U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 000-30451
Techlabs, Inc.
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(Name of small business issuer in its charter)
Florida 65-0843965
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
8905 Kingston Pike
Suite 307
Knoxville, Tennessee 37923
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 215-243-8044
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None Not Applicable
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(Title of each class)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 14,969 for the 12
months ended December 31, 2003.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. The aggregate market value of the voting
stock held by non-affiliates computed at the closing price of Techlab's common
stock on March 31, 2004 is approximately $88,000.
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date. As of March 31, 2004, 492,964 shares
of common stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) of the Securities Act of 1933 ("Securities Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one): Yes No X
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business..............................................1
Item 2. Description of Property..............................................5
Item 3. Legal Proceedings....................................................5
Item 4. Submission of Matters to a Vote of Security Holders..................5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.............5
Item 6. Management's Discussion and Analysis or Plan of Operation............6
Item 7. Financial Statements.................................................7
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure ................................................7
ITEM 8A. Controls and Procedures..............................................8
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................9
Item 10. Executive Compensation..............................................10
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.....................................12
Item 12. Certain Relationships and Related Transactions......................14
Item 13. Exhibits and Reports on Form 8-K....................................15
Item 14. Principal Accountant Fees and Services..............................16
Signatures ..................................................................17
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When used in this annual report, the terms "Techlabs," "we," and "us"
refers to Techlabs, Inc., a Florida corporation, and its subsidiaries.
All per share information contained in this annual report gives
proforma effect to the one for 25 reverse stock split of our common stock
effected on November 14, 2002.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB 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 ANNUAL REPORT IN ITS ENTIRETY, INCLUDING
BUT NOT LIMITED TO OUR FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE RISKS
DESCRIBED IN "ITEM 1. DESCRIPTION OF BUSINESS--RISK FACTORS." 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
We generate our revenues from fees earned by us from the rental of our
Starting Point.com email list. This email list is derived from opt-ins to our
Starting Point web site located at www.stpt.com. This web site was designed to
offer a variety of web searching tools. Users can also perform targeted searches
utilizing Starting Point.com's database of directories and web sites that
include 13 distinct sections covering topics from investments to entertainment
to sports to weather and more, with each section having its own easy-to-use,
organized format. Starting Point is managed for us by a third party.
For the years ended December 31, 2002 and 2003 our sole customer was
ResponseBase, a third party direct marketing company. We were recently advised
by ResponseBase that they were exiting that segment of their business. We are
presently sourcing replacements for ResponseBase.
In addition to Starting Point, we also own Interplanner.com and
InternetChic Marketing. Neither of these web site properties are generating
revenues at this time. Interplanner.com was designed as a free online calendar
and personal information management (PIM) service that offered a
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comprehensive set of features, including a personal calendar, group calendars,
contact lists, appointment entry and tracking, and task lists, as well as a
variety of content. Interplanner's original source code and documentation was
developed for us by a third party. We own all intellectual property rights
associated with Interplanner. InternetChic Marketing was a business-to-business
marketing solution provider focused on developing and implementing Internet
marketing and web site traffic building programs for Internet businesses and
traditional brick and mortar companies.
OUR HISTORY
We were formed 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 we
abandoned this business due to excessive competition, changed our name to
Techlabs, Inc. and embarked on a business strategy of a developer and incubator
of start-up and emerging Internet companies and businesses.
COMPETITION
We compete with a vast number of companies in the collection and rental
of targeted opt-in email addresses. This business segment is intensely
competitive and rapidly changing and has proven to be a very difficult business
model. Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources. Some of our potential competitors are among the largest and
most well-capitalized companies in the world. Because of our small size, we
cannot assure you that we will ever compete effectively in our market segment.
INTELLECTUAL PROPERTY
We rely upon a combination of trade secret, copyright and trademark
laws to protect our intellectual property. Except where we have granted third
parties contractual rights to use our intellectual property, we limit access to,
and distribution of, and other proprietary information. However, the steps we
take to protect our intellectual property may not be adequate to deter
misappropriation of our proprietary information. In general, there can be no
assurance that our efforts to protect our intellectual property rights through
copyright, trademark and trade secret laws will be effective to prevent
misappropriation of our intellectual property. Our failure or inability to
protect our proprietary rights could materially adversely affect our business,
financial condition and results of operations. We have also obtained the right
to the Internet addresses www.stpt.com. As with phone numbers, we do not have
and cannot acquire any property rights in an Internet address. We do not expect
to lose the ability to use the Internet address; however, there can be no
assurance in this regard and the loss of these addresses may have a material
adverse affect on our ability to license the related products and services.
EMPLOYEES
As of March 31, 2004 we have one part-time employee, Jayme Dorrough our
sole officer and director.
RISK FACTORS
An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can afford to lose
your entire investment. You should consider
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carefully the following risk factors and other information in this annual report
before deciding to invest in our common stock.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT. WE DO NOT ANTICIPATE
THAT WE WILL REPORT REVENUES OR A PROFIT UNTIL WE CONSUMMATE A MERGER OR A
BUSINESS COMBINATION WITH A THIRD PARTY.
We reported a net loss of $199,335 for the fiscal year ended December
31, 2002. While we reported net income of $132,586 for the fiscal year ended
December 31, 2003, included in our net income was one time, non-recurring gain
of $345,339 on forgiveness of indebtedness. For the fiscal year ended December
31, 2003 we reported an operating loss of $212,753, which included non-cash
expenses of $213,447 for deprecation and amortization and impairment of fixed
assets and intangibles. At December 31, 2003 we have an accumulated deficit of
$7,988,402 . While a significant portion of our accumulated losses are non-cash,
our operations generate only limited revenues and we cannot predict when, if
ever, that we will generate sufficient revenues to cover our operating expenses.
Our business and prospects must be considered in light of the risks, expenses
and problems frequently encountered by companies in their early stages of
development. We cannot guarantee you that we will be successful in increasing
our revenues or that we will ever achieve profitability.
WE HAVE RECENTLY LOST OUR SOLE SOURCE OF REVENUE.
