UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 2004.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required) for the transition period from _____________ to
_______________.
Commission file number: 011-16099
---------
telcoBlue, Inc.
--------------------
(Name of Small Business Issuer in its Charter)
Delaware 43-1798970
----------- -----------------
(State of Incorporation) (I. R. S. Employer
Identification No.
3166 Custer Drive, Suite 101
Lexington, KY 40517
-------------------------------
(Address of principal executive offices)(Zip Code)
(859) 245-5252
-------------------
(Issuer's telephone number)
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 [ ]
The number of shares outstanding of Registrant's common stock ($0.001 par value)
as of the quarter ended September 30, 2004 is 37,661,075.
TABLE OF CONTENTS
PART I
Page
----
ITEM 1. FINANCIAL STATEMENTS............................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.....................................................
PART II
ITEM 1. LEGAL PROCEEDINGS...............................................
ITEM 2. CHANGES IN SECURITIES...........................................
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS........................
ITEM 5. OTHER...........................................................
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................
SIGNATURES......................................................
TELCO BLUE, INC.
BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
ASSETS
Current assets
Cash $ --
Accounts receivable, net 7,180
Inventory 34,208
------------
Total current assets 41,388
Fixed assets, net 296,231
------------
Total assets $ 337,619
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 3,853
Accounts payable and accrued liabilities 595,838
Due to related parties 84,988
Loans payable - current portion 3,500
Other liabilities 612,619
------------
Total current liabilities 1,300,798
Long-term liabilities
Loans payable - long-term portion 1,220,171
------------
Total liabilities 2,520,969
Commitments and contingencies --
Stockholders' deficit
Common stock; $0.001 par value; 75,000,000 shares
authorized 37,661,075 shares issued and outstanding 37,661
Additional paid-in capital 622,079
Accumulated deficit (2,843,090)
------------
Total stockholders' deficit (2,183,350)
------------
Total liabilities and stockholders deficit $ 337,619
============
See Accompanying Notes to Condensed Financial Statements
1
TELCO BLUE, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Period from
January 24, 2003
For the three months For the three months For the nine months (Date of inception)
ended ended ended through
September 30, 2004 September 30, 2003 September 30, 2004 September 30, 2003
-------------------- -------------------- ------------------- --------------------
Revenues $ 548 $ -- $ 195,725 $ --
Cost of revenues -- -- 59,193 --
-------------- -------------- -------------- --------------
Gross profit 548 -- 136,532 --
Operating expenses
Selling, general and administrative 135,112 -- 734,770 --
-------------- -------------- -------------- --------------
Total operating expenses 135,112 -- 734,770 --
-------------- -------------- -------------- --------------
Loss from operations (134,564) -- (598,238) --
Other expenses
Interest expense (9,414) -- (20,406) --
Other expense -- -- (552) --
-------------- -------------- -------------- --------------
Total other expenses (9,414) -- (20,958) --
-------------- -------------- -------------- --------------
Net loss $ (143,978) $ -- $ (619,196) $ --
============== ============== ============== ==============
Basic and diluted loss per common share $ (0.00) $ 0.00 $ 0.00 $ 0.00
============== ============== ============== ==============
Basic and diluted weighted average common
shares outstanding 35,558,383 28,700,000 34,237,682 28,700,000
============== ============== ============== ==============
See Accompanying Notes to Condensed Financial Statements
2
TELCO BLUE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Common Stock Total
----------------------------- Additional Accumulated Stockholders'
Shares Amount Paid-in Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 28,700,000 $ 28,700 $ 422,300 $ (2,223,894) $ (1,772,894)
Issuance of common stock for acquisition
of Telco Blue, Inc. 5,482,075 5,482 (5,482) -- --
Issuance of common stock in satisfaction
of other liabilities 3,479,000 3,479 205,261 -- 208,740
Net loss -- -- -- (619,196) (619,196)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2004 37,661,075 $ 37,661 $ 622,079 $ (2,843,090) $ (2,183,350)
============ ============ ============ ============ ============
See Accompanying Notes to Condensed Financial Statements
3
TELCO BLUE INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Period from
January 24, 2003
For the nine months (Date of inception)
ended through
September 30, 2004 September 30, 2003
------------------- ------------------
Cash flows from operating activities:
Net loss $ (619,196) $ --
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 37,419 --
Changes in operating assets and liabilities:
Change in accounts receivable, net 100,338 --
Change in inventory 53,574 --
Change in bank overdraft (14,867) --
Change in accounts payable and accrued liabilities 78,898 --
Change in other liabilities 64,542 --
------------ ------------
Net cash used by operating activities (299,292) --
Cash flows from investing activities:
Purchase of fixed assets (207)
Change in due from related parties -- (395,232)
------------ ------------
Net cash used by investing activities (207) (395,232)
Cash flows from financing activities:
Change in due to related parties 90,759 --
Proceeds from issuance of common stock 36,661
Change in additional paid in capital 172,079
Proceeds from borrowings on notes payable -- 395,232
------------ ------------
Net cash provided by financing activities 299,499 395,232
------------ ------------
Net change in cash -- --
Cash, beginning of period -- --
------------ ------------
Cash, end of period $ -- $ --
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 20,405 $ --
============ ============
See Accompanying Notes to Condensed Financial Statements
4
TELCO BLUE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------------
Description of business - Promotional Containers Manufacturing, Inc.
