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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-26233
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]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [_] No [X]
State issuer's revenues for its most recent fiscal year. $0 for the 12 months
ended December 31, 2005.
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 Techlabs common
stock on April 25, 2006 is approximately $195,800.
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date. As of April 3, 2006, 712,964 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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ii
When used in this annual report, the terms "Techlabs," "we," and "us" refers to
Techlabs, Inc., a Florida corporation, and its subsidiaries.
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.
We have historically generated our revenues from fees earned by us from
the rental of our Starting Point.com email list, and from fees paid directly by
customers of our Florida Fountain of Youth Spa, an anti-aging day spa located in
Stuart, Florida, which began operations in November 2004. During the fourth
quarter of 2005 we determined to discontinue the operations of the Florida
Fountain of Youth Spa. In December 2005 the Company completed the sale of the
Starting Point.com website and all applicable content, trademarks, databases and
domains.
STARTING POINT.COM
The Starting Point.com email list was derived from opt-ins to our
former Starting Point web site located at www.stpt.com. This web site was
designed to offer a variety of web searching tools. Users could 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 had its
own easy-to-use, organized format. Starting Point was previously managed for us
by a third party.
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Prior to the year ended December 31, 2004 our sole customer was
ResponseBase, a third party direct marketing company. In 2003 we were advised by
ResponseBase that they were exiting that segment of their business. As a result,
in both 2004 and 2005 we had no customers for our Starting Point.com email list
and did not generate any revenue from this line of business. In December 2005 we
completed the sale for $90,000 of the Starting Point.com website and all
applicable content, trademarks, databases and domains.
We also own Interplanner.com and InternetChic Marketing. Neither of
these web site properties is generating revenues at this time. Interplanner.com
was designed as a free online calendar and personal information management (PIM)
service that offered a 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.
COMPETITION
We competed 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
experienced difficulty competing effectively in our market segment, which was
among the reasons for our determination to sell Starting Point.
GOVERNMENT REGULATION
We are subject to general business regulations and laws, as well as
regulations and laws specifically governing the Internet and eCommerce. Existing
and future laws and regulations may impede the growth of the Internet or other
online services. These regulations and laws may cover user privacy, email
distribution, data protection, content, copyrights, and consumer protection. It
is not clear how existing laws governing issues such as personal privacy apply
to the Internet and eCommerce. Unfavorable resolution of these issues may harm
our business.
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
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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.
FLORIDA FOUNTAIN OF YOUTH SPA
In November 2004, we opened the Florida Fountain of Youth Spa, a
3,000-s.f. anti-aging day spa located on the St. Lucie River in Stuart, Florida.
Our facility offered, on a day-use basis, hormone replacement therapies,
electro-magnetic therapy, and sexual enhancement therapies under medical
supervision. Additionally, the center's facility had a complete cosmetic and
therapeutic day spa specializing in body wraps and facials. In addition to the
aforementioned spa treatments and services, the facility also sold a variety of
over-the-counter diet supplements and vitamins, as well as skin care products,
including the Skin Fitness line of products. As previously noted, during the
fourth quarter of 2005 we determined to discontinue the operations of the
Florida Fountain of Youth Spa.
COMPETITION
We competed with a significant number of competitors in the day spa
business segment in the South Florida marketplace, including several located
within close proximity to the Stuart, Florida area. Such locations include
stand-alone day spas, as well as day spas located within health, beauty and
fitness facilities, and within resorts and hotels. This business segment is
becoming highly competitive with other local facilities offering substantially
all, if not a greater number of the treatments and services that are offered at
our facility. Given that our facility is relatively new in the marketplace, many
of our current and potential competitors may have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources. Because of our small size and status as a recent start-up, we
experienced difficulty competing effectively in our market segment, which was
among our reasons for determining to discontinue these operations.
EMPLOYEES
As of December 31, 2005 we had one part-time employee, Jayme Dorrough,
our sole officer and director.
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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.
PENDING NAME CHANGE
On July 28, 2004 Techlabs issued a press release stating its Board of
Directors approved changing the corporate name to Siren International Corp.
Techlabs anticipates filing an information statement with the SEC regarding this
pending name change during 2006.
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 carefully the following risk factors
and other information in this prospectus 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 A PROFIT IN THE FORESEEABLE FUTURE.
For the year ended December 31, 2005, we reported a net loss of $24,904
and at December 31, 2005 we had an accumulated deficit of $8,451,735. While a
significant portion of our accumulated losses from inception through December
31, 2005 are non-cash, we have never generated sufficient revenues to offset our
operating costs. The recent sale of Starting Point.com and the discontinuing of
operations of our day spa has resulted in the company not presently having any
ongoing source of revenue. While we continue to seek new business that can be
either acquired or started-up, there exist no assurances that we will be
successful in this regard and that any new business interests will generate
sufficient revenue to meet our operating expenses in future periods. Our
principal stockholder has historically advanced certain funds to us to pay our
expenses, and we believe that it will continue to pay these expenses for us
until such time as we are able to generate sufficient revenues from our own
operations. As a result of the uncertainty surrounding our revenues in the near
future, you should not purchase shares of our common stock based upon our
historical operations or financial results.
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WE ARE DEPENDENT UPON OUR PRINCIPAL STOCKHOLDER FOR INTERIM CAPITAL.
We have no working capital with which to meet our cash needs, including
the costs of compliance with the continuing reporting requirements of the
Securities Exchange Act of 1934, as amended. Our principal stockholder has
agreed to advance any funds necessary to insure that we are able to meet our
reporting obligations under the Securities Exchange Act of 1934. However,
Yucatan has not agreed in writing to provide these funds and can only do so to
the extent that it has available funds. No commitments to provide additional
funds have been made by other stockholders or third parties. Accordingly, there
can be no assurances that any funds will be available to us to allow it to cover
our expenses. If we were unable to continue to meet our reporting requirements
under the Securities Exchange Act of 1934, our common stock would be delisted
from the OTCBB and there would be no market for our securities.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL.
We will be required to raise additional working capital to fund any
operations we may establish in the future. It has been very difficult for small
companies to raise working capital in the past few years, and we cannot
anticipate if the funding environment in the U.S. or aboard will improve during
2006 and beyond. Accordingly, we cannot offer any assurances that if we should
need additional capital that it will be available to us on terms and conditions
which are reasonably acceptable, if at all. Depending upon the financial
condition of our ultimate merger or business combination partner, the lack of
sufficient working capital could materially and adversely affect any revenues we
may be able to generate in future periods.
