UNITED STATES
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 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: 000-26233
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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 665,964 shares of common
stock as of October 31, 2004.
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
TECHLABS, INC.
Form 10-QSB for the period ended September 30, 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
September 30, 2004 (unaudited)......................................1
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 2004 and 2003 (unaudited).......2
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 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...............................................8
Part II Other Information.....................................................8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 2004 (Unaudited)
ASSETS
Current Assets
Cash .......................................................... $ 12
-----------
Total Current Assets 12
Intangible and Other Assets
Intangibles, net .............................................. 17,445
-----------
$ 17,457
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable & accrued expenses ........................... $ 23,240
Due to stockholder ............................................ 16,000
Loan - related party .......................................... 6,500
-----------
Total Current Liabilities 45,740
STOCKHOLDERS' (DEFICIT)
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, 10,000,000 Class B
shares authorized, no shares issued and outstanding .......... -
Preferred stock ($.001 par value, 10,000,000 Class C
shares authorized, 225,000 shares issued and outstanding ..... 225
Common stock ($.001 par value, 200,000,000 shares
authorized, 652,964 shares issued and outstanding) ......... 653
Additional paid-in capital .................................... 8,300,787
Deferred compensation ......................................... (83,667)
Accumulated deficit ........................................... (8,258,781)
-----------
Total Stockholders' (Deficit) (28,283)
-----------
$ 17,457
===========
The accompanying notes are an integral part of these
unaudited financial statements.
1
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2004 and 2003 (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Revenue
Net revenues ............................... $ - $ 3,685 $ - $ 14,203
Selling, general and administrative expenses .. 5,929 6,030 21,697 35,484
Stock compensation ............................ 175,516 - 196,349 -
Depreciation & amortization expense ........... 17,444 34,271 52,333 102,633
--------- --------- --------- ---------
Total expenses ................................ 198,889 40,301 270,379 138,117
--------- --------- --------- ---------
Operating loss ................................ (198,889) (36,616) (270,379) (123,914)
Other Income (Expense)
Interest expense .............................. - - - (1,350)
--------- --------- --------- ---------
Net Loss ...................................... $(198,889) $ (36,616) $(270,379) $(125,264)
========= ========= ========= =========
Earnings per share:
Basic and diluted loss per common share ..... $ (0.33) $ (0.07) $ (0.50) $ (0.25)
========= ========= ========= =========
Basic and diluted weighted average
shares outstanding .......................... 606,810 492,964 544,466 492,964
The accompanying notes are an integral part of these
unaudited financial statements.
2
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003 (Unaudited)
2004 2003
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Operating Activities
Net loss .............................................................. $(270,379) $(125,264)
Adjustments to reconcile net loss to
net cash (used) provided by operating activities
Amortization and depreciation ........................................ 52,333 102,827
Common stock issued for compensation ................................. 196,349 -
Provision for uncollectible accounts ................................. 966 -
Changes in operating assets and liabilities:
Increase in accounts receivable .................................. - 5,009
Increase in accounts payable and accrued expenses ................ (3,257) 17,629
--------- ---------
Net Cash (Used) Provided by Operating Activities . (23,988) 201
Investing Activities .................................................... - -
Financing Activities
Due to stockholder .................................................... 17,244
Proceeds from loan - related party .................................... 6,500 -
--------- ---------
Net Cash Provided by Financing Activities ....... 23,744 -
--------- ---------
Change in Cash and Cash Equivalents ............. (244) 201
Cash and cash equivalents, beginning of period .......................... 256 0
--------- ---------
Cash and cash equivalents, end of period ................................ $ 12 $ 201
========= =========
The accompanying notes are an integral part of these
unaudited 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 nine month
period ended September 30, 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 $270,379 for the nine months
ended September 30, 2004 and have an accumulated deficit of $8,258,781 at
September 30, 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 nine months ended September 30, 2004 and 2003 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
September 30, 2004 we had $12 in cash and cash equivalents.
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
recognized on a net basis in that we do not act as the principal in the
transaction and the amount we earn is fixed.
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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. Techlabs accounts 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 September 30, 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.
NOTE 2. INTANGIBLES
Included in intangibles at September 30, 2004 are:
Domain names, trade names and
contracts of MyStartingPoint.com .......... $ 1,000,000
Loss on impairment .......................... (665,333)
Less: Accumulated amortization .............. (317,222)
-----------
Intangible, net .......... $ 17,445
Amortization expense was $17,444 and $23,000, respectively, for the
three months ended September 30, 2004 and September 30, 2003, and $52,333 and
$69,000, respectively, for the nine months ended September 30, 2004 and 2003.
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. In September 2004, the Company issued Mrs. Dorrough 60,000 shares
of its common stock valued at $168,000 in full satisfaction of $12,984 of
accrued unpaid compensation and for additional compensation for the remaining
fiscal 2004 as well as for past services.
At September 30, 2004, we owed Yucatan Holding Company $16,000, net of
repayments. This amount will be paid by us as our working capital permits
During the nine months ended September 30, 2004 a third party loaned us
under an oral agreement $6,500 on a non-interest bearing, on demand basis.
