------- --------- --------- --------- Net Cash Flows From Investing Activities $ 0 $ 0 0 (110,349) --------- --------- --------- --------- Cash Flows From (For) Financing Activities: Acquisition/(Repayment) of S.T. Debt ($ 10,000) ($ 1,703) (1,703) (2,449) Acquisition/(Repayment) of L.T. Debt 0 0 0 0 Issuance of Common Stock 407,500 603,716 187,500 524,900 --------- --------- --------- --------- Net Cash Flows From (For) Financing Activities: $ 397,500 $ 602,013 185,797 522,451 --------- --------- --------- --------- Net Increase/(Decrease) in Cash $ 144,775 $ 366,607 (64,683) (320,432) Cash Balance, Beginning of Year 21,398 166,173 166,173 532,780 --------- --------- --------- --------- Cash Balance, End of Year $ 166,173 $ 532,780 $ 101,490 $ 212,348 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements F-6 TECH LABORATORIES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 (1) Summary of Significant Accounting Policies CASH - Includes Tech Lab's checking account at Hudson United Bank. There are no Cash Equivalents. ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to customers. The allowance for bad debts is accrued based on a review of customer accounts receivables aging. INVENTORIES - Inventories are valued at cost or market, whichever is lower. The FIFO cost method is generally used to determine the cost of the inventories. At December 31, 1997 and 1998 physical inventories were taken and tested. PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: ASSETS ESTIMATED USEFUL LIVES Machinery 5 to 7 years Furniture & Fixtures 5 to 7 years Maintenance and repairs are charged to expense as incurred. The cost of betterments is capitalized and depreciated at appropriate rates. Upon retirement or other disposition of property items, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of income. INCOME TAXES - Income tax expense is based on reported income and deferred tax credit is provided for temporary differences between book and taxable income. MARKETABLE SECURITIES - The marketable securities are recorded at the lower of cost or market. The cost of securities was $59,343 at December 31, 1997 and $56,693 at December 31, 1998. (2) Inventories: Inventories at December 31, 1997 and 1998 were as follows: 1997 1998 ---- ---- Raw Materials & Finished Components $231,202 $202,359 Work in Process & Finished Goods 38,007 67,759 -------- -------- $269,209 $270,118 -------- -------- (3) Income/(loss) Per Share: Income/(loss) per share was calculated on the weighted average number of shares outstanding during the year ended December 31, 1997 of 1,550,048 and during the year ended December 31, 1998 of 2,202,905. (4) Income Taxes: At December 31, 1997 and 1998, the balance of operating loss carryforward was $1,049,903 and $1,219,007, respectively, which can be utilized to offset future taxable income. (5) Short-Term Loans Payable: Loans payable to banks were as follows for the years indicated: CURRENT NON-CURRENT YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT - ---------- ----- ------------- ------ ------ 1997 Hudson United Bank Prime +1.5% $34,445 -- 1998 Hudson United Bank Prime +1.5% $32,742 -- Certain marketable securities are pledged as collateral on the above loan. (6) Short-Term Loans Payable to Officers and Directors: Demand loans payable include loans from stockholders, officers and members of the Board of Directors. The outstanding loan balances due as of December 31, 1997, 1998 and September 30, 1999 was $43,373 for each of such years. The annual interest rate for these loans ranged between six (6%) percent and ten (10%) percent. One loan in the principal amount of $11,500 together with accrued interest of $3,604 at December 31, 1998 is secured by the assets of Tech Labs. (7) Common Stock In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of common stock. In 1997 and 1998, Tech Labs completed a placement pursuant to Rule 504 of common stock which raised $917,324. (8) Commitments and Contingencies Tech Labs entered into an exclusive agreement with Elektronik Apparatebau (EAG), FUA Safety Equipment and Double T Sports Ltd. whereby it received exclusive rights to manufacture and market IDS products until September 30, 2007 in the US, Canada and South America. Gross profits will be calculated according to GAAP and distributed quarterly 70% to Tech Labs and 30% to FUA until March 2001. Thereafter, until 2007 quarterly distribution will be based on pretax profits in excess of 16% being shared 70% to Tech Labs and 30% to FUA. In addition, FUA will receive a 5% royalty based on the cost of any IDS products Tech Labs manufactures and sells. (9) 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 Nine Months Ended DynaTraX December 31, September 30, (Unaudited) 1998 1999 ----------- ----------- ----------- Net Sales $ 400,000 $ 100,000 Cost of Sales 300,000 20,000 ----------- ----------- Gross Profit 100,000 80,000 Research/Dev 900,000 -0- Selling & G&A Exp 1,700,000 50,000 ----------- ----------- Pre-Tax Inc./(Loss) $(2,500,000) $ 30,000 Income Tax (Expense)/ Benefit-Pro-Forma 1,150,000 -0- ----------- ----------- Net Income/(Loss) $(1,350,000) $ 30,000 ----------- ----------- Investment Purchase (Unaudited) Price* ---------- ----------- Inventory 2,700,000 $ 400,000 Test Equip. 