U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - December 31, 1999
Techlabs, Inc.
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(Exact name of registrant as specified in its charter)
Florida 000-26233 65-0843965
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3435 Galt Ocean Drive, Fort Lauderdale, Florida 33308
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code 954-630-0027
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Securities registered under Section 12(b) of the Exchange Act:
none
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(Title of each class)
Name of each exchange on which registered
not applicable
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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. [ ]
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State issuer's revenues for its most recent fiscal year. $ 1,675 for
the 12 months ended December 31, 1999.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, 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 the Company's common stock on
April 11, 2000 is approximately $16,922,010.
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 12, 2000,
7,355,000 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 into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes No X
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 1999
TECHLABS, INC.
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Item. Page No.
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Part 1
Item 1. Business...............................................................................................1
Item 2. Description of Property...............................................................................17
Item 3. Legal Proceedings.....................................................................................17
Item 4. Submission of Matters to a Vote of Security Holders...................................................17
Part II
Item 5. Market for Common Equity and Related Stockholder Matters..............................................18
Item 6. Plan of Operation.....................................................................................18
Item 7. Financial Statements..................................................................................19
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure..............................................................................19
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.....................................................20
Item 10. Executive Compensation................................................................................21
Item 11. Security Ownership of Certain Beneficial Owners and Management........................................23
Item 12. Certain Relationships and Related Transactions....................................................... 25
Item 13. Exhibits and Reports on Form 8-K......................................................................25
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This discussion in this annual report regarding Techlabs and our
business and operations contains "forward-looking statements." These
forward-looking statements use words such as "believes," "intends," "expects,"
"may," "will," "should," "plan," "projected," "contemplates," "anticipates," or
similar statements. These statements are based on our beliefs, as well as
assumptions we have used based upon information currently available to us.
Because these statements reflect our current views concerning future events,
these statements involve risks, uncertainties and assumptions. Actual future
results may differ significantly from the results discussed in the
forward-looking statements. A reader, whether investing in our common stock or
not, should not place undue reliance on these forward-looking statements, which
apply only as of the date of this annual report.
When used in this Annual Report on Form 10-KSB, "Techlabs,", "we,"
"our," and "us" refers to Techlabs Inc. and our subsidiaries Interplanner.com,
Inc. ("Interplanner"), StartingPoint.com, Inc. ("MyStartingPoint"), InternetChic
Marketing, Inc. ("InternetChic Marketing"), Tech Capital, Inc. ("Tech Capital")
and Tech Investments, Inc. ("Tech Investments").
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PART I
Item 1. Business
General
We are a developer and incubator of start-up and emerging Internet
companies and businesses, seeking to make venture investments in such companies
and further their growth and development. As such, we have patterned a portion
of our business strategy upon the successful model utilized by other Internet
"venture capital" companies. 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 our current business strategy.
Our fiscal year end is December 31 and our executive offices are
located at 3435 Galt Ocean Drive, Fort Lauderdale, Florida 33308, telephone
number is 954-630- 0027. Our web sites are located at www.interplanner.com,
www.mystartingpoint.com and www.internetchic.com. The information contained on
these web sites are not part of this annual report.
Business Strategy
Our business strategy includes the internal development and operation
of wholly- owned or majority owned-subsidiaries, as well as making investments
in other Internet companies. Our strategy also envisions opportunities for
synergistic business relationships among the companies. At December 31, 1999,
our wholly-owned subsidiaries included Interplanner.com and StartingPoint.com.
In February 2000 we formed a third wholly-owned subsidiary, InternetChic
Marketing. At December 31, 1999 we held investments in two Internet companies,
TheBigHub.com, Inc. and Focalex, Inc.
We have adopted a long-term strategy of seeking opportunities to
realize gains through the selected sale of investments or having our
subsidiaries sell minority interests to outside investors. As of the date of
this annual report we have not sold minority interests in any of our
subsidiaries. The operations of our companies are each in the early stages, and
we do not anticipate that we will seek investment capital in any of these
subsidiaries until such time as their operations have evolved so as to maximize
the valuation of each of these subsidiaries. We believe this strategy will
provide us with the ability to increase shareholder value as well as provide
capital to support our growth. We expect to continue to develop and refine the
products and services of these subsidiaries, with the goal of increasing
revenues.
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Products and Services
Our products and services include the following:
Interplanner.com Free online calendar and personal
information management service
MyStartingPoint Full service Internet portal
InternetChic Marketing Business-to-business marketing solution
provider
Interplanner.com
Interplanner.com is a free online calendar and personal information
management (PIM) service that offers 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 features can be readily accessed from any computer, and
are available within an easy-to-use interface that automatically recognizes each
registered user upon login. The Interplanner home page offers each user a
variety of information, including a list of reminders for the current and next
day's appointments and tasks, as well as news, weather, lottery results and
personalized horoscopes.
Users are able to enter appointments or tasks into their personal
calendar, including the subject, date, time and location of an appointment, or
the subject, start date, due date, priority level and progress of a task. Users
then choose to receive reminders for the appointment or task via email and/or at
their MyInterplanner home page. Users can also set their calendar to send
reminders of appointments or tasks on a group basis via email, as well as direct
to email enabled pagers and cellular phones. Interplanner's group calendar
function allows multiple users to share appointment information either on a
private "closed" basis that is open only to users invited to join the private
group, on a private "open" basis that users can request to join, or on a public
basis that is open to any user.
Interplanner features also include a contact management function that
allows users to compile an online address book containing the names, addresses,
telephone numbers, email addresses and other pertinent information for their
business contacts, friends, family and other individuals. Users can also add a
contract entry to a broadcast list, which can be used in conjunction with
Interplanner's Note Pad feature that allows users to write a memo and send it to
themselves, an individual or to their broadcast list.
Interplanner 's full range of services also includes content from a
variety of third party providers, including:
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- free email;
- online shopping services powered through an agreement with e-
commerce leader Inktomi;
- information about trade shows in user selectable industry
categories;
- real-time interactive meeting, data collaboration, telephony,
video and messaging services; and
- information and ticket buying services for over 350,000 live
and visual arts events and exhibitions via direct, framed
access to CultureFinder.com's award-winning integrated arts
events listing and ticketing service.
We have entered into agreements with these content providers, which
range in term from one to two years, and generally entitle us to earn
advertising scaled revenues. In some instances, these content agreements require
us to pay a flat monthly and/or minimum fee for use of the content, or, in the
case of the agreement with Inktomi, 60% of the transaction fees and advertising
revenues we receive from the shopping portion of the site. We also recently
announced the launch of Interplanner's affiliate program which will be managed
by Commission Junction.
In addition, in March 2000 we entered into a one year marketing
agreement with Freei Networks, Inc. to provide a comprehensive co-branded
calendar and personal information management service to Freei Networks' growing
base of users. The service can also direct appointments and messages to email
and wireless handheld devices such as personal digital assistants (PDA's) and
cellular telephones. Freei Networks intends to conduct a marketing campaign
designed to promote this new calendar service to its registered users, email
messages and inclusion in future user's newsletters and promotional messages. We
agreed to pay Freei Networks a flat monthly fee during the term of the
agreement, together with scaled subscriber and advertising royalties. We
anticipate that the channel will be launched during the second quarter of fiscal
2000.
We believe the value of calendar sites such as Interplanner that can
offer a wide range of features and ancillary services continues to rise due to
what industry analysts have termed their "sticky" nature. We believe users have
a reason to both visit often and remain at the site for long periods of time,
thus providing content providers, Internet Service Providers, e-commerce
merchants and online advertisers with a targeted channel to a dedicated set of
Internet users.
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MyStartingPoint
MyStartingPoint.com is a web portal targeted to results-oriented users
who want less clutter and more information. The site offers a variety of web
searching tools, including a co-branded version of the Mamma.com Meta Search
Engine that allows users to simultaneously query the major search engines and a
multitude of e-commerce databases. In addition, users can elect to perform
searches directly utilizing WebCrawler, AltaVista, Yahoo, Lycos, MetaCrawler,
Infoseek, Excite, HotBot, SavvySearch, DejaNews, GoTo.com and Northern Light.
Users can also perform target searches utilizing MyStartingPoint.com's
proprietary database of directories and web sites that includes 12 distinct
sections covering topics from investments to entertainment to sports to weather
and more, with each section having its own easy-to- use, organized format.
Another key site feature is its "Hot Sites" and "Best of the Web" listings,
featuring new web sites submitted by webmasters, site owners and users. We
believe this feature serves as an important generator of new site traffic.
Central to our strategy is the site's continued development as a full service
Internet portal which can be utilized to spotlight and drive traffic to our
other Internet properties, while also serving as a key generator of revenues
from onsite advertising, e-commerce and affiliate programs.
In December 1999 we purchased certain assets of StartingPoint ,L.L.C.
from Yesmail.com, Inc.,including its rights under various contracts. We issued
Yesmail.com, Inc. 250,000 shares of our common stock as consideration for the
assets. We have guaranteed that the 250,000 shares of our common stock will be
worth at least $1.5 million on the first anniversary date of the purchase. If
the market value of those shares is less than $1.5 million, we have agreed to
issue Yesmail.com, Inc. additional shares of our common stock to equal this
valuation. We also granted Yesmail.com, Inc. certain registration rights for
these shares. The agreement also contained a one year non- compete by
Yesmail.com, Inc. in which it agreed to not invest in nor develop for its own us
an Internet directory/portal or like web site substantially similar to
StartingPoint.com.
At the time of the acquisition, StartingPoint.com was an outsourcer of
"permission" or "opt-in" email marketing services. In February 2000 we began the
process of rebranding and enhancing the site with the formal rollout of its new
name, MyStartingPoint.com. Subsequent to the site's acquisition, we also entered
into a three year exclusive Network Partner Agreement with Yesmail.com, Inc.
that permits MyStartingPoint to remain a member of the YesMail Network. This
agreement provides that we will receive a portion of the net revenue received by
Yesmail.com, Inc. from promotional YesMail email campaigns, less certain costs.
In January 2000, we entered into an agreement with 24/7 Media, Inc.,
one of the largest Internet media companies. Under the terms of the agreement,
24/7 Media is now acting as our representative for the sale and placement of
banner advertising, and is serving all site banner ads. We earn a monthly
royalty based upon a percentage of
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adverting sales revenue received by 24/7 Media, Inc.
We will use The BigHub.com's shopping solution to create the new
MyStartingPoint Mall, a fully-functional online shopping experience which we
anticipate will have over 5 million products covering 25 product categories from
apparel, books, music, videos, consumer electronics, and more. We have licensed
the necessary back- end processing technology from The BigHub.com under a five
year agreement. The terms of this agreement provide that we will pay The
BigHub.com a commission on sales made through MyStartingPoint Mall, and in the
event we wish to terminate the agreement prior to its expiration, we are also
obligated to pay a scaled cancellation fee if we terminate the agreement prior
to the expiration of its term. We presently anticipate MyStartingPoint Mall will
be launched during the second quarter of fiscal 2000.
In March 2000 we entered into an agreement with Ants.com to provide us
with a knowledge-project outsourcing marketplace service to match project
managers who want to outsource projects with independent consultants/knowledge
workers. We believe this agreement will generate additional traffic to the
MyStartingPoint web site and generate commission revenues to us.
Being planned for 2000 are further enhancements to
MyStartingPoint.com's search capabilities, as well as the addition of a variety
of other key portal services, and the initiation of revenue generating affiliate
programs.
InternetChic Marketing
During the first quarter of fiscal 2000, we launched InternetChic
Marketing, a business-to-business marketing solution provider focused on
developing and implementing Internet direct marketing and web site traffic
building programs for Internet businesses and traditional brick and mortar
companies. Underlying InternetChic Marketing's strategic direction is the
building of proprietary databases that will position the company to develop a
significant presence in the "Opt-In" email business. Opt-In email, also known as
"Permission" email, which brings businesses and e-marketer together with
consumers who have given their permission to receive promotional messages
targeted to their interests.
Among the tools that InternetChic Marketing plans to utilize on behalf
of clients and affiliate members include e-newsletters and direct email
marketing messages, both of which will be directed to InternetChic Marketing's
proprietary database of email addresses for Internet users who have opted to
receive such messages.
In January 2000, InternetChic Marketing began its first traffic
building program which is being conducted on behalf of MyStartingPoint.
