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, 2006
[ ] 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: 815,464 shares of common stock
as of November 8, 2006.
TECHLABS, INC.
Form 10-QSB for the period ended September 30, 2006
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, 2006 (unaudited) .........1
Consolidated Statements of Operations for the three and nine
months ended September 30, 2006 and 2005 (unaudited) .................2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2006 and 2005 (unaudited) .................3
Notes to Consolidated Financial Statements (unaudited) ...............4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................13
Item 3. Controls and Procedures .............................................15
Part II Other Information ...................................................15
iii
PART I. FINANCIAL INFORMATION
Techlabs, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2006
(unaudited)
ASSETS
Current Asset
Cash and cash equivalents ...................................... $ -
-----------
Total current assets
Property, Plant & equipment, net ............................... -
Other Assets ..................................................... -
-----------
$ -
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable & accrued expenses ............................ $ 51,245
Due to stockholders ............................................ 10,892
Convertible note payable - related party, net .................. 30,000
Due to related party ........................................... 37,000
Loan - related party ........................................... 6,500
-----------
Total Current Liabilities .................................. 135,637
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,
815,464 issued and outstanding ............................... 816
Deferred compensation .......................................... -
Additional paid-in capital ..................................... 8,418,994
Accumulated deficit ............................................ (8,568,172)
-----------
Total Stockholders' Deficiency ............................. (135,637)
-----------
$ -
===========
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, 2006 and 2005
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues .......................................... $ - $ - $ - $ -
Cost of sales ..................................... - - - -
--------- --------- --------- ---------
Gross profit .................................... - - - -
Operating expenses
General and administrative ...................... 5,500 322 27,062 21,318
Acquisition & development ....................... 37,000 - 37,000 -
Amortization of deferred compensation ........... 25,625 5,250 51,250 63,000
--------- --------- --------- ---------
Total operating expenses .......................... 68,125 5,572 115,312 84,318
--------- --------- --------- ---------
Loss from continuing operations ................... (68,125) (5,572) (115,312) (84,318)
Other income (expense)
Interest expense ................................ (375) (13,789) (1,125) (14,164)
--------- --------- --------- ---------
(375) (13,789) (1,125) (14,164)
--------- --------- --------- ---------
Loss from operations before discontinued operations (68,500) (19,361) (116,437) (98,482)
Loss from discontinued operations ................. - (23,613) - (68,570)
--------- --------- --------- ---------
Net loss .......................................... $ (68,500) $ (42,974) $(116,437) $(167,052)
========= ========= ========= =========
Loss per share:
Basic and diluted (loss) per common share
from continuing operations .................... $ (0.08) $ (0.03) $ (0.15) $ (0.14)
Basic and diluted (loss) per common share
from discontinued operations .................. 0.00 (0.03) 0.00 (0.10)
--------- --------- --------- ---------
$ (0.03) $ (0.06) $ (0.03) $ (0.24)
========= ========= ========= =========
Basic and diluted weighted average
shares outstanding .............................. 815,464 712,964 780,546 709,214
========= ========= ========= =========
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, 2006 and 2005
(unaudited)
For the Nine Months
Ended September 30,
2006 2005
--------- ---------
Operating Activities:
Net (loss) ........................................... $(116,437) $(124,078)
Net income (loss) loss from discontinued operations .. - (50,775)
Loss from continuing operations ...................... - (73,303)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Amortization of deferred compensation .............. 51,250 57,750
Changes in operating assets and liabilities:
Increase in accounts payable ..................... 25,532 9,837
Discontinued operations, net ..................... - (445)
--------- ---------
Net Cash (Used in) Operating Activities ........ (39,655) (56,936)
--------- ---------
Investing Activities:
Discontinued investing activities, net ............... - (19,604)
--------- ---------
Net Cash (Used in) Investing Activities ........ - (19,604)
--------- ---------
Financing Activities:
Discontinued operations, net ......................... - 73,483
Proceeds from convertible notes ...................... - 30,000
Due to related party ................................. 37,000 -
Proceeds (Payments) to due to stockholder ............ 2,655 (24,285)
--------- ---------
Net Cash Provided by Financing Activities ...... 39,655 79,198
--------- ---------
Increase (decrease) in Cash and Cash Equivalents ....... - 2,658
Cash, beginning of period .............................. - -
--------- ---------
Cash, end of period .................................... $ - $ 2,658
========= =========
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, 2006
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 Florida Fountain of Youth Spas, Inc. and opened Florida Fountain
of Youth Spa, a full service spa located in South Florida. The Company abandoned
this business in October 2005 due to excessive competition.
