U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number 333-173119
Primco Management Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 27-3696297 |
State or other jurisdiction of incorporation or organization |
| (I.R.S. Employer Identification No.) |
6725 West Sunset Blvd, Suite 420
Hollywood, California 90028
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (323) 450-2780
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.00001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:
[ ]Yes [X] No
Indicate by check mark whether the registrant(1) has filed all reports required 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 day.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K 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-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 if the Exchange Act.
Large accelerated filter [ ] | Accelerated filter [ ] |
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Non-accelerated filter [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value of the voting common equity was $187,997,654.
As of September 30, 2014, the registrant had 4,979,119,725 shares of our common stock were issued and outstanding and 7,000,000 shares of our preferred stock were issued and outstanding.
Documents Incorporated by Reference: None.
EXPLANATORY NOTE
Primco Management, Inc. is filing this Amendment to our Annual Report on the Form-10-K for the fiscal year ended December 31, 2013 as filed with the U.S. Securities Exchange Commission on April 15, 2014, most notably to correct the omission of Item 11. Executive Compensation and the corresponding information in the footnotes made in the due course of the original filing.
No other changes have been made to the 10-K, and this Amendment has not been updated to reflect events occurring subsequent to the filing of the 10-K.
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Primco Management Inc.
Form 10-K/A
For the Fiscal Year Ended December 31, 2013
Table of Contents
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Part I |
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Item 1. Description of Business |
| 4 |
Item 1A. Risk Factors |
| 8 |
Item 1B. Unresolved Staff Comments |
| 8 |
Item 2. Properties |
| 9 |
Item 3. Legal Proceedings |
| 9 |
Item 4. Mine Safety Disclosures |
| 9 |
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Part II |
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 6. Selected Financial Data |
| 11 |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |
| 11 |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk |
| 13 |
Item 8. Financial Statements and Supplementary Data |
| 14 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
| 45 |
Item 9A. Controls and Procedures |
| 45 |
Item 9B. Other Information |
| 46 |
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Part III |
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Item 10. Directors, Executive Officers and Corporate Governance |
| 47 |
Item 11. Executive Compensation |
| 49 |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
| 50 |
Item 13. Certain Relationships and Related Transactions, and Director Independence |
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Item 14. Principal Accountant Fees and Services |
| 52 |
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Part IV |
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Item 15. Exhibits, Financial Statement Schedules |
| 53 |
Signatures |
| 55 |
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
Our Company was incorporated in Delaware on October 14, 2010 as a property management company.
On October 10, 2012, the Company’s board of directors adopted a resolution approving an amendment to our Articles of Incorporation to effectuate an increase of the authorized common shares from 25,000,000 par value $0.001 to 500,000,000 par value $0.001 and additionally authorized a 20 for 1 forward split increasing the number of issued and outstanding common shares from 9,245,600 common shares to 184,912,000 common shares. The forward split did not affect the number of authorized common shares or their par value. The Company obtained the written consent of stockholders representing 86.53% of the Company’s outstanding common stock approving the amendment to Company’s Articles of Incorporation to affect the above-mentioned corporate actions.
Effective as of January 31, 2013, the Company executed a reverse merger by entering into a stock purchase agreement whereby the Company acquired all of the assets, contracts and obligations of ESMG Inc. existing as of that date through a cashless exchange of stock. ESMG Inc., which was formed in the state of Nevada on October 9, 2012, is a formative multi-media entertainment enterprise with an active music production and distribution division, as well as having a business plan to launch a motion picture and TV production and distribution division. Accordingly, as of January 31, 2013, through the acquisition of ESMG Inc., we expanded our operations to include entertainment in addition to continuing to offer real estate management services.
On May 30, 2013, the Company completed and funded the acquisition of Top Sail Productions, “Top Sail” a music production company and record label with a multi-year US distribution agreement through WEA, a Warner Music Group Company. The Company purchased Top Sail from Chuck Gullo, the principal of Top Sail, who has continued as Senior Executive Consultant to assist in the operation of Top Sail and other entertainment entities owned by the Company. The Company purchased the membership interests in Top Sail for a total of $440,000. The initial payment was $75,000 and $15,000 worth of the Company’s 5,000,000 restricted common shares. The remaining $350,000 is being paid in installments through June 30, 2016 pursuant to a three year consulting agreement with Mr. Gullo. As of December 31, 2013, the Company has paid a total of $37,500 ($6,250 per month) pursuant to the payment terms of the consulting agreement..
On June 1, 2013 the board of directors entered into an Amendment and Plan of Reorganization with D & B Music, Inc. (previously known as D & B Records, Inc.) a Delaware corporation, in which D & B Music, Inc. merged with and into the Company. D & B Music, Inc, has a music catalog of 41 titles. The consideration paid by the company was the assumption by the Company of a promissory note for $242,000 due Pegasus Group, Inc. together with accrued and unpaid interest thereon of $114, 841 and the issuance of 7,000,000 of the Company’s Series A preferred stock and 20,000,000 of the Company’s common stock to the sole shareholder of D & B Music, Inc., David Michery, who is also CEO and director of the Company
On June 10, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized common shares from 500,000,000 par value $0.001 to 2,000,000,000 par value $0.00001 and to designate 10,000,000 preferred shares, par value $0.00001, to be issued from time to time in one or more series as determined by the board of directors, with the balance being designated as 1,990,000,000 common shares.
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On August 6, 2013, the Company filed a Certificate of Designation with the State of Delaware to create and issue a series of 10,000,000 preferred shares to be designated the “Series A Preferred Stock”. These shares rank senior to the common stock with respect to distributions or payments in the event of any liquidation, dissolution, or winding up of the Company.
On August 19, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized common shares from 2,000,000,000 common shares, to 4,990,000,000 common shares.
Our Business
The Company (OTCQB: PMCM) currently operates in the medical marijuana, real estate management and multi-media industries.
Previous operations
The Company is considered to be a development stage company. From the date of incorporation on October 14, 2010, until a management change occurred on January 31, 2013, the Company had been devoting substantially all of its efforts to establishing new customized real estate management programs for its clients. These efforts however produced only minimal revenues.
New real estate business model
During 2013, the Company began to evaluate the feasibility of acquiring residential real estate properties which had already purchased viable land for such construction and for which building permits and tract maps were already in existence. One such project related to the possible construction of up to 60 townhouses on undeveloped land located in Corona, California called “Tuscany Villas”. The Company obtained a certified appraisal of the property and placed a deposit into escrow towards its purchase. However, the Company was subsequently unable to close escrow because it was ultimately unable to secure the financing of a substantial portion of the purchase price, which was a condition precedent to the closing. The Company continues to seek out and evaluate however other real estate investment opportunities in areas such as the medical marijuana industry.
Entertainment business model
Following the reverse merger/acquisition on January 31, 2013 of the entertainment related business, ESMG Inc., followed shortly thereafter by the acquisition of Top Sail Productions, LLC and the merger of D & B Music, Inc., the Company expanded its operations to include the production and distribution of recorded music, coupled with the prospect of potentially engaging in the production and distribution of lower budgeted motion pictures and television programs.
Music operations
The Company has financed the various music related assets that have been acquired by its wholly-owned subsidiary ESMG Inc. through the issuance of convertible debt.
The Company’s business model is to:
(a) acquire, through its joint venture relationship with Phoenix 51, distribution rights to new and original recorded music created by a stable of music artists having a history of multi-platinum sales, and to support those artist releases through the further investment by the Company in radio and marketing support provided by Phoenix 51;
(b) to selectively develop and invest in emerging music artists which the Company believes will be successful and to also support the release if such recorded music with targeted radio promotion and social media marketing; and
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(c) to market and distribute existing catalog titles of recorded music, such as physical CD’s from Top Sail Productions’ series of Casey Kasem’s compilations of “America’s Top The Hits” of the 1950’s through the 1990’s, and from the digital re-release of D & B Music catalog of mainly hip hop artists from the 1980’s and 1990’s.
The Company’s ESMG subsidiary released its first single to digital markets in the United States (including iTunes) by Tion Phipps entitled “Break Necks” on September 3, 2013; followed by Kamp Hustle’s single “Round She Go” on September 17,2013; V.I.C.’s single “Turn Up” on September 24, 2013; and Bungle Knot Dred’s single “Oh Yes, My Baby” on November 12, 2013. To date however, despite a significant investment by ESMG in marketing and promotion, digital sales have been extremely disappointing and revenues have been minimal. Management has established a reserve for loss at December 31, 2013 on its investment accordingly.
Other music artists contracted through Phoenix 51 include Jesse Scott and Hurricane Chris. The first single from Jesse Scott “F*ck My Life” was released digitally in the United States on February 18, 2014, again to only minimal sales.
Artists contracted by ESMG and under development include Choo Biggz, whose first single “Bong” was digitally released on February 9, 2014, Downtown Attraction, presently recording its first singles and emerging hip hop artist, Bruce-E-Bee.
The Company is presently reassessing its strategy with respect to the selection of, and investment in, music artists. All losses accumulated since October 14, 2010 are considered as part of the Company's development stage activities. The Company has not yet generated any significant revenues from its music related operations. To the contrary, the Company’s investment in the marketing and promotion of individual singles associated with its music artists has resulted in significant costs, which are not expected to be recouped.
Commencing June 1, 2013, through its acquisition of Top Sail Productions, the Company began to distribute through WEA (a member of the Warner Music Group) physical CD’s in the United States of the Casey Kasem branded “America’s Top The Hits” of the 1950’s through the 1990’s. CD sales are made primarily through Publishers Clearing House since the sale of CD’s through traditional retail stores has diminished significantly. While the Company intends to continue this sales strategy, because catalog sales have been modest. The Company is also exploring direct-to-consumer sales opportunities through the use of infomercials and direct marketing.
The Company began to exploit the D & B Music Catalog with the first digital release on November 5, 2013 of a compilation album of hip hop music entitled “Str8 Hip Hop Jams”, followed by other compilation albums from this music catalog. Because sales results to date have been below expectation, the Company is currently evaluating its sales strategy for catalog sales to determine if alternative marketing methods (e.g. targeted social media marketing campaigns) can produce higher revenues. All losses accumulated since October 14, 2010 through December 31, 2013 are considered as part of the Company's development stage activities. As such, the Company has not yet generated significant revenues from its operations and has no assurance of future revenues.
Motion picture operations
During 2013, ESMG began to selectively invest, through co-production opportunities, in the production of lower budget motion pictures for platform release to a limited number theaters, followed by a wide rollout to digital video-on-demand outlets (including Netflix) and to international distributors. The first of such projects being developed is the sequel to the successful animated family entertainment movie “The Legend of Sasquatch” starring William Hurt and John Rhys-Davies, called “Big Foot’s Big Halloween Adventures”. Subject to ESMG obtaining the financing necessary to fulfill its co-production obligation to the physical producer Gorilla Pictures, full production of the animated sequel is expected to begin in the
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second half of 2014. The second motion picture project is entitled “Halloween Hell” starring Eric Roberts, which is a co-production with veteran producers Herb Linsey and Edward Hunt, and which completed principal photography in January 2014. Although revenue expectations are very encouraging, it will not be known how successful these motion picture projects will be until release.
New real estate business model supporting the medical marijuana industry
On February 12, 2014, the Company decided to re-direct in its real estate business, with a new emphasis on providing locations and services to marijuana based companies. It announced that it plans to acquire certain properties, which it will lease to licensed retailers and manufacturers of medical marijuana, beginning initially in the greater Los Angeles area, with subsequent plans to extend its operations to Western States where medical marijuana is permitted by state law. The leased facilities will meet all zoning and licensing requirements for the ongoing, legal dispensing of medical cannabis. The Company does not intend to engage in the actual cultivation or sale of medical cannabis or any of its byproducts.
Implementation of the new business model
On February 14, 2014, the Company signed a conditional lease for the launch of its first medical cannabis cultivation center. Plans call to subdivide the property into up to 6 separate nurseries to be sublet to fully licensed dispensaries in Los Angeles. Final execution of the lease is contingent upon acquiring permits from the local municipality.
On February 24, 2014, the Company entered into a Joint Venture agreement with CanMed Ventures, a British Columbia company, to own, build and operate a 30,000 square foot cultivation facility for the production of medical marijuana. The Joint Venture will produce and dispense legal medical cannabis to Health Canada patients in British Columbia. CanMED expects to complete the licensing process in the next few months, Construction is expected to begin once the Company secures a suitable location. Under this agreement, the Company granted CanMED a 10-year management contract for the operation of the Joint Venture.
On March 19, 2014, the Company entered into an agreement to acquire Seattle based Suzie Q's, a medical marijuana collective fully licensed by the City of Seattle. Suzie Q's has been in operation for more than 4 years and serves over 1,500 patients. The agreement calls for the purchase of 100% of the assets of the Co-Op, as well as the purchase and transfer of a Tier I Production License granted by the Washington State Liquor Board. April 4, 2014 construction began on Suzie Q's first medical-marijuana collective. Once completed, the new upgraded and fully compliant facility will pave the way for the issuance of the Producer/Processor License.
Competition
There are a significant number of writer/composers, producers and distributors of recorded music, both original music distributed digitally and catalog product distributed via physical CD’s who are, or maybe, in competition with us in marketing, promoting and reaching the same music consumer marketplace (e.g. posting music digitally on iTunes or Amazon). However, for individual singles produced and distributed by artists under contract with us, we have obtained copyright registration (see below).
