Common stock; $0.001 par value; 13,500,000,000 shares authorized 7,370,499,148 shares
issued and outstanding as of September 30, 2006 and 3,727,740,100 shares issued and
outstanding as of December 31,2005.
PLASTICON INTERNATIONAL, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
1. General
The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the 2005 Annual Report ofPlasticon International, Inc. (Company or Plasticon). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim period ended September 30, 2006 are not necessarily indicative of results that can be expected for the fiscal year ending December 3 1, 2006.
The condensed financial statements included herein are unaudited; however, they contain all adjustments (consisting of normal recurring accruals), which, in the opinion of the
Company, are necessary to present fairly its financial position at September 30, 2006 and December 31,2005, and its results of operations and cash flows for the six months ended June 30, 2006 and 2005, in conformity with accounting principles generally accepted in the United States.
In December 2005, the Company acquired all the stock of Pro Mold, Inc. (Pro Mold), an injection molding facility in the Midwest. In January 2006, the Company acquired all the stock
ofSEMCO Manufacturing (SEMCO), a Nevada business that manufactures and sells concrete coating products and all the stock of a related entity, Ultimate Surface, LLC. See Note 2
for description of acquisitions.
2. Acquisitions
Pro Mold Acquisition
The December 2005 acquisition of Pro Mold was accounted for as a purchase business combination under the provisions of the FASB's SFAS No. 141, "Business Combinations." The
aggregate purchase price of $3,866,852 (including $366,852 of professional fees) was allocated to the assets acquired and liabilities assumed based on the respective fair values. The
Company, with the help of an independent appraiser, has assessed the fair value of the property and equipment. The Pro Mold accounts receivable, inventory, accounts payable and
accrued expenses and other assets and long term liabilities were estimates of management.
Management is still in the process of finalizing the allocation of the purchase price, including the consideration of other intangible values. The Company has included Pro Mold in its operating results since January 1,2006.
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition.
December 31,2005
Cash
$ 149
Accounts receivable
405,525
Inventory
574,807
Other current assets
89,023
Property and equipment
1,240,558
Goodwill
3,118,791
Bank overdraft
(313,264)
Accounts payable
(330,914)
Debt
(726,048)
Other liabilities
(191.775)
Net assets acquired
$ 3,866^52
Funded by: Related party funding in 2005 and 2006 (See Note 4)
2,866,852
Long-term debt
875,000
Common stock committed
125,000
Total •
$ 3.866^2
As of December 31, 2005, the Company owed $1,283,942 of the purchase price. The Company received related party financing in first quarter 2006 to make the remaining purchase
payments. The related party financing has been converted to a common stock commitment, SEMCO Acquisition
In January 2006, the Company acquired all the stock of SEMCO, a Nevada business that manufactures and sells concrete coating products, along with the stock of a related entity,
Ultimate Surface, LLC. The purchase terms are $650,000 in cash, $2,000,000 in performance payments (50% of Net Profits as defined) plus Plasticon restricted common stock worth
$100,000. Additionally, the Company will pay a royalty payment (4% of Net Profits as defined) for twenty years beginning after the $2,000,000 of performance payments are made. As the performance and royalty payments are made, the Company will increase goodwill to reflect additional purchase price. The agreement includes a five year employment agreement
with a base salary and other benefits specified.
The January 2006 acquisition of SEMCO was accounted for as a purchase business combination under the provisions of the FASB's SFAS No. 141, "Business Combinations." The
aggregate purchase price of $811,107 (including $61,107 of professional fees) was allocated to the assets acquired and liabilities assumed based on the respective fair values. The values below are fair value estimates made by management. Management is still in the process of finalizing the allocation of the purchase price. The Company has included SEMCO in its operating results since January 1, 2006.
uarv 1.2006
66,110
163,039
608,419
(26.461)
711,107
100.000
811.107
The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition.
