FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(x) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
Commission file number 000-26233
Techlabs, Inc.
------------------------
(Exact name of small business issuer as specified in its charter)
Florida
------------------------
(State or other jurisdiction of incorporation or organization)
65-0843965
------------------------
(IRS Employer Identification No.)
2400 West Cypress Creek Road, Suite 100, Fort Lauderdale, Florida 33309
-----------------------------------------------
(Address of principal executive offices)
954-630-0027
-------------------------
(Issuer's telephone number)
Not applicable
-------------------------
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
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( ).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of November 9, 2000, the
registrant had issued and outstanding 7,820,000 shares of common stock.
Transitional Small Business Disclosure Format (check one). Yes ( ) No (x)
This discussion in this quarterly 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 Quarterly Report on Form 10-QSB, "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").
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Page Number
Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999..................................................4
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2000 (unaudited)
and 1999 (unaudited)..................................................5
Consolidated Statements of Changes in Stockholders' Equity.....................6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 (unaudited)
and 1999 (unaudited)..................................................7
Notes to Consolidated Financial Statements (unaudited).........................8
<PAGE>
<TABLE>
<CAPTION>
Techlabs, Inc. and Subsidiaries
Consolidated Balance Sheets
(UNAUDITED)
September 30, December 31,
2000 1999
--------------------- -----------------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 27,215 $ -
Prepaid Expenses 21,250 75,000
Marketable equity securities 83,707 3,130,000
--------------------- -----------------
Total Current Assets 132,172 3,205,000
Property and Equipment, net 1,082,418 1,112,218
Intangible and Other Assets
Deposits and other 5,503 5,503
Investment securities 725,000 50,000
Intangibles 850,000 1,000,000
--------------------- -----------------
$ 2,795,093 $ 5,372,721
===================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 443,882 $ 261,805
Long-term Notes Payable to Stockholders 937,391 732,941
--------------------- -----------------
Total Liabilities 1,381,273 994,746
STOCKHOLDERS' EQUITY
Preferred stock - special class A ($.001 par value, 12,500,000 shares
authorized, 9,000,000 shares issued and outstanding) 9,000 9,000
Common stock ($.001 par value, 50,000,000 shares
authorized, 7,835,000 shares issued and outstanding) 7,835 7,335
Additional paid-in capital 5,596,504 4,639,335
Accumulated deficit (4,051,656) (277,695)
--------------------- -----------------
1,561,683 4,377,975
Less: Stockholder note receivable (147,863) -
--------------------- -----------------
Total Stockholders' Equity 1,413,820 4,377,975
--------------------- -----------------
$ 2,795,093 $ 5,372,721
===================== =================
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Operations
(UNAUDITED) (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue
Net revenues $ 26,879 $ - $ 58,856 $ -
Operating Expenses
Cost of revenues 31,297 - 103,978 -
Other general and administrative 216,659 57,295 747,670 293,438
------------- -------------- --------------- -------------
Total operating expenses 247,956 57,295 851,648 293,438
------------- -------------- --------------- -------------
Operating loss (221,077) (57,295) (792,792) (293,438)
Other Income (Expense)
Interest income 2,841 - 5,813 -
Realized loss on trading securities (209,545) - (255,696) -
Unrealized loss on trading securities (338,050) 523,600 (2,731,286) 523,600
------------- -------------- --------------- -------------
Total other income (544,754) 523,600 (2,981,169) 523,600
Loss before provision for income taxes
and cumulative effect of change
in accounting principle (765,831) 466,305 (3,773,961) 230,162
Provision for income taxes - - - -
------------- -------------- --------------- -------------
Loss before cumulative effect of
change in accounting principle (765,831) 466,305 (3,773,961) 230,162
Cumulative effect of change in
in accounting principle - - - (8,849)
------------- -------------- --------------- -------------
Net Loss $ (765,831) 466,305 $ (3,773,961) 221,313
============= ============== =============== =============
Earnings per share:
Basic and diluted
Before cumulative effect of change
in accounting principle $ (0.10) $ 0.07 $ (0.50) 0.04
============= ============== =============== =============
Net income (loss) and comprehensive income
(loss) per common share $ (0.10) $ 0.07 $ (0.50) 0.04
============= ============== =============== =============
Basic and diluted weighted average
shares outstanding 7,825,145 6,600,000 7,621,715 5,533,120
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Preferred Stock Common Stock Additional Stockholder
--------------------- --------- --------- Paid-In Accumulated Note
Shares Amount Shares Amount Capital Deficit Receivable Total
