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, 2003
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[ ] 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
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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
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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 November 12, 2003.
TECHLABS, INC.
Form 10-QSB for the period ended September 30, 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 September 30, 2003
(unaudited) and December 31, 2002...................................1
Consolidated Statements of Operations (unaudited) for the three
months and nine months ended September 30, 2003 and 2002............2
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended September 30, 2003 and 2002.......................3
Notes to Consolidated Financial Statements (unaudited) ...............4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................5
Item 3. Controls and Procedures...............................................6
Part II Other Information.....................................................7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2003 2002
(unaudited)
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ASSETS
Current Assets
Cash ........................................ $ 201 $ 14
Accounts receivable ......................... $ 4,420 $ 9,429
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Total Current Assets 4,621 9,443
Web Sites, Property and Equipment, net .......... 55,634 89,447
Intangible and Other Assets
Intangibles, net ............................ 124,778 193,778
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$ 185,033 $ 292,668
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LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Accounts payable & accrued expenses ......... $ 344,120 $ 326,491
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Total Current Liabilities 344,120 326,491
Advances from stockholders....................... 90,000 90,000
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Total Liabilities 434,120 416,491
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 ......................... (8,246,252) (8,120,988)
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Total Stockholders' (Deficit) (249,087) (123,823)
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$ 185,033 $ 292,668
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The accompanying notes are an integral part of these
unaudited financial statements.
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TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 2003 and 2002
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Revenue
Net revenue ................... $ 3,685 $ 14,961 $ 14,203 $ 48,241
Selling, general and
administrative expenses ....... 6,030 9,637 35,484 50,922
Depreciation and
amortization expense .......... 34,271 34,181 102,633 102,543
--------- -------- --------- ---------
Operating loss .................. (36,616) (28,857) (123,914) (105,224)
Other income (expense)
Realized (loss) on
investment securities ....... - - - (10,000)
Interest expense .............. - (10,000) (1,350) (29,547)
--------- -------- --------- ---------
Total other
income (expense) ....... - (10,000) (1,350) (39,547)
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Net loss ........................ $ (36,616) $(38,857) $(125,264) $(144,771)
========= ======== ========= =========
Earnings per share:
Basic and diluted loss
per common share ............ $ (0.07) $ (0.52) $ (0.25) $ (1.91)
Basic and diluted
weighted average
shares outstanding .......... 492,964 75,908 492,964 75,908
The accompanying notes are an integral part of these
unaudited financial statements.
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TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002
2003 2002
Operating Activities
Net loss ........................................... $(125,264) $(144,771)
Adjustments to reconcile net loss to
net cash used in operating activities
Realized loss on investment securities ............. - 10,000
Amortization and depreciation ...................... 102,827 102,543
Changes in operating assets and liabilities:
(Increase)decrease in accounts receivable ........ 5,009 (9,657)
Increase in accounts payable ..................... 17,629 66,147
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Net Cash Provided By (Used In)
Operating Activities ........................... 201 24,262
Investing Activities
Proceeds from sale of investment securities ...... - (40,000)
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Net Cash Used by Investing Activities ............ - (40,000)
Financing Activities
Net payment on advances from stockholders .......... - (58,910)
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Net Cash Provided by Financing Activities ........ - (58,910)
Change in Cash and Cash Equivalents ....... - 5,352
Cash and cash equivalents, beginning of period ......... - -
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Cash and cash equivalents, end of period ............... $ 201 $ 5,352
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Proceeds from sale of stock ................... $ - $ 40,000
Repayments to stockholders .................... - (40,000)
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$ - $ -
========= =========
The accompanying notes are an integral part of these
unaudited financial statements.
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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 and nine months ended September 30, 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 $125,264
during the nine months ended September 30, 2003 and has an accumulated deficit
of $8,246,252 at September 30, 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 nine months ended September 30, 2003 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.
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Our income statement for the nine months ended September 30, 2002 reflects a
realized loss on 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 September 30, 2003, we reported net revenues
of $3,685 as compared to net revenues of $14,961 for the comparable three month
period in fiscal 2002, a decrease of approximately 75%. For the nine months
ended September 30, 2003, we reported net revenues of $14,203 as compared to net
revenues of $48,241 for the comparable nine month period in fiscal 2002, a
decrease of approximately 71%. 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 $6,030 and $35,484
for the three months and nine months ended September 30, 2003, respectively, as
compared to $9,637 and $50,922, respectively, for the comparable periods in
fiscal 2002. Included in our SG&A expenses for the nine months ended September
30, 2003 included a bad debt write off of $9,330. 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 September 30, 2003
and 2002 included $ 0 and $10,000, respectively, of interest expense due on
loans made to us by our stockholders. Other income (expense) for the nine months
ended September 30, 2003 and 2002 included $ 1,350 and $29,547, respectively, of
interest expense due on loans made to us by our stockholders. In addition,
during the nine months ended September 30, 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 nine months ended September 30,
2003.
Our net loss for the three months ended September 30, 2003 was $36,616
as compared to a net loss of $38,857 for the three months ended September 30,
2002. Our net loss for the nine months ended September 30, 2003 was $125,264 as
compared to a net loss of $144,771 for the nine months ended September 30, 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
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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 September 30, 2003, we had a working capital deficit of $ 339,499
compared to a working capital deficit of $ 317,048 at December 31, 2002. Net
cash provided by operating activities for the nine months ended September 30,
2003 was $201 as compared to $24,262 for the nine months ended September 30,
2003. Net cash used by investing activities as $0 for the nine months ended
September 30, 2003 as compared to $40,000 for the nine months ended September
30, 2002. Net cash provided by financing activities for the nine months ended
September 30, 2003 was $ 0 as compared to net cash used by financing activities
of $58,910 for the comparable period in fiscal 2002.
At September 30, 2003 we have an accumulated deficit of $8,246,252, 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 September 30, 2003 (the
"Evaluation Date"). 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.
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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.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
None.
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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
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Jayme Dorrough
President
Dated: November 19, 2003
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