The U.S. commercial real estate services industry is large and highly fragmented, with thousands of companies providing asset management, investment management and brokerage sales and leasing transaction services. In recent years, the industry has experienced substantial consolidation, a trend that is expected to continue.
Intellectual Property
We do not own any trademarks. However, we have registered our music rights with the US Copyright Office in Washington, DC.
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Research and Development
Research and development expenses incurred during the year ended December 31, 2013 were zero, compared with $110,000 incurred in the year ended December 31, 2012 generally related to the real estate industry.
Government Regulation
Our business may be subjected to governmental regulation and required to comply in the following areas:
Acquisition of property and entry into joint ventures associated with the cultivation of medical marijuana
Under federal law, it is not legal to grow marijuana because it is listed as a controlled substance under the U.S. Controlled Substances Act. However, in certain states, the growth and cultivation of marijuana for medical purposes is legal under their own state law (e.g. California, Colorado, Washington state) although other states have been resistant to allow the cultivation of marijuana due to resistance from the U.S. Department of Drug Enforcement Agency and prohibition under federal law. Upon the production and sale of medical marijuana products to consumers, our facilities and our joint venture arrangements will be required to comply with various state and local regulation and licensing.
Distribution Arrangements.
We intend to release our films in the United States through existing distribution companies. We will retain the right for ourselves, or through our co-producing partner, to market the films on a jurisdiction-by-jurisdiction basis throughout the rest of the world and to market television and other uses separately. To the extent that we may engage in foreign distribution of our films, we will be subject to all of the governmental regulations of doing business abroad including, but not limited to, government censorship, exchange controls, and copying, and licensing or qualification. At this point it is not possible to predict, with certainty, the nature of the distribution arrangements and extent of exact governmental regulations that may impact our business.
Intellectual Property Rights.
Rights to original music compositions and to motion pictures are granted legal protection under the copyright laws of the United States and most foreign countries, including Canada. These laws provide substantial civil and criminal penalties for unauthorized duplication and exploitation (“piracy”) of music and motion pictures. Motion pictures, musical works, sound recordings, artwork, and still photography are separately subject to copyright under most copyright laws. The results of such investigations may warrant legal action by us as the owner/co-owner of the rights.
Employees
We currently have three employees, David Michery (President, Secretary and CEO), Steven John Corso (CFO) and Ramiro Guzman (SVP, Real Estate Division). Our employees devote such efforts and spend as much time as is necessary for the Company to conduct its operations. We will hire additional necessary personnel solely as needed, and on a per contract basis as independent consultants.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company”.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to a “smaller reporting company”.
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ITEM 2. PROPERTIES.
Our current executive offices are located at 1875 Century Park East, 6th Floor, Suite 73, Century City, CA, 90067. Our telephone number at our executive office is (310) 407-5452. These offices continue to be provided free of charge by Alan J. Bailey, an officer and director of the Company until his resignation on February 14, 2014 and consist of 140 square feet, with access to a common reception area and adjacent conference rooms.
In addition, commencing August 1, 2013, the Company entered into a lease for offices at 6725 Sunset Boulevard, Suite 420, Los Angeles, CA 90028 to house the Company’s music and motion picture production and distribution operations. The offices consist of 2,592 square feet for a lease term of 66 months. As an inducement for the Company to lease the space, a 50% rent abatement of $ 45,100.80 was allowed by the landlord for the first 12 months’ of occupation, so that the annualized rent for the first 12 months is $ 45,100.80, plus common areas charges. Thereafter, the rent becomes $92,897.28 in year two; $ 95,696.64 in year three; $ 98,573.76 in year four; $101,528.64 in year 5 and $ 52,280.64 for the final 6 months in year 6, plus an applicable increment for common area costs in all years. As a further concession, the landlord granted a tenant improvement allowance of up to $ 25,920 to cover the cost of initial (move-in) construction build and certain equipment required by the Company.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 5(a)
Market Information
a)Market Information. Our common stock was not quoted on a market or securities exchange until February 6, 2013, when our common stock first began to trade on OTC.QB. Since that date, our common stock is traded on the OTC .QB under the symbol “PMCM”.
The following table sets forth the reported high and low closing bid prices for our common stock as reported on the OTC Bulletin Board for the following periods. These prices do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.
Year ended December 31, 2013
High Low
First quarter $ 0.2500 $ 0.0223
Second quarter 0.0420 0.0012
Third quarter 0.0150 0.0012
Fourth quarter 0.0018 0.0001
b) Holders. At April 15, 2014, there were 2,144 shareholders of the Company.
c)Dividends. Holders of the Company’s common stock are entitled to receive such dividends as may be declared by our board of directors. No dividends on the Company’s common stock have been declared or paid to date.
d) Securities authorized for issuance under equity compensation plans. No securities are authorized for issuance by the Company under equity compensation plans.
e) Performance graph. Not applicable.
f) Sale of unregistered securities. Not applicable
Item 5(b)
Use of Proceeds.
Not applicable.
Item 5(c)
Purchases of Equity Securities by the issuer and affiliated purchasers.
Not applicable
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ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K (THIS “FORM 10-K”), CONSTITUTE “FORWARD LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE “REFORM ACT”). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “BELIEVES”, “EXPECTS”, “MAY”, “SHOULD”, OR “ANTICIPATES”, OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF MASS HYSTERIA ENTERTAINMENT COMPANY, INC. (“THE COMPANY”, “WE”, “US” OR “OUR”) TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2012.
Since our incorporation on October 14, 2010 in the state of Delaware we have been a development stage company. We began by offering a general array of real estate management services, which continued until January 31, 2013. We then redirected our real estate focus to seeking out properties which had obtained the necessary building permits but which needed finance to start construction. In addition, as of January 31, 2013 with our acquisition of ESMG Inc. we added an entertainment related business segment. Our performance can be significantly affected by changes in general economic conditions and, specifically, shifts in consumer confidence and spending. Additionally, our performance can be affected by competition. Management believes that, as both industries continue to consolidate, competition with respect to pricing will intensify. Such a heightened competitive pricing environment will make it increasingly important for us to successfully distinguish ourselves from competitors based on quality and superior service and content and on our operating efficiency. We are currently not aware of any other known material trends, demands, commitments, events or uncertainties that will have, or are reasonable likely to have, a material impact on our financial condition, operating performance, revenues and/or income, or results in our liquidity decreasing or increasing in any material way.
Going Concern
Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our current and future liabilities when they become due until such time, if ever, that we are able to generate sufficient revenues to attain profitable operations. We have experienced losses and negative cash flows from operations since inception and, at December 31, 2013, we had a working capital deficit of $1,943,029 and an accumulated deficit of $3,691,313. The report of our independent registered public accounting firm on our financial statements for fiscal 2012 contained an explanatory paragraph regarding our ability to continue as a going concern. There can be no assurance that acceptable financing to fund our ongoing operations can be obtained on suitable terms, if at all. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment in our company.
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Results of Operations
For the year ended December 31, 2013, we generated gross revenues of $72,116 compared with revenues of $0 for the year ended December 31, 2012.
Our operating expenses for the year ended December 31, 2013 totaled $896,405, which included management compensation of $374,212; consultants fees of $ 239,500, legal and audit fees of $43,860 and all other operating costs of $239,500. The net operating loss was $868,412 for the year. By comparison, our operating expenses for the year ended December 31, 2012 totaled $5,000, which was entirely from stock issued to consultants, resulting in a net operating loss of $137,540.
For the year ended December 31, 2013, we incurred non-operating expenses totaling $2,817,901, including interest expense of $ 888,286, loss (net) on change in fair value of derivatives of $1,891,115 and a provision for loss on property development of $38,500. This resulted in a net loss for the year ended December 31, 2013 of $3,686,313, compared with a net loss of $5,000 for the year ended December 31, 2012.
For the period from inception (October 14, 2010) through December 31, 2013, we generated cumulative gross revenues of $72,116 or $27,993 after cost of sales. Our operating expenses for the same period cumulatively totaled $873,412, resulting in a cumulative loss from operations of $873,412. After deducting a total of $2,817,901 for cumulative non-operating expenses (including interest expense of $888,286, loss on change in fair value of derivatives and $38,500 reserve for loss on property development) the overall cumulative net loss from inception through December 31, 2013 totaled $3,691,313.
Our operating expenses consisted mainly of developing and rolling out our business plans and the cost of our convertible debt financing arrangements, as well as the cost of management, consultants and office operations.
Liquidity and Capital Resources
Our cash resources totaled $64,771 at December 31, 2013 (an increase from $0 at December 31, 2012). However, our total current assets at December 31, 2013 amounted to $181,325 against total current liabilities of $2,124,354. Accordingly, we need a new infusion of capital to sustain our operations from third-party sources.
We have had no off balance sheet arrangements since inception through December 31, 2013.
The Company has not generated sufficient revenue from its operations and needs to raise capital to meet the operating requirements over the next twelve months. The Company’s financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The report from the Company’s independent registered public accounting firm states that there is substantial doubt about the Company’s ability to continue as a going concern.
Plan of Operation for the Next 12 months
To help improve our current limited financial position, we plan to carefully seek out and secure third-party equity financing, both short-term and long-term, to both replace our current convertible debt financing and to provide a new and more stable source of capital. Our convertible debt financing to date has been expensive and highly dilutive and detrimental to our stock and needs to be replaced with less costly equity investment.
We intend to more carefully review investment in any future music artist so that we can more effectively manage our risk and downside. We view investment in a well packaged, well cast lower budget motion picture to be preferable than and investment in a higher risk one-off/unproven music artist.
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We have redirected our real estate focus to acquiring properties specifically for lease to legalized medical marijuana cultivation growers and to investment, potentially with joint ventures, in business associated with the legalized growing of medical marijuana.
We also intend to include potential strategic business partners and alliances as possible sources of financing, as well as traditional institutional and venture capital sources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable for smaller reporting companies.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PRIMCO MANAGEMENT INC.
(A Development Stage Company)
Index to
Financial Statements
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Report of Independent Registered Public Accounting Firm (Restated) |
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Consolidated Balance Sheets as of December 31, 2013 and 2012 (Restated) |
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Consolidated Statements of Operations for the years ended December 31, 2013 and 2012 (Restated) |
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Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2013 and 2012 (Restated) |
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Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 (Restated) |
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Notes to Financial Statements (Restated) |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and shareholders of
Primco Management, Inc.
Century City, California
I have audited the accompanying consolidated balance sheets of Primco Management, Inc. and its subsidiaries (the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were I engaged to perform, an audit of its internal control over financial reporting. my audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for the years ended December 31, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 of the accompanying consolidated financial statements, the Company has no revenues, has incurred losses since inception, and has a negative working capital balance at December 31, 2013, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Terry L. Johnson, CPA
Casselberry, Florida
April 15, 2014
Restated May 15, 2014
15
Primco Management Inc.
(A Development Stage Company)
Consolidated Balance Sheets
| (Restated) | (Restated) |
| December 31, | December 31, |
| 2013 | 2012 |
ASSETS |
|
|
Current Assets: |
|
|
Cash and cash equivalents | $ 64,771 | $ - |
Accounts receivable, net | 26,026 | - |
Inventory, net | 70,528 | - |
Advances to related party | - | - |
Intellectual property rights: Music, net of impairment | - | - |
Intellectual property rights: Motion Picture | - | - |
Prepaids | 20,000 | - |
Total Current Assets | 181,325 | - |
|
|
|
Property and equipment, net | 7,885 | - |
|
|
|
Other Assets: |
|
|
Music catalog | - | - |
Lease deposit | 8,714 | - |
Total Other Assets | 8,714 | - |
Total Assets | $ 197,924 | $ - |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
Current Liabilities: |
|
|
Accounts payable | $ 97,979 | $ - |
Accrued liabilities | 301,175 | - |
Due to related party | 13,928 | 25,750 |
Short-term notes payable | 713,000 | 1,025,000 |
Short-term convertible notes payable, net of discounts | 711,201 | - |
Derivative liability | 287,071 | - |
Total Current Liabilities | 2,124,354 | 1,050,750 |
Total Liabilities | 2,124,354 | 1,050,750 |
|
|
|
Stockholders' Equity: |
|
|
Preferred Stock, $0.00001 par value, 10,000,000 shares authorized, |
|
|
7,000,000 and -0- shares issued and outstanding, respectively | 70 | - |
Common Stock, $0.00001 par value, 4,990,000,000 shares authorized |
|
|
1,873,002,181 and 5,000,000 shares issued and outstanding, respectively | 18,730 | 50 |
Additional paid in capital | 1,746,083 | (1,045,800) |
Accumulated deficit during development stage | (3,691,313) | (5,000) |
Total Stockholders' Equity (Deficit) | (1,926,430) | (1,050,750) |
|
|
|
Total Liabilities and Stockholders' Equity | $ 197,924 | $ - |
The accompanying notes are an integral part of these financial statements
16
Primco Management Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(Restated)
|
|
|
| From inception | |
|
|
|
| (October 14, | |
| For the Year Ended | 2010) through | |||
| December 31, | December 31, | |||
| 2013 |
| 2012 | 2013 | |
|
|
|
|
| |
Revenues | $ 72,116 |
| $ - | $ 72,116 | |
Costs of services | 44,123 |
| - | 44,123 | |
|
|
|
|
| |
Gross Margin | 27,993 |
| - | 27,993 | |
|
|
|
|
| |
Operating Expenses: |
|
|
|
| |
Consulting | 239,500 |
| - | 239,500 | |
General and administrative | 238,833 |
| 5,000 | 243,833 | |
Management salaries | 374,212 |
| - | 374,212 | |
Professional fees | 43,860 |
| - | 43,860 | |
Total Operating Expenses | 896,405 |
| 5,000 | 901,405 | |
|
|
|
|
| |
Loss from Operations | (868,412) |
| (5,000) | (873,412) | |
|
|
|
|
| |
Other Expenses: |
|
|
|
| |
Interest expense | 888,286 |
| - | 888,286 | |
Interest expense - derivative | 1,891,115 |
| - | 1,891,115 | |
Provision for loss on property development | 38,500 |
| - | 38,500 | |
Total Other Expense | 2,817,901 |
| - | 2,817,901 | |
|
|
|
|
| |
Net Loss Before Income Taxes | (3,686,313) |
| (5,000) | (3,691,313) | |
|
|
|
|
| |
Provision for Income Taxes | - |
| - | - | |
|
|
|
|
| |
Net Loss | $ (3,686.313) |
| $ (5,000) | $ (3,691,313) | |
|
|
|
|
| |
Net Loss per Share - Basic and Diluted | $ (0.00) |
| $ (0.00) |
| |
|
|
|
|
| |
Weighted average number of shares |
|
|
|
| |
outstanding - Basic and Diluted | 1,881,476,718 |
| 5,000,000 |
| |
The accompanying notes are an integral part of these financial statements
17
Primco Management Inc.
