UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
Commission file number: 001-16099
telcoBlue, Inc.
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(Exact Name of Small Business Issuer as specified in its charter)
Delaware 43-1798970
------------------------ -------------------------
(State of Incorporation) (IRS Employer File Number)
3166 Custer Drive, Suite 101, Lexington, KY 40517
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James Turek
-----------------------------------
(Name of agent for service)
(859) 245-5252
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(Telephone number, including area code, of agent for service)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Stock Exchange on Which Registered
------------------ -----------------------------------------------
Common Stock, Par Not Applicable
Value $0.001 Per Share
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein and will not be contained, to the best
of 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. |_|
Indicate by check mark whether the Registrant(1)has filed all reports required
to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during
the preceding 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 of Registrant's Common Stock outstanding on December 31,
2004, was 37,661,075 shares.
The Registrant's total revenues for the year ended December 31, 2004 were
$195,457.
PART I
------
Item 1 and Item 6. Description of Business and Managements Discussion and
Analysis.
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
of 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.
In December 2004, Edward Gartska was dismissed as an officer and director of the
Company. His dismissal is a result of his disappearance.
Definition of fiscal year - The Company's fiscal year end is December 31.
Item 2. Description of Property.
telcoBlue offices at 3166 Custer Drive, Suite 101, Lexington, KY 40517, where it
owns office equipment valued at $267,903
Item 3. Legal Proceedings.
On February 11th, 2004, Creative Containers filed suit against telcoBlue, 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.
telcoBlue did not appear and wholly defaulted. Creative Containers was awarded a
judgment against telcoBlue 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 telcoBlue, Inc. as a party defendant. telcoBlue 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, telcoBlue 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
telcoBlue, Inc., by merger, has stepped into the shoes of PCM and is thus
liable. TelcoBlue disputes this claim. The case is still pending.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Market for Common Equity and Related Stockholder Matters.
a. Market Information. telcoBlue's shares are traded on the Over The Counter
Bulletin Board stock exchange under the symbol, "TLCB". The following table
shows the high and low bid reported to telcoBlue by the OTC Bulletin Board. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
High Bid Low Bid
------------- ------------
Quarter ending March 31, 2004 .06 .06
Quarter ending June 30, 2004 .06 .05
Quarter ending September 30, 2004 .015 .015
Quarter ending December 31, 2004 .014 .014
b. telcoBlue has 198 shareholders of record as of December 31, 2004.
c. telcoBlue has never declared or paid any dividends, and although there are no
restrictions limiting its ability to do so, it is unlikely to pay any any
dividends in the foreseeable future.
Capital Resources and Liquidity
During 2004, the Company issued 3,479,000 shares of common stock to satisfy
$208,740 of accounts payable to several vendors.
During 2004, the Company was repaid approximately $795,000 of amounts loaned to
Plasticon International ("Plasticon"), a company which the Company's Chief
Executive Officer was officer and significant owner. The repayment was in the
form shares of common stock of Plasticon. In 2004, the Company issued these
shares of common stock of Plasticon to certain individuals in satisfaction of
notes payable approximating $795,000 which represented 65% of the original
principal balance, the remaining 35% of these notes payable remain outstanding
as of December 31, 2004.
As of December 31, 2004, due to related parties totaling $289,737 represent
advances from three business entities which the Company's Chief Executive
Officer has an ownership interest. The advances are unsecured, bearing no
interest and are due on demand.
Results of Operations
For the year ended December 31, 2004, telcoBlue had $195,457 in revenues as
opposed to $90,373 for the year ended 2003. Net loss for the year ended December
31, 2004 was $(1,026,127) and the basic loss per share was $(0.03) as opposed to
$(1,428,507) for the year ended 2003 when the basic loss per share was $(1.43).
The Company had general and administrative expenses of $985,476. These general
and administrative expenses consisted primarily of operating expenses.