355,000 100,000 ----------- ----------- Total 3,055,000 500,000 =========== =========== * Included in September 30, 1999 Tech Labs balance sheet. Effect on (Unaudited) Tech Labs, Inc. Year Ended Nine Months Ended (Pro-Forma) December 31, 1998 September 30, 1999 ----------------- ----------------- Net Sales $ 952,486 $ 535,160 Net Income/(loss) (1,519,104) $ (387,836) ----------- ----------- EPS $ (0.54) $ (0.14) =========== =========== (10) Subsequent Events On October 25, 1999, Tech Labs borrowed $50,000 at 10% interest per year for a term of 60 days. As security, Tech Labs granted the lender a secured interest in two new contract orders totaling $543,000. F-6 , 1999 TECH LABORATORIES, INC. 1,000,000 Shares of Common Stock ------------------------------------ PROSPECTUS ------------------------------------ - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson, or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of the company have not changed since the date hereof. ================================================================================ TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY......................................................... 1 RISK FACTORS............................................................... 3 USE OF PROCEEDS............................................................ 8 PRICE RANGE OF COMMON STOCK................................................ 9 DIVIDEND POLICY............................................................ 9 CAPITALIZATION............................................................. 10 DILUTION .................................................................. 11 SELECTED FINANCIAL DATA.................................................... 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 14 BUSINESS .................................................................. 16 GLOSSARY OF TECHNICAL TERMS ............................................... 21 MANAGEMENT................................................................. 22 CERTAIN TRANSACTIONS....................................................... 23 PRINCIPAL STOCKHOLDERS..................................................... 25 PLAN OF DISTRIBUTION....................................................... 25 OFFERING BY SELLING SECURITYHOLDERS........................................ 28 SHARES ELIGIBLE FOR FUTURE SALE............................................ 30 DESCRIPTION OF SECURITIES.................................................. 31 LEGAL MATTERS.............................................................. 32 EXPERTS .................................................................. 32 ADDITIONAL INFORMATION..................................................... 32 INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 32 Until_________, 1999 (25 days after the date of this prospectus), all dealers that effect transactions in these shares of Common Stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. INFORMATION NOT REQUIRED IN PROSPECTUS Indemnification of Directors and Officers Tech Labs is incorporated in New Jersey. Under Section ____ of the Corporation Law of the State of New Jersey, a New Jersey corporation has the power, under specified circumstances, to indemnify its directors, officers, employees, and agents in connection with actions, suits, or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees, and agents, against expenses incurred in any action, suit, or proceeding. The Certificate of Incorporation and the By-laws of Tech Labs provide for indemnification of directors and officers to the fullest extent permitted by the General Corporation Law of the State of New Jersey. The General Corporation Law of the State of New Jersey provides that a certificate of incorporation may contain a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section ____ (relating to liability for unauthorized acquisitions or redemptions of, or dividends on, capital stock) of the General Corporation Law of the State of New Jersey, or (d) for any transaction from which the director derived an improper personal benefit. Tech Labs's Certificate of Incorporation contains such a provision. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE. Other Expenses of Issuance and Distribution The following table sets forth the expenses in connection with this Registration Statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission. Filing Fee-- Securities and Exchange Commission $ 1,086 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 $ 2,913 Total.................................... $100,000 Recent Sales of Unregistered Securities As listed below, the Company issued shares of its Common Stock, par value $.0001 per share, to the following individuals or entities for the consideration as listed in cash or services. All sales II-1 made within the United States or to United States citizens or residents were made in reliance upon the exemptions from registration under the Securities Act of 1933 as follows: 1. 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. 2. In June 1999 we issued to Coby Capital Corporation options to purchase 50,000 shares at $1.85 per share. The issuance of the options were exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 3. In June 1999 we sold 90,045 shares to "accredited" investors for gross proceeds of $200,000. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 4. 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. 5. 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. 6. 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. 