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
until such time as we consummate a merger or business combination. Even if we
are successful in completing such a transaction, 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.
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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.
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
Provisions of our articles of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our stockholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of the Florida Business Corporations
Act also may be deemed to have certain anti-takeover effects which include that
control of shares acquired in excess of certain specified thresholds will not
possess any voting rights unless these voting rights are approved by a majority
of a corporation's disinterested stockholders.
In addition, our articles of incorporation authorize the issuance of
shares of preferred stock with such rights and preferences as may be determined
from time to time by our board of directors. Our board of directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of our common stock.
ITEM 2. DESCRIPTION OF PROPERTY.
The business and operations of our Florida Fountain of Youth Spa was
conducted from a 3,033 square foot facility located in Stuart Florida, under a
lease agreement expiring on April 30, 2006, which had base rent of $39,429 per
annum.
ITEM 3. LEGAL PROCEEDINGS.
In July 2004 Techlabs was named as a defendant in the matter Donald
Kurth, Rosaly Kurth and Kristine Kurth v. Feingold & Kam, LLC, Feingold & Kam,
David Feingold et al, filed in the Circuit Court for the 15th District in and
for Palm Beach County, Florida. The portion of the suit which relates to
Techlabs involves the purported actions by the unaffiliated third parties in the
October 1999 private sales of shares of Techlabs in transactions in which
Techlabs was neither a party nor received any proceeds therefrom. The plaintiffs
are alleging that the shares of Techlabs' stock which were the subject of these
purported private sales failed to bear the appropriate restrictive legends as
required under the Securities Act of 1933, and the plaintiff's are further
alleging conversion and civil theft against David Feingold and Feingold & Kam.
Techlabs' does not believe that it violated any provisions of the Securities Act
of 1933 as it relates to the shares of its common stock which are the subject of
this complaint and is seeking to have Techlabs' dismissed as a defendant. During
the fourth quarter of fiscal 2004, the suit was dismissed.
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On August 23, 2004 Techlabs filed a complaint against Addante and Associates, a
Delaware corporation, in the U.S. District Court for the Eastern District of
Tennessee, styled Techlabs, Inc. and Starting Point, Inc. v. Addante and
Associates, Case No. 3:04-CV-385. Techlabs had previously engaged Addante and
Associates to perform certain services for it in connection with its Starting
Point.com web site. In this complaint Techlabs alleges a breach of contract by
Addante and Associates and it is seeking $500,000 in damages. Pursuant to an
Asset Purchase Agreement dated December 2, 2005, the lawsuit was dismissed by
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of matters to security holders in the period
ended December 31, 2005.
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 2004
First Quarter ended March 31, 2004 ............. $3.75 $1.01
Second Quarter ended June 30, 2004 ............. $3.60 $1.25
Third Quarter ended September 30, 2004 ......... $4.20 $1.50
Fourth Quarter ended December 31, 2004 ......... $1.95 $0.75
FISCAL 2005
First Quarter ended March 31, 2005 ............. $1.50 $0.82
Second Quarter ended June 30, 2005 ............. $1.40 $0.49
Third Quarter ended September 30, 2005 ......... $1.25 $0.96
Fourth Quarter ended December 31, 2005 ......... $1.00 $0.35
On April 25, 2006 the last sale price of our common stock as reported
on the OTCBB was $0.51. As of April 25, 2006 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.
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EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2005
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, 2005.
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)
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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 OF PLAN OF OPERATIONS.
As a result of the Company's decision to discontinue the operations of
its Florida Fountain of Youth Spa, operating results for this business segment
have been classified as a loss from discontinued operations for all periods
presented. The Company is currently exploring opportunities in the micro-resort
segment of the hospitality industry and believes that it will consummate
transactions in fiscal 2006, with such business interests contributing to
results from ongoing operations in fiscal 2006.
We reported revenues of $0 and $0 for the fiscal years 2005 and 2004,
Respectively, as results of operations from the Company's Florida Fountain of
Youth Spa have been classified as discontinued operations. Net income (loss) for
fiscal years 2005 and 2004, respectively, were$(24,904) and ($438,429) for those
respective periods, as results of operations from the Company's Florida Fountain
of Youth Spa have been classified as discontinued operations.
Cost of goods sold in fiscal 2005 totaled $0, resulting in gross margin
of $0, as compared to cost of goods sold in fiscal 2004 of $0 and a resulting
gross margin of $0, as results of operations from the Company's Florida Fountain
of Youth Spa have been classified as discontinued operations.
Selling, general and administrative expenses increased to $75,312 in
fiscal 2005, from $12,691 in fiscal 2004 primarily as a result of increased
professional fees related to the sale of Starting Point.com, as well as
compensation paid to our President. For fiscal 2005 and 2004 we also recorded
depreciation and amortization of $0 and $69,778, respectively.
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Total operating expenses in fiscal 2005 include $63,000 for the
amortization of deferred compensation, compared to $293,000 in 2004. Such
expenses in fiscal 2005 represent the value of common stock issued as
compensation for consulting services. Such expenses in 2004 represent the value
of common stock issued as compensation to our President (as described elsewhere
herein) as well as the value of common stock issued as compensation for
consulting services.
Total operating expenses in fiscal 2004 also includes a non-cash stock
compensation expense of $280,016, representing the value of common stock issued
as compensation to our President (as described elsewhere herein) as well as the
value of common stock issued as compensation for consulting services.
Other income (expense) for 2005 and 2004 was $58,688 and $4,120,
respectively. Other income (expense) during 2005 includes a gain of $60,000 from
the sale of Starting Point.com, offset by interest expense of $1,312.
The loss from operations before discontinued operations for 2005
totaled $79,624, as compared to a loss from operations before discontinued
operations for 2004 totaling $379,589. The Company recorded a loss from
discontinued operations of $78,808 in 2005, compared to $58,840 in 2004. The
loss from discontinued operations for 2005 was offset by a gain on the disposal
of discontinued operations of $133,529.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005, we had a working capital deficit of $70,450 as
compared to a deficit of $133,013 at December 31, 2004. Net cash provided by
operating activities was $37,036 for 2005, as compared to net cash used by
operating activities of $69,663 for 2004. Net cash provided by investing
activities in 2005 was $24,467, as compared to net cash used in investing
activites of $25,093 during fiscal 2004. Net cash used in financing activities
in fiscal 2005 was $61,50310,827, compared to net cash provided by financing
activities in 2004 of $94,500.