(A Development Stage Company)
Statements of Stockholders’ Equity
(Restated)
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| Deficit |
|
|
|
|
|
| Additional | During | Stockholders' |
| Preferred Stock | Common Stock | Paid in | Development | Equity | ||
| Shares | Amount | Shares | Amount | Capital | Stage | (Deficit) |
Balance at October 14, 2010 | - | $ - | - | $ - | $ - | $ - | $ - |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 | - | - | - | - | - | - | - |
|
|
|
|
|
|
|
|
Balance, December 31, 2011 | - | - | - | - | - | - | - |
|
|
|
|
|
|
|
|
Acquisition of music and picture rights | - | - | - | - | (1,050,750) | - | (1,050,750) |
Stock issued for services | - | - | 5,000,000 | 50 | 4,950 | - | 5,000 |
Net loss | - | - | - | - | - | (5,000) | (5,000) |
Balance, December 31, 2012 | - | - | 5,000,000 | 50 | (1,045,800) | (5,000) | (1,050,750) |
|
|
|
|
|
|
|
|
Recapitalization |
|
| 179,912,000 | 1,799 | (225,076) | - | (223,277) |
Issuance of stock in part consideration |
|
|
|
|
|
|
|
for purchase of Top Sail Productions, LLC | - | - | 5,000,000 | 50 | 14,950 | - | 15,000 |
Issuance of stock for D&B Music acquisition | 7,000,000 | 70 | 20,000,000 | 200 | (357,111) | - | (356,841) |
Issuance of stock to settle convertible debt | - | - | 1,663,090,181 | 16,631 | 808,009 | - | 824,640 |
Derivative liability adjustment | - | - | - | - | 2,551,111 | - | 2,551,111 |
Net loss | - | - | - | - | - | (3,686,313) | (3,686,313) |
Balance, December 31, 2013 | 7,000,000 | $ 70 | 1,873,002,181 | $ 18,730 | $ 1,746,083 | $ (3,691,313) | $ (1,926,430) |
The accompanying notes are an integral part of the financial statements.
18
Primco Management Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Restated)
|
|
|
| From inception |
|
|
|
| (October 14, |
| For the Years Ended | 2010) through | ||
| December 31, | December 31, | ||
| 2013 |
| 2012 | 2013 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net Income (Loss) for the Period | $ (3,686,313) |
| $ (5,000) | $ (3,691,313) |
Adjustments to reconcile net loss to net cash |
|
|
|
|
provided by operating activities: |
|
|
|
|
Common stock issued for services | - |
| 5,000 | 5,000 |
Depreciation and amortization | 1,527 |
| - | 1,527 |
Interest expense- derivative | 287,162 |
| - | 287,162 |
Changes in Operating Assets and Liabilities |
|
|
|
|
Decrease (Increase) in accounts receivables | (26,026) |
| - | (26,026) |
Increase in inventory | (70,528) |
| - | (70,528) |
Increase in prepaid expenses | (28,714) |
| - | (28,714) |
Increase in advances to related party | 13,928 |
| - | 13,928 |
Increase in accounts payable | 97,979 |
| - | 97,979 |
Increase in accrued liabilities | 291,175 |
| - | 291,175 |
Discount on short-term convertible debt | (128,463) |
|
| (128,463) |
Net Cash Proceeds (Used) in Operating Activities | (3,248,273) |
| - | (3,248,273) |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Purchase of property and equipment | (9,412) |
| - | (9,412) |
Net Cash Used In Investing Activities | (9,412) |
| - | (9,412) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from convertible debt | 1,552,664 |
| - | 1,552,664 |
Share capital | 18,051 |
| - | 18,051 |
Additional paid in capital | 1,751,741 |
| - | 1,751,741 |
Net Cash Provided by Financing Activities | 3,322,456 |
| - | 3,322,456 |
|
|
|
|
|
Net (Decrease) Increase in Cash | 64,771 |
| - | 64,771 |
|
|
|
|
|
Cash at Beginning of Period | - |
| - | - |
|
|
|
|
|
Cash at End of Period | $ 64,771 |
| $ - | 64,771 |
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
| |
Cash paid during period: |
|
|
|
|
Interest | $ - |
| $ - | $ - |
Franchise and Income Taxes | $ - |
| $ - | $ - |
|
|
|
|
|
19
Primco Management Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Restated)
Continued from previous page
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
| |
|
|
|
|
|
Issuance of short term note payable to purchase intellectual property |
|
|
| |
rights: Music | $ - |
| $ - | $ 1,442,402 |
Issuance of short term note payable to purchase intellectual property |
|
|
| |
rights: Motion Picture | $ - |
| $ - | $ 315,000 |
Issuance of short term note payable by Southridge for S-1 legal fees | $ 20,000 |
| $ - | $ 20,000 |
The accompanying notes are an integral part of the financial statements.
20
Primco Management Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2013
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Primco Management Inc. (the “Company”) was incorporated under the laws of the state of Delaware on October 14, 2010.
On October 10, 2012, the Company’s board of directors adopted a resolution approving an amendment to our Articles of Incorporation to effectuate an increase of the authorized common shares from 25,000,000 par value $0.001 to 500,000,000 par value $0.001 and additionally authorized a 20 for 1 forward split increasing the number of issued and outstanding common shares from 9,245,600 common shares to 184,912,000 common shares. The forward split did not affect the number of authorized common shares or their par value.
On June 10, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized common shares from 500,000,000 par value $0.001 to 2,000,000,000 par value $0.00001 and to designate 10,000,000 preferred shares, par value $0.00001, to be issued from time to time in one or more series as determined by the board of directors, with the balance being designated as 1,990,000,000 common shares.
On August 6, 2013, the Company filed a Certificate of Designation with the State of Delaware to create and issue a series of 10,000,000 preferred stock to be designated the “Series A Preferred Stock” .These shares rank senior to the common stock with respect to distributions or payments in the event of any liquidation, dissolution, or winding up of the Company.
On August 19, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized shares from 2,000,000,000 par value $0.00001 to 5,000,000,000 par value $0.00001, with 10,000,000 preferred shares, par value $0.00001 and 4,990,000,000 common shares, par value $ 0.00001, to be issued from time to time in one or more series as determined by the board of directors.
Mergers and Acquisitions
Effective January 31, 2013, the Company executed a reverse merger with ESMG, Inc. by entering into a stock purchase agreement whereby the Company acquired all of the issued and outstanding stock of ESMG, Inc. as well as the assets, contracts and obligations of ESMG Inc. existing as of that date through a cashless exchange of stock. ESMG Inc., which was formed in the state of Nevada on October 9, 2012, is a formative multi-media entertainment enterprise with an active music production and distribution division, as well as having a business plan to launch a motion picture and TV production and distribution division; a radio content syndication division and an on-line interactive sports division. Accordingly, as of January 31, 2013, through the acquisition of ESMG Inc., the Company expanded its operations to include entertainment in addition to continuing to offer real estate management and development services.
On May 30, 2013, the Company completed and funded the acquisition of Top Sail Productions, “Top Sail” a music production company and record label with a multi-year US distribution agreement through WEA, a Warner Music Group Company. The Company purchased Top Sail from Chuck Gullo, the principal of Top Sail, who will continue as Senior Executive Consultant to assist in the operation of Top Sail and other
21
entertainment entities owned by the Company. The Company purchased the membership interests in Top Sail for a total of $440,000. The initial payment was $75,000 and $15,000 worth of the Company’s 5,000,000 restricted common shares. The remaining $350,000 is being paid in installments until June 30, 2016 pursuant to a three year consulting agreement with Mr. Gullo. As of December 31, 2013, the Company has paid a total of $37,500 ($6,250/month) pursuant to the payment terms of the consulting agreement.
On June 1, 2013 the board of directors entered into an Amendment and Plan of Reorganization with D & B Music, Inc. (previously known as D & B Records, Inc.) a Delaware corporation, in which D & B Music, Inc. merged with and into the Company. D & B Music, Inc, has a music catalog of 41 titles. The consideration paid by the company was the assumption by the Company of a promissory note for $242,000 due Pegasus Group, Inc. together with accrued and unpaid interest thereon of $114, 841 and the issuance of 7,000,000 of the Company’s Series A preferred stock and 20,000,000 of the Company’s common stock to the sole shareholder, David Michery, who the CEO and director of the Company.
Nature of operations
The Company is a real estate management and property development company and., through its wholly-owned subsidiaries of ESMG Inc, Top Sail Productions, LLC and D & B Music, Inc., the Company produces and distributes recorded music and intends to co-produce for distribution lower budgeted motion pictures.
In February, 2014 the Company expanded its operations to include the leasing and property management of facilities for the legal cultivation of medical cannabis, and the acquisition and/or entering into joint ventures with third parties involving the planning, staffing, management and operation of legalized medical marijuana dispensing and cultivation.
Development stage enterprise
The Company is a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915 "Development Stage Entities". Since October 14, 2010 the Company had been devoting substantially all of its efforts in real estate management and property development programs as well as the production and creation of recorded music by such artists as V.I.C., Tion Phipps, Jesse Scott, Kamp Hustle, Bungle Knot Dred as well as the exploitation of the Top Sail Productions’ Casey Kasem music library and the D & B music library.
Use of estimates
The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.
Revenue recognition
Operating revenue during the year ended December 31, 2013 consists of the physical and digital sale of recorded music.
The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
22
Research and development
The Company records research and development expense as incurred.
Net loss per common share
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by ASC Topic 260, "Earnings per Share". Basic earnings per common share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Income taxes
Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Financial Accounting Standards Board Accounting Standards Codification ASC 740, “ Income Tax,” requires the recognition of the impact of a tax position in the financial statements only if that position is more likely than not of being sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position.
At December 31, 2013 and 2012, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions.
Concentration of cash
The Company maintains cash balances at a bank where amounts on deposit may exceed $250,000 throughout the year. Accounts at the institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash.
Recent accounting pronouncements
The Company does not believe recently issued accounting pronouncements will have any material impact on its financial position, results of operations or cash flows.
NOTE 2 – GOING CONCERN
The Company is a development stage company and the management of the Company has devoted substantially all of its efforts to locating real estate properties for development and constriction and to the production and/or distribution of recorded music from the music artists it has developed and from the music catalogs that it has acquired. The Company expects operating costs to continue to exceed funds generated from operations until significant revenues are generated from its operations and from new financing sources.
The Company had only generated minimal revenues from its operations through December 31, 2013 mainly due to the unsuccessful and disappointing sale of recorded music from the music artists it has under contract. As a result, the Company expects to continue to incur operating losses in the near term, and
23
the operations in the near future are expected to continue to require working capital. The ability of the Company to continue as a going concern is in turn dependent on its ability to raise capital to meet its operating requirements.
The Company’s independent auditors, in their report on the financial statements for the years ended December 31, 2013 and 2012, expressed substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.
NOTE 3 - ACCOUNTS RECEIVABLE AND INVENTORY
Accounts receivable represents the net amount due from WEA/Warner Music Group from the sale of Top Sale Productions’ music CDs, and ESMG’s digital music releases through December 31, 2013. As of December 31, 2013 and 2012, the Company had accounts receivable balances of $26,026 and $0.
Inventory represents the finished cost of Top Sail Productions’ music CDs (including prepaid royalties to music artists) available for resale to consumers, less a reserve for defective CDs of $3,729. As of December 31, 2013 and 2012, the Company had net inventory balances of $70,528 and $0.
NOTE 4 – REVERSE MERGER WITH ESMG, INC.
On January 31, 2013, the Company executed a stock purchase agreement with ESMG, Inc. whereby the Company’s majority stockholder sold 155,200,000 shares of common stock (approx. 86.52% of the issued and outstanding) in exchange for all of the issued and outstanding stock of ESMG, Inc. On the date of the stock purchase agreement, ESMG, Inc. had an asset balance of $1,050,750 which consisted entirely of intangible assets related to music and picture rights and a liabilities balance of $1,050,750 which was made up of $1,025,000 in current notes payable and $25,750 in accounts payable. Management deemed it too costly to have the $1,050,750 of intangible assets appraised at fair value and therefore wrote the intangible assets down to zero with the offsetting entry to additional paid in capital.
