Notes to the Consolidated Financial Statements
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. 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.
Nature of operations
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; a radio content syndication division and an on-line interactive sports 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.
Basis of presentation
The accompanying unaudited interim financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. They include the consolidation of the results if the Company’s operation and those of its wholly-owned subsidiary, ESNG Inc. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations, and cash flows for the periods presented. The results for the three month periods ended March 31, 2013 and 2012 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2012 filed on Form 10-K.
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".
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Since October 14, 2010, the Company has been devoting substantially all of its efforts to establishing new customized real estate management programs for their clients and well as expanding its operations post February 1, 2013 to include entertainment related activities. As such, the Company has not generated significant revenues from its operations and has no assurance of future revenues. All losses accumulated since October 14, 2010 have been considered as part of the Company's development stage activities.
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 consists of management income for services provided by the Company to a related party pursuant to a management agreement. Management income is recognized during the period in which the Company provides services in connection with this agreement.
Concentration of cash
The Company places its cash and cash equivalents with high quality financial institutions. At times, cash balances may be in excess of the FDIC insurance limits. Management considers the risk to be minimal.
Fair value of financial instruments
All financial instruments are carried at amounts that approximate estimated fair value.
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. The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of March 31, 2013 and December 31, 2012, the Company had no accrued interest or penalties related to uncertain tax positions.
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 by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted
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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.
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 management of the Company is devoting substantially all of its present efforts to establish new customized real estate management programs for its clients and to expand into aspects of the entertainment industry. In the near term, the Company expects operating costs to continue to exceed funds generated from operations.
The Company has not generated revenues from its operations and has no assurance of future revenues. As a result, the Company expects to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital. The ability of the Company to continue as a going concern is dependent on its ability to raise capital to meet its operating requirements.
Our independent auditors, in their report on our financial statements for the year ended December 31, 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 – INTELLECTUAL PROPERTY RIGHTS
Our wholly-owned subsidiary, ESMG Inc, acquired the following intellectual property rights, which are reflected at their original cost as of March 31, 2013:
(a)
Advances to acquire the exclusive right to produce and/or co-produce
new and original recorded music for worldwide distribution by ESMG Inc.
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Music artists
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Jesse Scott
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$ 300,000
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VIC
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150,000
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Hurricane Chris
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150,000
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Bruce-E-Bee
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150,000
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Downtown Attraction
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30,000
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Choo Biggz
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3,850
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$ 783,850
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(b)
Acquisition of motion picture rights to co-produce the animated motion picture “Bigfoot’s Big Halloween Adventures” ( aka “The Legend of Sasquatch 2”)
$ 275,000
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NOTE 4 – ACCRUED EXPENSES
Accrued payroll expenses are comprised of accrued salaries from February 7, 2013 to the Company’s President and Chief Executive Officer and to the Company’s Chief Financial Officer. Other accrued expenses represent professional fees of $15,000 and $ 10,000 respectively as of March 31, 2013 and December 31, 2012.
NOTE 5 - ACCOUNTS PAYABLE
The Company’s Accounts Payable at March 31, 2013 consisted of the following:
Due to co-distributor of the music artists Jesse Scott, VIC and Hurricane Chris, see Notes 3 (a) and 8(b) $ 600,000
Due to promotions company for the future promotion of the music artist Bruce-E-Bee, see Notes 3 (a) and 8(d) 150,000
Due to the co-producer of the animated motion picture “Bigfoot’s Big Halloween Adventures” (aka “The Legend of Sasquatch 2”), see note 3 (b) 275,000
Due to an affiliated company of the Company’s CEO in reimbursement for music promotion costs paid for the music artist Bruce -E-Bee 25,750
Advances due under the music recording and distribution agreement with music artists Downtown Attraction, see Note 3 (b) 30,000
All other
5,200
TOTAL
$ 1,085,950
NOTE 6 – RELATED PARTY TRANSACTIONS
Lease
The Company leases its office premise from a director of the Company on a month-to-month basis at no cost to the Company.
Consultation Fee
During the 3 months ended March 31, 2012, the Company paid $2,200 for consultation services to a firm whose officers were related to a former CEO of the Company.
Management agreement
On May 1, 2011, the Company entered into a management agreement with New Visions Group to act as the managing agent of their beneficial interest in the apartment buildings known as Walnut Villas Apts. located at 1027 Florence Avenue, Vineland, New Jersey, for a term of five years. New Visions Group is owned by Murray Friedman, the father of Neal Friedman, a former officer and director of the Company. Pursuant to this agreement, the Company receives 5% of amounts collected from the distributions of income derived from the buildings and will be reimbursed for
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all out-of-pocket costs. The management fee received during the three months ended March 31, 2012 amounted to $500. This property management agreement was terminated as of September 30, 2012.
