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 SEPTEMBER 30, 2003
Commission file number: 001-16099
telcoBlue, Inc.
(Formerly known as Wave Power.net, Inc.)
-------------------------------------------------------------
(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
------------------------------------------------------------
(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
September 30, 2003, was 3,704,970.
The Registrant's total revenues for the year ended September 30,
2003 were $0.00.
2
PART I
--------
Item 1. Description of Business.
Nature of Business. telcoBlue, Inc. formerly Better Call Home, Inc., 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.
Since August 29, 2002, telcoBlue's only activities have been
organizational ones, directed at developing its business plan and
seeking a merger candidate. We have not generated any revenues.
telcoBlue has not commenced any commercial operations.
telcoBlue has no employees and owns no real estate. As of September
30, 2003, telcoBlue could be defined as a "shell" company whose sole
purpose is to locate and consummate a merger or acquisition with a
private entity.
On September 10, 2003, telcoBlue declared a 1:20 reverse stock split
whereby each shareholder would receive one share for every twenty
shares held.
Subsequent Acquisition. Effective January 15, 2004, telcoBlue
completed a reverse merger with Promotional Containers Manufacturing
whereby telcoBlue issued 28,700,000 shares to PCM for all of the
outstanding shares of PCM. In connection with the merger, telcoBlue
agreed to issue an additional 12,150,000 shares to various individuals
for work on the merger. For further information on the acquisition,
see the Form 8-K filed February 9, 2004.
Item 2. Description of Property.
telcoBlue has no physical assets. telcoBlue has a mailing address at
3166 Custer Drive, Suite 101, Lexington, KY 40517. Other than this
mailing address, telcoBlue does not currently have any other office
facilities. telcoBlue pays no rent or other fees for the use of this
mailing address.
3
Item 3. Legal Proceedings.
In June 2003, telcoBlue directors terminated its president, Ron
McIntyre who claimed unspecified and unrecorded payables, contracts and
committed stock issuances. Subsequent management efforts to
substantiate any such claims have produced no results except for a
demand for $60,000 in compensation to that former president.
Management believes the $60,000 claim is unjustified and that no such
payables or other commitments exist, and no amounts have been recorded
for these contingent liabilities.
No other proceeding are pending that the Company is aware of at
present.
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 information for the period
of inception through September 30 2003 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
--------- --------
Inception to September 30 $.60 $.15
December 31, 2002 $.05 $.05
March 31, 2003 $.04 $.04
June 30, 2003 $.05 $.05
September 30, 2003 $.02 $.01
b. telcoBlue has 198 shareholders of record as of September 30, 2003.
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.
Item 6. 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-KSB as amended.
Except for the historical information contained herein, the discussion
in this Form 10-KSB as amended contains certain forward looking
statements that involve risks and uncertainties, such as statements of
telcoBlue's plans, objectives, expectations and intentions. The
4
cautionary statements made in this Form 10-KSB should be read as being
applicable to all related forward statements wherever they appear in
this Form 10-KSB. telcoBlue's actual results could differ materially
from those discussed here.
Nature of Business. telcoBlue, Inc. formerly Better Call Home, Inc., 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.
Since August 29, 2002, telcoBlue's only activities have been
organizational ones, directed at developing its business plan and
seeking a merger candidate. We have not generated any revenues.
telcoBlue has not commenced any commercial operations.
telcoBlue has no employees and owns no real estate. As of September
30, 2003, telcoBlue could be defined as a "shell" company whose sole
purpose is to locate and consummate a merger or acquisition with a
private entity.
On September 10, 2003, telcoBlue declared a 1:20 reverse stock split
whereby each shareholder would receive one share for every twenty
shares held.
For the year ended September 30, 2003, telcoBlue sustained a net loss
of $2,392,504.
For the period from August 2, 2002 ("inception") through September 30,
2002, telcoBlue sustained a net loss of $2,189,569.
Capital Resources and Liquidity
-------------------------------
For the year ended September 30, 2003 and the period from inception to
September 30, 2002, telcoBlue did not pursue any investing activities.