----------- -------- --------- --------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999, audited - $ - 1,100,000 $ 1,100 $ 24,900 $ - $ - $ 26,000
February, 1999:
Issuance of restricted shares
to founders for $1,500 cash and
$118,500 in compensation. 1,500,000 1,500 118,500 120,000
Conversion of common
shares into preferred shares 9,000,000 9,000 (1,000,000) (1,000) (8,000) 0
Issuance of shares under private
placement offerings -
March 1999, at $.10 per share
net of offering costs of $7,830 5,000,000 5,000 487,170 492,170
April 1999, at $1.00 per share 230,000 230 229,770 230,000
April, 1999 issuance of:
Restricted shares for services 5,000 5 37,495 37,500
Shares for investment securities 250,000 250 2,249,750 2,250,000
December, 1999:
Shares issued in asset
acquisition 250,000 250 1,499,750 1,500,000
Net loss and comprehensive
loss (277,695) (277,695)
---------- -------- --------- --------- ------------ ------------ ------------ ------------
Balance, December 31, 1999 9,000,000 9,000 7,335,000 7,335 4,639,335 (277,695) 4,377,975
Stock options exercised 60,000 60 142,025 142,085
Shares issued for services 140,000 140 140,444 140,584
Shares issued for investment
securities 300,000 300 674,700 675,000
Note receivable from stockholder (147,863) (147,863)
Net loss and comprehensive loss (3,773,961) (3,773,961)
---------- -------- --------- --------- ------------ ------------ ------------ ------------
Balance, September 30, 2000,
unaudited 9,000,000 $ 9,000 7,835,000 $ 7,835 $ 5,596,504 $(4,051,656) $ (147,863) $ 1,413,820
========== ======== ========= ========= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements
6
<PAGE>
<TABLE>
<CAPTION>
Techlabs, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)
Nine Months Ended
September 30,
2000 1999
------------------- -----------------------
Operating Activities
<S> <C> <C>
Net loss $ (3,773,961) $ (302,287)
Adjustments to reconcile net loss to
net cash used in operating activities
Unrealized loss (gain) on securities 2,731,286 -
Realized loss (gain) on securities 255,696
Cumulative effect of change in accounting principle - 8,849
Common stock issued for compensation 140,584 156,000
Amortization and depreciation 275,000 -
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses 47,972 -
Increase in other receivable - (4,364)
Increase in accounts payable 182,077 319,025
------------------- -----------------------
Net Cash Used in Operating Activities (141,346) 177,223
Investing Activities
Web site development costs (95,200) (320,630)
Purchase of marketable securities - (677,000)
Proceeds from stock sales 59,311 -
Deposits - -
------------------- -----------------------
Net Cash Used in Investing Activities (35,889) (997,630)
Financing Activities
Advances from stockholders 204,450 152,941
Proceeds from sale of stock - 723,670
------------------- -----------------------
Net Cash Provided by Financing Activities 204,450 876,611
------------------- -----------------------
Change in Cash and Cash Equivalents 27,215 56,204
Cash and cash equivalents, beginning of period 0 15,000
------------------- -----------------------
Cash and cash equivalents, end of period $ 27,215 $ 71,204
=================== =======================
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
7
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Significant Accounting Policies
Business. The accompanying unaudited condensed and consolidated
financial statements of Techlabs, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2000. For further
information, refer to the audited consolidated financial statements and
footnotes thereto for the fiscal year ended December 31, 1999 included in the
Company's Annual Report on Form 10-KSB.
Basis of Presentation. The consolidated financial statements include
the accounts of the Company (formerly a development stage company) and its
wholly owned subsidiaries, Interplanner.com, Inc., Starting Point.com, Inc and
Internetchic.com, Inc. All material intercompany transactions have been
eliminated.
Property and Equipment. Property and equipment at September 30, 2000
consisted 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. At September
30, 2000, the Company had capitalized approximately $707,418 in development
costs related to Interplanner.com's calendar technology. The Company will begin
depreciating the related costs over a three-year period in the fourth quarter of
fiscal 2000 pursuant to the Company's full-scale launch of the site. The Company
is depreciating the remaining $500,000 related to the purchased assets of
Starting Point.com over a three year period and recorded approximately $42,000
and $125,000 in expense for the three and nine month periods ended September 30,
2000.
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
8
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Significant Accounting Policies (continued)
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 a five year period. Amortization expense totaled $50,000 and
$150,000 for the three and nine month periods ended September 30, 2000.
Investment Securities. Investment securities consist of both securities
for which there is no readily determinable market and marketable equity
securities. Investments for which there is no readily determinable market value
are included on the accompanying September 30, 2000 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.