Inventory
Property and equipment
Goodwill
Loan Payable
Net assets acquired
Funded by:
Related party funding (See Note 4)
Common stock committed
Total
The unaudited pro forma information shown below assumes that the Pro Mold and SEMCO acquisitions occurred as of January 1,2005. This pro forma financial statement information
is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the assets been acquired and liabilities been assumed at the beginning of 2005.
September 30, 2006 September 30, 2005
Amount Amount
Revenues $4,761,839 $4,395,770
Net loss (18.937.366) (12.773.872)
Basic and diluted loss per share $(0.004) $(0.01)
1
3. Line of Credit
On April 30, 2005, the Company entered into an agreement for a revolving line of credit worth $400,000, with an interest rate of 7% with Union Planters Bank to be used primarily for
working capital. The line was paid off and expired in 2006.
4. Notes Payable
Notes payable consists of the following as of September 30,2006 and December 31,2005:
September 30. 2006
$ 470,000
875,000
436,568
600,000
53,436
5,165,447
21.286
December 31.2005
$ 500,000
875,000
558364
7,621,737
(485.692)
2,316,998
(983,108)
Amount
Note payable to First National Bank ofBamesville, Barnesville, Georgia Note payable to John P. Murphy (seller of Pro Mold, see Note 2), payable over
five year period in equal installments of$175,000 and shall bear interest at the rate of 5% per annum
Notes payable to John P. Murphy (seller of Pro Mold, see Note 2)
Notes payable with All Points Capital
Notes payable with Sam Sem (seller of SEMCO, see Note 2)
Notes payable- related party
Other note payable
Total notes payable
Less current portion
Long-term portion of notes payable
Future obligations of debt are as follows:
For the Period Ended September 30,
2007
2008
2009
2010
2011
Thereafter
Total
485,692
491,815
335,519
410,000
5,728,710
170,000
7,621,737
During 2000, the Company entered into a banking arrangement with the Bank of Barnesville. On September 10,2004, the Company provided 8,000,000 shares of its common stock to
the Bank of Barnesville for use as a partial payment of the Company's debt to the Bank of Barnesville. For the periods ended September 30, 2006 and December 31, 2005, the Company
owed a balance of $470,000 and $500,000, respectively, to the Bank of Barnesville. James N. Turek, Sr., the Company's president, transferred 7,000,000 shares of his personally held
Plasticon International, Inc. stock to the Bank of Barnesville in order to reduce the debt to $500,000 in 2005. The Company has agreed to pay $5.000 per month on this note with a revised due date of June 2013.
During early 2006, the Company obtained several term notes from Union Planters Bank. The notes bear interest at rates between 5% and 8%. In July 2006, John Murphy acquired the
Union Planters' notes, adjusting the interest rate to 7.5% with a 3-year term. As of September 30, 2006, the Company owes $301,558 under these notes.
On September 1, 2006, the Company, through its subsidiary, Pro Mold, entered into a $600,000 loan agreement with All Points Capital. The note is secured by certain assets of Pro
Mold. The interest rate is 9.76% and is due on September 6,2011.
5. Related Party Transactions
The Company had the following related party amounts due as of September 30, 2006 and December 31, 2005:
September 30. 2006
3,495,037
298,294
130,000
526,776
420,000
425,340
December 31.2005
130,000
130,000
170,000
500,000
5.165.447
.724,841
1,724.841
Note payable - LexReal, LLC, annual interest rate of 10% due
on December 31,2Q10
Notes payable - James Turek U due on December 31, 2010
Notes payable - James Bonn due on December 31, 2010
Note payable - Promotional Container, Inc. (PC1) due on
December 31,2010
Note payable-Jim Turek, Sr., due on December 31,2010
Total
Less current portion
Long term portion
During the course of normal business for the period ended September 30, 2006, LexReal, LLC (LexReal), a Kentucky limited liability company, paid for goods and services for the
benefit of the Company in the amount of $2,057,340. During the period ended September 30, 2006, $801,825 of debt was forgiven by LexReal. The Company removed the obligation
and increased paid-in capital to reflect this transaction. Additionally, the Company negotiated the remaining balance of $1,786,841 with LexReal as a note payable, bearing no interest, with a due date of December 31,2010.