Featuring a contest offering a free 2000 Cadillac Escalade to a single winner,
the promotion was initiated utilizing a direct email marketing message sent to
MyStartingPoint.com's Opt-In email list which is managed by Yesmail. This
promotional contest also offers entrants the opportunity to
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receive additional marketing messages from MyStartingPoint.com or from other
marketing partners of InternetChic Marketing.
Because we view Opt-in e-mail marketing as an important tool, our
strategy is centered around InternetChic Marketing developing a significant
presence in that market. We plan to launch an affiliate program during fiscal
2000 that will pay other web sites a commission for every visitor that clicks on
one of InternetChic Marketing's contest banners or consoles located on an
affiliate's web site. Additional tools that InternetChic Marketing will utilize
on behalf of clients and affiliate members include e- newsletters and direct
email marketing messages, both of which will be directed to InternetChic
Marketing's proprietary database of email addresses for Internet users who have
opted to receive such messages.
Technology
Interplanner's original source code and documentation was developed for
us by Xpedior, Inc. (formerly known as the NDC Group, Inc.) of Alexandria,
Virginia. Under the terms of our agreement with Xpedior, we own all intellectual
property rights associated with Interplanner.
Interplanner operates on a two tiered hardware platform based on Sun
Microsystems multi-processor servers, utilizing the Sun Solaris OS platform.
This two tiered architecture currently includes one "front end" application
server used primarily to serve JAVA servlet generated HTML pages to end users,
and a "back-end" database server which houses the main Oracle database as well
as the SMTP mail server which sends out all system related emails. Due to
inherent scaleability issues with this type of Internet application,
Interplanner's hardware architecture was designed with the ability to add
additional servers to either tier with minimal effort. MyStartingPoint presently
operates on a single Intel based dual Pentium processor server, utilizing the
Microsoft Windows NT platform. We are currently in the process of upgrading
MyStartingPoint to a multiserver environment utilizing high-end multi processor
Intel based servers.
The software maintenance and upgrades for both Interplanner and
MyStartingPoint are managed for us by Electronic Business, Inc. a wholly owned
subsidiary of Telecomputing, Inc. Interplanner's hardware maintenance and
upgrades are managed for us by Electronic Business, Inc., as well as through
warranty service provided by Sun Microsystems, and MyStartingPoint's hardware
and software maintenance and upgrades are managed through an open-ended long
term contract with Electronic Business, Inc. Future additional hardware support
for MyStartingPoint will be provided through warranty service provided by Dell
Computer Corporation.
All Interplanner and MyStartingPoint hardware is hosted under a
year-to-year open-ended collocation agreement with Uunet Technologies, and
located in their data center in Tysons Corner, Virginia. Uunet constantly
monitors all network activity across their entire backbone, and has in place
around the clock system engineers to react to
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any security breaches such as hackers or denial of service attacks.
Both Interplanner and MyStartingPoint maintain automated back-up
systems of users data, which includes full weekly back-ups of all system
software and user data, as well as daily incremental back-ups of all user data.
Full archives of the Interplanner and MyStartingPoint systems software and
original source codes are maintained at the Uunet Data Center in Tysons Corner
Virginia, at the offices of Electronic Business in Tysons Corner, Virginia, and
at our office in Fort Lauderdale, Florida.
InternetChic.com currently operates on a shared hosting hardware
platform provided by Mindspring Internet, a wholly owned subsidiary of
EarthLink, Inc. of Atlanta, Georgia As a result of the increased volume of
visitors to the InternetChic.com web site, we are formulating a plan to move the
InternetChic.com web site to it own collocated server. We anticipate that this
move will occur during the second quarter of fiscal 2000. We believe that this
move will provide for greater scaleability as well as faster responses to
technical emergencies. InternetChic.com currently runs on the Windows NT
operating system.
All current software maintenance and upgrades for InternetChic
Marketing are performed by our technical. Current hardware maintenance and
upgrades are included in the hosting agreement with Mindspring Internet. Manual
daily back ups of the InternetChic.com data files are managed remotely from our
office. Full archives of the InternetChic.com system software and original
source code are maintained on the current server at Mindspring's facility in
Atlanta, Georgia, as well as at our offices.
Once the move to the upgraded hardware is completed we anticipate that
software and hardware maintenance will be provided by Electronic Business, Inc.,
as well as through warranty service provided by Sun Microsystems. Likewise, in
the future we anticipate that InternetChic.com hardware will be hosted by Uunet
Technologies.
Investments
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We hold investments in the following companies:
Company Name Description of its Business
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The BigHub.com, Inc. a business-to-business e-commerce solution
provider that delivers private branding content
for high-traffic Internet companies
Focalex, Inc. a privately held company engaged in the Opt-
in" or "permission" e-mail direct marketing
business
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We purchased 1 million shares of the preferred stock of The BigHub.com,
Inc. in
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April 1999 for $627,000 in cash and 250,000 shares of our common stock valued at
$2,250,000. This represented an aggregate purchase price of $2,877,000.
Contemporaneously with the transaction, the shares of preferred stock were
converted into 1 million shares of The BigHub.com's common stock. Our holdings
represent approximately 5.4% of The BigHub.com's issued and outstanding common
stock according to its most recent filings with the SEC. On April 11, 2000, the
last sale price of The BigHub.com's common stock as reported on the OTC Bulletin
Board was $2.625.
We purchased May 1999 we purchased 50,000 shares of convertible
preferred stock of Focalex, Inc. for $50,000 in cash. Focalex, Inc. is a
privately-held company and we believe our investment represents approximately 5%
of its issued and outstanding common stock.
Special Matters Concerning the Investment Company Act of 1940
Because a significant amount of our assets are in the form of
marketable securities of other companies, we may be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") unless we meet the statutory exemptions from the 1940 Act, we
receive an exemption order from the SEC, or we change the nature of our business
so that we would not be required to register under the 1940 Act. We are
currently relying on an exemption from the 1940 Act from the requirements to
register under the 1940 act. The exemption will expire on or about April 27,
2000. We presently intend to establish a venture fund in a structure similar to
that used by CMGI Inc. In anticipation of this restructuring, we have formed
Tech Capital and Tech Investments. We are unable to predict at this time what
effect, if any, the creation of this venture fund and its subsequent
registration under the 1940 Act will have on our financial condition or results
of operations.
Competition
Our core businesses rely upon revenues from Internet adverting and
similar transaction-fee based revenue. We compete in the market for Internet
advertising, which is intensely competitive and rapidly changing. This market is
highly fragmented and we expect that competition will increase significantly in
the near-term because of the attention the Internet has received as a means of
advertising and direct marketing and because there are no significant barriers
of entry into the market. Our primary long-term competitors may not have entered
the market yet because our market is new.
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. In addition, some of our
competitors may include Web site owners who choose to manage their own
permission email lists. We expect to face competition from
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these and other competitors, including:
- Free online calendar and personal information management
service;
- Internet portals and web search engines;
- traditional list brokers;
- banner advertising managers;
- independent list managers;
- incentive-based subscriber lists; and
- customer management and retention service companies.
If one or more of our current or future competitors were to achieve
leading positions in the industry or if they were to expand relationships with
significantly larger companies through mergers, acquisitions or otherwise, our
business could be seriously harmed. In addition, potential competitors may
bundle or incorporate the functionality of our products into their products in a
manner that eliminates the need for our products or discourages users from
purchasing our products.
Intellectual Property
Our success depends in part on our ability to protect our intellectual
property. We rely upon a combination of trade secret, copyright and trademark
laws to protect our intellectual property. Except were we have granted third
parties contractual rights to use our intellectual property, we limit access to,
and distribution of, and other proprietary information. However, the steps we
take to protect our intellectual property may not be adequate to deter
misappropriation of our proprietary information. In addition, we may be unable
to detect unauthorized uses of and take appropriate steps to enforce its
intellectual property rights. We can give no assurance that we will have
adequate remedies for any breach, or that our trade secrets will not otherwise
become known or independently developed by competitors. 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 content. 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 a number of the Internet addresses,
including www.interplanner.com, www.mystartingpoint.com and
www.internetchic.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 addresses; however, there can be no assurance in this regard
and the loss of this address would have a
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material adverse effect on our financial position and results of operations.
Employees
As of April 12, 2000, we have four full-time employees all of whom are
our management. None of our employees are represented by a labor union, and we
are not governed by any collective bargaining agreements. In our opinion, we
have a satisfactory relationship with our employees.
In the future we anticipate that we will expand our employee base with
the hiring of additional employees in the areas of programming, technical
support, customer service and administrative. We do not presently anticipate any
difficulties in hiring these additional employees.
Risk Factors
We have a history of losses and only recently emerged from the development
stage.
We have a cumulative revenues from inception (May 26, 1998) until
December 31, 1999 of $1,675 and a cumulative loss of $277,695. We will continue
to incur losses in the future. The business model for each of our subsidiaries
continues to evolve and relies substantially upon the ability to build web site
user bases, the sale of advertising on the web, the ability to derive revenue
from affiliate agreements, and the ability to develop key strategic
partnerships. Results of operations in the future will be influenced by numerous
factors including, among others, expansion, our ability to drive traffic to our
various web sites, to attract strategic alliances, provide superior customer
service and retain qualified personnel. We may incur problems, delays, expenses
and difficulties during this stage, many of which may be beyond our control.
These include, but are not limited to, unanticipated regulatory compliance,
marketing problems and intense competition that may exceed current estimates.
In order to reach our business growth objectives, we will incur
increased operating expenses and make significant capital expenditures as we
develop our subsidiaries during the next several years. We are likely to spend
these amounts before we receive any incremental revenues from these efforts. In
addition, our efforts may be more expensive than we currently anticipate, or
they may not result in proportionate increases in our revenues, which could
further increase our losses. Accordingly, we will likely experience negative
cash flow from operations for the foreseeable future. Our business and prospects
must be considered in light of the risks, expenses and problems frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as web advertising and
e-commerce. We cannot guarantee you that we will be successful in increasing our
revenues or that we will ever achieve profitability.
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Because we have been in business for a short period of time, there is limited
information upon which investors can evaluate our business.
We exited the development stage of our operations during the first
quarter of fiscal 2000 and have a limited operating history upon which you may
evaluate our current and future prospects. objectives. We are prone to all of
the risks inherent to the establishment of any new business venture. You should
consider the likelihood of our future success to be highly speculative in light
of our limited operating history, our history of losses and the problems,
expenses, risks, and complications frequently encountered by similarly situated
companies. We may not be successful in addressing these risks, and our failure
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We generate our revenues primarily from web adverting which is an unproven
medium for advertising-supported services.
The web as an advertising medium has not been available for a
sufficient period of time to gauge its effectiveness as compared with
traditional advertising media. Accordingly, our future operating results will
depend substantially upon the increased use of the web for information,
publication, distribution and commerce and the emergence of the web as an
effective advertising medium.
Our ability to generate significant advertising revenues will also
depend on, among other things, our development of a large base of users
possessing demographic characteristics attractive to advertisers, our ability to
accurately measure our user base and our ability to develop or acquire effective
advertising delivery and measurement systems. Many of our advertisers have only
limited experience with the web as an advertising medium, have not yet devoted a
significant portion of their advertising expenditures to web-based advertising,
and may not find such advertising to be effective for promoting their products
and services relative to traditional print and broadcast media. The adoption of
web advertising, particularly by those entities that have historically relied
upon traditional media for advertising, requires the acceptance of a new way of
conducting business and exchanging information. Entities that already have
invested substantial resources in other methods of conducting business may be
reluctant to adopt a new strategy that may limit or compete with their existing
efforts. The market for web advertising may not continue to emerge or become
sustainable. If the market fails to develop or develops more slowly than
expected, our financial condition and results of operations will be materially
and adversely affected.
No standards have been widely accepted for the measurement of the
effectiveness of web-based advertising, and there can be no assurance that such
standards will develop sufficiently to support the web as an effective
advertising medium. Advertisers may not continue to accept ours or other third
party's measurements of impressions, and such measurements may contain errors.
Because
11
<PAGE>
a portion of our revenues are based on impressions, these advertising revenues
may be materially adversely affected which may have an adverse affect on our
financial condition and results of operations.
