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 JUNE 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
------- ----------
(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: 592,964 shares of
common stock as of July 31, 2004.
TECHLABS, INC.
Form 10-QSB for the period ended June 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 June 30, 2004 (unaudited).....1
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2004 and 2003 (unaudited)........2
Condensed Consolidated Statements of Cash Flows for the three
months and six months ended June 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
June 30, 2004 (Unaudited)
ASSETS
Current Assets
Cash ..................................................... $ 49
-----------
Total Current Assets ............ 49
Intangible and Other Assets
Intangibles, net ......................................... 34,890
-----------
$ 34,939
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable & accrued expenses ...................... $ 23,240
Due to stockholder ....................................... 26,843
Loan - related party ..................................... 6,500
-----------
Total Current Liabilities ............ 56,583
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, Class B
10,000,000 authorized, no shares issued
and outstanding ....................................... -
Preferred stock - $.001 par value,
10,000,000 shares authorized,
225,000 shares Class C Preferred
Stock issued and outstanding .......................... 225
Common stock ($.001 par value, 200,000,000
shares authorized, 592,964 shares issued
and outstanding) ...................................... 593
Additional paid-in capital ............................... 8,132,847
Deferred compensation .................................... (104,167)
Accumulated deficit ...................................... (8,063,642)
-----------
(21,644)
-----------
$ 34,939
===========
The accompanying notes are an integral part of
these consolidated financial statements.
1
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2004 and 2003 (Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Net revenue ................... $ - $ 4,248 $ - $ 10,518
--------- --------- --------- ---------
Selling, general and
administrative expenses ....... 6,470 19,104 19,519 29,454
Stock compensation expense ...... 20,833 - 20,833 -
Depreciation and
amortization expense .......... 17,444 34,181 34,888 68,362
--------- --------- --------- ---------
Total Expenses ............... 44,747 53,285 75,240 97,816
--------- --------- --------- ---------
Operating loss .................. (44,747) (49,037) (75,240) (87,298)
Other expense
Interest expense ................ - - - 1,350
--------- --------- --------- ---------
Total other
expense ................ - - - 1,350
--------- --------- --------- ---------
Net income (loss) ............... $ (44,747) $ (49,037) $ (75,240) $ (88,648)
========= ========= ========= =========
Earnings per share:
Basic and diluted income (loss)
per common share ............ $ (0.08) $ (0.10) $ (0.15) $ (0.18)
========= ========= ========= =========
Basic and diluted
weighted average
shares outstanding .......... 532,524 492,964 512,854 492,964
========= ========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003 (Unaudited)
2004 2003
----------- -----------
(Unaudited) (Unaudited)
Operating Activities
Net income (loss) ................................. $(75,240) $(88,648)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization and depreciation ..................... 34,888 68,362
Stock compensation cost ........................... 20,833 -
Provision for uncollectible accounts .............. 966 -
Changes in operating assets and liabilities:
Decrease in accounts receivable ................... - 5,375
Increase in accounts payable and accrued expenses . 9,352 14,911
-------- --------
Net Cash Used In
Operating Activities .......................... (9,201) -
Investing Activities
Financing Activities
Due to stockholder ................................ (2,494) -
Proceeds from loan - related party ................ 6,500 -
-------- --------
Net Cash Provided By
Financing Activities .......................... 8,994 -
Change in Cash and Cash Equivalents ...... (207) -
Cash and cash equivalents, beginning of period ........ 256 -
-------- --------
Cash and cash equivalents, end of period .............. $ 49 $ -
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
3
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 six month period
ended June 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 $75,240 for the six months ended
June 30, 2004 and have an accumulated deficit of $8,063,642 at June 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 six months ended June 30, 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 June 30,
2004 we had $49 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 June 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.
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 June 30, 2004 are:
Domain names, trade names
and contracts of MyStartingPoint.com .................... $ 1,000,000
Loss on impairment ............................................... (665,333)
Less: Accumulated amortization ................................... (299,777)
-----------
Intangible, net .............. $ 34,890
===========
Amortization expense was $17,444 and $34,888, respectively, for the
three months ended June 30, 2004 and June 30, 2003, and $34,181 and $68,362,
respectively, for the six months ended June 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. At June 30, 2004, we owed Yucatan Holding Company $26,843, net of
repayments, which included $7,500 of compensation for Mrs. Dorrough for the six
months ended June 30, 2004. This amount will be paid by us as our working
capital permits.
NOTE 4 LIABILITIES
During the six months ended June 30, 2004 a third party loaned us under
an oral agreement $6,500 on a non-interest bearing, on demand basis.
6
NOTE 5 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.
NOTE 6 SUBSEQUENT EVENTS
On July 28, 2004 Techlabs issued a press release stating its Board of
Directors approved changing the corporate name to Siren International Corp.
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. On August 18, 2004 Techlabs announced that it
had substantially completed its due diligence on this pending acquisition.
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 six months ended
June 30, 2004, as compared to revenues of $4,248 and $10,518, respectively, for
the comparable three month and six 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. We are presently sourcing replacements for ResponseBase.
Our total expenses for the three months ended June 30, 2004 decreased
$8,538, or approximately 49%, from the comparable three month period in fiscal
2003. Our total expenses for the six months ended also decrease by $22,576, or
approximately 41%, for the six months ended June 30, 2004 as compared to the six
months ended June 30, 2003. Included in these decreases was:
* a decrease of $12,634, or approximately 66%, and a decrease of
$9,935, or approximately 34%, in selling, general and administrative
expenses for the three months and six months ended June 30, 2004
from the comparable periods in fiscal 2003.
7
* an increase of $20,833 in non-cash stock compensation expense for
the three months and six months ended June 30, 2004 from the three
months and six months ended June 30, 2003, and
* a decrease of $16,737, or approximately 49%, and a decrease of
$33,474, or approximately 49%, in deprecation and amortization
expense during the three and six months ended June 30, 2004 from the
comparable periods in fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, we had a working capital deficit of $56,534 as
compared to a working capital deficit of $30, 015 at December 31, 2003. Net cash
used in operating activities for the six months ended June 30, 2004 was $9,201
as compared to $0 for the comparable period in fiscal 2003. This increase is
primarily attributable to an decrease in revenues. Net cash provided by
financing activities was $8,994 as compared to $0 and is primarily attributable
to the proceeds of loans from related parties during the six months ended June
30, 2004. We have an accumulated deficit of $8,063,642 at June 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
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
8
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.
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
On July 28, 2004 Techlabs issued a press release stating its Board of
Directors approved changing the corporate name to Siren International Corp.
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. On August 18, 2004 Techlabs announced that it
had substantially completed its due diligence on this pending acquisition.
Item 6. Exhibits and Reports on Form 8-K
(a) 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 and Chief Financial Officer
Pursuant Section 906
99.1 Press release dated June 28, 2004
99.2 Press release dated August 6, 2004
99.3 Press release dated August 18, 2004
(b) Reports on Form 8-K
None.
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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: August 19, 2004
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