During the years ended 2001 and 2002, James Turek II, advanced funds to the Company in the amount of $130,000. The promissory notes provided to the Company by the operating
officer included an interest rate of 10% per annum.
Additionally, the holder of the promissory note has the right to convert the notes into the Company's common stock at the Company's stated par value as well as to receive for every three shares converted from this note, a fourth to be issued by the Company for consideration of the note. During the period ended June 30, 2006, the Company successfully negotiated the extension of the note with a due date of December 31, 2010. As of June 30, 2006 and December 31, 2005, the balance owed to the Company's operation executive was $130,000, respectively. As of September 30, 2006 and December 31, 2005, the Company owes James N. Turek, II $65,420 and
$59,000, respectively for accrued interest on past notes. During the years ended 2001 through 2003, James Bonn, the Company's secretary, advanced funds to the Company in the
amount of $120,000. During the year ended 2004, the Company's secretary advanced additional funds to the Company in the amount of $50,000. The promissory notes provided by the
Company to the secretary included an interest rate of 10% per annum. Additionally, the holder of the promissory notes has the right to convert the notes into the Company's common
stock at the Company's stated par value as well as to receive for every three shares converted from the note, a fourth to be issued by the Company for consideration of the note. During
the period ended Sept-ember 30, 2006, the Company successfully negotiated the extension of the note with a due date of December31, 2010. As of both September 30, 2006 and
December 31,2005, the balance owed to the Company's secretary was $170,000. As of June 30, 2006 and December 31, 2005, the Company owes James Bonn, $71,742 and $59,000,
respectively, for accrued interest on past notes.
5. Related Party Transactions continued During the normal course of business, PCI paid for goods and services for the benefit of the Company. During the first quarter 2006, $82,630 of debt was forgiven by PCI. The Company
removed the obligation and increased paid-in capital to reflect this transaction. As of June 30, 2006 and December 31, 2005, the balances owed to PCI (exclusive of the $500,000 note payable which the Company had reflected as of December 31, 2005) were $0 and $167,832, respectively. As of September 30, 2006, the Company has a due from PCI of $80,000
stemming from sales from the contract acquired in January 2005, that has now been forgiven.
In January 2005, the Company obtained certain assets (molds, sales contract, customer base, and patents) from a related party, Promotional Container, Inc. (PCI) PCI is owned by James
N. Turek, Sr., the Company's president and majority stockholder. Consideration to PCI consisted of a promise to exchange 100,000,000 shares of prefcn-cd stock (recorded as $360,000 of preferred stock subscribed in the accompanying balance sheet) in the Company by May 2007 and a promise to pay $500,000 (non-interest bearing) by May 2006. Due to common
control, paid-in capital was reduced by $860,000 to record the transaction. As of March 31, 2006 and December 31, 2005, the Company owed a balance of $500,000 to Promotional
Containers, Inc. as a result of the acquisition. During the period ended March 31,
2006, the Company successfully negotiated the extension of the note with a due date of December 31,2010. As of September 30, 2006, $420,000 is due under this obligation.
On January 3, 2006, Jim Turek, Sr., the Company's president and majority stockholder, forgave approximately $5,980,000 of obligations consisting of notes payable, accrued interest,
and accrued salaries and bonuses. The Company removed the obligations and increased paid-in capital to reflect the transaction. On January 3, 2006, James N. Turek, Jr., the son of the Company's president, forgave certain liabilities, which included compensation and interest owed to him, of approximately $344,000. On January 3, 2006, James Bonn, the Company's secretary, forgave certain liabilities which included interest owed to him, amounting to $344,034. The agreements to forgive such liabilities were subsequently reclassified and the Company has reinstated the amounts due. Additionally, the Company successfully negotiated an extension of the notes with the parties with a due date of December 31,2010.