In addition, there is intense competition in the sale of advertising on
the web, resulting in a wide range of rates quoted and a variety of pricing
models. This competition makes it difficult to project future levels of
advertising revenues and rates. It is also difficult to predict which pricing
models will be adopted by the industry or advertisers. For example, advertising
rates based on the number of "click-throughs", or user requests for additional
information made by clicking on the advertisement from our web sties to the
advertiser's web pages, instead of rates based solely on the number of
impressions displayed on users' computer screens, would materially adversely
affect our revenues. As a result of these risks, we may not succeed in
generating significant future advertising revenues from web-based advertising.
The failure to do so may have a material adverse affect on our financial
condition and results of operations.
Advertisers may also determine that banner advertising is not an
effective or attractive advertising medium. We may not be able to effectively
transition to any other forms of web advertising should these other as yet
unidentified forms develop and achieve market acceptance. Moreover, "filter"
software programs that limit or prevent advertising from being delivered to a
web user's computer are available. Widespread adoption of such software by users
may have a material adverse affect upon the commercial viability of web
advertising.
If we do not successfully manage our acquisitions, our future growth may be
adversely affected.
We intend to continue to expand our operations through the acquisition
of businesses, technologies, products and services from other businesses. This
strategy presents a number of special problems, including:
- difficulty integrating acquired business, operations and
personnel with the existing businesses;
- diversion of management attention in connection with both
negotiating future acquisitions and integrating the assets;
- strain on managerial and operational resources as management
tries to oversee larger operations;
- exposure to unforeseen liabilities of acquired companies; and
- the potential issuance of securities in connection with future
acquisitions, which securities may dilute the holders of our
currently outstanding securities.
12
<PAGE>
We may not be able to successfully address these problems. Moreover,
our future operating results will depend to a significant degree on our ability
to successfully manage growth and integrate future acquisitions. We cannot
guarantee you that we will be successful in integrating our subsidiaries which
could adversely affect our financial condition and results of operations.
We will need to raise additional capital in order to continue to implement our
business plan.
While we anticipate that we will begin receiving revenues from our
operations during the second quarter of fiscal 2000, we will also be required to
raise additional capital during the next 12 months to satisfy our cash
requirements. Other than capital which is available to us if we elect to begin
liquidating our investment in The BigHub.com, Inc., we currently have no source
for additional capital. We will in all likelihood seek to raise additional
capital through the sale of equity securities. At this time, however, we have no
agreements or understandings with any third parities regarding additional
capital, and we cannot guarantee you that we will be successful in obtaining
capital upon terms acceptable to us, if at all. In that event, we may be forced
to begin to liquidate our investment in The BigHub.com, Inc. at a time when the
capital markets are volatile and the stock price of The BigHub.com is lower than
in recent months. Our failure to secure necessary financing could have a
material adverse effect on our financial condition and results of operations.
We may be required to issue additional shares of our common stock to
Yesmail.com, Inc.
We have guaranteed that the 250,000 shares of our common stock issued
to Yesmail.com, Inc. in connection with our purchase of StartingPoint.com will
be worth at least $1.5 million on the first anniversary date of the purchase in
December 2000. If the market value of those shares is less than $1.5 million, we
have agreed to issue Yesmail.com, Inc. additional shares of our common stock to
equal this valuation. At December 31, 1999, based upon the closing price of our
common stock on that date, we would have been obligated to issue Yesmail.com,
Inc. an additional 220,549 shares of our common stock. If we are required to
issue Yesmail.com, Inc. additional shares of our common stock in December 2000,
this issuance will dilute the interests of our other stockholders.
We may not be able to protect our intellectual property rights, and we may be
found to infringe on the propriety rights of others.
We rely on a combination of trademark, trade secret, copyright laws and
contractual restrictions to protect our intellectual property. These afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may obtain and use information that we regard as
proprietary, including the technology used
13
<PAGE>
to operate our web sites and our trademarks.
It is possible that our competitors or others will adopt service names
similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion. There could be potential trade name or
trademark infringement claims brought by owners of other registered trademarks
or trademarks that incorporate variations of the terms Techlabs, Interplanner,
MyStartingPoint or InternetChic Marketing. Any claims or customer confusion
related to our trademarks, or our failure to obtain any trademark registration,
would negatively affect our business.
Litigation or proceedings before the United States Patent and Trademark
Office may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets and domain names, and to determine the
validity and scope of the proprietary rights of others. Any litigation or
adverse priority proceeding could result in substantial costs and diversion of
resources, and could seriously harm our business and operating results.
Third parties may also claim infringement by us with respect to past,
current or future technologies. We expect that participants in our markets will
be increasingly involved in infringement claims as the number of services and
competitors in our industry segment grows. Any claim, whether meritorious or
not, could be time consuming, result in costly litigation, cause service upgrade
delays or require us to enter into royalty or licensing agreements. These
royalty or licensing agreements might not be available on terms acceptable to us
or at all.
The success of our online growth strategy is dependent on continued growth of
Internet commerce.
Our business is dependant upon the continuing growth of the Internet
and its widespread acceptance and use as an effective medium of business and
communication. Rapid growth in the use of and interest in the Internet has
occurred only recently. As a result, acceptance and use may not continue to
develop at historical rates, and a sufficiently broad base of consumers may not
adopt, and continue to use, the Internet and other online services as a medium
of commerce. The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our financial condition and
results of operations will be materially adversely affected if there is any
slow-down in the growth of Internet usage.
Online security breaches could harm our business.
The secure transmission of credit card information over the Internet is
essential to maintain consumer confidence in our web site. Substantial or
ongoing security breaches of our system, or other Internet-based systems, could
significantly harm our
14
<PAGE>
business. Any penetration of our network security or other misappropriation of
our users' personal information could expose us to liability. We may be liable
for claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on other
misuses of personal information, including claims for unauthorized marketing
purposes. These claims could result in litigation and financial liability.
Security breaches also could damage our reputation and expose us to a risk of
loss or litigation, and possible liability. We rely on licensed encryption and
authentication technology to effect secure transmission of confidential
information, including credit card numbers. Advances in computer capabilities,
new discoveries or other developments could result in a compromise or breach of
the technology used by us to protect customer transaction data.
We may incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our security
systems could steal proprietary information or cause interruptions in our
operations. The limits of our insurance policies may not be adequate to
reimburse us for losses caused by security breaches. We cannot guarantee that
our security measures will prevent security breaches.
Governmental regulation of the Internet and data transmission over the Internet
could affect our business.
Laws and regulations directly applicable to communications or commerce
over the Internet are becoming more prevalent. The most recent session of the
United States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. In particular, many
government agencies and consumers are focused on the privacy and security of
medical and pharmaceutical records. The laws regarding the Internet, however,
remains largely unsettled, even in areas where there has been some legislative
action.
It may take years to determine whether and how existing laws such as
those governing privacy, libel and taxation apply to companies like us. The
rapid growth and development of the market for online commerce may prompt calls
for more stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on companies conducting business
online. The adoption or modification of laws or regulations relating to Internet
businesses could adversely affect our ability to attract and serve customers.
We may be vulnerable to computer viruses and other disruptions caused
by unauthorized or illegal access to our systems that could negatively affect
our sales and require significant expenditures. We face the risk of systems
interruptions and capacity constraints on our web site, possibly resulting in
adverse publicity, loss of sales and erosion of customer trust.
15
<PAGE>
Our systems may be vulnerable to computer viruses and other disruptions
caused by unauthorized or illegal access to our systems which could require us
to spend significant resources to protect against or correct. In addition,
eliminating computer viruses and alleviating other disruptive problems may
require interruptions, delays or changes in our delivery of services to our
users. Online service providers have in the past experienced, and in the future
may experience, interruptions of service as a result of the accidental or
intentional actions of Internet users and current and former employees. We
cannot be certain that measures we take to prevent these problems will continue
to be protective in the future.
Recently, a number of Internet service providers and e-commerce sites
have been victims of denial of service attacks by hackers. These type of
attacks, which overwhelm the web site's server with access requests, severely
impacted the accessibility and availability of these web sites. We cannot
guarantee you that we will not be the victim of attacks by hackers, or what
costs we may incur in attempting to protect our systems from this, or similar
types, of Internet vandalism.
The satisfactory performance, reliability and availability of our web
sites, transaction processing systems and network infrastructure are critical to
our reputation and our ability to attract and retain uses. Any future systems
interruption or loss of access to the Internet that result in the unavailability
of our web sites could result in negative publicity and reduce the volume of
uses and the attractiveness of our web sites, which could negatively affect our
revenues. We may not be able to correct any problem in a timely manner. Because
we out source certain aspects of our system, some of the reasons for a systems
interruption may be outside of our control. We also may not be able to exercise
sufficient control to remedy the problem quickly, if at all.
To the extent that customer traffic grows substantially, we will need
to expand the capacity of our systems to accommodate a larger number of
visitors. Any inability to scale our systems may cause unanticipated system
disruptions, slower response times, degradation in levels of customer service,
impaired quality and speed of order fulfillment, or delays in reporting accurate
financial information. We are not certain that we will be able to project the
rate or timing of increases, if any, in the use of our web site accurately or in
a timely manner to permit us to effectively upgrade and expand our
transaction-processing systems.
Our stock price will fluctuate from time to time and may fall below expectations
of securities analysts and investors.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
- quarterly variations in operating results;
- changes in accounting treatments or principles;
16
<PAGE>
- announcements by us or our competitors of new products and
services offerings, significant contracts, acquisitions or
strategic relationships;
- additions or departures of key personnel;
- any future sales of our common stock or other securities;
- stock market price and volume fluctuations of publicly-traded
companies in general and Internet-related companies in
particular; and
- general political, economic and market conditions.
It is likely that in some future quarter our operating results may fall
below the expectations of securities analysts and investors, which could result
in a decrease in the trading price of our common stock. The trading prices of
Internet-related companies and e-commerce companies in particular have been
especially volatile. In the past, securities class action litigation has often
been brought against a company following periods of volatility in the market
price of its securities. We may be the target of similar litigation in the
future. Securities litigation could result in substantial costs and divert
management's attention and resources, which could seriously harm our business
and operating results.
Item 2. Description of Property
Our principal executive offices are located in approximately 2,400
square feet of office space in Ft. Lauderdale, Florida under a lease which
expires in July 2002. Our annual base rental expense is approximately $25,200,
and we pay a portion of certain common area maintenance expenses.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
17
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Since March 1999, our common stock has been traded on OTC Bulletin
Board under the symbol TKLB. The following table sets forth the high and low
closing sales prices for our common stock as reported by the OTC Bulletin Board
for the period indicated.
High Low
---- ---
Fiscal Year Ended December 31, 1999
First Quarter $ 1.50 $ 1.50
Second Quarter $ 18.50 $ 9.00
Third Quarter $ 12.50 $ 6.50
Fourth Quarter $ 7.50 $ 2.625
Fiscal Year Ending December 31, 2000
First Quarter $ 4.4375 $ 3.00
On April 10, 2000, the closing price of our common stock as reported on
the OTC Bulletin Board was $2.688. At April 10, 2000, we had approximately 20
record shareholders; however, we believe that we have in excess of 100
beneficial owners of our common stock.
Dividend Policy
We have never paid cash dividends on our common stock. We presently
intend to retain future earnings, if any, to finance the expansion of our
business and do not anticipate that any cash dividends on our common stock will
be paid in the foreseeable future. The future dividend policy will depend on our
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
Item 6. Plan of Operation
We were incorporated in Florida in May 1998 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 began developing our current business model. We
have reported minimal revenues from operations and have a cumulative net loss of
$277,695. At December 31, 1999, we had no cash on hand.
Since February 1999, we have been involved in developing various
aspects of
18
<PAGE>
our business. In May 1999, we contracted with a third party to develop the
source codes for Interplanner.com and we launched this web site in November
1999. Since that time, we have entered into various agreements with third
parties for the content which is available on the site. In December 1999, we
acquired certain assets of Starting Point, L.L.C., including its rights under
various contracts. In February 2000, we began the process of rebranding and
enhancing the site with the formal rollout of its new name, MyStartingPoint.com.
Finally, in February 2000 we also formed InternetChic Marketing. Consistent with
our business model, since February 1999 we have also made investments in two
Internet companies, The BigHub.com, Inc. and Focalex, Inc.