During the current fiscal year the Company reported that as a result of its
two-year effort to research and develop business opportunities in the Caribbean
basin and South America, it is moving forward with two new potential ventures.
First, the company has entered into contract negotiations for an approximate
26,000 square-foot property located on Margarita Island, a Caribbean island of
Venezuela, which will serve as its first micro-resort property. The company
intends for the facility to serve as a destination for high-end vacations,
catering to the adults-only market segment. Margarita Island, a part of the
Minor Antilles chain, is situated only about 15 miles off the northern coast of
Venezuela and is well known for the high quality of its beaches. Second, the
Company has entered into an initial stage of negotiations to acquire
Venezuelan-based Corporacion SportAlum C.A. (SportAlum), corporate website:
www.sportalum.com, and will shortly commence a full due-diligence effort with
respect to structuring a purchase transaction with SportAlum's principals.
SportAlum specializes in the fabrication, sale and installation of sport seating
solutions for stadiums, arenas and other sports and entertainment facilities
around the world. Techlabs intends to complete its initial due-diligence efforts
before the end of June, with an eye towards entering into definitive purchase
agreement by the end of 2006. Further, the Company has entered into a joint
venture agreement with the controlling shareholder of SportAlum for the import
into the United States of aluminum extrusions in a variety of custom shapes.
Techlabs intends to resell the aluminum extrusions to a variety of companies
engaged in the manufacture of home building materials and products, including
window and door frames and assemblies.
(B) Basis of Consolidation
The accompanying consolidated financial statements for three and nine months
ended September 30, 2006 and 2005 include the accounts of Techlabs and its
wholly-owned subsidiary Florida Fountain of Youth Spas, Inc. from (inception) to
September 30, 2006. 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, 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.
4
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(D) Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with original
maturities of three months or less.
(E) Concentration of Credit Risk
The Company did not rely on any one significant customer for more than 10% of
its revenues.
(F) Revenue Recognition
Revenue is recognized using accrual basis.
(H) 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.
(I) Web Site Development Costs
The Company accounts for costs incurred in connection with the development of
its 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. At September 30, 2006, all
capitalized web site development costs had been fully amortized and/or impaired.
(J) 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. At September 30, 2006, all intangible assets had been
fully amortized and/or impaired.
5
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(K) 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 is applied.
(L) Reclassification
Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
(M) 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.
(N) 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.
(O) 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, 2006 and 2005, the Company did not have any outstanding common
stock equivalents.
6
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(P) Business Segments
The Company currently operates in one segment and therefore segment information
is not presented.
(Q) 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.
(R) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense included in
discontinued operations totaled $0 and $1,395 for the nine months ended
September 30, 2006 and 2005, respectively.
(S) 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.
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.
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.
7
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
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
$116,437, a working capital deficiency of $135,637, an accumulated deficit of
$8,568,172, a stockholders' deficiency of $135,637. 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 it will be able to
raise additional capital and borrowings from its principal shareholder and will
be able to continue as a going concern.
NOTE 3 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
was due March 1, 2006. The note accrues interest at 5% per annum and is
unsecured. Interest payments of $375 are due quarterly.
NOTE 4 RELATED PARTY TRANSACTIONS
Mrs. Dorrough has served as the Company's president since February 2002. Mrs.
Dorrough is not a party to an employment agreement with the Company.
At September 30, 2006, the Company owed a majority shareholder $10,892. This
amount will be paid by the Company when working capital permits.
At September 30, 2006, the Company owed a third party $6,500 under an oral
agreement on a non-interest bearing, unsecured loan, due on demand basis.
At September 30, 2006, the Company owed a related party $37,000 under an oral
agreement on a non-interest bearing, unsecured loan, due on demand basis.
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 alleged a breach of contract by
Addante and Associates and was seeking $500,000 in damages. Pursuant to an Asset
Purchase Agreement dated December 2, 2005, the lawsuit was dismissed by the
Company.
8
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
NOTE 6 LOSS ON DISCONTINUED OPERATIONS
In October 2005, the Company closed the Florida Fountain of Youth Spa due to
excessive competition and the inability to attract professional competent staff.
The net assets of the spa were transferred to the president of Florida Fountain
of Youth Spas, Inc. in exchange for the forgiveness of advances totaling
$187,575.
