U.S. SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[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: 000-26233
TECHLABS, INC.
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(Exact name of small business issuer as specified in its charter)
Florida 65-0843965
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
8905 Kingston Pike, Suite 307, Knoxville, TN 37923
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(Address of Principal executive offices)
Issuer's telephone number, including area code: (215) 243-8044
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 492,964 shares of
common stock as of May 21, 2004.
TECHLABS, INC.
Form 10-QSB for the period ended March 31, 2004
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-QSB contain or
may contain forward-looking statements that are subject to known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements were based on various factors and
were derived utilizing numerous assumptions and other factors that could cause
our actual results to differ materially from those in the forward-looking
statements. These factors include, but are not limited to economic, political
and market conditions and fluctuations, government and industry regulation,
interest rate risk, U.S. and global competition, and other factors. Most of
these factors are difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described in connection with any
forward-looking statements that may be made herein. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this report. Readers should carefully review this quarterly report
in its entirety, including but not limited to our financial statements and the
notes thereto. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
When used in this report, the terms "Techlabs," "we," and "us" refers
to Techlabs, Inc., a Florida corporation, and its subsidiaries.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2004 (unaudited)....1
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2004 and 2003 (unaudited)................2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2004 and 2003 (unaudited)................3
Notes to Condensed Consolidated Financial Statements (unaudited) .....4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................7
Item 3. Controls and Procedures...............................................7
Part II Other Information.....................................................8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHLABS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, 2004
(Unaudited)
ASSETS
Current Assets
Cash ..................................................... $ 460
Accounts receivable ...................................... 966
-----------
Total Current Assets ................. 1,426
Intangible and Other Assets
Intangibles, net ......................................... 52,334
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$ 53,760
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses ...................... $ 35,756
Due to stockholder ....................................... 9,234
Loan ..................................................... 6,500
-----------
Total Current Liabilities ............ 51,490
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 25,000,000 shares
authorized, 12,500,000 shares Class A Special
Preferred issued and outstanding ...................... 12,500
Preferred stock - $.001 par value, Class B 10,000,000
authorized, no shares issued and outstanding .......... -
Preferred stock - $.001 par value, 10,000,000 shares
authorized, 225,000 and no shares Class C Preferred
Stock issued and outstanding .......................... 225
Common stock ($.001 par value, 200,000,000 shares
authorized, 492,964 shares issued and outstanding) .... 493
Additional paid-in capital ............................... 8,007,947
Accumulated deficit ...................................... (8,018,895)
-----------
2,270
-----------
$ 53,760
===========
The accompanying notes are an integral part of
these consolidated financial statements.
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TECHLABS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2004 and 2003
For the Three Months
Ended March 31,
2004 2003
--------- ---------
(Unaudited) (Unaudited)
Revenue
Net revenue .................................. $ - $ 6,270
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Selling, general and
administrative expenses ...................... 13,049 10,350
Depreciation and
amortization expense ......................... 17,444 34,181
--------- ---------
Total Expenses ............................. 30,493 44,531
--------- ---------
Operating loss ................................. (30,493) (38,261)
Other expense
Interest expense ............................... - 1,350
--------- ---------
Total other income expenses ................ - 1,350
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Net loss ....................................... $ (30,493) $ (39,611)
========= =========
Earnings per share:
Basic and diluted loss
per common share ........................... $ (0.06) $ (0.08)
========= =========
Basic and diluted
weighted average
shares outstanding ......................... 492,964 492,964
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
TECHLABS, INC. AND SUBSIDIARIES
Consensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2004 and 2003
For the Three Months
Ended March 31,
2004 2003
--------- ---------
(Unaudited) (Unaudited)
Operating Activities
Net loss ................................... $(30,493) $(39,611)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization and depreciation .............. 17,444 34,271
Changes in operating assets and liabilities:
Decrease in accounts receivable ............ - 325
Increase in accounts payable ............... 9,259 5,001
-------- --------
Net cash used in operating activities .... (3,790) (14)
Investing Activities ........................... - -
Financing Activities
Proceeds from loan ............................. 6,500 -
Due to related parties ......................... (2,506) -
-------- --------
Net cash provied by fianancing activities 3,994 -
Change in Cash and Cash Equivalents 204 (14)
Cash and cash equivalents, beginning of period . 256 14
-------- --------
Cash and cash equivalents, end of period ....... $ 460 $ -
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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TECHLABS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS. We were incorporated in the State of Florida in May 1998
under the name Coordinated Physician Services, Inc. to organize and operate
primary care physician networks for managed medical care organizations. In
February 1999 we abandoned this business due to excessive competition and
changed our name to Techlabs, Inc. We generate revenues through the rental of
our list of targeted, opt-in email addresses which are generated from our
website. The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions of Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustment (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2004 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2004. For further
information, please refer to our audited financial statements and footnotes
thereto for the fiscal year ended December 31, 2003 included in our Annual
Report on Form 10-KSB as filed with the Securities and Exchange Commission.