During fiscal 2003 and 2002 our sole source of revenue was fees paid by
ResponseBase, an unaffiliated third party, for the rental of our opt-in email
list. In January 2004 we were advised by ResponseBase that they were exiting
that segment of their business. It will be necessary for us to identify and
contract with one or more replacements for ResponseBase. While we are presently
sourcing replacement customers for ResponseBase, we cannot assure you that we
will be successful. If we do not replace the revenues previously generated by
fees from ResponseBase, or identify and implement other sources of revenues, we
will not generale any revenues in future periods.
WE WILL REQUIRE ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON
ACCEPTABLE TERMS. ANY INABILITY TO RAISE ADDITIONAL CAPITAL WHEN NEEDED COULD
ADVERSELY AFFECT OUR ABILITY TO GROW OUR COMPANY.
While our principal shareholder has committed to provide sufficient
funds to cover our overhead and general corporate expenses, including increased
costs as a result of the termination of our revenue source from ResponseBase, we
will require additional capital in order to expand our operations. We do not
have any commitments for additional financing and there can be no assurance that
such additional funding, if required, will be available, or if available, will
be available upon favorable terms. Insufficient funds may prevent us from
implementing our business strategy. In the event we raise additional funds
through the issuance of equity securities, dilution to the then existing
stockholders will result and future investors may be granted rights superior to
those of existing stockholders.
OUR STOCK PRICE WILL FLUCTUATE FROM TIME TO TIME AND MAY FALL BELOW EXPECTATIONS
OF INVESTORS.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
- quarterly variations in operating results;
- changes in accounting treatments or principles;
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- announcements by us or our competitors of new products and services
offerings, significant contracts, acquisitions or strategic
relationships;
- additions or departures of key personnel;
- any future sales of our common stock or other securities;
- stock market price and volume fluctuations of publicly-traded
companies in general and Internet-related companies in particular;
and
- general political, economic and market conditions.
It is likely that in some future quarter our operating results may fall
below the expectations of investors, which could result in a decrease in the
trading price of our common stock. The trading prices of Internet-related
companies and e-commerce companies in particular have been especially volatile.
In the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
We may be the target of similar litigation in the future. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could seriously harm our business and operating results.
OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OTCBB, BUT TRADING IN OUR STOCK IS
LIMITED.
The market for our common stock is extremely limited, and we do not
anticipate that it there will be any increased liquidity in our common stock in
the foreseeable future due in part to our limited revenues. Even if we are
successful in increase our revenues, there are no assurances an active market
for our common stock will ever develop. Accordingly, purchasers of our common
stock cannot be assured any liquidity in their investment.
BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE
OTC BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN ADVERSELY
EFFECT ITS LIQUIDITY.
If the trading price of our common stock remains less than $5.00 per
share, our common stock is considered a "penny stock," and trading in our common
stock is subject to the requirements of Rule 15g-9 under the Securities Exchange
Act of 1934. Under this rule, broker/dealers who recommend low- priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements. The broker/dealer must make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with
any trades involving a "penny stock," including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and its associated risks. These requirements severely limit the liquidity of
securities in the secondary market because few broker or dealers are likely to
undertake these compliance activities. In addition to the applicability of the
penny stock rules, other risks associated with trading in penny stocks could
also be price fluctuations and the lack of a liquid market.
It is unlikely that our common stock will trade above $5.00 per share
in the foreseeable future, accordingly, any liquidity in the market will be
further hampered by the applicability of the Penny Stock Rules to trading in our
common stock.
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ITEM 2. DESCRIPTION OF PROPERTY.
Our principal stockholder, Yucatan Holding Company, provides us office
space at no cost to us.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is quoted on the OTCBB under the symbol TELA. The
reported high and low bid prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
High Low
FISCAL 2002
First Quarter ended March 31, 2002 ............. $1.00 $0.75
Second Quarter ended June 30, 2002 ............. $1.00 $0.75
Third Quarter ended September 30, 2002 ......... $1.00 $0.75
Fourth Quarter ended December 31, 2002 ......... $0.60 $0.59
FISCAL 2003
First Quarter ended March 31, 2003 ............. $0.59 $0.51
Second Quarter ended June 30, 2003 ............. $2.75 $0.51
Third Quarter ended September 30, 2003 ......... $4.15 $2.75
Fourth Quarter ended December 31, 2003 ......... $3.75 $1.30
On March 31, 2004 the last sale price of our common stock as reported
on the OTCBB was $1.25. As of March 31, 2004 there were approximately 35 record
owners of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business. We do
not anticipate that any cash dividends will be paid in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth securities authorized for issuance under
equity compensation plans, including individual compensation arrangements, by us
under our 1999 Stock Incentive Plan and any compensation plans not previously
approved by our stockholders as of December 31, 2003.
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Number of Weighted Number of
securities to average securities remaining
be issued upon exercise available for future
exercise of price of issuance under equity
outstanding outstanding compensation plans
options, options, (excluding securities
warrants warrants reflected
and rights and rights in column (a))
(a) (b) (c)
-------------- ----------- ---------------------
Plan category
1999 Stock Incentive Plan 0 - 455,362
Equity compensation plans
not approved by stockholders none none none
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS
We reported revenues of $14,969 and $57,670 for the fiscal years 2003
and 2002, respectively, and net income (loss) of $ 132,586 and $(199,335) for
those respective periods. Revenues in fiscal 2003 and 2002 represented fees
earned by us from the rental of our StartingPoint.com email list to
ResponseBase, a third party direct marketing company. ResponseBase was our sole
source of revenues and we were materially reliant on revenues from this
customer. Subsequent to fiscal 2003 ResponseBase informed us that they were
exiting that segment of their business. We are presently sourcing replacements
for ResponseBase.
Selling, general and administrative expenses decreased approximately
82% in fiscal 2003 compared to fiscal 2002 primarily as a result of a reduction
in compensation expense paid to third parties. For fiscal 2003 and 2002 we also
recorded depreciation and amortization of $125,543 and $136,724, respectively.
For fiscal 2003 we recognized an impairment of $32,000 on the value of certain
intangible assets which represent the opt-in email list we market, and an
impairment of $55,904 which represented fixed assets related to our
Interplanner.com website. We did not have comparable expenses in fiscal 2002.