We have an accumulated deficit of $8,451,735 at December 31, 2005, and
the report from of our independent auditor on our audited financial statements
at December 31, 2005 contains a going concern modification. We will continue to
incur losses during the foreseeable future. Our principal shareholder has agreed
to provide us sufficient funds to pay our direct expenses and corporate overhead
until such time as we generate sufficient revenues to fund these costs.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC's Financial Reporting Release No. 60, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies" ("FRR 60"), suggests
companies provide additional disclosure and commentary on those accounting
policies considered most critical. A critical accounting policy is one that is
both very important to the portrayal of our financial condition and results, and
requires management's most difficult, subjective or complex judgments.
Typically, the circumstances that make these judgments difficult, subjective
and/or complex have to do with the need to make estimates about the effect of
matters that are inherently uncertain. We believe the accounting policies below
represent our critical accounting policies as contemplated by FRR 60.
Value of long lived assets. We capitalize and amortize the costs
incurred in the acquisition of capital equipment. We also carry other long lived
assets on our balance sheet. We evaluate the carrying values of such assets and
may be required to reduce the value in the event we determine if the value is
impaired from the current carrying among.
OBLIGATIONS AND COMMITMENTS
None.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this report are included,
commencing on page F-1.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On or about January 7, 2006, Webb & Company, our principal independent
accountant resigned citing timing and financial considerations. None of the
reports of Webb & Company, on the Company's financial statements for either of
the past two years or subsequent interim period contained an adverse opinion or
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles, except that the report for the fiscal years
ended December 31, 2003, and December 31, 2004 did contain a going concern
paragraph.
There were no disagreements between the Company and Webb & Company on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Webb & Company, would have caused them to make reference to the
subject matter of the disagreement 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 Webb & Company with a copy of Item 4.01
of our Report on Form 8-K as filed on January 7, 2006. On February 27, 2006 they
subsequently furnished us with 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 Amended Report on Form 8-K filed on March 2,
2006.
On April 3, 2006, the Company engaged Baumann, Raymondo & Company, PA,
as its new independent registered public accounting firm. The Company has not
consulted with Baumann, Raymondo & Company, PA during the fiscal year ended
December 31, 2005 and through April 3, 2006, on either the application of
accounting principles or type of opinion Baumann, Raymondo & Company, PA might
issue on the Company's financial statements. The engagement of Baumann, Raymondo
& Company, PA was approved by our Board of Directors.
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.
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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. The change in our principal independent accountants was approved by
our board of directors.
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 October 31,
2004, 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 have 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.
12
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.
ITEM 8B. OTHER INFORMATION
None
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 37 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 also 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 December 31, 2005, 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, 2005.
13
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.
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.
14
Audit Committee Financial Expert
The Board has determined that Mrs. Dorrough is not an audit committee
financial expert as defined by Item 401(e)(2) of Regulation S-B of the
Securities exchange Act of 1934.
Director Independence
The Board has determined that Mrs. Dorrough is not independent within
the NASDAQ Stock Market's director independence rules.
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
$100,000 during last three completed fiscal years (the "Named Executive
Officers").
Annual Long-Term
Compensation Compensation
--------------------------------------- --------------------------------------
Restricted Securities
Other Annual Stock Underlying All
Name and Principal Fiscal Salary Bonus Compensation Awards Options Other
Position Year ($) ($) ($) ($) SAR (#) Compensation
-------------------------------------------------------------------------------------------------------
Jayme Dorrough 2005 $30,000 $0 $ 0 $0 0 $0
President and 2004 $15,000 $0 $168,000 $0 0 $0
Director (1)
_________
(1) Mrs. Dorrough has served as our president since February 2001. Mrs. Dorrough
is not a party to an employment agreement with us. While we do not pay Mrs.
Dorrough a salary, she was paid $30,000 for the year ended December 31, 2005,
and we recognized an expense of $15,000 for the year December 31, 2004, which we
believe equals the fair value of her services during these periods. The 2004
amount was treated as imputed compensation. In September 2004, the Company
issued Mrs. Dorrough 60,000 shares of its common stock valued at $168,000 in
full satisfaction of $12,984 of accrued unpaid compensation and for additional
compensation for the remaining fiscal 2004 as well as for past services.
15
STOCK OPTIONS
There were no stock options or stock appreciated rights granted to the
named executive officers in the fiscal year ended December 31, 2005.
There were no stock options exercised by the named executive officers
during the fiscal year ended December 31, 2005. There were no stock options or
stock appreciation rights held or exercised by the named executive officers
during the fiscal year ended December 31, 2005.
DIRECTOR COMPENSATION
We do not pay directors for attending meeting of the Board of
Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of April 3, 2006, there were 712,964 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
April 3, 2006 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.
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, 2005 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.
16
Amount and Nature
Name of of Beneficial Percentage Percentage of
Beneficial Owner Ownership of Class Voting Control(1)
---------------- ----------------- ---------- -----------------
Common Stock
------------
Jayme Dorrough (2) ............ 242,530 34.0% 82.2%
All executive officers
and directors as a
group (one person)(2) ....... 242,530 34.0% 82.2%
Yucatan Holding Company (2) ... 242,530 34.0% 82.2%
Ellis C. Hyers (4) ............ 50,000 7.0% .03%
E-Four Investments, Inc. (5) .. 50,000 7.0% .03%
Class A Special Preferred Stock
-------------------------------
Jayme Dorrough (2) ............ 8,330,000 66.6% 82.2%
All executive officers
and directors as a
group (one person)(2) ....... 8,330,000 66.6% 82.2%
Thomas J. Taule (3) ........... 4,170,000 33.3% 5.8%
Yucatan Holding Company (2) ... 8,330,000 66.6% 82.2%
Class C Preferred Stock (4)
---------------------------
Jayme Dorrough (2) ............ 225,000 100% 82.2%
All executive officers
and directors as a
group (one person)(2) ....... 225,000 100% 82.2%
Yucatan Holding Company (2) ... 225,000 100% 82.2%
_________
* 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 equal to 33,750,000 votes) are aggregated together in
determining the Percent of Voting Control held by Mrs. Dorrough through
Yucatan Holding Company.
