UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] 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.
--------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0843965
------- ----------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
8905 Kingston Pike, Suite 307, Knoxville, Tn 37923
--------------------------------------------------
(Address of Principal executive offices)
Issuer's telephone number, including area code: (215) 243-8044
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.)
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 492,964 Shares of
common stock as of April 30, 2003.
TECHLABS, INC.
Form 10-QSB for the period ended March 31, 2003
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, our ability to
consummate a merger or business combination, 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 on Form 10-QSB, "Techlabs," "we,"
"our," and "us" refers to Techlabs, Inc., a Florida corporation, and our
subsidiaries.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2003 (unaudited)
and December 31, 2002.................................................1
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2003 and 2002............................2
Consolidated Statements of Change in Stockholders' Equity
for the Period from January 1, 2001 to March 31, 2003.................3
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2003 and 2002............................4
Notes to Consolidated Financial Statements (unaudited) ...............5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................6
Item 3. Controls and Procedures...............................................7
Part II Other Information.....................................................7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2003 2002
(unaudited)
ASSETS ----------- -----------
Current Assets
Cash ........................................ $ - $ 14
Accounts receivable ......................... 9,104 9,429
----------- -----------
Total Current Assets 9,104 9,443
Web Sites, Property and Equipment, net .......... 78,176 89,447
Intangible and Other Assets
Intangibles, net ............................ 170,778 193,778
----------- -----------
$ 258,058 $ 292,668
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable & accrued expenses ......... $ 331,492 $ 326,491
----------- -----------
Total Current Liabilities 331,492 326,491
Advances from stockholders....................... 90,000 90,000
----------- -----------
Total Liabilities 421,492 416,491
STOCKHOLDERS' (DEFICIT)
Preferred stock - $.001 par value,
25,000,000 shares authorized,
12,500,000 shares Class A Special
Preferred issued and outstanding........ 12,500 12,500
Preferred stock - $.001 par value,
10,000,000 authorized, no shares issued
and outstanding ........................ - -
Preferred stock - $.001 par value,
10,000,000 shares authorized,
225,000 and no shares Class C Preferred
Stock issued and outstanding............ 225 225
Common stock ($.001 par value, 200,000,000
shares authorized, 492,964 shares issued
and outstanding) ......................... 493 493
Additional paid-in capital .................. 7,983,947 7,983,947
Accumulated deficit ......................... (8,160,599) (8,120,988)
----------- -----------
Total Stockholders' (Deficit) ( 163,434) ( 123,823)
----------- -----------
$ 258,058 $ 416,491
=========== ===========
The accompanying notes are an integral part of these
unaudited financial statements.
1
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
Three Months Ended
March 31,
2003 2002
---- ----
Revenue
Net revenue ............................... $ 6,270 $ 18,852
Selling, general and administrative expenses ....... 10,350 21,700
Depreciation and amortization expense .............. 34,181 34,181
--------- ---------
Operating loss ..................................... $ (38,261) $ (37,029)
Other income (expense)
Interest expense ............................... (1,350) (9,547)
Realized (loss) on investment securities ....... - (10,000)
--------- ---------
Total other income (expense) .............. (1,350) (19,547)
--------- ---------
Net loss ........................................... $ (39,611) $ (56,576)
========= =========
Earnings per share:
Basic and diluted loss per common share ........ $ (0.08) $ (0.03)
========= =========
Basic and diluted weighted
average shares outstanding ..................... 492,964 162,742
The accompanying notes are an integral part of these
unaudited financial statements.