GOING CONCERN. The accompanying financial statements have been prepared
assuming that we will continue as a going concern. As shown in the accompanying
financial statements, we incurred a net loss of $30,493 during the three months
ended March 31, 2004 and have an accumulated deficit of $8,018,895 at March 31,
2004. Although a substantial portion of our net loss is attributable to non-cash
operating expenses, we believe that these matters raise substantial doubt about
our ability to continue as a going concern. The accompanying financial
statements do not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should we be unable to continue as a going concern.
BASIS OF CONSOLIDATION. The accompanying consolidated financial
statements for the three months ended March 31, 2004 include the accounts of
Techlabs and its wholly-owned subsidiaries StartingPoint.com, Inc. and
Interplanner.com, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and, as such, include amounts based on informed estimates and
assumptions by management, with consideration given to materiality. Actual
results could vary from those estimates.
CASH EQUIVALENTS. Cash and cash equivalents consists of all highly
liquid investments with original maturities of three months or less. At March
31, 2004 we had $460 in cash and cash equivalents.
CONCENTRATION OF CREDIT RISK. At March 31, 2004 100% of our accounts
receivable was due from one customer. The allowance for doubtful accounts at
March 31, 2004 is $0. We consider all accounts receivable fully collectible
therefore we have not recorded a provision for doubtful accounts.
REVENUE RECOGNITION. Our revenue has been derived from rentals of our
opt-in email lists to third party list management companies. Revenue from email
lists is recognized when billed by the company that manages the list, and is
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recognized on a net basis in that we do not act as the principal in the
transaction and the amount we earn is fixed. We believe revenues from rental of
our email lists to be fully collectible and have not provided for an allowance
for doubtful accounts.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, net
of accumulated depreciation. Depreciation on assets placed in service is
determined using the straight-line method over the estimated useful lives of the
related assets which range from three to seven years. Significant improvements
are capitalized while maintenance and repairs are expensed as incurred.
WEB SITE DEVELOPMENT COSTS. We account for costs incurred in connection
with the development of our web sites in accordance with Statement of Position
SOP98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" and Emerging Issues Task Force Issue No. 00-2, "Accounting for Web
Site Development Costs." Accordingly, all costs incurred in planning the
development of a web site are expensed as incurred. Costs, other than general
and administrative and overhead costs, incurred in the web site application and
infrastructure development stage, which involve acquiring hardware and/or
developing software to operate the web site are capitalized. Fees paid to an
Internet service provider for hosting the web site on its servers connected to
the Internet are expensed. Other costs incurred during the operating stage, such
as training administration costs, are expensed as incurred. Costs incurred
during the operating stage for upgrades and enhancements of the web site are
capitalized if it is probable that they will result in added functionality.
Capitalized web site development costs are amortized on a straight-line basis
over their estimated useful life of five years.
INTANGIBLES. Intangible assets consist of domain names, trade names and
contracts related to a purchased Internet web portal site and meta-search
technology. Amortization for intangibles is determined using the straight-line
method over the estimated useful life of five years.
RECLASSIFICATION. Certain amounts from prior periods have been
reclassified to conform to the current year presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107, "Disclosure About
Fair Value of Financial Instruments," requires certain disclosures regarding the
fair value of financial instruments. Trade accounts receivable, accounts
payable, and accrued liabilities are reflected in the financial statements at
fair value because of the short-term maturity of the instruments.
INCOME TAXES. Eline account for income taxes under SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
INCOME (LOSS) PER SHARE. Basic and diluted income (loss) per share is
calculated by dividing net income (loss) for the period by the weighted average
number of shares of common stock outstanding during the period. The assumed
exercise of stock options is only included in the calculation of diluted
earnings per share, if dilutive. As of March 31, 2004 and 2003, we did not have
any outstanding common stock equivalents.
BUSINESS SEGMENTS. We operate in one segment and therefore segment
information is not presented.
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STOCK-BASED COMPENSATION. In accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 123, we have elected to account for stock
options issued to employees under Accounting Principles Board Opinion No. 25
("APB Opinion No. 25") and related interpretations. We account for stock options
issued to consultants and for other services in accordance with SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS. In May 2003, SFAS No. 150 "Accounting
for Certain Financial Instruments with characteristics of both liabilities and
equity" was issued. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, Elements of
Financial Statements. The remaining provisions of this Statement are consistent
with the Board's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own equity
shares, depending on the nature of the relationship established between the
holder and the issuer. While the Board still plans to revise that definition
through an amendment to Concepts Statement 6, the Board decided to defer issuing
that amendment until it has concluded its deliberations on the next phase of
this project. That next phase will deal with certain compound financial
instruments including puttable shares, convertible bonds, and dual-indexed
financial instruments.
