SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 205249
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FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended March 31, 2004.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _________ to _________.
Commission File Number 000-27592
TECH LABORATORIES, INC.
(Exact name of Small Business issuer in its charter)
New Jersey 22-1436279
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, NJ 07508
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (973) 427-5333
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares of Common Stock, par value $.01 per share,
outstanding as of the latest practicable date: As of May 20, 2004, there were
36,104,787 shares outstanding.
Tech Laboratories, Inc.
FORM 10-QSB
Table of Contents
PART I FINANCIAL INFORMATION................................................. 1
Item 1. Financial Statements................................................ 1
March 31, 2004 and 2003 Balance Sheet (unaudited)................... 1
Statement of Operations March 31, 2004 and 2003 (unaudited)......... 3
Statements of Cash Flow March 31, 2004 and 2003 (unaudited)......... 4
Notes to Financial Statements....................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 8
Item 3. Controls and Procedures .......................................... 9
PART II. OTHER INFORMATION.................................................. 9
Item 6. Exhibits and Reports on Form 8-K.................................... 9
SIGNATURES................................................................... 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TECH LABORATORIES, INC.
March 31, 2004 and 2003
Balance Sheet
(unaudited)
ASSETS
2004 2003
----------- -----------
Current Assets:
Cash $ 46,199 $ 85,038
Marketable Securities 40,000 40,000
Accounts Receivable, Net of
Allowance for Doubtful Accounts of $25,000 17,555 28,887
Inventories 1,326,785 1,655,386
Prepaid Expenses 6,303 6,303
----------- -----------
Total Current Assets $ 1,436,842 $ 1,815,614
----------- -----------
Property, Plant, and Equipment, at Cost
Leasehold Improvements 2,247 2,247
Machinery, Equipment, and Instruments 607,987 607,987
Furniture and Fixtures 110,140 105,287
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Total Property, Plant, and Equipment 720,374 715,521
Less: Accumulated Depreciation & Amortization (432,796) (414,248)
----------- -----------
Net Property, Plant, and Equipment $ 287,578 $ 301,273
----------- -----------
Other Assets $ 12,059 $ 12,059
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Total Assets $ 1,736,479 $ 2,128,946
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
TECH LABORATORIES, INC.
March 31, 2004 and 2003
Balance Sheet
(unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENTS
2004 2003
----------- -----------
Current Liabilities:
Defaulted Convertible Notes $ 1,187,369 $ 1,170,181
Current Portion of Long-Term Debt 30,044 29,751
Short-Term Loans Payable 50,450 54,827
Accounts Payable and Accrued Expenses 125,229 135,644
Other Liabilities 87,692 67,425
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Total Current Liabilities $ 1,480,784 $ 1,460,828
----------- -----------
Stockholders' Investment:
Common Stock, $.01 Par Value; 250,000,000 Shares Authorized:
34,082,719 shares outstanding in 2004, 5,522,415
outstanding in 2003 $ 335,517 $ 49,848
Less: 15,191 Shares Reacquired and Held in Treasury (113) (113)
----------- -----------
$ 335,404 $ 49,735
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Capital Contributed in Excess of Par Value $ 4,730,704 $ 4,480,381
Retained Earnings/(Accum. Deficit) (4,810,413) (3,861,998)
----------- -----------
$ (79,909) $ 618,353
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Total Liabilities and Stockholders' Equity $ 1,736,479 $ 2,128,946
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
TECH LABORATORIES, INC.
Statement of Operations
March 31, 2004 and 2003
(unaudited)
2004 2003
----------- -----------
Sales $ 51,701 $ 94,327
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Costs and Expenses:
Cost of Sales 29,811 58,165
Selling, General, and Administrative Expense 152,932 62,702
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182,743 120,867
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Income/(Loss) from Operations $ (131,042) $ (26,540)
Other Income (Expenses): (29,735) (18,306)
Income/(Loss) Before Income Taxes $ (160,777) $ (44,846)
Provision for Income Taxes -0- -0-
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Net Income/(Loss) $ (160,777) $ (44,846)
Retained Earnings/(Accum. Deficit), Beg. Qtr (4,649,636) (3,817,152)
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Retained Earnings/(Accum. Deficit), End. Qtr $(4,810,413) $(3,861,998)
----------- -----------
Earnings Per Share $ (0.02) $ (0.01)
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3
TECH LABORATORIES, INC.