7. From September 1997 to April 1999, we sold shares of our Common Stock pursuant to Rule 504 of Regulation D under the Securities Act to various investors who were either sophisticated or "accredited" as that term is defined under Rule 501(a) of Regulation D under the Securities Act. These sales were made on the dates and in the amounts as follows: On April 5, 1999, we sold 278,572 shares of Common Stock for a total of $250,000.00. On January 29, 1999, we sold 168,000 shares of Common Stock for a total of $95,250.00. On December 17, 1998, we sold 18,000 shares of Common Stock for a total of $20,250.00. On December 5, 1998, we sold 17,000 shares of Common Stock for a total of $19,125.00. On November 26, 1998, we sold 31,000 shares of Common Stock for a total of $34,875.00. On November 18, 1998, we sold 100,000 shares of Common Stock for a total of $50,000.00. On November 16, 1998, we sold 27,500 shares of Common Stock for a total of $30,937.00. On November 13, 1998, we sold 111,000 shares of Common Stock for a total of $124,875.00. On October 23, 1998, we sold 107,000 shares of Common Stock for a total of $120,375.00. On October 13, 1998, we sold 18,000 shares of Common Stock for a total of $20,250.00. On October 9, 1998, we sold 18,000 shares of Common Stock for a total of $20,250.00. On October 2, 1998, we sold 51,000 shares of Common Stock for a total of $57,375.00. On September 25, 1998, we sold 44,500 shares of Common Stock for a total of $50,062.50. On July 10, 1998, we issued 20,300 shares of Common Stock for services rendered by prior counsel to our company for $22,167.40. On March 4, 1998, we sold 7,500 shares of Common Stock for a total of $15,000.00. On February 24, 1998, we sold 27,500 shares of Common Stock for a total of $55,000.00. II-2 On February 23, 1998, we sold 95,500 shares of Common Stock for a total of $85,700.00. On February 10, 1998, we sold 10,000 shares of Common Stock for a total of $20,000.00. On December 19, 1997, we sold 125,000 shares of Common Stock for a total of $62,500.00. On December 16, 1997, we sold 100,000 shares of Common Stock for a total of $200,000.00. On September 29, 1997, we sold 2,000 shares of Common Stock at $2.50 for a total of $5,000.00. 8. 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. 9. 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. 10. 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. 11. 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. 12. 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. 13. Between December 1996 and October 1997 we sold an aggregate of $217,500 principal amount of 8% convertible notes to eleven purchasers, $75,000 of which notes were convertible at $.75 per share and $142,500 were convertible at $1.00 per share. The issuance of the notes was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 14. In December 1996, we issued 280,000 shares to Bernard M. Ciongoli, our president and a director and 160,000 shares to Earl Bjorndal, our vice president and a director for unpaid salaries in the amounts of $14,000 and $8,000, respectively at $.05 per share. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 15. In December 1996, we issued 100,000 shares to Louis Tomasella, a director in exchange for consulting services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Exhibits and Financial Statement Schedules EXHIBIT INDEX 1.1 Subscription Agreement* 3.1 Certificate of Incorporation was previously filed. 3.2 By-Laws of Tech Labs was previously filed. 4.1 Form of Common Stock Certificate* 5.1 Opinion of Stursberg & Veith* 10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing Agreement dated as of October 1, 1998 between Tech Labs and Elktronic Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG. was previously filed. 10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli was previously filed. 10.3 First Amendment to Employment Agreement between Tech Labs and Bernard M. Ciongoli was previously filed. 10.6 Patent and Trademark assignments were previously filed. 10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX Network Solutions was previously filed. 10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby Capital Corporation was previously filed. 10.10 Assignment of Lease dated May 1, 1992 between William Tanis as Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee was previously filed. 10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between NORDX/CDT, Inc. and Tech Labs was previously filed. 10.12 Tech Labs Stock Option Plan. 10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby Capital Corporation was previously filed. 10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and TravelNet Technologies, Inc. was previously filed. 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. 