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 September 30, 2005
[ ] 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
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: 712,964 shares of common stock
as of December 19, 2005.
TECHLABS, INC.
Form 10-QSB for the period ended September 30, 2005
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 quarterly report, the terms "Techlabs" "we," and "us"
refers to Techlabs, inc., a Florida corporation, and its subsidiaries.
ii
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2005 (unaudited) .........1
Consolidated Statements of Operations for the three and nine
months ended September 30, 2005 and 2004 (unaudited) .................2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2005 and 2004 (unaudited) ........................3
Notes to Consolidated Financial Statements (unaudited) ...............4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................9
Item 3. Controls and Procedures .............................................10
Part II Other Information ...................................................12
iii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Techlabs, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2005
(unaudited)
ASSETS
Current Asset
Cash and cash equivalents ..................................... $ 715
Accounts receivable ........................................... 2,228
Inventory ..................................................... 28,559
Prepaid expenses .............................................. 530
-----------
Total current assets ...................................... 32,032
Property, Plant & equipment, net .............................. 37,206
Other Assets
Security deposits ............................................. 4,060
-----------
$ 73,298
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable & accrued expenses ........................... $ 37,870
Advances from related party ................................... 184,057
Due to stockholders ........................................... 8,237
Convertible note payable - related party, net ................. 19,232
Loan - related party .......................................... 6,500
-----------
Total Current Liabilities ................................. 255,896
STOCKHOLDERS' DEFICIENCY
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 shares Class B
authorized; no shares issued and outstanding ................ -
Preferred stock, $.001 par value; 10,000,000 shares
authorized; 225,000 shares Class C Preferred issued and
outstanding ................................................. 225
Common stock, $.001 par value; 200,000,000 shares
authorized, 712,964 issued and outstanding .................. 713
Additional paid-in capital .................................... 8,397,847
Accumulated deficit ........................................... (8,593,883)
-----------
Total Stockholders' Deficiency ............................ (182,598)
-----------
$ 73,298
===========
The accompanying notes are an integral part of these financial statements.
1
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Operations
For the three and nine months ended September 30, 2005 and 2004
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues ....................... $ 48,116 $ - $ 204,310 $ -
Cost of sales .................. 43,215 - 157,798 -
--------- --------- --------- ---------
Gross profit ................. 4,901 - 46,512 -
Operating expenses
General and administrative ... 31,148 5,929 120,980 21,697
Depreciation & amortization .. 1,305 17,444 3,408 52,333
Amortization of deferred
compensation ................ 5,250 175,516 63,000 196,349
--------- --------- --------- ---------
Total operating expenses ....... 37,703 198,889 187,388 270,379
--------- --------- --------- ---------
Operating loss ................. (32,802) (198,889) (140,876) (270,379)
Other expense
Interest expense ............. (10,172) - (26,176) -
Gain on forgiveness of
indebtedness ................ - - - -
--------- --------- --------- ---------
Net (loss) ..................... $ (42,974) $(198,889) $(167,052) $(270,379)
========= ========= ========= =========
Loss per share:
Basic and diluted (loss) per
common share ............... $ (0.06) $ (0.33) $ (0.24) $ (0.50)
========= ========= ========= =========
Basic and diluted weighted
average shares outstanding .... 712,964 606,810 709,214 544,466
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
2
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2005 and 2004
(unaudited)
For the Nine Months
Ended September 30,
2005 2004
--------- ---------
Operating Activities:
Net (loss) ....................................... $(167,052) $(270,379)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation and amortization .................. 3,408 52,333
Amortization of deferred compensation .......... 63,000 196,349
Amortization of interest expense ............... 19,232 -
Provision for uncollectible accounts ........... - 966
Changes in operating assets and liabilities:
Increase in other current assets ............. (2,757) -
Increase in inventory ........................ (28,559) -
Increase in accounts payable ................. 11,097 (3,257)
--------- ---------
Net Cash (Used in) Operating Activities .... (101,631) (23,988)
--------- ---------
Investing Activities:
Purchase of property and equipment ............... (20,208) -
--------- ---------
Net Cash (Used in) Investing Activities .... (20,208) -
--------- ---------
Financing Activities:
Bank overdraft ................................... (2,699) -
(Repayments) advance from stockholder ............ (19,173) 17,244
Proceeds from related party notes ................ 144,426 -
Advance from related party ....................... - 6,500
--------- ---------
Net Cash Provided by Financing Activities .. 122,554 23,744
--------- ---------
Increase (decrease) in Cash and Cash Equivalents ... 715 (244)
Cash, beginning of period .......................... - 256
--------- ---------
Cash, end of period ................................ $ 715 $ 12
========= =========
The accompanying notes are an integral part of these financial statements.