For the year ended September 30, 2003, telcoBlue received $61,500 from
the sale of stock and received the proceeds from notes payable to
related parties of $275,201 resulting in net cash provided by financing
activities of $336,701.
5
For the period from inception through September 30, 2002, telcoBlue
received $74 from the sale of stock, received proceeds from notes
payable of $3,343 and proceeds from notes payable to related parties of
$9,662. As a result, telcoBlue had net cash provided by financing
activities of $13,079 for the period from inception to September 30,
2002.
Results of Operations
------------------------
For the year ended September 30, 2003, telcoBlue had no revenues. Net
loss for the year ended September 30, 2003 was $2,392,504. telcoBlue
had interest expense of $18,706, impairment of $926 and had general and
administrative expenses of $2,172,872. These general and
administrative expenses consisted primarily from stock issued for
services valued at $1,876,530 and stock option and warrant expense of
$75,556.
For the period from inception to September 30, 2002, telcoBlue had not
received any revenues. Net loss for the period from inception to
September 30, 2002 was $2,189,569. telcoBlue ad interest expense of
$13,237 and had general and administrative expenses of $2,134,003.
These general and administrative expenses consisted primarily of stock
issues for services of $2,134,003.
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 subsequence acquisition 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 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.
Events Subsequent to September 30, 2003
--------------------------------------------
In December 2003, telcoBlue issued 255,000 shares to the president for
services valued at $25,000 and 1,521,475 to payoff notes payable to
shareholders of $275,092.
Effective January 15, 2004, telcoBlue completed a reverse merger with
Promotional Containers Manufacturing whereby telcoBlue issued
28,700,000 shares to PCM for all of the outstanding shares of PCM. In
connection with the merger, telcoBlue agreed to issue an additional
12,150,000 shares to various individuals for work on the merger. For
further information on the acquisition, see the Form 8-K filed February
9, 2004.
6
Item 7. Financial Statements.
C O N T E N T S
---------------
Item Page
---- ----
Independent Auditors' Report F-1
Consolidated Balance Sheets
as of September 30, 2003 F-2
Consolidated Statement of Expenses
for the Period from August 2, 2002 (Inception)
through September 30, 2003 F-3
Consolidated Statement of Changes in Stockholders' Deficit
for the Period from August 2, 2003 (Inception)
through September 30, 2003 F-4
Consolidated Statement of Cash Flows
for the Period from August 2, 2002 (Inception) F-5
through September 30, 2003
Notes to Consolidated Financial Statements F-6
7
INDEPENDENT AUDITORS REPORT
To the Board of Directors
telcoBlue, Inc.
(A Development Stage Company)
Winston Salem, North Carolina
We have audited the accompanying consolidated balance sheet of
telcoBlue, Inc., as of September 30, 2003 and the related statements of
expenses and comprehensive loss, stockholders deficit, and cash flows
for the year ended September 30, 2003, the period from August 2, 2002
(Inception) through September 30, 2002 and the period from August 2,
2002 (Inception) through September 30, 2003. These financial
statements are the responsibility of telcoBlue's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of telcoBlue,
Inc., as of September 30, 2003, and the results of its operations and
its cash flows for the periods described in conformity with accounting
principles generally accepted in the United States of America.
MALONE & BAILEY, PLLC
Houston, Texas
www.malone-bailey.com
January 29, 2004
8
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 2003
ASSETS $ -
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 15,195
Accounts payable to related parties 34,823
Accrued expenses 755
Notes payable 3,899
Notes payable to related parties 286,363
----------
Total Current Liabilities 341,035
----------
Commitments and Contingencies
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value, 75,000,000 shares
authorized, 3,704,970 issued and outstanding 3,705
Additional paid in capital 4,228,041
Accumulated other comprehensive income 9,292
Deficit accumulated during the development stage (4,582,073)
----------
Total Stockholders' Deficit (341,035)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ -
==========
See accompanying summary of accounting policies and notes to financial
statements.