Intellectual Property - Music
Through the acquisition of ESMG, Inc., the Company acquired the intangible assets of ESMG, Inc. which included the intellectual property rights to produce and/or co-produce original recorded music, and subsequent production and marketing costs, for the worldwide distribution of the following artists:
Artist
(a)
Jesse Scott
(b)
V.I.C.
(c)
Hurricane Chris
(d)
Tion Phipps
(e)
Choo Biggz
(f)
Bruce-E-Bee
(g)
Downtown Attraction
(h)
Kamp Hustle
(i)
Bungle Knot Dred
(j)
Other various Hip Hop catalog artists
24
Intellectual Property - Picture
Through the acquisition of ESMG, Inc., the Company acquired the motion picture rights to co-produce with Gorilla Pictures the right to distribute worldwide the animated motion picture “Bigfoot’s Big Halloween Adventures” (the sequel to “The Legend of Sasquatch’). Management did not record an intellectual property asset with regards to the acquisition of ESMG, Inc. due to the lack of evidence to support a current valuation of the music and picture rights. The Company did not have an independent valuation of the intangible assets acquired. Management has reclassified the intangible assets upon acquisition to additional paid in capital due to the uncertain nature of future returns from the intellectual property assets. To date, the Company has generated minimal revenues from the music property rights.
NOTE 5 – PREPAID EXPENSES
Prepaid expenses represent fees and costs totaling $ 135,000 incurred with Southridge Partners II, LLC “Southridge”) in connection with the Equity Purchase Agreement entered into by the Company on September 30, 2013 whereby Southridge has undertaken to purchase up to $ 10 million of the Company’s issued common stock periodically over a 24 month period at a rate equal to 90% of the Company’s trading price during the applicable period prior to drawdown. The Company’s obligation to Southridge for their fee and legal costs is evidenced partly through a promissory note for $ 100,000 due June, 2014 and partly through a convertible note for $ 35,000 maturing August 20, 2014. Under the terms of this Agreement, the Company is required to register an S-1 for the authority to issue registered common shares, which it plans to do so by the end of second quarter 2014..
Management plans to use the net proceeds from this facility to make early retirement of convertible debt as well as to finance ongoing operations and new investments. Because the transaction is not triggered until the successful registration of the S-1, the total cost of $ 135,000 has been treated as a prepaid expense and will be expensed concurrent with the S-1 filing. As of the date of this filing, Southridge Partners II, LLC only advanced $20,000 to lawyers pursuant to this agreement. Furthermore, the Company is in the process of terminating the Equity Purchase Agreement with Southridge. The Company has restated its financial statements as of December 31, 2013 to write off $115,000 of prepaid expenses against $35,000 in convertible notes payable and $80,000 in promissory notes payable to Southridge Partners II, LLC.
NOTE 6 – ACQUISITION OF D&B MUSIC, INC.
The music catalog arises from the merger of D & B Music, Inc. into the Company on June 1, 2013. D & B Music, Inc. (formerly D & B Records, Inc.) has the worldwide rights to reproduce and distribute 41 fully produced titles.
The sole shareholder of D & B Music, Inc. at the time of merger was David Michery, the Company’s CEO and President.
The Company did not record an intangible asset on this acquisition because the transaction was consumed between related parties. The Company did not have an independent valuation of the assets acquired. The cost to acquire D & B Music, Inc. was the assumption of $357,111 in liabilities as well as the par value of stock issued as noted in part (b) below
The cost of $357,111 represents:
(a)
the assumption by the Company of a promissory note, originally dated February 1, 2009, payable in the amount of $242,000 to Pegasus Group, Inc., together with the assumption of accrued and unpaid interest thereon through June 30, 2013 of $114,841, for total consideration of $ 356,841 to acquire D & B Music, Inc.; plus
25
(b)
$ 270 par value of 7,000,000 preferred shares and 20,000,000 common shares issued to David Michery for the right to access and duplicate the recording masters associated with both the D & B Music catalog and David Michery’s own music catalog, for exploitation by ESMG and distribution through WEA/Warner Music Group.
ESMG has begun to compile and rerelease albums of artists comprised in both music catalogs. Interest continues to accrue at the rate of 10% on the balance of principal due to Pegasus Group, Inc.,
NOTE 7 – FIXED ASSETS: FURNITURE AND EQUIPMENT
Property and equipment consists of the following at December 31, 2013:
| December 31, 2013 |
| ||||
Property and equipment, net |
|
| $ 9,412 |
| ||
Less: accumulated depreciation |
|
| 1,527 |
| ||
Property and equipment, net |
|
| $ 7,885 |
| ||
Depreciation expense for the three months ended March 31, 2014 was $728.
This represents the cost ($9,412) less accumulated depreciation through December 31, 2013 ($1,527) of furniture and equipment purchased for the operating offices of ESMG and Top Sail Productions, which offices became fully operational as of August 1, 2013 (see Note 4).
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities at December 31, 2013 represent the following:
Accrued interest: D & B Music, Inc. (See Note 6) | $134,805 |
Other accrued interest on short-term debt | 40,658 |
Accrued management compensation due CEO and CFO | 125,712 |
Total accrued liabilities | $301,175 |
As of December 31, 2013, the Company had an accrued salary liability to its CEO, David Michery, in the amount of $83,808 and an accrued salary liability to its CFO, Alan Bailey, in the amount of $41,904. In the year ended December 31, 2013, the Company made cash payments against Mr. Michery’s salary agreement in the amount of $130,000. In the year ended December 31, 2013 the Company made cash payments against Mr. Bailey’s salary agreement in the amount of $77,500.
NOTE 9 – DUE TO AFFILIATED COMPANY
The amount due to affiliated company of $13,928 at December 31, 2013 represents the balance due to Michery Inc. for costs originally incurred by Michery, Inc. totaling $25,750 to acquire and initial test market music recorded by the music artist Bruce-E-Bee. Michery Inc. assigned all right and interest to this artist to ESMG Inc. on October 22, 2013, with the understanding that ESMG Inc., reimburse Michery, Inc. those costs. Michery Inc. is owned by our CEO, David Michery.
NOTE 10 – COMMITMENTS & CONTINGENCIES
The Company remitted $35,000 on September 6, 2013 to open an escrow deposit to acquire a parcel of approximately 3.55 acres of land located in the city of Corona, California with already approved plans, permits and tract mapping etc. to construct 60 residential townhouses to be called “Tuscany Villas”. In addition, the Company obtained a certified appraisal on the property at a cost of $ 3,500. The total purchase price was subsequently reduced on December 5, 2013 to $4,100,000. The current property owner agreed
to take back a first trust deed note in the property of $ 2,645,000, leaving the Company to fund the balance
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of $1,420,000 on or before the required escrow closing and funding date of January 14, 2014. The Company was unable to secure the required funding by the close of escrow and have forfeited the $35,000 deposit. The Company plans to pursue this project and is still in negotiations with the land owner.
Office lease
The Company entered into a lease agreement on July 1, 2013 which commenced on August 31, 2013. The Company paid a lease deposit of $8,714 represents a security deposit paid to the landlord against the lease of office space at 6725 Sunset Boulevard, Suite 420, Hollywood, CA 90028, which houses ESMG’s music and motion picture operations. The offices consist of 2,592 square feet for a lease term of 66 months. As an inducement for the Company to lease the space, a 50% rent abatement of $ 45,100.80 was allowed by the landlord for the first 12 months’ of occupation, so that the annualized rent for the first 12 months is $ 45,100.80, plus common areas charges. Thereafter, the rent becomes $92,897.28 in year two; $ 95,696.64 in year three; $ 98,573.76 in year four; $101,528.64 in year 5 and $ 52,280.64 for the final 6 months in year 6, plus an applicable increment for common area costs in all years. As a further concession, the landlord granted a tenant improvement allowance of up to $25,920 to cover the cost of initial (move-in) construction build and certain equipment required by the Company.
Minimum future rental payments under the agreement are as follows:
2014 - $61,033
2015 - $93,830
2016 - $96,655
Employment agreements
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000 with no bonus or stock options. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000 with no bonus or stock options. As of December 31, 2013, the Company had an accrued salary liability to Mr. Michery in the amount of $83,808 and an accrued salary liability to Mr. Bailey in the amount of $41,904. In the year ended December 31, 2013, the Company actually paid $130,000 in cash payments to Mr. Michery pursuant to his salary agreement. In the year ended December 31, 2013, the Company actually paid $77,500 in cash payments to Mr. Bailey pursuant to his salary agreement.
Consulting agreement with Chuck Gullo
On May 30, 2013, the Company completed and funded the acquisition of Top Sail Productions, “Top Sail” a music production company and record label with a multi-year US distribution agreement through WEA, a Warner Music Group Company. The Company purchased Top Sail from Chuck Gullo, the principal of Top Sail, who will continue as Senior Executive Consultant to assist in the operation of Top Sail and other entertainment entities owned by the Company. The Company purchased the membership interests in Top Sail for a total of $440,000. The initial payment was $75,000 and $15,000 worth of the Company’s 5,000,000 restricted common shares. The remaining $350,000 is being paid in installments until June 30, 2016 pursuant to a three year consulting agreement with Mr. Gullo. As of December 31, 2013, the Company has paid a total of $37,500 ($6,250/month) pursuant to the payment terms of the consulting agreement.
NOTE 11 – INCOME TAXES
Through December 31, 2013, the Company incurred net operating losses for tax purposes of approximately $4.2 million.. The net operating loss carry forward for federal purposes may be used to reduce taxable income through the year 2033. The availability of the Company’s net operating loss carry forward may be subject to limitation if there is a 50% or more change in the ownership of the Company’s stock.
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A reconciliation of the potential federal tax benefit computed at the statutory federal income tax rate of 34% to the provision for income taxes is as follows:
| Year ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Inception to Year Ended December 31, 2010 |
Net loss for period | $(4,048,486) | $(137,540) | $(48,744) | $(12,000) |
Potential tax benefit at statutory rates | $(1,376,485) | $(46,764) | $(16,473) | $(4,080) |
Change in valuation allowance | 1,376,485 | 46,764 | 16,473 | 4,080 |
Provision for income taxes | $0 | $0 | $0 | $0 |
The cumulative deferred tax asset at December 31, 2013 and 2012 was $1,443,802 and $ 67,417 respectively.
A 100% valuation allowance has been established against the deferred tax asset as the utilization of the loss carry forward cannot be reasonably assured. Significant components of the deferred tax assets (liability), computed at the statutory federal tax rate of 34% are as follows:
| 2013 | 2012 |
Deferred tax asset | $1,443,802 | $67,417 |
Valuation allowance | (1,443,802) | (67,417) |
Net deferred tax asset | $0 | $0 |
Although the Company is not under examination, the tax years for 2010 and forward are subject to examination by United States tax authorities. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31,2013 and 2012, however there was no accrued interest or penalties related to uncertain tax positions.
NOTE 12 – RELATED PARTY TRANSACTIONS
Acquisition of Bruce-E-Bee artist recording contract
As explained in Note 10, the Company assumed the obligation to reimburse Michery, Inc (a company owned by our CEO) the sum of $25,750 in reimbursement of the actual costs incurred by Michery, Inc. to acquire and initial test market music recorded by the music artist Bruce-E-Bee.
Merger of D & B Music, Inc.
As explained in Note 7, D & B Music, Inc.(formerly D & B Records, Inc.) merged with the Company on June 1, 2013. D & B Music, Inc. has the worldwide right to reproduce and distribute 41 fully produced titles. At the time of merger, the sole owner of D & B Music, Inc. was David Michery, our CEO. As a component of the merger, David Michery received 7,000,000 preferred shares and 20,000,000 common shares of the Company.
Employment Agreements
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000 with no bonus or stock options. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000 with no bonus or stock options. As of December 31, 2013, the Company had an accrued salary liability to Mr. Michery in the amount of $83,808 and an accrued salary liability to
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Mr. Bailey in the amount of $41,904. In the year ended December 31, 2013, the Company actually paid $130,000 in cash payments to Mr. Michery pursuant to his salary agreement. In the year ended December 31, 2013, the Company actually paid $77,500 in cash payments to Mr. Bailey pursuant to his salary agreement.
NOTE 13 – SHORT TERM DEBT
On November 25, 2013, Magna Funds, LLC entered into a debt purchase agreement with GAGG, Inc. for the purchase and assignment of $50,000 in principle of that certain promissory note to GAGG, Inc. in the original amount of $250,000 dated May 21, 2013. On the same date, the Company then entered into a convertible debenture with Magna Funds, LLC for that $50,000 of debt assigned. As of December 31, 2013, Magna Funds, LLC has not converted any principle on the note.
On December 30, 2013, Magna Funds, LLC entered into a debt purchase agreement with GAGG, Inc. for the purchase and assignment of $50,000 in principle of that certain promissory note to GAGG, Inc. in the original amount of $250,000 dated May 21, 2013. On the same date, the Company then entered into a convertible debenture with Magna Funds, LLC for that $50,000 of debt assigned. As of December 31, 2013, Magna Funds, LLC has not converted any principle on this note.