(hereinafter referred to as the "PCMI") is a professional photo packaging
operation, specializing in wedding albums, baby albums and photo mounts
from its factory in Lexington, Kentucky.
History - Promotional Containers Manufacturing, Inc. was incorporated
under the laws of Nevada on January 24, 2003 with authorized common stock
of 75,000,000 with a par value of $0.001.
On December 10, 2003, the Company purchased the assets of Show Me Ink,
LLC, an entity owned by the Company's Chief Executive Officer and majority
stockholder in exchange for $450,000, which was contributed by the Chief
Executive Officer to the Company. In addition, the Company forgave debt
owed by Show Me Ink, LLC totaling $1,588,521.
On December 30, 2003, Telco Blue, Inc. ("TBLU") consummated an agreement
to acquire all of the outstanding capital stock of Promotional Containers
Manufacturing, Inc., in exchange for 28,700,000 shares of the Company's
common stock ("TBLU Transaction"). Prior to the TBLU Transaction, TBLU was
a non-operating public shell company with no operations, nominal assets
and 5,482,075 shares of common stock issued and outstanding; and
Promotional Containers Manufacturing, Inc was a professional photo
packaging operation, specializing in wedding albums, baby albums and photo
mounts from its factory in Lexington, Kentucky. The TBLU Transaction is
considered to be a capital transaction in substance, rather than a
business combination. Inasmuch, the TBLU Transaction is equivalent to the
issuance of stock by Promotional Containers Manufacturing, Inc. for the
net monetary assets of a non-operational public shell company (TBLU),
accompanied by a recapitalization. TBLU issued 28,700,000 shares of its
common stock for all of the issued and outstanding common stock of
Promotional Containers Manufacturing, Inc. The accounting for the TBLU
Transaction is identical to that resulting from a reverse acquisition,
except goodwill or other intangible assets will not be recorded.
Accordingly, these financial statements are the historical financial
statements of Promotional Containers Manufacturing, Inc. Promotional
Containers Manufacturing, Inc was incorporated on January 24, 2003.
Therefore, these financial statements reflect activities from January 24,
2003 (Date of Inception for Promotional Containers Manufacturing, Inc) and
forward.
Going concern - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Company is in the development stage, has no operating revenue and incurred
a net loss of approximately $619,000 for the nine months ended September
30, 2004. The Company has an accumulated loss during the development stage
of approximately $2,843,000 and current liabilities exceed current assets
by approximately $1,259,000.
These conditions give rise to substantial doubt about the Company's
ability to continue as a going concern. These financial statements do not
include adjustments relating to the recoverability and classification of
reported asset amounts or the amount and classification of liabilities
that might be necessary should the Company be unable to continue as a
going concern. The Company's continuation as a going concern is dependent
upon its ability to obtain additional financing or sale of its common
stock as may be required and ultimately to attain profitability.
Definition of fiscal year - The Company's fiscal year end is December 31.