Our "Total Liabilities and Stockholder's Equity" for year ending 2004 was
$271,898 as opposed to $1,329,902 for year ended 2003.
telcoBlue believes that our existing capital will not be sufficient to meet our
cash needs, including the costs of compliance with the continuing reporting
requirements of the Securities Exchange Act of 1934, as amended. Even with the
merger of PCM, we anticipate that our existing capital will not be sufficient to
allow us to expand the PCM operations. Any required cash flows will most likely
be supplied by officers.
We do not expect to purchase or sell any significant equipment, engage in
product research or development and do not expect any significant changes in the
number of employees.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have not been any changes in or disagreements with accountants on
accounting and financial disclosure.
Item 8A. Controls and Procedures
Evaluation of telcoBlue's Disclosure Controls. TelcoBlue' Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of
telcoBlue's disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
annual report (the "Evaluation Date"). They have concluded that, as of the
Evaluation Date, these disclosure controls and procedures were effective to
ensure that material information relating to telcoBlue would be made known to
them by others within those entities and would be disclosed on a timely basis.
Changes in internal control over financial reporting. As of the end of the
period covered by this annual report, there were no changes in telcoBlue's
internal control over financial reporting that occurred during the period
covered by this annual report that have materially affected or are reasonably
likely to materially affect telcoBlue's internal control over financial
reporting.
Limitations on the effectiveness of controls. TelcoBlue's management, including
the CEO and CFO, does not expect that telcoBlue's disclosure controls and
procedures will prevent all error and fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Officers and Directors
The following chart sets forth information on our officers and directors as of
December 31, 2004:
Name Age Title
-------- ---- -----------------------
James N. Turek 59 CEO, CFO & Director
James Bonn 73 Secretary
Our Bylaws require that we have a minimum of one director. Directors are elected
at our annual meeting to be held on the 6th of November. Directors shall serve
until their successors are duly elected or appointed. A vacancy on the Board of
Directors may be filled by a majority vote of the remaining directors.
Identify Significant Employees
As of the date of this annual report, telcoBlue has no persons other than the
new officers and directors discussed in the Form 8-K filed February 10, 2004
that are expected to make significant contributions to the operations of
telcoBlue.
Family Relationships
James Turek II, the majority shareholder of telcoBlue, is the son of James N.
Turek, the company's President.
Item 10. Executive Compensation.
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation Compensation
-------------------------------------
Name and principal position Year Salary* Bonus*
James N. Turek, President & CFO 2004
James Bonn 2004
*James N. Turek and James Bonn did not take a salary or receive a bonus for the
year 2004 but they are not precluded as a result from being paid at a future
date for the year 2004.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of December 31, 2004, regarding
the ownership of telcoBlue's common stock by each shareholder known to telcoBlue
to be the beneficial owner of more than five percent of its outstanding shares
of common stock, each director and all executive officers and directors as a
group. Except as otherwise indicated, each of the shareholders has sole voting
and investment power with respect to the shares of common stock beneficially
owned.
NAME AMOUNT OF COMMON STOCK PERCENT OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
--------------------------------------------------------------------------------
James Turek II 28,500,000 75%
Item 12. Certain Relationship and Related Transactions.
None
Item 13. Exhibits and Reports on Form 8-K
On November 18, 2004, the Company filed an 8-K/A, whereby on September 21, 2004,
LL Bradford & Company resigned as Registrant's auditor. Registrant has retained
De Joya & Company, 8275 South Eastern Avenue, Ste. 200, Las Vegas, NV 89123, as
its new auditor.
(2) On June 24, 2004, we filed an 8-K changing our year end from September 30 to
December 31.
(3) On May 14, 2004, Registrant changed its certifying accountants from Malone
and Bailey, PLLC, to LL Bradford & Company, 3441 S. Eastern Ave., Las Vegas, NV
89101.
(4) On May 14, 2004, Registrant changed its certifying accountants from Malone
and Bailey, PLLC, to LL Bradford & Company, 3441 S. Eastern Ave., Las Vegas, NV
89101.