Short-term debt at December 31, 2013 represents the following:
Balance of Promissory Note due GGAG, Inc. | 200,000 |
Balance of Promissory Note due Pegasus Group, Inc. | 228,000 |
Promissory Note due Southridge Partners II, LLC | 20,000 |
Balance of Promissory Note due Gorilla Pictures | 265,000 |
Total Notes Due | $713,000 |
NOTE 14 - SHORT-TERM CONVERTIBLE DEBT AND DERIVATIVE LIABILITY
From time-to-time, the Company enters into convertible note agreements whereby the conversion feature is required to be bifurcated out as a derivative liability. Upon conversion of all or a portion of the convertible note, the derivative liability associated with the principal and interest converted is valued immediately before conversion using the Black-Scholes model. The change in fair value of the derivative liability associated with the principal and interest converted was recorded as a gain/loss on fair value of derivative liability in the accompanying statement of operations, with the remaining value of that portion of the derivative liability written off with a corresponding credit to additional paid-in capital.
Convertible Notes – Asher Enterprises
On April 4, May 14, July 10, August 28, and October 14, 2013, the Company issued convertible notes of $32,500, $63,000, $55,000, $32,500, and 32,500 to Asher Enterprises, Inc. Under the terms of the notes, the Company is to repay any principal balance and interest, at 8% per annum at the maturity dates ranging from December 11, 2013 to July 21, 2014. Of the principal amounts, $2,500 to $3,000 was withheld for legal expenses from each note resulting in an on-issuance discount of the notes that will be amortized over the life of the note. The Company may prepay the convertible promissory notes prior to maturity at varying prepayment penalty rates specified under the agreements. The convertible promissory notes are convertible into shares of the Company’s common stock after six months. The conversion price is calculated by multiplying 51 - 58% (42 - 49% discount) by the average of the lowest three closing bid prices during the 10 days prior to the conversion date. Since the conversion features are only convertible after six months, there is no derivative liability upon issuance. However, the Company accounts for the derivative liability upon the passage of time or in the event of default whereby the notes become convertible if not extinguished, as defined above. Derivative accounting applies upon the conversion feature being available to the holder, as it is variable and does not have a floor as to the number of common shares in which could be converted.
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During the quarter ended December 31, 2013, the notes dated April 4 and May 14, 2013 became convertible into common stock the above motioned conversion rates. The Company recognized initial derivative liability in aggregate of approximately $102,200 which resulted in a full discount of the convertible notes and an additional day one charge of $12,288 for the excess value of the derivative liability over the convertible notes. Both of the notes, including approximately $3,800 of accrued interest thereon were converted in full during the quarter ended December 31, 2013, for 283,429,725 shares of common. Upon conversion, the discounted notes were accreted up to face value.
Convertible Notes – Magna Group, LLC
On November 25, 2013, pursuant to a debt purchase agreement, described in 12, the Company issued a convertible note of $50,000 to Magana Group, LLC. Under the terms of the note, the Company was to repay any principal balance and interest, at 12% per annum at the maturity date of August 25, 2014. The Company could prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note was convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price was calculated by multiplying 55% (45% discount) by the lowest trading price in the three (3) trading days prior to the conversion date. The conversion feature was considered a derivative liability as the conversion feature was variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated a derivative liability using the Black-Scholes option pricing model with the following assumptions: volatility of 190.7%, expected life of 1.67 years, risk free interest rate of 0.12% and no dividends.
On December 30, 2013, pursuant to a debt purchase agreement, described in 12, the Company issued a convertible note of $50,000 to Magana Group, LLC. Under the terms of the note, the Company was to repay any principal balance and interest, at 12% per annum at the maturity date of September 30, 2014. The Company could prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note was convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price was calculated by multiplying 55% (45% discount) by the lowest trading price in the three (3) trading days prior to the conversion date. The conversion feature was considered a derivative liability as the conversion feature was variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated a derivative liability using the Black-Scholes option pricing model with the following assumptions: volatility of 190.7%, expected life of 1.67 years, risk free interest rate of 0.12% and no dividends.
Convertible Notes – Redwood Management LLC
On April 29, 2013, the Company issued a convertible note of $200,000 to Redwood Management LLC. Under the terms of the note, the Company was to repay any principal balance and interest, at 8% per annum at the maturity date of April 29, 2014. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note was convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price is calculated by multiplying 55% (45% discount) by the lowest closing day trading price during the eight (8) trading days prior to the conversion date. The conversion feature is considered a derivative liability as the conversion feature is variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated the derivative liability to be $1,417,303 using the Black-Scholes option pricing model with the following assumptions: volatility of 208.6%, expected life of 1.0 year, risk free interest rate of 0.12% and no dividends. This derivative liability exceeded the principal amount resulting in a full discount of the note and an additional day one charge for the excess value of the derivative liability of $1,217,303 which is included in the accompanying statement of operations. The discount is being amortized over the life of the note.
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During the year ended December 31, 2013, the holder of the convertible note converted $200,000 of principal into 151,801,600 shares of common stock. In aggregate, derivative liability of $552,854 associated with the converted principal was credited to additional paid-in capital at the time of conversion. As of December 31, 2013, there was no remaining derivative liability associated with this note as all outstanding balances were fully converted. The company recorded a gain on the change in fair value of the derivative liability of $864,449 during the yeare ended December 31, 2013. During the year ended December 31, 2013, amortization of debt discount was $200,000. As of December 31, 2013 there was no remaining unamortized discount. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation and the quarter end valuation related to the derivative liability.
Convertible Note – Redwood Fund II, LLC
On April 29, 2013, the Company issued a convertible note of $100,000 to Redwood Fund II, LLC. Under the terms of the note, the Company is to repay any principal balance and interest, at 8% per annum at maturity date of January 29, 2014. During the three months ended September 30, 2013, an additional $$50,000 was received and added to the note with the same terms and conditions for an aggregate note balance of $150,000. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note is convertible into shares of the Company’s common stock after six months. The conversion price is calculated by multiplying 55% (45% discount) by the lowest traded price during the eight (8) days prior to the conversion date. Since the conversion feature is only convertible after six months, there is no derivative liability upon issuance. However, the Company accounts for the derivative liability upon the passage of time or in the event of default whereby the note becomes convertible if not extinguished, as defined above. Derivative accounting applies upon the conversion feature being available to the holder, as it is variable and does not have a floor as to the number of common shares in which could be converted.
During the quarter ended December 31, 2013, the $150,000 note became convertible. The conversion feature is considered a derivative liability as the conversion feature is variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated the derivative liability to be $79,935 using the Black-Scholes option pricing model with the following assumptions: volatility of 170.8%, expected life of 0.26 year, risk free interest rate of 0.02% and no dividends. The discount is being amortized over the life of the note.
During the year ended December 31, 2013, the holder of the convertible note converted $30,336 of principal into 195,653,333 shares of common stock. In aggregate, derivative liability of $38,064 associated with the converted principal was credited to additional paid-in capital at the time of conversion. As of December 31, 2013, derivative liability associated with this note of $145,773 remained outstanding. The company recorded a loss on the change in fair value of the derivative liability of $103,902 during the year ended December 31, 2013. During the year ended December 31, 2013, amortization of debt discount was $55,534. As of December 31, 2013 there is $24,401 of unamortized discount. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation and the quarter end valuation related to the derivative liability.
Convertible Notes – WHC Capital, LLC (1)
On June 27, August 8, September 9, October 22, November 29, and December 27, 2013, the Company issued convertible notes of $50,000, $100,000, $100,000, $50,000, $50,000, and $50,000, respectively to WHC Capital, LLC. Under the terms of the notes, the Company is to repay any principal balance and interest, at 10% per annum at the maturity dates ranging from May 1 – October 31, 2014. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory notes are convertible into shares of the Company’s common stock six months after the issuance of the convertible note. The conversion price is calculated by multiplying 45% (55% discount) by the average of the three (3) lowest intra-day trading prices for the Company’s common stock during the ten (10) trading days prior to the conversion date. Since the
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conversion features are only convertible after six months, there is no derivative liability upon issuance. However, the Company accounts for the derivative liability upon the passage of time or in the event of default whereby the notes become convertible if not extinguished, as defined above. Derivative accounting applies upon the conversion feature being available to the holder, as it is variable and does not have a floor as to the number of common shares in which could be converted.
As of December 31, 2013, one of the notes (June 27, 2013) became convertible and was subject to derivative accounting. Accordingly, the Company calculated the derivative liability to be $58,427 using the Black-Scholes option pricing model with the following assumptions: volatility of 287.8%, expected life of 0.35 year, risk free interest rate of 0.07% and no dividends. The discount is being amortized over the life of the note.
As of December 31, 2013, derivative liability associated with this note of $70,314 remained outstanding. The company recorded a loss on the change in fair value of the derivative liability of $11,877 during the year ended December 31, 2013. During the year ended December 31, 2013, amortization of debt discount was $2,893. As of December 31, 2013 there is $47,107 of unamortized discount. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation and the quarter end valuation related to the derivative liability.
Convertible Note – WHC Capital, LLC (2)
As indicated below below, the Company issued convertible promissory notes to WHC Capital, LLC. Each note contained the same terms and maturity date. Under the terms of the notes, the Company is to repay any principal balance and interest, at 10% per annum at the maturity date of May 1, 2014. The Company may prepay the convertible promissory notes prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory notes are convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion prices are calculated by multiplying 45% (55% discount) by the average of the three (3) lowest intra-day trading prices for the Company’s common stock during the ten (10) trading days prior to the conversion date. The conversion features are considered derivative liabilities as the conversion features are variable with no floor as to the number of common shares which could be converted.
On June 27, 2013, the Company issued a convertible note of $100,000 to WHC Capital, LLC. The Company calculated the derivative liability to be $131,703 using the Black-Scholes option pricing model with the following assumptions: volatility of 259.6%, expected life of 0.84 years, risk free interest rate of 0.15% and no dividends. This derivative liability exceeded the principal amount resulting in a full discount of the note and an additional day one charge for the excess value of the derivative liability of $31,703 which is included in the accompanying statement of operations. The discount is being amortized over the life of the note. During the year ended December 31, 2013 accretion of discount was $100,000 based on the original convertible note and accelerated amortization due to conversation of the principal balance.
During the year ended December 31, 2013, the holder of the convertible note converted $100,000 of principal into 133,290,807 shares of common stock. In aggregate, derivative liability of $798,067 associated with the converted principal was credited to additional paid-in capital at the time of conversion. As of December 31, 2013, there was no remaining derivative liability associated with this note as all outstanding balances were fully converted. The company recorded a loss on the change in fair value of the derivative liability of 666,364 during the year ended December 31, 2013. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation related to the derivative liability.
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On August 5, 2013, the Company issued a convertible note of $100,000 to WHC Capital, LLC. The Company calculated the derivative liability to be $291,725 using the Black-Scholes option pricing model with the following assumptions: volatility of 382.0%, expected life of 0.74 years, risk free interest rate of 0.12% and no dividends. This derivative liability exceeded the principal amount resulting in a full discount of the note and an additional day one charge for the excess value of the derivative liability of $191,725 which is included in the accompanying statement of operations. The discount is being amortized over the life of the note. During the year ended December 31, 2013 accretion of discount was $100,000 based on the original convertible note and accelerated amortization due to conversation of the principal balance.
During the year ended December 31, 2013, the holder of the convertible note converted $100,000 of principal and interest into 104,932,197 shares of common stock. In aggregate, derivative liability of $298,939 associated with the converted principal was credited to additional paid-in capital at the time of conversion. As of December 31, 2013, there was no remaining derivative liability associated with this note. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation and the quarter end valuation related to the derivative liability.
On September 9, 2013, the Company issued a convertible note of $100,000 to WHC Capital, LLC. The Company calculated the derivative liability to be $84,349 using the Black-Scholes option pricing model with the following assumptions: volatility of 382.0%, expected life of 0.64 years, risk free interest rate of 0.12% and no dividends. This derivative liability discounted the note for a like amount and is being amortized over the life of the note. During the year ended December 31, 2013 accretion of the discount was $84,349 based on the original convertible note and accelerated amortization due to conversation of the principal balance.
During the year ended December 31, 2013, the holder of the convertible note converted $100,000 of principal and interest thereon into 368,980,000 shares of common stock. In aggregate, derivative liability of $273,418 associated with the converted principal was credited to additional paid-in capital at the time of conversion. As of December 31, 2013, there was no remaining derivative liability associated with this note as all outstanding balances were fully converted. The company recorded a loss on the change in fair value of the derivative liability of 172,819 during the year ended December 31, 2013. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation related to the derivative liability.
On October 9, 2013, the Company issued a convertible note of $100,000 to WHC Capital, LLC. The Company calculated the derivative liability to be $86,354 using the Black-Scholes option pricing model with the following assumptions: volatility of 309.1%, expected life of 0.56 years, risk free interest rate of 0.10% and no dividends. This derivative liability discounted the note for a like amount and is being amortized over the life of the note. During the year ended December 31, 2013 accretion of the discount was $27,149 based on the original convertible note. As of December 31, 2013, there was $59,205 of unamortized discount remaining on the note.
During the year ended December 31, 2013, the holder of the convertible note has not converted any of the principal or interest into shares of common stock. As of December 31, 2013, derivative liability associated with this note was $62,284 The Company recorded a gain on the change in fair value of the derivative liability of 24,070 during the year ended December 31, 2013. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation related to the derivative liability.
In the three months ended March 31, 2014, WHC Capital., LLC converted $19,734 of convertible debt into 378,766,430 shares of common stock in the Company.