9
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF EXPENSES AND COMPREHENSIVE LOSS
For the Year Ended September 30, 2003 and the Period
from August 2, 2002(Inception)Through September 30, 2002
and the Period From Inception Through September 20, 2003
Inception Inception
Through Through
Sept. 30, Sept. 30,
2003 2002 2003
---------- ---------- ----------
General and administrative $2,173,798 $2,176,332 $4,501,130
Interest expense 18,706 13,237 31,943
---------- ---------- ----------
Net loss (2,392,504) (2,189,569) (4,582,073)
Other Comprehensive Income
Gain on foreign currency
translation 9,075 217 9,292)
---------- ---------- ----------
Total Comprehensive Loss $(2,383,429) $(2,189,352) $(4,572,781)
========== ========== ==========
Basic and diluted net loss per
share $ (1.09) $ (1.46)
Weighted average shares
outstanding 2,193,785 1,500,020
See accompanying summary of accounting policies and notes to financial
statements.
10
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from August 2, 2002 (Inception)
Through September 30, 2003
Additional
Common Paid
Shares Par In Capital
---------- ---------- ----------
Stock issued for cash,
distribution agreement and
services 800,020 $ 800 $ 203
Stock issued in recapitalization 700,000 700 (700)
Liabilities of Wave Power
assumed in reverse merger - - (173,725)
Expenses paid by shareholders 2,134,000
Intrinsic value of beneficial
conversion feature of
convertible notes payable - - 13,176
Foreign currency translation
adjustment - - -
Net loss ---------- ---------- ----------
Balances at September 30, 2002 1,500,020 1,500 1,972,954
Stock issued for:
- services 1,930,506 1,930 1,874,600
- cash 30,750 31 61,469
- notes payable to related
parties 150,000 150 149,850
- accounts payable to related
parties 93,694 94 74,906
Option and warrant expense - - 75,556
Imputed interest - - 18,706
Foreign currency translation
adjustment - - -
Net loss - - -
---------- ---------- ----------
Balances at September 30, 2003 3,704,970 $ 3,705 $4,228,041
========== ========== ==========
See accompanying summary of accounting policies and note to financial
statements.
11
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from August 2, 2002 (Inception)
Through September 30, 2003
Deficit
Accumulated Accumulated
Other During the
Comprehensive Development
Income Stage Totals
---------- ---------- ----------
Stock issued for cash, distribution
agreement and services $ 1,003
Stock issued in recapitalization - - -
Liabilities of Wave Power
assumed in reverse merger - - (173,725)
Expenses paid by shareholders 2,134,000
Intrinsic value of beneficial
conversion feature of
convertible notes payable - - 13,176
Foreign currency translation
Adjustment $ 217 - 217
Net loss - $(2,189,569) (2,189,569)
---------- ---------- ----------
Balances at September 30, 2002 217 (2,189,569) (214,898)
Stock issued for:
- services - - 1,876,530
- cash - - 61,500
- notes payable to related
parties - - 150,000
- accounts payable to related
parties - - 75,000
Option and warrant expense - - 75,556
Imputed interest - - 18,706
Foreign currency translation
Adjustment 9,075 - 9,075
Net loss - (2,392,504) (2,392,504)
---------- ---------- ----------
Balances at September 30, 2003 $ 9,292 $(4,382,073) $ (341,035)
========== ========== ===========
See accompanying summary of accounting policies and notes to financial
statements.