5
TELCO BLUE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
-----------------------------------------------------------
Use of estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Inventory - Inventory is stated at the lower of cost or market. Cost is
principally determined by using the average cost method. Inventory
consists of raw materials as well as finished goods held for sale. The
Company's management monitors the inventory for excess and obsolete items
and makes necessary valuation adjustments when required.
Fixed assets - Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets, which is primarily 3
to 5 years. The cost of repairs and maintenance is charged to expense as
incurred. Expenditures for property betterments and renewals are
capitalized. Upon sale or other disposition of a depreciable asset, cost
and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed
assets or whether the remaining balance of fixed assets should be
evaluated for possible impairment. The Company uses an estimate of the
related undiscounted cash flows over the remaining life of the fixed
assets in measuring their recoverability.
Revenue and expense recognition - Revenues are recognized upon shipment of
products to customers. Costs and expenses are recognized during the period
in which they are incurred
Shipping and handling costs - The Company accounts for certain shipping
and handling costs related to the acquisition of goods from its vendors as
cost of revenue. Additionally, shipping and handling costs related to the
shipment of goods to its customers is classified as cost of revenue.
Advertising and marketing costs - The Company recognizes advertising
expenses in accordance with Statement of Position 93-7 "Reporting on
Advertising Costs." Accordingly, the Company expenses the costs of
producing advertisements at the time production occurs, and expenses the
costs of communicating advertisements in the period in which the
advertising space or airtime is used. There were no advertising expenses
incurred for the nine months ended September 30, 2004.
Income taxes - The Company accounts for its income taxes in accordance
with Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
As of September 30, 2004, the Company has available net operating loss
carry forwards that will expire in various periods through 2024. Such
losses may not be fully deductible due to the significant amounts of
non-cash service costs and the change in ownership rules under Section 382
of the Internal Revenue Code. The Company has established a valuation
allowance for the full tax benefit of the operating loss carryovers due to
the uncertainty regarding realization.
Comprehensive income (loss) - The Company has no components of other
comprehensive income. Accordingly, net loss equals comprehensive loss for
all periods.
6
TELCO BLUE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
-----------------------------------------------------------
Stock-based compensation - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
Related Interpretations, in accounting for stock options issued to
employees. Under APB No. 25, employee compensation cost is recognized when
estimated fair value of the underlying stock on date of the grant exceeds
exercise price of the stock option. For stock options and warrants issued
to non-employees, the Company applies Statements of Financial Accounting
Standards ("SFAS") No. 123 Accounting for Stock-Based Compensation, which
requires the recognition of compensation cost based upon the fair value of
stock options at the grant date using the Black-Scholes option pricing
model.
The Company issued no stock, neither granted warrants nor options, to
employees for compensation for the nine months ended September 30, 2004.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS No. 148 amends the transition and disclosure provisions
of SFAS No. 123. The Company is currently evaluating SFAS No. 148 to
determine if it will adopt SFAS No. 123 to account for employee stock
options using the fair value method and, if so, when to begin transition
to that method.
Fair value of financial instruments - The carrying amounts and estimated
fair values of the Company's financial instruments approximate their fair
value due to the short-term nature.
Earnings (loss) per common share - Basic earnings (loss) per share
excludes any dilutive effects of options, warrants and convertible
securities. Basic earnings (loss) per share are computed using the
weighted-average number of outstanding common shares during the applicable
period. Diluted earnings (loss) per share are computed using the weighted
average number of common and common stock equivalent shares outstanding
during the period. Common stock equivalent shares are excluded from the
computation if their effect is antidilutive.
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128) and SEC Staff Accounting Bulletin No. 98
(SAB 98). Under the provisions of SFAS 128 and SAB 98, basic net loss per
share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of
common stock outstanding during the period. The calculation of diluted net
loss per share gives effect to common stock equivalents, however,
potential common shares are excluded if their effect is antidilutive. For
the years ended December 31, 2003 and 2002, options and warrants to
purchase 3,168,100 and 2,752,400 shares of common stock, respectively,
were excluded from the computation of diluted earnings per share because
their effect would be antidilutive.