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Convertible Note – Hanover Holdings I, LLC
On November 25, 2013, the Company issued a convertible note of $32,500 to Hanover Holdings I, LLC. Under the terms of the note, the Company is to repay any principal balance and interest, at 12% per annum at the maturity date of November 25, 2014. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note is convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price is calculated by multiplying 55% (45% discount) by the lowest trading prices anytime during the ten (10) trading days prior to the conversion date. The conversion feature is considered a derivative liability as the conversion feature is variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated the derivative liability to be $18,664 using the Black-Scholes option pricing model with the following assumptions: volatility of 311.3%, expected life of 1.0 years, risk free interest rate of 0.14% and no dividends. This derivative liability discounted the convertible note for a like amount and will be amortized over the life of the note. As of December 31, 2013, $2,709 of the discount was amortized with $15,955 remaining.
For the three months ended March 31, 2014 and for the year ended December 31, 2013, the holder of the convertible note has not converted any of the principal or interest into shares of common stock. As of December 31, 2013, derivative liability associated with this note was $14,017. The Company recorded a gain on the change in fair value of the derivative liability of $4.647 during the year ended December 31, 2013. The Company used the below range of inputs to the Black-Scholes pricing model for each valuation related to the derivative liability.
Convertible Note – Anything Media
On October 15, 2013, the Company issued a convertible note of $10,000 to Anything Media Under the terms of the note, the Company is to repay any principal balance and interest, at 8% per annum at the maturity date July 15, 2014. The convertible promissory note is convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price is fixed at 60,000,000 shares and accordingly, is not subject to derivative accounting. On October 28, 2013, the note was converted in full.
Convertible Note – Fourth Street Funding, LLC
On June 6, 2013, pursuant to a debt purchase agreement, the Company issued a convertible note of $50,000 to Fourth Street Funding, LLC. Under the terms of the note, the Company was to repay any principal balance and interest, at 8% per annum at the maturity date of December 6, 2013. The Company could prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note was convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price was calculated by multiplying 50% (50% discount) by the lowest trading price in the three (3) trading days prior to the conversion date. The conversion feature was considered a derivative liability as the conversion feature was variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated a derivative liability using the Black-Scholes option pricing model with the following assumptions: volatility of 190.7%, expected life of 1.67 years, risk free interest rate of 0.12% and no dividends.
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Short –term convertible debt at December 31, 2013 represents the following:
Convertible Debt Due: | Original Principal | Reduction through conversion to stock | Balance at December 31, 2013 | Unamortized Discount | Convertible Debt, net |
Asher Enterprises, Inc. | $ 220,500 | $ (95,500) | $125,000 | $ 0 | $ 125,000 |
Magna Group, Inc/Hanover Holdings | 222,500 | (177,500) | 45,000 | (34,619) | 10,381 |
Redwood Management, LLC | 200,000 | (200,000) | 0 | 0 | - |
Redwood Fund II, LLC | 150,000 | (30,336) | 119,664 | (24,401) | 95,263 |
WHC Capital, LLC | 800,000 | (300,000) | 500,000 | (69,443) | 430,557 |
Fourth Street Fund LP | 50,000 | 0 | 50,000 | 0 | 50,000 |
Total | $1,678,000 | $(802,336) | $839,664 | $(128,463) | $711,201 |
Nature of Derivative Liability
From time-to-time, the Company enters into convertible note agreements whereby the conversion feature is required to be bifurcated out as a derivative liability. Upon conversion of all or a portion of the convertible note, the derivative liability associated with the principal and interest converted is valued immediately before conversion using the Black-Scholes model. The change in fair value of the derivative liability associated with the principal and interest converted was recorded as a gain/loss on fair value of derivative liability in the accompanying statement of operations, with the remaining value of that portion of the derivative liability written off with a corresponding credit to additional paid-in capital.
The derivative liability at December 31, 2013 related to the following convertible notes, which had reached their 6 month convertible dates, but which had not yet been converted to the Company’s stock
| Derivative liability |
Magna Group, Inc. | $45,166 |
Redwood Fund II, LLC | 145,773 |
Southridge Partners II, LLC | 25,998 |
WHC Capital, LLC | 70,134 |
| $287,071 |
The following is the range of variables used in revaluing the derivative liabilities at December 31, 2013 and during the year then ended for derivatives that were revalued upon conversion of principle balances: .
Annual dividend yield | 0 |
Expected life (years) of | 0.08 - 1.43 |
Risk-free interest rate | 0.02 - 0.17% |
Expected volatility | 170.8 - 400.9% |
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NOTE 15 – STOCKHOLDERS’ EQUITY
Authorized Preferred Stock
On August 6, 2013, the Company filed a Certificate of Designation with the State of Delaware to create and issue a series of 10,000,000 preferred stock to be designated the “Series A Preferred Stock” .These shares rank senior to the common stock with respect to distributions or payments in the event of any liquidation, dissolution, or winding up of the Company.
On August 6, 2013, the registrant filed a Certificate of Designation with the State of Delaware to create and issue a series of preferred stock to be designated the “Series A Preferred Stock” by adding the following subsections to Article IV:
- There are Ten Million (10,000,000) Series A Preferred Shares with a par value of $0.001.
-These shares rank senior to the common stock with respect to distributions or payments in the event of any liquidation, dissolution, or winding up of the registrant.
- These shares are not entitled to receive any cash dividends.
- After twelve months, each Series A Preferred Share will be convertible at the option of the holder into one hundred (100) common shares. This conversion ratio will be adjusted to account for stock splits and other, similar changes in the capital structure of the registrant.
- These shares are not entitled to any preemptive rights to purchase stock in any future stock offerings.
- Each Series A Preferred Share shall be entitled to one thousand (1,000) votes per share at any meeting of the stockholders or to participate in any action taken by the registrant or the stockholders thereof, or to receive any notice of any meeting of stockholders.
Preferred Stock Issuances
On June 1, 2013 the board of directors entered into an Amendment and Plan of Reorganization with D & B Music, Inc. (previously known as D & B Records, Inc.) a Delaware corporation, in which D & B Music, Inc. merged with and into the Company. D & B Music, Inc, has a music catalog of 41 titles. The consideration paid by the company was the assumption by the Company of a promissory note for $242,000 due Pegasus Group, Inc. together with accrued and unpaid interest thereon of $114, 841 and the issuance of 7,000,000 of the Company’s Series A preferred stock and 20,000,000 of the Company’s common stock to the sole shareholder of D & B Music, Inc., David Michery, who is also CEO and director of the Company.
Authorized Common Stock
On June 10, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized common shares from 500,000,000 par value $0.001 to 2,000,000,000 par value $0.00001 and to designate 10,000,000 preferred shares, par value $0.00001, to be issued from time to time in one or more series as determined by the board of directors, with the balance being designated as 1,990,000,000 common shares.
On August 19, 2013, the Company’s board of directors adopted a resolution approving an amendment to the Articles of Incorporation increasing the authorized shares from 2,000,000,000 par value $0.00001 to 5,000,000,000 par value $0.00001, with 10,000,000 preferred shares, par value $0.00001 and 4,990,000,000 common shares, par value $ 0.00001, to be issued from time to time in one or more series as determined by the board of directors.
36
Common Stock Issuances
In the year ended December 31, 2013, the Company issued 1,868,002,181 shares of common stock of which 5,000,000 shares were for the purchase of Top Sail Productions, LLC as a wholly owned subsidiary, 20,000,000 shares were for the acquisition of D&B Music, 1,663,090,181 shares were for the reduction of $824,640 in convertible debt and 179,912,000 shares were deemed issued pursuant to the reverse merger with ESMG, Inc..
NOTE 16 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no other material subsequent events exist.
Joint Venture Agreement with CanMed Ventures, Inc.
On February 23, 2014, the Company entered into a Joint Venture Agreement with CanMed Ventures, Inc., a British Columbia company, to build and operate a 30,000 square foot cultivation facility for the production of medical marijuana, whereby the Company will own 100% of the building, land and equipment and has granted CanMED a 10-year management contract for the operation of the Joint Venture.
Legal Status of Marijuana Industry in Canada
Recently, there was a Federal Court action which was commenced by 2 licensed medical marijuana patients. They won an injunction to block the new regulations from ending their right to grow marijuana or to have a designated grower. Health Canada is preparing an appeal of the injunction to have it set aside. Or the issue will go to trial within an estimated 4 to 5 months. This led to a temporary halt on growers like our proposed deal with Health Canada, The injunction did not prevent the introduction of the new regulations on April 1st. Now there are 12 to 14 “Licensed Producers” (LP) in Canada supplying medical marijuana to the market. There are some 350 LP applications being processed by Health Canada at this time. So for now we have in Canada both the old regulations and the new regulations in effect.
Legal experts have speculated that there is a 90% likelihood of the injunction being overturned. The problem with the old regulations is that people are allowed to grow in their homes or hire someone to grow in their homes without adequate fire and security measures. Most “growers” are also sources for the illegal market. So the legal right issue is more about affordability than about the right to grow and Health Canada has the legal authority to regulate this market.
All current LP are impacted by the injunction. Instead of having a 40,000 customer pool to themselves, they must compete against the “old” system until the court decision is made. These circumstances give our Joint Venture the opportunity to capture market share that would have gone elsewhere but for the injunction. In addition, these circumstances require a re-evaluation of market strategy and tactics as follows:
·
Configure CanMED’s operations to grow and sell marijuana under both the old and the new regulations with a strong focus upon customer acquisition.
·
Look to acquire suitable land and prepare to file Health Canada license application or make agreement with company that has already filed and is well advanced in the process.
·
Make agreements with existing growers who operate under the old regulations to acquire their customers. This would bring revenues within 60 to 90 days.
As of March 31, 2014, the Company has not made any payments or advanced any assets pursuant to the joint venture agreement with CanMEd.
37
Asset purchase agreement with Susie Q and Puget Power Co LLC
On March 7, 2014, the Company entered into an Asset Purchase Agreement with Jessica Vance, the owner of Suzie Q’s NPO and Puget Power CO LLC, which is located at 12710 Aurora Ave N, Seattle WA 98133. The acquired business consists of permits and licenses issued by the City of Seattle for the cultivation and sale of medical cannabis to patients, as well as the lease on the facility, and all the necessary equipment and furniture.
Under the Asset Purchase Agreement, the Company will be purchasing, free and clear of all liabilities, all rights, permits, licenses, applications, records, leases, equipment, and any other assets related to the acquired business. The sale has yet to be completed. The Agreement calls for the purchase of 100% of the assets of the Co-Op as well as the purchase and transfer of a Tier I Production License granted by the Washington State Liquor Board.
The consideration proposed is for the Company to pay Ms. Vance a total cash payment of $250,000 and 25,000,000 common shares.
Consulting agreement
On March 7, 2014, the Company entered into a consulting agreement with Jessica Vance whereby the Company will compensate Ms. Vance a $3,000 a month.
Conditional Leases in the Los Angeles area
The Company signed a conditional lease for the launch of its first medical cannabis cultivation center. Plans call to subdivide the property into up to 6 separate nurseries to be sublet to fully licensed dispensaries in Los Angeles. Primco has decided to pull back on its MJ plans for the Los Angeles market. Legislation continues to change on a daily basis and Primco is unclear until California has ratified its position one way or another. Primco currently maintains leases in the unincorporated parts of Los Angeles and will not move forward with its LA MJ plan until local and federal law permit. Furthermore Primco has decided to focus all its efforts in the State of Washington and in Canada.
On January 13, 2014, Sherry Harden entered into a debt purchase agreement with Pegasus Capital, Inc. for a $5,000 portion of the promissory note originally in the amount of $242,000 dated February 1, 2009. On the same date, the Company then entered into convertible debenture for that $5,000 portion of debt assigned to Mrs. Harden through the debt purchase agreement. As of March 31, 2013, Mrs. Harden converted $5,000 of principle into 100,000,000 unrestricted common shares of the Company.
On January 13, 2014, SFH Capital, LLC entered into a debt purchase agreement with Pegasus Capital, Inc. for a $5,000 portion of the promissory note originally in the amount of $242,000 dated February 1, 2009. On the same date, the Company then entered into convertible debenture for that $5,000 portion of debt assigned to SFH Captial, LLC. As of March 31, 2013, SFH Capital, LLC converted $5,000 of principle into 100,000,000 unrestricted common shares of the Company.
On February 13, 2014, SFH Capital, LLC entered into a debt purchase agreement with Pegasus Capital, Inc. for a $22,515 portion of the promissory note originally in the amount of $242,000 dated February 1, 2009. On the same date, the Company then entered into convertible debenture for that $22,515 portion of debt assigned to SFH Captial, LLC. As of March 31, 2013, SFH Capital, LLC converted $22,515 of principle into 125,000,000 unrestricted common shares of the Company.
38
Convertible Note – LG Capital
On February 20, 2014, the Company issued a convertible note of $50,000 to LG Capital Funding, LLC. Under the terms of the note, the Company is to repay any principal balance and interest, at 8% per annum at the maturity date of February 20, 2015. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note is convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price is calculated by multiplying 50% (50% discount) by the lowest trading prices anytime during the five (5) trading days prior to the conversion date. The conversion feature is considered a derivative liability as the conversion feature is variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated a derivative liability using the Black-Scholes option pricing model with the following assumptions: volatility of 311.3%, expected life of 1.0 years, risk free interest rate of 0.14% and no dividends. As of March 31, 2014, LG Capital Funding, LLC has not converted any debt.