12
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2003 and the Period
from August 2, 2002(Inception)Through September 30, 2002
and the Period From Inception Through September 20, 2003
Inception Inception
Through Through
Sept. 30, Sept. 30,
2003 2002 2003
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,392,504) $(2,189,569) $(4,582,073)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services 1,876,530 2,134,003 4,010,533
Stock option and warrant expense 75,556 - 75,556
Imputed interest 18,706 - 18,706
Intrinsic value of beneficial conversion
feature of convertible notes payable - 13,176 13,176
Changes in:
Accounts payable (17,993) 11,889 (6,101)
Accounts payable to related parties 92,605 17,218 109,823
Accrued expenses 694 61 755
---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (346,406) (13,222) (359,625)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of stock 61,500 74 61,574
Proceeds from notes payable - 3,343 3,343
Proceeds from notes payable to related parties 275,201 9,662 284,863
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 336,701 13,079 349,780
---------- ---------- ----------
Effect of exchange rate changes on cash 9,631 217 9,845
---------- ---------- ----------
NET CHANGE IN CASH (74) 74 -
Cash balance, beginning 74 - -
---------- ---------- ----------
Cash balance, ending $ - $ 74 $ -
========== ========== ==========
Non-Cash Disclosures:
Stock issued for notes payable to related
parties $ 150,000 - $ 150,000
Stock issued for accounts payable to
related parties 75,000 - 75,000
Stock issued to related party for
distribution agreement - $ 926 926
13
Accounts payable of WavePower assumed
in merger - 22,225 22,225
Note payable of WavePower assumed in
Merger - 151,500 151,500
See accompanying summary of accounting policies and notes to financial
statements.
14
telcoBlue, Inc.
(A Development Stage Company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. telcoBlue, Inc. ("telcoBlue") formerly Better Call
Home, Inc. ("BCH"), a development stage company, was in Nevada on
August 2, 2002 to operate an Internet-based long distance telephony
network using state-of-the-art Voice over Internet Protocol. The name
was changed to telcoBlue, Inc. on August 29, 2002.
On August 29, 2002, BCH entered into a reorganization with Wave
Power.net, Inc. ("Wave Power"), 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, 800,000
million shares of Wave Power common stock. At that time, Wave Power
had 700,000 shares outstanding. The combined entity changed its name
to telcoBlue, Inc. on August 29, 2002. Wave Power shareholders ended
up with 700,000 shares issued and outstanding. After payment of all
reserved shares, management shares and shares issued pursuant to this
Agreement there were 1,500,020 shares of common stock issued and
outstanding.
Principles of consolidation. The consolidated financial statements
include the accounts of telcoBlue and its subsidiaries. All
significant intercompany transactions and balances have been
eliminated.
On August 29, 2002, telcoBlue declared a 1:5 reverse stock split
whereby each shareholder would receive one share for every five shares
held. On September 10, 2003, telcoBlue declared a 1:20 reverse stock
split whereby each shareholder would receive one share for every twenty
shares held. All per-share amounts and number of shares outstanding in
these consolidated financial statements have been restated for the
stock split.
Cash and Cash Equivalents. telcoBlue considers all highly liquid
investments purchased with an original maturity of three months or less
to be cash equivalents.
Use of Estimates. In preparing financial statements, management makes
estimates and assumptions that affect the reported amounts of assets
and liabilities in the balance sheet and revenue and expenses in the
statement of expenses. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets. telcoBlue reviews the carrying value
of its long-lived assets whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no
longer be appropriate. telcoBlue assesses recoverability of the
carrying value of the asset by estimating the future net cash flows
expected to result from the asset, including eventual disposition. If
the future net cash flows are less than the carrying value of the
asset, an impairment loss is recorded equal to the difference between
15
the asset's carrying value and fair value. In the year ended September
30, 2003, telcoBlue determined their distribution agreement with
Vocalscape Networks, Inc. was fully impaired because estimated future
net cash flows were less than the carrying value of the distribution
agreement.
Revenue recognition. There is no revenue recognition policy due to
telcoBlue having no revenues as of September 30, 2003.
Basic and diluted loss per common share is calculated by dividing the
net loss by the weighted average shares outstanding. There are no
dilutive securities.
Income taxes. telcoBlue recognizes deferred tax assets and liabilities
based on differences between the financial reporting and tax bases of
assets and liabilities using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to be
recovered. telcoBlue provides a valuation allowance for deferred tax
assets for which it does not consider realization of such assets to be
more likely than not.
Foreign currency translation. The functional currency of telcoBlue is
the Canadian Dollar (CDN$). Assets and liabilities are translated at
exchange rates in effect on the balance sheet date and income and
expenses are translated based on the average exchange rate for the
year. Translation gains and losses are accumulated as a component of
Other Comprehensive Income.