Other income (expense) for fiscal 2003 and 2002 included $0 and
$29,547, respectively, of interest expense due on loans made to us by our
stockholders. In addition, during fiscal 2002 we reported a $10,000 realized
loss on investment securities as described in Note 4 of the Notes to
Consolidated Financial Statements appearing elsewhere in this report. We did not
have a comparable expense in fiscal 2003. For fiscal 2003 we also reported a
one-time gain of $345,339 on foregiveness of indebtedness. We did not have a
comparable transaction in fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, we had a working capital deficit of $37,015 as
compared to a deficit of $317,048 at December 31, 2002. Net cash provided by
operating activities for fiscal 2003 was $23,383 as compared to $33,881 for
fiscal 2002. This change is primarily attributable to a one-time gain of
$345,339 on forgiveness of indebtedness. Net cash used by investing activities
in fiscal 2003 was $0 as compared to
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$40,000 for fiscal 2002. Net cash used in financing activities in fiscal 2003
was $23,141 as compared to net cash used in financing activities of $73,867 in
fiscal 2002.
We have an accumulated deficit of $7,988,402 at December 31, 2003, and
the report from of our independent auditor on our audited financial statements
at December 31, 2003 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. We do
not have any present commitments for capital expenditures.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this report are included,
commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 9, 2004 we notified Dempsey Vantrease & Follis PLLC, our
principal independent accountant, that we were terminating their services. Our
decision to terminate their services was based upon their notification to us
that such firm had decided not to register with the Public Company Accounting
Oversight Board. The report of Dempsey Vantrease & Follis PLLC on our financial
statements for the fiscal year ended December 31, 2002 contained an explanatory
paragraph as to our ability to continue as a going concern. Other than such
going concern modification, such report did not contain an adverse opinion or
disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements between our company and
Dempsey Vantrease & Follis PLLC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to Dempsey Vantrease & Follis PLLC's satisfaction, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its report.
In accordance with the requirements of Item 304 of Regulation S-B of
the Securities Act of 1933, we provided Dempsey Vantrease & Follis PLLC with a
copy of Item 4 of our Report on Form 8-K as filed on March 31, 2004 and they
furnished us a letter addressed to the SEC stating that such firm agreed with
the statements made by us in that Report. A copy of such letter was filed as an
exhibit to our Report on Form 8-K filed on March 31, 2004.
On March 9, 2004 we engaged Webb & Company, P.A. to act as our
principal independent accountant. Prior to such engagement, during the two most
recent fiscal years and any subsequent interim period prior to engaging Webb &
Company, P.A. we did not consult with such firm regarding the application of
accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on our financial statements.
The change in our principal independent accountants was approved by our board of
directors.
On September 30, 2002 we notified Rodefer Moss & Co PLLC, our principal
independent accountant, that we were terminating their services. The report of
Rodefer Moss & Co PLLC on our financial statements for the fiscal years ended
December 31, 2001 and 2000 each contained an explanatory paragraph as to our
ability to continue as a going concern. Other than such going concern
modification, such reports did not contain an adverse opinion or disclaimer of
opinion, nor was it modified as to uncertainty, audit scope, or accounting
principles. During the two most recent fiscal years and the subsequent interim
period prior to their termination, there were no disagreements between our
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company and Rodefer Moss & Co PLLC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to such firm's satisfaction, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report.
On September 30, 2002 we engaged Dempsey Vantrease & Follis PLLC to act
as our principal independent accountant. Prior to such engagement, during the
two most recent fiscal years and any subsequent interim period prior to engaging
Dempsey Vantrease & Follis PLLC we did not consult with such firm regarding the
application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on our
financial statements.
The change in our principal independent accountants was approved by our
board of directors.
In accordance with the requirements of Item 304 of Regulation S-B of
the Securities Act of 1933, we provided Rodefer Moss & Co PLLC with a copy of
Item 4 of our Report on Form 8-K as filed on October 1, 2002 and they furnished
us a letter addressed to the SEC stating that such firm agreed with the
statements made by us in that Report. A copy of such letter was filed as an
exhibit to our Report on Form 8-K/A filed on October 7, 2002. We have also filed
as an exhibit to our Report on Form 8-K/A as filed on October 23, 2002 a letter
from Rodefer Moss & Co, PLLC addressed to the SEC confirming that they agree
with the statements contained in this Report as they relate to that firm.
The change in our principal independent accountants was approved by our
board of directors.
Accordingly, during the two most recent fiscal years and any subsequent
interim period prior to each of their respective resignation or termination,
there were no disagreements between our company and either of Dempsey Vantrease
& Follis LLP or Rodefer Moss & Co. PLLC on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to such firm's satisfaction, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report.
ITEM 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered by the annual report, being December 31,
2003, we have carried out an evaluation of the effectiveness of the design and
operation of our company's disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our
company's management, including our company's President. Based upon that
evaluation, our company's President concluded that our company's disclosure
controls and procedures are effective. There has been no significant changes in
our company's internal controls or in other factors, which could significantly
affect internal control subsequent to the date we carried out our evaluation.
Disclosure controls and procedures and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 is accumulated and communicated to management
including our President as appropriate, to allow timely decisions regarding
required disclosure.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following individuals are our executive officers and directors:
Name Age Position
---- --- --------
Jayme Dorrough 35 Director, President
and Secretary
JAYME DORROUGH. Mrs. Dorrough has been a member of our board of
directors since December 2000 and has served as our president and secretary
since February 2001. Since 1994 Mrs. Dorrough has been president and the
principal of Yucatan Holding Company, a privately-held investment company with
interests in various companies. Yucatan Holding Company is our principal
shareholder. Mrs. Dorrough has been a member of the board of directors of Eline
Entertainment Group, Inc. (OTCBB: EEGI) since September 2002.
There are no family relationship between any of the executive officers
and directors. Each director is elected at our annual meeting of stockholders
and holds office until the next annual meeting of stockholders, or until his
successor is elected and qualified. There are no committees of our board of
directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934
("Exchange Act") during the fiscal year ended October 31, 2003, we are not aware
of any person that failed to file on a timely basis, as disclosed in the
aforementioned Forms, reports required by Section 16(a) of the Exchange Act
during the fiscal year ended December 31, 2003.
