U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
[ ] 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.)
1820 NE Jensen Beach Blvd., Suite 634, Jensen Beach, FL 34957
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(Address of Principal executive offices)
Issuer's telephone number, including area code: 267-350-9210
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: 24,975,464 shares of common
stock as of May 18, 2007.
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 March 31, 2007 (unaudited) .............1
Consolidated Statements of Operations for the three and nine
months ended March 31, 2007 and 2006 (unaudited) .....................2
Consolidated Statements of Cash Flows for the nine
months ended March 31, 2007 and 2006 (unaudited) .....................3
Notes to Consolidated Financial Statements (unaudited) ...............4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................14
Item 3. Controls and Procedures .............................................16
Part II Other Information ...................................................16
iii
PART I. FINANCIAL INFORMATION
Techlabs, Inc. and Subsidiaries
Consolidated Balance Sheet
March 31, 2007
(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 ............................ $ 60,783
Due to stockholders ............................................ 22,979
Convertible note payable - related party, net .................. 30,000
Due to related party ........................................... 37,000
Loan - related party ........................................... 6,500
-----------
Total Current Liabilities .................................... 157,262
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;
92,000 shares Class C Preferred issued and outstanding ....... 92
Common stock, $.001 par value; 200,000,000 shares
authorized, 22,895,464 issued and outstanding ................ 22,896
Deferred compensation .......................................... (275,936)
Additional paid-in capital ..................................... 8,833,847
Accumulated deficit ............................................ (8,750,661)
-----------
Total Stockholders' Deficiency ............................... (157,262)
-----------
$ -
===========
The accompanying notes are an integral part of these financial statements.
1
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months ended March 31, 2007 and 2006
(unaudited)
For the Three Months
Ended March 31,
2007 2006
------------ ------------
Revenues ......................................... $ - $ -
Cost of sales .................................... - -
------------ ------------
Gross profit ................................... - -
Operating expenses
General and administrative ..................... 15,000 3,053
Amortization of deferred compensation .......... 128,145 -
------------ ------------
Total operating expenses ......................... 143,145 3,053
------------ ------------
Loss from operations ............................. (143,145) (3,053)
Other income (expense)
Interest expense ............................... (375) (375)
------------ ------------
(375) (375)
------------ ------------
Net loss ......................................... $ (143,520) $ (3,428)
============ ============
Loss per share:
Basic and diluted income (loss) per common share $ (0.01) $ (0.00)
Basic and diluted weighted average
shares outstanding ............................. 22,895,464 712,964
============ ============
The accompanying notes are an integral part of these financial statements.
2
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 31, 2007 and 2006
(unaudited)
For the Three Months
Ended March 31,
2007 2006
------------ ------------
Operating Activities:
Net (loss) ..................................... $ (143,520) $ (3,428)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Amortization of deferred compensation ........ 128,145 -
Changes in operating assets and liabilities:
Increase in accounts payable ............... 3,288 3,428
------------ ------------
Net Cash (Used in) Operating Activities .. (12,087) 3,428
------------ ------------
Investing Activities:
Discontinued investing activities, net ......... - -
------------ ------------
Net Cash (Used in) Investing Activities .. - -
------------ ------------
Financing Activities:
(Repayments) advance from stockholder .......... 12,087 -
------------ ------------
Net Cash Provided by Financing Activities .. 12,087 -
------------ ------------
Increase (decrease) in Cash and Cash Equivalents . - -
Cash, beginning of period ........................ - -
------------ ------------
Cash, end of period .............................. $ - $ -
============ ============
The accompanying notes are an integral part of these financial statements
3
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
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, a full service spa located in South Florida. The Company abandoned
this business in October 2005 due to excessive competition.
