U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended September 30, 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 as specified in its charter)
New Jersey 22-1436279
------------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
955 Belmont Avenue, North Haledon, NJ 07508
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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 November 19, 2004, there were 75,558,689
shares outstanding.
TECH LABORATORIES, INC.
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets.................................................. 1 - 2
Statements of Operations........................................... 3
Statements of Cash Flows........................................... 4
Notes to Financial Statements...................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation............................................ 6 - 7
Item 3. Controls and Procedures............................................ 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 9
Item 2. Changes in Securities.............................................. 9
Item 3. Defaults by the Company Upon its Senior Securities................. 9
Item 4. Submission of Matter to a Vote of Security Holders................. 10
Item 5. Other Information.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 10
SIGNATURES................................................................... 10
TECH LABORATORIES, INC.
BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
September 30, December 31,
2004 2003
----------- -----------
Current Assets:
Cash $ 39,210 $ 165,308
Accounts receivable, net of allowance for
for doubtful accounts of $1,000 104,811 10,107
Inventories 1,456,122 1,249,777
Prepaid expenses 720 1,074
----------- -----------
Total current assets 1,600,863 1,426,266
----------- -----------
Property, plant, and equipment, at cost:
Leasehold improvements 2,247 2,247
Machinery, equipment, and instruments 607,987 607,987
Furniture and fixtures 110,893 110,893
----------- -----------
Total property, plant, and equipment 721,127 721,127
Less: Accumulated depreciation and amortization (442,570) (427,909)
----------- -----------
Net property, plant, and equipment $ 278,557 $ 293,218
----------- -----------
Other assets $ 14,420 $ 12,063
----------- -----------
Total assets $ 1,893,840 $ 1,731,547
=========== ===========
See notes to financial statements.
1
TECH LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited) (Audited)
September 30, December 31,
2004 2003
----------- -----------
Current Liabilities:
Defaulted convertible notes $ 173,348 $ 1,480,785
Note payable to bank 34,444 34,444
Accounts payable 291,326 300,712
Other liabilities 7,621 3,271
----------- -----------
Total current liabilities 506,739 1,819,212
----------- -----------
Stockholders' equity (deficiency):
Common stock, $.01 par value; 250,000,000 shares authorized:
18,045,376 shares outstanding in 2003; 75,558,689 shares
outstanding in 2004 755,587 175,143
Less: 15,191 shares reacquired and held in treasury (113) (113)
----------- -----------
755,474 175,030
Additional paid-in capital 6,161,129 4,480,381
(Accumulated deficit) (5,529,502) (4,743,076)
----------- -----------
1,387,101 (87,665)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,893,840 $ 1,731,547
=========== ===========
See notes to financial statements.
2
TECH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Sales $ 167,872 $ 32,619 $ 233,138 $ 202,634
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 92,179 28,338 131,043 141,793
Selling, general, and administrative expense 181,065 228,049 491,138 304,289
------------ ------------ ------------ ------------
273,244 256,387 622,181 446,082
------------ ------------ ------------ ------------
Income (loss) from Operations (105,372) (223,768) (389,043) (243,448)
Other income (expenses):
Interest income 10 -- 104 192
Interest expense (8,752) (18,500) (57,487) (55,350)
Financing fee -- -- (340,000) --
------------ ------------ ------------ ------------
(8,742) (18,500) (397,383) (55,158)
Income (loss) before income taxes (114,114) (242,268) (786,426) (298,606)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) (114,114) (242,268) (786,426) (298,606)
(Accumulated deficit), Beg Qtr (5,415,388) (3,873,490) (4,743,076) (3,817,153)
------------ ------------ ------------ ------------
(Accumulated deficit), End Qtr (5,529,502) (4,115,758) (5,529,502) (4,115,759)
------------ ------------ ------------ ------------
Net loss per share, basic and diluted $ -- $ (0.04) $ (0.02) $ (0.05)
============ ============ ============ ============
Weighted average number of common
shares and equivalents, basic and diluted 65,324,970 5,522,416 46,557,417 5,522,416
============ ============ ============ ============
See notes to financial statements.