17
(3) 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.
(4) Mr. Hyers served as president of our Florida Fountain Of Youth Spa, Inc.
subsidiary.
(5) E-Four Investments, Inc. is an entity owned by the president of our Florida
Fountain of Youth Spa, Inc. subsidiary.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time Yucatan Holding Company, the Company's principal
shareholder, has advanced funds for working capital. In December the Company
paid Mrs. Jayme Dorrough, the Company's sole officer and director and the
principal of Yucatan Holding Company, Inc $30,000 in compensation for 2005. In
addition, effective January 1, 2004 the Company began accruing compensation of
$15,000 annually for Mrs. Dorrough and in September 2004, the Company issued
Mrs. Dorrough 60,000 shares of its common stock valued at $168,000 in full
satisfaction of $12,984 of accrued unpaid compensation and for additional
compensation for the remaining fiscal 2004 as well as for past services.
Mrs. Dorrough has served as the Company's president since February
2001. Mrs. Dorrough is not a party to an employment agreement with the Company.
At December 31, 2005, the Company owed Yucatan Holding Company $8,237,
net of repayments. This amount will be paid by the Company when working capital
permits.
At December 31, 2005, the Company owed a third party $6,500 under an
oral agreement on a non-interest bearing, unsecured loan, due on demand basis.
During the year ended December 31, 2005, various entities owned by the
president of Florida Fountain of Youth Spa made advances totaling $117,944 to
the Company under an oral agreement. The outstanding balance of $187,575 has
been extinguished pursuant to an agreement to transfer the net assets of Florida
Fountain of Youth Spas to the president. These advances were non-interest
bearing, unsecured, and due on a demand basis.
In conjunction with the advances and or loans noted above, the Company
recorded an in kind contribution of interest totaling $4,120, representing
interest at 8% on the advances, during the year ended December 31, 2004.
18
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 (5)
16.1 Letter from Webb & Company, P.A. regarding change in certifying
accountants (6)
23.1 Consent of Independent Registered Public Accounting Firm
31.1 Rule 13a-14a/5d-14(a) Certification of Chief Executive and
Financial Officer
32.1 Section 1350 Certification of Chief Executive and Financial Officer
_________
(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 as
filed with the SEC on March 31, 2004.
(5) Incorporated by reference to the registrant's Report on Form 10-KSB as
filed with the SEC on April 22, 2004.
(6) Incorporated by reference to the registrant's Report on Form 8-K/A as
filed with the SEC on March 2, 2006.
(b) Reports on Form 8-K
(1) Current report, items 7.01 and 9.01 2005-02-22 000-26233
(2) Current report, items 4.01 2006-01-12 000-26233
(3) Current report, items 4.01 2006-01-27 000-26233
(4) Current report, items 4.01 and 9.01 2006-03-02 000-26233
(5) Current report, items 4.01 2006-04-24 000-26233
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Webb & Company audited the Company's financial statements for the
fiscal year ended December 31, 2004. Baumann, Raymondo & Company, PA, audited
the Company's financial statements for the fiscal year ended December 31, 2005.
19
Fees related to services performed by such firms in fiscal 2005 and
2004 were as follows:
2005 2004
---- ----
Audit Fees (1) $ 10,000 $ 7,640
Audit-Related Fees 0 0
Tax Fees (2) 0 0
All Other Fees 0 0
-----------------------------------------------
Total $ 10,000 $ 7,640
_________
(1) Audit fees represent fees for professional services provided in
connection with the audit of our financial statements and review of our
quarterly financial statements.
(2) Tax fees principally included tax advice, tax planning and tax
return preparation.
The Board of Directors has reviewed and discussed with the Company's
management and Baumann, Raymondo & Company, PA the audited financial statements
of the Company contained in the Company's Annual Report on Form 10-KSB for the
Company's 2005 fiscal year. The Board has also discussed with Baumann, Raymondo
& Company, PA the matters required to be discussed pursuant to SAS No. 61
(Codification of Statements on Auditing Standards, AU Section 380), which
includes, among other items, matters related to the conduct of the audit of the
Company's financial statements.
The Board has received and reviewed the written disclosures and the
letter from Baumann, Raymondo & Company, PA required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with Baumann, Raymondo & Company, PA its independence from the
Company.
The Board has considered whether the provision of services other than
audit services is compatible with maintaining auditor independence.
Based on the review and discussions referred to above, the Board
approved the inclusion of the audited financial statements be included in the
Company's Annual Report on Form 10-KSB for its 2005 fiscal year for filing with
the SEC.
Audit Committee's Pre-Approval Policies
The Board's policy is now to pre-approve all audit services and all
permitted non-audit services (including the fees and terms thereof) to be
provided by the Company's independent auditor; provided, however, pre-approval
requirements for non-audit services are not required if all such services (1) do
not aggregate to more than five percent of total revenues paid by the Company to
its accountant in the fiscal year when services are provided; (2) were not
recognized as non-audit services at the time of the engagement; and (3) are
promptly brought to the attention of the Board and approved prior to the
completion of the audit.
The Board pre-approved all of Baumann, Raymondo & Company, PA 's fees
described above.
20
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 27, 2006 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 27, 2006
------------------ and Secretary
Jayme Dorrough
21
TECHLABS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Report of Independent Registered Public Accounting Firm...................F-2
Report of Independent Registered Public Accounting Firm...................F-3
Consolidated Balance Sheet -
December 31, 2005................................................F-4
Consolidated Statements of Operations -
For the Years Ended December 31, 2005 and 2004...................F-5
Statements of Changes in Stockholders' Deficit -
For the Years Ended December 31, 2005 and 2004...................F-6
Consolidated Statements of Cash Flows -
For the Years Ended December 31, 2005 and 2004...................F-7
Notes to Consolidated Financial Statements................................F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors of:
Techlabs, Inc.