Our operations to date have primarily been funded through the private
placement of securities and a loan from one of our shareholders. During fiscal
1999 we sold an aggregate of 5,230,000 shares of our common stock in two private
placements, and we received aggregate gross proceeds of approximately $722,170.
During fiscal 1999 one of our shareholders provided cash advances to us to meet
our operational needs. These advances, net of repayments of $10,000, totaled
approximately $797,941 at December 31, 1999.
During fiscal 2000 we will be required to make various capital
expenditures to continue the development of our subsidiaries' operations, and we
will be required to hire additional employees. As of the date of this annual
report, we estimate the total costs of these capital expenditures during fiscal
2000 will be approximately $3 million to $5 million. While we anticipate that we
will begin receiving revenues from our operations during the second quarter of
fiscal 2000, we will also be required to raise additional capital during the
next 12 months to satisfy our cash requirements. Other than capital which is
available to us if we elect to begin liquidating our investment in The
BigHub.com, Inc., we currently have no source for additional capital. We will in
all likelihood seek to raise additional capital through the sale of equity
securities. At this time, however, we have no agreements or understanding with
any third parities regarding additional capital, and we cannot guarantee that we
will be successful in obtaining capital upon terms acceptable to us, if at all.
In that event, we may be forced to begin to liquidate our investment in The
BigHub.com, Inc. at a time when the capital markets are volatile and the stock
price of The BigHub.com is lower than in recent months.
Item 7. Financial Statements
Our financial statements are contained in pages F-1 through F-16 which
are included later in this annual report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
19
<PAGE>
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth the names, positions with Techlabs and
ages of our executive officers and directors. Directors are elected at our
annual meeting of shareholders and serve for one year or until their successors
are elected and qualify. Officers are elected by our board or directors and
their terms of office are, except to the extent governed by employment contract,
at the discretion of the board. There are no family relationships between any
officer or director.
Name Age Position
---- --- --------
Thomas J. Taule 30 Chairman of the Board, President and
CEO
Barry A. Rothman 45 Executive Vice President and Secretary
Mitch Petchenik 47 Vice President of Business
Development
Michael P. Clark 39 Vice President of Project Development
Thomas J. Taule. Mr. Taule has been chairman of the board since May
1999 and president and CEO since April 2000. From August 1998 until November
1999, Mr. Taule was vice president of operations of iSleuth.com. Inc. and from
February 1995 to August 1998 Mr. Taule served as chairman of the board,
president and CEO of Coordinated HealthCare, Inc., the predecessor of the
BigHub.com. Mr. Taule received a B.A. in Criminal Justice from Florida Atlantic
University.
Barry A. Rothman. Mr. Rothman has been our executive vice president and
secretary since April 2000. Since May 1996 when he founded the company, Mr.
Rothman has been the president of B. Alan Associates, Inc. and from February
1992 to May 1996 he was vice president of Greenstone Roberts Advertising. Mr.
Rothman received a B.A. from Union College.
Mitch Petchenik. Mr. Petchenik has been vice president of business
development since May 1999. From April 1998 until April 1999, Mr. Petchenik was
vice president of business development for iSleuth.com, Inc., and from February
1997 until April 1998 he was director of interactive services for Remy
Publishing. From June 1995 until February 1997 Mr. Petchenik was director of
advertising for the Food and Drink Network. Mr. Petchenik received a Masters of
Fine Arts from the Generative Systems School of the Art Institute of Chicago and
a Bachelors of Fine Arts in Photographic Illustration from the Rochester
Institute of Technology.
20
<PAGE>
Michael P. Clark. Mr. Clark has been vice president of project
development since May 1999. Since joining Techlabs, Mr. Clark has been charged
with the initial and ongoing development of Interplanner.com, as well as the
overhaul of the recently acquired MyStartingPoint.com search engine portal. From
April 1998 until May 1999, Mr. Clark was manager of webmaster relations for
Cyber Entertainment, and from June 1997 until April 1998 he was president of
SpiceWeb. From June 1996 until June 1997, Mr. Clark was vice president of
operations for Studio One Marketing, and from May 1995 until June 1996 he was
self-employed as an Internet consultant. Mr. Clark attended Broward Community
College.
Compliance With Section 16(a) of the Exchange Act
We became a reporting company under the Securities Exchange Act of 1934
(the "Exchange Act") in September 1999. Based solely upon a review of Forms 3
and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Exchange
Act during the fiscal year ended December 31, 1999 and Forms 5 and amendments
thereto furnished to us with respect to the fiscal year ended December 31, 1999,
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, 1999, other than Messrs.
Petchenik and Clark. We have been advised by each of Messrs. Petchenik and Clark
that they will file these delinquent reports as soon as practicable.
Item 10. Executive Compensation
Cash Compensation
The following table summarizes all compensation recorded by us in each
of the last three fiscal years for our chief executive officer and each other
executive officers serving as such whose annual compensation exceeded $100,000.
<TABLE>
<CAPTION>
Long - Term
Annual Compensation Compensation Awards
------------------- -------------------
Name and Other Annual Restricted Options/ All Other
Principal Position Year Salary Bonus Compensation Stk Awds SARs(#) LTIP Compen.
- ------------------ ---- ------ ----- ------------ -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Taule, 1998 -0- -0- -0- -0- -0- -0- -0-
chairman and CEO 1999 -0- -0- $118,500(1) -0- -0- -0- -0-
</TABLE>
(1) Represents the value attributed to common stock issued to Mr. Taule as
compensation.
21
<PAGE>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Individual Grants
-----------------
No. of Securities % of Total Options
Underlying Granted to Employees Exercise Expiration
Name Options Granted in Fiscal Year Price Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas J. Taule 150,000 150,000 $ 2.63 November 2002
</TABLE>
AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
No. of Securities
Underlying Options Value of Unexercised
Options at In-the-Money options at
Shares December 31, 1999 December 31, 1999(1)
Acquired on Value ---------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Taule -0- -0- -0- -0- -0- -0-
</TABLE>
Stock Option Plan
In October 1999, we adopted a stock incentive plan, the Techlabs Inc.
Stock Incentive Plan (the "Plan"). The purpose of the Plan was 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.
Initially we reserved an aggregate of 1,500,000 shares of our common
stock for issuance pursuant to options granted under the Plan ("Plan Options").
This amount is subject to increase on January 1 of each year 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 April 10, 2000, an aggregate of
250,000 options all at an exercise prices ranging from $2.37 to $2.63 per share
have been granted under the Plan. A compensation committee consisting of two or
more outside directors will administer the Plan including, without limitation,
the selection of the persons who will be granted Plan Options under the Plan,
the type of Plan Options to be granted, the number of shares subject to each
Plan Option and the Plan Option price. Because we do not have any outside
directors at this time, the Plan is being administered by the board of
directors.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify
("Non-Qualified Options"). 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
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<PAGE>
shares on the date of such grant, but the exercise price of any Incentive Option
granted to an eligible employee owning more than 10% of our common stock must be
at least 110% of such fair market value as determined on the date of the grant.
The exercise price of Non-Qualified Options shall not be less than 85% of the
fair market value of the underlying shares on the date of the grant. The Plan
provides that Options granted to any optionee in any single fiscal year shall
not exceed 1,000,000 shares, except that Options granted to a new employee in
the fiscal year in which his or her services as an employee first commences
shall not cover more than 500,000 shares. 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.
The per share exercise price of shares granted under the Plan may be
adjusted in the event of certain changes in our capitalization, but any such
adjustment shall not change the total purchase price payable upon the exercise
in full of Plan Options granted under the Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of April 12, 2000, there are 7,355,000 shares of our common stock
and 9,000,000 shares of our Class A Special 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, and each share
of Class A Special Preferred Stock is entitled to three votes, on all matters
submitted to our shareholders for a vote and the shares vote together as one
class. The following table sets forth, as of the close of business on April 12,
2000, (a) the name, address and number of shares of each person known by us to
be the beneficial owner of more than 5% of the class of stock and (b) the number
of shares of these securities owned by each director and all officers and
directors as a group, together with their respective percentage holdings of such
shares. Beneficial ownership is determined in accordance with the rules of the
SEC, and generally includes voting or investment power with respect to
securities and includes any securities which the person has the right to acquire
within 60 days of April 12, 2000 through the conversion or exercise of any
security or other right. Except as otherwise specifically set forth herein, the
following tables give no effect to the exercise of any outstanding stock options
or warrants. Unless otherwise indicated, the address for each person is 3435
Galt Ocean Drive, Fort Lauderdale, Florida 33308.
23
<PAGE>
Class A Special Preferred Stock
- -------------------------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
- ------------------- ------------------ -----
Thomas J. Taule 4,500,000 50%
Barry A. Rothman 0 -
Mitchell Petchenik 0 -
Michael Clark 0 -
Yucatan Holding Company 4,500,000 50%
All officers and directors
as a group (four persons) 4,500,000 50%
Common Stock
- ------------
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class
- ------------------- ------------------ -----
Thomas J. Taule 900,000 12,0%
Barry A. Rothman 25,000 *
Mitchell Petchenik 50,000 *
Michael Clark 50,000 *
Nomad Investment Group 733,334 10.0%
Pegasus International Holdings 550,000 7.5%
Strategic Holdings Inc. 833,333 11.3%
Upside Investments Inc. 615,000 8.4%
Yucatan Holding Company 750,000 10.2%
All officers and directors
as a group (four persons) 1,025,000 13.5%
- ----------
* represents less than 1%
In the foregoing table:
- Mr. Taule's holdings include options to purchase 150,000 shares of
our common stock at $2.63 per share which have been granted under our stock
incentive plan,
- Mr. Petchenik's holdings include options to purchase 50,000 shares of
our common stock at $2.37 per share which have been granted under our stock
incentive plan,
- Mr. Clark's holdings include options to purchase 50,000 shares of our
24
<PAGE>
common stock at $2.37 per share which have been granted under our stock
incentive plan,
- Nomad Investment Group's address is 3116 North Federal Highway,
Lighthouse Point, Florida 33064,
- Pegasus International Holding's address is Post Office Box 7073,
Delray Beach, Florida 33445,
- Strategic Holding Inc.'s address is 16 Portside Lane, Fort
Lauderdale, Florida 33064,
- Upside Investment Inc.'s address is 1570 Madruga Avenue, Coral
Gables, Florida 33146,
- Yucatan Holding Company's address is 3003 Keller Bend Road,
Knoxville, Tennessee 37922.
Item 12. Certain Relationships and Related Transactions
During fiscal 1999, Yucatan Holding Company, one of our shareholders,
provided cash advances to us to meet our operational needs. These advances, net
of repayments, totaled approximately $797,941 at December 31, 1999.
PART IV
Item 13. Exhibits and Reports on Form 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
<TABLE>
Exhibit Description of Document
- ------- -----------------------
<S> <C>
3(i) Articles of Incorporation, as amended (1)
3(ii) Bylaws (1)
10(i) Agreement for Purchase and Sale of Assets
dated December 7, 1999 by and between Starting
Point, L.L.C., Yesmail.com, Inc. and Techlabs, Inc.
10(ii) Agreement for shares of iSleuth.com, Inc. (1)
10(iii) Stock Incentive Plan (2)
22 Subsidiaries of the registrant (1)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Registration Statement on Form 10-SB,
File No.
25
<PAGE>
000-26233, as amended, as filed with the Securities and Exchange
Commission.
(2) Incorporated by reference to the Registration Statement on Form S-8,
File No. 333-30124, as filed with the Securities and Exchange
Commission.
(b) Reports on Form 8-K
None.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Techlabs, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Techlabs, Inc.
By: /s/ Thomas J. Taule
--------------------
President, Chief Executive Officer,
Chairman of the Board and principal
financial officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s Thomas J. Taule President, Chief April 12, 2000
- ------------------------------ Executive Officer and
Thomas J. Taule Chairman of the Board
/s/ Barry A. Rothman Executive Vice President April 12, 2000
- --------------------------- and director
Barry A. Rothman
/s/ Mitchell Petchenik Vice President of Business April 12, 2000
- ---------------------- Development
Mitchell Petchenik
/s/ Michael Clark Vice President of Project April 12, 2000
- ----------------------------- Development
Michael Clark
</TABLE>
27
<PAGE>
================================================================================
Techlabs, Inc.