(5) On February 10, 2004, an 8-K was filed with respect to a change of control
pursuant to the terms of the Agreement Plan of Reorganization dated January 15,
2004, James Turek II, received 28,700,000 common shares of telcoBlue, which, at
the time, represented approximately 75% of telcoBlue's issued and outstanding
common stock.
ITEM 14. Principal Accountant Fees and Services
For services rendered during the year 2004, the Company's former auditors, the
accounting firm of LL Bradford and Company charged the Company $12,000 and the
company's present auditors, De Joya and Company, charged the Company $15,000.
There is no audit committee.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized this 8th day of June, 2005.
telcoBlue, Inc.
/s/James Turek
-------------------------
By: James Turek, CEO & CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in their capacities and on the date indicated.
/s/James Turek
-------------------------
By: James Turek, CEO/CFO/Director
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
TelcoBlue, Inc.
Lexington, Kentucky
We have audited the balance sheet of TelcoBlue, Inc. (the "Company") as of
December 31, 2004 and the related statements of operations, stockholders'
deficit and cash flows for the year ended December 31, 2004. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presently fairly, in
all material respects, the financial position of TelcoBlue, Inc. as of December
31, 2004 and the results of their operations and their cash flows for the year
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit as of December 31, 2004, which raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ De Joya & Company
De Joya and Company.
Henderson, Nevada
June 1, 2005
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the board of directors and stockholder
Promotional Containers Manufacturing, Inc.
Lexington, Kentucky
We have audited the accompanying balance sheet of Promotional Containers
Manufacturing, Inc. as of December 31, 2003, and the related statements of
operations, stockholder's deficit, and cash flows for the period from January
24, 2003 (Inception) through December 31, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Promotional Containers
Manufacturing, Inc. as of December 31, 2003, and the results of its operations
and cash flows for the period from January 24, 2003 (Inception) through December
31, 2003 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations and
current liabilities exceed current assets, all of which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regards
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
L.L. Bradford & Company, LLC
May 28, 2004
Las Vegas, Nevada
TELCOBLUE, INC.
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
Current assets
Accounts receivable, net $ 3,995
-----------
Total current assets 3,995
Fixed assets, net 267,903
-----------
Total assets $ 271,898
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 9,343
Accounts payable and accrued liabilities 866,927
Loans payable - current portion 1,225
Due to related party 289,737
Other liabilities 472,500
-----------
Total current liabilities 1,639,732
Long-term liabilities
Loans payable - long-term portion 427,060
Other long-term liabilties
-----------
Total liabilities 2,066,792
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 (2,454,634)
-----------
Total stockholders' deficit (1,794,894)
-----------
Total liabilities and stockholders' deficit $ 271,898
===========
See Accompanying Notes to Financial Statements
2
TELCOBLUE, INC.
STATEMENTS OF OPERATIONS
Period from
January 24, 2003
(Inception)
Year ended through
December 31, 2004 December 31, 2003
----------------- -----------------
(Restated)
Revenues $ 195,457 $ 90,373
Cost of revenues 126,531 42,048
---------------- ----------------
Gross profit 68,926 48,325
Operating expenses
Selling, general and administrative 985,476 683,371
---------------- ----------------
Total operating expenses 985,476 683,371
---------------- ----------------
Loss from operations (916,550) (635,046)
Other expenses
Interest expense (108,157) (273)
Other expense (1,420) (54)
Forgiveness of debt to related party -- (793,134)
---------------- ----------------
Total other expenses (109,577) (793,461)
---------------- ----------------
Net loss $ (1,026,127) $ (1,428,507)
================ ================
Basic and diluted loss per common share $ (0.03) $ (0.05)
================ ================
Basic and diluted weighted average common
shares outstanding 36,273,277 28,700,000
================ ================
See Accompanying Notes to Financial Statements
3
TELCOBLUE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Total
---------------------------- Additional Accumulated Stockholders'
Shares Amount Paid-in Capital Deficit Deficit
----------- ----------- ----------- ----------- -----------
Balance, January 24, 2003 (Inception) -- $ -- $ -- $ -- $ --
Issuance of common stock for cash 28,700,000 28,700 (27,700) -- 1,000
Contribution of capital by the Company's
Chief Executive Officer -- -- 450,000 -- 450,000
Net loss -- -- -- (1,428,507) (1,428,507)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 (restated) 28,700,000 $ 28,700 $ 422,300 $(1,428,507) $ (977,507)
Issuance of common stock for acquisition
of TelcoBlue, Inc. 5,482,075 5,482 (5,482) -- --
Issuance of common stock for
accounts payable 3,479,000 3,479 205,261 -- 208,740
Net loss -- -- -- (1,026,127) (1,026,127)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2004 37,661,075 $ 37,661 $ 622,079 $(2,454,634) $(1,794,894)
=========== =========== =========== =========== ===========
See Accompanying Notes to Financial Statements
4
TELCOBLUE, INC.