21.1 Subsidiaries of the Company* 24.1 Consent of Charles J. Birnberg, CPA, certified public accountants 24.2 Consent of Stursberg & Veith (included in Exhibit 5)* 27 Financial Data Schedule - -------------- * To be filed by Amendment. (b) The following financial statement schedules are included in this Registration Statement: None. Undertakings The undersigned registrant hereby undertakes: II-3 (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (1) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (2) To reflect in the prospectus any facts or events arising after the effective date of the registration statement, or the most recent post-effective amendment thereof, which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (3) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof II-4 SIGNATURES As required by the Securities Act of 1933, this Offering Statement has been signed on behalf of the registrant in the City of North Haledon and State of New Jersey on the 17th day of December, 1999. TECH LABORATORIES, INC. By: /s/ Bernard M. Ciongoli ------------------------------ Bernard M. Ciongoli, President As required by the Securities Act of 1933, this Offering Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Bernard M. Ciongoli President, Treasurer, CEO, December 17, 1999 - ----------------------------- CFO, and Director ----------------- Bernard M. Ciongoli /s/ Earl M. Bjorndal* Vice President and Director December 17, 1999 - ----------------------------- ----------------- Earl M. Bjorndal /s/ Carmine O. Pellosie, Jr.* Secretary and Director December 17, 1999 - ----------------------------- ----------------- Carmine O. Pellosie, Jr. /s/ Louis Tomasella* Director December 17, 1999 - ----------------------------- ----------------- Louis Tomasella /s/ Richard J. Rice* Director December 17, 1999 - ----------------------------- ----------------- Richard J. Rice By: /s/ Bernard M. Ciongoli ------------------------ Bernard M. Ciongoli Attorney-in-Fact* II-5 EXHIBIT INDEX 1.1 Subscription Agreement* 3.1 Certificate of Incorporation was previously filed. 3.2 By-Laws of Tech Labs was previously filed. 4.1 Form of Common Stock Certificate* 5.1 Opinion of Stursberg & Veith* 10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing Agreement dated as of October 1, 1998 between Tech Labs and Elktronic Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG. was previously filed. 10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli was previously filed. 10.3 First Amendment to Employment Agreement between Tech Labs and Bernard M. Ciongoli was previously filed. 10.6 Patent and Trademark assignments were previously filed. 10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX Network Solutions was previously filed. 10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby Capital Corporation was previously filed. 10.10 Assignment of Lease dated May 1, 1992 between William Tanis as Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee was previously filed. 10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between NORDX/CDT, Inc. and Tech Labs was previously filed. 10.12 Tech Labs Stock Option Plan was previously filed. 10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby Capital Corporation was previously filed. 10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation was previously filed. 10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and TravelNet Technologies, Inc was previously filed. 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. 21.1 Subsidiaries of the Company* 24.1 Consent of Charles J. Birnberg, CPA, certified public accountants 24.2 Consent of Stursberg & Veith (included in Exhibit 5)* 27 Financial Data Schedule - -------------- * To be filed by Amendment. EX-10.17 2 PROMISSORY NOTE & SECURITY AGREEMENT PROMISSORY NOTE $50,000 Dated: October 25, 1999 Principal Amount State of New York FOR VALUE RECEIVED, the undersigned hereby promise to pay to the order of Peter B. Hirshfield, Trustee, Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater the sum of Fifty Thousand Dollars ($50,000), together with interest thereon at the rate of 10% per annum on the unpaid balance. Said sum shall be paid in the manner following: DUE IN FULL DECEMBER 24, 1999 At the state maturity, this note shall bear interest at the rate of 14% per annum on the unpaid balance. All payments shall be first applied to interest and the balance to principal. This note may be prepaid, at any time, in whole or in part, without penalty. The maker of this note has entered into a security agreement of even date to secure the repayment of principal and interest due under this note. Upon default in the payment of any principal and/or interest due hereunder, the holder of this note shall be entitled to exercise any and all rights under said security agreement to satisfy maker's obligation to holder. All payments hereunder shall be made to such address as may from time to time be designated by any holder hereof. The undersigned corporation agrees to remain fully bound hereunder until this note shall be fully paid and waives demand, presentment and protest, and all notices thereto, and further agrees to remain bound, notwithstanding any extension, renewal, modification, waiver, or other indulgence by any holder. No modification or indulgence by any holder hereof shall be binding unless in writing; and any indulgence on any one occasion shall not be an indulgence for any other or future occasion. Any modification or change of terms, hereunder granted by any holder hereof, shall be valid and binding upon the undersigned corporation, notwithstanding the acknowledgement of any of the undersigned. This note shall take effect as a sealed instrument and shall be construed, governed, and enforced in accordance with the laws of the State first appearing at the head of this note. Signed in the presence of: /s/ TECH LABORATORIES, INC. - ----------------------------------- ------------------------------ Witness Borrower /s/ By: /s/ Bernard M. Ciongoli - ----------------------------------- -------------------------- Witness Bernard M. Ciongoli, President FOR TECH