During fiscal 2006 the Company shifted its focus to the development of business
opportunities in the Caribbean basin and South America, including the import and
resale of aluminum extrusion products, as well as its planned acquisition of a
minimum of a 51% interest in Venezuelan-based Corporacion SportAlum C.A, which
specializes in the fabrication, sale and installation of sport seating solutions
for stadiums, arenas and other sports and entertainment facilities around the
world. During 2006, the Company entered into a letter of understanding to
acquire Venezuelan-based Corporacion SportAlum C.A. (SportAlum). The Company has
commenced a full due-diligence effort with respect to structuring a purchase
transaction with SportAlum's principals. 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. To support its efforts to import and resell aluminum extrusions the
Company formed a new subsidiary, Hemisphere Metals, which is engaged in this
business activity.
The accompanying consolidated financial statements for March 31, 2007 and 2006
include the accounts of Techlabs and its wholly-owned subsidiary Florida
Fountain of Youth Spas from (inception) to December 31, 2006. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
4
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
(B) 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.
(C) Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with original
maturities of three months or less.
(D) Concentration of Credit Risk
The Company did not rely on any one significant customer for more than 10% of
its revenues.
(E) Revenue Recognition
Revenue from Florida Fountain of Youth Spas was recognized upon delivery of
services.
(F) 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.
5
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
(G) 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 December 31, 2006, all
capitalized web site development costs had been fully amortized and or impaired.
(H) 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.
(I) 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.
6
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
(J) Reclassification
Certain amounts from prior periods have been reclassified to conform to the
current year presentation.
(K) Fair Value of Financial Instruments
SFAS No. 157, "Fair Value Measurements," requires certain disclosures regarding
the fair carrying value of financial instruments. Trade accounts receivable,
accounts payable, and loans from stockholders are reflected in the financial
statements at carrying value because of the short-term maturity of the
instruments.
(L) 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.
(M) Income (Loss) Per Share
Basic and diluted income (loss) per share is calculated by dividing net income
(loss) for the period by the weighted average number of shares of common stock
outstanding during the period. The assumed exercise of stock options is only
included in the calculation of diluted earnings per share, if dilutive. As of
March 31, 2007, the Company did not have any outstanding common stock
equivalents.
(N) Business Segments
The Company currently operates in one segment and therefore segment information
is not presented.
(O) 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.
7
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
(P) New Accounting Pronouncements
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,
("FAS 159"). FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. FAS 159 is effective for fiscal years beginning after November 15,
2007. The Company does not believe that FAS 159 will have any material effect on
its financial statements.
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$143,520, a working capital deficiency of $157,262, an accumulated deficit of
$8,750,661, a stockholders' deficiency of $157,262, and used cash in operations
of $12,087. 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.
8
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
NOTE 3 PROPERTY AND EQUIPMENT
Included in property, plant & equipment at March 31, 2007 are:
Hardware & computer equipment ............... $ 223,618
Less reserve for impairment ................. (55,904)
---------
167,714
Less: accumulated depreciation .............. (167,714)
---------
$ -
=========
Depreciation expense was $0 for the three months ended March 31, 2007 and 2006.
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 March 31, 2007, the Company owed Yucatan Holding Company $22,979. This amount
will be paid by the Company when working capital permits.
At March 31, 2007, the Company owed a third party $6,500 under an oral agreement
on a non-interest bearing, unsecured loan, due on demand basis.
At March 31, 2007, 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 CONTINGINCIES
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.
9
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
NOTE 6 CAPITAL STOCK
The Company's authorized capital consists of:
a. 200,000,000 shares of common stock, par value $.001 per share, of
which 22,895,464 and Shares were issued and outstanding at March 31, 2007.
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
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, of which 92,000 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,
10
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
* 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 to, 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;
- 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 year ended December 31, 2006, the Company issued 1,902,500 shares of
common stock to a related party pursuant to a consulting agreement having a fair
value of $429,250 on the date of grant. The consulting agreements call for
services to be performed through December 2007. Amortization of deferred
consulting was $94,500 during the three months March 31, 2007. In addition, the
Company issued 280,000 shares of common stock valued at $58,800 to consultants
pursuant to three consulting agreements. The consulting agreements call for
services to be performed through June 2007. Amortization of deferred consulting
was $33,645 during the three months ended March 31, 2007.
In November 2006, the Company converted 133,333 shares of its Class C Preferred
Stock into 20,000,000 shares of its common stock.
