SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 14, 2004
telcoBlue, Inc.
(Exact Name of Registrant)
Delaware 43-1798970
-------- ----------
(State of Incorporation) (I.R.S. Employer ID Number)
3166 Custer Dr., #101
Lexington, KY 40517
---------------------
(Address of Principal Executive Offices including Zip Code)
859-245-5252
------------
(Issuer's Telephone Number)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) telcoBlue, Inc., a Delaware corporation (the "Company" or the "Registrant")
filed a Form 8-K with the United States Securities and Exchange Commission on
February 10, 2004, in which the Company indicated that the financial statements
required to be filed by this Item shall be filed by an amendment no later than
Sixty (60) days after the date that the 8-K was filed. However, the Company was
unable to accurately compile the required information necessary to complete its
financial statements until now. The financial statements required to be filed in
this Item 7(a) of Form 8-K/A are set forth below.
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
FINANCIAL STATEMENTS
(With Report of Independent Certified Public Accountants Thereon)
L.L. Bradford & Company, LLC
Certified Public Accountants & Consultants
TABLE OF CONTENTS
PAGE NO.
--------
Report of Independent Certified Public Accountants 1
Financial Statements
Balance Sheet 2
Statements of Operations 3
Statement of Stockholder's Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6
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
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
Current assets
Cash $ --
Accounts receivable, net 107,518
Inventory 87,782
-------------
Total current assets 195,300
Fixed assets, net 333,443
Due from related party 5,772
-------------
Total assets $ 534,515
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 18,720
Accounts payable and accrued liabilities 516,941
Loans payable - current portion 3,500
Other liabilities 548,077
-------------
Total current liabilities 1,087,238
Long-term liabilities
Loans payable - long-term portion 1,220,171
-------------
Total liabilities 2,307,409
Commitments and contingencies --
Stockholders' deficit
Common stock; $0.001 par value; 1,000,000 shares authorized
1,000,000 shares issued and outstanding 1,000
Additional paid-in capital 450,000
Accumulated deficit (2,223,894)
-------------
Total stockholders' deficit (1,772,894)
-------------
Total liabilities and stockholders deficit $ 534,515
=============
See Accompanying Notes to Financial Statements
2
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
STATEMENT OF OPERATIONS
Period from
January 24, 2003
(Inception)
through
December 31, 2003
------------------
Revenues $ 90,373
Cost of revenues 42,048
------------------
Gross profit 48,325
Operating expenses
Selling, general and administrative 683,371
------------------
Total operating expenses 683,371
------------------
Loss from operations (635,046)
Other expenses
Interest expense (273)
Other expense (54)
Forgiveness of debt to related party (1,588,521)
------------------
Total other expenses (1,588,848)
------------------
Net loss $ (2,223,894)
==================
Basic and diluted loss per common share $ (2.22)
==================
Basic and diluted weighted average common
shares outstanding 1,000,000
==================
See Accompanying Notes to Financial Statements
3
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
STATEMENT OF STOCKHOLDERS DEFICIT
Common Stock
----------------------------- Additional Accumulated Stockholders'
Shares Amount Paid-in Capital Deficit Deficit
-------------- ------------- --------------- ------------- ------------
Balance, January 24, 2003 (Inception) -- $ -- $ -- $ -- $ --
Issuance of common stock for cash 1,000,000 1,000 -- -- 1,000
--
Contribution of capital by the Company's
Chief Executive Officer -- -- 450,000 -- 450,000
Net loss -- -- -- (2,223,894) (2,223,894)
------------- ------------ --------------- ------------- ------------
Balance, December 31, 2003 1,000,000 $ 1,000 $ 450,000 $ (2,223,894) $ (1,772,894)
============= ============ =============== ============= ============
See Accompanying Notes to Financial Statements
4
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
STATEMENT OF CASH FLOWS
Period from
January 24, 2003
(Inception)
through
December 31, 2003
-------------------
Cash flows from operating activities:
Net loss $ (2,223,894)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 4,057
Changes in operating assets and liabilities:
Change in accounts receivable, net (107,518)
Change in inventory (87,782)
Change in bank overdraft 18,720
Change in accounts payable and accrued liabilities 516,941
Change in other liabilities 548,077
-------------------
Net cash used by operating activities (1,331,399)
Cash flows from investing activities:
Purchase of fixed assets (337,500)
-------------------
Net cash used by investing activities (337,500)
Cash flows from financing activities:
Change in from to related party (5,772)
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 1,668,899
-------------------
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 $ --
===================
See Accompanying Notes to Financial Statements
5
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of business and summary of significant accounting policies
Description of business - Promotional Containers Manufacturing, Inc.