New accounting pronouncements - Financial Accounting Standards Board
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, addresses consolidation by business enterprises of
variable interest entities. It is effective immediately for variable
interest entities created after January 31, 2003. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities acquired before February 1, 2003. The impact of adoption
of this statement is not expected to be significant.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, amends and clarifies accounting for derivative
instruments under SFAS No. 133. It is effective for contracts entered into
after June 30, 2003. The impact of adoption of this statement is not
expected to be significant.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liability and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). This statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The impact of adoption of this statement is
not expected to be significant.
7
TELCO BLUE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
2. INVENTORY
---------
Inventory consists of the following as of September 30, 2004:
Raw materials $ 11,685
Work in process 18,969
Finished goods 16,087
------------
$ 34,208
============
3. FIXED ASSETS
------------
Fixed assets consist of the following as of March 31, 2004:
Furniture and fixtures $ 1,808
Equipments 335,899
------------
337,707
Less: accumulated depreciation 41,476
------------
$ 296,231
============
4. RELATED PARTY TRANSACTIONS
--------------------------
Due to related parties - Due to related parties consist of a loan of
$84,988 from entities owned by the Company's Chief Executive Officer. The
balance is unsecured, bears no interest, and is due on demand.
5. OTHER LIABILITIES
-----------------
Other liabilities totaling $612,619 as of September 30, 2004 consist of
10,229,000 shares of common stocks at a weighted average share price of
$0.07 to be issued for compensation for various consulting and legal
services.
6. LOANS PAYABLE
-------------
Loans payable consist of the following as of September 30, 2004:
Promissory note payable to an individual, unsecured, bearing
interest at 8%, due in semi-annual interest payments of
$25,791, which matures March 2009 $ 644,775
Promissory note payable to an individual, unsecured, bearing
interest at 9.6%, due in semi-annual interest payments of
$9,414, which matures March 2008 196,132
Promissory note payable to an individual, unsecured, bearing
interest at 6%, due in quarterly interest payments of
$2,702, which matures January 2009 180,164
Promissory note payable to an individual, unsecured, bearing
Interest at 6%, due in quarterly interest payments of
$210, which matures September 2004 3,500
8
TELCO BLUE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
6. LOANS PAYABLE (continued)
-------------
Promissory note payable to an individual, unsecured,
bearing Interest at 10%, due in semi-annual interest
payments of $9,955, which matures January 2011 199,100
------------
1,223,671
Less amounts due within one year: 3,500
------------
Long-term portion of loan payable: $ 1,220,171
============
As of September 30, 2004, principal payments on the notes payable are as
follows:
April 1, 2004 through December 31, 2004 $ 3,500
2005 --
2006 --
2007 --
2008 196,132
2009 824,939
2010 --
2011 199,100
------------
$ 1,223,671
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
Rent expense - The Company leases its manufacturing and office space from
an unrelated third party. The lease calls for an annual base rent of
approximately $132,000 the lease expires on July 31, 2005 with an option
to extend the term of the lease for a 3-year period. Future minimum rental
payments required under the lease as of September 30, 2004 are as follows:
April 1 through December 31, 2004 $ 99,000
2005 77,000
------------
$ 176,000
============
Legal proceedings - The Company is involved in various legal proceedings,
which have arisen in the ordinary course of business. While the results of
these matters cannot be predicted with certainty, the Company's management
believes that losses, if any, resulting from the ultimate resolution of
these matters will not have a material adverse effect on the Company's
consolidated results of operations, cash flows or financial position.
However, unfavorable resolution could affect the consolidated results of
operations or cash flows for the years in which they are resolved.
9
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with
telcoBlue's financial statements and notes thereto included elsewhere in this
Form 10-QSB.
Except for the historical information contained herein, the discussion in
this Form 10-QSB as amended contains certain forward looking statements that
involve risks and uncertainties, such as statements of telcoBlue's plans,
objectives, expectations and intentions. The cautionary statements made in this
Form 10-QSB should be read as being applicable to all related forward statements
wherever they appear in this Form 10-QSB. telcoBlue's actual results could
differ materially from those discussed here.
Nature of Business. telcoBlue, Inc., formerly Better Call Home, Inc.
("BCH"), a development stage company, was formed in Nevada on August 2, 2002, to
operate an Internet based long distance telephony network using state of the art
Voice over Internet Protocol.