This statement is effective for financial instruments entered into on
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first fiscal interim period beginning after June 15, 2003. The adoption
of this pronouncements did not have a material effect on our financial position
or results of operations.
NOTE 2. INTANGIBLES
Included in intangibles at March 31, 2004 are:
Domain names, trade names and contracts of MyStartingPoint.com .... $ 1,000,000
Loss on impairment ................................................ (665,333)
Less: Accumulated amortization .................................... (282,333)
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Intangible, net ............... $ 52,334
===========
Depreciation expense was $17,444 and $34,181 for the three months ended
March 31, 2004 and 2003, respectively.
NOTE 3. RELATED PARTY TRANSACTIONS
From time to time Yucatan Holding Company, our principal shareholder,
has advanced funds for working capital. In addition, effective January 1, 2004
the Company began accruing compensation of $15,000 annually for Mrs. Jayme
Dorrough, our sole officer and director and the principal of Yucatan Holding
Company, Inc. At March 31, 2004, we owed Yucatan Holding Company $9,234, net of
repayments, which included $3,750 of compensation for Mrs. Dorrough for the
three months ended March 31, 2004. This amount will be paid by us as our working
capital permits.
NOTE 4. LIABILITIES
During the three months ended March 31, 2004 a third party loaned us
under an oral agreement $6,500 on a non-interest bearing, on demand basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
We did not report any revenues for the three months ended March 31,
2004, as compared to revenues of $6,270 for the comparable period in fiscal
2003. For fiscal 2003 and 2002 our revenues represented fees earned by us from
the rental of our StartingPoint.com email list to ResponseBase, a third party
direct marketing company. ResponseBase was our sole source of revenues and we
were materially reliant on revenues from this customer. Subsequent to fiscal
2003, and as set forth in our annual report on Form 10-KSB for the fiscal year
ended December 31, 2003, ResponseBase informed us that they were exiting that
segment of their business. We are presently sourcing replacements for
ResponseBase.
Our total expenses for the three months ended March 31, 2004 decreased
$14,038, or approximately 37%, from the comparable three month period in fiscal
2003, primarily a result of a decrease in non-cash depreciation and amortization
expense for the quarter. During the year ended December 31, 2003 we determined
that certain recorded assets were impaired, resulting in an impairment loss of
$87,904, which was included in selling, general and administrative expenses for
fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, we had a working capital deficit of $50,064 as
compared to a deficit of $30,015 at December 31, 2003. Net cash used in
operating activities for the first quarter of fiscal 2004 was $3,790 as compared
to $14 for the first quarter of fiscal 2003. This increase is primarily
attributable to a decrease in depreciation and amortization, a non-cash expense,
which was offset by an increase in accounts payable. Net cash provided by
financing activities for the first quarter of fiscal 2004 was $3,994 as compared
to $0 for the three months ended March 31, 2003. This change is the result of a
short-term loan to our company of $6,500 from a third party which was offset by
a reduction of $ 2,506 in the amount due to stockholder from the balance due at
December 31, 2003.
We have an accumulated deficit of $8,018,895 at March 31, 2004, and the
report from of our independent auditor on our audited financial statements at
December 31, 2003 contains a going concern modification. We will continue to
incur losses during the foreseeable future. Yucatan Holding Company, our
principal shareholder, has agreed to provide us sufficient funds to pay our
direct expenses and corporate overhead until such time as we generate sufficient
revenues to fund these costs. We do not have any present commitments for capital
expenditures.
ITEM 3. CONTROLS AND PROCEDURES
Our management, which includes our President who is our sole officer,
has conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-14(c) promulgated under the Securities and
Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") as of the
end of the period covered by this report. Based upon that evaluation, our
President has concluded that our disclosure controls and procedures are
effective for timely gathering, analyzing and disclosing the information we are
required to disclose in our reports filed under the Securities Exchange Act of
1934, as amended. There have been no significant changes made in our internal
controls or in other factors that could significantly affect our internal
controls subsequent to the end of the period covered by this report based on
such evaluation.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) Certification
32.1 Certification of Chief Executive Officer Pursuant Section 906
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Techlabs, Inc.
By: /S/ Jayme Dorrough
Jayme Dorrough, President
Dated: May 24, 2004
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