We have audited the accompanying consolidated statements of operations changes
in stockholders' deficiency and cash flows of Techlabs, Inc. and subsidiaries
for the year ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Techlabs, Inc. and
subsidiaries referred to above present fairly in all material respects, the
results of its operations and its cash flows for the year ended December 31,
2004 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 had a net loss of $438,429, a
working capital deficiency of $133,013, has an accumulated deficit of
$8,426,831, a stockholders' deficiency of $108,546 and used cash in operations
of $69,663. 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 20, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Techlabs, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheet of Techlabs, Inc.
and subsidiaries as of December 31, 2005, and the related consolidated
statements of operations, cash flows and stockholders' equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements of
Techlabs and subsidiaries for the year ended December 31, 2004 were audited by
other auditors whose report, dated April 20, 2005, on those financial statements
included an explanatory paragraph that expressed substantial doubt about the
Company's ability to continue as a going concern.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the consolidated financial position of Techlabs, Inc. and
subsidiary at December 31, 2005 and the consolidated 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 financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced losses
from operations, has a working capital deficit, an accumulated deficit and a
deficit in stockholder's equity. This raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/ BAUMANN, RAYMONDO & COMPANY PA
BAUMANN, RAYMONDO & COMPANY PA
Tampa, Florida
April 26, 2006
F-3
Techlabs, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2005
ASSETS
Current Asset
Cash and cash equivalents .................................... $ -
-----------
Total current assets
Property, Plant & equipment, net ............................. -
Other Assets ................................................... -
-----------
$ -
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable & accrued expenses .......................... $ 25,713
Due to stockholders .......................................... 8,237
Convertible note payable - related party, net ................ 30,000
Loan - related party ......................................... 6,500
-----------
Total Current Liabilities .................................. 70,450
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value; 25,000,000 shares
authorized; 12,500,000 shares Class A Special
Preferred issued and outstanding ........................... 12,500
Preferred stock, $.001 par value; 10,000,000 shares
Class B authorized; no shares issued and outstanding ....... -
Preferred stock, $.001 par value; 10,000,000 shares
authorized; 225,000 shares Class C Preferred issued
and outstanding ............................................ 225
Common stock, $.001 par value; 200,000,000 shares
authorized, 712,964 issued and outstanding ................. 713
Additional paid-in capital ................................... 8,367,847
Accumulated deficit .......................................... (8,451,735)
-----------
Total Stockholders' Deficiency ............................. (70,450)
-----------
$ -
===========
The accompanying notes are an integral part of these financial statements.
F-4
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2005 and 2004
2005 2004
--------- ---------
Revenues ........................................... $ - $ -
Cost of sales ...................................... - -
--------- ---------
Gross profit ..................................... - -
Operating expenses
General and administrative ....................... 75,312 12,691
Depreciation & amortization ...................... - 69,778
Amortization of deferred compensation ............ 63,000 293,000
--------- ---------
Total operating expenses ........................... 138,312 375,469
--------- ---------
Loss from continuing operations .................... (138,312) (375,469)
Other income (expense)
Gain on sale of starting point ................... 60,000 -
Interest expense ................................. (1,312) (4,120)
--------- ---------
58,688 (4,120)
--------- ---------
Loss from operations before discontinued operations (79,624) (379,589)
Loss from discontinued operations .................. (78,808) (58,840)
Gain on disposal of discontinued operations ........ 133,528 -
--------- ---------
Net loss ........................................... $ (24,904) $(438,429)
========= =========
Loss per share:
Basic and diluted (loss) per common share from
continuing operations ........................... $ (0.11) $ (0.66)
Basic and diluted (loss) per common share from
discontinued operations ......................... 0.08 (0.11)
--------- ---------
$ (0.03) $ (0.77)
========= =========
Basic and diluted weighted average
shares outstanding ............................... 710,162 571,813
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
Techlabs, Inc. and Subsidiaries
Statements of Changes in Stockholders' Deficit
For the Years Ended December 31, 2005 and 2004
Preferred Stock Common Stock
---------------------------------------------------- ---------------
Class A Class B Class C Additional
------------------- -------------- --------------- --------------- Paid-In Deferred Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Comp Deficit Total
---------- ------- ------ ------ ------- ------ ------- ------ ---------- -------- ----------- ---------
Balance,
January 1,
2004 ......... 12,500,000 $12,500 - $ - 225,000 $ 225 492,964 $ 493 $8,007,947 $ 0 $(7,988,402) $ 32,763
In kind
contribution
of interest
expense ...... - - - - - - - - 4,120 - - 4,120
Shares issued
to consultants
- related
party ........ - - - - - - 100,000 100 124,900 - - 125,000
Shares issued
to officer ... - - - - - - 60,000 60 167,940 - - 168,000
Net loss ..... - - - - - - - - - - (438,429) (438,429)
---------- -------- ------ ------ ------- ------ ------- ------ ---------- -------- ----------- ---------
Balance,
December 31,
2004 ......... 12,500,000 $12,500 0 $ 0 225,000 $ 225 652,964 $ 653 $8,304,907 $ 0 $(8,426,831) $(108,546)
========== ======== ====== ====== ======= ====== ======= ====== ========== ======== =========== =========
Shares issued
to consultant
- related
party ........ - - - - - - 60,000 60 62,940 (63,000) - 0
Amortization
of deferred
consulting ... - - - - - - - - - 63,000 - 63,000
Net loss ..... - - - - - - - - - - (24,904) (24,904)
---------- -------- ------ ------ ------- ------ ------- ------ ---------- -------- ----------- ---------
Balance,
December 31,
2005 ......... 12,500,000 $12,500 0 $ 0 225,000 $ 225 712,964 $ 713 $8,367,847 $ 0 $(8,451,735) $ (70,450)
========== ======== ====== ====== ======= ====== ======= ====== ========== ======== =========== =========
The accompanying notes are an integral part of these financial statements.