The following operating results for the Florida Fountain of Youth Spas have been
presented as loss from discontinued operations for all periods presented:
2006 2005
--------- ---------
Sales ............................. $ - $ 204,310
Cost of sales ..................... - 157,798
--------- ---------
Gross profit ...................... - 46,512
Other costs and expenses .......... - 115,082
--------- ---------
Loss from discontinued operations . $ - $ (68,570)
========= =========
NOTE 7 CAPITAL STOCK
The Company's authorized capital consists of:
a. 200,000,000 shares of common stock, par value $.001 per share, of
which 815,464 and Shares were issued and outstanding at September 30, 2006.
b. 10,000,000 of preferred stock, par value $.001 per share, of which
no shares are issued and outstanding;
c. 25,000,000 shares of special preferred stock, par value $.001 per
share, of which 12,500,000 shares have been designated Special Class A Preferred
Stock, all of which are outstanding. Of these shares, 8,330,000 shares are held
by the Company's principal shareholder, Yucatan Holding Company, and the
remaining 4,170,000 shares are held by Thomas J. Taule, the Company's former CEO
and member of its board of directors. The designations, rights and preferences
of the Special Class A Preferred Stock provide:
* the holders are not entitled to receive any assets in the event of
the liquidation or wrap up of the Company;
* each share of Special Class A Preferred Stock entitles the holder to
three votes on all matters submitted to the Company's shareholders for a vote,
and the Special Class A Preferred Stock votes together with the Company's common
stock and its Class C Preferred Stock as one class; and
* the shares of Special Class A Preferred Stock are redeemable at the
sole option of the Company, with the manner of redemption, the redemption price
or prices and the terms and conditions of the redemption being determined by the
Company's board of directors; and
9
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
d. 10,000,000 shares of blank check preferred stock, par value $.001
per share (the "Blank Check Preferred Stock"). Series of the Blank Check
Preferred Stock may be created and issued from time to time, with such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of Blank Check Preferred Stock as adopted by the Board
of Directors in its sole discretion. The Board has designated 225,000 shares of
Blank Check Preferred Stock as Class C Preferred Stock, all of which such shares
are issued and outstanding and held by the Company's principal shareholder,
Yucatan Holding Company. The designations, rights and preferences of the Class C
Preferred Stock include:
* the stated value of each share is $ 0.001,
* the shares are not redeemable without the consent of the holders of a
majority of the issued and outstanding shares of Class C Preferred Stock,
* each share of Class C Preferred Stock is convertible into shares of
the Company's common stock at the option of the Company at a conversion price to
be established by the holder and the Company at the time of conversion,
* the shares of Class C Preferred Stock do not pay any dividends,
* each share of Class C Preferred Stock entitles the holder to 150
votes on all matters submitted to the Company's shareholders for a vote, and the
Class C Preferred Stock votes together with the Company's common stock and its
Special Class A Preferred Stock as one class, and
* so long as the shares of Class C Preferred Stock are outstanding, the
Company will not be able to take certain actions without the approval of the
holders of a majority of the issued and outstanding shares, including:
- sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Company is transferred or disposed of;
- alter or change the rights, preferences or privileges of shares of
Class C Preferred Stock;
- increase or decrease the total number of authorized shares of Class C
Preferred Stock;
- authorize or issue, or obligate the Company to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having rights, preferences or privileges over, or being
on a parity with or sto, the Class C Preferred Stock;
- redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any of the Company's securities;
10
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
- amend its articles of incorporation or bylaws;
- change the authorized number of its directors; or
- declare, order or pay any dividends on any class of its securities.
During the nine months ended September 30, 2006, the Company issued 102,500
shares of common stock to a related party pursuant to a consulting agreement
having a fair value of $51,250 on the date of grant. The consulting agreement
calls for services to be performed through September 2006. Amortization of
deferred consulting was $51,250 during the nine months ended September 30, 2006.
During the year ended December 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. Amortization of deferred
consulting was $63,000 during the year ended December 31, 2005.
NOTE 8 STOCK INCENTIVE PLAN
In October 1999, the Company adopted its 1999 Stock Incentive Plan (the "Plan").
The purpose of the Plan is to promote our long-term success and the creation of
shareholder value by encouraging employees, directors and consultants to focus
on critical long-range objectives, encouraging the attraction and retention of
employees, outside directors and consultants and linking those individuals
directly to shareholder interests through increased stock ownership. Under the
Plan the Company can make awards either in the form of restricted shares or
options, which may be either incentive stock options or non-statutory stock
options.