NOTE 7 – FINANCING
On March 5, 2013 the Company entered into an Investment Agreement and a Registration Rights Agreement with Deer Valley Management, LLC (“Deer Valley”) whereby Deer Valley will assist the Company to issue an S-1 to register an additional issuance of its common stock. In addition, once the S-1 has been registered, Deer Valley agreed to purchase up to $ 5 million of the Company’s common stock in tranches over a 36 month period or until such time as the S-1 is no longer effective. The amount of each purchase is based on a multiple of 200% of the Company’s average trading volume for the 10 trading days immediately preceding the stock purchase and 80% of the lowest trading price of the Company’s stock on OTC.QB over those same most recent trading days.
NOTE 8 – SUBSEQUENT EVENTS
(a)
On April 4, 2013, the Company issued an 8% convertible promissory note in the aggregate principal amount of $32,500 to an accredited investor. The note has a maturity date of January 15, 2014, and allows prepayment of principal at a premium of between 10% and 40% commencing April 4, 2013 until October 1, 2013. Beginning October 1, 2013, the note is convertible into shares of the Company’s common stock at a conversion price of fifty eight percent (58%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The note proceeds will be used for working capital and to fund current business requirements. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended. This financing requires the Company to initially reserve 10,690,000 of its common shares against the potential full conversion of the note.
(b)
On April 29, 2013, the Company entered into a Securities Settlement Agreement with a third party accredited investor in consideration for the third-party assuming the ESMG Inc.’s debt of $ 600,000 due to the music producer under the Company’s joint venture agreement with the producer to provide the recorded music of the music artists Jesse Scott, VIC and Hurricane Chris for exclusive distribution by ESMG Inc. Pursuant to this Securities Settlement Agreement, the debt becomes due April 29, 2014, allows prepayment at any time with a 25% premium and carries interest at the rate of 8% per annum on the principal outstanding. Beginning immediately, the note is convertible into shares of the Company’s common stock at a conversion price of fifty five percent (55%) of the lowest per share market trading price of the Company’s stock price during the eight (8) trading days immediately preceding a conversion date. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended. This financing requires the Company to initially reserve 20,000,000 of its common shares against the potential full conversion of the note. On May 3, 2013 the financier converted $ 50,000 of the debt into 6,993,006 common shares of the Company at a conversion price of $ 0.00715 per share.
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(c)
On April 29, 2013, the Company issued an 8% convertible promissory note in the aggregate principal amount of $500,000 to the same third-party accredited investor referred to in (b) above. The note is payable to the Company in 3 installments: $ 100,000 due May 10,2013, $ 200,000 due June 10,2013 and $ 200,000 due July 10,2013 and the Note proceeds will be used for working capital and to fund current business requirements. The Note has a maturity date of January 29, 2014, and allows prepayment of principal at a premium of 25%. Beginning October 29, 2013, the note is convertible into shares of the Company’s common stock at a conversion price of fifty five percent (55%) of the lowest per share market trading price of the Company’s stock during the eight (8) trading days immediately preceding a conversion date. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended. This financing requires the Company to initially reserve 20,000,000 of its common shares against the potential full conversion of the note.
(d)
On April 29, 2013, the Company issued a 12% convertible promissory note in the aggregate principal amount of $150,000 to a third-party accredited investor in consideration for the investor assuming the Company’s debt payable of $ 150,000 to a third-party music promotion company for the future promotion of ESMG Inc.’s music recording artist Bruce-E-Bee. The note has a maturity date of December 29, 2014, and allows prepayment of principal at a premium of between 25% through August 26, 2013 and 50% thereafter. Beginning immediately, the note is convertible into shares of the Company’s common stock at a conversion price of fifty five percent (55%) of the lowest trading price of the Company’s stock of the three (3) lowest trading days immediately preceding a conversion date. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended. This financing requires the Company to initially reserve 25,000,000 of its common shares against the potential full conversion of the note. On May 6, 2013 the financier converted $ 20,000 of the debt into 2,587,982 common shares of the Company at a conversion price of $ 0.007755 per share.
(e)
As referred to above, the Company increased its issued share capital by the issuance of the following shares:
Total issued common shares outstanding as of March 31, 2013 184,912,000
May 3, 2013 issuance to investor per (b) above 6,993,006
May 6, 2013 issuance to investor per (d) above
2,787,982
Total issued common shares outstanding as of May 15, 2013 194,483,988
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