9
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Significant Accounting Policies (continued)
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.
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
September 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 external costs incurred
at September 30, 2000 of $707,418 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"), was issued by the Accounting Standards Executive
Committee of the American
10
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 2 - Cumulative Effect of Change in Accounting Principle (continued)
Institute of Certified Public Accountants, was effective for the Company in
1999. SOP 98-5 required the Company, in 1999, to expense costs capitalized in
1998 associated with start-up activities. Adoption of SOP 98-5 also required the
Company to report the effects of applying SOP 98-5 as a cumulative effect of a
change in accounting principles in its September 30, 1999 financial statements.
Note 3 - Statement of Cash Flows Supplemental Disclosure
During the nine months ended September 30, 2000 and 1999, the Company
paid no interest or income taxes, and the following transactions not affecting
cash occurred:
(a) The Company recorded $2,731,286 in unrealized losses on
trading securities during the nine months ended September 30,
2000.
(b) 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 during the
nine months ended September 30, 1999.
(c) The Company issued 60,000 shares of its common stock pursuant
to the stock option plan to three employees of the Company in
exchange for promissory notes totaling $142,085 and cash
proceeds of $35.
(d) The Company issued 140,000 shares of its common stock, valued
at $140,584, for services during the nine months ended
September 30, 2000.
(e) The Company issued 300,000 shares of its common stock, valued
at $675,000 for a minority interest in a privately held
company during the nine months ended September 30, 2000.
Note 4 - Investment Securities
In April 1999, the Company purchased 1,000,000 shares 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
11
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 4 - Investment Securities (continued)
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 BigHub.com.
These marketable equity securities contain legal restrictions which
began lapsing in April 2000 and limit the number of shares that may be disposed
of at any one time by the Company. During the nine months ended September 30,
2000, the Company liquidated a portion of these securities and it is
management's intent is to continue to liquidate its position in these securities
in the near term. Accordingly, these securities are classified as trading
securities and are comprised as follows:
Among Current Assets:
Trading securities:
Marketable equity securities, at cost $ 2,877,000
Gross unrealized loss (2,793,293)
-------------
Marketable equity securities,
at fair value $ 83,707
=============
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 privately held company. The investment was recorded at cost and
is included in the balance sheet at September 30, 2000 in other assets.
On April 12, 2000, the Company acquired a 25% equity interest in
HandRes, Inc. in exchange for 300,000 shares of the Company's restricted common
stock valued at $675,000 based on the closing bid price for the Company"s common
stock at the date of the transaction. HandRes, Inc. is a developer and provider
of Web-based software applications, including reservation and business-related
Internet content, targeted to wireless handheld device users. The investment was
recorded at cost and is included in the balance sheet at September 30, 2000 in
other assets.
12
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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 expense totaling $91,667 and
$275,000 was recorded for the three and nine month periods ended September 30,
2000 related to the purchased assets. During the nine months ended September 30,
2000, the Company created a wholly owned subsidiary, Starting Point.com, Inc.
Note 6 - 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 per share closing price of the Company's stock at
September 30, 2000 was $.25 indicating a deficiency of approximately $1,437,500
between the guaranteed value and the value of the stock given at the transaction
date.
In September 2000 the Company filed a complaint against Xpedior, Inc.,
Techlabs, Inc. vs. Xpedior, Inc., case number 00-015612(14), in the Circuit
Court of the 17th Judicial Circuit in and for Broward County, Florida, alleging
breach of contract related to its engagement to complete the Beta portion of a
website, including determining the requirements, designing and developing the
program. In its complaint, the Company is seeking compensatory damages in excess
of $15,000, and an award of interest, attorneys' fees and court costs. In
October 2000 Xpedior filed an answer, affirmative defenses and counterclaim
against the Company in which Xpedior claims the Company's breach of the contract
for failure to pay Xpedior an additional $172,050 which it alleges is due under
the contract. Xpedior is seeking compensatory damages in excess of $15,000, and
an award of interest, attorneys' fees and court costs. At this juncture, the
Company cannot accurately predict the outcome of this litigation, or provide an
estimate of the amount or range of potential loss to it, if any.
Note 7 - Stockholders' Equity
During the nine months ended September 30, 2000, the Company issued to
three employees 60,000 shares of common stock for $2.37 per share pursuant to
the Company's stock option plan. Cash proceeds from the issuance of these shares
were $35 and the Company accepted promissory notes totaling $145,022 for the
balance.