Initially the maximum number of shares of common stock issuable upon the
exercise of restricted stock awards or stock options granted under the Plan was
1,500,000 shares. This amount is subject to increase on January 1 of each year
beginning on January 1, 2000 by the lesser of 1.5% of the total number of shares
of common stock then outstanding on a fully-diluted basis or 300,000 shares. As
of December 31, 2005 the maximum number of shares of the Company's common stock
available for issuance upon grants of restricted stock awards or stock options
was 1,977,024 shares. To date, the Company has granted restricted stock awards
or stock options which have been exercised for an aggregate of 380,416 shares of
our common stock. Accordingly, the Company currently has 455,362 shares
available under the Plan.
The Plan is to be administered by a committee consisting of two or more outside
directors who review management's recommendation as to the employees, outside
directors and consultants who are to receive awards under the Plan, determine
the type, number, vesting requirements and other features and conditions of the
awards, interpret the Plan and make all other decisions related to the Plan. The
Company's Board of Directors may also appoint a secondary committee of the
Board, composed of one or more directors who need not be independent, who may
administer the Plan with respect to employees and consultants who are not
considered officers or directors of Techlabs. This secondary committee may grant
awards under the Plan to such employees and consultants, and may determine all
features and conditions of those awards.
11
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
Options granted under the Plan may either be options qualifying as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, or non-statutory options. Incentive options can only be granted to a
recipient who is our employee, and non-statutory options and restricted stock
awards can be granted to employees, outside directors and consultants. Options
granted to any optionee in a single fiscal year cannot exceed 1,000,000 shares,
except that options granted to a new employee in his or her first year of
employment cannot exceed 500,000 shares. Any incentive option granted under the
Plan must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of such grant, but the exercise price
of any incentive option granted to an eligible employee owning more than 10% of
our common stock must be at least 110% of such fair market value as determined
on the date of the grant. The exercise price of non-statutory options cannot be
less than 85% of the fair market value of the underlying shares on the date of
the grant; however, the option agreement can provide that the exercise price
varies in accordance with a pre-determined formula while the option is
outstanding. The term of each Plan Option and the manner in which it may be
exercised is determined by the board of the directors, provided that no Plan
Option may be exercisable more than 10 years after the date of its grant.
Payment for incentive options can only be made as specified in the option
agreement and the form of payment for non-statutory options may be accepted by
the Board from time to time. The Plan permits cashless exercise of options, and
the payment of the exercise price of options through a full-recourse promissory
note and other forms which are consistent with applicable laws. Restricted stock
awards may be sold or awarded under the Plan for such consideration as our board
may determine, including cash, cash equivalents, full-recourse promissory notes,
past services and future services. In the event of a recapitalization of our
company, a spin-off or similar occurrence, or the declaration of a dividend
payable in shares of our common stock, in the Board's sole discretion it will
determine if any adjustments are to be made in the number of options and
restricted shares available for future awards and certain other matters. The
Plan will terminate on its tenth anniversary, unless earlier terminated by our
Board of Directors.
There were no issues under the plan during the nine month periods ended
September 30, 2006 and 2005.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As a result of the Company's decision to discontinue the operations of
its Florida Fountain of Youth Spa during the fourth quarter of fiscal 2005,
operating results for this business segment for the three and nine months ended
September 30, 2005 have been classified as a loss from discontinued operations.
In addition, in December 2005 the Company completed the sale for $90,000 of the
Starting Point.com website and all applicable content, trademarks, databases and
domains. The Company is now moving forward in the development of opportunities
in the Caribbean basin and South America and believes that it will consummate
transactions prior to the end of 2006, with such business interests contributing
to results thereafter. Most notably, the Company has entered into a letter of
intent to acquire a minimum of a 51% interest in Venezuelan-based Corporacion
SportAlum C.A., having also commenced a due-diligence effort with respect to the
proposed transaction. SportAlum specializes in the fabrication, sale and
installation of sport seating solutions for stadiums, arenas and other sports
and entertainment facilities around the world.
We reported revenues of $0 and $0 for three months ended September 30,
2006 and September 30, 2005, respectively, as results of operations from the
Company's Florida Fountain of Youth Spa for the 2005 period have been classified
as discontinued operations. For the nine months ended September 30, 2006 and
September 30, 2005, we reported revenues of $0 and $0, respectively.