CODE OF ETHICS
Effective December 31, 2003, our board of directors adopted a Code of
Business Conduct and Ethics that applies to, among other persons, our company's
President, as well as persons performing similar functions. As adopted, our Code
of Business Conduct and Ethics sets forth written standards that are designed to
deter wrongdoing and to promote:
* honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
* full, fair, accurate, timely, and understandable disclosure in
reports and documents that we file with, or submit to, the
Securities and Exchange Commission and in other public
communications made by us;
* compliance with applicable governmental laws, rules and regulations;
* the prompt internal reporting of violations of the Code of Business
Conduct and Ethics to an appropriate person or persons identified in
the Code of Business Conduct and Ethics; and
* accountability for adherence to the Code of Business Conduct and
Ethics.
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Our Code of Business Conduct and Ethics requires, among other things,
that all of our company's personnel shall be accorded full access to our
President with respect to any matter that may arise relating to the Code of
Business Conduct and Ethics. Further, all of our company's personnel are to be
accorded full access to our company's board of directors if any such matter
involves an alleged breach of the Code of Business Conduct and Ethics by our
President.
In addition, our Code of Business Conduct and Ethics emphasizes that
all employees, and particularly managers and/or supervisors, have a
responsibility for maintaining financial integrity within our company,
consistent with generally accepted accounting principles, and federal,
provincial and state securities laws. Any employee who becomes aware of any
incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to his or her immediate supervisor or to our company's President. If
the incident involves an alleged breach of the Code of Business Conduct and
Ethics by the President, the incident must be reported to any member of our
board of directors. Any failure to report such inappropriate or irregular
conduct of others is to be treated as a severe disciplinary matter. It is
against our company policy to retaliate against any individual who reports in
good faith the violation or potential violation of our company's Code of
Business Conduct and Ethics by another.
Our Code of Business Conduct and Ethics is filed herewith with the
Securities and Exchange Commission as Exhibit 14 to this report. We will provide
a copy of the Code of Business Conduct and Ethics to any person without charge,
upon request. Requests can be sent to: Techlabs, Inc., 8905 Kingston Pike, Suite
307, Knoxville, Tennessee 37923.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth information relating to the compensation
paid by us during the past three fiscal years to: (i) the president and Chief
Executive Officer; and (ii) each other executive officer who earned more than
$100,000 during last three completed fiscal years (the "Named Executive
Officers").
Annual Compensation Long-Term Compensation
---------------------------------------- --------------------------------------
Restricted Securities
Other Annual Stock Underlying All
Name and Principal Fiscal Salary Bonus Compensation Awards Options Other
Position Year ($) ($) ($) ($) SAR (#) Compensation
-------------------------------------------------------------------------------------------------------
Jayme Dorrough, 2003 $ 12,000 - - - - -
President and 2002 $ 12,000 - - - - -
Director (1)
Thomas J. Taule (2) 2002 $ 12,500 - - - - -
2001 $150,000 - - - - -
1) Mrs. Dorrough has served as our president since February 2002. Mrs. Dorrough
is not a party to an employment agreement with us. While we do not pay Mrs.
Dorrough a salary, we have recognized an expense of $12,000 for the period of
February 1, 2002 though December 31, 2002 and an expense of $12,000 for fiscal
2003 which we believe equals the fair value of her services during these
periods. This compensation has been treated as imputed compensation.
10
(2) Mr. Taule served as our president and CEO from April 2000 until February
2002. Mr. Taule was a party to an employment agreement with our company which
provided for annual compensation of $150,000. This agreement terminated upon his
resignation from our company on February 1, 2002 and as a result of his
voluntary resignation we were not obligated to pay him any severance benefits.
The amount of annual compensation paid in fiscal 2001 represents 7,200 shares of
our common stock, valued at $138,050, issued to him, and an accrual of 11,950.
The amount of compensation paid to him in fiscal 2002 reflects an accrual for
one month's salary. In December 2002 we determined not to pay these amounts to
him as described later in this annual report under Item 12. Certain
Relationships and Related Transactions.
OPTION / SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of options made during fiscal 2003 to the Named Executive Officers.
% of Total
Number of Shares Options Granted Exercise or
Underlying Options to Employees in Base Price Expiration
Name Granted (#) (1) Fiscal Year ($/Sh) Date
---- ------------------ --------------- ----------- ----------
Jayme Dorrough 0 n/a n/a n/a
STOCK INCENTIVE PLAN
In October 1999, we adopted our 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 we 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 our 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 March 31, 2004 the maximum number of shares of our common stock
available for issuance upon grants of restricted stock awards or stock options
was 1,977,024 shares. To date, we have granted restricted stock awards or stock
options which have been exercised for an aggregate of 1,521,662 shares of our
common stock. Accordingly, we currently have 455,362 shares available under the
Plan.
The Plan is to be administered by a committee consisting of two or more
outside directors who shall 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. Our 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
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
our 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of March 31 , 2004, there were 492,964 shares of our common stock,
12,500,000 shares of our Class A Special Preferred Stock and 225,000 shares of
our Class C Preferred Stock issued and outstanding. These securities represent
all of our issued and outstanding voting securities. Each share of common stock
is entitled to one vote, each share of Class A Special Preferred Stock is
entitled to three votes and each share of Class C Preferred Stock is entitled to
150 votes on all matters submitted to our shareholders for a vote, and all three
classes of these securities vote together as one class. The following table
contains information regarding beneficial ownership of our common stock as of
March 31, 2004 held by:
* persons who own beneficially more than 5% of our outstanding voting
securities,
* our directors,
* named executive officers, and
* all of our directors and officers as a group.
12
A person is deemed to be the beneficial owner of securities that can be
acquired by such a person within 60 days from March 31, 2004, upon exercise of
options, warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such a person (but not those held by any other
person) and are exercisable within 60 days from that date have been exercised.
Unless otherwise indicated, the address of each of the listed beneficial owners
identified is 8905 Kingston Pike, Suite 307, Knoxville, Tennessee 37923. Unless
otherwise noted, we believe that all persons named in the table have sole voting
and investment power with respect to all shares of our voting securities
beneficially owned by them.