13
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 7 - Stockholders' Equity (continued)
During the nine months ended September 30, 2000, the Company acquired a
25% equity interest in HandRes, Inc. in exchange for 300,000 shares of the
Company's restricted common stock valued at $675,000.
During the nine months ended September 30, 2000, the Company issued
140,000 shares of its common stock valued at $140,584 for professional services.
During the nine months ended September 30, 1999 the Company issued to
its founders, including 750,000 shares to an officer, 1,500,000 shares of common
stock valued at $.08 per share and subject to continuing legal restrictions.
Cash proceeds from the issuance of these shares were $1,500 and the Company
recognized expense of $118,500 for the balance.
During the nine months ended September 30, 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.
Note 8 - Related Party Transactions
During the nine months ended September 30, 1999, the Company converted
1,000,000 shares of the founders common stock into 9,000,000 shares of Class A
special preferred stock.
During the nine months ended September 30, 2000, certain stockholders
in the Company made cash advances totaling $204,450 in order to meet the
Company's operational needs. These advances at September 30, 2000 totaled
$937,391 and are included in the balance sheet under the caption "Long-term
Notes Payable to Stockholders".
Note 9 - Subsequent Events
In October 2000 Techlabs entered into an Exclusive License Agreement with
Outcome Mail, N.V. covering Techlabs' StartingPoint.com and Interplanner.com web
sites. Under the terms of this agreement, Outcome Mail was granted an exclusive
license to operate
14
<PAGE>
Techlabs, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 9 - Subsequent Events (continued)
these web sites and in conjunction therewith is responsible for paying all costs
associated with the maintenance, hosting, upgrades and similar costs. As
compensation for their services, Outcome Mail is entitled to retain 75% of the
net revenues from these sites. Techlabs retains the rights to the existing
revenue streams prior to the date of the license, as well as all intellectual
property rights associated with these sites.
Item 2.
Management's Discussion and Analysis or Plan of Operation
Results of Operations
Net revenues for the three months and nine months ended September 30,
2000 increased to $26,879 and $58,856, respectively, from the same periods in
the prior fiscal year. We were still in the development stage during the three
months and nine months ended September 30, 1999 and reported no revenues. The
increase in revenues was attributable to advertising revenues generated from
MyStartingPoint.com, Inc. and Interplanner.com.
Other general and administrative expenses increased $159,364, or
approximately 278%, in the three months ended September 30, 2000 from the
corresponding period in fiscal 1999. General and administrative expenses
increased $454,232, or approximately 155%, for the nine months ended September
30, 2000 from the nine months ended September 30, 1999. Included in other
general and administrative expenses at September 30, 2000 is a non-recurring
$133,000 non-cash charge related to stock compensation paid to an officer, and a
non-recurring $118,000 non-cash charge related to stock compensation paid to an
investment banking firm. Giving effect to these non-cash charges, other general
and administrative expenses increased $203,232 in the first nine months of
fiscal 2000. This increase is primarily attributable to the initial launch of
Interplanner.com during the second quarter of fiscal 2000, including our
co-branded calendar service with Free Internet.com, together with employee
salaries and related costs.
15
<PAGE>
During the second quarter of fiscal 2000 we began liquidating our
position in the marketable equity securities of the BigHub.com, Inc. Realized
loss on trading securities, which represents the difference between the carrying
value of the security at March 31, 2000 and amount we received upon its sale
during the three months and nine months ended September 30, 2000, was $209,545
and $255,696, respectively. The unrealized loss on trading securities was
$338,050 and $2,731,296, respectively, for the three months and nine months
ended September 30, 2000. Unrealized loss on trading securities is the
difference in the fair market value of the stock at September 30, 2000 from its
fair market value at June 30, 2000, as to the three months ended, and December
31, 1999 as to the nine months ended. The non-cash loss is a result of the
decrease in the market value at September 30, 2000 compared to December 31, 1999
of holdings in the common stock of the BigHub.com, Inc.
As a result of all the above, we reported a net loss of $765,831 and
$3,773,961, respectively, for the three and nine months ended September 30, 2000
from the comparable periods in fiscal 1999.
Liquidity and Capital Resources
We have a working capital deficit of $372,822 at September 30, 2000 as
compared to working capital of $2,210,254 at December 31, 1999. Approximately
$3,046,293 of the decrease in working capital is attributable to a decrease at
September 30, 2000 in the market value of our holdings in the BigHub.com, Inc.
from the market value of those securities at December 31, 1999.