NOTE 4. COMMITMENTS AND CONTINGENCIES
In July 2004 Techlabs was named as a defendant in the matter DONALD
KURTH, ROSALY KURTH AND KRISTINE KURTH V. FEINGOLD & KAM, LLC, FEINGOLD & KAM,
DAVID FEINGOLD ET AL, filed in the Circuit Court for the 15th District in and
for Palm Beach County, Florida. The portion of the suit which relates to
Techlabs involves the purported actions by the unaffiliated third parties in the
October 1999 private sales of shares of Techlabs in transactions in which
Techlabs was neither a party nor received any proceeds therefrom. The plaintiffs
are alleging that the shares of Techlabs' stock which were the subject of these
purported private sales failed to bear the appropriate restrictive legends as
required under the Securities Act of 1933, and the plaintiff's are further
alleging conversion and civil theft against David Feingold and Feingold & Kam.
Techlabs' does not believe that it violated any provisions of the Securities Act
of 1933 as it relates to the shares of its common stock which are the subject of
this complaint and is seeking to have Techlabs' dismissed as a defendant.
Techlabs is unable at this time to predict the outcome of this action or any
possible monetary costs to it resulting therefrom.
6
On August 23, 2004 Techlabs filed a complaint against Addante and
Associates, a Delaware corporation, in the U.S. District Court for the Eastern
District of Tennessee, styled Techlabs, Inc. and Starting Point, Inc. v. Addante
and Associates, Case No. 3:04-CV-385. Techlabs had previously engaged Addante
and Associates to perform certain services for it in connection with its
Starting Point.com web site. In this complaint Techlabs alleges a breach of
contract by Addante and Associates and it is seeking $500,000 in damages.
NOTE 5. SUBSEQUENT EVENTS
On July 28, 2004 Techlabs Board of Directors approved changing the
corporate name to Siren International Corp. Techlabs anticipates filing an
information statement with the SEC regarding this pending name change during the
fourth quarter of fiscal 2004.
On August 6, 2004 Techlabs signed a letter of intent to purchase the
outstanding stock of Florida Fountain of Youth, Inc. and Florida Fountain of
Youth Spas, Inc. The transaction is subject to the completion of satisfactory
due diligence on the part of Techlabs with respect to both companies. Techlabs
continues to finalize its due diligence and based upon the information continues
to pursue the acquisition. As of November 17, 2004, the transaction has not been
finalized.
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 or nine months
ended September 30, 2004, as compared to revenues of $3,685 and $14,203,
respectively, for the comparable three month and nine month periods in fiscal
2003. For fiscal 2003 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.
Our total expenses for the three months ended September 30, 2004
increased $158,588, or approximately 394%, from the comparable three month
period in fiscal 2003. Our total expenses for the nine months ended also
increased by $132,262, or approximately 96%, for the nine months ended September
30, 2004 as compared to the nine months ended September 30, 2003. These
increases are primarily attributable to non-cash stock compensation of $175,516
and $196,349 for the three and nine months ended September 30, 2004 as compared
to $0 for each of the comparable periods in fiscal 2003. This increase was
offset by a slight decreases in selling, general and administrative expenses and
depreciation and amortization expenses during the three and nine months periods
in fiscal 2004 as compared to the same periods in fiscal 2003. The decrease in
selling, general and administrative expenses was attributable to a reduction in
professional fees, and the decrease in depreciation and amortization expense was
attributable to a write-down of certain intangible assets in the fourth quarter
of fiscal 2003. We believe that our selling, general and administrative expenses
will continue at this approximate level for the balance of fiscal 2004..
We have been unsuccessful to date during fiscal 2004 in generating
revenue from the rental of our StartingPoint.com email list. On August 6, 2004
we announced that we had signed a letter of intent to purchase the outstanding
stock of Florida Fountain of Youth, Inc. and Florida Fountain of Youth Spas,
Inc. The transaction is subject to the completion of satisfactory due diligence
7
on the part of Techlabs with respect to both companies. We continues to finalize
our due diligence and based upon the information continue to pursue the
acquisition. As of November 17, 2004, the transaction has not been finalized.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had a working capital deficit of $45,728 as
compared to a working capital deficit of $30,015 at December 31, 2003. Net cash
used in operating activities for the nine months ended September 30, 2004 was
$23,988 as compared to $201 in net cash provided by operating activities. The
decrease is attributable to the decrease in revenues during the nine month
period ended September 30, 2004 as compared to the nine month period ended
September 30, 2003. Net cash provided by financing activities was $23,744 as
compared to $0 and is primarily attributable to the proceeds of loans from
related parties during the nine months ended September 30, 2004. We have an
accumulated deficit of $8,258,781 at September 30, 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Item 5. Other Information
On July 28, 2004 Techlabs issued a press release stating its Board of
Directors approved changing the corporate name to Siren International Corp.
Techlabs anticipates filing an information statement with the SEC regarding this
pending name change during the fourth quarter of fiscal 2004.
On August 6, 2004 Techlabs announced that it had signed a letter of
intent to purchase the outstanding stock of Florida Fountain of Youth, Inc. and
Florida Fountain of Youth Spas, Inc. Terms of the transaction were not
disclosed; however Techlabs' news release stated that it anticipated that the
transaction would be consummated at the end of August. The transaction is
subject to the completion of satisfactory due diligence on the part of Techlabs
with respect to both companies. Techlabs' continues to finalize its due
diligence and based upon the information continues to pursue the acquisition. As
of November 17, 2004, the transaction has not been finalized.
Item 6. Exhibits
Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) Certification of principal executive officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of principal financial officer
32.1 Certification of Chief Executive Officer Pursuant Section 906
9
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: November 19, 2004
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