Name of Amount and Nature of Percentage Percentage of
Beneficial Owner Beneficial Ownership of Class Voting Control(1)
---------------- -------------------- ---------- -----------------
Common Stock
------------
Jayme Dorrough (2) ............ 342,530 69.5% 82.4%
All executive officers
and directors as a
group (one person)(2) ....... 342,530 69.5% 82.4%
Yucatan Holding Company (2) ... 342,530 69.5% 82.4%
Ella Chesnutt (3) ............. 80,000 16.6% *
Class A Special Preferred Stock
-------------------------------
Jayme Dorrough (2) ............ 8,330,000 66.6% 82.4%
All executive officers
and directors as a
group (one person)(2) ....... 8,330,000 66.6% 82.4%
Thomas J. Taule (4) ........... 4,170,000 33.3% 5.8%
Yucatan Holding Company (2) ... 8,330,000 66.6% 82.4%
Class C Preferred Stock (4)
---------------------------
Jayme Dorrough (2) ............ 225,000 100% 82.4%
All executive officers
and directors as a
group (one person)(2) ....... 225,000 100% 82.4%
Yucatan Holding Company (2) ... 225,000 100% 82.4%
__________
* represents less than 1%
(1) Percentage of Voting Control is based upon the number of issued and
outstanding shares of our common stock, shares of our Class A Special
Preferred Stock and Class C Preferred Stock at March 31, 2004. At March 31,
2004 the holders of our outstanding shares of common stock, Class A Special
Preferred Stock and Class C Preferred Stock were entitled to an aggregate of
71,742,964 votes at any meeting of our shareholders, which includes 492,964
votes attributable to the outstanding shares of common stock, 37,500,000
votes attributable to the outstanding shares of Class A Special Preferred
Stock and 33,750,000 votes attributable to the Class C Preferred Stock.
(2) Mrs. Dorrough, our sole officer and director, is the sole officer and
director of Yucatan Holding Company. All shares owned beneficially by Mrs.
Dorrough are owned of record by Yucatan Holding Company. The 342,530 shares
of common stock, 8,330,000 shares of Class A Special Preferred Stock (which
is entitled to 24,990,000 votes) and 225,000 shares of Class C Preferred
Stock (which is eto 33,750,000 votes) are aggregated together in determining
the Percent of Voting Control held by Mrs. Dorrough through Yucatan Holding
Company.
13
(3) Mrs. Chesnutt's address is 6200 Devon Drive, Columbia, MD 21044.
(4) Mr. Taule served as our president and CEO from April 2000 until February
2002. His address is 1861 North Federal Highway, #146,, Hollywood, Florida
33020. The Percentage of Voting Control includes 5,500 shares of common
stock and 4,170,000 shares of Class A Special Preferred Stock (which is
entitled to 12,510,000 votes) held by Mr. Taule.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 2002 we issued Yucatan Holding Company 225,000 shares of our
Class C Preferred Stock and in October 2002 we issued Yucatan Holding Company
303,030 shares of our common stock. These shares were issued as consideration
for the conversion $216,824 of the amount due Yucatan Holding Company by us.
During fiscal 2001 each of Yucatan Holding Company and Thomas J. Taule,
our former president and CEO, returned an aggregate of 60,000 shares of our
common stock to the treasury (30,000 shares each), which such shares were
cancelled and returned to the status of authorized but unissued shares as a
contribution to capital by these shareholders. These transactions were
facilitated to assure that we had a sufficient number of authorized but unissued
shares of common stock and, as a result of the number of preferred shares held
by each party, did not affect the voting control of our company. In conjunction
with these transactions, our Board of Directors agreed that at such time as we
had filed an amendment to our Articles of Incorporation increasing the number of
authorized shares of our common stock that we would issue each of Yucatan
Holding Company and Mr. Taule 30,000 shares of common stock to replace the
shares which had been returned to treasury and an additional 4,000 shares each
of common stock as consideration for the earlier contribution to capital by
these shareholders. We also granted these shareholders demand registration
rights covering these shares. In August 2002 following the filing of Articles of
Amendment to our Articles of Incorporation, we issued Yucatan Holding Company
34,000 shares of our common stock.
In May 2002 we discovered that in January 2002 Thomas J. Taule, our
former president, had sold certain investment securities we owned without our
consent, and had failed to disclose the transaction to us either prior to his
resignation or thereafter. We have offset the proceeds of $40,000 received by
him from this unauthorized transaction as a reduction in the long-term note
payable to shareholders in the original principal amount of $45,000 due him by
Techlabs. The asset was a long term investment held by us with a historical cost
of $50,000 and which appeared on our balance sheet as investment securities. The
asset was not used in our operations and has no material effect on our
continuing operations. We engaged in discussions with our former president and
other attendant parties to the transaction regarding the facts and circumstances
surrounding this matter, and we attempted to ascertain if the amount received by
our former president from the sale of this asset approximated its fair value.
We were never able to ascertain if the amount of proceeds derived by
Mr. Taule from the unauthorized sale of our asset approximated the fair value
thereof as a result of the refusal by the issuer of those investment securities,
a privately-held company, to cooperate in our investigation. In addition to Mr.
Taule's actions related to the conversion of this asset, during the course of
our review of the status of our business and operations following his
resignation in February 2002 and our discovery of the unauthorized sale of our
asset, we determined that he had taken a number of other actions which we did
14
not believe to be in our best interests and failed to protect and enhance our
assets during his tenure as president. In December 2002 our Board of Directors
determined that as a result of Mr. Taule's actions which we believe put his
personal interests in front of those of Techlabs that our company would not pay
him the accrued but unpaid compensation due him in the amount of $45,000 nor
would it issue to him the 34,000 shares of common stock described above. On
December 10, 2002 we notified Mr. Taule's father, who we were advised was
serving as his representative as Mr. Taule is no longer a resident of the U.S.,
of our decision and all adjustments related thereto have been made in our
financial statements during the fourth quarter of fiscal 2002.