LABORATORIES, INC. SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Agreement") is made this 25th day of October, 1999, between TECH LABORATORIES, INC. ("Borrower"), having an address at 955 Belmont Avenue, North Haledon, New Jersey 07508, and Peter B. Hirshfield, Trustee, Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater ("Secured Party"), having an address at c/o Kirkpatrick & Lockhart, 1251 Avenue of the Americas, New York, New York 10020. W I T N E S S E T H: ------------------- WHEREAS, in consideration for a certain loan made by Secured Party to Borrower, Borrower desires to grant to Secured Party and Secured Party wishes to take a security interest in, all of Borrower's right, title, and interest in and to all of Borrower's now existing and hereafter arising accounts receivable ("Accounts") and/or general intangibles for monies due or to become due and other rights to payment ("General Intangibles") arising from or in connection with any purchase orders set forth on Schedule A for the sale of goods, including, without limitation, the purchase orders listed on Schedule A attached hereto ("Order(s)"), together with all rights and privileges incident thereto, including, without limitation, the proceeds thereof; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and sufficiency whereof is hereby acknowledged, the parties hereto have agreed as follows: 1. Borrower hereby grants all of Borrower's right, title, and interest in and to any and all Accounts and/or General Intangibles arising from or in connection with the Order(s), and all monies and claims for monies due or to become due to Borrower in connection therewith and the proceeds of any of the foregoing up to the amount of a certain loan in the principal amount of Fifty Thousand ($50,000) Dollars together with all accrued interest (the "Loan"). 2. Attached hereto is (a) a true and complete copy of the existing Order(s) listed on Schedule A, together with any amendments thereto; and (b) a true and complete copy of a specimen invoice ("Invoice") to be used in connection with billing for services rendered and goods sold pursuant to the Order(s). True and complete copies of any hereafter arising Order(s) ("Future Order(s)") and Invoices relating thereto shall be provided to Secured Party immediately following receipt or delivery of same and Schedule A to this Agreement shall be deemed to be amended to include such Future Order(s) which shall be subject to the terms of this Agreement without any further action. 3. Borrower agrees that it will at all times hereafter at the request of Secured Party, make, do, and execute all such further acts, agreements, assurances, and other documents and instruments as shall be reasonably required to enable Secured Party to collect all sums due or to become due under or in connection with the Order(s), according to the intent and purpose of this Agreement. 4. If Borrower receives any payment with respect to any Order, the same shall be held by Borrower in trust for Secured Party to the extent the Loan remains unpaid. 5. Borrower represents and warrants to Secured Party that: (a) Borrower is the owner of the right, title, and interest in and to the Accounts and the General Intangibles arising from or in connection with the Order(s) and will be the owner of the right, title, and interest in any future Accounts and General Intangibles arising from Future Order(s), and is assigning same to Secured Party free and clear of all security interests, liens, and other encumbrances; (b) Borrower has the authority to sell, assign, or transfer the Accounts and the General Intangibles arising from or in connection with the Order(s); (c) Borrower has no tradenames or tradestyles other than Tech Laboratories, Inc. or Tech Labs; (d) the Accounts and General Intangibles arising from or in connection with the Order(s) and evidenced by each Invoice rendered are, and Accounts and General Intangibles arising from or in connection with Future Order(s) will be, genuine and enforceable in accordance with their terms and represent an undisputed and bona fide indebtedness owing to Borrower by the account debtor obligated thereon; (e) there are and will be no defenses, setoffs, or counterclaims with respect to any Accounts or General Intangibles arising from or in connection with the Order(s); (f) no payment has been received by Borrower on any Accounts or General Intangibles arising from or in connection with the Order(s), and no such Account or General Intangible is subject to any credit or extension or agreements therefor; (g) all representations made by Borrower, and all documents and schedules given by Borrower to Secured Party, relating to any Future Order(s), Accounts, and General Intangibles arising from or in connection with the Order(s) shall be true and correct; (h) Borrower's offices and all of Borrower's books and records are located only at the address of Borrower set forth at the beginning of this Agreement; and (i) Borrower has no secured creditors except for one secured loan which, as of June 30, 1999, had an outstanding principal balance of $11,500 with accrued interest of approximately $4,604; provided, however, Secured Party acknowledges and agrees that Borrower shall have the right to grant further security interests with respect to the Order(s), and Future Order(s) and in and to the Accounts and General Intangibles arising therefrom to secure loans up to an aggregate additional principal amount of Two Hundred Thousand ($200,000) Dollars plus interest. 