STATEMENTS OF CASH FLOWS
Period from
January 24, 2003
(Inception)
Year ended through
December 31, 2004 December 31, 2003
----------------- -----------------
(Restated)
Cash flows from operating activities:
Net loss $ (1,026,127) $ (1,428,507)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 50,962 4,057
Bad debt expense 13,782 30,000
Write-off of inventory 87,782 --
Write-off of fixed assets 14,785
Changes in operating assets and liabilities:
Change in accounts receivable, net 89,741 (137,518)
Change in inventory -- (87,782)
Change in accounts payable and accrued liabilities 564,499 516,941
Change in other liabilities (75,577) 548,077
---------------- ----------------
Net cash used by operating activities (280,153) (554,732)
Cash flows from investing activities:
Purchase of fixed assets (207) (337,500)
---------------- ----------------
Net cash used by investing activities (207) (337,500)
Cash flows from financing activities:
Change in bank overdraft (9,377) 18,720
Change in due to/from related party 289,737 (801,159)
Proceeds from borrowings on notes payable -- 1,223,671
Proceeds from issuance of common stock -- 1,000
Proceeds from contribution by Chief Executive Officer -- 450,000
---------------- ----------------
Net cash provided by financing activities 280,360 892,232
---------------- ----------------
Net change in cash -- --
Cash, beginning of period -- --
---------------- ----------------
Cash, end of period $ -- $ --
================ ================
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ -- $ --
================ ================
Cash paid for interest $ -- $ --
================ ================
Non-cash operating activities
Issuance of 3,479,000 shares to satisfy accounts payable
including interest of $9,414 $ 208,740 $ --
================ ================
See Accompanying Notes to Financial Statements
5
TELCOBLUE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business - TelcoBlue, Inc. (hereinafter referred to as the
"Company or TBLU") is a professional photo packaging operation,
specializing in wedding albums, baby albums and photo mounts.
History - On December 30, 2003, the Company 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 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.
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 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.
On December 10, 2003 prior to the TBLU Transaction, Promotional Containers
Manufacturing, Inc. 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 $793,134.
During 2004, the Company issued 3,479,000 shares of common stock to
satisfy $208,740 of accounts payable to several vendors.
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 $1,026,000 for the year ended December 31,
2004. The Company has an accumulated deficit of approximately $2,455,000
and current liabilities exceed current assets by approximately $1,636,000.
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.
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.
6
TELCOBLUE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
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. For the year
ended December 31, 2004, the Company had written-off $87,782 of inventory.
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. Advertising expenses incurred for
the years ended December 31, 2004 and 2003 were $2,415 and $0,
respectively.
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 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 in income in the period
that includes the enactment date.
As of December 31, 2004, the Company has available net operating loss
carryforwards 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.
7
TELCOBLUE, INC.
NOTES TO FINANCIAL STATEMENTS
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 year ended December 31, 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 is computed using the
weighted-average number of outstanding common shares during the applicable
period. Diluted earnings (loss) per share is 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.