Historically, Yucatan Holding Company has advanced us funds for working
capital. At December 31, 2003 we owned Yucatan Holding Company $11,740, net of
repayments.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i)(a) Articles of Incorporation (1)
3(i)(b) Articles of Amendment to the Articles of Incorporation (1)
3(i)(c) Articles of Amendment to the Articles of Incorporation (1)
3(i)(d) Articles of Amendment to the Articles of Incorporation (1)
3(i)(e) Articles of Amendment to the Articles of Incorporation (1)
3(i)(f) Articles of Amendment to the Articles of Incorporation (1)
3(i)(g) Articles of Amendment to the Articles of Incorporation (2)
3(ii) Bylaws (1)
10 1999 Stock Incentive Plan (3)
14 Code of Ethics
16.1 Letter from Rodefer Moss & Co PLLC regarding change in certifying
accountants (4)
16.2 Letter from Rodefer Moss & Co PLLC regarding change in certifying
accountants (5)
16.3 Letter from Dempsey Vantrease & Follis PLLC regarding change in
certifying accountants (6)
21 Subsidiaries of the registrant
31.1 Section 302 Certificate of President
32.1 Section 906 Certificate of President
__________
(1) Incorporated by reference to the registrant's registration statement on
Form 10-SB, file number 000-26233, as filed with the SEC on June 1,
1999, as amended.
(2) Incorporated by reference to the registrant's preliminary Information
Statement on Schedule 14C as filed with the SEC on May 23, 2002.
(3) Incorporated by reference to the registrant's registration statement on
Form S-8, file number 333-30124, as filed with the SEC on February 11,
2000.
(4) Incorporated by reference to the registrant's Report on Form 8-K/A as
filed with the SEC on October 7, 2002.
(5) Incorporated by reference to the registrant's Report on Form 8-K/A as
filed with the SEC on October 23, 2002.
(6) Incorporated by reference to the registrant's Report on Form 8-K as
filed with the SEC on March 31, 2004.
15
(b) Reports on 8-K
We did not file any reports on Form 8-K during the fourth quarter of
fiscal 2003.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate audit fees billed by Webb & Company, P.A. for
professional services rendered for the audit of our annual financial statements
included in our annual report on Form 10-KSB during the fiscal year ended
December 31, 2003 were $0.
The aggregate audit fees billed to us by Dempsey Vantrease & Follis
PLLC during the fiscal year ended December 31, 2002 were approximately $ 11,270.
The aggregate audit fees billed to us by Dempsey Vantrease & Follis PLLC for the
review of quarterly financial statements included in our quarterly reports on
Form 10-QSB for the quarters ending March 31, June 30 and September 30, 2003
were approximately $3,000.
Audit Related Fees
For the fiscal year ended December 31, 2003 the aggregate fees billed
for assurance and related services by Webb & Company, P.A. relating to the
performance of the audit of our financial statements which are not reported
under the caption "Audit Fees" above was $0.
For the fiscal year ended December 31, 2002 the aggregate fees billed
for assurance and related services by Dempsey Vantrease & Follis PLLC relating
to the performance of the audit of our financial statements which are not
reported under the caption "Audit Fees" above was $0.
Tax Fees
We do not use our principal accountant for tax compliance, tax advice
or tax planning and did not pay such firms any fees for these related matters
during either fiscal 2003 or fiscal 2002.
All Other Fees
Other than fees relating to the services described above under "Audit
Fees," "Audit-Related Fees" and "Tax Fees," there were no additional fees billed
by our principal accountant for services rendered to us for the fiscal years
ended December 31, 2003 or 2002.
We do not have an audit committee of our board of directors.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned and duly authorized.
Dated: April 13, 2004 Techlabs, Inc.
By: /s/ Jayme Dorrough
------------------
Jayme Dorrough
President, principal executive and
principal accounting officer
In accordance with the Exchange Act, this report has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Jayme Dorrough Director, President April 13, 2004
------------------ and Secretary
Jayme Dorrough
17
TECHLABS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheet -
December 31, 2003................................................F-3
Consolidated Statements of Operations -
For the Years Ended December 31, 2003 and 2002...................F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended December 31, 2003 and 2002...................F-5
Statements of Cash Flows -
For the Years Ended December 31, 2003 and 2002...................F-6
Notes to Financial Statements.............................................F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Techlabs, Inc.
We have audited the accompanying consolidated balance sheet of Techlabs, Inc.
and subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The financial
statements of Techlabs, Inc. as of December 31, 2002 were audited by other
auditors whose report dated April 11, 2003 included a paragraph describing
conditions that raised substantial doubt about the Company's ability to continue
as a going concern.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Techlabs, Inc. and subsidiaries as
of December 31, 2003 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital deficiency
of $37,015 and an accumulated deficit of $7,988,402. This raises substantial
doubt about its ability to continue as a going concern. Management's plans
concerning this matter are also described in Note 2. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEBB & COMPANY, P.A.