2
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in
Stockholders' Equity From the Period
from January 1, 2001 to March 31, 2003
Preferred Stock
---------------------------------------
Class A Class B Class C Common Stock Additional
------------------- ------------------ --------------- ---------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
---------- ------- ---------- ------ ------- ------ ------- ------ ---------- ----------- -----------
Balance,
January 1,
2001 ........ 12,500,000 $12,500 - $ - - $ - 83,040 $ 83 $5,490,271 $(5,407,890) $ 94,964
Shares
issued for
services .... - - - - - - 52,868 53 2,083,141 - 2,083,194
Return of
common
shares to
treasury .... - - - - - - (60,000) (60) 60 - -
Shares
issued for
website
and data
base ........ - - - - - - 12,000 12 543,738 - 543,750
Cancellation
of shares
due to
recission
of
purchase
agreement ... - - - - - - (12,000) (12) (425,925) - (425,937)
Shares
issued for
website ..... - - 4,897,500 4,898 - - - - 45,102 - 50,000
Shares
cancelled ... - - (4,897,500) (4,898) - - - - 4,898 - -
Net loss and
comprehensive
loss ........ - - - - - - - - - (2,513,763) (2,513,763)
---------- ------- ---------- ------ ------- ------ ------- ------ ---------- ----------- -----------
Balance,
January 1,
2002 ........ 12,500,000 $12,500 - $ - - $ - 75,908 $ 76 $7,741,285 $(7,921,653) $ (167,792)
Issuance of
shares for
conversion
of debt ..... - - - - 225,000 225 303,030 303 216,296 - 216,824
Issuance of
shares for
services .... - - - - - - 80,000 80 26,400 - 26,480
Issuance of
shares for
2001 return
to
treasury .... - - - - - - 34,000 34 (34) - 0
Net loss and
comprehensive
loss ........ - - - - - - - - - (199,335) (199,335)
---------- ------- ---------- ------ ------- ------ ------- ------ ---------- ----------- -----------
Balance,
December
31, 2002 .... 12,500,000 $12,500 - $ - 225,000 $ 225 492,938 $ 493 $7,983,947 $(8,120,988) $ (123,823)
Correction
in rounding
as a result
of stock
split ....... - - - - - - 26 - - - -
Net loss and
comprehensive
loss ........ - - - - - - - - - (39,611) (39,611)
---------- ------- ---------- ------ ------- ------ ------- ------ ---------- ----------- -----------
Balance,
March 31,
2003 ........ 12,500,000 $12,500 - $ - 225,000 $ 225 492,964 $ 493 $7,983,947 $(8,160,599) $ (163,434)
The accompanying notes are an integral part of these financial statements.
3
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
2003 2002
---- ----
Operating Activities
Net loss ............................................. $(39,611) $(56,576)
Adjustments to reconcile net loss to
net cash used in operating activities:
Realized loss on investment securities ............... - 10,000
Amortization and depreciation ........................ 34,271 34,181
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable ...... 325 (18,852)
Increase in accounts payable .................... 5,001 30,047
-------- --------
Net Cash Used in Operating Activities ................ (14) (1,200)
Investing Activities
Proceeds from sale of stock .......................... - 40,000
-------- --------
Net Cash Provided by Investing Activities ....... - 40,000
Financing Activities
Advances (repayments)from stockholders ............... - (38,800)
-------- --------
Net Cash Provided by Financing Activities .......... - (38,800)
Change in Cash and Cash Equivalents
Cash and cash equivalents, beginning of period ........... (14) -
-------- --------
Cash and cash equivalents, end of period ................. $ - $ -
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Proceeds from sale of stock ..................... $ - $ 40,000
Repayments to stockholders ...................... $ - $(40,000)
The accompanying notes are an integral part of these
unaudited financial statements.
4
TECHLABS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Business. 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 three months ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2003. For further information, please refer to our audited financial statements
and footnotes thereto for the fiscal year ended December 31, 2002 included in
our Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission.
Going Concern. The accompanying financial statements have been prepared
assuming that Techlabs will continue as a going concern. As shown in the
accompanying financial statements, Techlabs incurred a net loss of $ 39,611
during the three months ended March 31, 2003 and has an accumulated deficit of
$8,160,599 at March 31, 2003. Although a substantial portion of Techlab's
cumulative net loss is attributable to non-cash operating expenses, we believe
that we will need additional equity or debt financing to be able to sustain our
operations until we can achieve profitability, if ever. These matters raise
substantial doubt about Techlabs 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
classifications of liabilities that might be necessary should Techlabs be unable
to continue as a going concern.
NOTE 2. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
During the three months ended March 31, 2003 and 2002 Techlabs paid no
income taxes.
NOTE 3. REALIZED LOSS ON INVESTMENT SECURITIES.