(A Development Stage Company)
Consolidated Financial Statements
December 31, 1999 and 1998
================================================================================
CONTENTS Page
Financial Statements:
Report of Independent Auditors 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholder's Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
F-1
<PAGE>
<TABLE>
<CAPTION>
REEL & SWAFFORD, PLLC
Certified Public Accountants
<S> <C> <C>
Office Address Mailing Address
2611 Emoriland Blvd. American Institute of Certified Public Accountants P. O. Box 27599
Knoxville, Tennessee 37917 SEC Practice Section - AICPA Knoxville, TN 37917-7599
(865) 637-7196 Telephone Tennessee Society of Certified Public Accountants (865) 637-6437 Facsimile
</TABLE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Techlabs, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Techlabs,
Inc. (A Development Stage Company, formerly Coordinated Physician Services,
Inc.) and its Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the year ended December 31, 1999 and for the periods from
May 26, 1998 (inception) to December 31, 1998, and inception to December
31, 1999. 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.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Techlabs, Inc. and its Subsidiary as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for the year ended
December 31, 1999 and for the periods from May 26, 1998 (inception) to
December 31, 1998, and inception to December 31, 1999 in conformity with
generally accepted accounting principles.
Reel & Swafford, PLLC
Certified Public Accountants
Knoxville, Tennessee
February 17, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Techlabs, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 1999 and 1998
================================================================================================================
1999 1998
----------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ - $ 15,000
Prepaid Expenses 75,000 -
Marketable equity securities 3,130,000 -
----------------- --------------
Total Current Assets 3,205,000 15,000
Property and Equipment 1,112,218 -
Intangible and Other Assets
Deposits and other 5,503 11,849
Investment securities 50,000 -
Intangibles (Note 5) 1,000,000 -
----------------- --------------
Total Assets $ 5,372,721 $ 26,849
================= ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 261,805 $ 849
Due to stockholders 697,941 -
Due to officer 35,000 -
----------------- --------------
Total Liabilities 994,746 849
STOCKHOLDERS' EQUITY
Preferred stock - special class A ($.001 par value, 12,500,000 shares
authorized, 9,000,000 shares issued and outstanding) 9,000 -
Common stock ($.001 par value, 50,000,000 shares
authorized, 7,335,000 shares issued and outstanding) 7,335 1,100
Additional paid-in capital 4,639,335 24,900
Deficit accumulated in the development stage (277,695) -
----------------- --------------
Total Stockholders' Equity 4,377,975 26,000
----------------- --------------
$ 5,372,721 $ 26,849
================= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Techlabs, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
Year Ended December 31, 1999 and the Periods from May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
======================================================================================================================
Year Ended, and Inception to
From Inception to, December 31,
December 31, 1999 1998
-------------------------- -----------------
<S> <C> <C>
Revenue
Net revenues $ 1,675 $ -
Operating Expenses
Cost of revenues 40,412 -
Other general and administrative 480,109 -
----------------- -----------------
Total operating expenses 520,521 -
----------------- -----------------
Operating loss (518,846) -
Other Income (Expense)
Unrealized gain on trading securities 253,000 -
----------------- -----------------
Loss before provision for income taxes and cumulative
effect of change in accounting principle (265,846) -
Provision for income taxes - -
----------------- -----------------
Loss before cumulative effect of
change in accounting principle (265,846) -
Cumulative effect of change in accounting principle (11,849) -
----------------- -----------------
Net income (loss) and comprehensive income (loss) $ (277,695) $ -
================= =================
Earnings per share:
Basic and diluted
Before cumulative effect of change in accounting principle $ (0.04) $ 0.00
================= =================
Net income (loss) and comprehensive income
(loss) per common share $ (0.04) $ 0.00
================= =================
Basic and diluted weighted average shares outstanding 6,636,110 3,553,208
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
Techlabs, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31, 1999 and the Period From
May 26, 1998 (Inception) to December 31, 1998
==================================================================================================================
Preferred Stock Common Stock Additional
--------------------------- -------------------------- Paid-In
Shares Amount Shares Amount Capital
----------- ------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, May 26, 1998 - $ - - $ - $ -
Initial capitalization of the Company 1,000,000 1,000
December, 1998, sale of stock
through private offering 100,000 100 24,900
Net income and comprehensive
income
----------- ------------- ------------ ----------- ---------------
Balance, December 31, 1998 - $ - 1,100,000 $ 1,100 $ 24,900
Feburary, 1999:
Issuance of restricted shares
to founders for $1,500 cash
and for services of $118,500. 1,500,000 1,500 118,500
Conversion of common
shares into preferred shares 9,000,000 9,000 (1,000,000) (1,000) (8,000)
Issuance of shares under private
placement offerings -
March 1999, at $.10 per share
net of offering costs of $7,830 5,000,000 5,000 487,170
April 1999, at $1.00 per share 230,000 230 229,770
April, 1999 issuance of:
Restricted shares for services 5,000 5 37,495
Shares for investment securities 250,000 250 2,249,750
December, 1999:
Shares issued in acquisition of
Starting Point assets 250,000 250 1,499,750
Net loss and comprehensive loss
----------- ------------- ------------ ----------- ---------------
Balance, December 31, 1999 9,000,000 $ 9,000 7,335,000 $ 7,335 $ 4,639,335
=========== ============= ============ =========== ===============
(RESTUBBED TABLE)
Deficit
Accumulated in
The Development
Stage Total
------------------ --------------
<C> <C>
Balance, May 26, 1998 $ - $ -
Initial capitalization of the Company 1,000
December, 1998, sale of stock
through private offering 25,000
Net income and comprehensive
income - -
------------------ --------------
Balance, December 31, 1998 $ - $ 26,000
Feburary, 1999:
Issuance of restricted shares
to founders for $1,500 cash
and for services of $118,500. 120,000
Conversion of common
shares into preferred shares -
Issuance of shares under private
placement offerings -
March 1999, at $.10 per share
net of offering costs of $7,830 492,170
April 1999, at $1.00 per share 230,000
April, 1999 issuance of:
Restricted shares for services 37,500
Shares for investment securities 2,250,000
December, 1999:
Shares issued in acquisition of
Starting Point assets 1,500,000
Net loss and comprehensive loss (277,695) (277,695)
------------------ --------------
Balance, December 31, 1999 $ (277,695) $ 4,377,975
================== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
Techlabs, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Year Ended December 31, 1999 and the Periods from May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
===========================================================================================================================
Inception to Inception to
December 31, December 31,
1999 1998 1999
--------------- -------------- -----------------
<S> <C> <C> <C>
Operating Activities
Net (loss) income $ (277,695) $ - $ (277,695)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Unrealized gain on securities (253,000) - (253,000)
Cumulative effect of change in accounting principle 11,849 - 11,849
Common stock issued for services 156,000 - 156,000
Changes in operating assets and liabilities:
Increase in prepaid expenses (75,000) - (75,000)
Increase in accounts payable 260,956 849 261,805
--------------- -------------- -----------------
Net Cash (Used in) Provided by Operating Activities (176,890) 849 (176,041)
Investing Activities
Web site development costs (612,218) - (612,218)
Purchase of marketable equity securities (677,000) - (677,000)
Deposits (5,503) - (5,503)
Incurrence of organization costs - (11,849) (11,849)
--------------- -------------- -----------------
Net Cash Used in Investing Activities (1,294,721) (11,849) (1,306,570)
Financing Activities
Advances from stockholders 707,941 - 707,941
Repayments to stockholders (10,000) - (10,000)
Advances from officer 35,000 - 35,000
Proceeds from sale of stock 723,670 26,000 749,670
--------------- -------------- -----------------
Net Cash Provided by Financing Activities 1,456,611 26,000 1,482,611
--------------- -------------- -----------------
Change in Cash and Cash Equivalents (15,000) 15,000 -
Cash and cash equivalents, beginning of period 15,000 - -
--------------- -------------- -----------------
Cash and cash equivalents, end of period $ - $ 15,000 $ -
=============== ============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 1 - Significant Accounting Policies
Business Techlabs, Inc. (a Development Stage Company and formerly Coordinated
Physician Services, Inc. ) was organized under the laws of the State of Florida
on May 26, 1998. Techlabs, Inc. ("Techlabs" or the "Company") is in the business
of developing, acquiring and operating internet and fulfillment services
companies whose products and services are focused on the Internet. The Company's
approach to accomplishing its goals is predominantly through investments in or
marketing alliances with other Internet companies that have demonstrated
synergism with Techlab's core business. To a lesser extent, the Company will
also effect strategies via the internal development and operation of majority
owned subsidiaries. Through its wholly owned subsidiary, the Company has an
on-line calendar site (www.interplanner.com) which was operating in Beta version
at December 31, 1999. The Company continues to develop and enhance this site.
Basis of Presentation. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Interplanner.com, Inc.
All material intercompany transactions have been eliminated.
Revenue Recognition. The Company's revenues derive primarily from the delivery
of advertising impressions through its own or third party web-sites. Revenue is
recognized in the period the impressions are delivered.
Property and Equipment. Property and equipment at December 31, 1999 consists
principally of web-sites and related costs. Depreciation on assets placed in
service is determined using the straight-line method over the estimated useful
lives of the related assets. Significant improvements are capitalized while
maintenance and repairs are expensed as incurred.
On an ongoing basis, management reviews the value and period of amortization or
depreciation of long-lived assets, including costs in excess of net assets of
subsidiaries acquired. During this review, the Company reevaluates the
significant assumptions used in assessing the carrying cost of long-lived
assets. Although the assumptions may vary from transaction to transaction, they
generally include revenue growth, operating results, cash flows and other
indicators of value. Management then determines whether any adjustment is then
required for permanent impairment of the value of long-lived assets based upon
events or circumstances which have occurred since acquisition.
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 lives of the related assets.
Investment Securities. Investment securities consist of both securities for
which there is no readily determinable market and marketable equity securities.
F-7
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 1 - Significant Accounting Policies (continued)
Investment Securities-continued. Investments for which there is no readily
determinable market value are included on the accompanying December 31, 1999
balance sheet among "Other Assets" at cost. Dividends from those securities
distributed to the Company are included in income to the extent they represent
earnings of the investee company. Dividends in excess of earnings are treated as
a reduction in the investment, and indications of an other-than-temporary
decline in value are treated as a reduction in the carrying value of the
investment.
Marketable equity securities are classified into one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
acquired and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold to maturity. All other securities not included in the
trading or held-to-maturity categories are available-for-sale securities.
Management determines the appropriate classification of marketable investment
securities at the time they are acquired and evaluates the continuing
appropriateness of the classification at each balance sheet date. Trading
securities, consisting primarily of actively trading equity securities, are
stated at fair value. For valuing trading securities with temporary
restrictions, management considers the effects on quoted market prices of the
temporary restrictions in light of the volatility in prices of the specific
security. Realized and unrealized gains and losses are included in income.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates, and those
differences could be material.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with initial maturities of three months or less which are readily convertible to
cash without significant loss or penalty to be cash equivalents. Balances of
cash and cash equivalents in financial institutions may at times exceed the
government insured limits.
Stock Based Compensation. The Company measures its equity transactions with
non-employees using the fair value based method of accounting prescribed by
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." Under the provisions of SFAS 123, the Company
recognizes as a cost or expense, the fair value of stock awards and options to
non-employees at the date of grant.
The Company continues to use the intrinsic value approach as prescribed by APB
Opinion No. 25 (APB 25) in measuring equity transactions with employees. Under
APB 25, compensation cost for equity
F-8
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 1 - Significant Accounting Policies (continued)
Stock Based Compensation-continued. Transactions with employees is recognized
only to the extent the fair value of the equity instrument at the award date
exceeds the exercise price the employee is required to pay.
Income Taxes. Deferred tax assets and liabilities are recognized for temporary
differences in the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. 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. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized as
income or expense in the period that includes the enactment date. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not that such assets will not be recovered.
Deferred income taxes arise primarily from differences in the methods of
accounting for net operating loss carryforwards and the change in unrealized
holding gains on trading securities for book and tax purposes. Unrealized gains
are included in income for book purposes, but for income tax purposes such gains
are included in taxable income only upon realization.
Earnings Per Share. Basic earnings per share (EPS) is based on the weighted
average number of common shares outstanding during the year, whereas diluted EPS
also gives effect to all dilutive potential common shares, if any, that were
outstanding during the period. At the date of these financial statements, all of
the Company's contingent shares were anti-dilutive.