F-6
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended December 31, 2005 and 2004
2005 2004
--------- ---------
Operating Activities:
Net (loss) ........................................... $ (24,904) $(438,429)
Net income (loss) loss from discontinued operations .. 54,720 (379,589)
Loss from continuing operations ...................... (79,624) (58,840)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation and amortization ...................... - 70,404
Amortization of deferred compensation .............. 63,000 297,120
Changes in operating assets and liabilities:
Increase in other current assets ................. - 966
Increase in accounts payable ..................... 5,797 (6,639)
Discontinued operations, net ..................... (6,857) 6,915
--------- ---------
Net Cash (Used in) Operating Activities ........ 37,036 (69,663)
--------- ---------
Investing Activities:
Deposits ............................................. - -
Discontinued investing activities, net ............... 24,467 (25,093)
--------- ---------
Net Cash (Used in) Investing Activities ........ 24,467 (25,093)
--------- ---------
Financing Activities:
(Repayments) advance from stockholder ................ (19,173) 15,670
Discontinued operations, net ......................... (72,330) 72,330
Proceeds from convertible notes ...................... 30,000 -
Advance from related party ........................... - 6,500
--------- ---------
Net Cash Provided by Financing Activities ...... (61,503) 94,500
--------- ---------
Increase (decrease) in Cash and Cash Equivalents ....... - (256)
Cash, beginning of period .............................. - 256
--------- ---------
Cash, end of period .................................... $ - $ -
========= =========
The accompanying notes are an integral part of these financial statements
F-7
TECHLABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
Techlabs, Inc. ("Techlabs") was incorporated in the State of Florida in May 1998
under the name Coordinated Physician Services, Inc. to organize and operate
primary care physician networks for managed medical care organizations. In
February 1999 the Company abandoned this business due to excessive competition
and changed its name to Techlabs, Inc. Prior to January 2004, the Company
generated revenues through the rental of its list of targeted, opt-in email
addresses which were generated from their website. During November 2004, the
Company formed and opened Florida Fountain of Youth Spas, Inc. Florida Fountain
of Youth Spa, a full service spa located in South Florida. The Company abandoned
this business in October 2005 due to excessive competition.
(B) Basis of Consolidation
The accompanying consolidated financial statements for fiscal 2005 and 2004
include the accounts of Techlabs and its wholly-owned subsidiary Florida
Fountain of Youth Spas from November 2004 to October 2005. 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
The Company did not rely on any one significant customer for more than 10% of
its revenues.
(F) Revenue Recognition
Revenue from Florida Fountain of Youth Spas was recognized upon delivery of
services.
(H) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation on assets placed in service is determined using the straight-line
method over the estimated useful lives of the related assets which range from
three to seven years. Significant improvements are capitalized while maintenance
and repairs are expensed as incurred.
F-8
(I) Web Site Development Costs
The Company accounts for costs incurred in connection with the development of
its web sites in accordance with Statement of Position SOP98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use" and Emerging
Issues Task Force Issue No. 00-2, "Accounting for Web Site Development Costs."
Accordingly, all costs incurred in planning the development of a web site are
expensed as incurred. Costs, other than general and administrative and overhead
costs, incurred in the web site application and infrastructure development
stage, which involve acquiring hardware and/or developing software to operate
the web site are capitalized. Fees paid to an Internet service provider for
hosting the web site on its servers connected to the Internet are expensed.
Other costs incurred during the operating stage, such as training administration
costs, are expensed as incurred. Costs incurred during the operating stage for
upgrades and enhancements of the web site are capitalized if it is probable that
they will result in added functionality.
Capitalized web site development costs are amortized on a straight-line basis
over their estimated useful life of five years. At December 31, 2005, all
capitalized web site development costs had been fully amortized and or impaired.
(J) Intangibles
Intangible assets consist of domain names, trade names and contracts related to
a purchased Internet web portal site and meta-search technology. Amortization
for intangibles is determined using the straight-line method over the estimated
useful life of five years.
(K) Long-Lived Assets
Long-lived assets and certain identifiable intangible assets (other than
goodwill and intangible assets with indefinite lives) held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. For
purposes of evaluating the recoverability of long-lived assets (other than
goodwill and intangible assets with indefinite lives), the recoverability test
is performed using undiscounted net cash flows related to the long-lived assets.
The Company reviews such long-lived assets to determine that carrying values are
not impaired. Under Statement of Financial Accounting Standards ("SFAS") No.
142, goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed for impairment. Intangible assets that are not deemed
to have indefinite lives will continue to be amortized over their useful lives;
however, no maximum life applied.
(L) Reclassification
Certain amounts from prior periods have been reclassified to conform to the
current year presentation.
(M) Fair Value of Financial Instruments
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Trade
accounts receivable, accounts payable, and loans from stockholders are reflected
in the financial statements at fair value because of the short-term maturity of
the instruments.
F-9
(N) Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(O) Income (Loss) Per Share
Basic and diluted income (loss) per share is calculated by dividing net income
(loss) for the period by the weighted average number of shares of common stock
outstanding during the period. The assumed exercise of stock options is only
included in the calculation of diluted earnings per share, if dilutive. As of
December 31, 2005 and 2004, the Company did not have any outstanding common
stock equivalents.
(P) Business Segments
The Company currently operates in one segment and therefore segment information
is not presented.
(Q) Stock-Based Compensation
In accordance with the Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock Based Compensation, the Company has elected to account
for stock options issued to employees under Accounting Principles Board Opinion
No. 25 ("APB Opinion No. 25") and related interpretations. The Company accounts
for stock options issued to consultants and for other services in accordance
with SFAS No. 123.
(R) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense included in
discontinued operations totaled $2,963 and $1,395 for the years ended December
31, 2005 and 2004, respectively.
(S) New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4"" SFAS No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and
67," SFAS No. 153, "Exchanges of Non-monetary Assets - an amendment of APB
Opinion No. 29," and SFAS No. 123 (revised 2004), "Share-Based Payment," were
recently issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no current
applicability to the Company and have no effect on the financial statements.
F-10
In May 2003, SFAS No. 150 "Accounting for Certain Financial Instruments with
characteristics of both liabilities and equity" was issued. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this Statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. 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 of the
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 was adopted effective January 1, 2004. The adoption of this
pronouncement did not have a material effect on our financial position or
results of operations.
NOTE 2 GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company had a net loss of
$24,904, a working capital deficiency of $70,450, an accumulated deficit of
$8,451,735, a stockholders' deficiency of $70,450 and used cash in operations of
$10,827. This raises substantial doubt about our ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
related to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Although there are no assurances, the Company believes that it will be able to
raise additional capital and borrowings from its principal shareholder and will
be able to continue as a going concern.
NOTE 3 PROPERTY AND EQUIPMENT
Included in property, plant & equipment at December 31, 2005 are:
Hardware & computer equipment ............... $ 223,618
Less reserve for impairment ................. (55,904)
---------
167,714
Less: accumulated depreciation .............. (167,714)
---------
$ -
=========
Depreciation expense was $4,910 and $626 for the years ended December 31, 2005
and 2004, respectively and is included in the loss from discontinued operations.