New accounting pronouncements -
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs (an
amendment of Accounting Research Bulletin No. 43, Chapter 4)." SFAS No.
151 seeks to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage) in the
determination of inventory carrying costs. The statement requires such
costs to be treated as a current period expense and is effective for
fiscal years beginning after July 15, 2005. The Company does not believe
the adoption of SFAS No. 151 will have a significant impact on its
financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment." SFAS No. 123R replaced SFAS No. 123 and superceded
APB Opinion No. 25. SFAS No. 123R will require compensation costs related
to share-based payment transactions to be recognized in the financial
statements. The adoption of SFAS No. 123 (revised 2004) should not have a
significant impact on the Company's financial position or results of
operations until such time the Company has share-based payments. The
Company will adopt the provisions of SFAS No. 123R at that time.
2. RESTATEMENT
For the year ended December 31, 2003, the Company restated its balance
sheet to reflect approximately $795,000 of due from related party which
consequently adjusted the statement of operations whereby forgiveness of
debt to related party was reduced in the same amount.
8
TELCOBLUE, INC.
NOTES TO FINANCIAL STATEMENTS
3. FIXED ASSETS
Fixed assets consist of the following as of December 31, 2004:
Furniture and fixtures $ 1,808
Equipments 317,136
--------
318,944
Less: accumulated depreciation 51,041
--------
$267,903
========
4. RELATED PARTY TRANSACTIONS
Due to/from related party -During 2004, the Company was repaid
approximately $795,000 of amounts loaned to Plasticon International
("Plasticon"), a company which the Company's Chief Executive Officer was
officer and significant owner. The repayment was in the form shares of
common stock of Plasticon. In 2004, the Company issued these shares of
common stock of Plasticon to certain individuals in satisfaction of notes
payable approximating $795,000 which represented 65% of the original
principal balance (the remaining 35% of these notes payable remain
outstanding as of December 31, 2004 and are listed in Note 5).
As of December 31, 2004, due to related parties totaling $289,737
represent advances from three business entities which the Company's Chief
Executive Officer has an ownership interest. The advances are unsecured,
bearing no interest and are due on demand.
Acquisition of assets of Show Me Ink, LLC - As discussed in Note 1, 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.
5. LOANS PAYABLE
Loans payable consists of the following as of December 31, 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 $225,672
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 68,646
Promissory note payable to an individual, unsecured, bearing
interest at 6%, due in quarterly interest payments of
$2,702, which matures January 2009 63,057
Promissory note payable to an individual, unsecured, bearing
Interest at 6%, due in quarterly interest payments of
$210, which matures September 2004 (past due maturity) 1,225
Promissory note payable to an individual, unsecured, bearing
Interest at 10%, due in semi-annual interest payments of
$9,955, which matures January 2011 69,685
--------
428,285
Less amounts due within one year: 1,225
--------
Long-term portion of loan payable: $427,060
========
9
TELCOBLUE, INC.
NOTES TO FINANCIAL STATEMENTS
5. LOANS PAYABLE (continued)
As of December 31, 2004, principal payments on the notes payable are as
follows:
2005 $ 1,225
2006 --
2007 --
2008 68,646
2009 288,729
Thereafter 69,685
--------
$428,285
========
Accrued interest of approximately $83,000 was outstanding at December 31,
2004.
6. OTHER LIABILITIES
As of December 31, 2004, other liabilities totaling $472,500 consist of
6,750,000 shares of common stock at a weighted average share price of
$0.07 to be issued for compensation for various consulting and legal
services.
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 December 31,
2004 are as follows:
2005 $77,000
-------
$77,000
=======
The Company also rents office space on a month to month basis for $643 per
month. Rent expense paid for the years ended December 31, 2004 and 2003
were $134,592 and $7,451, respectively.
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
results of operations, cash flows or financial position. However,
unfavorable resolution could affect the results of operations or cash
flows for the years in which they are resolved.
10