Statements of Cash Flow
March 31, 2004 and 2003
(unaudited)
2004* 2003*
--------- ---------
Cash Flow From (For) Operating Activities:
Net Income/(Loss) From Operations $(160,777) $ (44,846)
Add/(Deduct) Items Not Affecting Cash:
Depreciation 4,887 7,900
Amortization -0- -0-
Accrued expenses and other non-cash expenses 111,934 -0-
Changes in Operating Assets and Liabilities
Marketable Securities -0- -0-
Accounts Receivable (6,448) (22,743)
Inventories (77,008) 80,247
Prepaid Expenses -0- -0-
Accounts Payable and Accrued Expenses (49,771) 3,271
Other Assets/Liabilities 83,784 28,943
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Net Cash Flow From (For) Operating Activities (93,399) 52,772
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Cash Flows From (For) Investing Activities 753 3,923
Cash Flow From (For) Financing Activities:
Defaulted Convertible Notes - repayment -0- -0-
Issuance of Common Stock -0- -0-
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Net Cash Flow From (For) Financing Activities -0- -0-
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Net Increase/(Decrease) in Cash (92,646) 56,695
Cash Balance Beginning of Year 138,845 28,343
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Cash Balance End of First Quarter $ 46,199 $ 85,038
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* As of March 31, 2004, an aggregate of $685,546 of Convertible Long-Term
Debt and accrued interest was converted into Common Stock.
4
TECH LABORATORIES, INC.
Notes to Financial Statements
For the Quarter Ended March 31, 2004
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH - Includes Tech Labs' checking account at Hudson United Bank plus a
Demand Money Market Account at Wachovia Securities and Bear Stearns.
REVENUE RECOGNITION - Tech Labs recognizes all revenues when orders are
shipped.
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, 2002 and 2003, physical inventories were taken and
tested. No physical inventory was taken at March 31, 2004.
PROPERTY AND DEPRECIATION - Additions to property and equipment are
recorded at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets as follows:
Assets Estimated Useful Lives
------ ----------------------
Machinery 5 to 7 years
Furniture & Fixtures 5 to 7 years
Maintenance and repairs are charged to expense as incurred. The cost of
betterments is capitalized and depreciated at appropriate rates. Upon retirement
or other disposition of property items, cost, and accumulated depreciations are
removed from the accounts and any gain or loss is reflected in the statement of
income.
INCOME TAXES - Income tax expense is based on reported income and deferred
tax credit is provided for temporary differences between book and taxable
income.
MARKETABLE SECURITIES - The marketable securities are a time deposit at
Hudson United Bank. The amount of this deposit was $40,000 as of December 31,
2003 and March 31, 2004.
(2) INVENTORIES:
Inventories at December 31, 2002 and 2003 were as follows:
Three Months
Ended
2002 2003 March 31, 2004
---------- ---------- ----------
Raw Materials & Finished Components $ 676,996 $ 463,824 $ 445,655
Work in Process & Finished Goods $1,058,637 $ 785,953 $ 881,130
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$1,735,633 $1,249,777 $1,326,785
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(3) INCOME/(LOSS) PER SHARE:
Pursuant to the provisions of SFAS No. 128, "Earnings Per Share," the Net
Income/(Loss) per share was calculated on the weighted average number of shares
outstanding during the year ended December 31, 2002, for the year ended December
31, 2003 and for the first quarter of 2004.
Fully Diluted Earnings per share would be based on the assumed
conversion of all convertible notes. However, these notes are anti-dilutive and
have been excluded. The assumed conversion of all outstanding options and
warrants were also excluded due to anti-dilution.
Three Months ended
2002 2003 March 31, 2004
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Net Income for the Computation of Basic EPS (1,241,660) (832,483) (160,777)
========== ========== ==========
Shares for Computation of Basic EPS 5,156,679 8,368,992 8,520,680
========== ========== ==========
(4) INCOME TAXES:
At December 31, 2003, the balance of operating loss carryforward was
$5,224,216, and at March 31, 2004, the operating loss carryforward was
$5,384,993, which can be utilized to offset future taxable income. These
operating loss carry-forwards begin to expire in 2014.