3
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
(unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
Techlabs, Inc. ("Techlabs") was 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 the Company abandoned this business due to excessive competition
and changed its name to Techlabs, Inc. Prior to January 2004, the Company
generated revenues through the rental of its list of targeted, opt-in email
addresses which were generated from their website. During November 2004, the
Company formed and opened Florida Fountain of Youth Spas, Inc. Florida Fountain
of Youth Spa is a full service spa located in South Florida. 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,
2005 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2005. For further information, please refer to
our audited financial statements and footnotes thereto for the fiscal year ended
December 31, 2004 included in our Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission.
(B) Basis of Consolidation
The accompanying consolidated financial statements for the three and nine months
ended September 30, 2005 include the accounts of Techlabs and its wholly-owned
subsidiary Florida Fountain of Youth Spas. The consolidated financial statements
for 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 the consolidation.
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles in the United States, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as the date
of the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
(D) Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with original
maturities of three months or less.
4
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
(unaudited)
(E) Revenue Recognition
Prior to January 2004, the Company's revenue was derived from rentals of its
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 the Company does not act as the principal in
the transaction and the amount the Company earns is fixed. The Company has not
had any revenue from rentals of its opt-in email lists since 2003.
(F) Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Provision for potentially obsolete
inventory is made based on management's analysis of inventory levels. Inventory
consists of finished saloon products purchased directly from the manufacturer.
(G) 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.
(H) Long-Lived Assets
Long-lived assets and certain identifiable intangible assets (other than
goodwill and intangible assets with indefinite lives) held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For
purposes of evaluating the recoverability of long-lived assets (other than
goodwill and intangible assets with indefinite lives), the recoverability test
is performed using undiscounted net cash flows related to the long-lived assets.
The Company reviews such long-lived assets to determine that carrying values are
not impaired. Under Statement of Financial Accounting Standards ("SFAS") No.
142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed for impairment. Intangible assets that are not deemed
to have indefinite lives will continue to be amortized over their useful lives;
however, no maximum life applied.
(I) 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 loans from stockholders are reflected
in the financial statements at fair value because of the short-term maturity of
the instruments.
5
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
(unaudited)
(J) Income Taxes
The Company 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.
(K) 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, the Company did not have any outstanding common stock
equivalents. As of September 30, 2005, the Company did not include 50,000 shares
of dilutive common stock from the conversion of a convertible note payable as
the amounts were antidilutive.
(L) Business Segments
The Company currently operates in one segment and therefore segment information
is not presented.
(M) Stock-Based Compensation
In accordance with the Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock Based Compensation, the Company has elected to account
for stock options issued to employees under Accounting Principles Board Opinion
No. 25 ("APB Opinion No. 25") and related interpretations. The Company accounts
for stock options issued to consultants and for other services in accordance
with SFAS No. 123.
(N) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled $1,549
and $0 for the nine months ended September 30, 2005 and 2004, respectively.
(O) New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4"" SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and
67," SFAS No. 153, "Exchanges of Non-monetary Assets - an amendment of APB
Opinion No. 29," and SFAS No. 123 (revised 2004), "Share-Based Payment," were
recently issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no current
applicability to the Company and have no effect on the financial statements.
6
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
(unaudited)
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 was adopted effective January 1, 2004. The adoption of this
pronouncement did not have a material effect on our financial position or
results of operations.
NOTE 2 GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company had a net loss of
$167,052 for the nine months ended September 30, 2005, a working capital
deficiency of $223,864, an accumulated deficit of $8,593,883, a stockholders'
deficiency of $182,598 and used cash in operations of $101,631. This raises
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 the Company be unable to continue as
a going concern.
Although there are no assurances, the Company believes that with increased
sales, the success of the Florida Fountain of Youth Spa, raising additional
capital and borrowings from its principal shareholder it will be able to
continue as a going concern.