Boynton Beach, Florida
April 1, 2004
F-2
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2003
ASSETS
Current Assets
Cash ..................................................... $ 256
Accounts receivable ...................................... 966
-----------
Total Current Assets ............ 1,222
Intangible and Other Assets
Intangibles, net ......................................... 69,778
-----------
$ 71,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses ...................... $ 26,497
Due to stockholder ....................................... 11,740
-----------
Total Current Liabilities ............ 38,237
-----------
STOCKHOLDERS' EQUITY
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 authorized, no shares issued
and outstanding ....................................... -
Preferred stock - $.001 par value,
10,000,000 shares authorized,
225,000 and no shares Class C Preferred
Stock issued and outstanding .......................... 225
Common stock ($.001 par value, 200,000,000
shares authorized, 492,964 shares issued
and outstanding) ...................................... 493
Additional paid-in capital ............................... 8,007,947
Accumulated deficit ...................................... (7,988,402)
-----------
32,763
-----------
$ 71,000
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2003 and 2002
2003 2002
--------- ---------
Revenue Net revenue ........................... $ 14,969 $ 57,670
--------- ---------
Selling, general and
administrative expenses ...................... 14,275 80,734
Depreciation and
amortization expense ......................... 125,543 136,724
Impairment of intangible assets ................ 32,000 -
Impairment of fixed assets ..................... 55,904 -
--------- ---------
Total Expenses ............................. 227,722 217,458
--------- ---------
Operating loss ................................. (212,753) (159,788)
Other income (expense)
Interest expense ............................... - (29,547)
Realized loss on investment securities ......... - (10,000)
Gain on forgiveness of indebtedness ............ 345,339 -
--------- ---------
Total other income (expense) ............... 345,339 (39,547)
--------- ---------
Net income (loss) .............................. $ 132,586 $(199,335)
========= =========
Earnings per share:
Basic and diluted income (loss)
per common share ........................... $ 0.27 $ (1.22)
========= =========
Basic and diluted
weighted average
shares outstanding ......................... 492,964 162,742
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2003 and 2002
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, 2002 .. 12,500,000 $12,500 - $ - - $ - 75,908 $ 76 $7,741,285 $(7,921,653) $(167,792)
Issuance of shares
for conversion
of debt........... - - - - 225,000 225 303,056 303 216,296 - 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) - -
Net loss and
comprehensive
loss.............. - - - - - - - - - (199,335) (199,335)
---------- ------- ------ ------ ------- ------ ------- ------ ---------- ---------- ---------
Balance,
January 1, 2003 .. 12,500,000 12,500 - - 225,000 225 492,964 493 7,983,947 (8,120,988) (123,823)
Capital contribution
of accrued salary - - - - - - - - 12,000 - 12,000
Imputed salary .... - - - - - - - - 12,000 - 12,000
Net income and
comprehensive
income............ - - - - - - - - - 132,586 132,586
----------- ------- ------ ------ ------- ------ ------- ------ ---------- ---------- ---------
12,500,000 $12,500 - $ - 225,000 $ 225 492,964 $ 493 $8,007,947 $(7,988,402) $ 32,763
=========== ======= ====== ====== ======= ====== ======= ====== ========== ========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
TECHLABS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003 and 2002
2003 2002
--------- ---------
Operating Activities
Net income (loss) ................................. $ 132,586 $(199,335)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Realized loss on investment securities ......... - 10,000
Common stock issued for compensation ........... - 26,480
Imputed compensation ........................... 12,000 -
Amortization and depreciation .................. 125,543 136,724
Loss on impairment of fixed assets ............. 87,904 -
Gain on foregiveness of indebtness ............. (345,339) -
Changes in operating assets and liabilities:
Decrease in accounts receivable ................ 8,463 -
Decrease in prepaid expenses ................... - (9,429)
Increase in accounts payable ................... 2,226 69,441
--------- ---------
Net Cash Provided By Operating Activities ... 23,383 33,881
Investing Activities
Proceeds from stock sales ......................... - 40,000
--------- ---------
Net Cash Provided by Investing Activities ... - 40,000
Financing Activities
Repayment on advances from stockholders ........... (23,141) (73,867)
--------- ---------
Net Cash Used In Financing Activities ....... (23,141) (73,867)
Change in Cash and Cash Equivalents ......... 242 14
Cash and cash equivalents, beginning of period ....... - -
--------- ---------
Cash and cash equivalents, end of period ............. $ 242 $ 14
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital contribution of accrued salary ......... $ 12,000 $ -
========= =========
Accounts payable ............................... $ (12,000) $ -
========= =========
Proceeds from sale of investment securities .... $ - $ 40,000
========= =========
Repayments to stockholders ..................... $ - $ (40,000)
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
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 we abandoned this business due to excessive competition and
changed our name to Techlabs, Inc. We generate revenues through the rental of
our list of targeted, opt-in email addresses which are generated from our
website.
(B) Basis of Consolidation
The accompanying consolidated financial statements for fiscal 2003 and
fiscal 2002 include the accounts of Techlabs and its wholly-owned subsidiaries
StartingPoint.com, Inc. and Interplanner.com, Inc.. All significant intercompany
accounts and transactions have been eliminated in the consolidation.
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as the date of the financial statements and
revenues and expenses during the reported period. Actual results could differ
from those estimates..
(D) Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with
original maturities of three months or less.
(E) Concentration of Credit Risk
Revenue from one customer represented 100% of the Company's
consolidated revenue for the years ended December 31, 2003 and 2002. At December
31, 2003 100% of the Company's accounts receivable was due from that customer.
The allowance for doubtful accounts at December 31, 2003 is $0. The Company
considers all accounts receivable fully collectible therefore it has not
recorded a provision for doubtful accounts.
(F) Revenue Recognition
The Company's revenue is derived from rentals of its opt-in email lists
to third party list management companies. Revenue from email lists is recognized
when billed by the company that manages the list, and is recognized on a net
basis in that the Company does not act as the principal in the transaction and
the amount the Company earns is fixed. The Company believes revenues from rental
of its email lists to be fully collectible and has not provided for an allowance
for doubtful accounts.
(G) Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation on assets placed in service is determined using the
straight-line method over the estimated useful lives of the related assets which
range from three to seven years. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
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(H) 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.
(I) 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. See Note 4.
(J) Long-Lived Assets
Long-lived assets and certain identifiable intangible assets (other
than goodwill and intangible assets with indefinitie 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 indefinitie 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. The Company adopted the provisions of SFAS No.
142 effective October 1, 2002. See Note 5.
(K) Reclassification
Certain amounts from prior periods have been reclassified to conform to
the current year presentation.
(L) 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.
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(M) 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.
(N) 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 December 31, 2003 and 2002, the Company did not have any outstanding common
stock equivalents.
(O) Business Segments
The Company operates in one segment and therefore segment information
is not presented.
(P) 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.
(Q) New Accounting Pronouncements
In May 2003, SFAS No. 150 "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity" was issued. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this Statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions of
this Statement are consistent with the Board's proposal to revise that
definition to encompass certain obligations that a reporting entity can or must
settle by issuing its own equity shares, depending on the nature oth
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its
deliberations on the next phase of this project. That next phase will deal with
certain compound financial instruments including puttable shares, convertible
bonds, and dual-indexed financial instruments.
This statement is effective for financial instruments entered into on
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first fiscal interim period beginning after June 15, 2003. The adoption
of this pronouncements did not have a material effect on the Company's financial
position or results of operations.