6. Shares Subscribed, Not Issued
The following is a summary of the subscribed common share activity for the period ended September 30, 2006:
Common Stock Subscribed, Not Issued (Shares)_____________
Other Total
Balance at December 31,2005 $ 4,160,539 $ 4,160,539
Shares subscribed 3,594,121 3,594,121
Shares issued _____(225,000) (225.000)
Balance at September 30,2006 $ 7.529.660 I 7.529.660
During second quarter 2006, $225,000 of subscribed common shares were issued related to the acquisitions of Pro Mold and SEMCO. The remaining subscriptions totaling $7,529,660
are due to the conversion of related party debt to subscribed common stock. Additionally, in August 2005, the Company entered into an agreement with a vendor to convert $400,361 of
payables due to subscribed common stock.
The following is a summary of the subscribed preferred share activity for the period ended September 30,2006:
Preferred Stock Subscribed, Not Issued (Shares) _____
Other Total
Balance at December 31,2005 $ 360,000 $ 360,000
Shares subscribed __________: _________;
Balance at September 30,2006 i_____360,000 $ 360.000
7. Preferred stock
As of September 30, 2006, the Company has commitments to provide preferred stock to PCI and LexReal. The class B preferred stock ($1 par value) committed toLexReal is
convertible up to 7,300,000,000 shares of common stock.
8. Common Stock
During the period ended September 30, 2006, the Company issued 3,642,759,048 shares of common stock. Of those shares 3,603,771,000 were issued to the majority shareholder. The
shares issued represent compensation of $14,846,168 based on the fair value of the stock upon the date of issuance and as part of the Pro Mold and SEMCO transactions (see Note 2),
22,321,382 and 16,666,666 shares, respectively, were issued pursuant to the purchase agreements.
On April 4, 2006, the Company incracased authorized shares of common stock to 13,500,000,000 shares. Also on that date the authorized shares of preferred stock increased to
6,000,000,000 shares. This was to support the planned common share Buy Back program slated for mid 2007.
9. Subsequent Events In August 2006, the Company entered into an agreement with a vendor to convert $400,361 of payables due to subscribed common stock.
On September 1,2006, the Company, through its subsidiary, Pro Mold, entered into a $600,000 loan agreement. The note is secured by certain assets of Pro Mold. The interest rate is
9.76% and is due on September 6,2011.
During the fourth quarter 2006, the Company identified $720,000 in term debt that was incurred in 2005. The funds from the borrowings were deposited with LexReal. The loans were recorded with a corresponding offset to loans due to LexReal The loans have been called, requiring the Company to provide 281,371,888 of common shares to terminate the notes.
On October 29, 2006, the 270,296,888 common shares were issued at a cost of $162,178. The balance of 11,111,000 will be issued inQ-1 2007 and will be booked as subscribed shares in Q-4 2006. The Company is in the process of investigating the impact on prior year's financial statements and will make the necessary entries in completing the 2006 year-end
accounting.
In December 2006, the Company identified that a subsidiary of the Company's predecessor, Wicklund Holdings, owed $342,681 to the IRS which is holding the Company's majority
shareholder liable for this obligation. The majority shareholder's indemnification agreement has a reimbursement clause for such transactions. The Company will book the liability and expense in the fourth quarter 2006.
In January 2007, the company was presented an offer from PCI and LexReal, the holders of $7,129,299 in subscribed common stock, to convert those subscribed shares at $.00011 per
share. The arrangement was opined by William Aul, Esq. the corporate SEC attorney for the purpose of SEC compliance. The conversion of the Subscribed shares is at the desecration
of LexReal or PCL
The sales contract with BlueLinx for $5.3 million in re-bar supports was cancelled by the buyer. The company's position is that there is a resulting counterclaim and is pursing that
claim through arbitration as required by the terms of the contract.. If that fails legal action will be initiated. The company has instituted a national sales program to replace the Sales volume loss. The results have been promising to the point that this move will result to the benefit of the company.
The company and officer have atternpted to comply with all requirements of Saibanes-Oxley Act of 2003, Based on published data in our possession.