6. The validity, interpretation, and enforcement of this Agreement shall be governed by the laws of New York State, without regard to principles of conflicts of law. The terms of this Agreement may not be amended, except by a written agreement signed by the Borrower and the Secured Party. This Agreement shall bind and benefit the parties and their respective successors and assigns. The terms Borrower and Secured Party shall include the successors and assigns of those parties, including, without limitation, a receiver, trustee, custodian, or debtor in possession. There are no third party beneficiaries to this Agreement. 7. All notices to or upon the respective parties hereto to be effective shall be in writing, and shall be deemed to have been given or made (a) when delivered by hand, (b) three (3) business days after being delivered to a courier for overnight delivery or (c) five (5) business days after being deposited in the first class United States mail, certified, return receipt requested, addressed as follows: To the Secured Party: Peter B. Hirshfield, Trustee, Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater c/o Kirkpatrick & Lockhart 1251 Avenue of the Americas New York, New York 10020. With a copy to: Peter B. Hirshfield, Esq. Kirkpatrick & Lockhart 1251 Avenue of the Americas New York, New York 10020. -2- To the Borrower: Tech Laboratories, Inc. 955 Belmont Avenue North Haledon, New Jersey 07508 With a copy to: Stursberg & Veith 405 Lexington Avenue Suite 4949 New York, New York 10174-4902 Attn: Walter Stursberg, Esq. A party may change the address to which notices are to be sent for such party by giving notice of such change to all other parties in accordance with the above provisions. 8. This Agreement may be executed in any number of counterparts, and by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed as of the 25th day of October, 1999. TECH LABORATORIES, INC. By: /s/ Bernard Ciongoli ------------------------------------------- President (title) PETER B. HIRSHFIELD, TRUSTEE, OLIVE COX- SLEEPER TRUST DATED 10/3/58 F/B/O BERT L. ATWATER By: /s/ B. Peter Hirshfield ------------------------------------------- Trustee (title) -3- Schedule "A" to Security Agreement Purchase Orders 1. Purchase Order No. P-99-0712 dated 9/30/99 from Synergy Networks, Inc., 8474 Tyco Road, Vienna, Virginia 22182; Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508 (copy attached). 2. Blanket Order M695 TASS (Requisition Number 002718) PO date 9/28/99 from EER Systems Inc., 10289 Aerospace Road, Seabrook, Maryland 20706 (copy attached). -4-
Schedule A ==================================================================================================================================== EER SYSTEMS INC. EER BKKT REL. CHANGE PAGE 10289 Aerospace Road SYSTEMS ---------------------------------------- Seabrook, Maryland 20708 M696 TASS 1 of 3 (301) 577-8900 ======================================== FAX (301) 577-7483 S EER Systems Inc H 10289 Aerospace Road I Seabrook, MD 20706 P BLANKET ORDER T O Natasa Janaldreman TEC955 SAME AS "SHIP TO" ABOVE V Tech Laboratories, Inc. B E Tech Logistics Division I N 955 Belmont Avenue L D North Haledon, NJ 07508 L O R Bernard Ciongoli T Phone: 973 427 5333 Fax: 973 427 5455 O ==================================================================================================================================== REQUISITION NUMBER CHARGE/ACCOUNT PO DATE DATE REQUIRED 0002718 TASS/INV 09/28/1999 09/29/2000 ==================================================================================================================================== CONTRACT NUMBER JOB NUMBER PROJECT NUMBER ==================================================================================================================================== SHIP VIA FOB/FREIGHT TERMS TERMS OF SALE Truck Shipping Point/Prepay & Add Net 30 Days ==================================================================================================================================== Item Quantity U/M Description Unit Price Extended Price ==================================================================================================================================== Product shall meet specifications of SCD 1-760-TASS-1204-1. - Change TASS part number to "-1" - Delete Alignment Telescope, Flash Light and Flash Light Batteries from configuration (they are now part of "-2" Optional Alignment Kit) - Correct Sensor Part Numbers - Adjust total number of items ordered to reflect 8 systems ordered under separate PO - Changes apply only to remaining items on this order. 1 43 SET IDS2 2,800.00 120,400.00 2 Beam Unit AIR sensor (A,B) Consisting of: P/N: ISD2RX 2 Beam A/R Sensor Receiver (RX) P/N: ISD2TX 2 Beam AIR Sensor Transmitter (TX) Date Required: 09/29/2000 2 43 SET IDS4 3,700.00 158,100.00 4 Beam Unit AIR sensor (C,D) Consisting of: P/N: ISD4RX 4 Beam A/R Sensor Receiver (RX) P/N: ISD4TX 4 Beam AIR Sensor Transmitter (TX) Date Required: 09/29/2000 3 43 SET D0980002-2 905.00 38,940.00 Part of Kit, Multisensor table and Alignment tools ==================================================================================================================================== - -------------------------------------------------------------------------------- This order is subject to the Terms and Conditions of Purchase, a copy which can be provided upon request. Commencement of any work pursuant to this 322,362.40 order shall be deemed to be acceptance of the Terms and Conditions of ============ Purchase. - -------------------------------------------------------------------------------- By: /s/ [ILLEGIBLE] ------------------------------------- Authorized Signature 1. Supplier Copy