Cost of goods sold during the three months ended September 30, 2006
totaled $0, resulting in gross margin of $0, as compared to cost of goods sold
of $0 during the three months ended September 30, 2005 and a resulting gross
margin of $0, as results of operations from the Company's Florida Fountain of
Youth Spa for the 2005 period have been classified as discontinued operations.
Cost of goods sold during the nine months ended September 30, 2006
totaled $0, resulting in gross margin of $0, as compared to cost of goods sold
of $0 during the nine months ended September 30, 2005 and a resulting gross
margin of $0, as results of operations from the Company's Florida Fountain of
Youth Spa for the 2005 period have been classified as discontinued operations.
Operating expenses during the three months ended September 30, 2006
totaled $68,125, as compared to operating expenses totaling $5,572 during the
three months ended September 30, 2005. Operating expenses during the fiscal 2006
period included $25,625 for the amortization of deferred compensation to a third
party pursuant to a consulting agreement that called for services to be
performed through September 2006. Operating expenses during the fiscal 2006
period also included $37,000 for costs relating to the Company's development
activities in the Caribbean basin and South America. Operating expenses during
the fiscal 2005 period included $5,250 for the amortization of deferred
compensation to a third party pursuant to a consulting agreement that called for
services to be performed through July 2005.
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Operating expenses during the nine months ended September 30, 2006
totaled $115,312, as compared to operating expenses totaling $84,318 during the
nine months ended September 30, 2005. Operating expenses during the fiscal 2006
period included $51,250 for the amortization of deferred compensation to a third
party pursuant to a consulting agreement that called for services to be
performed through September 2006. Operating expenses during the fiscal 2006
period also included $37,000 for costs relating to the Company's development
activities in the Caribbean basin and South America. Operating expenses during
the fiscal 2005 period included $63,000 for the amortization of deferred
compensation to a third party pursuant to a consulting agreement that called for
services to be performed through July 2005.
Other income (expense) for the fiscal 2006 and 2005 three month periods
was ($375) and ($13,789), respectively, which amounts for both periods
represented interest expense. Other income (expense) for the fiscal 2006 and
2005 nine month periods was ($1,125) and ($14,164), respectively, which amounts
for both periods represented interest expense. Interest expense in the fiscal
2005 three and ninth month periods primarily represents interest expense accrued
on the conversion of a note that was subsequently deemed in the fourth quarter
of fiscal 2005 to have not been converted.
The loss from operations before discontinued operations for the three
months ended September 30, 2006 totaled $68,500, as compared to a loss from
operations before discontinued operations for the three months ended September
30, 2005 totaling $19,361. The Company recorded a loss from discontinued
operations of $0 in the fiscal 2006 period, compared to $23,613 in the fiscal
2005 period.
The loss from operations before discontinued operations for the nine
months ended September 30, 2006 totaled $116,437, as compared to a loss from
operations before discontinued operations for the nine months ended September
30, 2005 totaling $98,482, The Company recorded a loss from discontinued
operations of $0 in the fiscal 2006 period, compared to $68,570 in the fiscal
2005 period.
The net loss for three months ended September 30, 2006 and September
30, 2005, respectively, were $(68,500) and ($42,974). The net loss for nine
months ended September 30, 2006 and September 30, 2005, respectively, were
$(116,437) and ($167,052).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, we had a working capital deficit of $135,637 as
compared to a deficit of $70,450 at December 31, 2005. Net cash used by
operating activities was $39,655 for the nine months ended September 30, 2006,
as compared to net cash used by operating activities of $56,936 for the nine
months ended September 30, 2005. This change primarily reflects the effect of
the net loss from discontinued operations of $50,775 in the fiscal 2005 period,
partly offset by an increase in accounts payable of $25,532 in the fiscal 2006
period.
Net cash used in investing activities in the fiscal 2006 period was $0,
compared to $19,604 the fiscal 2005 period. Net cash provided by financing
activities in the fiscal 2006 period was $39,655, compared to net cash provided
by financing activities in the fiscal 2005 period of $79,198.
14
We have an accumulated deficit of $8,568,172 at September 30, 2006 and
the report from our independent auditor on our audited financial statements at
December 31, 2005 contains a going concern modification. We will continue to
incur losses during the foreseeable future. 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.
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 the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as
of September 30, 2006 (the "Evaluation Date). Based upon that evaluation, our
management 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. Based upon that evaluation, no change in our company's
internal controls over financial reporting has occurred during the quarter then
ended, which has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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.
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.
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.
15
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 Certification 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: November 16, 2006
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