Stock options. telcoBlue accounts for stock options issued to
employees under the intrinsic value method. Under this method, no
compensation expense is recognized for stock options granted when the
number of underlying shares is known and exercise price of the option
is greater than or equal to the fair market value of the stock on the
date of grant. Fair value is used for options and warrants issued to
non-employees as compensation. No options were issued to employees in
the years ended September 30, 2003 and 2002, therefore net loss and pro
forma net loss are the same.
Recently issued accounting pronouncements. telcoBlue does not expect
the adoption of recently issued accounting pronouncements to have a
significant impact on telcoBlue results of operations, financial
position or cash flow.
NOTE 2. DISTRIBUTION AGREEMENT
On August 7, 2002, telcoBlue issued 740,800 shares of common stock to
Vocalscape Networks, Inc. ("Vocalscape") for the right to distribute
Vocalscape's products. The agreement is for three years. In the
year ended September 30, 2003, telcoBlue determined the distribution
agreement was fully impaired because estimated future net cash flows
were less than the carrying value of the distribution agreement.
16
NOTE 3. ACCOUNTS PAYABLE TO SHAREHOLDER
On August 7, 2002, telcoBlue entered into a one year management
agreement with Vocalscape. In June 2003, telcoBlue's board approved a
termination and settlement agreement with Vocalscape that granted the
issuance of 212,500 shares of telcoBlue to Vocalscape for payment of
$75,000 owed under the management agreement, $30,868 of out of pocket
expenses paid on behalf of telcoBlue and $64,233 of lost stock sale
profits because of telcoBlue's failure to file an SB-2 within two
months of the reorganization as required by the plan of reorganization.
NOTE 4. NOTES PAYABLE / NOTES PAYABLE TO RELATED PARTIES
In August and September 2002, telcoBlue borrowed $13,005. Two notes
totaling $3,343 are due to third parties and two notes totaling $9,662
are due to shareholders. All four notes carry interest of 6 percent,
with interest due monthly. The principal was due in June and July
2003. telcoBlue is currently in default on these notes. Each note
is convertible into common stock of telcoBlue at the holder's option.
The price for conversion is the lower of 80 percent of the average
closing price of telcoBlue stock for the five days preceding the
conversion request or $.10 per share. The intrinsic value of the
beneficial conversion feature was $13,176 which has been recorded as
interest expense.
As part of the reverse merger with Wave Power, telcoBlue assumed the
liabilities of Wave Power. Wave Power owed a shareholder $151,500.
The note is due on demand and bears no interest. In 2003, telcoBlue
issued 150,000 shares of common stock for payment of $150,000 of the
note.
Also in 2003, shareholders paid $273,592 of expenses on behalf of
telcoBlue. The advances are due on demand and bear no interest.
Interest expense of 8 percent has been imputed totaling $18,706.
NOTE 5. COMMON STOCK
In August 2002, 59,200 shares of stock were sold for $74 in total
proceeds.
In August 2002, 740,800 shares of stock were issued in exchange for a
distribution agreement (see note 2) with Vocalscape. The shares were
valued at $926.
On August 29, 2002, 700,000 shares of stock were issued in a merger
with WavePower.net, Inc.
In the quarter ended December 31, 2002, telcoBlue issued 36,700 shares
of common stock valued at $106,428 for services.
In the quarter ended December 31, 2002, telcoBlue issued 280,000 shares
of common stock for $300,000 of services.
17
In the quarter ended December 31, 2002, telcoBlue sold 30,750 shares of
common stock for $61,500.
In the quarter ended March 31, 2003, telcoBlue issued 150,000 shares of
common stock to pay off a $150,000 note payable.
For a 12 month consulting agreement signed in April 2003, telcoBlue
agreed to issue 200,000 shares of common stock, 50,000 per quarter with
the first 50,000 due upon signing. As part of the agreement, telcoBlue
also agreed to issue 100,000 120 day warrants to purchase telcoBlue
common stock at $.05 per share. If the 100,000 warrants are exercised,
the consultant will be granted 200,000 additional 120 day warrants to
purchase telcoBlue common stock at $.10 per share. If the 200,000
warrants are exercised, the consultant will be granted 200,000
additional 120 day warrants to purchase telcoBlue common stock at $.15
per share. The first 50,000 shares were issued and valued at $55,000.