Comprehensive Income. From the date of inception, May 26, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and presentation of comprehensive income and its components in a full set of
financial statements. SFAS 130 only requires additional disclosures in financial
statements and it does not affect the Company's financial position or results of
operations. The Company does not have any components affecting comprehensive
income in these consolidated financial statements.
Recent Accounting Pronouncements. Statement of Financial Accounting Standards
No. 133 (SFAS 133) establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet at their fair
value. This statement, as amended by SFAS 137, is effective for financial
statements for all fiscal quarters of all fiscal years beginning after June 15,
2000. Because it does not currently invest in derivative financial instruments
or engage in hedging activities, the Company does not expect the adoption of
this standard to have a material impact on its financial position, results of
operations or cash flows.
The Company has adopted the provisions of Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
Accordingly, the Company has capitalized
F-9
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 1 - Significant Accounting Policies (continued)
Recent Accounting Pronouncements-continued. External costs incurred in 1999 of
$612,218 to acquire and develop customized software and an internet web-site for
internal use.
The Company has adopted Statement of Financial Accounting Standards No. 131
(SFAS 131) "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
stockholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers. The Company does not have any
reportable segments.
Note 2 - Cumulative Effect of Change in Accounting Principle
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, is effective for the Company in 1999.
Adoption of SOP 98-5 in 1999 required the Company to write-off costs of $11,849
capitalized in 1998 associated with start-up activities. In accordance with the
requirements of SOP 98-5, the Company has reported the effects of applying SOP
98-5 as a cumulative effect of a change in accounting principles in its 1999
financial statements.
Note 3 - Statement of Cash Flows Supplemental Disclosure
The Company paid no interest or income taxes during the years ended December 31,
1999 and 1998. The following transactions not affecting cash occurred in 1999:
(a) The Company issued 1,500,000 shares of its restricted common stock as
founders' stock, valued at $120,000, of which $118,500 was non-cash
compensation for services.
(b) The Company issued 5,000 shares of its restricted common stock, valued at
$37,500, for services.
(c) The Company issued 250,000 shares of its common stock valued at
$2,250,000 as discussed in Note 4.
(d) The Company issued 250,000 shares of its common stock valued at
$1,500,000 in connection with the acquisition of certain assets (Note 5).
Note 4 - Investment Securities
In April 1999, the Company purchased 1,000,000 of preferred stock in
TheBigHub.com, Inc. for $627,000 in cash. In addition, the Company issued
250,000 shares of its common stock valued at $2,250,000 primarily in
consideration for the conversion of the preferred stock for an equal number of
shares of TheBigHub.com, Inc. common stock. Additionally the Company entered
into a marketing alliance with the Big Hub.com.
F-10
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 4 - Investment Securities (continued)
These marketable equity securities contain legal restrictions which begin
lapsing in April 2000 and limit the number of shares that may be disposed of at
any one time by the Company. Management's intent is to liquidate its position in
these securities in the near term. Accordingly, these securities are classified
as trading securities and are comprised as follows:
<TABLE>
<CAPTION>
<S> <C>
Among Current Assets:
Trading securities:
Marketable equity securities, at cost $ 2,877,000
Gross unrealized gains 253,000
---------------
Marketable equity securities, at fair value $ 3,130,000
===============
</TABLE>
In May 1999, the Company purchased for cash consideration of $50,000 a minority
interest consisting of 50,000 shares of convertible preferred stock in Focalex,
Inc., a nonpublic company. The investment was recorded at cost and is included
in the balance sheet at December 31, 1999 in other assets.
Note 5 - Acquisition of Assets of Starting Point, LLC
In December 1999, the Company completed its purchase of certain assets of
Starting Point, LLC, from its parent company, Yesmail.com, Inc. (Yesmail), in
exchange for 250,000 shares of the Company's restricted common stock. The
purchased assets consist principally of search engine technologies, domain
names, trade names and contracts related to Starting Point's web portal site and
meta-search technology. As part of the purchase agreement, the Company
guaranteed the value of its shares issued to Yesmail would have a minimum value
of $1.5 million one year after the date of the transaction (Note 7).
The purchase price of $1,500,000 was allocated $500,000 to the web-site and
$1,000,000 to intangibles consisting principally of domain names, trade names
and contracts. Depreciation and amortization will commence once the related
assets are placed into commercial service.
Note 6 - Income Taxes
The tax effects of temporary differences that give rise to deferred taxes at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
Net operating loss carryforward $ 201,664
Deferred tax liability:
Unrealized holding gain on trading securities (96,139)
---------------
105,525
Less valuation allowance: (105,525)
---------------
Total deferred tax assets $ -
===============
</TABLE>
F-11
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 6 - Income Taxes (continued)
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income taxes as a result of the
application of state income taxes, net of the effect of federal taxes and the
establishment of a valuation allowance as follows:
<TABLE>
<CAPTION>
<S> <C>
Computed tax benefit at federal statutory rate: $ 94,416
State income tax benefit, net of federal effect 11,109
---------------
Total tax expense 105,525
Valuation allowance (105,525)
---------------
$ -
===============
</TABLE>
As of December 31, 1999, the Company had available net operating loss
carryforwards of approximately $530,000 for federal and state income tax
reporting purposes. The carryforwards expire in 2019.
Note 7 - Commitments and Contingencies
As discussed at Note 5, the Company acquired certain assets ("assets") in
exchange for 250,000 shares of its restricted common stock. These shares carry
with them "piggyback" registration rights. Additionally, the Company has
guaranteed a minimum value of $1,500,000 for the 250,000 shares given in
exchange for the assets, such value to be determined as of the close of trading
one year from the date of the acquisition on December 7, 1999. Any deficiency in
the price of the Company's common stock is to be satisfied through the issuance
of additional shares. The closing price of the Company's stock at December 31,
1999 was 3 3/16 indicating a deficiency of approximately $703,000 between the
guaranteed value and the value of the stock given at the transaction date.
The Company has entered into lease agreements for equipment and for its offices.
Its equipment lease is for a term of twelve months and calls for monthly
payments of approximately $1,300. At the end of the lease, the Company has the
option to purchase the equipment at its fair market value. In 1999, $6,500
attributable to this lease was included among cost of revenues.
The Company leases its headquarters under a three year lease, dated August 1999,
calling for annual payments totaling $25,200 in the first year and increasing
annually by 5% at the commencement of each of the second and third years. Net of
reimbursements under an informal office-sharing arrangement, office rent of
approximately $7,600 was included among cost of revenues in 1999.
Note 8 - Related Party Transactions
During 1999 certain stockholders in the Company provided cash advances to meet
the Company's operational needs. These advances, net of repayments of $10,000,
totaled $697,941 at December 31, 1999 and are included in the balance sheet
under the caption "Due to stockholders."
F-12
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 8 - Related Party Transactions (continued)
Advances of from an officer of the Company totaled $35,000 at December 31, 1999.
Note 9 - Stockholders' Equity
Techlabs is authorized to issue up to 50,000,000 of $.001 par value common stock
of which 7,085,000 shares are issued and outstanding at December 31, 1999. In
addition, Techlabs capital structure includes classes of preferred stock as
discussed below.
On February 24, 1999, the Company amended its Articles of Incorporation to
reduce authorization of the Company's $.001 par value preferred stock from
20,000,000 to 10,000,000 shares and provided authorization for 25,000,000
shares of $.001 par value special preferred stock. Of the 25,000,000
authorized shares of special preferred stock, 12,500,000 shares were
designated as Class A special preferred stock.
The participation rights of the Company's preferred stock in any dividends or
liquidation proceeds are limited to one percent. Each share of preferred
stock receives one vote in stockholder voting matters. At the option of the
Company, the preferred stock may be redeemed in the Company's common shares
at an exchange rate of one share of common stock for each share of preferred
stock. At December 31, 1999, there were no shares of this class outstanding.
The Class A special preferred stock is to receive no preference in dividend
distributions or in the event of liquidation. Each share of Class A special
preferred stock receives three votes in stockholder voting matters. Dividend
and redemption features are determinable at the discretion of the board of
directors. At December 31, 1999, there were 9,000,000 shares of this class
outstanding, and no dividends have been declared.
As part of the Company's strategy to protect it from unsolicited takeover
attempts and to preserve its management team, it implemented the following
equity transactions involving founders, officers, and directors:
Issuance of 1,500,000 shares of common stock valued at $.08 per share and
subject to continuing legal restrictions to its founders, including 750,000
shares to an officer. Cash proceeds from the issuance of these shares were
$1,500 and the Company recognized expense of $118,500 for the balance.
Conversion of 1,000,000 shares of the founders common stock into 9,000,000
shares of Class A special preferred stock.
F-13
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 9 - Stockholders' Equity (continued)
During the year ended December 31, 1999, the Company sold in a private placement
exempt from registration, 1,500,000 shares of common stock at $.10 per share.
Available with these shares were options to purchase an additional 3,500,000
shares also at a purchase price of $.10 per share. These options were later
exercised, resulting in aggregate proceeds to the Company from the two blocks of
$492,170. In addition, the Company sold 230,000 shares of common stock at $1 per
share in a private placement exempt from registration resulting in proceeds of
$230,000 to the Company.
In late March 1999, the Company's common shares began trading in the
over-the-counter market. On April 27, 1999 when the Company's common shares were
trading at a price of $9.00 per share, it issued 250,000 shares valued at
$2,250,000 in connection with the acquisition of an investment in marketable
securities of an internet company as disclosed in Note 4.
On December 7, 1999 when the Company's common shares were trading at a price of
$2.875 per share, it agreed to issue 250,000 shares valued at $718,750 in
connection with an asset acquisition. The Company remains contingently liable
for the issuance of additional shares as discussed in Notes 5 and 7.
During 1999, the Company adopted a stock option plan (the "Plan"). Under the
Plan, incentive stock options (ISOs) and nonqualified stock options (NSOs) may
be granted to the Company's officers, employees and outside consultants for the
purchase of up to 1,500,000 shares of the Company's common stock. Scheduled
vesting is at the discretion of the Plan's committee, and expiration dates for
the grants may extend up to ten years from grant date. The exercise prices of
the ISOs and NSOs shall be not less than 100% and 85%, respectively, of the fair
market value of the Company's common stock at grant date.
In November, the Company issued to its employees ISOs to purchase 275,000 shares
of the Company's common stock at exercise prices ranging from $2.37 to $2.63 per
share. These options are immediately vested and are exercisable through
November, 2009.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the employee option
plan. Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date for awards in 1999 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Inception to
1999 December 31,1999
------------------ --------------------
<S> <C> <C>
Net income (loss) - as reported $ (277,695) $ (277,695)
Net income (loss) - pro forma (653,520) (653,520)
Earnings (loss) per share - as reported $ (0.04) $ (0.04)
Earnings (loss) per share - pro forma (0.10) (0.10)
</TABLE>
F-14
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 9 - Stockholders' Equity (continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999: 110% volatility, expected life of the
options of two years, zero dividend yield, and risk-free interest rate of 6.00%.
Information regarding the option plan for 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
---------------- -------------------
<S> <C> <C>
Options outstanding,
beginning of year - $ n/a
Options canceled - n/a
Options exercised - n/a
Options granted 275,000 $ 2.51
----------------
Options outstanding,
end of year 275,000 $ 2.51
================
Options exercisable,
end of year 275,000 $ 2.51
================
Option price range,
end of year $2.37 to $2.63
Option price range for
exercised shares n/a
Options available for
grant at end of year 1,225,000
Weighted average fair
value of options granted
during the year $ 1.37
</TABLE>
The weighted average grant date fair value of options granted during 1999, all
of whose exercise prices equaled or exceeded market value of the stock at date
of grant, is $375,825, and the weighted average remaining contractual life for
both options outstanding and options exercisable at December 31, 1999 was
approximately ten years.
F-15
<PAGE>
================================================================================
Techlabs, Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 1999 and the Periods From May 26, 1998
(Inception) to December 31, 1998 and Inception to December 31, 1999
================================================================================
Note 10 - Fair Value of Financial Instruments
The fair values of securities and options granted and the methods and
assumptions used to determine those values are disclosed in Notes 1, 4 and 9.