On August 29, 2002, BCH entered into a reorganization with Wave Power.net,
Inc., an inactive public company, whereby Wave Power acquired all of the issued
and outstanding shares of BCH's common stock by issuing to BCH's shareholders,
pro rata, 16,000,000 shares of Wave Power common stock. At that time, Wave Power
had 14,000,000 shares outstanding. The combined entity changed its name to
telcoBlue, Inc. on August 29, 2002.
On January 22, 2004, telcoblue, Inc. acquired all the issued and
outstanding stock of Promotional Containers Manufacturing, Inc. ("PCM"), a
private Nevada company in exchange for 28,700,000 shares of telcoBlue, Inc.
("TELCO") common stock through a tax-free stock exchange, the terms and
conditions set forth in an Agreement and Plan of Reorganization ("Agreement and
Reorganization"). The company presently trades on the Over the Counter Bulletin
Board stock exchange under the symbol, "TBLU".
The 28,700,000 shares were issued to James N. Turek, II, the son of James
N. Turek, Sr., the President of telcoBlue, Inc.
GMB since its beginning in 1906 has expanded its product offerings from
photomounts and other related paper packaging items to padded folios, wedding
albums, baby albums, and today offers more than 2,000 products to its current
clients.
The company's founder, Mr. Oliver Gross, was born in Takay, Hungary, in
1875 and came to the United States in 1889. In 1898 he was joined by two
brothers in a company called, "The Western Photo and View Company". Touring the
West and South, they would arrive into town, pitch a tent, and begin to
photograph (with flash powder) the people, stores, and plants of the community.
One of their stops was Toledo, Ohio, where they decided to stay. There, they
formed the basis of Gross Manufacturing Corporation. The original business was
photographic supply items. One item, which they purchased, from an eastern film,
was card mounts, which were used to serve as a support for photographers'
pictures. Because the supply became irregular, Mr. Gross bought some presses and
started to make his own card mounts. This card mount business developed into
more elaborate presentations now used by professional photographers worldwide.
In 1930, his son, Mr. Robert Gross, joined the company and through the
years, ran the Photomount Manufacturing, as well as a large retail and supply
business from 1948 to 1970.
10
In 1973 the "Nova" frame was introduced, which put the company into the
plastic frame business.
The Company moved from Toledo, Ohio in 1980 to the City of El Paso, Texas,
located at 6001 Threadgill Ave. This allowed the Company to remain cost
competitive through reduced labor costs. In the late 1980's, Gross purchased
Medick-Barrow's, one of its competitors.
In the spring of 2003, PCM acquired GMB's assets and began to update its
systems and manufacturing. These changes allows us to provide digital as well as
standard products while maintaining our quality.
BIOGRAPHIES
James N. (Jim) Turek, Sr., age 59, is President and CEO. Jim is also
President and CEO of Plasticon International, Inc, a Wyoming corporation, which
presently trades on the Pink Sheet Stock Exchange under the symbol, "PLNI". Jim
was previously President of International Plastics Group. Before International
Plastics Group, he served as President of three major convention and travel
destinations. Jim began his career as a Corporate Financial Advisor working
directly for the controller of McDonnell Douglas, Corporation. Upon the
successful completion of his responsibilities, he was made Director of
Convention, Print, Media, Travel, and Cinema Photography for McDonnell Douglas
Corp. with responsibilities for all US and International Component companies.
The scope of responsibility included commercial and military aircraft, weapon
systems, space (NASA), MAC electronics, holography, voice synthesizing, MAC DAC
(the largest computer facility in the US for McDonnell Douglas Corp.)
scheduling, grading, interactive graphics, and school systems product,
positioning, marketing, and representation.
Edward J. (Ed) Garstka, CFO, age 53, has more than 20 years of experience
in accounting, finance, and operations within several different industries
including automotive, electronics and specialty chemicals. Prior to joining
telcoBlue, Inc., Ed was CFO of a venture funded medical device/technology
company. Mr. Garstka also played a key role as an outside consultant in several
turnarounds. Ed began his career as a computer auditor/consultant with KPMG. He
held senior financial/operations positions with Lear Corporation and Johnston
Controls-two of the largest tier one automotive suppliers in the world-were he
had divisional responsibility for accounting/finance, vendor sourcing/
purchasing, customer service/distribution, and facility maintenance. Mr. Garstka
also held senior audit/analyst positions with Northwest Industries, Morton
Thiokol, and Gould Corporation and is a Certified Public Accountant.