Our principal sources of capital during the first nine months of fiscal
2000 were from stockholder advances totaling $204,450 and proceeds from the sale
of investment securities of $59,311. Other than working capital which is
available to us from the liquidation of the marketable equity securities we own
in the BigHub.com, Inc. and working capital generated from our operations, we
currently have no source for working capital to fund our current operations. In
order to provide sufficient cash to fund our operations at their current levels,
we may be forced to continue liquidating the marketable securities we hold in
the BigHub.com, Inc. at a time when the stock price of the BigHub.com is lower
than it has been in recent months.
If we are to pursue the further implementation of our business plan, we
will be required to make various capital expenditures to continue the
development of our subsidiaries' operations during the balance of fiscal 2000.
As of the date of this quarterly report, we estimate the total costs of these
capital expenditures will be approximately $3 million to $5 million. We will be
required to raise additional capital during the next 12 months to satisfy these
cash requirements. In May 2000 we hired an investment banking firm to consult
with us on a variety of matters, including matters related to an equity capital
raise. At this time, however, we have no agreements or understanding with any
third parties regarding additional capital, and we cannot guarantee that we will
be successful in obtaining capital upon terms acceptable to us, if at all.
16
<PAGE>
As a result of the uncertainty in our ability to raise sufficient
capital to continue the implementation of our business plan, we have begun to
explore opportunities for a business combination with an operating company.
Because of our limited revenues and need for additional capital to further
develop our businesses, it is possible that such a business combination, if
pursued, may result in a change of control of Techlabs. As of the date of this
quarterly report, we have no binding agreements or understandings regarding any
merger or acquisition transactions with any third parties, and we are unable to
predict at this time the terms or conditions of any proposed business
combination if we should elect to pursue this strategy.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 2000 Techlabs filed a complaint against Xpedior, Inc.,
Techlabs, Inc. vs. Xpedior, Inc., case number 00-015612(14), in the Circuit
Court of the 17th Judicial Circuit in and for Broward County, Florida, alleging
breach of contract related to its engagement to complete the Beta portion of a
website, including determining the requirements, designing and developing the
program. In its complaint, Techlabs is seeking compensatory damages in excess of
$15,000, and an award of interest, attorneys' fees and court costs. In October
2000 Xpedior filed an answer, affirmative defenses and counterclaim against
Techlabs in which Xpedior claims Techlabs' breach of the contract for failure to
pay Xpedior an additional $172,050 which it alleges is due under the contract.
Xpedior is seeking compensatory damages in excess of $15,000, and an award of
interest, attorneys' fees and court costs. At this juncture, Techlabs cannot
accurately predict the outcome of this litigation, or provide an estimate of the
amount or range of potential loss to it, if any.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended September 30, 2000, an officer and
director of Techlabs exercised outstanding options to acquire 20,000 shares of
common stock which had been previously granted to him under Techlabs' 1999 Stock
Incentive Plan. The employee is an accredited investor.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
17
<PAGE>
Item 5. Other Information.
In October 2000 Techlabs entered into an Exclusive License Agreement
with Outcome Mail, N.V. covering Techlabs' StartingPoint.com and
Interplanner.com web sites. Under the terms of this agreement, Outcome Mail was
granted an exclusive license to operate these web sites and in conjunction
therewith is responsible for paying all costs associated with the maintenance,
hosting, upgrades and similar costs. As compensation for their services, Outcome
Mail is entitled to retain 75% of the net revenues from these sites. Techlabs
retains the rights to the existing revenue streams prior to the date of the
license, as well as all intellectual property rights associated with these
sites.
A copy of this one year license agreement is attached as Exhibit 10 to
this Quarterly Report on Form 10-QSB.
On November 13, 2000 Jayme Dorrough was elected to Techlabs' board of
directors. Mrs. Dorrough is the sole officer and sole director of Yucatan
Holding Company, a Florida corporation which is a principal shareholder of the
Techlabs'. Mrs. Dorrough, 32, has been an officer and director of Yucatan
Holding Company, a corporate holding company, since 1994.
Item6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No. Description
10 Exclusive License Agreement dated October 12, 2000 by and
between Techlabs, Inc., StartingPoint.com, Inc.,
Interplanner.com, Inc., and Outcome Mail, N.V.
27 Financial Data Schedule
(b) None.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Techlabs, Inc.,
a Florida corporation
Date: November 9, 2000 /s/ Thomas J. Taule
--------------------------------------
Thomas J. Taule,
President and Chief Executive Officer
19
<PAGE>
INDEX TO EXHIBITS
No. Description
10 Exclusive License Agreement dated October 12, 2000 by and
between Techlabs, Inc., StartingPoint.com, Inc.,
Interplanner.com, Inc., and Outcome Mail, N.V.
27 Financial Data Schedule