Convertible Note – Elegant Funding, Inc.
On January 1, 2014, the Company issued a convertible note of $20,000 to Elegant Funding, Inc.. Under the terms of the note, the Company is to repay any principal balance and interest, at 8% per annum at the maturity date of September 30, 2014. The Company may prepay the convertible promissory note prior to maturity at varying prepayment penalty rates specified under the agreement. The convertible promissory note is convertible into shares of the Company’s common stock any time after the issuance of the convertible note. The conversion price is calculated by multiplying 45% (55% discount) by the average closing trading prices five (5) prior to the conversion date. The conversion feature is considered a derivative liability as the conversion feature is variable with no floor as to the number of common shares which could be converted. Accordingly, the Company calculated a derivative liability using the Black-Scholes option pricing model with the following assumptions: volatility of 311.3%, expected life of 1.0 years, risk free interest rate of 0.14% and no dividends. As of March 31, 2014, Elegant Funding, Inc. has not converted any debt.
Issuance of Stock
In the three months ended March 31, 2014, the Company issued 3,241,997,544 shares of common stock for the reduction of $191,171 in convertible debt. The Company also temporarily canceled 135,880,000 shares to its CEO David Michery to allow the Company to issue additional shares to other parties because it reached its maximum authorized shares. The Company is currently in the process of increasing its authorized shares.
Stock Subscription Payable
In the three months ended March 31, 2014, the Company sold stock purchase agreements for 282,010,795 common shares for 194,375 cash. The Company does not have the authorized shares available to issue these shares and therefore has recorded them as a stock subscription payable.
On April 2, 2014, the Company executed a stock purchase agreement with an unrelated third party whereby the Company will issue 40,000,000 common shares for $60,000 cash.
On April 3, 2014, the Company paid Asher $100,000 for the extinguishment of all Asher’s convertible debt outstanding which includes interest and penalty.
On April 7, 2014, the Company executed a stock subscription agreement with SFH Capital whereby the Company will issue 40,000,000 common shares for $40,000 cash.
39
In April of 2014, the Company received $500,000 cash pursuant to the issuance of a secured convertible promissory note and securities purchase agreement with Inter-Mountain Capital Corp. The convertible promissory note is in the amount up to $2,207,500, accrues interest at 9% per annum and is convertible into shares of the Company at a conversion rate fixed at $0.0075 per share.
On April 27, 2014, the Company executed a subscription agreement with SFH Capital whereby the Company will issue 33,325,000 common shares for $49,988.
On April 1, 2014, the Company executed a $100,000 stock purchase agreement and convertible note payable to an unrelated third party. The convertible note has 8% interest per annum, a maturity date of April 1, 2015 and has a 50% discount to market conversion feature which is based on the lowest closing trading price in the five trading days prior to conversion.
NOTE 17 – RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its consolidated balance sheet as of December 31, 2013, its consolidated statement of operations for the year ended December 31, 2013 and from inception (October 14, 2010) to December 31, 2013, its consolidated statement of cash flows for the year ended December 31, 2013 and from inception (October 14, 2010) to December 31, 2013, and its consolidated statements of stockholders’ equity to account for the following;
1.
Revaluation of the acquisitions of D&B Music, Inc. and Top Sail Productions, LLC whereby the intangible assets acquired, totaling $1,361,056, are to be reclassified to additional paid in capital.
2.
To reclassify $115,000 of prepaid expenses against $35,000 in convertible notes payable and $80,000 in promissory notes payable to Southridge Partners II, LLC.
3.
To reconcile 110,000,000 shares of common stock believed to be issue and outstanding but were never issued by the transfer agency due to lack of authorized shares as of December 31, 2013.
The following are previously recorded and restated balances as of December 31, 2013, for the year ended December 31, 2013 and from inception (October 14, 2010) to December 31, 2013.
40
Primco Management Inc.
(A Development Stage Company)
Consolidated Balance Sheets
| December 31, 2013 | ||||
| Originally |
|
|
|
|
| Reported |
| Restated |
| Difference |
ASSETS |
|
|
|
| |
Current Assets: |
|
|
|
|
|
Cash and cash equivalents | $ 64,771 |
| $ 64,771 |
| $ - |
Accounts receivable, net | 26,026 |
| 26,026 |
| - |
Inventory, net | 70,528 |
| 70,528 |
| - |
Advances to related party | - |
| - |
| - |
Intellectual property rights: Music, net of impairment | 688,945 |
| - |
| 688,945 |
Intellectual property rights: Motion Picture | 315,000 |
| - |
| 315,000 |
Prepaids | 135,000 |
| 20,000 |
| 115,000 |
Total Current Assets | 1,300,270 |
| 181,325 |
| 1,118,945 |
|
|
|
|
|
|
Property and equipment, net | 7,885 |
| 7,885 |
| - |
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
Music catalog | 357,111 |
| - |
| 357,111 |
Lease deposit | 8,714 |
| 8,714 |
| - |
Total Other Assets | 365,825 |
| 8,714 |
| 357,111 |
|
|
|
|
|
|
Total Assets | $1,673,980 |
| $ 197,924 |
| $1,476,056 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
| |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Accounts payable | $ 97,979 |
| $ 97,979 |
| $ - |
Accrued liabilities | 301,175 |
| 301,175 |
| - |
Due to related party | 13,928 |
| 13,928 |
| - |
Short-term notes payable | 793,000 |
| 713,000 |
| 80,000 |
Short-term convertible notes payable, net of discounts | 746,201 |
| 711,201 |
| 35,000 |
Derivative liability | 287,071 |
| 287,071 |
| - |
Total Current Liabilities | 2,239,354 |
| 2,124,354 |
| 115,000 |
|
|
|
|
|
|
Total Liabilities | 2,239,354 |
| 2,124,354 |
| 115,000 |
|
|
|
|
|
|
41
Primco Management Inc.
(A Development Stage Company)
Consolidated Balance Sheets
Continued from previous page
Stockholders' Equity: |
|
|
|
|
|
Preferred Stock, $0.00001 par value, 10,000,000 shares authorized, |
|
|
|
| |
7,000,000 shares issued and outstanding, respectively | 70 |
| 70 |
| - |
Common Stock, $0.00001 par value, 4,990,000,000 shares authorized |
|
|
|
| |
4,979,119,725 and 1,983,002,181 shares issued and outstanding, respectively | 19,830 |
| 18,730 |
| 1,100 |
Stock subscription payable | - |
| - |
| - |
Additional paid in capital | 3,661,496 |
| 1,746,083 |
| 1,915,413 |
Accumulated deficit during development stage | (4,246,770) |
| (3,691,313) |
| (555,457) |
Total Stockholders' Equity (Deficit) | (565,374) |
| (1,926,430) |
| 1,361,056 |
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity | $1,673,980 |
| $ 197,924 |
| $ 1,476,056 |
The accompanying notes are an integral part of these financial statements.
42
Primco Management Inc.
(A Development Stage Company)
Consolidated Statements of Operations
| For the Year ended |
| From Inception (Oct 14, 2010) | ||||
| December 31, 2013 |
| through December 31, 2013 | ||||
| Originally |
|
| Originally |
|
| |
| Reported | Restated | Difference | Reported | Restated | Difference | |
|
|
|
|
|
|
| |
Revenues | $ 72,116 | $ 72,116 | $ - | $ 72,116 | $ 72,116 | $ - | |
Costs of services | 44,123 | 44,123 | - | 44,123 | 44,123 | - | |
|
|
|
|
|
|
| |
Gross Margin | 27,993 | 27,993 | - | 27,993 | 27,993 | - | |
|
|
|
|
|
|
| |
Operating Expenses: |
|
|
|
|
|
| |
General and administrative | 805,121 | 896,405 | (91,284) | 810,121 | 901,405 | (91,284) | |
Reserve for losses on artists contracts | 453,457 | - | 453,457 | 453,457 | - | 453,457 | |
Total Operating Expenses | 1,258,578 | 896,405 | 362,173 | 1,263,578 | 901,405 | 362,173 | |
|
|
|
|
|
|
| |
Loss from Operations | (1,230,585) | (868,412) | (362,173) | (1,235,585) | (873,412) | 362,173 | |
|
|
|
|
|
|
| |
Other Expenses: |
|
|
|
|
|
| |
Interest expense | 888,286 | 888,286 | - | 888,286 | 888,286 | - | |
Interest expense - derivative | 1,891,115 | 1,891,115 | - | 1,891,115 | 1,891,115 | - | |
Provision for loss on property develop | 38,500 | 38,500 | - | 38,500 | 38,500 | - | |
Total Other Expense | 2,817,901 | 2,817,901 | - | 2,817,901 | 2,817,901 | - | |
|
|
|
|
|
|
| |
Net Loss Before Income Taxes | (4,048,486) | (3,686,313) | (362,173) | (4,053,486) | (3,691,313) | (362,173) | |
|
|
|
|
|
|
| |
Provision for Income Taxes | - | - | - | - | - | - | |
|
|
|
|
|
|
| |
Net Loss | $(4,048,486) | $ (3,686,313) | $(362,173) | $(4,053,486) | $(3,691,313) | $(362,173) | |
|
|
|
|
|
|
| |
Net Loss per Share - Basic and Diluted | $ (0.00) | $ (0.00) | $ (0.00) |
|
|
| |
|
|
|
|
|
|
| |
Weighted average number of shares |
|
|
|
|
|
| |
outstanding - Basic and Diluted | 1,983,002,181 | 1,881,476,718 | 101,525,463 |
|
|
| |
The accompanying notes are an integral part of these financial statements
43
Primco Management Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
| For the Year Ended |
| From Inception (Oct 14, 2010) | |||||
| December 31, 2013 |
| through December 31, 2013 | |||||
| Originally |
|
| Originally |
|
| ||
| Reported | Restated | Difference | Reported | Restated | Difference | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net Income (Loss) for the Period | (4,048,486) | (3,686,313) | (362,173) | (4,053,486) | (3,691,313) | (362,173) | ||
Adjustments to reconcile net loss to net cash |
|
| - |
|
|
| ||
provided by operating activities: |
|
| - |
|
|
| ||
Common stock issued for services | - | - | - | 5,000 | 5,000 | - | ||
Depreciation and amortization | 1,527 | 1,527 | - | 1,527 | 1,527 | - | ||
Changes in Operating Assets and Liabilities |
|
|
|
|
|
| ||
Decrease (Increase) in accounts receivables | (26,026) | (26,026) | - | (26,026) | (26,026) | - | ||
Increase in inventory | (70,528) | (70,528) | - | (70,528) | (70,528) | - | ||
Increase in prepaid expenses | (143,714) | (28,714) | (115,000) | (143,714) | (28,714) | (115,000) | ||
Increase in advances to related party | 13,928 | 13,928 | - | 13,928 | 13,928 | - | ||
Increase in accounts payable | 97,979 | 97,979 | - | 97,979 | 97,979 | - | ||
Increase in accrued liabilities | 291,175 | 291,175 | - | 291,175 | 291,175 | - | ||
Discount on short-term convertible debt | (128,463) | (128,463) | - | (128,463) | (128,463) | - | ||
Change in fair value of derivative liability | 287,162 | 287162 | - | 287,162 | 287,162 | - | ||
Net Cash Proceeds (Used) in Operating Activities | (3,725,446) | (3,248,273) | (477,173) | (3,725,446) | (3,248,273) | (477,173) | ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| ||
Investments in music rights and artists | (1,046,056) | - | (1,046,056) | (1,046,056) | - | (1,046,056) | ||
Investments in movie rights and co-productions | (315,000) | - | (315,000) | (315,000) | - | (315,000) | ||
Purchase of property and equipment | (9,412) | (9,412) | - | (9,412) | (9,412) | - | ||
Net Cash Used In Investing Activities | (1,370,468) | (9,412) | (1,361,056) | (1,370,468) | (9,412) | (1,361,056) | ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Short term debt | 1,667,664 | 1,552,664 | 115,000 | 1,667,664 | 1,552,664 | 115,000 | ||
Share capital | 18,051 | 18,051 | - | 18,051 | 18,051 | - | ||
Additional paid in capital | 3,474,970 | 1,751,741 | 1,723,229 | 3,474,970 | 1,751,741 | 1,723,229 | ||
Net Cash Provided by Financing Activities | 5,160,685 | 3,322,456 | 1,838,229 | 5,160,685 | 3,322,456 | 1,838,229 | ||
|
|
|
|
|
|
| ||
Net (Decrease) Increase in Cash | $ 64,771 | $ 64,771 | $ - | $ 64,771 | $ 64,771 | $ - | ||
|
|
|
|
|
|
| ||
Cash at Beginning of Period | $ - | $ - | $ - | $ - | $ - | $ - | ||
|
|
|
|
|
|
| ||
Cash at End of Period | $ 64,771 | $ 64,771 | $ - | $ 64,771 | $ 64,771 | $ - | ||
The accompanying notes are an integral part of these financial statements
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
On February 7, 2013, our Board of Directors adopted an Audit Committee Charter, Code of Ethics, Insider Trading Policy and a Memorandum of Financial and Internal Control Policies and Procedures. The Audit Committee, which was established effective that date, consisted of David Michery and Alan J. Bailey (Chair – through date of resignation on February 14, 2014 ).
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2013. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of December 31, 2013 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our chief executive officer and chief financial officer, or the persons performing similar functions, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. These officers have evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting- Guidance for Smaller Public Companies.