(5) CURRENT PORTION OF LONG-TERM DEBT:
Loans payable to banks were as follows for the years indicated:
CURRENT NON-CURRENT
YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT
---------- ----- ------------- ------- ------
2002 Hudson United Bank Prime +1.5% $31,713
2003 Hudson United Bank Prime +1.5% $30,392
March 31, 2004 Hudson United Bank Prime +1.5% $30,044
This loan was negotiated in 1995 at an original amount of $35,000 and fluctuated
to a maximum of $35,000.
Marketable Securities are pledged as collateral on the above loans.
(6) SHORT-TERM LOANS PAYABLE:
Demand loans payable include loans from third parties. The outstanding
loan balances due as of December 31, 2003 was $55,449 and $50,450 as of March
31, 2004, which includes accrued interest for all years. The annual interest
rate for these loans ranges between six (6%) percent and ten (10%) percent. In
October of 1999, three short-term loans for a total of $200,000 at ten percent
(10%) annual interest were completed. Certain contractual revenues were pledged
to secure these loans. As of December 31, 2000, $150,000 of such loans were
repaid. The remaining $50,000 is outstanding and was due by December 31, 2002,
and is now in default.
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(7) COMMON STOCK:
In 1999, Tech Labs filed a registration statement on Form SB-2 with the
Securities and Exchange Commission. The registration statement was declared
effective on February 3, 2000. The offering was completed on May 3, 2000 for
total proceeds of $2,273,723.
(8) COMMITMENTS AND CONTINGENCIES:
In 1997 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. Since 1997, sales and distributions to FUA
have been $1.5 million and $240,000, respectively. This agreement was terminated
and unpaid royalties of $13,000 are subject to arbitration.
(9) LONG-TERM CONVERTIBLE DEBT:
On October 13, 2000, Tech Labs completed a $1.5 million dollar financing
of 6.5% convertible promissory notes due October 15, 2002. Interest is payable
quarterly in cash or in shares of common stock at the option of the noteholders.
Tech Labs disclosed all terms of this financing on Form 8-K filed on October 18,
2000. As of March 31, 2004, $685.546 of principal and interest on the 6.5%
convertible notes has been converted into shares of Tech Labs' common stock.
(10) On January 11, 2002, Tech Labs entered into a conversion and redemption
agreement concerning the Long-term Debt referenced in Note (9). An Event of
Default, as defined in the 6.5% convertible notes, occurred on January 25, 2002,
when Tech Labs was unable to make the first payment of $750,000 to the holders
of the notes.
On April 19, 2002, Tech Labs successfully negotiated a cure of the default
referenced above. This cure required that Tech Labs' registration statement,
filed with the Securities and Exchange Commission on April 5, 2002, covering the
shares underlying the 6.5% convertible notes, to have been declared effective on
or before June 29, 2002. If the registration statement was declared effective by
such date and Tech Labs made certain payments described in Tech Labs' report on
Form 8-K filed April 25, 2002, the maturity date of the 6.5% convertible notes
would have been extended from October 13, 2002 to December 30, 2002.
On August 2, 2002, the Company announced that an Event of Default occurred
on the 6.5% convertible notes. The Company was unable to have its registration
statement declared effective by June 29, 2002, and was unable to reach a new
agreement with the holders of the 6.5% convertible notes prior to the expiration
of the waiver the Company had been granted by the holders of the notes, which
had been granted in order to permit the parties time to negotiate a new
agreement. The Company continues to seek a cure for the default with the holders
of the 6.5% convertible notes, and in October 2003 Acure was successfully
negotiated and is described in the Company's 8-K filed in October, 2003.
(11) GOING CONCERN:
As a result of operating losses and negative cash flows experienced during
2001, 2002 and 2003 Tech Labs has a tenuous liquidity position. If sales do not
improve or alternate financing is not obtained,
7
substantial doubt exists about Tech Labs' ability to continue as a going
concern.
(12) PRIOR PERIOD ADJUSTMENT:
Over the course of 2001, Tech Labs issued and distributed 170,000 shares
of common stock to Mr. Barry Bendett pursuant to the terms of a consulting
agreement the Company entered into with Mr. Bendett on November 13, 2002.