NOTE 3 RELATED PARTY TRANSACTIONS
From time to time Yucatan Holding Company, the Company's principal shareholder,
has advanced funds for working capital. At September 30, 2005, the Company owed
Yucatan Holding Company $8,237, net of repayments. This amount will be paid by
the Company when working capital permits
During the nine months ended September 30, 2005, various entities owned by the
president of Florida Fountain of Youth Spa made advances totaling $144,426 to
the Company under an oral agreement. The balance due under the agreement at
September 30, 2005 totaled $184,057. These advances accrue interest at 6% per
annum, and are unsecured and due on a demand basis.
At September 30, 2005, the Company owed a third party under an oral agreement
$6,500 on a non-interest bearing, unsecured, due on demand basis.
7
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
(unaudited)
NOTE 4 CONVERTIBLE NOTE PAYABLE
During 2005, the Company entered into a convertible note payable with an
individual for $30,000. The note is convertible into common stock at $.60 per
share up to a maximum of 50,000 shares. The note is convertible for a minimum of
15,000 shares of common stock. The note is due quarterly with the final payment
due March 1, 2006. The note accrues interest at 5% per annum and is unsecured.
Interest payments of $375 are due quarterly.
The Company recognized a beneficial conversion of $30,000 on the note payable.
The beneficial conversion is treated as a discount on the note and is being
amortized over the life of the note. The Company recognized $19,232 of interest
expense during the nine months ended September 30, 2005. The note is currently
in default.
Note payable - face $30,000
Note payable - discount 10,768
-------
$19,232
=======
NOTE 5 COMMITMENTS AND CONTIGINCIES
LITIGATION
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. Pursuant to an
Asset Purchase Agreement dated December 2, 2005, the lawsuit was dismissed by
the Company. (See Note 7)
NOTE 6 CAPITAL STOCK
During the three months ended March 31, 2005, the Company issued 60,000 shares
of common stock to a related party pursuant to a consulting agreement having a
fair value of $63,000 on the date of grant. The consulting agreement calls for
services to be performed through July 18, 2005. The agreement will be amortized
over the life of the service period. Amortization of deferred consulting was
$63,000 during the nine months ended September 30, 2005.
NOTE 7 SUBSEQUENT EVENT
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 2005.
On December 2, 2005, The Company entered into an agreement to sale for $90,000
the Starting Point website and all applicable content, trademarks, databases and
domains. The $90,000 is being held in trust until each of the domains are
transferred to the buyer.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
We reported revenues of $48,116 and $0 for the three months ended
September 30, 2005 and September 30, 2004, respectively, and a net loss of
$42,974 and $198,889 for those respective three-month periods. We reported
revenues of $204,310 and $0 for the nine months ended September 30, 2005 and
September 30, 2004, respectively, and a net loss of $167,052 and $270,379 for
those respective nine-month periods. Revenues in the fiscal 2005 represents fees
paid by customers of our Florida Fountain of Youth Spa, which commenced
operation during the fourth quarter of fiscal 2004. Revenues decreased 27% from
revenues recorded in the second quarter of fiscal 2005. Such decrease were due
to the seasonality of the spa services provided in the summer months of 2005. We
had no revenues during the fiscal 2004 as we did not generate any revenues from
the rental of our StartingPoint.com email list as the third-party direct
marketing company that was the sole source of our revenues from that business
segment had exited that segment of their business during fiscal 2003. As
disclosed in Note 7, we have entered into an agreement to sell
StartingPoint.com.
Cost of goods sold during the three months ended September 30, 2005
totaled $43,215, resulting in gross margin of $4,901, as compared to cost of
goods sold in the fiscal 2004 period of $0 and a resulting gross margin of $0.
Cost of goods sold during the nine months ended September 30, 2005 totaled
$157,798, resulting in gross margin of $46,512, as compared to cost of goods
sold in the fiscal 2004 period of $0 and a resulting gross margin of $0. Gross
margins decreased 18% to 10% from the 28% recorded in the second quarter of
fiscal 2005. The decrease in margins was attributable to promotions and price
cuts in order to compete with a similar spa who had opened in the general area
of Florida Fountain of Youth Spas during the third quarter of fiscal 2005.