The recorded amounts of cash equivalents, receivables, stockholder and officer
advances and accounts payable approximate their fair market values at the date
of these financial statements. The Company has no investments in derivative
financial instruments.
F-16
<PAGE>
TECHLABS, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Document
- ------- -----------------------
<S> <C>
10(i) Agreement for Purchase and Sale of Assets
dated December 7, 1999 by and between Starting
Point, L.L.C., Yesmail.com, Inc. and Techlabs, Inc.
27 Financial Data Schedule
</TABLE>
EXHIBIT 10(i)
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
-----------------------------------------
THIS AGREEMENT made this 7th day of December, 1999 at Miami, Florida,
by and between Starting Point, L.L.C., an Illinois Limited Liability Company and
Yesmail.com, Inc., a Delaware corporation, hereinafter collectively referred to
as "Seller" and Techlabs, Inc., a Florida corporation, hereinafter referred to
as "Purchaser" or "Techlabs".
RECITAL
-------
The Purchaser desires to purchase and receive from the Seller, and the
Seller desires to sell and assign to the Purchaser, all of the properties,
contracts, assets, and business as a going concern of Starting Point, L.L.C.,
other than the Excluded Assets (as defined below).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. PURCHASE AND SALE
-----------------
Upon the terms and subject to all of the conditions in this Agreement
and the performance by each of the parties of their respective obligations, the
Purchaser agrees to purchase from the Seller and the Seller agrees to sell and
deliver to the Purchaser on the Closing Date (as hereinafter defined), those of
Starting Point, L.L.C.'s assets which are not Excluded Assets (the "Purchased
Assets"). There shall be excepted from the assets and properties of Seller sold
to Purchaser pursuant to this Agreement and from the term "Purchased Assets" the
following: the database of email addresses which currently exists and is
incorporated within the YesMail Network (the "List); any and all contracts or
agreements regarding the List; goodwill associated with the List; Seller's books
and records, accounts receivable, cash deposits on account, notes receivable,
tax deposits, trade receivables, marketable securities, and all other current
liquid assets of the Seller (collectively the "Excluded Assets").
2. PURCHASE PRICE AND RELATED MATTERS
----------------------------------
The Purchaser shall issue at the Closing (hereinafter define) 250,000
shares of its Rule 144 Common Stock, issued pursuant to Rule 506 of Regulation D
of the Securities Act of 1933, as amended (the "Purchase Price"). The Seller's
accounts payables and all other liabilities, through and including the Closing
date (hereinafter defined) shall remain the responsibility of Seller. At Closing
(hereinafter defined), the
1
<PAGE>
parties shall execute a hold harmless and indemnification agreement in favor of
each other for any and all claims that may arise as a result of (i) Seller's
ownership of Starting Point, L.L.C. prior to Closing in favor of Purchaser; and
(ii) Purchaser's ownership of Starting Point, L.L.C. from and after Closing in
favor of Seller. The Indemnification Agreements are attached hereto as Exhibit
"B".
(a) Piggyback Registration Rights:
(i) Notice of Registration. If Purchaser at any time proposes
to register any shares of its Common Stock under the 1933 Act whether or not for
sale for its own account, other than an offering primarily or exclusively to
employees and the registration form to be used may also be used for the
registration of the Shares (a "Piggyback Registration"), Purchaser shall at such
time notify Seller at least thirty (30) days prior to the filing of any
registration statement with respect thereto. Upon the receipt of a written
request of the Seller made within ten (10) days after such notice (which request
shall specify the number of Shares intended to be registered), Purchaser will
use its best efforts, subject to the limitations set forth below, to include in
such registration statement the number of shares sought to be registered by the
Seller. Each such request shall also contain an undertaking from the Seller to
provide all such information and material and to take all actions as may be
required in order to permit Purchaser to comply with all applicable federal and
state securities laws.
(ii) Underwriting. Notwithstanding any other provisions of
this Section 2, in the case of an underwritten public offering, if the managing
underwriter determines that market factors require limitation of the number of
shares to be underwritten, the managing underwriter may limit the number of
shares to be included in such Piggyback Registration, but to no greater
percentage than any other shareholder is limited.
(iii) Indemnification. To the extent permitted by law, the
Purchaser will indemnify Seller and each person controlling Seller within the
meaning of Section 15 of the Securities Act and each underwriter, if any, of the
Purchaser's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities as incurred (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading or any violation of the Purchaser of any rule or regulation
promulgated under the Securities Act applicable to the Purchaser in connection
with any such registration, qualification or compliance, and the Purchaser will
reimburse Seller and each underwriter, if any, for any legal and other expenses
reasonably incurred in connection with investigation, preparing of defending
2
<PAGE>
any such claim, loss, damage, liability or action, provided that the Purchaser
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written furnished to the Purchaser by the Seller or the
underwriter (specifically for inclusion in a registration statement or
prospectus) seeking information.
(b) Allocation: The parties to this Agreement have agreed that the
Purchase Price shall be allocable as follows:
<TABLE>
<CAPTION>
Assets Amount
------ ------
<S> <C>
Equipment and Furniture $ 500,000.00
Goodwill 500,000.00
Agreement Not To Compete 500,000.00
-------------
TOTAL $1,500,000.00
=============
</TABLE>
In the event the Purchaser shall pay to the Seller any additional
monies pursuant to this Agreement, said payment shall be considered additional
Goodwill. Each of the parties agrees to utilize such allocation in recording the
consequences of this transaction on their Federal Income Tax Returns.
(c) Purchaser may send one announcement to the List at no additional
costs to the Purchaser. Such announcement must be approved by the Seller prior
to sending same and shall be primarily to reference the Purchaser's acquisition
of the Website.
(d) Rule 144 Reporting: With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Shares to the public without registration, Purchaser agrees to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Purchaser under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
(iii) so long as Seller owns any Shares, furnish to Seller
forthwith upon request a written statement of the Purchaser as to its compliance
with the reporting requirements of said Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report of the
Purchaser, and such other reports and documents of the Purchaser, and such other
reports and documents so filed as Seller may reasonably request in availing
itself of any rule or regulation of the SEC allowing Seller to sell any such
securities without registration.
3
<PAGE>
(e) Guaranteed Minimum Value: Purchaser hereby guarantees the value of
the Shares shall be at least One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00) (the "Minimum Value") at the close of trading on the
date which is one (1) year from the Closing Date of this transaction (the
"Valuation Date"). If the Shares are not worth the Minimum Value at the close of
trading on the Valuation Date, then the Purchaser shall deliver to the Seller
the number of shares of Common Stock in Purchaser so that the Seller receives
the Minimum Value, as determined at the close of trading on the Valuation Date.
3. NO ASSUMPTION OF OBLIGATIONS BY PURCHASER
-----------------------------------------
(a) Except for the Assumed Agreements (as defined herein) Purchaser
will not assume and will not discharge nor be liable for any debts, liabilities,
or obligations of the Seller occurring before the Closing, including, without
limitation, any (a) liabilities or obligations of the Seller to its creditors or
stockholders as such or as creditors; (b) liabilities or obligations of the
Seller with respect to any transactions occurring before the Closing Date; (c)
sales or income tax or other liabilities or obligations of the Seller incurred
in connection with the sale of its properties, assets or business pursuant to
this Agreement, or in connection with its liquidation or dissolution; (d)
federal, state and local taxes arising out of Seller's operation of its
business; or (e) any contingent liabilities or obligations of the Seller.
Purchaser shall not be responsible for all liabilities and obligations occurring
before the Closing. The Purchaser shall not be responsible and liable for
Seller's accounts payables and other liabilities through and including the
Closing date (hereinafter defined).
(b) Subject to the terms and conditions of this Agreement, at Closing
Seller shall assign to Purchaser and Purchaser shall assume all of the Seller's
assignable rights, title and interest in and to and Seller's duties and
obligations under, the agreements, leases, contracts and commitments listed and
described on Exhibit 3 attached hereto (the "Assumed Agreements"), true and
correct copies of which have been delivered to Purchaser, to the extent such
obligations are accompanied by a correlated duty of performance or payment on
the part of the other party(s) thereto. Notwithstanding the foregoing, if the
assignment and transfer of the Assumed Agreements would cause a breach thereof
and if no required consent to such assignment and transfer has been obtained
from the third party involved, then such obligation or instrument shall not be
assigned and transferred, but Purchaser shall have the right but not the
obligation to act as agent for Seller and its successors and assigns, in order
to obtain for Purchaser the benefits under such obligation or instrument.
Notwithstanding the above, in the event an Assumed Agreement shall require the
written consent of the other party(s), the parties hereto agree to use their
best efforts to obtain said written consent of the assignment(s) after the
Closing.
4. CLOSING AND CERTAIN RELATED MATTERS
-----------------------------------
4
<PAGE>
(a) Date and Place: The Closing shall take place on or before December
8, 1999 (the "Closing" or "Closing Date") unless extended by mutual agreement of
the parties. The Closing shall take place via Federal Express through and escrow
at the offices of Seller's Attorney.
(b) Failure to Timely Close: In the event that this transaction shall
not close by the Closing Date, unless an extension is agreed to and by the
parties, then all parties shall be relieved of all obligations, commitments,
liabilities and responsibilities hereunder and this Agreement shall be deemed
null, void and of no force and effect.
(c) Instruments of Conveyance and Transfer:
At the Closing:
(i) The Seller will deliver to the Purchaser such bills of
sale, or other good and sufficient instruments of conveyance and transfer, as
shall be effective to vest in the Purchaser good, absolute, and marketable title
to Seller's Assets, other than the Excluded Assets, to the Purchaser by the
Seller, free and clear of all liens, charges and encumbrances, and restrictions;
(ii) The Seller will deliver to the Purchaser all material
contracts, agreements, commitments, and rights pertaining to the Seller's
business and other data relating to its assets, business and operations, except
its books of account and supporting records, corporate minute books and stock
transfer records of the Seller and items specifically to the Excluded Assets;
(iii) Simultaneously with such delivery, the Seller will take
all such steps as may be requisite to put the Purchaser in actual possession,
operation and control of the properties, assets and business to be transferred
hereunder; and
(iv) At the Closing, the Seller shall execute a Network
Affiliate Agreement and Assignment of Intangible Assets Agreement attached
hereto respectively as Exhibits "C" and "D".
(d) Further Assurances to Purchaser: From time to time, after the
Closing, at the request of the Purchaser, the Seller will execute and deliver to
the Purchaser such other instruments of conveyance and transfer and take such
other action as the Purchaser may reasonably require more effectively to convey,
transfer to, and vest in the Purchaser, and to put the Purchaser in possession
of, any of the properties or assets to be conveyed, transferred, and delivered
to the Purchaser hereunder.
(e) Purchaser's Deliveries: At Closing, Purchaser shall deliver to
Seller:
(a) The Purchase Price;
5
<PAGE>
(b) A certificate of good standing for Purchaser issued by the
Secretary of State of the State of Florida, dated within 30 days of the date
hereof;
(c) A certificate from the Secretary of Purchaser attesting to
the adoption of corporate resolutions by the directors of Purchaser authorizing
the consummation of this transaction and that all information contained in the
herein is complete, true and accurate and that there has been no change in the
Purchaser's information as of the date of the Closing;
(d) An executed counterpart of the Network Affiliate Agreement
which includes a license to continue the use of the List and Starting Point's
name and logo in association with the List.
(e) An opinion of counsel, reasonably acceptable to Seller, that the
Shares to be tendered as a portion of the Purchase Price are duly authorized,
validly issued, fully paid and non-assessable and unencumbered by any pledge, or
security interest of any kind.
5. REPRESENTATIONS AND WARRANTIES BY SELLER
----------------------------------------
As a material inducement to the Purchaser to execute and perform its
obligations under this Agreement, the Seller hereby represents and warrants to
the Purchaser, as follows:
(a) Changes: Between the date of the execution of this Contract and the
Closing date, the Seller will not:
(i) Incur any obligations or liabilities, absolute, accrued,
contingent, or otherwise, except current liabilities incurred in the ordinary
course of Starting Point's Business;
(ii) Mortgage, pledge, subject to lien, charge, or
encumbrance, or grant a security interest in, any of the assets, tangible or
intangible to be sold to Purchaser hereunder;
(iii) Cancel any debt or claim or sell or transfer any of the
assets or properties, that are to be sold to Purchaser hereunder, except in the
ordinary course of Starting Point's Business;
(iv) Suffer any damage, destruction, or loss (whether or not
covered by insurance) affecting its properties, business, or prospects, or waive
any rights of substantial value; or
(v) Enter into any transaction other than in the ordinary
course of Starting Point's Business.