F-11
The Hardware & computer equipment, reflected above is not currently in use by
the Company. The net book value of the equipment is $0 at December 31, 2005 and
2004.
NOTE 4 CONVERTIBLE NOTE PAYABLE
During 2005, the Company entered into a convertible note payable with an
individual for $30,000. The note is convertible into common stock at $.60 per
share up to a maximum of 50,000 shares. The note is convertible for a minimum of
15,000 shares of common stock. The note is due quarterly with the final payment
due March 1, 2006. The note accrues interest at 5% per annum and is unsecured.
Interest payments of $375 are due quarterly.
NOTE 5 RELATED PARTY TRANSACTIONS
From time to time Yucatan Holding Company, the Company's principal shareholder,
has advanced funds for working capital. In December the Company paid Mrs. Jayme
Dorrough, the Company's sole officer and director and the principal of Yucatan
Holding Company, Inc. $30,000 in compensation for 2005. In addition, effective
January 1, 2004 the Company began accruing compensation of $15,000 annually for
Mrs. Dorrough and in September 2004, the Company issued Mrs. Dorrough 60,000
shares of its common stock valued at $168,000 in full satisfaction of $12,984 of
accrued unpaid compensation and for additional compensation for the remaining
fiscal 2004 as well as for past services.
Mrs. Dorrough has served as the Company's president since February 2002. Mrs.
Dorrough is not a party to an employment agreement with the Company.
At December 31, 2005, the Company owed Yucatan Holding Company $8,237. This
amount will be paid by the Company when working capital permits.
At December 31, 2005, the Company owed a third party $6,500 under an oral
agreement on a non-interest bearing, unsecured loan, due on demand basis.
During the year ended December 31, 2005, various entities owned by the president
of Florida Fountain of Youth Spa made advances totaling $117,944 to the Company
under an oral agreement. The outstanding balance of $187,575 has been
extinguished pursuant to an agreement to transfer the net assets of Florida
Fountain of Youth Spas to the president resulting on a gain on disposal of
$133,528. These advances were non-interest bearing, unsecured, and due on a
demand basis.
In conjunction with the advances and or loans noted above, the Company recorded
an in kind contribution of interest totaling $4,120, representing interest at 8%
on the advances, during the year ended December 31, 2004.
NOTE 6 COMMITMENTS AND CONTIGINCIES
LITIGATION
In July 2004 Techlabs was named as a defendant in the matter DONALD KURTH,
ROSALY KURTH AND KRISTINE KURTH V. FEINGOLD & KAM, LLC, FEINGOLD & KAM, DAVID
FEINGOLD ET AL, filed in the Circuit Court for the 15th District in and for Palm
Beach County, Florida. The portion of the suit which relates to Techlabs
involves the purported actions by the unaffiliated third parties in the October
1999 private sales of shares of Techlabs in transactions in which Techlabs was
neither a party nor received any proceeds therefrom. The plaintiffs are alleging
that the shares of Techlabs' stock which were the subject of these purported
F-12
private sales failed to bear the appropriate restrictive legends as required
under the Securities Act of 1933, and the plaintiff's are further alleging
conversion and civil theft against David Feingold and Feingold & Kam. Techlabs
does not believe that it violated any provisions of the Securities Act of 1933
as it relates to the shares of its common stock which are the subject of this
complaint and is seeking to have Techlabs' dismissed as a defendant. During the
fourth quarter of fiscal 2004, the suit was dismissed.
On August 23, 2004 Techlabs filed a complaint against Addante and Associates, a
Delaware corporation, in the U.S. District Court for the Eastern District of
Tennessee, styled Techlabs, Inc. and Starting Point, Inc. v. Addante and
Associates, Case No. 3:04-CV-385. Techlabs had previously engaged Addante and
Associates to perform certain services for it in connection with its Starting
Point.com web site. In this complaint Techlabs alleges a breach of contract by
Addante and Associates and it is seeking $500,000 in damages. Pursuant to an
Asset Purchase Agreement dated December 2, 2005, the lawsuit was dismissed by
the Company.
NOTE 7 GAIN ON SALE OF STARTING POINT
On December 2, 2005, The Company sold for $90,000 the Starting Point website and
all applicable content, trademarks, databases and domains resulting in a $60,000
gain after attorney fees. The Company had no book basis in the Starting Point
website in that the costs associated with the technology had been impaired in
prior years.
NOTE 8 LOSS ON DISCONTINUED OPERATIONS
In October 2005, the Company closed the Florida Fountain of Youth Spa due to
excessive competition and the inability to attract professional competent staff.
The net assets of the spa were transferred to the president of Florida Fountain
of Youth Spa in exchange for the forgiveness of advances totaling of $187,575.
The gain on disposal was calculated as follows:
Current assets ................................ $ 4,743
Inventory of supplements ...................... 28,559
Net Book value of property & equipment ........ 35,705
Liabilities related to assets ................. (14,960)
---------
Net assets .................................... 54,047
Less: Advances forgiven ....................... (187,575)
---------
Gain on disposal .............................. $(133,528)
=========
The operating results for the Florida Fountain of Youth Spas is classified as
loss from discontinued operations for all periods presented.
2005 2004
--------- --------
Sales ............................... $ 207,735 $ 30,718
Cost of sales ....................... 149,028 41,874
--------- --------
Gross profit ........................ 58,707 (11,156)
Other costs and expenses ............ (137,515) (47,684)
--------- --------
Loss from discontinued operations ... $ (78,808) $(58,840)
========= ========
F-13
NOTE 9 CAPITAL STOCK
The Company's authorized capital consists of:
a. 200,000,000 shares of common stock, par value $.001 per share, of
which 712,964 and 652,964 shares were issued and outstanding at December 31,
2005 and 2004, respectively.