James B. (Jim) Bonn, corporate counsel, age 72, has practiced law and
accounting for nearly 40 years. As a lawyer and CPA, Mr. Bonn was responsible
for the contracts division of the United States Navy. He spent several years in
accounting and as an auditor for Peat, Marwick, Mitchell & Co. During the past
ten years, Mr. Bonn has been in private practice specializing in corporate tax
and related legal matters.
Capital Resources and Liquidity
-------------------------------
During the quarter ended September 30, 2004, there were no issuances of
the Company's common stock.
11
Results of Operations
---------------------
For the three month period ended September 30, 2004, the Company sustained
a loss of ($143,978) or ($0.00) per share (basic and diluted) on revenue of
$548. The loss in the third quarter of 2004 can be contributed to the fact the
Company had insignificant revenues yet still had administrative expenses. The
total liabilities and stockholder's deficit for the quarter ended September 30,
2004 was $337,619.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Our management, under the supervision and with the participation of our
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in Securities Exchange Act
of 1934 (the "Exchange Act") Rules 13a-14(c)) within 90 days of the filing date
of this quarterly report on Form 10QSB (the "Evaluation Date"). Due to the lack
of cooperation by old management, certain transactions and agreements may exist
that current management is not aware of. These transactions and agreements could
have potential liability for telcoBlue. New management is seeking a court
injunction to seize and recover all records of telcoBlue. Based on their
evaluation, our chief executive officer and chief financial officer have
concluded that, other than described above, as of the Evaluation Date, our
current disclosure controls and procedures are effective to ensure that all
material information required to be filed in this quarterly report on Form
10-QSB has been made known to them in a timely fashion.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 11th, 2004, Creative Containers filed suit against Telco Blue,
Inc., in Cause No. 2004-631, in the 120th Judicial District Court in and for El
Paso County, Texas on sworn pleadings for unpaid invoices for goods delivered.
Telco Blue did not appear and wholly defaulted. Creative Containers was awarded
a judgment against Telco Blue on April 30th, 2004, in the amount of $8,158.45,
plus attorneys fees in the amount of $1,500.00. The judgment accrues interest at
the rate of 10% per annum. Creative Contains is currently seeking post-judgment
enforcement, to include a hearing for turnover relief. The next hearing on the
post-judgment enforcement is set for July 1st, 2004 before the same 120th
Judicial District Court. On December 23rd, 2003, Philip Moseman filed suit
against Mid-America, GMB, Ltd., and Mid-America Photographics of Kansas, Inc.,
in the 327th Judicial District Court, in and for El Paso County, Texas, seeking
damages from alleged breaches of employment agreements. Moseman later amended
his suit to include Telco Blue, Inc. as a party defendant. Telco Blue has filed
a special appearance challenging the jurisdiction of the court. A hearing on the
special appearance is set for July 7th, 2004. Should the special appearance be
denied then Telco Blue anticipates aggressively defending the suit. Moseman had
originally been hired by the two predecessor Mid-America employers and claims
that his employment agreement with Mid-America had carried over with his new
employer, Promotional Containers Manufacturing, Inc. (PCM). He claims that Telco
Blue, Inc., by merger, has stepped into the shoes of PCM and is thus liable. The
case is still pending,
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER
On September 21,2004, LL Bradford & Company, 3441 S. Eastern Ave., Las
Vegas, NV 89101, resigned as the Company's auditor. On November 10, the Company
retained De Joya & Company, 8275 S. Eastern Ave., Ste. 200, Las Vegas, NV 89123,
as its auditor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K
On July 2, 2004, the Registrant filed a Form 8-K regarding changing its year end
from September 30th to December 31st.
On July 14, 2004, the Registrant filed amended financial statements with respect
to their February 10, 2004 Form 8-K regarding their January 2004 merger with
Promotional Containers Manufacturing, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 22nd day of November, 2004.
telcoBlue, Inc.
--------------------------
/s/James N. Turek, Sr., President & CEO
--------------------------
Edward Gartska, CFO
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