Selling, general and administrative expenses increased to $31,148 in
the three months ended September 30, 2005, from $5,929 in the three months ended
September 30, 2004, primarily as a result of costs associated with the operation
of our day spa. Selling, general and administrative expenses increased to
$120,980 in the nine months ended September 30, 2005, from $21,697 in the three
months ended September 30, 2004, primarily as a result of costs associated with
the operation of our day spa which opened in fourth quarter of 2004. For the
fiscal 2005 and 2004 periods we also recorded depreciation and amortization of
$3,408 and $52,333, respectively. Included in total operating expenses for both
the fiscal 2005 and fiscal 2004 three-month periods are non-cash charges of
$5,250 and 175,516, respectively. Included in total operating expenses for both
the fiscal 2005 and fiscal 2004 nine-month periods are non-cash charges of
$63,000 and 196,349, respectively, for the amortization of deferred compensation
to a third party pursuant to a consulting agreement that calls for services to
be performed through July 2005.
Other income (expense) for the fiscal 2005 and 2004 periods was
($10,172) and $0, respectively, which amount for fiscal 2005 represented
interest expense and amortization on the convertible note payable discount.
9
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, we had a working capital deficit of $223,864 as
compared to a deficit of $133,013 at December 31, 2004. Net cash used by
operating activities was $101,631 for nine months ended September 30, 2005, as
compared to net cash used by operating activities of $23,988 for the nine months
ended September 30, 2004. This change reflects the increased total net loss of
$167,052 incurred during the fiscal 2005 nine-month period, which was partly
offset by non-cash deferred compensation expense of $63,000 and amortization of
the note payable discount into interest expense amounting to $19,232 for the
nine month period, as compared to the total net loss of $270,379 incurred during
the fiscal 2004 nine-month period that was partly offset by depreciation and
amortization expense of $52,333 and the non-cash deferred compensation expense
of $196,349.
Net cash used in investing activities in the fiscal 2005 period was
$20,208, compared to $0 in the fiscal 2004 period. Net cash provided by
financing activities in the fiscal 2005 period was $122,554, compared to net
cash provided by financing activities in the fiscal 2004 period of $23,744.
We have an accumulated deficit of $8,593,883 at September 30, 2005 and
the report from our independent auditor on our audited financial statements at
December 31, 2004 contains a going concern modification. The Company does not
have enough cash to continue operations for 12 months. Although there are no
assurances, the Company believes that with increased sales, the success of the
Florida Fountain of Youth Spa, raising additional capital and borrowings from
its principal shareholder it will be able to continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Our management, which includes our President, 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC's Financial Reporting Release No. 60, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggests
companies provide additional disclosure and commentary on those accounting
policies considered most critical. A critical accounting policy is one that is
both very important to the portrayal of our financial condition and results, and
requires management's most difficult, subjective or complex judgments.
Typically, the circumstances that make these judgments difficult, subjective
and/or complex have to do with the need to make estimates about the effect of
matters that are inherently uncertain. We believe the accounting policies below
represent our critical accounting policies as contemplated by FRR 60.
10
Allowances for refunds and product returns. We may grant our customers
the right to return products which they do not find satisfactory. Upon sale, we
evaluate the need to record a provision for product returns based on our
historical experience, economic trends and changes in customer demand.
Provisions for inventory obsolescence. We may need to record a
provision for estimated obsolescence of inventory. Our estimates would consider
the cost of inventory, the estimated market value and our historical experience.
If there are changes to these estimates, provisions for inventory obsolescence
may be necessary.
Value of long lived assets. We capitalize and amortize the costs
incurred in the acquisition of capital equipment. We also carry other long lived
assets on our balance sheet. We evaluate the carrying values of such assets and
may be required to reduce the value in the event we determine if the value is
impaired from the current carrying among.
Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Costs - an amendment of ARB No. 43, Chapter 4"" SFAS No. 152,
"Accounting for Real Estate Time- Sharing Transactions - an amendment of FASB
Statements No. 66 and 67," SFAS No. 153, "Exchanges of Non-monetary Assets - an
amendment of APB Opinion No. 29," and SFAS No. 123 (revised 2004), "Share-Based
Payment," were recently issued. SFAS No. 151, 152, 153 and 123 (revised 2004)
have no current applicability to the Company and have no effect on the financial
statements.
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 was adopted effective January 1, 2004. The adoption of
this pronouncement did not have a material effect on our financial position or
results of operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Pursuant to an Asset Purchase Agreement dated December 2, 2005, the lawsuit was
dismissed by the Company.
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 of Chief Executive and Financial
Officer
32.1 Section 1350 Certificate of Chief Executive and Financial Officer
(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 Dorrrough
-------------------
Jayme Dorrough, President
Dated: December 20, 2005
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