b. 10,000,000 of preferred stock, par value $.001 per share, of which
no shares are issued and outstanding;
c. 25,000,000 shares of special preferred stock, par value $.001 per
share, of which 12,500,000 shares have been designated Special Class A Preferred
Stock, all of which are outstanding. Of these shares, 8,330,000 shares are held
by the Company's principal shareholder, Yucatan Holding Company, and the
remaining 4,170,000 shares are held by Thomas J. Taule, the Company's former CEO
and member of its board of directors. The designations, rights and preferences
of the Special Class A Preferred Stock provide:
* the holders are not entitled to receive any assets in the event of
the liquidation or wrap up of the Company;
* each share of Special Class A Preferred Stock entitles the holder to
three votes on all matters submitted to the Company's shareholders for a vote,
and the Special Class A Preferred Stock votes together with the Company's common
stock and its Class C Preferred Stock as one class; and
* the shares of Special Class A Preferred Stock are redeemable at the
sole option of the Company, with the manner of redemption, the redemption price
or prices and the terms and conditions of the redemption being determined by the
Company's board of directors; and
d. 10,000,000 shares of blank check preferred stock, par value $.001
per share (the "Blank Check Preferred Stock"). Series of the Blank Check
Preferred Stock may be created and issued from time to time, with such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of Blank Check Preferred Stock as adopted by the Board
of Directors in its sole discretion. The Board has designated 225,000 shares of
Blank Check Preferred Stock as Class C Preferred Stock, 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,
F-14
* each share of Class C Preferred Stock entitles the holder to 150
votes on all matters submitted to the Company's shareholders for a vote, and the
Class C Preferred Stock votes together with the Company's common stock and its
Special Class A Preferred Stock as one class, and
* so long as the shares of Class C Preferred Stock are outstanding, the
Company will not be able to take certain actions without the approval of the
holders of a majority of the issued and outstanding shares, including:
- sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Company is transferred or disposed of;
- alter or change the rights, preferences or privileges of shares of
Class C Preferred Stock;
- increase or decrease the total number of authorized shares of Class C
Preferred Stock;
- authorize or issue, or obligate the Company to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having rights, preferences or privileges over, or being
on a parity with or sto, the Class C Preferred Stock;
- redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any of the Company's securities;
- amend its articles of incorporation or bylaws;
- change the authorized number of its directors; or
- declare, order or pay any dividends on any class of its securities.
During the year ended December 31, 2005, the Company issued 60,000 shares of
common stock to a related party pursuant to a consulting agreement having a fair
value of $63,000 on the date of grant. The consulting agreement calls for
services to be performed through July 18, 2005. Amortization of deferred
consulting was $63,000 during the year ended December 31, 2005.During the year
ended December 31, 2004, the Company issued 60,000 shares of restricted common
stock to the Company's president having a fair value of $168,000 on the date of
grant and 100,000 shares of restricted common stock to a related party for
services having a fair value of $125,000 on the date of grant.
NOTE 10 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.
F-15
Initially the maximum number of shares of common stock issuable upon the
exercise of restricted stock awards or stock options granted under the Plan was
1,500,000 shares. This amount is subject to increase on January 1 of each year
beginning on January 1, 2000 by the lesser of 1.5% of the total number of shares
of common stock then outstanding on a fully-diluted basis or 300,000 shares. As
of December 31, 2005 the maximum number of shares of the Company's common stock
available for issuance upon grants of restricted stock awards or stock options
was 1,977,024 shares. To date, the Company has granted restricted stock awards
or stock options which have been exercised for an aggregate of 380,416 shares of
our common stock. Accordingly, the Company currently has 455,362 shares
available under the Plan.
The Plan is to be administered by a committee consisting of two or more outside
directors who review management's recommendation as to the employees, outside
directors and consultants who are to receive awards under the Plan, determine
the type, number, vesting requirements and other features and conditions of the
awards, interpret the Plan and make all other decisions related to the Plan. The
Company's Board of Directors may also appoint a secondary committee of the
Board, composed of one or more directors who need not be independent, who may
administer the Plan with respect to employees and consultants who are not
considered officers or directors of Techlabs. This secondary committee may grant
awards under the Plan to such employees and consultants, and may determine all
features and conditions of those awards.
Options granted under the Plan may either be options qualifying as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, or non-statutory options. Incentive options can only be granted to a
recipient who is our employee, and non-statutory options and restricted stock
awards can be granted to employees, outside directors and consultants. Options
granted to any optionee in a single fiscal year cannot exceed 1,000,000 shares,
except that options granted to a new employee in his or her first year of
employment cannot exceed 500,000 shares. Any incentive option granted under the
Plan must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of such grant, but the exercise price
of any incentive option granted to an eligible employee owning more than 10% of
our common stock must be at least 110% of such fair marketvalue as determined on
the date of the grant. The exercise price of non-statutory options cannot be
less than 85% of the fair market value of the underlying shares on the date of
the grant; however, the option agreement can provide that the exercise price
varies in accordance with a pre-determined formula while the option is
outstanding. The term of each Plan Option and the manner in which it may be
exercised is determined by the board of the directors, provided that no Plan
Option may be exercisable more than 10 years after the date of its grant.
Payment for incentive options can only be made as specified in the option
agreement and the form of payment for non-statutory options may be accepted by
the Board from time to time. The Plan permits cashless exercise of options, and
the payment of the exercise price of options through a full-recourse promissory
note and other forms which are consistent with applicable laws. Restricted stock
awards may be sold or awarded under the Plan for such consideration as our board
may determine, including cash, cash equivalents, full-recourse promissory notes,
past services and future services. In the event of a recapitalization of our
company, a spin-off or similar occurrence, or the declaration of a dividend
payable in shares of our common stock, in the Board's sole discretion it will
determine if any adjustments are to be made in the number of options and
restricted shares available for future awards and certain other matters. The
Plan will terminate on its tenth anniversary, unless earlier terminated by our
Board of Directors.
There were no issues under the plan during 2005 and 2004.
F-16
NOTE 12 INCOME TAXES
As of December 31, 2005 and 2004, the Company had net operating loss ("NOL")
carryforwards of approximately $5,031,080 and $5,005,700, respectively,
available to reduce future federal and state taxable income. These NOL
carryforwards will expire from 2022 through 2025. 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 $1,350,000 and $1,325,000 as of December 31, 2005 and 2004,
respectively, by an equivalent valuation allowance as of December 31, 2005 and
2004.
NOTE 13 SUBSEQUENT EVENT
On July 28, 2004 Techlabs Board of Directors approved changing the corporate
name to Siren International Corp. Techlabs anticipates filing an information
statement with the SEC regarding this pending name change during the first
quarter of fiscal 2006.
F-17