In May 1999, we purchased for cash consideration of $50,000 a minority
interest consisting of 50,000 shares of convertible preferred stock in Focalex,
Inc. a privately- held company. The investment was recorded at cost. In January
2002 Thomas J. Taule, who served as our president and a member of our board of
directors from April 1999 until February 1, 2002, sold the interest in Focalex
back to that company for $40,000. The transaction had not previously been
disclosed to us, had not been authorized by our board of directors, and we did
not become aware of the transaction until May 2002; the proceeds from the sale
were not received by us. Our income statement for the three months ended March
31, 2002 reflects a realized loss on
5
investment securities of $10,000 which is the difference between the historical
cost and the amount received by our former president and we have offset the
proceeds of $40,000 received by him as a reduction in the long-term note payable
to shareholders in the original principal amount of $45,000 due him by Techlabs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For the three months ended March 31, 2003, we reported net revenues of
$6,270 as compared to net revenues of $18,852 for the comparable three month
period in fiscal 2002, a decrease of approximately 67%. Revenues represents fees
earned by us from the rental of our StartingPoint.com email list to
ResponseBase, a third party direct marketing company. ResponseBase is presently
our sole source of revenues and at this time we are materially reliant on
revenues from this customer.
Selling, general and administrative expenses were $10,350 for the three
months ended March 31, 2003 as compared to $21,700 the respective period in
fiscal 2002. We believe our SG&A expenses will continue at this approximate
level in future quarters during the balance of fiscal 2003, absent any material
change in our business and operations.
Other income (expense) for the three months ended March 31, 2003 and
2002 included $1,350 and $9,547, respectively, of interest expense due on loans
made to us by our stockholders. In addition, during the three months ended March
31, 2002 we reported a $10,000 realized loss on investment securities as
described in Note 3 of the Notes to Consolidated Financial Statements
(unaudited) appearing elsewhere in this report. We had no comparable transaction
in the three months ended March 31, 2003.
Our net loss for the three months ended March 31, 2003 was $39,611 as
compared to a net loss of $56,576 for the three months ended March 31 2002.
During the balance of fiscal 2003 we will continue to seek to establish
partnerships or joint ventures with third parties whereby we can either license
our assets or enter into some form of a business combination so that we can
generate revenues from these assets and maximize their value. In addition, we
are also seeking a private company with which we can consummate a merger or
acquisition. We are seeking a business combination target that has historical
operations and earnings, experienced management and which operates in an
industry which provides opportunity for growth. We anticipate that business
opportunities will be available to us through the contacts of our management and
our attorneys. We have not identified any potential business opportunities as of
the date of this report, and we cannot assure you that we will locate targets
which meet our criteria. Even if we are successful in locating such a target, we
cannot assure you that we will be successful in negotiating and closing such a
business combination.
Liquidity and Capital Resources
At March 31, 2003, we had a working capital deficit of $ 322,388
compared to a working capital deficit of $257,050 at December 31, 2001. Net cash
used by operating activities for the three months ended March 31, 2003 was $14
as compared to $1,200
6
for the three months ended March 31, 2002. Net cash provided by investing
activities for the three months ended March 31, 2003 was $0 as compared to net
cash used by investing activities of $38,000 during the comparable period in
fiscal 2002. Net cash provided by financing activities for the three months
ended March 31, 2003 was $0 as compared to net cash used by financing activities
of $38,800 for the comparable period in fiscal 2002.
At March 31, 2003 we have an accumulated deficit of $8,160,599, and the
report from of our independent auditor on our audited financial statements at
December 31, 2002 contained a going concern modification. We will continue to
incur losses during the foreseeable future and have yet to achieve revenues
sufficient to offset direct expenses and corporate overhead. We do not have any
present commitments for capital expenditures. Our principal shareholder has
historically advanced us funds from time to time for operating expenses and it
has agreed to provide us with a $250,000 working capital line. While this line
of credit is sufficient to fund our operations at current levels, if we wish to
expand our operations, or to enter into business combinations with as yet
unidentified third parties, we will need additional working capital beyond the
commitment from our principal shareholder. We cannot guarantee you that we will
be successful in obtaining capital upon terms acceptable to us, if at all. Our
failure to secure necessary financing could have a material adverse effect on
our financial condition and results of operations.
ITEM 3. CONTROLS AND PROCEDURES
Our management, which includes our President who is our sole officer
and director, 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") within 90 days prior to the filing date of 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 Evaluation Date.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
7
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
99.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned as
duly authorized.
Techlabs, Inc.
By: /S/ Jayme Dorrough
Jayme Dorrough
President
Dated: May 14, 2003
9
CERTIFICATION
I, Jayme Dorrough, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Techlabs,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 14, 2003 By: /s/ Jayme Dorrough
Jayme Dorrough,
President and Director,
sole officer and sole director
10