(hereinafter referred to as the "PCM" or the "Company") 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. In January 2004, 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 Company incurred a net loss of approximately $2,224,000
for the year ended December 31, 2003. The Company's current liabilities
exceed its current assets by approximately $892,000 as of December 31, 2003.
These factors create substantial doubt about the Company's ability to
continue as a going concern. The Company's management plans to continue to
fund its operations in the short term with a combination of debt and equity
financing, as well as revenue from operations in the long term.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
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
PROMOTIONAL CONTAINERS MANUFACTURING, 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.
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 was no advertising expenses incurred for the year
ended December 31, 2003.
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, 2003, the Company has available net operating loss
carryforwards that will expire in various periods through 2023. 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
PROMOTIONAL CONTAINERS MANUFACTURING, 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, 2003.
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 - 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.
8
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
2. INVENTORY
Inventory consists of the following as of December 31, 2003:
Raw materials $ 21,945
Work in process 39,502
Finished goods 26,335
-----------
$ 87,782
===========
3. FIXED ASSETS
Fixed assets consist of the following as of December 31, 2003:
Furniture and fixtures $ 1,808
Equipments 335,692
-----------
337,500
Less: accumulated depreciation 4,057
-----------
$ 333,443
===========
4. RELATED PARTY TRANSACTIONS
Due from related party - Due from related party consists of a loan of $5,772
to an entity owned by the Company's Chief Executive Officer, unsecured,
bearing no interest, and 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, 2003:
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
9
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
5. 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 December 31, 2003, principal payments on the notes payable are as
follows:
2004 $ 3,500
2005 --
2006 --
2007 --
2008 196,132
Thereafter 1,024,039
------------
$ 1,223,671
============
6. 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,
2003 are as follows:
2004 $ 132,000
2005 77,000
------------
$ 209,000
============
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 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.
7. SUBSEQUENT EVENT
Effective January 22, 2004, Telco Blue completed a reverse merger with
Promotional Containers Manufacturing whereby Telco Blue issued 28,700,000
shares to PCM for all of the outstanding shares of PCM. In connection with
the merger, Telco Blue agreed to issue an additional 12,150,000 shares to
various individuals for work on the merger.
10
PROMOTIONAL CONTAINERS MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
8. UNAUDITED PRO FORMA RESULTS
As discussed in Note 1 and 7, TBLU consummated an agreement to acquire all of
the outstanding capital stock of the Company. Accordingly, the following
unaudited pro forma condensed statements of operations are to present the
results of operations of the consolidated entities for the year ended
December 31, 2003 as though the transaction described in Note 1 had been
effective on January 1, 2003. The unaudited pro forma results of operations
are based upon assumptions that the Company believes are reasonable and are
based on the historical operations of Telco Blue, Inc. The unaudited pro
forma statements of operations are presented for informational purposes only
and are not necessarily indicative of the results of operations that would
have occurred had the business combination with Telco Blue, Inc. been
consummated on January 1, 2003.
Unaudited Pro forma results for the year ended December 31, 2003:
Promotional.
Containers Pro Forma Pro Forma
Manufacturing, Inc. Telco Blue, Inc. Adjustments Results
-------------------- ------------------ ------------------ ------------------
Revenues $ 90,373 $ -- $ -- $ 90,373
Cost of revenues 42,048 -- -- 42,048
------------------ ------------------ ------------------ ------------------
Gross profit 48,325 -- -- 48,325
Operating expenses 683,371 2,205,007 -- 2,888,378
------------------ ------------------ ------------------ ------------------
Loss from operations (635,046) (2,205,007) -- (2,840,053)
Other expenses (1.588,848) (6,057) -- (1,594,905)
------------------ ------------------ ------------------ ------------------
Loss before tax provisions (2,223,894) (2,211,064) -- (4,434,958)
Tax provisions -- -- -- --
------------------ ------------------ ------------------ ------------------
Net loss $ (2,223,894) $ (2,211,064) $ -- $ (4,434,958)
================== ================== ================== ==================
Basic and diluted loss per
Common share $ (2.22) $ (0.63) $ -- $ (0.98)
================== ================== ================== ==================
Weighted average shares used
in per share calculations 1,000,000 3,497,061 -- 4,497,061
================== ================== ================== ==================
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 8-K/A to be signed on its behalf
by the undersigned hereunto duly authorized this 14th day of July, 2004 at
Lexington, Kentucky.
By /s/ James N. Turek
-----------------------------
James N. Turek, President,
CEO & Director