11
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
NOTE 7 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.
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.
12
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
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 three months ended March 31,
2007.
NOTE 8 SUBSEQUENT EVENT
On May 14, 2007 the Company announced it had reached an agreement in principle
to license the Storm Depot International name logo and related materials from
Eline Entertainment Group, Inc.. This agreement was an important step by the
Company towards the development of a business strategy whereby Techlabs, Inc.
through a wholly owned subsidiary, will begin to market the Storm Depot concept
through a franchise system. Potential franchisees are expected to encompass the
entire Gulf of Mexico region, Florida and the Carolinas. As currently
contemplated, Storm Depot International will receive 1% of the franchise revenue
fees and will provide proprietary products to franchisees. Techlabs further
reported that the agreement is the result of previous acquisition discussions
and it believes that this arrangement, as opposed to an acquisition, offers it
greater flexibility.
On May 16, 2007 the Company reported that its Board of Directors has declared a
ten-for-one forward stock split of its issued and outstanding common stock. The
record date for the forward split is expected to be May 31, 2007, with an
anticipated effective date of June 1, 2007.
On May 18, 2007, the Registrant and Eline Entertainment Group, Inc. ("Eline")
jointly agreed to cancel their previous agreement whereby Eline issued to
Techlabs ten million shares (10,000,000) of its common stock in exchange for a
ten percent (10%) interest in a subsidiary of Techlabs, through which Techlabs
is pursuing certain ventures in the Caribbean basin and South America. The
Registrant determined to take such action partly as a result its decision to
forgo the acquisition of Eline's Storm Depot International subsidiary and
instead pursue opportunities to license the Storm Depot International name logo
and related materials from Eline. Accordingly the ten million shares of Eline
common stock has been returned to Eline and the transaction is be considered to
be null and void.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In 2006, the Company entered into new business initiatives in South
America and the Caribbean basin and believes that such business interests will
contribute to revenue from operations during the remainder of 2007.
We reported revenues of $0 and $0 for three months ended March 31, 2007
and March 31, 2006, respectively, as the Company's new business interests in
South America and the Caribbean basin were recently initiated.
Cost of goods sold during the three months ended March 31, 2007 totaled
$0, resulting in gross margin of $0, as compared to cost of goods sold of $0
during the three months ended September 30, 2006 and a resulting gross margin of
$0.
Operating expenses during the three months ended March 31, 2007 totaled
$143,145, as compared to operating expenses totaling $3,053 during the three
months ended March 31, 2006. Operating expenses during the fiscal 2007 period
included $128,145 for the amortization of deferred compensation to third parties
pursuant to a consulting agreements that called for services to be performed
through as late as December 2007, as well as $15,000 for general and
administrative expenses. Operating expenses during the fiscal 2006 period
consisted solely of $3,053 for general and administrative expenses.
Other expense for the three months ended March 31, 2007 totaled $375,
as compared to $375 for the 2006 three-month period, with such amounts in both
periods representing interest expense. Interest expense for both the 2007 and
2006 periods 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 net loss for the three months ended March 31, 2007 totaled
$143,520, compared to a net loss of $3,428 for the three months ended March 31,
2006.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, we had a working capital deficit of $157,262,
compared to a working capital deficit of $141,887 at December 31, 2006.
Net cash used by operating activities was $12,087 for the three months
ended March 31, 2007, as compared to net cash used by operating activities of
$3,428 for the three months ended March 31, 2006.
Net cash used in investing activities in the fiscal 2007 period was $0,
compared to $0 in the fiscal 2006 period. Net cash provided by financing
activities in the fiscal 2007 period was $12,087, compared to net cash provided
by financing activities in the fiscal 2006 period of $0. Such change represents
an advance of $12,087 from the Company's principal shareholder.
We have an accumulated deficit of $8,750,661 at March 31, 2007 and the
report from our independent auditor on our audited financial statements at
December 31, 2006 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.
15
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 March 31, 2007 (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.
16
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
(1) Current report, items 4.01 2007-04-16 000-26233
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: May 21, 2007
17