The first group of warrants expired causing the remaining warrants to
not be granted.
In April 2003, telcoBlue issued 195,000 shares valued at $195,000 to
four consultants.
In June 2003, telcoBlue's board approved the issuance of 212,500 shares
of telcoBlue to Vocalscape for payment of $75,000 owed under the
management agreement, $30,868 of out of pocket expenses paid on behalf
of telcoBlue and $64,233 of lost stock proceeds because of telcoBlue's
failure to file an SB-2 within two months of the reorganization as
required by the plan of reorganization.
NOTE 6. INCOME TAXES
Deferred tax assets $ 84,000
Less: valuation allowance (84,000)
----------
Net deferred taxes $ 0
==========
telcoBlue has a net operating loss carryforwards of approximately
$559,000 as of September 30, 2003. Internal Revenue Section 382
restricts the ability to use these carryforwards whenever an ownership
change as defined occurs. telcoBlue incurred such an ownership change
on September 10, 2003. As a result, telcoBlue's use of net operating
losses as of September 10, 2003 are restricted. Losses incurred
subsequent to September 10, 2003 are not restricted.
NOTE 7. COMMITMENTS
Operational expenses such as rent were covered under the management
agreement with Vocalscape until June 2003 (see note 3). telcoBlue
maintained its offices on a temporary basis in the office of its
president, pursuant to an oral agreement on a rent-free, month-to-month
basis. TelcoBlue cannot currently predict the outcome or the impact
of these uncertainty.
18
NOTE 8. CONTINGENT LIABILITIES
In June 2003, telcoBlue directors terminated its president, who claimed
unspecified and unrecorded payables, contracts and committed stock
issuances. Subsequent management efforts to substantiate any such
claims have produced no results except for a demand for $60,000 in
compensation to that former president. Management believes the $60,000
claim is unjustified and that no such payables or other commitments
exist, and no amounts have been recorded for these contingent
liabilities.
NOTE 9. STOCK WARRANTS
telcoBlue follows the disclosure requirements of FASB Statement 123,
Accounting for Stock Based Compensation Plans. telcoBlue's Stock
Option Plan provides for the grant of non-qualified options to
directors, employees and consultants of telcoBlue, and opportunities
for directors, officers, employees and consultants of telcoBlue to make
purchases of stock in telcoBlue. In addition, telcoBlue issues stock
warrants from time to time to consultants, stockholders and creditors
as additional financial incentives. The plans and warrants issuance
are administered by the Board of Directors, who have substantial
discretion to determine which persons, amounts, time, price, exercise
terms, and restrictions, if any.
telcoBlue uses the intrinsic value method of calculating compensation
expense, as described and recommended by APB Opinion 25, and allowed by
FASB Statement 123. In the year ended September 30, 2003 telcoBlue
issued 100,000 120 day warrants to purchase telcoBlue common stock at
$1.00 per share resulting in $65,013 of warrant expense. In the quarter
ended December 31, 2002, telcoBlue issued 7,500 three-year warrants to
purchase telcoBlue common stock resulting in $10,543 of warrant
expense.
Summary information regarding warrants is as follows:
Wtd. Avg.
Share
Warrants Price
---------- ----------
Outstanding at September 30, 2002 - $ -
Issuances 107,500 2.33
Expired (100,000) 1.00
---------- ----------
Outstanding at September 30, 2003 7,500 $ 20.00
========== ==========
19
Warrants outstanding and exercisable as of September 30, 2003:
Outstanding Exercisable
Number Remaining Number
Exercise Price of Shares life of Shares
---------- ---------- ----------
$10.00 2,500 2 years 2,500
20.00 2,500 2 years 2,500
30.00 2,500 2 years 2,500
---------- ----------
7,500 7,500
========== ==========
Variables used in the Black-Scholes option-pricing model include (1)
1.5% risk-free interest rate, (2) expected option life is the actual
remaining life of the options as of each year end, (3) expected
volatility is the actual historical stock price fluctuation volatility
and (4) zero expected dividends.