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NOTE 2 GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has a
working capital deficiency of $37,015 and an accumulated deficit of $7,988,402.
This raises substantial doubt about its ability to continue as a going concern.
During fiscal 2004 the Company intends to secure additional customers to both
replace its lost revenues and in an effort to increase revenues. In addition,
Yucatan Holding Company, the Company's principal shareholder, will provide
sufficient working capital to the Company to fund its current operations until
such time as it can increase its revenues. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 3 PROPERTY AND EQUIPMENT
Included in property, equipment and capitalized web site at December
31, 2003 are:
2003
Capitalized web site costs ....................... $ 223,618
Hardware and computer equipment .................. 288,889
---------
512,507
Less: Accumulated depreciation and amortization .. (456,603)
Less: impairment ................................. (55,904)
---------
$ 0
=========
Depreciation expense was $35,573 and $44,724 for the years ended
December 31, 2003 and 2002, respectively.
NOTE 4 INTANGIBLES
Included in intangibles at December 31, 2003 are:
Domain names, trade names and contracts
of MyStartingPoint.com ..................... $ 1,000,000
Loss on impairment ........................... (665,333)
Less: Accumulated amortization ............... (264,889)
-----------
Intangible, net .............................. $ 69,778
===========
Depreciation expense was $92,000 and $92,000 for the years ended
December 31, 2003 and 2002, respectively.
NOTE 5 LOSS FROM IMPAIRMENT OF LONG LIVED ASSETS
During the year ended December 31, 2003 the Company determined that
certain recorded property, equipment and intangible assets were impaired,
resulting in an impairment loss of $87,904, which is included in selling,
general and administrative expenses.
NOTE 6 RELATED PARTY TRANSACTIONS
During the fiscal years ended December 31, 2003 and 2002 from time to
time Yucatan Holding Company, the Company's principal shareholder, has advanced
funds for working capital. At December 31, 2003 and 2002, the Company owed
Yucatan Holding Company $11,740 and $20,881, respectively. This amount will be
repaid by the Company as its working capital permits.
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During the year ended December 31, 2002 the Company issued 225,000
shares of its Class C Preferred Stock and 303,030 shares of its common stock to
Yucatan Holding Company, its principal shareholder, in satisfaction of $216,824
due Yucatan by the Company and for Yucatan making a credit line of up to
$250,000 available to the Company.
During fiscal 2001 each of Yucatan Holding Company returned an 30,000
shares of common stock to the treasury, which such shares were cancelled and
returned to the status of authorized but unissued shares as a contribution to
capital by these shareholders. These transactions were facilitated to assure
that the Company had a sufficient number of authorized but unissued shares of
common stock and, as a result of the number of preferred shares held by each
party, did not affect the voting control of the Company. In conjunction with
these transactions, the Board of Directors agreed that at such time as the
Company had filed an amendment to its Articles of Incorporation increasing the
number of authorized shares of its common stock that the Company would issue
each of Yucatan Holding Company 30,000 shares of common stock to replace the
shares which had been returned to treasury and an additional 4,000 shares of
common stock as consideration for the earlier contribution to capital by this
shareholders. In August 2002 following the filing of Articles of Amendment to
the Company's Articles of Incorporation, the Company issued Yucatan Holding
Company 34,000 shares of its common stock.
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.
While the Company does not Mrs. Dorrough a salary, it has recognized an expense
of $12,000 for the period of February 1, 2002 though December 31, 2002 and an
expense of $12,000 for fiscal 2003 which it believes equals the fair value of
her services during these periods. This compensation has been treated as imputed
compensation.
NOTE 7 GAINS ON FORGIVENESS OF INDEBTEDNESS
During the fiscal year ended December 31, 2003 the Company adjusted
certain liabilities as set forth below which had been reflected on the Company's
balance sheet at December 31, 2002. These one-time extinguishments resulted in a
gain of $345,339 as reflected on the Company's Consolidated Statements of
Operations for the fiscal year ended December 31, 2003.
Liability
At
2002 Adjustment Gain
--------- ---------- --------
Accounts payable and accrued expenses .... $329,491 $(255,339) $255,339
Due to stockholders ...................... $ 90,000 $ (90,000) 90,000
--------
$345,339
========
NOTE 11 CAPITAL STOCK
The Company's authorized capital consists of:
a. 200,000,000 shares of common stock, par value $.001 per share, of
which 492,964 shares were issued and outstanding at December 31, 2003. In
November 2002, the Company amended its articles of incorporation reducing the
number of shares of its authorized common stock from 5,000,000,000 shares to
200,000,000 shares and concurrently declared a 25:1 reverse stock split on all
of its outstanding shares of common stock. The reduction in the number of the
Company's authorized and issued and outstanding shares of common stock has been
retroactively applied to all share data for all periods presented herein;
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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 wup 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, 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:
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- 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;
- 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 years ended December 31, 2003 and 2002, the Company issued 0
and 80,000 of common stock, respectively, with a fair value of $0 and $26,400,
respectively. During the years ended December 31, 2003 and 2002 the Company
issued 0 shares and 225,000 shares of its Class C Preferred Stock.
NOTE 12 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, 2003 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
1,521,662 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
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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
our 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.
NOTE 13 INCOME TAXES
As of December 31, 2003 and 2002, the Company had net operating loss
("NOL")carryforwards of approximately $4,880,000 and $5,100,000, respectively,
available to reduce future federal and state taxable income. These NOL
carryforwards will expire from 2020 through 2023. The Company had no other
material temporary differences. Due to uncertainties related to the extent and
timing of its future taxable income, the Company offset deferred tax assets of
approximately $1,660,000 and $2,090,000 as of December 31, 2003 and 2002,
respectively, by an equivalent valuation allowance as of December 31, 2003 and
2002.
NOTE 14 SUBSEQUENT EVENTS
For the years ended December 31, 2002 and 2003 the Company's sole
customer was ResponseBase, a third party direct marketing company. Subsequent to
December 31, 2003 the Company was advised by ResponseBase that they were exiting
that segment of their business. The Company is presently sourcing replacements
for this customer.
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