Synergy Networks, Inc. Purchase Order No. P-99-0712 8474 Tyco Road Vienna, VA 22182 (703) 893-3300 fax (703) 893-3536 =============================================== PURCHASE ORDER ================= Vendor Ship To Name Tech Labs Name Dorsey Road Warehouse Address 955 Belmont Avenue Address 1472 Dorsey Road Doors 1-3 City North Haledon St NJ ZIP 07502 City Hanover St MD ZIP 21076 Phone Phone - -------------------------------------------------------------------------------- Qty Units Description Unit Price TOTAL - -------------------------------------------------------------------------------- 3360 each STP-C5E-PL-10 $16.31 $54,801.60 10 FT STP CAT5E PATCH CABLE-PLENUM 5040 each STP-C5E-PL-15 $21.81 $109,922.40 15 FT STP CAT5E PATCH CABLE-PLENUM 1680 each STP-C5E-PL-20 $27.38 $45,998.40 20 FT STP CAT5E PATCH CABLE-PLENUM 10 each STP-C5E-PL-1K $1,025.00 $10,250.00 1000 FT STP CAT5E PLENUM-SPOOL 600 each SH-CON-C5E $1.09 $654.00 CAT5E SHIELDED CONNECTORS - -------------------------------------------------------------------------------- Sub Total $221,626.40 Payment Details Shipping & Handling X Check |_| Cash Taxes State |_| Account No. |_| Credit Card TOTAL $221,626.40 ----------- Name ____________________ CC # ____________________ Exp Date __________ Shipping Date ================================================================================ Approval /s/ [ILLEGIBLE] Date 9/30/99 controller Order No Sales Rep Kieran McKenna Ship Via Drop Ground Notes/Remarks INVOICE INVOICE NO. CUSTOMER NO. TECH LABORATORIES, INC. 955 BELMONT AVE. NORTH HALEDON, NJ 07508 TEL.: 973-427-5333 FAX: 973-427-5455 BILL TO: SHIP TO: - -------------------------------------------------------------------------------- DATE SHIP VIA F.O.B. TERMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASE ORDER NUMBER ORDER DATE SALESPERSON OUR ORDER NUMBER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- QUANTITY - ----------------------------- UNIT REQUIRED SHIPPED B.O ITEM NUMBER DESCRIPTION PRICE AMOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Thank You STANDARD FORM UNIFORM COMMERCIAL CODE STATEMENTS OF CONTINUATION PARTIAL RELEASE, ASSIGNMENT, ETC. FORM UCC-3 INSTRUCTIONS. 1. PLEASE TYPE this form. Fold only along perforation for mailing. 2. Remove Secured Party and Debtor copies and send other 2 copies with interleaved carbon paper to the Filing Officer. 3. Enclose Filing Fee(s), and fill in original Financing Statement and date filed. 4. If the space provided for any item(s) on the foprm is inadequate the item(s) should be continued on additional sheets, preferably 5" x 8" or 8" x 10". Only one copy of such additional sheets need be presented to the filing officer with a set of three- copies of Form URC-3. Long schedules of collated, etc. may be on any size paper that is convenient for the secured party. Indicate the number of additional sheets attached. 5. If the space provided for any item(s) on the form is inadequate the item(s) should be continued on additional sheets, preferably 5' x 8' or 8' x 10'. 6. At the time of filing, filing officer will return third copy as an acknowledgement. This STATEMENT is presented to a filing officer for filing pursuant to the Uniform Commercial Code - -------------------------------------------------------------------------------- 1. Debtor(s)(Last Name First) and address(es) 2. Secured Party(ies) and address(es) 3. Maturity date (if any): For Filing Officer (Date, Time and Filing Office) Tech Laboratories, Inc. Peter B. Hirshfield, Trustee, Olive 955 Bemont Avenue Cox-Sleeper Trust dated 10/3/58f/b/o North Haledon, NJ 07508 Bert L. Atwater c/o Kirkpatrick & Lockhart 1251 Avenue of the Americas New York, NY 10020
- -------------------------------------------------------------------------------- 4. This statement referes to original Financing Statement bearing File No. __ Filed with Secretary ofd State Date Filed ______________________ 19__ - -------------------------------------------------------------------------------- 5. |_| Continuation The original financing statement between the foregoing Debtor and Secured Party, bearing file number shown above, is still effective. 6. |_| Termination Secured party no longer claims a security interest under the financing statement bearing file number shown above. 7. |_| Assignment The secured party's right under the financing statement bearing file numbers shown above to the property described in Item 10 have been assigned to the asignee whose name and address appears in Item 10. 8. |_| Amendment Financing Statement bearing file number shown above is amended as set forth in Item 10. 9. |X| Release Secured Party releases the collateral described in Item 10 from the financing statement bears no file number shown above. - -------------------------------------------------------------------------------- 10. See exhibit A annexed hereto and made a part hereof Exhibit A to UCC-3 Collateral Description: All of Debtor's now existing and hereinafter arising accounts receivable and/or general intangibles for money due or to become due and other rights to payment arising from or in connection with any purchase orders set forth below, together with all rights and privileges incident thereto, including, without limitation, the proceeds thereof. Purchase Orders 1. Purchase Order NO. P-99-0712 dated 9/30/99 from Synergy Networks, Inc., 8474 Tyco Road, Vienna, Virginia 22182; Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508. 