Valuing these shares at their market value on their respective dates of issuance
and distribution. Tech Labs should have expensed $168,950. This compensation was
never expensed. This error is corrected as follows:
FULL YEAR 2001
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Closing Balance retained Earnings as reported $(2,406,542)
Adjustment referenced above $ (168,950)
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Revised December 31, 2001, Closing Balance of Retained Earnings $(2,575,492)
Net Loss - 2002
$(1,241,660)
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December 31, 2002, Retained Earnings after prior period Adjustment $(3,817,152)
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information contained in this section should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing in this
report Form 10-QSB and the Company's Annual Report for the year ended December
31, 2002.
Quarter ending March 31, 2004, compared to Quarter ending March 31, 2003.
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Sales were $51,701 for the first quarter of 2004 as compared to $94,327
for the similar period of 2003. This decrease was due to the continuing effects
of the economic downturn. The company is seeking long term contracts with major
computer companies. The company believes these contracts will provide future
growth in its major product, Dyntrax.
Cost of sales of $29,811 for the first quarter of 2004 has been decreased
by $28,354 compared to the same period of 2003, primarily due to the sales
decline.
Selling, administrative, and general expenses increased by $90,230
compared to the same period of 2003 due to increases in expenses associated with
the company's attempts to raise long term capital.
Loss from operations of ($131,042) increased $(104,502) compared to a loss
of ($26,540) for the prior period as a direct result of sale declines and
expenses incurred to explore long term financing prospects.
8
Quarter ending March 31, 2004, compared to year ending December 31, 2003.
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SIGNIFICANT CHANGES
During the first quarter of 2004, the Company is still suffering from
declining sales.
Cash Flow for the first quarter of 2004 was ($92,646) as a result of the
reductions in sales caused by the downturn in the telecommunications industry.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of ($92,646) during the
three months ended March 31, 2004, as compared to generated cash of $56,695
during the three months ended March 31, 2003.
As a result of operating losses and negative cash flow experienced during
2003, Tech Labs has a tenuous liquidity position. If sales do not improve or
alternative financing is not obtained, substantial doubt exists about Tech Labs'
ability to continue as a going concern.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and procedures
that is designed to provide reasonable assurance that information, which is
required to be disclosed, is accumulated and communicated to management timely.
Under the supervision and with the participation of management, the Certifying
Officers evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)]
under the Exchange Act) within 90 days prior to the filing date of this report.
Based upon that evaluation, the Certifying Officers concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officers have indicated that there were no significant changes in
our internal controls or other factors that could significantly affect such
controls subsequent to the date of their evaluation, and there were no such
control actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On July 31, 2002, Tawfik Khalil and Amneh Khalil filed a lawsuit in the
Superior Court of Passaic County, New Jersey, against Glen Venza, a Company
part-time employee, Tech Labs, and certain other parties for property damages
and personal injuries. The case arose from a car accident involving Mr. Venza
and the plaintiffs, which occurred while Mr. Venza was performing certain duties
for Tech Labs in a vehicle Mr. Venza borrowed from a third party. Tech Labs has
only been named as a party to the personal injuries, and not for property
damages, and believes it is covered for the accident by its insurance policy.
A lawsuit was filed against a subsidiary of the Company, Tech Labs
Community Networks, Inc. ("TLCN"), in the Superior Court of New Jersey, Passaic
County, on February 20, 2003, claiming that the plaintiff delivered certain
goods and services to TLCN and is owed $23,856, plus interest and attorney fees.
We disagree that any goods or services were contracted to be provided by the
plaintiff, and believe we will prevail in this litigation.
9
On or about November 1, 2003, we were served with a lawsuit filed by W. T.
Sports Limited, Salvatore Griscifi, a former Director, and Edward Branca, a
former employee. We have filed a response and counter-claim. The first claim
involving Salvatore Griscifi and Mr. Branca has been settled. The second claim
is in the process of being settled. The last claim with W. T. Sports Limited is
going to arbitration, which is mandatory pursuant to a written agreement entered
into between the parties in 1987. We believe W. T. Sports Limited will owe us in
excess of the plaintiff's claim.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
None.
TECH LABORATORIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 20, 2003
TECH LABORATORIES, INC.
By: /s/ Bernard M. Ciongoli
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Bernard M. Ciongoli
Chief Executive Officer, Principal Financial
Officer and Chief Accounting Officer)
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