6
<PAGE>
(b) Title to Properties and Assets: At the Closing, the Seller will
have good and marketable title to all properties and assets being sold to the
Purchaser, pursuant to this Agreement, subject to no lease, mortgage, pledge,
lien, charge, security interest, encumbrance, or restriction whatsoever, except
as disclosed pursuant to this Agreement.
(c) No Default: The Seller is not in default in any material respect
under any of the contracts, agreements, leases, documents, or other commitments
to which it is a party or otherwise bound.
(d) Absence of Certain Changes or Events: From the date of the
execution of this Agreement to the date of Closing, there will not be any
material adverse change in, or event or condition which has a material adverse
affect on the condition (financial or otherwise) of properties, assets,
liabilities, business, or prospects of Starting Point, L.L.C.
(e) Indemnification: At Closing, the parties shall execute hold
harmless and indemnification agreements in favor of the other party in the forms
attached hereto as Exhibit "B".
(f) Litigation: To the best of Seller's knowledge there are no actions,
suits or proceedings pending or threatened against the Seller or affecting any
of its properties or rights, at law or in equity, or before any federal, state,
municipal or other governmental agency or instrumentality, domestic or foreign,
nor is the Seller aware of any facts which to its knowledge might result in any
such action, suit or proceeding. To the best of Seller's knowledge, the Seller
is not in default with respect to any order or decree of any court or of any
such governmental agency or instrumentality.
(g) Compliance with Law and Other Instruments: To the best of Seller's
knowledge, the Seller is not in violation of any term or provision of any
charter, bylaw, mortgage, indenture, contract, agreement, instrument, judgment,
decree, order, statute, rule or regulations, and the execution and delivery of
and performance and compliance with this Agreement will not result in the
violation of or be in conflict with or constitute a default under any such term
or provision or result in the creation of any mortgage, lien, encumbrance, or
charge upon any of the properties or assets of the Seller pursuant to any such
term or provision.
(h) Disclosure: No representation or warranty by the Seller in this
Agreement or in any writing attached hereto, contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact (of
which the Seller has knowledge or notice) required to make the statements herein
or therein contained not misleading.
(i) Taxes: Seller has filed or will file all required Federal and State
Income Tax Returns and has paid or will pay all taxes as shown on such Returns.
The Federal
7
<PAGE>
Income Tax Returns of Seller have never been examined or audited by the Internal
Revenue Service. Adequate provision has been made for the payment of all accrued
and unpaid Federal, State or other taxes of whatever kind, whether or not yet
due and payable or whether or not disputed.
(j) Seller in Good Standing: Starting Point, L.L.C. is duly organized,
existing and in good standing under the laws of the State of Illinois.
(k) Seller's Assistance: The Seller agrees to provide assistance and
consulting services to the Purchaser for the transition of the Site. The
Purchaser shall pay all approved out of pocket expenses incurred by the Seller
pursuant to this paragraph.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to Seller that each of the following
statements is true and correct on the date hereof, and shall remain true and
correct through the Closing Date. Furthermore, the representations and
warranties contained in this section shall survive the Closing of this
transaction for a period of six months:
(a) Organization Authority and Good Standing. Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Florida and is duly qualified to do business and is in good standing in each
jurisdiction where the character of the properties owned or leased by it or the
nature of the business transacted by it requires that it be so qualified, except
where the failure to so qualify would not have a material adverse effect on the
business, operations or financial condition of Purchaser or its ability to
consummate the transactions contemplated herein. Purchaser has all requisite
corporate power and authority to enter into this Agreement and any of the
agreements necessary to accomplish the transactions contemplated by this
Agreement and, subject to receipt of required shareholder approval, to perform
its obligations hereunder on its part to be performed.
(b) Corporate Documents. Copies of the Articles of Incorporation (and
the Amendment(s) thereto) and Bylaws of Purchaser, certified by an appropriate
officer of Purchaser to be correct have been made available to Seller and such
documents have not been amended since the respective dates of certification
thereof.
(c) Authorization. The execution, delivery and performance of this
Agreement and the other agreements and undertakings referenced herein and the
consummation of the transactions contemplated hereby and thereby Purchaser has
been duly and validly authorized by all necessary corporate action on its part.
This Agreement and other Agreements have been duly executed and delivered by
Purchaser and assuming due authorization, execution and delivery by Seller and
the other signatories thereto constitute the valid, binding and enforceable
obligation of
8
<PAGE>
Purchaser subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and the rights of shareholders.
(d) Compliance with Law and Agreements. Purchaser is not in default
under, or in violation of, any provision of its Articles of Incorporation, or
Bylaws or in default under or in violation of any note, bond, indenture,
mortgage, deed of trust, loan agreement, material lease, or any other agreement
to which it is a party or by which it may be bound or to which any of its
properties or assets is subject other than such defaults or violations as would
not (singly or in the aggregate) have a material adverse effect on the business,
operations, or financial condition of Purchaser. Purchaser has not waived any
material right under any material contract or commitment. Purchaser is not in
violation of any order, writ, decree or injunction of any court or governmental
agency or any body having jurisdiction over it or its properties which if
enforced would have (singly or in the aggregate) a material adverse effect on
the business, operations, or financial condition of Purchaser. No investigation
or review by any governmental entity with respect to Purchaser is pending or to
the knowledge of Purchaser threatened, nor has any governmental entity indicated
to Purchaser an intention to conduct the same.
(e) Absence of Conflicts. The execution and delivery by Purchaser of
this Agreement and the other agreements referenced herein and the consummation
to the transactions herein and therein contemplated do not and will not violate
or conflict with any judgment, order, writ, decree, statute, regulation or
injunction applicable to Purchaser, or any of the properties or assets of
Purchaser or the stock of Purchaser.
(f) The Shares. The Shares to be tendered as a portion of the Purchase
Price are duly authorized, validly issued, fully paid and non-assessable and
unencumbered by any pledge, or security interest of any kind.
7. CONDITIONS PRECEDENT TO THE CLOSING BY PURCHASER
------------------------------------------------
The obligation of the Purchaser to consummate this Agreement is subject
to and conditioned upon the satisfaction, at or prior to the Closing, of each
and every of the following conditions:
(a) Compliance with Agreement: All the terms and conditions of this
Agreement to be complied with and performed by the Seller on or before the
Closing Date, including the delivery to the Purchaser of all schedules,
documents and instruments required to be delivered to Purchaser by this
Agreement, shall have been complied with and performed.
(b) Representations and Warranties: The representations and warranties
of the Seller in Paragraph 5 hereof shall be deemed to have been made again on
the Closing Date and be then true and correct, subject to any changes
contemplated by this
9
<PAGE>
Agreement. There shall have been no materially adverse change in the financial
condition of the Seller.
(c) Tax Returns: Seller warrants that the Tax Returns that was supplied
to Purchaser by Seller is true and correct and is a fair presentation of the
financial condition and results of operation of the Business.
8. AFFIRMATIVE COVENANTS OF SELLER
-------------------------------
Seller agrees and obligates itself to maintain in full force and effect
casualty and liability insurance of such nature and in at least such amounts as
are presently carried.
9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
The representations and warranties contained in and made pursuant to
this Agreement shall be deemed to have been made again at Closing. All
representations and warranties contained in this Agreement shall survive the
Closing for a period of six (6) months.
10. COVENANT NOT TO COMPETE
-----------------------
For a period of one (1) year following the Closing Date, Seller shall
not invest in or develop for its own use, an Internet directory/portal site or
like web site which is substantially similar to or a competitor of stpt.com.
Notwithstanding the foregoing and by way of illustration and not in limitation,
Seller may:
(ii Continue to own and operate the site rankthis.com.
(ii Provide marketing services to Internet directory/portal sites
or like web sites which are substantially similar to or a
competitor of stpt.com (as well as any other marketer) for
Seller's standard and customary fee.
Neither party shall release or disclose, to an unauthorized third
party, any proprietary or confidential information or trade secret, pertaining
to Seller and/or Purchaser and their respective business methods, practices or
affairs. The Seller has carefully read and considered the provisions of this
Paragraph 10 and, having done so, agrees that the restrictions set forth herein
are fair and reasonably required for the protection of the interests of
Purchaser and its Officers, Directors and Stockholders.
11. SEVERABILITY
------------
The invalidity of any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall not affect
the enforceability of the remaining portions of this Agreement or any part
hereof, all of which are inserted conditionally on their being valid in law,
and, in the event that any one or more of the
10
<PAGE>
words, phrases, sentence or sentences, clause or clauses, section or sections,
or subsection or subsections had not been inserted.
12. EXPENSES
--------
Each of the parties shall bear all of their own expenses incurred in
connection with this Agreement and in the consummation of the transactions
contemplated hereby and in preparation hereof.
13. AMENDMENT AND WAIVER
--------------------
This Agreement may not be amended or modified at any time nor any
provision waived unless executed by the Purchaser and the Seller, or either of
them in the case of a waiver.
14. NOTICES
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by overnight,
registered or certified mail, postage prepaid, addressed
to the Seller at: Yesmail.com, Inc.
c/o David Menzel, Secretary
565 Lakeview Parkway, Suite 135
Vernon Hills, IL 60061
with a copy to: Bartly J. Loethen, Esquire
22nd Floor IBM Plaza
330 North Wabash Avenue
Chicago, IL 60611-3607
and to the Purchaser at: Techlabs, Inc.
c/o Thomas J. Taule, Chairman
3435 Galt Ocean Drive
Ft. Lauderdale, FL 33308
with a copy to: David M. Glassberg, Esquire
Glassberg & Glassberg, P.A.
1570 Madruga Avenue, Suite 211
Coral Gables, Florida 33146
or at such other address(es) as shall be furnished in writing by any party to
the other, and shall be deemed to have been given as of the date so delivered or
deposited in the United States mail postage paid, as the case may be.
11
<PAGE>
15. PRESS RELEASES
--------------
Purchaser shall not issue any press releases or other public relations
announcement of this purchase and sale agreement or of the Closing of this
transaction without the prior written consent of Seller as to the content and
timing of such release or announcement. Seller is under no duty to ever issue
any press release pertaining to this transaction. This provision shall survive
the Closing of this transaction.
16. SECTIONS AND OTHER HEADINGS
---------------------------
Sections, paragraphs, and other headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. COUNTERPART EXECUTION
---------------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
18. GENDER
------
All personal pronouns used in this Agreement shall include the other
genders whether used in the masculine, feminine or neuter gender, and the
singular shall include the plural whenever and as often as may be appropriate.
19. PARTIES IN INTEREST
-------------------
All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of, and be enforceable by, the Seller and the Purchaser
and their successors and assigns. Notwithstanding the above, the Purchaser shall
be allowed to assign this Agreement to a Florida corporation to be formed, which
shall be a subsidiary of the Purchaser.
20. INTEGRATED AGREEMENT
--------------------
This Agreement and the agreements attached as Exhibits hereto,
constitute the entire agreement between the parties hereto, and there are no
agreements, understandings, restrictions, warranties, or representations between
the parties other than those set forth herein or for which provisions have been
made herein.
21. ATTORNEY'S FEES
---------------
12
<PAGE>
In the event of any litigation arising out of this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs from the non-prevailing party.
22. LITIGATION
----------
In the event of any litigation arising out of or related to this
Agreement and the consummation of the transactions contemplated hereby, venue
shall be proper only in Broward County, Florida.
23. TIME OF ESSENCE
---------------
Wherever time is specified for the doing or performance of any act,
time shall be considered of the essence.
13
<PAGE>
IN WITNESS WHEREOF, the Parties have set their hands and seals on the
day and month above-written.
AS TO SELLER: Starting Point, L.L.C.,
an Illinois Limited Liability Company
By:____________________________
Kevin Manley, Manager
Yesmail.com, Inc.,
a Delaware corporation
By:____________________________
_____________, _______
AS TO PURCHASER: Techlabs, Inc.,
a Florida corporation
By:____________________________
Thomas J. Taule, Chairman
Attest:________________________
Thomas J. Taule, Secretary
14
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