2. Blanket Order M695 TASS (Requisition Number 002718) PO date 9/28/99 from EER Systems Inc., 10289 Aerospace Road, Seabrook, Maryland 20706. UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1 INSTRUCTIONS. 1. PLEASE TYPE all the information required on this form: Leave "File No." and "Date & Hour" blank. 2. Remove Secured Party and Debtor copies and send other 2 copies with interleaved carbon paper to the Filing Officer. ENCLOSE FILING FEE of $25.00. Check or money order for fee should be made payable to "N.J. Secretary of State." 3. If the space provided for any item(s) on the form is inadequate the item(s) should be continued on additional sheets 8 1/2" x 11". Only one copy of such additional sheets need be presented to the Filing Officer with a set of 2 copies of the Financial Statement. Long schedules of collateral, indentures, etc. should be submitted on sheets which are 8 1/2" x 11". 4. If collateral is crops or goods which are or are to become fixtures, describe the real estate and give name and address of record owner. 5. At the time of filing, Filing Officer will return second copy as an acknowledgement. At a later time, secured party may date and sign Termination Legend and use second copy as a Termination Statement. This FINANCING STATEMENT is presented to a Filing Officer for filing pursuant to the Uniform Commercial Code - -------------------------------------------------------------------------------- FOR OFFICE USE ONLY Debtor(s)(Last Name, Maturity date First) Complete Address (if any): Tech Laboratories, Inc. 955 Bemont Avenue FOR OFFICE USE ONLY North Haledon, NJ 07508 - -------------------------------------------------------------------------------- Secured Party(ies) and Complete Address Peter B. Hirshfield, Trustee Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater c/o Kirkpatrick & Lockhart 1251 Avenue of the Americas New York, NY 10020 - -------------------------------------------------------------------------------- Assignee(s) of Secured Party and Complete Address - -------------------------------------------------------------------------------- The financing statement covers the following types (or items) of property: See exhibit A annexed hereto and made a part hereof - -------------------------------------------------------------------------------- When collateral is crops or fixtures complete this portion of form. a. Description of real estate (Sufficient to identify the property). b. Name and complete address of record owner. - -------------------------------------------------------------------------------- a. (x) Proceeds of Collateral are also covered. b. ( ) Products of Collateral are also covered. No. of additonal sheets presented. ( ) - -------------------------------------------------------------------------------- ( ) Filed with Register of Deeds and Mortgages of County. (X) Secretary of State ( ) Filed with County Clerk of County, - -------------------------------------------------------------------------------- Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee(s) /s/ Bernard M. Ciongoli /s/ Peter B. Hirshfield - ---------------------------------------- ----------------------------------- Bernard M. Ciongoli Peter B. Hirshfield, Trustee - -------------------------------------------------------------------------------- FILING OFFICER COPY -- This form of statement is spproved by the Secretary of State of New Jersey. STANDARD FORM -- UNIFORM COMMERCIAL CODE -- FORM UCC-1. (Rev. 9/81) 1 Exhibit A to UCC-1 Collateral Description: All of Debtor's now existing and hereinafter arising accounts receivable and/or general intangibles for money due or to become due and other rights to payment arising from or in connection with any purchase orders set forth below, together with all rights and privileges incident thereto, including, without limitation, the proceeds thereof. Purchase Orders 1. Purchase Order NO. P-99-0712 dated 9/30/99 from Synergy Networks, Inc., 8474 Tyco Road, Vienna, Virginia 22182; Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508. 2. Blanket Order M695 TASS (Requisition Number 002718) PO date 9/28/99 from EER Systems Inc., 10289 Aerospace Road, Seabrook, Maryland 20706. EX-24.1 3 CONSENT OF INDEPENDENT AUDITORS CONSENT OF CHARLES J. BIRNBERG, CPA, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 16, 1999, in Amendment No. 3 to the Registration Statement (Form SB-2) and the related Prospectus of Tech Laboratories, Inc. /s/ Charles J. Birnberg ---------------------------------- Charles J. Birnberg Hackensack, New Jersey December 17, 1999 EX-27 4 FDS
5 12-MOS 9-MOS DEC-31-1998 SEP-30-1999 JAN-01-1998 JUN-30-1999 DEC-31-1998 SEP-30-1999 532,780 212,348 56,693 61,923 143,462 150,359 (10,000) (10,000) 270,118 788,586 1,006,410 1,218,884 299,809 410,158 (299,162) (299,162) 1,108,597 1,341,420 154,870 340,629 0 0 0 0 0 0 23,370 35,757 840,357 965,034 1,018,597 1,341,420 552,486 535,160 552,486 535,160 386,425 374,612 386,425 374,612 329,849 548,384 0 0 5,316 0 (169,104) (387,836) 0 0 (169,104) (387,836) 0 0 0 0 0 0 (169,104) (387,836) (.06) (.11) (.04) (.10)
-----END PRIVACY-ENHANCED MESSAGE-----