NOTE 10 - RELATED PARTY TRANSACTIONS
In September 2002, a telcoBlue shareholder issued 226,000 shares of
their telcoBlue stock for agreements with consultants for services on
behalf of telcoBlue. These transactions were accounted for as if the
shares were returned to telcoBlue and telcoBlue issued them. The
shares were valued at $2,134,000 and have been expensed as of September
30, 2002.
In August 2003, telcoBlue agreed to purchase all of the outstanding
shares of Intercontinental Communications, Inc. ("ICI"), who was owned
by a shareholder of telcoBlue, to include ICI's ownership rights to an
interest in inCall Systems Pte., Ltd. (inCall Pte.) in exchange for
1,250,000 shares of telcoBlue and a $500,000 note payable convertible
into 1,750,000 of telcoBlue common stock. TelcoBlue issued the
1,250,000 shares to individuals and entities that were already
telcoBlue shareholders, but not the note payable because of problems
verifying ICI's rights to inCall Pte. The purchase never closed and
telcoBlue does not intend to recover the 1,250,000 shares. Because
telcoBlue does not intend to recover the shares, the issuance has been
accounted for as stock issued for services valued at $1,125,000.
NOTE 11. SUBSEQUENT EVENT
In December 2003, telcoBlue issued 255,000 shares to the president for
services valued at $25,000 and 1,521,475 to payoff notes payable to
shareholders of $275,092.
Effective January 15, 2004, telcoBlue completed a reverse merger with
Promotional Containers Manufacturing ("PCM") whereby telcoBlue issued
28,700,000 shares to PCM for all of the outstanding shares of PCM. In
connection with the merger, telcoBlue agreed to issue an additional
12,150,000 shares to various individuals for work on the merger.
After the merger, PCM shareholders ended up with 84 percent of the
recapitalized company.
20
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.
21
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 September 30, 2003:
Name Age Title
------------- --- -----------------------
Daymon Bodard* CEO/Director
Daniel Motsinger* 51 Director
Dominic Martinez* 31 Director/CFO/Secretary
Mr. Ron McIntyre was dismissed in June 2003.
Pursuant to the reverse merger with PCM, these officers and directors
resigned and new officers and directors were appointed. For further
information on current officers and directors and their resumes, see
the Form 8-K filed February 9, 2004.
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.
Biography of Directors as of September 30, 2003:
Daymon Bodard, Director, CEO
Mr. Bogard has been self-employed as a management consultant for the
past 10 years. His company manages, creates and sells U.S. and
Canadian public companies.
Dominic Martinez, Director, CFO, Secretary
Dominic T. Martinez, age 31, is a resident of Florence, CO. After
graduating from high school, Mr. Martinez attended the University of
Southern Colorado as a full time student, working summers. Upon
graduation from the university (1994), he worked at the Dayton-Hudson
Corp. in the assets protection department. This work experience
influenced his choice to accept his next position as a Clinical
Therapist at a local hospital. Taking advantage of a business
opportunity in the year 2000, he assumed a business consulting position
22
for Starr Consulting. Working full time, and under the direction of
other consultants, he gained valuable experience. This experience,
coupled with his education led him to the position of Secretary and
Director of telcoBlue.
Daniel Motsinger, Director
Mr. Motsinger is a resident of Winston Salem, NC. After graduating
from high school, Mr. Motsinger attended the Bob Jones University as a
full time student, Studying Business and Accounting. Following
university (1971), Mr. Motsinger joined Cahill and Swain in the men's
apparel industry. After graduation from sales to management, in 1985
Mr. Motsinger became a Partner of Cahill and Swain and holds the
position of Vice President and Secretary.
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 9, 2004 that are expected to make significant contributions to
the operations of telcoBlue.