3
TECH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------
2004 2003
----------- -----------
Cash flow from (for) operating activities:
Net income (loss) from operations $ (786,426) $ (298,606)
Add (deduct) items not affecting cash:
Depreciation/amortization 14,661 19,921
Expenses paid with the issuance of stock 743,741 --
Changes in operating assets and liabilities
Accounts receivable (94,704) (10,271)
Inventories (206,345) 115,982
Accounts payable and accrued expenses 25,628 (36,435)
Other assets/liabilities 2,347 186,895
----------- -----------
Net cash flow for operating activities (301,098) (22,514)
----------- -----------
Cash flows from (for) investing activities
Addition of machinery and equipment -- (36)
----------- -----------
Net cash flow from (for) investing activities -- (36)
----------- -----------
Cash flows from (for) financing activities:
Proceeds of convertible note 175,000 --
----------- -----------
Net cash flow from (for) financing activities 175,000 --
----------- -----------
Net increase (decrease) in cash (126,098) (22,550)
Cash balance beginning of year 165,308 68,343
----------- -----------
Cash balance - end of third quarter $ 39,210 $ 45,793
=========== ===========
Supplemental schedule of noncash investing and
financing activities:
Conversion of debt to common stock $ 1,538,837 $ --
See notes to financial statements.
4
TECH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Tech Laboratories, Inc.
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Item
310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended, September 30, 2004 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2004. These unaudited financial statements should be
read in conjunction with the audited financial statements and footnotes
thereto included in the Company's Form 10-KSB/A for the year ended,
December 31, 2003, as filed with the Securities and Exchange Commission.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. LONG-TERM CONVERTIBLE DEBT
On October 13, 2000, Tech Labs completed a $1.5 million financing of 6.5%
convertible promissory notes due October 15, 2002. Interest is payable
quarterly in cash or in shares of common stock at the option of the
noteholders. Tech Labs disclosed all terms of this financing on Form 8-K
filed on October 18, 2000.
On January 11, 2002, Tech Labs entered into a conversion and redemption
agreement concerning the long-term debt. An Event of Default, as defined
in the 6.5% convertible notes, occurred on January 25, 2002, when Tech
Labs was unable to make the first payment of $750,000 to the holders of
the notes.
On April 19, 2002, Tech Labs successfully negotiated a cure of the default
referenced above. This cure required that Tech Labs' registration
statement, filed with the Securities and Exchange Commission on April 5,
2002, to have been declared effective on or before June 29, 2002, covered
the shares underlying the 6.5% convertible notes. If the registration
statement was declared effective by such date and Tech Labs made certain
payments described in the Tech Labs' report on Form 8-K filed April 25,
2002, the maturity date of the 6.5% convertible notes would have been
extended from October 13, 2002 to December 30, 2002.
On August 2, 2002, the Company announced that an Event of Default
reoccurred 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. In October 2003 a cure was successfully
negotiated and is further described in the Company's 8-K filed in October
2003. In May 2004, Cornell Capital acquired convertible debt and signed a
stand by equity financing agreement with Tech Labs, Inc. Financing
availability is contingent on registration of the shares underlying this
agreement. An SB-2 to register these shares is in process.
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TECH LABORATORIES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operation
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Quarter ending September 30, 2004, compared to Quarter ending September
30, 2003
Sales were $167,872 for the third quarter of 2004 as compared to
$32,619 for the similar period of 2003. This increase was due to the
sale of IDS Sensors to BAE Systems. The Company continues to seek
long-term contracts with major computer companies. The company
believes these contracts will provide future growth for its major
Product DYNTRAX. Cost of sales of $92,179 for the third quarter of
2004 has increased by $63,841 compared to the same period of 2003,
primarily due to the BAE sale.
Selling, general, and administrative expenses decreased by $46,984
compared to the same period of 2003 due to decreases in selling
expenses, and expenses associated with the company's attempts to
raise long-term capital due to the successful completion of the
stand by equity agreement.
Net loss from operations of ($114,114) decreased $128,154 compared
to a loss of ($242,268) for the prior period as a direct result of
the BAE sale and declines in expenses incurred to explore long-term
financing prospects.