Our chief executive officer and chief financial officer have assessed the effectiveness of our internal control over financial reporting as of December 31, 2013 and concluded that it was not effective because of the material weakness described below:
In connection with the preparation of our financial statements for the year ended December 31, 2013, due to resource constraints, material weaknesses became evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchange Commission due to the lack of resources and segregation of duties. A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level the risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis.
45
We will aggressively recruit experienced professionals to ensure that we include all necessary disclosures in our filings with the Securities and Exchange Commission. Although we believe that this corrective step will enable management to conclude that the internal controls over our financial reporting are effective when the staff is trained, we cannot ensure that these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the registrant’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the registrant to provide only management’s report in this annual report.
Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the year ended December 31, 2013. Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Changes in Internal Control over Financial Reporting
During the year ended December 31, 2013, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
ITEM 9B. OTHER INFORMATION.
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our bylaws provide that the number of directors who shall constitute the whole board shall be such number as the board of directors shall at the time have designated. We confirm that the number of authorized directors has been set at five pursuant to our bylaws. Each director shall be selected for a term of one year and until his successor is elected and qualified. Vacancies are filled by a majority vote of the remaining directors then in office with the successor elected for the unexpired term and until the successor is elected and qualified. The directors, officers and significant employees are as follows:
NAME
AGE
POSITIONS HELD
PERIOD HELD
David Michery
47
President, CEO, Director
February 7, 2013 to Present
Alan J. Bailey
66
CFO, Secretary, Director
February 7, 2013 to February 14, 2014
Steven John Corso
50
CFO
February 18, 2014 to Present
Business Experience of Officers and Directors
Mr. David Michery, President, Chief Executive Officer and Director (February 7, 2013 to present)
Mr. Michery is a highly experienced music executive with over 25 years of industry success. He has served in the capacity of divisional CEO and director for several publicly traded companies and has served in an executive capacity for a number of top music industry labels, such as A&R for MCA Records (1990-1993), Head of Urban Music for All American Communication, D.B.A. Scotti Bros./BMG and Zoo/BMG (1993- 1997) and founder of Breakaway Entertainment (1997-1999). In addition, he served as President of Death Row Records (1999-2001), where he worked on releasing records of hip hop superstars. He has produced and/or owned eighteen gold and platinum albums,
Alan J. Bailey , Chief Financial Officer, Secretary and Director (February 7, 2013 to February 14 , 2014)
Mr. Bailey is a finance veteran in the entertainment industry having served as a Senior Financial Executive of Paramount Pictures for 35 years, including being its Treasurer from May 1985 through March 31, 2009. He since served as CEO of Dynamic Media International, Inc. and has served as the CFO for several publicly traded companies. He has substantial experience in cash management, financial reporting, audit and compliance and financial planning.
Steven John Corso , Chief Financial Officer ( February 18, 2014 to Present)
Mr. Corso has been working as a self-employed SEC consultant, attorney, and accountant/ auditor since January of 2000. He received a JD from George Washington University in 1989. He received an MBA in accounting taxation from New York University in 1985, and received a BA in economics and finance from Cornell University in 1984.
Non-Qualified and Incentive Stock Option Plans
The Company does not currently have any stock option plans.
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Section 16(a). Beneficial Ownership Reporting Compliance
To the Company’s knowledge, no director, officer or beneficial owner of more than ten percent of any class of equity securities of the registrant failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2013.
Code of Ethics Policy
We adopted a Code of Ethics policy effective February 7, 2013 that applies to our principal executive officer, principal financial officer and persons performing similar functions.
Corporate Governance
There have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors, and we have no nominating committee for this purpose. We first established an audit committee on February 7, 2013 and we had an audit committee financial expert with the appointment of Alan J. Bailey on February 7, 2013 until February 14, 2014 as our CFO, Secretary and Director. Subsequent to Mr. Bailey’s resignation we continue to have an audit financial export on board with the appointment of Steven John Corso as CFO on February 18, 2014. We believe that our business affairs are simple, any such committees are excessive and beyond the scope of our current business and needs.
Family Relationships
None
Change-In-Control Arrangements
There are currently two executed employment agreements with our officers or directors which are reference in footnote 10 in our financial statements . There are no compensation plans or arrangements, including payments to be made by us, with respect to our officers, directors or consultants that would result from the resignation, retirement or any other termination of any of our directors, officers or consultants. There are no arrangements for our directors, officers, employees or consultants that would result from a change-in-control.
Involvement in Certain Legal Proceedings
None of our directors, executive officers and control persons have been involved in any of the following events during the past ten years:
a.
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time,
b.
Any conviction in a criminal proceeding or being subject to any pending criminal proceeding (excluding traffic violations and other minor offenses);
c.
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or
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d.
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
ITEM 11. EXECUTIVE COMPENSATION
We do not have any standard arrangements by which directors are compensated for any services provided as a director. No cash has been paid to the directors in their capacity as such.
SUMMARY COMPENSATION TABLE
The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our principal executive officers during the years ended December 31, 2013 and December 31, 2012.
Summary Compensation Table |
| ||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
David Michery, CEO and Director | 2013 2012
| 240,000 - | - -
| - -
| - -
| - -
| - -
| - -
| 240,000 - |
|
|
|
|
|
|
|
|
|
|
Alan Bailey, CFO and Secretary | 2013 2012 | 120,000 - | - - | - - | - - | - - | - - | - - | 120,000 - |
(1)
David Michery: age 47: President, CEO, Director: February 7, 2013 to present.
(2)
Alan J. Bailey: age 66: CFO, Secretary, Director: February 7, 2013 to February 14, 2014.
Employment Agreements
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000 with no bonus or stock options. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000 with no bonus or stock options. As of December 31, 2013, the Company had an accrued salary liability to Mr. Michery in the amount of $83,808 and an accrued salary liability to Mr. Bailey in the amount of $41,904. In the year ended December 31, 2013, the Company actually paid $130,000 in cash payments to Mr. Michery pursuant to his salary agreement. In the year ended December 31, 2013, the Company actually paid $77,500 in cash payments to Mr. Bailey pursuant to his salary agreement.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of April 15, 2014, the number and percentage of outstanding shares of the registrant’s common stock owned by (i) each person known to us to beneficially own more than 5% of its outstanding common stock, (ii) each director, (iii) each named executive officer and significant employee, and (iv) all officers and directors as a group.
Name and Address | Number and Class of Shares | Precentage of Class Owned (1) | Percentage of Outstanding Voting Shares | |||
David Michery | 135,880,000 common | 2.81% |
| 1.15% | ||
6725 West Sunset Blvd | 7,000,000 preferred | 100.00% |
| 59.14% | ||
Suite 420 |
|
|
|
|
| |
Hollywood, CA 90028 |
|
|
|
| ||
|
|
|
|
|
|
|
Steven John Corso | 0 common |
| 0% |
| 0% | |
6725 West Sunset Blvd |
|
|
|
| ||
Suite 420 |
|
|
|
|
| |
Hollywood, CA 90028 |
|
|
|
| ||
|
|
|
|
|
|
|
Directors/ Officers as a group: | 135,880,000 common | 2.81% |
| 1.15% | ||
Two (2) persons | 7,000,000 preferred | 100.00% |
| 59.14% | ||
(1)
Based on 4,835,821,341 issued and outstanding common shares and 7,000,000 issued and outstanding preferred shares as of April 15, 2014.
Securities authorized for issuance under equity compensation plans.
We have no equity compensation plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Director Independence
The Company’s board of directors consists of David Michery (and Alan J. Bailey until February 14, 2014). Neither Mr. Michery nor Mr. Bailey are independent as such term is defined by a national securities exchange or an inter-dealer quotation system.
Acquisition of Bruce-E-Bee artist recording contract
As explained in Note 10, the Company assumed the obligation to reimburse Michery, Inc (a company owned by our CEO) the sum of $25,750 in reimbursement of the actual costs incurred by Michery, Inc. to acquire and initial test market music recorded by the music artist Bruce-E-Bee.
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Merger of D & B Music, Inc.
As explained in Note 7, D & B Music, Inc.(formerly D & B Records, Inc.) merged with the Company on June 1, 2013. D & B Music, Inc. has the worldwide right to reproduce and distribute 41 fully produced titles. At the time of merger, the sole owner of D & B Music, Inc. was David Michery, our CEO. As a component of the merger , David Michery received 7,000,000 preferred shares and 20,000,000 common shares of the Company.
In 2012, the Company reported the following related party transactions at that time:
-
The Company’s officer, who provided unsecured interest free advances, net of repayments, totaling $ 22,575 to the Company through September 30, 2012, forgave those advances upon his resignation as an officer on October 17, 2012. The advance forgiven was recorded as Additional Paid-In Capital.
-
The Company incurred $ 14,200 and $26,000 during the years ended December 31, 2012 and 2011, respectively, for consultation services to a firm whose officers were related to the former CEO of the Company.
-
The Company’s sole source of revenue through September 30, 2012 was a property management agreement with New Visions Group , a company owned by a former CEO and director of the Company. Revenue recognized by the Company from this agreement during the years ended December 31, 2012 and 2011 amounted to $2,600 and $2,200, respectively.
Acquisition, through merger, of D & B Music, Inc.
On June 1, 2013 the board of directors entered into an Amendment and Plan of Reorganization with D & B Music, Inc. (previously known as D & B Records, Inc.) a Delaware corporation, in which D & B Music, Inc. merged with and into the Company. D & B Music, Inc, has a music catalog of 41 titles. The consideration paid by the company was the assumption by the Company of a promissory note for $242,000 due Pegasus Group, Inc. together with accrued and unpaid interest thereon of $114, 841 and the issuance of 7,000,000 of the Company’s Series A preferred stock and 20,000,000 of the Company’s common stock to the sole shareholder of D & B Music, Inc. , David Michery, who is also CEO and director of the Company,
Acquisition of Bruce-E-Bee artist recording contract
In consideration for the acquisition by the Company of the exclusive recording agreement with Bruce –E- Bee, the Company assumed the obligation to reimburse Michery, Inc (a company wholly-owned by David Michery our, CEO and director ) the sum of $25,750 in reimbursement of the actual costs incurred by Michery, Inc. to acquire and initial test market music recorded by the music artist Bruce-E-Bee.
Employment Agreements
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000 with no bonus or stock options. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000 with no bonus or stock options. As of December 31, 2013, the Company had an accrued salary liability to Mr. Michery in the amount of $83,808 and an accrued salary liability to Mr. Bailey in the amount of $41,904. In the year ended December 31, 2013, the Company actually paid $130,000 in cash payments to Mr. Michery pursuant to his salary agreement. In the year ended December 31, 2013, the Company actually paid $77,500 in cash payments to Mr. Bailey pursuant to his salary agreement.
Corporate Office
Alan J. Bailey, an officer and director of the Company until February 14, 2014, continues to provide space for the corporate office of the Company at 1875 Century Park East, 6th Floor, Suite 73, Century City, CA 90067 at no cost.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees. In 2013 we incurred audit fees totaling $ 6,041 being $ 2,500 from Patrick Rodgers FCA relating to the 10Q’s in 2013 and $3,541 from Gumbiner Savett Inc. relating to the 2012 fiscal year audit paid in 2013. By comparison , we incurred audit fees of $ 14,000 with Gumbiner Savett Inc for the 2012 fiscal year. Such fees included work completed for our annual audit and for the review of our financial statements included in our Forms 10-K and 10-Q.
All Other Fees. We did not incur any non-audit related fees from Patrick Rodgers or Gumbiner Savett Inc . during the fiscal years ended 2012 and 2011. The Board of Directors, acting as the Audit Committee considered whether, and determined that, the auditor's provision of non-audit services was compatible with maintaining the auditor's independence.
All of the services described above for fiscal years 2013 and 2012 were approved by the Board of Directors pursuant to its policies and procedures. On March 6, 2014 we appointed Terry L. Johnson as the Company’s auditor to replace Patrick Rogers. We intend to continue using Terry L Johnson solely for audit and audit-related services, tax consultation, and, as needed, for due diligence in acquisitions.
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Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) List of Financial statements included in Part II hereof
Consolidated Balance Sheets, December 31, 2013 and 2012
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
Notes to the Financial Statements
(a)(2) List of Financial Statement schedules included in Part IV hereof: None.
(a)(3) Exhibits
The following exhibits are included herewith:
Exhibit No. | Description |
31 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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Following are a list of exhibits which we previously filed in other reports which we filed with the SEC, including the Exhibit No., description of the exhibit and the identity of the Report where the exhibit was filed.
NO. | DESCRIPTION | FILED WITH | DATE FILED |
3.1 | Articles of Incorporation | Form S-1 | March 28, 2011 |
3.2 | Bylaws | Form S-1 | March 28, 2011 |
10 | New Visions Agreement | Form S-1/A | August 1, 2011 |
14.1 | Code of Ethics | Form 8-K | February 20, 2013 |
99.1 | Audit Committee Charter | Form 8-K | February 20, 2013 |
99.2 | Insider Trading Policy | Form 8-K | February 20, 2013 |
99.3 | Memorandum of Financial and Internal Control Policies and Procedures | Form 8-K | February 20, 2013 |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Primco Management Inc.
/s/ David Michery
By: David Michery
Principal Executive Officer
Date: September 30 , 2014
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 the capacities and on the dates indicated.
/s/David Michery |
| CEO/ Director |
| September 30 , 2014 |
|
|
|
|
|
|
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|
|
|
/s/Steven John Corso |
| CFO |
| September 30 , 2014 |
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