Family Relationships
---------------------
As of the date of this annual report, there are no family relationships
between our promoters, executive officers, control persons, directors
or persons nominated for such positions.
Involvement in Certain Legal Proceedings
----------------------------------------
As of the date of this registration statement, telcoBlue has had no
events, to the best of our knowledge, that occurred during the past
five years, including bankruptcies, criminal convictions or
proceedings, court orders or judgments, that are material to an
evaluation of the ability or integrity of any director, executive
officer, promoter, control person or any person nominated for such
position.
For further information on the acquisition, see the Form 8-K filed
February 9, 2004.
Item 10. Executive Compensation.
------------------------------------
Ron McIntyre
2003(through June) CEO 0
2002 $5,000
Daymon Bodard
2003 CEO $25,000
23
In December 2003, telcoBlue issued 255,000 shares to Daymon Bodard for
services valued at $25,000.
Except as identified in this section, none of telcoBlue's executive
officers and directors received any compensation, cash or non-cash,
during the period from inception through September 30, 2003.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information as of January 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(1) BENEFICIALLY OWNED
---------------------------------------------------------------------
Daymon Bogard 255,000 6.88%
Daniel Motsinger 22,500 .61%
Dominic Martinez 0 0.00%
Vocalscape
Networks, Inc.(2) 592,795 16.00%
Officers and Directors
As a group (3 persons
(1) Out of 3,704,970 common stock shares.
(2) Vocalscape Networks, Inc., a British Columbia corporation
controlled by Marc Crimeni.
Item 12. Certain Relationship and Related Transactions.
---------------------------------------------------------------
Operational expenses such as rent were covered under the management
agreement with Vocalscape until June 2003. telcoBlue maintained its
offices on a temporary basis in the office of its president, pursuant
to an oral agreement on a rent-free, month-to-month basis.
In August and September 2002, telcoBlue borrowed $13,005. Two notes
totaling $3,343 are due to third parties and two notes totaling $9,662
are due to shareholders. All four notes carry interest of 6 percent,
with interest due monthly. The principal was due ten months from the
funding date. Each note is convertible into common stock of telcoBlue
at the holder's option. The price for conversion is the lower of 80
percent of the average closing price of telcoBlue stock for the five
24
days preceding the conversion request or $.10 per share. The intrinsic
value of the beneficial conversion feature was $13,176 which has been
recorded as interest expense.
As part of the reverse merger with Wave Power, telcoBlue assumed the
liabilities of Wave Power. Wave Power owed a shareholder $151,500.
The note is due on demand and bears no interest. In 2003, telcoBlue
issued 150,000 shares of common stock for payment of $150,000 of the
note.
Also in 2003, shareholders paid $273,592 of expenses on behalf of
telcoBlue. The advances are due on demand and bear no interest.
Interest expense of 8 percent has been imputed totaling $18,706.
Item 13. Exhibits and Reports on Form 10-KSB
EXHIBIT 99.2 Certification
ITEM 14. Principal Accountant Fees and Services
Audit Fees. telcoBlue incurred aggregate fees and expenses of $17,775
and $5,100, respectively, from Malone & Bailey, PLLC for the fiscal
years 2003 and 2002 annual audit and for review of telcoBlue's
consolidated financial statements included in its Forms 10-QSB for the
2003 and 2002 fiscal year.
Tax and other Fees. telcoBlue did not incur any tax fees to Malone &
Bailey for the fiscal years 2003 and 2002 for any non-audit
professional services rendered.
There is no audit committee.
25
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
10th day of February 2004.
telcoBlue, Inc.
/s/James Turek
-------------------------
By: James Turek, CEO
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
26
CERTIFICATION
-------------
I, James Turek, certify that:
1. I have reviewed this report on Form 10-KSB of telcoBlue, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report.
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to me by others within
those entities, particularly during the period in which this report is
being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this report (the "Evaluation Date"); and
c) presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
27
6. I have indicated in this report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
February 13, 2004 By /s/ James Turek
------------------ --------------------------------
James Turek
Chief Executive Officer and
Chief Financial Officer