Nine Months Ended September 30, 2004, compared to Nine Months Ended
September 30, 2003
Sales were $233,138 for the nine months ended, September 30, 2004,
as compared to $202,634 for the similar period of 2003. This
increase was due to the sale of IDS Sensors to BAE Systems. The
Company continues to seek long-term contracts with major computer
companies. The company believes these contracts will provide future
growth for its major Product DYNTRAX. Cost of sales of $131,043 for
the nine months ended, September 30, 2004, decreased by $10,750
compared to the same period of 2003.
Selling, general, and administrative expenses increased by $186,849
compared to the same period of 2003 due to increases in selling
expenses, and expenses associated with the company's attempts to
raise long-term capital due to the successful completion of the
stand by equity agreement.
Net loss from operations of ($786,426) increased $487,820 compared
to a loss of ($298,606) for the prior period as a direct result of
the increases in expenses incurred to explore long-term financing
prospects, including the $340,000 commitment fee paid to Cornell
Capital Partners, related to a standby equity distribution
agreement.
6
TECH LABORATORIES, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operation
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $126,098 during the
nine months ended, September 30, 2004, as compared to $22,550 during the
nine months ended, September 30, 2003.
As a result of operating losses and negative cash flow experienced during
2001, 2002, and 2003, and continuing in 2004, Tech Labs has a tenuous
liquidity position. If sales do not improve or alternative financing is
not available in the near future, substantial doubt exists about Tech
Labs' ability to continue as a going concern. The company has signed a
stand-by equity distribution agreement with Cornell Capital Partners in
May 2004, which could potentially provide approximately $8.5 million of
future equity financing. The company is in the process of preparing an
SB-2 registration statement registering the shares included in this
agreement.
During the first nine months of 2004, the Company is still suffering from
the economic downturn.
7
TECH LABORATORIES, INC.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer (collectively the
"Certifying Officers") maintain a system of disclosure controls and
procedures that is designed to provide reasonable assurance that
information, which is required to be disclosed, is accumulated and
communicated to management timely. Under the supervision and with the
participation of management, the Certifying Officers evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange
Act) within 90 days prior to the filing date of this report. Based upon
that evaluation, the Certifying Officers concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relative to our company required to be disclosed in our
periodic filings with the SEC.
(b) Changes in internal controls.
Our Certifying Officer has 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 his evaluation, and there
were no such control actions with regard to significant deficiencies and
material weaknesses.
8
TECH LABORATORIES, INC.
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 to the plaintiff, and we believe we will prevail
in this litigation.
On July 30, 2003, a former director and a former employee filed a joint
lawsuit in Superior Court of New Jersey, Passaic County, against us for
consulting fees and expenses, respectively. In the same lawsuit, W.T.
Sports filed a claim for a commission owed on sales due from a licensing
agreement with us. The claims by the former director and former employee
are for about $10,000 and we deny any liability under these claims and are
defending the lawsuit. With regard to W.T. Sports, our agreement has an
arbitration in case of dispute and therefore we are attempting to move
this case to arbitration. We believe that we have a counterclaim, which is
far in excess of the amount they claim we owe for the licensing fees. On
November 11, 2004, an arbitration hearing took place. The decision by the
arbitrator will be known by December 10, 2004.
On June 30, 2004, the law firm of Stursberg & Veith, former counsel to
Tech Laboratories, Inc., filed a lawsuit in the United States District
Court for the Southern District of New York claiming that the plaintiff
delivered certain good and valuable services to Tech laboratories and is
owed $161,179.26 plus interest, costs, and disbursements for each cause of
action, and other and further relief as the Court may deem necessary. The
complaint alleges four causes of action including an unpaid account,
stated breach of contract, quantim meruit, and unjust enrichment. We
disagree with the amount of the unpaid balance owed to the plaintiff. We
are in the process of filing a counterclaim for overcharging and certain
wrongdoing by the plaitiff.
Item 2. Changes in Securities.
None.
Item 3. Defaults by the Company Upon its Senior Securities.
None.
9
TECH LABORATORIES, INC.
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
(a) Exhibits
99.1 Certification of the Chief Executive and Chief Financial
Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports of Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TECH LABORATORIES, INC.
Date: February 10, 2005 By: /s/ Bernard M. Ciongoli
-----------------------------------------
Bernard M. Ciongoli
Chief Executive Officer
Chief Financial Officer
10